UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
AMENDMENT NO. 2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended September 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)
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 [X] 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 October 31, 2005, the issuer
had 21,928,674 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 September 30, 2005 financial statements have been
discovered during an internal review. The corrections resulted in a change to
the loss attributable to common shareholders, certain amounts on the statement
of cash flows and balance sheet accounts and changes in components of
stockholders equity, as of September 30, 2005. The corrections result from a
determination that the issuance of the Company's preferred stock as payment of
dividends in lieu of cash dividends on April 1, 2005 with respect to previously
issued shares of preferred stock were issued in error. The Company's original
Articles of Incorporation prohibit the issuance of additional shares of
preferred stock as payment of dividends on shares of issued and outstanding
preferred stock. Accordingly, the 100,000 shares of preferred stock, which were
issued to the holder on April 1, 2005, were issued in error. Additionally, the
Company's Articles of Incorporation, as amended, including on April 30, 2000,
similarly do not support the calculation used by the Company in determining the
number of shares of common stock used to pay preferred stock dividends.
The Company also concluded that the 8% Series A Convertible Promissory Notes
("Notes") and the Class A and Class B Warrants (collectively, the "Warrants")
issued to certain accredited and/or qualified institutional purchasers pursuant
to that certain Subscription Agreement (the "Subscription Agreement) dated as of
February 11, 2005 contained embedded derivatives due to the registration rights
and liquidated damages provisions contained in the Subscription Agreement. The
embedded derivative provisions provided that the Company pay liquidated damages
in connection with the delay in filing of a registration statement on Form SB-2
in the event that it 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.
The Company determined that a restatement of the Quarterly Reports on Form
10-QSB for the three and nine month periods ended September 30, 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").
The Company also has removed this Form 10-QSB/A, the Financial Statements of
FiLCO GmBH , including the Pro Forma Financial Statements prepared in connection
with the proposed acquisition of FiLCO, GmBH in 2005. FiLCO filed for bankruptcy
in 2006.
For the convenience of the reader, this Form 10-QSB/A sets forth the original
Form 10-QSB in its entirety, with the exception of the FiLCO financial
statements mentioned above. 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.
2
AIRTRAX, INC.
SEPTEMBER 30, 2005 QUARTERLY REPORT ON FORM 10-QSB/A
AMENDMENT NO. 2
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets 4
Statements of Operations and Deficit Accumulated During
Development Stage 5
Statements of Cash Flows 7
Notes to Financial Statements 8
Special Note Regarding Forward Looking Statements 17
Item 2. Management's Discussion and Analysis or Plan of Operations 17
Item 3. Controls and Procedures 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits 23
SIGNATURES 26
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRTRAX, INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, 2005 December 31, 2004
(Unaudited) (Audited)
(Restated) (Restated)
------------ -----------
ASSETS
Current Assets
Cash $ 40,682 $ 641,477
Accounts receivable 2,421 -
Accrued interest receivable 361,912 86,667
Inventory 2,204,373 709,281
Prepaid expenses - 5,113
Vendor advance 173,017 52,017
Deferred tax asset 596,252 224,414
------------ -----------
Total current assets 3,378,657 1,718,969
Fixed Assets
Office furniture and equipment 162,051 90,714
Automotive equipment 21,221 21,221
Shop equipment 57,400 24,553
Casts and tooling 239,297 205,485
------------ -----------
479,969 341,973
Less, accumulated depreciation 275,695 248,386
------------ -----------
Net fixed assets 204,274 93,587
Other Assets
Advances to Filco GmBH 6,255,462 2,670,000
Patents - net 147,601 117,402
Utility deposits 65 65
------------ -----------
Total other assets 6,403,128 2,787,467
------------ -----------
TOTAL ASSETS $ 9,986,059 $ 4,600,023
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,258,715 $ 394,959
Accrued liabilities 1,504,195 459,565
Warrants and conversion liability 5.476,939 1,219,750
Shareholder deposits for stock 70,875 1,403,174
Shareholder notes payable 134,474 33,455
------------ -----------
Total current liabilities 8,445,198 3,510,903
Long Term Convertible Debt 500,000 -
------------ -----------
TOTAL LIABILITIES 8,945,198 3,510,903
------------ -----------
Stockholders' Equity
Common stock - authorized, 100,000,000 shares
without par value; issued and outstanding -
21,874,374 and 15,089,342, Respectively 21,102,014 10,822,854
Paid in capital - warrants 1,247,013 -
Preferred stock - authorized, 500,000,000
shares without par value; 275,000
issued and outstanding 12,950 12,950
Deficit accumulated during the development
stage (21,114,164) (9,539,732)
Deficit prior to development stage (206,952) (206,952)
------------ -----------
Total stockholders' equity 1,040,861 1,089,120
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,986,059 $ 4,600,023
============ ============
The accompanying notes are an integral part of these financial statements.
