form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the Quarterly Period Ended March 31, 2008
[
] TRANSITION REPORT PURSUANT TO 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.
(Exact
name of registrant as specified in its charter)
New
Jersey
|
22-3506376
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
200
Freeway Drive, Unit One
Blackwood,
New Jersey 08012
(Address
of Principal Executive Offices)
(856)
232-3000
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [] Smaller
reporting company [X]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
As of May
16, 2008, the Company had 57,587,524 shares of its no par value
common stock issued and outstanding.
AIRTRAX,
INC.
Quarterly
Report on Form 10-Q
Table
of Contents
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
|
|
|
|
Balance
Sheets:
|
3
|
March
31, 2008 (Unaudited ) and December 31 2007 (Audited)
|
3
|
|
|
Statements
of Operations:
|
4
|
Three
Months Ended March 31, 2008 and 2007 (Unaudited
)
|
4
|
|
|
Statements
of Cash Flows:
|
5
|
Three
Months Ended March 31, 2008 and 2007 (Unaudited )
|
5
|
|
|
Notes
to Financial Statements (Unaudited)
|
6
|
March
31, 2008 and 2007
|
6
|
|
|
Item
2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
17
|
|
|
Item
3. Quantitative and Qualitative Disclosures
about Market Risk
|
24
|
|
|
Item
4T. Controls and Procedures
|
25
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1. Legal Proceedings
|
26
|
|
|
Item
1A. Risk Factors
|
26
|
|
|
Item
2. Unregistered Sales of Equity Securities
and Use of Proceeds
|
26
|
|
|
Item
3. Defaults Upon Senior
Securities
|
26
|
|
|
Item
4. Submission of Matters to a Vote of
Security Holders
|
26
|
|
|
Item
5. Other Information
|
26
|
|
|
Item
6. Exhibits
|
26
|
|
|
Signatures
|
27
|
Part
1-Financial Information
Item
1. Financial Statements
BALANCE
SHEETS
(In dollars, except share
data)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
|
|
$ |
5,848 |
|
|
$ |
304,735 |
|
Accounts
receivable, net
|
|
|
22,258 |
|
|
|
32,814 |
|
Inventory,
net
|
|
|
269,312 |
|
|
|
1,041,598 |
|
Prepaid
expenses
|
|
|
14,954 |
|
|
|
40,906 |
|
Vendor
advance
|
|
|
- |
|
|
|
165,712 |
|
Deferred
tax asset
|
|
|
- |
|
|
|
- |
|
Total
current assets
|
|
|
312,372 |
|
|
|
1,585,765 |
|
|
|
|
|
|
|
|
|
|
Fixed
Assets
|
|
|
227,500 |
|
|
|
670,369 |
|
Less:
accumulated depreciation
|
|
|
(75,298 |
) |
|
|
(401,849 |
) |
Net
fixed assets
|
|
|
152,202 |
|
|
|
268,520 |
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Deferred
financing costs and other
|
|
|
141,617 |
|
|
|
226,305 |
|
Prepaid
interest
|
|
|
232,137 |
|
|
|
296,582 |
|
Patents, net
|
|
|
132,023 |
|
|
|
136,253 |
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
505,777 |
|
|
|
659,140 |
|
TOTAL
ASSETS
|
|
$ |
970,351 |
|
|
$ |
2,513,425 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
453,149 |
|
|
$ |
323,003 |
|
Accrued
liabilities
|
|
|
1,079,413 |
|
|
|
1,157,151 |
|
Shareholder
loans payable
|
|
|
40,713 |
|
|
|
40,713 |
|
Current
portion-Convertible debt
|
|
|
3,246,366 |
|
|
|
2,175,755 |
|
Warrants
and conversion option liability
|
|
|
173,110 |
|
|
|
709,183 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
4,992,751 |
|
|
|
4,405,805 |
|
|
|
|
|
|
|
|
|
|
Long
Term Convertible Debt
|
|
|
- |
|
|
|
1,826,635 |
|
TOTAL
LIABILITIES
|
|
|
4,992,751 |
|
|
|
6,232,440 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock – authorized; 5,000,000 shares, no par value, 275,000 issued and
outstanding
|
|
|
12,950 |
|
|
|
12,950 |
|
|
|
|
|
|
|
|
|
|
Common
stock – authorized, 100,000,000 shares; no par value, issued and
outstanding – 32,588,703 and 26,755,867, respectively
|
|
|
25,314,472 |
|
|
|
23,395,647 |
|
|
|
|
|
|
|
|
|
|
Paid
in capital – warrants
|
|
|
2,315,935 |
|
|
|
2,315,935 |
|
Paid
in capital – options
|
|
|
|
|
|
|
244,799 |
|
Retained
deficit
|
|
|
(31,665,757 |
) |
|
|
(29,688,346 |
) |
Total
stockholders’ deficiency
|
|
|
(4,022,400 |
) |
|
|
(3,719,015 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
|
|
$ |
970,351 |
|
|
$ |
2,513,425 |
|
The
accompanying notes are an integral part of these financial
statements.
AIRTRAX,
INC.
STATEMENTS
OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH
31,
(In dollars, except share
data)
(Unaudited)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
190,920 |
|
|
$ |
91,385 |
|
Cost
of sales
|
|
|
245,967 |
|
|
|
134,269 |
|
Gross
profit
|
|
|
(55,047 |
) |
|
|
(42,884 |
) |
|
|
|
|
|
|
|
|
|
Operating
and administrative expenses
|
|
|
|
|
|
|
|
|
General
and administrative costs
|
|
|
760,815 |
|
|
|
764,963 |
|
Asset
writdown
|
|
|
(827,853 |
) |
|
|
- |
|
Operating
loss
|
|
|
(1,643,715 |
) |
|
|
(807,847 |
) |
|
|
|
|
|
|
|
|
|
Other
income <expense>
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(93,990 |
) |
|
|
(103,442 |
) |
Revaluation
income
|
|
|
536,073 |
|
|
|
1,618,972 |
|
Amortization
of financing costs and debt discount
|
|
|
(739,335 |
) |
|
|
(349,272 |
) |
Excess
cost of liabilities over proceeds
|
|
|
- |
|
|
|
(1,401,901 |
) |
Settlement
expenses
|
|
|
(37,000 |
) |
|
|
- |
|
Other
income
|
|
|
556 |
|
|
|
17,252 |
|
|
|
|
|
|
|
|
|
|
Net
loss before taxes
|
|
|
(1,977,411 |
) |
|
|
(1,026,238 |
) |
|
|
|
|
|
|
|
|
|
Income
tax benefit (State):
|
|
|
- |
|
|
|
81,367 |
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
|
(1,977,411 |
) |
|
|
(944,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$ |
(1,977,411 |
) |
|
$ |
(944,871 |
) |
Adjustment
for preferred share dividends accumulated, but unpaid
|
|
|
(17,188 |
) |
|
|
(17,188 |
) |
Loss
allocable to common shareholders
|
|
$ |
(1,994,599 |
) |
|
$ |
(962,059 |
) |
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted share
|
|
$ |
(0.07 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
29,169,182 |
|
|
|
24,436,655 |
|
The
accompanying notes are an integral part of these financial
statements.
