SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
FORM 10-QSB
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE
NOVEMBER 30, 2000 NUMBER 0-19796
AIRTECH INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in charter)
WYOMING 98-0120805
------------------ ---------------
(State or other (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
15400 Knoll Trail, Ste. 200
Dallas, Texas 75248
(Address of Principal Executive Offices)
972-960-9400
(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
--- ---
The Registrant has 22,579,644 shares of common stock, par value of $0.05 per
share issued and outstanding as of November 30, 2000.
Traditional Small Business Disclosure Format
Yes X No
--- ---
1
AIRTECH INTERNATIONAL GROUP, INC.
TABLE OF CONTENTS
Page No.
--------
Independent Accountant's Report 3
PART I-FINANCIAL INFORMATION 4
Item 1. Airtech International Group, Inc. Financial Statements
(Unaudited) Balance Sheet as of November 30, 2000 and 1999
Statement of Operations for the three months ended November 30,
2000 and 1999 Statement of Operations for the six months ended
November 30, 2000 and 1999 Statement of Cash Flows for the six
months ended November 30, 2000 and 1999 Notes to Financial
Statements
Item 2. Management's Discussion and Analysis 15
PART II-OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE PAGE 20
2
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors and Stockholders
Airtech International Group, Inc. and subsidiaries
Dallas, Texas
We have reviewed the accompanying consolidated balance sheet of Airtech
International Group, Inc. and subsidiaries as of November 30, 2000 and the
related statement of operations, stockholders' equity and cash flows for the
three months and six months then ended. These consolidated financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying November 30, 2000 consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
/s/ Turner, Stone & Company, LLP
Certified Public Accountants
January 19, 2001
3
PART 1-FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2000 AND NOVEMBER 30, 1999
ASSETS
CURRENT ASSETS 2000 1999
-------------- ---------- ----------
Cash $ 83,301 $ 14,544
Trade accounts receivables, net of allowance for doubtful accounts of 633,211 295,385
$40,000 and $20,000 respectively
Notes receivable, current portion 437,250 143,750
Inventory 1,211,460 242,665
Prepaid expenses and other assets 121,610 205,511
---------- ----------
Total current assets 2,486,832 901,855
---------- ----------
PROPERTY AND EQUIPMENT-net of accumulated depreciation of
$198,159 and $138,117 respectively 160,955 117,086
NOTES RECEIVABLE-net of current portion, net of allowance for
Doubtful accounts of $0 and $0, respectively 1,078,312 431,250
OTHER ASSETS
Goodwill, net of $45,810 and $64,763 of accumulated amortization,
respectively 97,432 114,291
Intellectual properties, net of $167,300 and $78,060 of accumulated
amortization, respectively 926,597 1,003,112
Other, Prepaid Royalties 287,481 516,208
---------- ----------
Total other assets 1,311,510 1,633,611
---------- ----------
$5,037,609 $3,083,802
========== ==========
The accompanying notes are an integral part of the financial statements.
4
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2000 AND NOVEMBER 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES 2000 1999
----------- -----------
Notes payable-current portion $ 352,185 $ 277,185
Accounts payable, trade 710,314 654,563
Advances from officers 210,338 236,488
Accrued payroll and payroll taxes 467,224 354,802
Other accrued expenses 468,358 415,912
----------- -----------
Total current liabilities 2,208,419 1,938,950
----------- -----------
LONG-TERM LIABILITIES
Notes payable
Deferred revenue 340,000 400,000
Product Marketing Obligation 430,000 405,000
Convertible Debentures 2,525,000
----------- -----------
Total long-term liabilities 3,295,000 805,000
----------- -----------
Total liabilities 5,503,419 2,743,950
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series M cumulative, convertible preferred, 990,625 and 1,143,750
outstanding respectively; liquidation preference of $1.00 per share 991 1,143
Common stock-$.05 par value, 50,000,000 shares authorized;
22,579,644 and 16,560,440 shares issued and outstanding, respectively 1,128,982 828,022
Additional paid-in capital 7,875,981 6,499,252
Retained deficit (9,471,764) (6,988,565)
----------- -----------
Total stockholders' equity (465,810) 399,852
----------- -----------
$ 5,037,609 $ 3,083,802
=========== ===========
The accompanying notes are an integral part of the financial statements.