4
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
For the Nine Month Periods Ended September 30,
(Unaudited)
May 19, 1997
(Date of Inception)
2005 2004 to September 30, 2005
(Restated) (Restated)
--------------- --------------- ---------------
SALES $ 167,545 $ - $ 1,190,668
COST OF GOOD SOLD 160,126 - 630,497
--------------- --------------- ---------------
Gross Profit 7,419 - 560,171
OPERATING AND ADMINISTRATIVE EXPENSES 3,987,695 1,397,479 12,935,956
OPERATING LOSS (3,980,276) (1,397,479) (12,375,785)
OTHER INCOME AND EXPENSE
Interest expense (77,528) (23,716) (252,552)
Conversion expense (5,600,139) - (5,955,609)
Revaluation expense (2,253,205) - (3,117,485)
Interest income 291,208 24,091 377,875
Other income 211 131 78,505
--------------- --------------- ---------------
NET LOSS BEFORE INCOME TAXES (11,619,729) (1,396,973) (21,245,051)
INCOME TAX BENEFIT (STATE):
Current 371,838 119,226 371,838
Prior years - - 717,142
--------------- --------------- ---------------
Total Benefit 371,838 119,226 1,088,980
--------------- --------------- ---------------
NET LOSS BEFORE DIVIDENDS (11,247,891) (1,277,747) (20,156,071)
DEEMED DIVIDENDS ON PREFERRED STOCK (274,978) - (463,390)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS (11,522,869) (1,277,747) (20,619,461)
PREFERRED DIVIDENDS DURING DEVELOPMENT
STAGE (51,563) (91,868) (494,703)
--------------- --------------- ---------------
DEFICIT ACCUMULATED DURING DEVELOPMENT
STAGE $ (11,574,432) $ (1,369,315) $ (21,114,164)
============== =============== ===============
NET LOSS PER COMMON SHARE
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (11,522,869) $ (1,277,747)
ADJUSTMENT FOR PREFERRED DIVIDENDS (51,563) (51,563)
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDER $ (11,574,432) $ (1,328,980)
============== ===============
NET LOSS PER SHARE - basic and diluted $ (.64) $ (.12)
WEIGHTED AVERAGE SHARES OUTSTANDING 18,138,064 11,452,797
The accompanying notes are an integral part of these financial statements.
5
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
For the Three Month Periods Ended September 30,
(Unaudited)
May 19, 1997
(Date of Inception)
2005 2004 to September 30, 2005
(Restated) (Restated)
--------------- --------------- ---------------
SALES $ - $ - $ 1,190,668
COST OF GOODS SOLD - - 630,497
--------------- --------------- ---------------
Gross Profit - - 560,171
OPERATING AND ADMINISTRATIVE EXPENSES 1,979,813 549,338 12,935,956
--------------- --------------- ---------------
OPERATING LOSS (1,979,813) (549,338) (12,375,785)
OTHER INCOME AND EXPENSE
Interest expense (4,909) (9,986) (252,552)
Revaluation expense (2,853,504) - (5,955,609)
Conversion expense - - (3,117,485)
Interest income 118,908 13,964 377,875
Other income - 37 78,505
--------------- --------------- ---------------
NET LOSS BEFORE INCOME TAXES (4,719,318) (545,323) (21,245,051)
INCOME TAX BENEFIT (STATE):
Current 147,392 51,456 371,838
Prior years - - 717,142
--------------- --------------- ---------------
Total Benefit 147,392 51,546 1,088,980
--------------- --------------- ---------------
NET LOSS BEFORE DIVIDENDS (4,571,926) (493,867) (20,156,071)
DEEMED DIVIDENDS ON PREFERRED STOCK - - (463,390)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (4,571,926) $ (493,667) (20,619,461)
PREFERRED DIVIDENDS DURING DEVELOPMENT
STAGE - (17,188) (494,703)
--------------- --------------- ---------------
DEFICIT ACCUMULATED DURING DEVELOPMENT
STAGE $ (4,571,926) $ (511,055) $ (21,114,164)
=============== =============== ===============
NET LOSS PER COMMON SHARE
NET LOSS $ (4,571,926) $ (493,867)
ADJUSTMENTS FOR PREFERRED DIVIDENDS (17,188) (17,188)
--------------- ---------------
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDER $ (4,589,114) $ (511,055)
=============== ===============
NET LOSS PER SHARE - basic and diluted $ (.21) $ (.04)
WEIGHTED AVERAGE SHARES OUTSTANDING 21,740,196 12,888,343
The accompanying notes are an integral part of these financial statements.
6
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
ACCUMULATED DURING DEVELOPMENT STAGE
For the Nine Month Periods Ended September 30,
(Unaudited)
May 19, 1997
(Date of Inception)
2005 2004 to September 30, 2005
(Restated) (Restated)
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (11,522,869) $(1,277,747) $(20,619,461)
Adjustments to reconcile net loss to net cash
consumed by operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 32,499 27,159 333,663
Equity securities issued for services 1,866,500 623,401 4,805,723
Provision for impairment loss 120,280 - 120,280
Conversion expense 5,600,139 - 5,955,609
Increase in accrual of deferred tax benefit (371,838) (119,226) (596,252)
Deemed dividends on preferred stock 274,978 - 463,390
Interest accrued on shareholder loan 3,021 3,775 24,622
Revaluation expense 2,253,205 - 3,117,485
Changes in current assets and liabilities:
Increase in accrued interest receivable (275,245) (24,081) (361,912)
Increase in accounts receivable (2,421) - (2,421)
Increase in vendor advances (121,000) - (173,017)
Increase (decrease) in accounts payable and
accrued liabilities 884,830 (225,888) 1,805,184
Increase in prepaid expenses - - (146,957)
Increase in inventory (1,495,092) (131,842) (2,204,373)
------------- ------------- -------------
Net Cash Consumed By Operating Activities (2,753,013) (1,124,449) (7,478,397)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (137,996) (19,249) (486,280)
Additions to patent cost (35,389) (37,686) (193,320)
Advances to Filco GmbH (3,247,171) (1,230,000) (5,917,171)
------------- ------------- -------------
Net Cash Consumed By Investing Activities (3,420,556) (1,286,935) (6,596,771)
------------- ------------- -------------
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 2,696,462 8,627,611
Proceeds of convertible loan 409,913 - 409,913
Proceeds from exercise of warrants 718,486 - 812,236
Proceeds of stockholder loan 100,000 - 187,125
Proceeds of sales of preferred stock - - 12,950
Proceeds from exercise of options 13,877 5,944 28,221
Repayments of stockholder loans (2,002) (52,005) (54,007)
Preferred stock dividends paid in cash - (91,868) (185,274)
Principal payments on installation note - (5,546) (425)
------------- ------------- -------------
Net Cash Provided By Financing Activities 5,572,774 2,552,987 14,115,850
Net (Decrease) Increase In Cash (600,795) 141,603 40,682
Balance at beginning of period 641,477 37,388 -
------------- ------------- -------------
Balance at end of period $ 40,682 $ 178,991 $ 40,682
============= ============= =============
The accompanying notes are an integral part of these financial statements.