FOR
THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,977,411 |
) |
|
$ |
(944,871 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used
in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
22,680 |
|
|
|
22,500 |
|
Amortization
of costs and debt discount
|
|
|
739,335 |
|
|
|
375,635 |
|
Common
stock issued as payment for Director fees
|
|
|
96,200 |
|
|
|
178,257 |
|
Excess
discount expense
|
|
|
- |
|
|
|
1,401,901 |
|
Asset
writedown
|
|
|
827,853 |
|
|
|
- |
|
Amortization
of prepaid interest
|
|
|
64,280 |
|
|
|
- |
|
Issuance
of Stock for Settlement of Note Default
|
|
|
50,500 |
|
|
|
- |
|
Revaluation
income
|
|
|
(536,073 |
) |
|
|
(1,618,972 |
) |
Decrease
in accrual of deferred tax benefit
|
|
|
- |
|
|
|
(81,367 |
) |
Change
in assets (liabilities)
|
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
10,556 |
|
|
|
- |
|
Decrease
(increase) in vendor advances
|
|
|
165,712 |
|
|
|
(36,640 |
) |
Decrease
in prepaid expenses
|
|
|
25,952 |
|
|
|
- |
|
Decrease
(increase) in inventory
|
|
|
132,333 |
|
|
|
(63,373 |
) |
Increase (decrease)
in accrued liabilities
|
|
|
39,082 |
|
|
|
(106,231 |
) |
Increase (decrease)
in accounts payable
|
|
|
130,146 |
|
|
|
(228,336 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(208,885 |
) |
|
|
(1,101,497 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of equipment
|
|
|
(90,032 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
(90,032 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible debt
|
|
|
- |
|
|
|
2,822,100 |
|
Payment
on stockholder loans
|
|
|
- |
|
|
|
(35,000 |
) |
Payment
of convertible notes
|
|
|
- |
|
|
|
(100,000 |
) |
|
|
|
|
|
|
|
|
|
Net
cash provided by financing provided by financing
activities
|
|
|
- |
|
|
|
2,687,100 |
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
(298,887 |
) |
|
|
1,585,603 |
|
Cash,
beginning of period
|
|
|
304,735 |
|
|
|
327,737 |
|
Cash,
end of period
|
|
$ |
5,848 |
|
|
$ |
1,913,340 |
|
The
accompanying notes are an integral part of these financial
statements.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
NOTE
1–BASIS OF PRESENTATION AND BUSINESS
The
unaudited interim amended and restated financial statements of
Airtrax, Inc. (“the Company”) as of March 31, 2008, and for the
three months ended March 31, 2008 and 2007 , have been prepared
in accordance with accounting principles generally accepted in the United States
of America, which contemplates continuation of the Company as a going
concern. At March 31, 2008, the Company had a working capital deficit
of $4,680,379, and a retained deficit of $ 31,665,757.
In prior
periods, the Company was a development stage company, as defined in Statement of
Financial Accounting Standards (FASB) No. 7. The Company became an operational
company in 2005. The Company has incurred losses since its inception. Until the
end of 2004, these losses were financed by private placements of equity
securities. During 2005, 2006 and 2007, the Company obtained financing almost
exclusively from the issuance of convertible debentures along with other
securities (derivatives). The Company will need to raise additional capital
through the issuance of future debt or equity securities to continue to
fund its operations.
The
Company was formed on April 17, 1997. It has designed a lift truck vehicle using
omni-directional technology obtained under a contract with the United States
Navy Surface Warfare Center in Panama City, Florida. The right to exploit this
technology grew out of a Cooperative Research and Development Agreement with the
Navy. Significant resources have been devoted during prior years to the
construction of a prototype of this omni-directional forklift vehicle. The
Company recognized its first revenues from sales of this product during the year
2005.
In the
opinion of management, the information included in this report contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of such periods. The results of
operations for the three month period ended March 31, 2008 are not necessarily
indicative of the results to be expected for the full fiscal year ending
December 31, 2008.
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 quarterly financial statements
should be read in conjunction with the amended and restated audited financial
statements and footnotes thereto included in the Company’s annual report on Form
10-KSB/ A for the year ended December 31, 2007.
NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying unaudited financial statements have been prepared on the accrual
basis of accounting in conformity to generally accepted accounting principles in
the United States.
Use
of Estimates
Preparing
the Company’s financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers cash deposits and short term debt securities that can be
redeemed on demand and investments that have original maturities of less than
three months, when purchased, to be cash equivalents.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
Fair
Value of Financial Instruments
The
Company’s financial instruments are cash and cash equivalents, accounts
receivable, accounts payable, and notes payable. The recorded values
of these financial instruments approximate their fair values based on their
short-term nature. The recorded values of notes payable approximate
their fair values, as interest approximates market rates.
Concentrations
of Credit Risk
Financial
instruments subject the Company to concentrations of credit risk. The
Company places its cash and temporary cash investments with credit quality
institutions. At times, such investments may be in excess of
applicable government mandated insurance limits. With respect to
accounts receivable, the Company limits credit risk by performing ongoing credit
evaluations. Management does not believe significant risk exists in
connection with the Company’s concentrations of credit at March 31,
2008.
Accounts
Receivable
The
Company provides an allowance for doubtful accounts (when necessary) equal to
the estimated uncollectible amounts. The Company’s estimate is based
on historical collection experience and a review of the current status of trade
accounts receivable. It is reasonably possible that the Company’s
estimate of the allowance for doubtful accounts will change. As of
March 31, 2008 and 2007, there were no allowances for doubtful
accounts.
Inventories
Inventory
consists principally of component parts and supplies used to assemble lift truck
vehicles. Inventories are stated at the lower of cost (determined on a first
in-first out basis) or market.
Fixed
Assets
Fixed
assets, consisting of office furniture and equipment, demo and shop equipment
along with castings and tools, are recorded at cost. The cost of developing and
constructing the prototype omni-directional helicopter handling vehicle and the
omni-directional lift truck vehicle is expensed as incurred. Expenditures for
major additions and improvements are capitalized and minor replacements,
maintenance, and repairs are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the results of operations for the respective
period. Depreciation is provided over the estimated useful lives of
the related assets ranging from 5 to 7 years using the straight-line method
for financial statement purposes.
Intangibles
The
Company incurred costs to acquire certain patent rights. These costs are
capitalized and are being amortized over a period of fifteen years on a straight
line basis.
In
accordance with Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets ,” the Company reviews intangibles for
impairment annually, or more frequently if an event occurs or circumstances
change that would more likely than not reduce the fair value of the Company's
business enterprise below its carrying value. The impairment test requires us to
estimate the fair value of the Company's overall business enterprise down to the
reporting unit level. The Company performs its annual impairment test in its
fiscal fourth quarter. No impairment charges related to goodwill or other
intangibles were recorded in the three months ended March 31, 2008 and
2007.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
The
Company continually evaluates whether events and changes in circumstances
warrant revised estimates of useful lives or recognition of an impairment loss
of our intangibles, which as of March 31, 2008, consist mainly of patents and
licensing agreements. The conditions that would trigger an impairment
assessment of our intangible assets include a significant, sustained negative
trend in our operating results or cash flows, a decrease in demand for our
products, a change in the competitive environment and other industry and
economic factors.
Deferred
Financing Costs
Deferred
financing costs represent legal, commitment; processing, consulting, and other
fees associated with the issuance of the Company’s debt and any unamortized debt
discount related to derivative separation from the debt instrument. Deferred
financing costs are being amortized over the terms of the related
debt.
Impairment
of Long-Lived Assets
Pursuant
to Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-lived Assets”, the Company continually
monitors events and changes in circumstances that could indicate carrying
amounts of long-lived assets may not be recoverable. An impairment loss is
recognized when expected cash flows are less than the asset's carrying value.
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of such assets in relation to the operating performance and
future undiscounted cash flows of the underlying assets. The Company’s policy is
to record an impairment loss when it is determined that the carrying amount of
the asset may not be recoverable. There were impairment reserves amounting to
$827,853 recorded in the three month period ended March 31, 2008. There were no
impairment charges recorded in the three month period ended March 31,
2007.
Revenue
Recognition
Revenue
on product sales is recognized when persuasive evidence of an arrangement
exists, such as when a purchase order or contract is received from the customer,
the price is fixed, title to the goods has changed and there is a reasonable
assurance of collection of the sales proceeds. We obtain written purchase
authorizations from our customers for a specified amount of product at a
specified price and consider delivery to have occurred at the time of shipment.
Revenue is recognized at shipment.