5
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND NOVEMBER 30, 1999
REVENUES 2000 1999
----------- -----------
Product sales $ 994,573 $ 418,338
Franchisee fees and other revenues 10,000 115,225
----------- -----------
Total revenues 1,004,573 533,563
----------- -----------
COSTS AND EXPENSES
Salaries and wages 602,115 385,138
Research and Development 131,250 82,500
Cost of sales 559,390 415,649
Advertising 185,395 50,195
Depreciation and amortization 160,472 72,756
Other general & administrative expense 431,538 294,013
----------- -----------
Total costs and expenses 2,070,160 1,300,251
----------- -----------
LOSS FROM OPERATIONS (1,065,587) (766,688)
Interest expense (122,710) (37,276)
----------- -----------
NET LOSS BEFORE INCOME TAXES (1,188,297) (803,964)
Income taxes -- --
----------- -----------
NET LOSS $(1,188,297) $ (803,964)
=========== ===========
LOSS PER COMMON SHARE-BASIC $ (0.05) $ (0.05)
=========== ===========
LOSS PER COMMON SHARE-DILUTED $ (0.05) $ (0.05)
=========== ===========
The accompanying notes are an integral part of the financial statements.
6
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND NOVEMBER 30, 1999
REVENUES 2000 1999
--------- ---------
Product sales $ 475,936 $ 72,897
Franchisee fees and other revenues 10,000 100,225
--------- ---------
Total revenues 485,936 173,122
--------- ---------
COSTS AND EXPENSES
Salaries and wages 261,465 168,968
Research and Development 56,000 35,625
Costs of sales 274,918 93,100
Advertising 61,791 25,555
Depreciation and amortization 82,285 19,335
Other general and administrative expense 181,033 273,095
--------- ---------
Total costs and expenses 917,492 615,678
--------- ---------
LOSS FROM OPERATIONS (431,556) (442,556)
Interest expense (60,100) (18,680)
--------- ---------
NET LOSS BEFORE INCOME TAXES (491,656) (461,236)
Income taxes
--------- ---------
NET LOSS $(491,656) $(461,236)
========= =========
LOSS PER COMMON SHARE-BASIC $ (0.02) $ (0.03)
========= =========
LOSS PER COMMON SHARE-DILUTED $ (0.02) $ (0.03)
========= =========
The accompanying notes are an integral part of the financial statements.
7
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND NOVEMBER 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
----------- -----------
Net Loss $(1,188,297) $ (803,964)
Adjustments to reconcile net income to cash
Depreciation and amortization 160,472 72,756
Stock payments to employees and consultants -- 263,618
Changes in operating assets and liabilities
Accounts receivable (363,240) (121,434)
Inventory (672,508) --
Accounts payable 450,212 144,370
Accrued expenses 208,370 85,592
Other Receivables 13,290 19,970
----------- -----------
Net cash used in operating activities (1,391,701) (339,092)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for other assets (36,237) --
Repayment of Notes Payable (325,000)
----------- -----------
Net cash used in investing activities (361,237) --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 348,593 291,828
----------- -----------
Net cash provided by financing activities 348,593 291,828
----------- -----------
DECREASE IN CASH (1,404,345) (47,264)
CASH, BEGINNING OF PERIOD 1,487,646 61,808
----------- -----------
CASH, END OF PERIOD $ 83,301 $ 14,544
=========== ===========
The accompanying notes are an integral part of the financial statements.
8
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Airtech International Group, Inc. (the Company), formerly Interactive
Technologies Corporation (ITC), was incorporated in the state of Wyoming on
August 8, 1991. As of May 31, 1998, in connection with the acquisition discussed
below, the Company manufactures and sells a full line of air purification
products.