7
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements of AirTrax, Inc. ("the Company") as
of September 30, 2005 and for the three month and nine month periods ended
September 30, 2005 and 2004, respectively, have been prepared in accordance with
accounting principals 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 for such periods. The results of operations for the three and nine month
periods ended September 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. RESTATEMENTS
The Company determined that a restatement of the Quarterly Reports on Form
10-QSB for the three and nine month periods ended September 30, 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").
The Company concluded that the 8% Series A Convertible Promissory Notes
("Notes") and the Class A and Class B Warrants (collectively, the "Warrants")
issued to certain accredited and/or qualified institutional purchasers pursuant
to that certain Subscription Agreement (the "Subscription Agreement) dated as of
February 11, 2005 contained embedded derivatives due to the registration rights
and liquidated damages provisions contained in the Subscription Agreement. The
embedded derivative provisions provided that the Company pay liquidated damages
in connection with the delay in filing of a registration statement on Form SB-2
in the event that it 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.
We also have restated our financial statements contained in this Quarterly
Report to reflect the reduction in preferred stock outstanding, preferred stock
dividend expense and deemed dividend expenses recorded in 2005. In addition, we
have restated 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 September 30,
2005:
The effect on the Company's previously issued financial statements for the Three
and Nine Month Periods Ended September 30, 2005 are summarized as follows:
The effect on the company's previously issued Balance Sheet as of September 30,
2005 is summarized as follows:
8
Previously Increase As
Reported (Decrease) Restated
--------------- --------------- ---------------
Assets
Bond discount $ 416,667 $ (416.667)(1) $ -
Assets 10,402,726 (416,667) 9,986,059
=============== =============== ===============
Liabilities 2,253,205 (2)
1,219,750 (5)
Warrant and conversion liability - 2,003,985 (3) 5,476,939
---------------
Total Liabilities 3,468,259 5,476,939 8,945,198
--------------- --------------- ---------------
Common stock 20,773,723 (3,269,231)(1) 21,102,014
3,596,154 (3)
326,541 (4)
(325,173)(1)
Warrants 2,366,339 (944,500)(1) 1,247,013
(174,826)(1)
Preferred stock 545,491 (532,541)(4) 12,950
Deficit from Operations (16,544,134) 206,000 (4) (21,114,164)
(5,600,139)(3)
(2,253,205)(2)
4,213,731 (1)
83,333 (1)
(1,219,750)(5)
---------------
Stockholders equity 6,934,467 (5,893,606) (1,040,861)
---------------
Total Liabilities and Shareholders $ 10,402,726 $ (416,667) $ 9,986,059
--------------- --------------- ---------------
Equity
The effect on the Company's previously issued statement of Operations for the
nine Month period ended September 30, 2005 are summarized as follows:
Previously Increase As
Reported (decrease) Restated
--------------- --------------- ---------------
Interest expense $ (4,374,592) $ 4,213,731 (1) $ (77,528)
83,333 (1)
Conversion expense - (5,600,139 (3) (5,600,139)
Revaluation expense - (2,253,205)(2) (2,253,205)
Deemed dividend (480,978) 206,000 (4) (274,978)
---------------
Deficit accumulated $ (8,224,152) $ (3,350,280) $ (11,574,432)
--------------- --------------- ---------------
As Initially Adjustments As
Reported Restated
--------------- --------------- ---------------
LOSS PER SHARE- -basic and diluted $ (.45) $ (.19) $ (.64)
9
The effect on the Company's previously issued statement of Operations for the
Three Month period ended September 30, 2005 are summarized as follows:
Previously Increase As
Reported (decrease) Restated
--------------- --------------- ---------------
Expenses $ 1,981,664 $ (1,851)(4) $ 1,979,813
Revaluation expense - (2,853.504)(2) (2,853,504)
Interest expense (86,391) 83,333 (1) (4,909)
(1,905)
---------------
Deficit accumulated $ (1,801,755) (2,770,171) $ (4,571,926)
--------------- --------------- ---------------
Previously Increase As
Reported (decrease) Restated
--------------- --------------- ---------------
LOSS PER SHARE--basic and diluted $ (.08) $ (.13) $ (.21)
The effect on the Company's previously issued statement of Operations for the
period May 19,1997 through September 30, 2005 are summarized as follows:
Previously Increase As
Reported (decrease) Restated
--------------- --------------- ---------------
Conversion expenses $ - $ (5,955,609)(3) $ (5,955,609)
Revaluation expense - (3,117,485)(2) (3,117,485)
Interest expense (4,549,616) 83,333 (1) (252,552)
4,213,731 (1)
Deemed dividend expense (669,390) 206,000 (4) (463,390)
---------------
Deficit accumulated $ (16,544,134) $ (4,570,030) $ (21,114,164)
--------------- --------------- ---------------
The effect on the Company's previously Statement of Cash Flows for the period
May 19,1997 through September 30, 2005 are summarized as follows:
Previously Increase As
Reported (decrease) Restated
--------------- --------------- ---------------
Net Loss $(16,049,431) $ (3,350,280) $ (20,619,461)
(1,219,750)(5)
Value of warrants issued for convertible debt 944,500 (944,500)(1) -
Conversion benefits associated with convertible debt 3,269,231 (3,269,231)(1) -
Amortization of bond discount 83,333 (83,333)(1) -
Conversion expense - 5,955,609 (3) 5,955,609
Revaluation expense - 3,117,485 (2) 3,117,485
Deemed dividend expense 669,390 (206,000)(4) 463,390
---------------
Cash Consumed by Operations $ (7,478,397) $ - $ (7,478,397)
--------------- --------------- ---------------
(1) Adjustment to convert from EITF 98-5, which is no longer applicable as the
principals of EITF 00-19 and FAS #133 are more appropriate.