Revenue
from services is recognized when the service is performed, and where the
following criteria are met: persuasive evidence of an arrangement exists; the
contract price is fixed or determinable; and collectability is reasonably
assured. Revenue from research and development activities relating to firm
fixed-price contracts is generally recognized as billing occurs. Revenue from
research and development activities relating to cost-plus-fee contracts include
costs incurred plus a portion of estimated fees or profits based on the
relationship of costs incurred to total estimated costs. Contract costs include
all direct material and labor costs and an allocation of allowable indirect
costs as defined by each contract, as periodically adjusted to reflect revised
agreed upon rates. These rates are subject to audit by the other party. Amounts
can be billed on a bi-monthly basis. Billing is based on subjective cost
investment factors.
Advertising
Costs
Advertising
costs are expensed as incurred. There were no advertising expenses
for either the three month periods ended March 31, 2008 and 2007.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
Accounting
for Income Taxes
As part
of the process of preparing our financial statements, we are required to
estimate our income taxes. This process involves estimating our actual current
tax exposure together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included within
our balance sheet. We must then assess the likelihood that our deferred tax
assets will be recovered from future taxable income. If there is not persuasive
evidence that recovery will occur, we would establish a
valuation allowance. To the extent we establish a valuation allowance
or increase this allowance in a period, we must include an expense within the
tax provision in the statement of operations.
Significant
management judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded
against our net deferred tax assets. We have recorded a valuation allowance of
$10,650,468 as of March 31, 2008, due to uncertainties related to our ability to
utilize some of our deferred tax assets, primarily consisting of certain net
operating losses carried forward before they expire and certain accrued
expenses, which are deferred for income tax purposes until paid. The valuation
allowance is based on our estimates of taxable income and the period over which
our deferred tax assets will be recoverable. There was no net deferred tax asset
as of March 31, 2008 as it was fully reserved.
Accounting
for Derivatives
The
Company’s issuances of convertible debt are accompanied by other financial
instruments. These financial instruments include warrants to purchase stock, and
the right to convert debt to stock at specified rates (“conversion benefits.”).
Pursuant to SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, and EITF Issue No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, A Company’s Own
Stock, the Company has identified certain embedded and freestanding derivative
instruments. Generally, where the ability to physical or “net-share settle” an
embedded conversion option or free standing financial instrument is not deemed
to be within the control of the Company, the embedded conversion option is
required to be bifurcated or separated, and both the freestanding instruments
and bifurcated conversion feature are accounted for as derivative liabilities.
At each reporting date, the Company estimates the fair values of all
derivatives, and changes in the fair value are charged to
operations.
Under
EITF 00-19, warrants are considered free-standing instruments in that they are
legally detachable and separately exercisable. The conversion benefits, which
are embedded in these debt issues, derive value from the relationship between
the stock price and debt conversion price, and are considered embedded
derivatives under the provisions of SFAS 133. The fair values of both the
warrants and conversion benefits are calculated using a Black-Schools Model,
taking into consideration factors such as the underlying price of the common
stock, the exercise price for warrants or the conversion price for the
conversion benefit, the stock volatility, and the risk-free interest rates
available for comparable time periods.
Free-standing
instruments (warrants), and embedded derivatives (conversion benefits) which are
initially bifurcated or separated from the host financial instrument, are
recorded as separate liabilities, in cases where the security holder has a right
to choose to receive a “net settlement” of cash. The identification of such net
settlement provisions for prior convertible debt issuances with warrants
resulted in the Company concluding that such warrants should have been
identified as “derivatives”, and therefore the warrant liabilities must be
recorded as a separate derivative liability on the Company’s restated balance
sheet, and marked to market for each subsequent reporting period with any
non-cash charges or credits attributed to the revised fair value of the
liability being recognized through earnings.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
If the
decision to settle the outstanding liability remains with the Company, the value
of the warrants should be recorded in an equity account. The identification of
the settlement provisions being controlled by the Company under certain debt
issuances resulted in the Company determining that the warrants should be
reflected in the restated Reports as components of equity, as compared to having
been previously recorded as liabilities with non-cash charges and/or credits to
earnings as a result of being marked to market for each period
presented. As of March 31, 2008 and 2007, the Company recognized and
recorded the value of certain warrants as equity of $2,315,935 for both periods
in the accompanying financials.
EITF 00-19-2
specifies that the contingent obligations to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
SFAS No. 5, “Accounting for Contingencies.” EITF 00-19-2 also requires
additional disclosure regarding the nature of any registration payment
arrangements, alternative settlement methods, the maximum potential
amount of consideration and the current carrying amount of the liability,
if any. The Company previously adopted the provisions of EITF 00-19-2
for the reporting period effective January 1, 2007.
The
Company also previously sold stock units which included warrants along with
common stock. In these cases, a portion of the proceeds equal to the value of
the warrants is allocated to the warrants (when a net settlement provision
exists for cash), with the balance allocated to the stock. In such cases, the
value of the warrants are treated as liabilities, and the balance is revalued at
the end of each reporting period with any change in value being recognized
currently as a non-cash charge and/or credit to earnings. When a warrant
classified as a liability is exercised or cancelled, the fair value of the
warrant, as determined at the time of exercise or cancellation, is
transferred to equity, and is no longer revalued. A similar adjustment is
made for a conversion benefit classified as a liability when the debt is
converted to stock, or cancelled.
The
February 2007 convertible debt issuance includes certain variable conversion
pricing which results in the actual maximum number of potential shares needed to
satisfy the conversion of such debt to be unknown and not quantifiable at the
date of issuance. EITF 00-19-2 specifies that debt issuances with
variable conversion pricing for which there is no established “floor” in the
conversion pricing, and where the maximum number of shares needed to satisfy the
conversion of such debt is not known, should be accounted for as derivative
liabilities and revalued at the end of each reporting period. When a derivative
classified as a liability is exercised, cancelled, or the maximum number of
shares needed to satisfy the conversion of such debt is known, the fair value of
the derivative, as determined at that time, is revalued and transferred
to equity, and is no longer revalued. To the extent that the
initial fair values of the derivative liabilities exceed the net proceeds
received, an immediate charge to the statement of operations is recognized, for
the excess. As of March 31, 2007, the Company recognized in the statement of
operations excess costs over debt proceeds of $1,401,901 related to the excess
of derivative liabilities over the net proceeds received for the February 2007
debt issuance. The remainder of the discount from the face value of
the convertible debt resulting from allocating part or all of the proceeds to
the derivative liabilities is amortized over the life of the instrument through
periodic charges to the statements of operations, using the straight line
method, which was the most systematic and rational approach that approximated
the interest method of amortization due to the short two year amortization term
of the debt. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is re-assessed
at the end of each reporting period. Derivative liabilities are classified in
the balance sheet as current or non-current based on the classification
previously elected for the host instrument.
For
embedded and free standing derivatives valued as of March 31, 2008 and 2007, the
Company has recognized in the statement of operations, revaluation income of $
536,073 and $ 1,618,972, respectively, for the three months ended March 31, 2008
and 2007. In addition, the Company recognized a derivative liability in the
accompanying balance sheet for conversion privileges and warrants of $ 173,110
in 2008 and $ 3,356,251 in 2007.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
The
estimated fair values of the derivatives have been calculated based on the
Black-Scholes Model, using the following assumptions as of March
31:
|
|
2008
|
|
|
2007
|
|
Fair
Value of Stock
|
|
$
|
.03
|
|
|
$
|
.1.37
|
|
Exercise
Price
|
|
$
|
.23-$1.65
|
|
|
$
|
1.56-
$1.65
|
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk
Free Interest Rate
|
|
|
1.55%
- 2.63
|
%
|
|
|
4.717
|
|
Expected
Volatility
|
|
|
143.7
|
%
|
|
|
89.68
|
%
|
Expected
Life-Years
|
|
1.79-3.6 years
|
|
|
1.62-3.25 years
|
|
Stock
Based Compensation
Common Stock for
Services
Because
of the significant liquidity issues the Company has faced since our inception,
the Company has issued common stock to third party vendors and others in order
to pay for services rendered. Such issuances are recorded as an
expense in the period in which the services are performed. The Company did not
issue stock to third parties in exchange for services performed during the three
month period ended March 31, 2008. During 2007, the Company
issued 75,758 shares of common stock to third parties in exchange for
services performed.