On May 31, 1998, the Company acquired all of the outstanding common
stock shares of Airtech International Corporation (AIC), which through its
subsidiaries, manufactures and sells various air filtration and purification
products. The total purchase price of $22,937,760 was funded through the
issuance of 10,500,000 shares of common stock valued at $.625 per share, the
issuance of 11,858,016 shares of Series A convertible preferred stock shares
valued at $.625 per share and the issuance of $9,000,000 of convertible
debentures.
However, because these convertible securities were converted into
common stock within two months following acquisition, the shareholders of AIC
obtained control of the company. As a result, AIC became the acquiror for
financial reporting purposes.
The transaction was accounted for using the purchase method of
accounting with AIC for accounting and reporting purposes the acquiror.
Accordingly, the purchase price of the net assets acquired has been allocated
among the net assets based on their relative fair value of zero.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc., Airsopure
International Group, Inc. and McCleskey Sales and Service, Inc. (dormant) each
of which has a fiscal year ended May 31, and AIC's investment in Airsopure
999LP, a Texas Limited partnership with a December 31 year end. All material
intercompany accounts and balances have been eliminated in the consolidation.
Turner, Stone & Company, the Company's independent accountants, have performed
limited reviews of the interim financial information included herein. Their
report on such reviews accompanies this filing.
AMORTIZATION
Intellectual property is allocated to the Company's air filtration
products based on expected sales as a percent of total sales by product. The
Company records amortization beginning when the product is initially inventoried
for sale. Amortization is recorded ratably over a ten-year term.
9
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Goodwill acquired and recorded in the financial acquisition of ITC, is
being amortized under the straight line method over 5 years.
A prepaid royalty fee, paid pursuant to a December 1995 agreement and
related to the Company's portable medical unit, is being amortized using the
straight-line method over 24 months beginning January 2000.
INVENTORIES
Inventories are carried at the lower of cost or net realizable value
(market) and include component parts used in the assembly of the Company's line
of air purification units, filters and finished goods comprised of completed
products. The costs of inventories are based upon specific identification of
direct costs and allocable costs of direct labor, packaging and other indirect
costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Depreciation of property and equipment is currently being provided
by straight line and accelerated methods for financial and tax reporting
purposes, respectively, over estimated useful lives of five years.
PRODUCT MARKETING OBLIGATION
Property marketing obligations pursuant to Statement of Financial
Accounting Standards, "SFAS" No. 68, the Company has recorded funds raised in an
arrangement to develop, produce and market the Model S-999 as a product
marketing obligation.
REVENUE RECOGNITION
Revenues from the Company's operations are recognized at the time
products are shipped or services are provided. Revenue from franchise sales are
recognized at the time all material services relating to the sale of a franchise
have been performed by the Company.
10
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 FLOW
For purposes of the statement of cash flows, cash includes demand
deposits, short term cash equivalent investments and time deposits with
maturities of less than three months. None of the Company's cash is restricted.
LOSS PER SHARE
The basic and diluted loss per share are based upon 21,962,200 and
22,473,642 respectively, weighted average shares of common stock outstanding
over the three and six month period ending November 30, 2000. No effect has been
given to the assumed conversion of convertible preferred stock, convertible
debentures, product market obligation guarantees and the assumed exercise of
stock options and warrants, as the effect would be antidilutive.
CONVERTIBLE DEBENTURES (6%)
On February 22, 2000, we entered into a securities purchase agreement
with PK Investors LLC (`PKI') to raise up to $5,000,000 through the sale to PKI
of up to $5,000,000 in principal amount of our 6% Convertible Debentures
(`Debentures') and Warrants to purchase up to 500,000 shares of our Common Stock
(`Warrants'). Upon execution of the securities purchase agreement, PKI purchased
$2,500,000 in principal amount of the Debentures and Warrants to purchase
250,000 shares of Common Stock for a purchase price of $2,500,000. Under the
terms of the securities purchase agreement, the Company has also issued to PKI a
Conditional Warrant to purchase the remaining $2,500,000 in principal amount of
Debentures and the remaining Warrants to purchase 250,000 shares of our Common
Stock. An extension of the Conditional Warrant is being negotiated. The
Debentures, Warrants, and Conditional Warrant were sold and issued to PKI in a
private transaction exempt from registration under Section 4(2) of the
Securities Act of 1933.