(2) Reflects revaluation expense for 2005
(3) Reflects YTD conversion expense for both notes converted to equity or still
in convertible notes.
(4) Adjustment for 2005 deemed dividend expense to reflect its payment in
common stock as apposed to preferred stock.
(5) Roll forward of 2004 adjustment regarding conversion and revaluation of
warrants
10
3. 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 common no par stock, and to
5,000,000 for 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 were
initially exercisable for a five year period at a price per share of $1.85 The
exercise price has subsequently been adjusted, first to $ 1.56 and then to $.45
per share in February, 2007 due to pricing of subsequent issues. The Class B
warrants were initially exercisable for a five year period at a price of $2.11.
The exercise price has undergone similar adjustments as the Class "A" warrants,
now set at $ .45/ per share. As partial compensation, the broker-dealer which
arranged this transaction was awarded 384,616 warrants to purchase common stock
at $1.85 per share, and 100,000 warrants to purchase common stock at $1.00 per
share.
The issuance of convertible promissory notes and warrants was accounted for as
required by 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." Accordingly, the Statement of Operations initially reflected
expenses of $944,500 representing the value of the warrants and $3,269,231
representing the value of the conversion privilege. This restatement reflects
the application of new guidance under EITF 00-19. "Accounting for Derivative
Instruments Indexed To, and Potentially Settled, in a Company's Own Stock.
Accordingly, the restatements reflects the reversal of amounts initially
calculated and charged to interest expense and their replacement by amounts
calculated under EITF 00-19 and SFAS #133.
On May 14, 2005, the Company issued a $500,000 8% convertible note. The note is
scheduled for maturity in two years. During that period, it was be convertible
to stock at a rate of $1.30 per share, which would translate to 384,615 shares.
The conversion rate was adjusted to $ .45 per share due to the pricing of the
February 20, 2007 issue. Accompanying the convertible note were 384,615 warrants
to purchase common stock initially at $ 2.11 per share exercisable over a five
year period. The exercise price has subsequently been adjusted, first to $ 1.56
per share and then to $.45 per share due to the pricing of the February 20, 2007
issue. This issuance of the convertible note, and the accompanying warrants, was
also accounted for under the guidance of EITF 98-5 and EITF 00-27. This
treatment, when combined with the $90,087 expenses of the issuance, resulted in
a total cost of issuance of $500,000, which was initially being amortized over
the 24-month term of the notes. This treatment has also been reversed in the
restatement due to the application of EITF 00-19 versus the previous guidance
under EITF 98-5 and EITF 00-27.
A total of 8,536,298 warrants was outstanding at September 30, 2005, as follows:
Other Total
Class A Class B Warrants Warrants
--------------- --------------- --------------- ---------------
Outstanding at December 31, 2004 5,537,763 5,537,763
Issued in connection with sale
of $5,000,000 in convertible notes 1,923,077 961,538 484,616 3,369,231
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, September 30, 2005 1,923,077 1,346,153 5,267,068 8,536,298
=============== =============== =============== ===============
11
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
3. COMMON STOCK AND WARRANTS (continued)
Shares of common stock were issued during the third quarter and first nine
months of 2005 as follows:
Third Quarter Nine Months
--------------- ---------------
Conversion of $5,000,000 notes - 3,846,154
Private placement sales - 68,750
Shares issued based on warrants exercised - 593,000
Shares issued to purchase Filco third party debt 187,939 187,939
Issuance of shares sold in prior year - 1,749,827
Shares issued for services 46,509 310,909
Shares issued in settlement of interest due
on convertible notes - 28,453
--------------- ---------------
Total shares issued 234,448 6,785,032
=============== ===============
A schedule detailing stock issued during the nine months ended September 30,
2005 for consulting services and for other services is presented below.
Number of Grant Date Grant Date
Shares Grant Date Price Value
--------- --------- --------- ---------
Shares Issued for Consulting
Services:
Financial services 100,000 5/06/05 $2.60 $ 260,000
5,113(1)
Marketing services 20,000 5/01/05 2.55 51,000
Marketing services 15,000 4/01/05 2.25 36,000
Industrial relations 5,000 5/01/05 2.55 12,750
Consulting services 5,000 2/24/05 2.50 12,500
Consulting services 11,000 1/03/05 2.78 30,580
Marketing services 22,500 9/06/05 2.80 63,000
Marketing services 15,000 7/01/05 2.25 33,750
Marketing services 9,009 8/02/05 2.25 20,288
--------- ---------
Total shares issued for
consulting services 202,509 524,981
Shares Issued for Other
Services:
In settlement of rent 19,200 4/25/05 2.50 40,500
Legal services 50,000 5/06/05 2.60 130,000
Employee options exercised 20,000 4/01/05
In settlement of rent 19,200 4/23/05 2.63 50,522
--------- ---------
Total shares issued for
services 310,909 746,003
=========
Value of options granted 1,120,497
---------
Total value of equity securities
issued for services $1,866,500
==========
(1) Represents amortization of prior year expense.