Stock
Options
Stock
options are awarded to employees as compensation for services. Such awards have
been immediately exercisable. The Company adopted SFAS 123R, “Share Based
Payment” and SFAS 148, “Accounting for Stock Based Compensation - Transition and
Disclosure” on January 1, 2007. No stock options were issued, cancelled or
exercised in 2008 or 2007.
Warrants
The
Company has issued warrants both as part of “stock units”, and as an integral
part of convertible note issues. The value of the warrants and
conversion options which are classified as liabilities are revalued each
reporting period. These values are determined by a Black-Scholes
Model, consistent with 2007. The Company’s recording of a liability
for these Registration Payment Arrangements (RPA’s) follow the guidelines in
SFAS 5, “Accounting for
Contingencies.” However, the
amendment to the original EITF 00-19 will not affect the recording of
derivatives as the “RPA’s” were not the sole determining factor in prior
decisions about derivative classification, as is emphasized in the amended EITF.
The numbers of warrants outstanding were 27,694,388 as of March 31, 2008, and
there were no warrants issued or exercised during the three months ended March
31, 2008. Each of these warrants is exercisable over five year periods from
dates of issuance at prices ranging from $0.23-$1.65 per share.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
Basic
and Diluted Loss Per Share
In
accordance with Statement of Financial Accounting Standards No. 128,
“Earnings Per Share,” and SEC Staff Accounting Bulletin (SAB) No. 98,
both basic and diluted losses per share (“EPS”) are presented on the face of the
income statement. Basic EPS is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted EPS is computed similarly to basic EPS, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were not anti-dilutive. The Company has excluded all common stock
equivalents arising from outstanding options, warrants, convertible
preferred stock and convertible debt from the calculation of diluted net
loss per share because these securities are anti-dilutive. For the three month
periods ended March 31, 2008 and 2007, the weighted average number of shares
outstanding was 29,169,182 and 24,436,655, respectively.
Segment
Reporting
Management
treats the operations of the Company as one single segment.
Reclassifications
Certain
amounts in the 2007 financial statements have been reclassified to
conform to the 2008 financial statement
presentation.
NOTE
4- 2007/2008 CAPITALIZATION TRANSACTIONS
2007
CONVERTIBLE NOTE FINANCING AND STOCK TRANSACTIONS
On
February 20, 2007, the Company entered into a Securities Purchase Agreement (the
"Purchase Agreement") with certain accredited and/or qualified institutional
investors pursuant to which the Company sold an aggregate of $3,734,040
principal amount secured convertible debentures (the "February 2007 Debentures")
convertible into shares of common stock, no par value ("Common Stock") at a
conversion price equal to $0.45 (the "Conversion Price"). The Debentures were
sold at a discount equal to the amounts of interest that will accrue at a simple
rate of 8% per annum during the term of the debentures. The amount
realized was $3,219,000; this was further reduced by expenses of the sale of
$396,900. In addition, the Company issued to the investors (i)
warrants to purchase 8,297,866 shares of Common Stock (the "Warrants") at an
exercise price equal to $0.54 per share, which represents 100% of the number of
shares issuable upon conversion of the Debentures; (ii) callable warrants to
purchase 4,148,933 shares of Common Stock at an exercise price equal to $0.75
per share, which represents 50% of the number of shares issuable upon conversion
of the Debentures; and (iii) callable warrants to purchase 4,148,933 shares
of Common Stock at an exercise price equal to $1.25 per share, which
represents 50% of the number of shares issuable upon conversion of the
Debentures (collectively, the "Callable Warrants"). In addition to
the expenses of the sale, noted above, 715,333 warrants to purchase common stock
were issued to the placement agent that arranged the financing.
The
February 2007 Debentures mature on February 20, 2009. The Company
may, in its discretion, redeem the February 2007
Debentures, subject to certain equity conditions being met by the Company as set
forth in the Debentures, at a price equal to 150% of the principal balance,
accrued interest, and all liquidated damages, if any, thereon that are requested
to be redeemed. The Company’s obligations under the Purchase Agreement, the
February 2007 Debentures and the additional definitive agreements with respect
to this transaction are secured by all of the assets of the
Company.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
The
Conversion Price of the February 2007 Debentures is subject to the following
adjustments for any failure by the Company to cause the Securities and Exchange
Commission (the "SEC") to declare the initial registration statement covering
the shares underlying the Debentures, the Warrants and the Callable Warrants
effective:
·
|
if
the initial registration statement is not declared effective on or before
February 20, 2008, the Conversion Price applicable to an amount of
conversion shares equal to the highest number of shares of Common Stock
which can be sold by the holder pursuant to Rule 144, promulgated under
the Securities Act of 1933, as amended (the "144 Amount"), shall be
adjusted to equal the lesser of (i) the then Conversion Price and (ii) 80%
of the average of the 3 lowest closing prices of the Common Stock
during the 10 trading days immediately preceding February 20,
2008;
|
·
|
if
the initial registration statement is not declared effective on or before
April 20, 2008, the Conversion Price applicable to an amount of conversion
shares equal to the 144 Amount shall be adjusted to equal the lesser of
(i) the then Conversion Price and (ii) 80% of the average of the 3 lowest
closing prices of the Common Stock during the 10 Trading Days immediately
preceding April 20, 2008;
|
·
|
if
the initial registration statement is not declared effective on or before
July 20, 2008, the Conversion Price applicable to an amount of conversion
shares equal to the 144 Amount shall be adjusted to equal the lesser of
(i) the then Conversion Price and (ii) 80% of the average of the 3 lowest
closing prices of the Common Stock during the 10 trading days immediately
preceding July 20, 2008;
|
·
|
if
the initial registration statement is not declared effective on or before
October 20, 2008, the Conversion Price applicable to an amount of
conversion shares equal to the 144 Amount shall be adjusted to equal the
lesser of (i) the then Conversion Price and (ii) 80% of the average of the
3 lowest closing prices of the Common Stock during the 10 trading
days immediately preceding October 20, 2008;
and
|
·
|
if
the initial registration statement is not declared effective on or before
February 20, 2009, the Conversion Price applicable to an amount of
conversion shares equal to the 144 Amount shall be adjusted to equal the
lesser of (i) the then Conversion Price and (ii) 80% of the average of the
3 lowest closing prices of the Common Stock during the 10 trading
days immediately preceding February 20,
2009.
|
The
Conversion Price of the February 2007 Debentures and the respective exercise
prices of the Warrants and the Callable Warrants are subject to adjustment in
certain events, including, without limitation, upon the consolidation, merger or
sale of all of substantially all of the assets, a reclassification of our Common
Stock, or any stock splits, combinations or dividends with respect to the Common
Stock.
The
conversion price was adjusted to $.23 effective February 21, 2008 due to the
default provisions of the loan discount.
In
addition, after such time as the SEC declares the registration statement
effective, if (i) the volume weighted average price for each of the 10
consecutive trading days (the "Measurement Period") exceeds $1.50 per share with
respect to the $0.75 Callable Warrants and $2.50 with respect to the $1.25
Callable Warrants, (ii) the daily volume for each trading day in such
Measurement Period exceeds 250,000 shares of Common Stock per trading day,
and (iii) the holder is not in possession of any information that constitutes,
or might constitute, material non-public information, then the Company may,
within one trading day of the end of such Measurement Period, call for
cancellation of all or any portion of the Callable Warrants which have not yet
been exercised at a price equal to $.001 per share.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
Under the
Registration Rights Agreement, the Company entered into with the
investors on February 20, 2007, the Company is obligated to file a registration
statement on Form SB-2 to effect the registration of 130% the Common Stock
issuable upon conversion of the Debentures and exercise of the Warrants, the
Callable Warrants and the selling agent warrants (as described below) on the
earlier of (i) 15 calendar days from the filing of the annual report on Form
10-KSB for the fiscal year ended December 31, 2006, or (ii) April 15, 2007 (the
"Filing Date"). The Company is obligated to use its best efforts to
cause the registration statement to be declared effective no later than 90 days
after the Filing Date. If we do not file the registration statement by the
Filing Date, or if the registration statement is not declared effective by the
SEC within the deadline specified in the preceding sentence, the Company shall
pay to the investors, as liquidated damages, an amount equal to 1.25% of the
principal amount of the Debentures on a pro rata basis for each 30-day period of
such registration default. On May 4, 2007, the Company filed the
registration statement but, because the statement has not yet been declared
effective, the Company has an obligation for liquidated damages.