12
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
4. CUMULATIVE STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY
May 19, 1997 to September 30, 2005
DEFICIT
PRE-DEVELOPMENT
COMMON PREFERRED and
SHARES STOCK DEVELOPMENT
Number Amount Number Amount WARRANTS STAGE NET
---------- ----------- ----------- ---------- ---------- --------- ---------- ----------
Shares to incorporators 1997 177,547 $ 1,630 1,630
Subsequent sale to incorporators 1997 275,000 2,750 2,750
Redemption of initial preferred stock 1997 88,340 (275,000)
Stock issued in conjunction with merger 1997 3,127,500 214,768 (206,952) 7,816
2004 57,434
----------- -----------
3,184,934 214,768
----------- -----------
Exchange of common stock
for preferred stock 1997 (1,500,000) (30,200) 275,000 10,200 (20,000)
Preferred stock issued in lieu of common
stock
re: dividends 2005 100,000 532,541 532,541
Stock sold in private placements 1997 83,213 148,984 148,984
1998 471,962 493,119 493,119
2004 614,552 872,268 872,268
2000 330,719 430,858 430,858
2001 235,999 348,600 348,600
2002 392,834 396,630 396,630
2003 715,000 659,000 659,000
2004 5,630,125 3,857,802 3,857,802
2005 re: 2004 1,749,827 1,401,172 1,401,172
2005 68,750 55,000 55,000
--------- ----------- ----------
10,292,981 8,663,433 8,663,433
---------- ----------- ----------
13
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
DEFICIT
PRE-DEVELOPMENT
COMMON PREFERRED and
SHARES STOCK DEVELOPMENT
Number Amount Number Amount WARRANTS STAGE NET
---------- ----------- ----------- ---------- ---------- --------- ---------- ----------
Stock issued for services 1997 30,000
1998 79,708
1999 18,629 17,238 17,238
2000 65,331 62,767 62,767
2001 97,183 95,746 95,746
2002 423,659 413,899 413,899
2003 1,509,003 1,618,411 1,618,411
2004 687,665 661,306 661,306
2005 310,909 746,003 746,003
----------- ----------- -----------
3,222,087 3,615,370 3,615,370
----------- ----------- -----------
Net losses during development stage 1997 (129,313) (129,313)
1998 (490,014) (490,014)
1999 (685,615) (685,615)
2000 (497,381) (497,381)
2001 (811,700) (811,700)
2002 (798,962) (798,962)
2003 (2,191,657) (2,191,657)
2004 (2,272,200) (2,272,200)
2005 (8,172,589) (8,172,589)
------------ -----------
(16,049,431) (16,049,431)
------------ -----------
Stock split 1998 1,021,825
Dividends paid in common stock 1999 305,737 120,366 (120,366)
2000 95,558 56,751 (56,751)
2003 246,731 269,161 (80,749) 188,412
----------- ----------- ------------ -----------
648,026 446,278 (257,866) 188,412
----------- ----------- ------------ -----------
Share issued for convertible notes 2005 3,846,154 4,277,500 4,277,500
Conversion benefit re:
convertible notes 2005 3,269,231 3,269,231
Conversion benefit on notes 2005 286,472 286,472
14
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
DEFICIT
PRE-DEVELOPMENT
COMMON PREFERRED and
SHARES STOCK DEVELOPMENT
Number Amount Number Amount WARRANTS STAGE NET
-------- ----------- ----------- ---------- ---------- --------- ---------- -------------
Shares issued re: interest on
convertible notes 2005 28,453 36,987 36,987
Dividends paid in cash 1998 (13,005) (13,005)
1999 (40,498) (40,498)
2004 (131,771) (131,771)
2005 (51,563) (51,563)
------------ -------------
(236,837) (236,837)
------------ -------------
Adjustment 2003 (21,912)
Warrants exercised 2004 75,000 93,750 93,750
2005 593,000 718,333 718,333
----------- ----------- -------------
668,000 812,083 812,083
----------- ----------- -------------
Warrants associated with
converted notes 2005 944,500 944,500
Warrants associated with
convertible notes 2005 123,439 123,439
Shares issued to purchase debt 2005 187,939 458,571 458,571
Transfers from separate equity account
re: exercised warrants 2005 181,000 (181,000)
Allocate value of prior warrants to
separate account 2005 (1,479,400) 1,479,400
Redemptions of promissory note 1997 30,000 20,000 20,000
---------- ----------- ---------- ---------- ----------- ------------- -------------
Balances, September 30, 2005 21,874,374 $20,773,723 375,000 $545,491 $ 2,366,339 $(16,751,086) $6,934,467
Adjustments
Reverse conversion benefit
recorded under EITF 98-5 (3,269,231) (944,500) 4,213,731
Record conversion benefit for
Convertible stock, EITF 00-19 3,596,154 (3,596,154)
Record conversion expense on other
Debt not converted (2,003,985) (2,003,985)
Prior year impact of revaluing
derivatives as liabilities per EITF 00-19 (1,219,750) (1,219,750)
Conversion expense for the year (2,253,205) (2,253,205)
Record Deemed Dividend in common stock
Vs. preferred stock and reflect
difference in valuation 326,541 (100,000) (532,541) 206,000
Reverse amount recorded via EITF 98-5 (325,173) (174,826) 83,333 (416,666)
--------------------------------------------------------- ------------ -------------
Adjusted balance September 30, 2005 21,874,374 $21,102,014 275,000 $12,950 $1,247,013 $(21,321,116) $ 1,040,861
============ ============ ========= ========= ========== ============ =============
15
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $5, 803 and $10,135, respectively, for the nine month
periods ended September 30, 2005 and June 30, 2004. There was no cash paid for
income taxes during either the 2005 or 2004 nine 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 310,909 shares and 192,277 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.
d. The Company purchased third party debt of Filco for 187,939 shares in 2005.