Further,
the Company paid commissions of $321,900 and issued 715,333 warrants to First
Montauk Securities Corp. (the "Selling Agent"), a NASD member firm, which acted
as Selling Agent for the transaction, each as consideration for services
performed in connection with the purchase and sale of the Debentures, Warrants
and Callable Warrants to the investors pursuant to the Purchase
Agreement. The Selling Agent had no obligation to buy any Debentures,
Warrants or Callable Warrants from us. In addition, the Company agreed to
indemnify the Selling Agent and other persons against specific liabilities under
the Securities Act of 1933, as amended.
The
Company claimed an exemption from the registration requirements of the Act for
the private placement of these securities pursuant to Section 4(2) of the Act
and/or Regulation D promulgated there under since, among other things, the
transaction did not involve a public offering, the Investors were accredited
investors and/or qualified institutional buyers, the Investors had access to
information about the Company and their investment, the Investors took the
securities for investment and not resale, and the Company took
appropriate measures to restrict the transfer of the securities.
NOTE
5- SUPPLEMENTAL CASH FLOWS INFORMATION:
There
were no taxes paid during the three month periods ended March 31, 2008 and
2007.
Interest
of $ 0 and $ 34,886 was paid during the three month periods ended March 31, 2008
and 2007, respectively.
There
were no shares of common stock were issued for third party services
during the three month period ended March 31, 2008, and 75,758
shares were issued in 2007 valued at $40,909.
On March
1, 2007, an investor in the convertible debt issue October 2005 converted
$22,500 of the 8% Convertible Notes due October 18, 2007. In
exchange, the Company issued 50,000 shares of common stock. The
conversion price was $0.45 per share.
During the March 31, 2008 period, the following additional
non-cash financing activity occurred:
During
the March 31, 2008 period the following additional non-cash financing activity
occurred:
On
January 25, 2008, the Company issued 50,000 shares of common stock to a holder
of the October 2005 debt issuance for $22,500 of principal. The
conversion price was $0.45 per share.
On
January 28, 2008, the Company issued 100,000 shares of common stock to a
Director as payment of prior board fees.
On
January 31, 2008, the Company issued to the holder of the July 26, 2006
convertible note, 100,000 shares of common stock as consideration for four
months interest that was in arrears.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
On
February 8, 2008, the Company issued 160,000 shares of common stock to eight
Directors as payment of board fees for 2008.
On
February 8, 2008, the Company issued 1,021,705 shares of common stock to holders
of the October 2005 debt issuance for $395,000 of principal and $64,767 of
accrued interest. The conversion price was $0.45 per
share.
On
February 21, 2008, the Company issued 309,010 shares of common stock to holders
of the October 2005 debt issuance for $121,000 of principal and $18,055 of
accrued interest. The conversion price was $0.45 per
share.
On
February 21, 2008, the Company issued 561,217 shares of common stock to holders
of the October 2005 debt issuance for $125,00 of principal and $4,080 of accrued
interest. The conversion price was $0.23 per share.
On
February 27, 2008, the Company issued 48,478 shares of common stock to holders
of the October 2005 debt issuance for $11,500 of principal. The
conversion price was $0.23 per share.
On March
1, 2008, the Company issued to the holder of the July 26, 2006 convertible note,
150,000 shares of common stock as consideration for forbearance and extending
the Note.
On March
3, 2008, the Company issued 50,000 shares of common stock to holders of the
October 2005 debt issuance for $11,500 of principal. The conversion
price was $0.23 per share.
On March
14, 2008, the Company issued 50,000 shares of common stock to holders of the
October 2005 debt issuance for $11,500 of principal. The conversion
price was $0.23 per share.
On March
21, 2008, the Company issued 50,000 shares of common stock to holders of the
October 2005 debt issuance for $11,500 of principal. The conversion
price was $0.23 per share.
From
February 27, 2008 through March 21, 2008, the Company issued 3,182,426 shares of
common stock to holders of the February 2007 debt issuance for $690,596 of
principal and $41,478 of Liquidated Damages. The conversion price was
$0.23 per share.
NOTE
6- GOING CONCERN
The accompanying financial statements
have been prepared assuming that the Company will continue as a going
concern. As shown in the financial statements, the Company had a
working capital deficiency
and an accumulated deficit as of March 31, 2008 and has experienced continuing
losses. On March 21, 2008, the Board of Directors of Airtrax suspended the
employment of all of its officers. Mr. Robert Watson, the CEO of
Airtrax, will continue as Acting Chief Executive Officer on a
part-time consulting basis to continue to pursue financing. The Board of
Directors of Airtrax elected to suspend all operations of Airtrax's business,
due to Airtrax's inability to secure the financing required to
continue operations. In connection with
Airtrax's suspension of operations, Airtrax has suspended the employment of all
employees. As instructed by the Board, Airtrax's Acting Chief
Executive Officer, on a part-time consulting basis, intends to continue to
pursue financing. These factors raise substantial doubt
about the ability of the Company to continue as a going
concern. The financial statements do not include adjustments relating
to the recoverability of assets and classification of liabilities that might
be necessary should the
Company be unable to continue in operation. The Company’s present plans, the realization of
which cannot be assured, to overcome these difficulties include, but are not
limited to, the continuing effort to raise capital in the public and private
markets.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
NOTE
7- SUBSEQUENT EVENTS
On April
4, 2008, Robert Watson resigned as Chief Executive Officer, President and a
director of Airtrax, Inc. Mr. Watson will continue to serve as an advisor to the
Company on a part-time consulting basis to continue to pursue financing on our
behalf.
On April
10, 2008, William F. Hungerville, one of our current directors, was appointed
interim Chief Executive Officer, and is our Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer.
On April
8, 2008, the Company issued 24,998,822 of common stock pursuant to the Escrow
Agreement in exchange for $702,431 of convertible notes, $334,716 of accrued
interest and $212,794 of liquidated damages. The conversion price was
$0.05 per share. Total shares outstanding pursuant to the conversion
is 57,578,525.
On May
16, 2008, the Company entered into a Subscription Agreement (the "Purchase
Agreement") with certain accredited and/or qualified institutional investors
pursuant to which it sold an aggregate of $99,995.28 principal amount secured
convertible debentures (the "Debentures") convertible into shares of its common
stock, no par value (the "Common Stock") at a conversion price equal to $0.05
(the "Conversion Price"), for an aggregate purchase price of
$99,995.28.
The
Debentures mature on November 16, 2008 and accrue interest at an annual rate of
8%, with interest payable monthly starting June 30, 2008. The Company may in its
discretion prepay the Debentures prior to maturity. The investors have been
previously granted a security interest in our assets pursuant to a security
agreement and subsidiary guaranty entered into on or about February 20, 2007
(the “2007 Security Documents”). Pursuant to the Purchase Agreement,
the Company acknowledged that the Debentures shall be included in the definition
of “Obligations” under the 2007 Security Documents.
The
Conversion Price of the Debentures is subject to adjustment in certain events,
including, without limitation, upon the Company’s consolidation, merger or sale
of all of substantially all of its assets, a reclassification of its Common
Stock, or any stock splits, combinations or dividends with respect to its Common
Stock.
In
connection with the Purchase Agreement, the Company entered into a Waiver
Consent and Amendment Agreement with investors from its February 2007 private
placement pursuant to which they waived their right of participation and the
consented to the Company entering into the Purchase Agreement.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Special Note on Forward-Looking
Statements. Certain statements in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” below, and elsewhere in this
quarterly report, are not related to historical results, and are forward-looking
statements. Forward-looking statements present our expectations or forecasts of
future events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements frequently are accompanied by such words such as
“may,” “will,” “should,” “could,” “expects,” “plans,”
“intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”
or “continue,” or the negative of such terms or other words and terms of similar
meaning. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, achievements, or timeliness of such results.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of such forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
quarterly report. Subsequent written and oral forward looking statements
attributable to us or to persons acting in our behalf are expressly qualified in
their entirety by the cautionary statements and risk factors set forth below and
elsewhere in this quarterly report, and in other reports filed by us with the
SEC.
You
should read the following description of our financial condition and results of
operations in conjunction with the financial statements and accompanying notes
included in this report.
Overview
Since
1995, substantially all of our resources and operations have been directed
towards the development of the Omni-Directional wheel, related components,
Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the
components, including the unique shaped wheels, motors, and frames, have been
designed by Airtrax and are specially manufactured for us.
Omni-Directional
means that vehicles designed and built by us can travel in any direction. Our
Omni-directional vehicles are controlled with a joystick. The vehicle will
travel in the direction the joystick is pushed. If the operator pushes the
joystick sideways, the vehicle will travel sideways. If the operator were to
twist the joystick the vehicle will travel in circles. Our omni-directional
vehicles have one motor and one motor controller for each wheel. The
omni-directional movement is caused by coordinating the speed and direction of
each motor with joystick inputs which are routed to a micro-processor, then from
the micro-processor to the motor controllers and finally to the motor
itself.
During
the year ended December 31, 2007, we continued development of the COBRA and KING
COBRA scissor lifts and the Omni-Directional power chair. We anticipate
incurring more costs on these products and plan to begin production of the first
COBRA and the KING COBRA models in 2008. The growth and development of our
business will require a significant amount of additional working capital. We
currently have limited financial resources and based on our current operating
plan, we will need to raise additional capital in order to continue operations.
However, we are in discussions with lenders to raise capital in order to
continue operating. We currently do not have adequate cash to meet our short or
long term objectives. In the event additional capital is raised, it may have a
dilutive effect on our existing stockholders. There can be no assurance that
additional financing will be available at terms that are suitable to
us.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
We have
incurred losses and experienced negative operating cash flow since our
inception. For the twelve month period ended December 31, 2007 and 2006, we had
net losses attributable to common shareholders of approximately $3.2 and $6.2
million, respectively. The net loss in both periods includes amortization of
debt discounts of $1.6 million and $648,000, respectively, amortization of
financing costs of $458,000 and $251,000, respectively, and, liquidated damages
and settlement expenses of $513,000 and $505,000, respectively, offset by
revaluation income $4.3 and $1.4 million in 2007, respectively, in connection
with the repricing of the conversion ratios of convertible debenture issues and
of warrant conversion prices. We expect to continue to
incur significant expenses particularly in connection with the suspension of
operations and the termination of all of our employees on March 21,
2008. Our fixed operating expenses have been and are expected to
continue to outpace revenue resulting in additional losses in the near
term. We may never be able to reduce these losses, which will require
us to seek additional debt or equity financing. While we are in discussions with
a prospective lender, we do not currently have commitments for sufficient funds
to restore operations and there can be no assurance that additional financing
will be available, or if available, will be on acceptable
terms.
Results
of Operations for the Three Months ended March 31, 2008 Compared to the Three
Months March 31, 2007
Liquidity
constraints and limited access to additional capital for production in 2004 and
2005 and the unexpected death of our Chief Executive Officer and President,
Peter Amico in August 2006 have limited production and sales of omni-directional
technology. Consequently, management believes that the quarter-to-quarter
comparisons described below are not indicative of future comparative
results.
In
September 2006, Airtrax was awarded a $415,000 contract to design and build a
customized MP2 Equipment Handling Unit for the Israeli Air Force (IAF). The
contract includes an option to build five additional units at $95,000 each upon
the acceptance of the first unit. The Critical Design Review was completed in
November 2006, the design was approved and initial deliverables were provided.
We completed the Acceptance Test Procedure in mid 2007.
On
March 28, 2008, we advised the IAF that we had suspended operations on the
contract due to the Company's liquidity constraints, and requested instructions
for the disposition of the equipment that had been purchased and contructed on
their behalf.
We
cannot predict whether we will be permitted to complete the contract based upon
the Company's current liquidity constraints, or that if we do so, that any
subsequent orders would result.
Revenue
Revenue
for the three-month period ended March 31, 2008 was approximately $191,000,
representing a increase of approximately $100,000 from revenue of $91,000 for
the three-month period ended March 31, 2007. This increase in revenue
is primarily attributed to additional sales of our SIDEWINDER
ATX-3000.
Cost
of Goods Sold
Our cost
of goods sold for the three-month period ended March 31, 2008 amounted to
approximately $246,000, a increase of approximately $112,000 from $134,000 for
the three-month period ended March 31, 2007. This increase in cost of goods sold
is primarily attributed to the increase in sales of our SIDEWINDER ATX-3000 and
development of the Cobra and King Cobra scissor lifts.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
Operating
and Administrative Expenses.
Operating
and administrative expenses, which include administrative salaries, depreciation
asset writedowna and other expenses for the three-month period ended March
31, 2008 totaled $1,589,000 which represents an increase of approximately
$763,400,000 from $765,000 incurred in the three-month period ended March 31,
2007. The decrease is due to asset writedowns offset by cost
savings in various area of administration.
Other
Income (Expense)
Other
Income (Expense) includes interest expense and interest income along with
amortization of financing costs, and income (expenses) for revaluation income
related to accounting for derivative financial instruments. For the
three months ended March 31, 2008, total other income (expense) was ($372,000)
compared to ($218,000) for the three months ended March 31, 2007. The
largest cost increases in the three month period were attributable to asset
amortization of financing costs offset by lower revaluation income and a $(1.4)
million charge for excess cost of liabilities over proceeds during the 2007
quarter.
Loss
Attributable to Common Shareholders.
Loss
attributable to common shareholders for the three-month period ended March 31,
2008 was $2.0 million compared to a loss of $945,000 for the same period in
2007. The increased loss is due primarily to the recording asset
impairment of inventory
($639,950) and fixed assets ($187,903) and amortization of financing
costs and debt discount of $739,335 offset by lower revaluation income
and a $(1.4) million charge for excess cost of liabilities over proceeds during
the 2007 quarter.
Research
and Development
We
incurred $23,579 and $61,593 in research and development expenses during the
three month period ended March 31, 2008 and 2007,
respectively. Research and development activities during fiscal 2008
primarily involved continued testing and evaluation of omni-directional
components and preparing these components for production in 2008. Our
wheel design was changed from the "concept" to "production" phase. This was and
is an ongoing process between our Company and a vendor’s engineers to insure
manufacturability. The motors and controllers were designed and/or changed in
design in order to meet ANSI (American National Standards Institute) and UL
(Underwriters Laboratories) testing requirements. We and Danaher revised the
algorithms used in the motor controllers as well the microprocessor that runs
the machines. Research and development activities also included further changes
to existing designs and new designs that were patented or for those patents with
pending applications.
Liquidity
and Capital Resources
Since our
inception, we have financed our operations through the private placement of our
common stock and sales of convertible debt. During the twelve months ended
December 31, 2006 and 2005, we raised net of offering costs approximately $1.3
million and $5.9 million, respectively, from the private placement of our
securities.
During
2000, we were approved by the State of New Jersey for our technology tax
transfer program pursuant to which we could sell our net operating losses and
research and development credits as calculated under state law. There
were no net deferred tax benefits recorded in the three months ended
March 31, 2008 as such amounts were fully reserved
for. For the three months ended March 31, 2007, there were net
deferred tax benefits of $81,367 that were recorded.