6. OPERATING AND ADMINISTRATIVE EXPENSES
The following details expenses incurred during the nine month periods ended
September 30, 2005 and 2004:
2005 2004
-------------- --------------
Options Expense $ 1,163,838 $ -
Payroll 422,680 242,027
Marketing 243,761 67,922
Development Costs 234,639 51,529
Professional Fees 419,710 75,200
Consulting Expenses 524,981 614,079
Insurance 173,633 61,158
Penalties 199,149 -
Freight 107,275 3,195
Impairment 120,280 -
Other Expenses 377,749 282,369
-------------- --------------
Total Expenses $ 3,987,695 $ 1,397,479
============== ==============
7. 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 the tentative agreement, the Company
has agreed to make advances to FiLCO. Through September 30, 2005, advances
totaling $6,255,462 had been made. A portion of these advances 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
$1,220,000 of its advances to capital he will also 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 has 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 upon a closing of the
acquisition would grant him as compensation for service as a director 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 that stock.
As of September 30, 2005, the Company had not concluded the contract and had not
issued any of the warrants or options contemplated by the tentative agreement.
16
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 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. Ten commercial omni-directional lift
trucks carrying the UL Label have been delivered to customers in the United
States and Canada as of October 25, 2005 and several others are ready to ship
pending receipt of funds or consummation of letters of credit or other credit
facilities. We believe that up to a total of 84 units could be manufactured and
sold through the fourth quarter of 2005 pending receipt of parts from certain
vendors.
We have commenced production and have most of the parts required for production
of another 23 units of our Sidewinder ATX-3000 Omni-Directional Lift Truck
during the 4th quarter of 2005. As of October 27, 2005 we do not have all of the
parts required from every vendor for completion of the 23 trucks heretofore
noted. The assembly and sale is dependent upon delivery of all of the required
parts.
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 are
manufactured in the United States. These frames are shipped to the Blackwood
plant for complete assembly. In addition to the assembly of vehicles at
Blackwood, partially assembled vehicles are shipped to the Blackwood facility
from the Filco plant in Germany. To date, partial assembly of approximately 19
lift trucks have been completed at the Filco plant, 14 of which and have been
shipped to the USA for final assembly. To date, a total of approximately 80 lift
truck frames will be shipped from Bulgaria to the Filco plant for partial
assembly and shipped to the Blackwood plant for final assembly during the fourth
quarter of 2005.
We have incurred losses and experienced negative operating cash flow since our
formation. For the three months ended September 30, 2005 and 2004, we had a net
loss of $(4,571,826) and $(493,867), respectively. For our fiscal years ended
December 31, 2004 and 2003, we had a net loss of $(2,272,200) and $(2,282,946),
respectively. We expect to continue to incur significant expenses. Our operating
expenses have been and are expected to continue to outpace revenues and result
in significant losses in the near term. We may never be able to reduce these
losses, which will require us to seek additional debt or equity financing.
Our principal executive offices are located at 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.
17
Company History
We were incorporated in the State of New Jersey on April 17, 1997. On May 19,
1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.
Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and
were the surviving company in the merger. Pursuant to the Agreement and Plan of
Merger, as amended, each share of common stock of MAS was converted to 0.00674
shares of our company. After giving effect to fractional and other reductions,
MAS shareholders received 57,280 of our shares as a result of the merger.
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH, which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name. Further, Filco GmbH had entered into an 18-month
lease agreement with the current property owner with an option to purchase the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH has
been operating this plant since July 1, 2003. Filco's option to purchase the
200,000 square foot building and land for 4.7 million euros expires on December
31, 2005.
In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH, which
we will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of this change is to give us control of Filco GmbH in accordance with US GAAP
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.
In 2005, the amounts loaned to Filco, in the aggregate amount to $6,255,462
exclusive of interest at 8% per annum, pursuant to a series of secured and
unsecured promissory notes. The loans were to have been repaid on or prior to
December 31, 2006, however Filco did not repay the loans and subsequently filed
for bankruptcy in February 2006.
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 have been 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 have been 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 have allowed a portion of
the Sidewinder being assembled and manufactured in each of the two continents
that purchase and use about 70% of all material handling equipment worldwide.
The primary objective that must be achieved to reach the aforementioned goal(s)
is to secure the necessary financing required to fund the acquisition and
manufacturing objectives of Filco and us. There can be no assurance that we will
be able to raise sufficient capital necessary to complete the acquisition and
fund the manufacturing objectives of Filco and us.
18
The amounts loaned to Filco, in the aggregate amount of $6,255,462 exclusive of
interest at 8% per annum, pursuant to a series of secured and unsecured
promissory notes. The loans were to have been repaid on or prior to December 31,
2006, however Filco did not repay the loans and subsequently filed for
bankruptcy in February 2006.
Restatement
Certain errors effecting the September 30, 2005 financial statements have been
discovered during an internal review. The corrections resulted in a change to
the loss attributable to common shareholders, certain amounts on the statement
of cash flows and balance sheet accounts and changes in components of
stockholders equity, as of September 30, 2005. The corrections result from a
determination that the issuance of the Company's preferred stock as payment of
dividends in lieu of cash dividends on April 1, 2005 with respect to previously
issued shares of preferred stock were issued in error. The Company's original
Articles of Incorporation do not provide for the issuance of additional shares
of preferred stock as payment of dividends on shares of issued and outstanding
preferred stock. Accordingly, the 100,000 shares of preferred stock, which were
issued to the holder on April 1, 2005, were issued in error. Additionally, the
Company's Articles of Incorporation, as amended, including on April 30, 2000,
similarly do not support the calculation used by the Company in determining the
number of shares of common stock used to pay preferred stock dividends.