As of
March 31, 2008, our working capital deficit was $4.7 million. Fixed
assets, net of accumulated depreciation, as of March 31, 2008 and 2007, were
$152,000 and $269,000, respectively. Current liabilities as of March
31, 2008 were $5.0 million compared with $4.4 million as of March 31,
2007. Liabilities in 2008 and 2007 include liabilities
for warrants and conversion rights of $173,000 and $709,000,
respectively.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
On March
21, 2008 we suspended operations and terminated all of our employees due to
insufficient working capital. We are insolvent, as our revenues have
not increased sufficiently to cover our operating and development
costs. Our fixed operating expenses have been and are expected to
continue to outpace revenue resulting in additional losses in the near
term. We may never be able to reduce these losses, which will
require us to seek additional debt or equity financing.
On May
16, 2008, we entered into a Subscription Agreement (the "Purchase Agreement")
with certain accredited and/or qualified institutional investors pursuant to
which we sold an aggregate of $99,995.28 principal amount secured convertible
debentures (the "Debentures") convertible into shares of our common stock, no
par value (the "Common Stock") at a conversion price equal to $0.05 (the
"Conversion Price"), for an aggregate purchase price of $99,995.28.
The
Debentures mature on November 16, 2008 and accrue interest at an annual rate of
8%, with interest payable monthly starting June 30, 2008. We may in our
discretion prepay the Debentures prior to maturity. The investors have been
previously granted a security interest in our assets pursuant to a security
agreement and subsidiary guaranty entered into on or about February 20, 2007
(the “2007 Security Documents”). Pursuant to the Purchase Agreement,
we acknowledged that the Debentures shall be included in the definition of
“Obligations” under the 2007 Security Documents.
The
Conversion Price of the Debentures is subject to adjustment in certain events,
including, without limitation, upon our consolidation, merger or sale of all of
substantially all of our assets, a reclassification of our Common Stock, or any
stock splits, combinations or dividends with respect to our Common
Stock.
In
connection with the Purchase Agreement, we entered into a Waiver Consent and
Amendment Agreement with investors from our February 2007 private placement
pursuant to which they waived their right of participation and the consented to
our entering into the Purchase Agreement.
We will
require additional funds to resume our operations. We anticipate that operating
capital in the amount of approximately $3 to 5 million will be required during
the next 12 months to sufficiently fund operations. We do not currently have
commitments for additional funds and there can be no assurance that additional
financing will be available, or if available, will be on acceptable terms. If we
are unable to obtain sufficient funds during the next three months, we may be
forced to curtail our production and operations, all of which could have a
material adverse impact on our business prospects.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenue, results of
operations, liquidity or capital expenditures.
Liquidated
Damages
During
2006, we issued to the investors in the November 2004 financing, an aggregate
principal amount of $198,248 in our 4% Unsecured Convertible Debentures and 5
year warrants to purchase an aggregate of 72,201 shares of our common stock in
exchange for the settlement of $244,632 in accrued liquidated damages through
June 30, 2006. The debentures mature on March 1, 2008, and September 30,
2008, respectively, pay simple interest at a rate of 4% per annum and are
convertible into shares of our common stock at a price equal to $ 1.56 per
share. The warrants are exercisable into shares of our common stock at a price
equal to $ 1.75 per share. In addition, the investors agreed to forego any
future accrual and payment of such liquidated damages.
Airtrax,
Inc.
Notes
to the Financial Statements
March
31, 2008
(Unaudited)
In July
2006 we issued 2% Unsecured Convertible Debentures to the investors in the
October 2005 financing, aggregating $359,549 and Stock Purchase Warrants to
acquire 110,808 shares of our common stock at $ 1.56 per share, in full
settlement of liquidated damages resulting from our not filing a registration
statement by a certain date registering for resale shares of common stock
issuable upon conversion of their securities. The conversion price of the shares
underlying the note was $1.65. In addition,
the investors agreed to forego any future accrual and payment of such liquidated
damages.
During
2007, we accrued $513,400 in liquidated damages in connection with the February
2007 debt issuance because we did not file a registration statement by a certain
date registering for resale shares of common stock issuable upon conversion of
their securities or have such registration statement effective by another
date.
Critical
Accounting Policies
The
SEC has issued Financial Reporting Release No. 60, “ Cautionary Advice Regarding
Disclosure About Critical Accounting Policies” (“ FRR 60 ” ) suggesting
companies provide additional disclosure and commentary on their most critical
accounting policies. In FRR 60, the SEC defined the most critical accounting
policies as the ones that are most important to the portrayal of a Company ’ s
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition,
our most critical accounting policies include: revenue recognition, which
affects sales, inventory valuation, which affects our cost of sales and gross
margin; and allowance for doubtful accounts and stock-based compensation, which
affects general and administrative expenses. The methods, estimates and
judgments we use in applying these most critical accounting policies have a
significant impact on the results we report in our financial
statements.
Use
of Estimates
Preparing
our financial statements in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Deferred
Financing Costs
Deferred
financing costs represent legal, commitment; processing, consulting and other
fees associated with the issuance of our debt, and are being amortized over the
terms of the related debt.
Impairment
of Long-Lived Assets
Pursuant
to Statement of Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-lived Assets”, we continually monitors
events and changes in circumstances that could indicate carrying amounts of
long-lived assets may not be recoverable. An impairment loss is recognized when
expected cash flows are less than the asset's carrying value. Accordingly, when
indicators of impairment are present, we evaluate the carrying value of such
assets in relation to the operating performance and future undiscounted cash
flows of the underlying assets. Our policy is to record an impairment loss when
it is determined that the carrying amount of the asset may not be
recoverable. There were impairment reserves amounting to $827,853
recorded in the three month period ended March 31, 2008. There were no
impairment charges recorded in the three month period ended March 31,
2007.
Revenue
Recognition
Revenue
on product sales is recognized when persuasive evidence of an arrangement
exists, such as when a purchase order or contract is received from the customer,
the price is fixed, title to the goods has changed and there is a reasonable
assurance of collection of the sales proceeds. We obtain written purchase
authorizations from our customers for a specified amount of product at a
specified price and consider delivery to have occurred at the time of shipment.
Revenue is recognized at shipment.
Revenue
from services is recognized when the service is performed, and where the
following criteria are met: persuasive evidence of an arrangement exists; the
contract price is fixed or determinable; and collectability is reasonably
assured. Revenue from research and development activities relating to
firm fixed-price contracts is generally recognized as billing occurs. Revenue
from research and development activities relating to cost-plus-fee contracts
include costs incurred plus a portion of estimated fees or profits based on the
relationship of costs incurred to total estimated costs. Contract costs include
all direct material and labor costs and an allocation of allowable indirect
costs as defined by each contract, as periodically adjusted to reflect revised
agreed upon rates. These rates are subject to audit by the other party. Amounts
can be billed on a bi-monthly basis. Billing is based on subjective cost
investment factors.
Accounting
for Income Taxes
As part
of the process of preparing our financial statements, we are required to
estimate our income taxes. This process involves estimating our actual current
tax exposure together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included within our
balance sheet. We must then assess the likelihood that our deferred tax
assets will be recovered from future taxable income. If there is not persuasive
evidence that recovery will occur, we would establish a valuation allowance. To
the extent we establish a valuation allowance or increase this allowance in a
period, we must include an expense within the tax provision in the statement of
operations.
Significant
management judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded
against our net deferred tax assets. We have recorded a valuation allowance of
$10,650,648 as of March 31, 2008, due to uncertainties related to our ability to
utilize some of our deferred tax assets, primarily consisting of certain net
operating losses carried forward before they expire and certain accrued
expenses, which are deferred for income tax purposes until paid. The valuation
allowance is based on our estimates of taxable income and the period over which
our deferred tax assets will be recoverable. There was no net deferred tax
asset as of March 31, 2008 due to uncertainty of its realizability.