The Company's Articles of Incorporation, as amended, including on April 30,
2000, similarly do not support the calculation used by the Company in
determining the number of shares of common stock used to pay preferred stock
dividends. The difference being the date used in determining the stock price at
the end of each preferred dividend period, as opposed to the lowest common stock
price during the preferred dividend period, subject to a 70% discount, for
calculating the number of common shares issued as payment of the period's
preferred stock dividend. Accordingly, the number of shares were greater that
the number of shares required, and were issued in error resulting in increased
preferred dividend expenses and preferred stock equity. The financial statements
at December 31, 2004 reflect 275,000 shares of preferred stock outstanding and
disclosed that an additional 100,000 shares of preferred stock were deemed the
equivalent of 221,892 shares of common stock that would have been required to
settle an equivalent amount of preferred dividends. On April 1, 2005, the
preferred shares were issued. The Company has determined that the number of
shares deemed the equivalent of the preferred stock dividend will be
recalculated based on the Company's Articles of Incorporation, as amended,
including on April 30, 2000.
The Company also concluded that the 8% Series A Convertible Promissory Notes
("Notes") and the Class A and Class B Warrants (collectively, the "Warrants")
issued to certain accredited and/or qualified institutional purchasers pursuant
to that certain Subscription Agreement (the "Subscription Agreement) dated as of
February 11, 2005 contained embedded derivatives due to the registration rights
and liquidated damages provisions contained in the Subscription Agreement. The
embedded derivative provisions provided that the Company pay liquidated damages
in connection with the delay in filing of a registration statement on Form SB-2
in the event that it 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.
The Company determined that a restatement of the Quarterly Report on Form 10-QSB
for the three and nine month periods ended September 30, 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").
The Company also has removed this Form 10-QSB/A, the Financial Statements of
FiLCO GmBH , including the Pro Forma Financial Statements prepared in connection
with the proposed acquisition pf FiLCO, GmBH in 2005. FiLCO filed for bankruptcy
in 2006.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 2004.
We have been a development stage company for the periods ended September 30,
2005 and 2004 and have not engaged in full-scale operations for the periods
indicated. 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 September 30, 2005, we had sales revenue of
$-0-. This compares to revenues of $-0- for the three months ended September 30,
2004. The lack of sales revenue occurred as a result of moving the location of
operations to 200 freeway Drive, Unit One, Blackwood, NJ and that time required
to get the plant situated and operational.
19
Cost of Goods Sold
Our cost of goods sold for the three months ended September 30, 2005 amounted to
$0-. For the three months ended September 30, 2004, our cost of goods sold was
$-0-.
We are entitled to a benefit for the effect on income taxes on the net operating
loss. Accordingly, a benefit in the amount of $147,392 has been recorded for the
third quarter of 2005 and $51,456 was recorded during the third quarter of 2004.
Operating and Administrative Expenses
Operating and administrative expenses includes administrative salaries and
overhead. For the three months ended September 30, 2005, our operating and
administrative expenses totaled $1,979,813. Operating and administrative
expenses totaled $549,338 for the three months ended September 30, 2004. For the
three months ended September 30, 2005 operating and administrative expenses
increased $1,430,474 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 September
30, 2005.
Loss Before Income Taxes
Loss before income taxes for the three month period ended September 30, 2005
totaled $4,719,318. For the three months ended September 30, 2004, loss before
income taxes totaled $545,323. The increase in loss before income tax for the
three months ended September 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
During the three months ended September 30, 2005, we paid $-0- in dividends on
preferred stock. During the three months ended September 30, 2004, we paid
dividends on preferred stock in the amount of $17,188. The preferred stock
dividends are payable to a company that is owned by our President.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED WITH NINE
MONTHS ENDED SEPTEMBER 30, 2004
We have been a development stage company for the nine months ended September 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 nine-month period ended September 30, 2005, we had sales revenue of
$167,545. This compares to revenues of $-0- for the nine months ended September
30, 2004. The lack of sales revenue occurred as a result of moving the location
of operations to 200 Freeway Drive, Unit One, Blackwood, NJ and that time
required to get the plant situated and operational.
Cost of Goods Sold
Our cost of goods sold for the nine months ended September 30, 2005 amounted to
$160,126. For the nine months ended September 30, 2004, our cost of goods sold
was $-0-. Our cost of goods sold reflects the cost of the lift trucks sold
during the nine months ended September 30, 2005.
Operating and Administrative Expenses
Operating and administrative expenses includes administrative salaries and
overhead. For the nine months ended September 30, 2005, our operating and
administrative expenses totaled $3,987,695. Operating and administrative
expenses totaled $1,397,479 for the nine months ended September 30, 2004. For
the nine months ended September 30, 2005 operating and administrative expenses
20
increased $2,590,216 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.
Income Tax Benefit-State
We are entitled to a benefit for the effect on income taxes on the net operating
loss. Accordingly, a benefit in the amount of $371,838 has been recorded for the
nine months ended September 30, 2005 and $119,226 was recorded during the nine
months ended September 30, 2004.
Research and Development
We had no research and development costs for the nine months ended September 30,
2005.
Loss Before Income Taxes
Loss before income taxes for the nine month period ended September 30, 2005
totaled $11,619,729. For the nine months ended September 30, 2004, loss before
income taxes totaled $1,396,973. The principal reason for the increase in loss
before income taxes for the nine months ended September 30, 2005 compared with
the same period of 2004 was the recording of conversion expense of $5,600,139
and revaluation expense of $2,253,205 in connection with expenses result the
convertible bond issue and are described in Note 3 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.
Preferred Stock Dividends
During the nine months ended September 30, 2005, we paid $ 51,563 on preferred
stock. During the nine months ended September 30, 2004, we paid dividends on
preferred stock in the amount of $91,868 The preferred stock dividends are
payable to a company that is owned by our President.
Liquidity and Capital Resources
As of September 30, 2005, our cash on hand was $40,682 and working capital
deficit was $5,066,595, primarily a result of recording as liabilities the
conversion expense of $5,600,139 and revaluation expense of $2,253,205 in
connection with the convertible bond issue described in Note 3 to the financial
statements. Since our inception, we have financed our operations through the
private placement of our common stock. During the nine months ended September
30, 2005, we sold an aggregate of 68,750 shares of common stock to accredited
and institutional investors. During the three months ended September 30, 2004,
we sold an aggregate of 0 shares of common stock to accredited and institutional
investors and issued an aggregate of 46,509 shares of common stock in
consideration for services rendered.
We anticipate that our 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. We expect that we will be required to raise funds
through the private or public offering of our securities. We have offered common
stock and convertible notes which have been converted in March 2005 through
private placements at a discount to the market price of our common stock at the
time of such issuance partially because of the fluctuation and volatility of our
stock prices and the overall market conditions. We have also issued warrants at
varying prices, some higher and some lower than the market price of our common
stock at the time of such issuance. This has been done as an incentive for funds
and accredited investors to invest in us. In addition, the securities have been
priced lower than market because it is not freely tradable until registered. We
intend to continue this practice for the near future. Currently we have not
identified any specific additional sources of capital.
Our initial production run of ten SIDEWINDER Omni-Directional Lift Trucks was
completed in the first quarter of 2005. We will need additional funds to support
production requirements beyond the initial production run of our forklift which
are estimated to be $3,000,000. Of the total amount, approximately 25% is
projected for parts and component inventory and manufacturing costs, with the
balance projected as general operating expenditures. As of September 30, 2005,
we had loaned to Filco a total of $6,255,462, exclusive of interest at 8% per
annum. The loans were to have been repaid on or prior to December 31, 2006,
however Filco did not repay the loans and subsequently filed for bankruptcy in
February 2006.. We 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, warranty work, and product
distribution.
As of September 30, 2005, our working capital deficit was $5,066,595. Fixed
assets, net of accumulated depreciation, and total assets, as of September 30,
2005, were $204,274 and $9,986,059, respectively. Current liabilities as of
September 30, 2005 were $8,445,252.
21
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 September 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.
We determined that a restatement of our Quarterly Reports on Form 10-QSB for the
three and nine months ended September 30, 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 8% Series A Convertible Promissory Notes ("Notes") and the
Class A and Class B Warrants (collectively, the "Warrants") issued to certain
accredited and/or qualified 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.
We also have restated our financial statements contained in this Quarterly
Reports to reflect the reduction in preferred stock outstanding, preferred stock
dividend expense and deemed dividend expenses recorded in 2005. 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 September 30,
2005 as follows:
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.
(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.
22
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 1, 2005 we issued options to purchase an aggregate of 750,000 shares of
our common stock at an exercise price of $.85 per share to certain of our
employees and consultants as compensation for services performed on our behalf.
On August 25, 2005 we issued an aggregate of 187,939 shares of our common stock
in satisfaction of an aggregate of $338,291 of debt owed by Filco GmbH.
On October 18, 2005, we entered into a 8% Series C Unsecured Convertible
Debenture and Warrants Purchase Agreement with certain accredited investors
pursuant to which we sold an aggregate of $1,000,000 principal amount unsecured
convertible debentures convertible into shares of our common stock, no par
value, at a conversion price of $2.00 per share, and an aggregate of 500,000
stock purchase warrants to purchase shares of our Common Stock at $3.25 per
share to certain accredited investors who are parties to the Purchase Agreement
for an aggregate purchase price of $1,000,000. Further, we issued 50,000
Warrants to the placement agent, a registered broker dealer firm, exercisable at
$3.25 per share, as consideration for services performed in connection with the
issuance of the Debentures and Warrants to the Investors pursuant to the
Purchase Agreement.
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.
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).
23
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).
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).
24
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 Amended and Restated Stock Acquisition Agreement effective as of
February 19, 2004 by and between Airtrax, Inc. and Fil Filipov
(incorporated by reference to our registration statement on Form SB-2
filed on November 3, 2005).
10.25 Promissory Note of Filco GmbH dated as of January 15, 2005 issued to
Airtrax, Inc. (Filed as an exhibit to our registration statement on Form
SB-2 filed on January 11, 2006).
10.26 Promissory Note of Filco GmbH dated as of June 5, 2005 issued to
Airtrax, Inc. (Filed as an exhibit to our registration statement on Form
SB-2 filed on January 11, 2006).
10.27 Assignment and Purchase Agreement dated as of August 25, 2005 by and
between Werner Faenger and Airtrax, Inc. (Filed as an exhibit to our
registration statement on Form SB-2 filed on January 11, 2006).
10.28 Promissory Note of Filco GmbH with Guarantees dated as of November 25,
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)
25
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 14th day of
June 2007.
AIRTRAX, INC.
By:/s/ Robert M. Watson
----------------------------------------------
Robert M. Watson
Chief Executive Officer,
Acting Chief Financial Officer
(Principal Executive and Financial Officer)
26