Accounting
for Derivatives
Our
issuances of convertible debt are accompanied by other financial instruments.
These financial instruments include warrants to purchase stock, and the right to
convert debt to stock at specified rates (“conversion benefits.”). Pursuant to
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, and EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, A Company’s Own Stock, we
have identified certain embedded and freestanding derivative instruments.
Generally, where the ability to physical or “net-share settle” an embedded
conversion option or free standing financial instrument is not deemed to be
within our control, the embedded conversion option is required to be bifurcated
or separated, and both the freestanding instruments and bifurcated conversion
feature are accounted for as derivative liabilities. At each reporting date, we
estimate the fair values of all derivatives, and changes in the fair value are
charged to operations.
Under
EITF 00-19, warrants are considered free-standing instruments in that they are
legally detachable and separately exercisable. The conversion benefits, which
are embedded in these debt issues, derive value from the relationship between
the stock price and debt conversion price, and are considered embedded
derivatives under the provisions of SFAS 133. The fair values of both the
warrants and conversion benefits are calculated using a Black-Scholes Model,
taking into consideration factors such as the underlying price of the common
stock, the exercise price for warrants or the conversion price for the
conversion benefit, the stock volatility, and the risk-free interest rates
available for comparable time periods.
Free-standing
instruments (warrants), and embedded derivatives (conversion benefits) which are
initially bifurcated or separated from the host financial instrument, are
recorded as separate liabilities, in cases where the security holder has a right
to choose to receive a “net settlement” of cash. The identification of such net
settlement provisions for prior convertible debt issuances with warrants
resulted in us concluding that such warrants should have been identified as
“derivatives”, and therefore the warrant liabilities must be recorded as a
separate derivative liability on our restated balance sheet, and marked to
market for each subsequent reporting period with any non-cash charges or
credits attributed to the revised fair value of the liability being recognized
through earnings.
If the
decision to settle the outstanding liability remains with us, the value of the
warrants should be recorded in an equity account. The identification of the
settlement provisions we control under certain debt issuances resulted in us
determining that the warrants should be reflected in the restated Reports as
components of equity, as compared to having been previously recorded as
liabilities with non-cash charges and/or credits to earnings as a result of
being marked to market for each period presented. As of March 31,
2008 and 2007, the Company recognized and recorded the value of certain warrants
as equity of $2.3 million.
EITF 00-19-2
specifies that the contingent obligations to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
SFAS No. 5, “Accounting for Contingencies.” EITF 00-19-2 also
requires additional disclosure regarding the nature of any registration payment
arrangements, alternative settlement methods, the maximum potential amount of
consideration and the current carrying amount of the liability, if any. We
previously adopted the provisions of EITF 00-19-2 for the reporting period
beginning January 1, 2007.
We also
previously sold stock units which included warrants along with common stock. In
these cases, a portion of the proceeds equal to the value of the warrants is
allocated to the warrants (when a net settlement provision exists for cash),
with the balance allocated to the stock. In such cases, the value of the
warrants are treated as liabilities, and the balance is revalued at the end of
each reporting period with any change in value being recognized currently as a
non-cash charge and/or credit to earnings. When a warrant classified as a
liability is exercised or cancelled, the fair value of the warrant, as
determined at the time of exercise or cancellation, is transferred to equity,
and is no longer revalued. A similar adjustment is made for a conversion benefit
classified as a liability when the debt is converted to stock, or
cancelled.
For
embedded and free standing derivatives valued as of March 31, 2008 and 2007, we
have recognized in the statement of operations, revaluation income of $536,073
and $1,118,972 respectively. In addition, we recognized a derivative liability
in the accompanying balance sheet for conversion benefits and warrants of
$173,110 in 2008 and $3,356,251 in 2007.
The
February 2007 convertible debt issuance includes certain variable conversion
pricing which results in the actual maximum number of potential shares needed to
satisfy the conversion of such debt to be unknown and not quantifiable at the
date of issuance. EITF 00-19-2 specifies that debt issuances with
variable conversion pricing for which there is no established “floor” in the
conversion pricing, and where the maximum number of shares needed to satisfy the
conversion of such debt is not known, should be accounted for as derivative
liabilities and revalued at the end of each reporting period. When a derivative
classified as a liability is exercised, cancelled, or the maximum number of
shares needed to satisfy the conversion of such debt is known, the fair value of
the derivative, as determined at that time, is revalued and transferred to
equity, and is no longer revalued. To the extent that the initial
fair values of the derivative liabilities exceed the net proceeds received, an
immediate charge to the statement of operations is recognized, for the excess.
As of March 31, 2008, we recognized in the statement of operations excess
costs over debt proceeds of $1.4 million related to the excess of derivative
liabilities over the net proceeds received for the February 2007 debt
issuance. The remainder of the discount from the face value of the
convertible debt resulting from allocating part or all of the proceeds to the
derivative liabilities is amortized over the life of the instrument through
periodic charges to the statements of operations, using the straight line
method, which was the most systematic and rational approach that approximated
the interest method of amortization due to the short two year amortization term
of the debt. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period.
Basic and Diluted Loss Per
Share
In
accordance with Statement of Financial Accounting Standards No. 128,
“Earnings Per Share,” and SEC Staff Accounting Bulletin (SAB) No. 98, both basic
and diluted loss per share (“EPS”) are presented on the face of the income
statement. Basic EPS is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted EPS is computed similarly to basic EPS, except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were not anti-dilutive. We have excluded all common
stock equivalents arising from outstanding options, warrants, convertible
preferred stock and convertible debt from the calculation of diluted net loss
per share because these securities are anti-dilutive. As of March 31, 2008 and
2007, we had approximately 29,169,182 and 24,890,142, weighted
average number of shares, respectively, outstanding and used in both the Basic
and Diluted EPS calculation.
Reclassifications
Certain
amounts in the 2007 financial statements have been reclassified to conform to
the 2008 financial statement presentation.
Recent
Accounting Pronouncement
The
Financial Accounting Standards Board (FASB) has recently issued FASB Staff
Position EITF 00-19-2 which modifies the accounting treatment of derivatives
that flow from financings involving embedded derivatives. This Staff Position is
effective for financial statements for periods beginning January 1,
2007. Adoption of this staff position has not caused any change in
the quarter or three month period ended March 31, 2008 in the way we
account for derivatives. We have reviewed other accounting pronouncements
issued during 2007 and 2008, and have concluded that they will have no
effect on our financial statements.
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required under Regulation S-K for
“smaller reporting companies.”
(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 March 31, 2008. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the fact that
there are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and procedures relative
to their costs.
Based
on our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required
disclosure.
(b)
Changes in internal control over financial reporting.
We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART
II - OTHER INFORMATION
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Except as disclosed below,
we are currently not aware of any such legal proceedings or claims that we
believe will have, individually or in the aggregate, a material adverse affect
on our business, financial condition or operating results.
Freeland
Limited Partnership v.
Airtrax, Inc., Superior Court of New Jersey, Camden County, Docket
C331-08
On March 19, 2008,
Freeland Limited Partnership filed suit against us for breach of lease relating
to our property in Blackwood, New Jersey. Freeland alleges that we owe rental
payments for September and October 2006 and payment for electricity, CAM
deficiency and carpet upgrades, in an aggregate amount of approximately
$60,000. As a result of our financial condition, we were unable to
file a response. We expect a default judgment will be entered against
us in the near future.
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Other than the
complaint mentioned above, we are currently not aware of any other legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results.
Not
required under Regulation S-K for “smaller reporting companies.”
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
None.
None.
Item
5. Other Information.
None.
31.1
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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
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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)
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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)
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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By:
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/s/ William
F. Hungerville |
|
|
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William
F. Hungerville
|
|
|
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Chief
Executive Officer (Principal Executive Officer) and Chief Financial
Officer (Principal Financial and Accounting Officer) |
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27