11
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CONVERTIBLE DEBENTURES (12%)
During the year ended May 31, 2000, the Company issued $350,000 of
convertible debentures maturing on September 1, 2004. Interest is payable at 12%
semi-annually. Interest has been deferred until May 2001. The debentures are
convertible at the holder's option at any time beginning one year after issuance
at a conversion price of $1.00 per share. The debentures include warrants to
purchase 350,000 common shares at a price of $2.00 per share. The warrants
expire two years from the date of issuance.
CONVERTIBLE PREFERRED STOCK
During the year ended May 31, 1998, the Company, from the 5,000,000
shares, authorized, issued 1,143,750 of convertible preferred stock for $1 per
share. The shares have a par value of $.001, do not pay dividends, are
convertible at the holder's option for one share of the Company's common stock,
and receive up to 20%, if totally subscribed, of the gross proceeds from the
Company's sales of its portable individual air purifier for a two-year period.
As of November 30, 2000 and 1999, there were 990,625 and 1,143,750 shares of
preferred stock outstanding, respectively.
COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The company is currently obligated under noncancellable operating
leases for its Dallas office and warehouse facilities, which expire in December
2003.
Minimum future rental payments required under the above operating lease
is as follows:
Year Ending May 31
------------------
2001..................................................... $100,275
2002..................................................... 73,566
2003..................................................... 16,080
2004..................................................... 9,380
--------
$199,301
========
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts and
notes receivable, and trade payables.
12
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CASH
The Company maintains its cash in bank deposit and other accounts,
which, at times, may exceed federally insured limits. The Company invests excess
cash not required for operations in US Treasury repurchase agreements in
connection with its cash management account with its primary bank. The Company
has not experienced any losses in such accounts, and does not believe it is
subject to any credit risks involving its cash.
ACCOUNTS AND NOTES RECEIVABLE, TRADE
The Company accounts and notes receivables are unsecured and represent
sales not collected to date. Management believes these accounts and notes
receivables are fairly stated at estimated net realizable amounts.
STOCK OPTIONS AND WARRANTS
Through the quarter ended November 30, 2000 and 1999, the Company has
issued various stock options and warrants to employees and others and uses the
intrinsic value method of accounting for these stock options. Compensation cost
for options granted has not been recognized in the accompanying financial
statements because the amounts are not material and its exercise price exceeded
the common stock fair market value at the date of option. The options and
warrants expire between September 2000 and February 2003 and are exercisable at
prices from $0.20 to $10.00 per option or warrant. Exercise prices were set at
or above the underlying common stock's fair market value on the date of grant.
SUBSEQUENT EVENT
On November 2, 2000, the Company and its subsidiary entered into a
Stock Purchase Agreement with Southern Therapy, Inc. and its principal
shareholders ("STI") to purchase the majority of shares of STI. The Company is
in negotiation to extend the closing date in order to obtain third party
approvals. The Company expects to close the purchase prior to January 31, 2001.
The Company cannot assure you that this will be accomplished. The terms of the
Agreement is based upon a purchase price of two million dollars, paid as a stock
swap in three equal payments over two years based upon the stock price of the
Company Common Stock at the time of payment. The total number of shares of stock
to be transferred are, therefore, not determinable at this time.
On November 2, 2000, the Company entered into a Stock Purchase
Agreement with ScooterNation, Inc. It was contemplated that a closing would
occur on January 5, 2001. The Company and the shareholders of ScooterNation,
Inc. have subsequently agreed not to consummate the Agreement. The Parties
agreed that due to the start up nature and the capital requirements of
ScooterNation, it was not a good fit for the Company. If the Company completes
the purchase of Southern Therapy, Inc. the Company will still hold a minor
equity position in ScooterNation, Inc.
13
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA SUMMARY FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATING BALANCE SHEETS
NOVEMBER 30, 2000
AIRTECH INTERNATIONAL GROUP SOUTHERN THERAPY, INC. ELIMINATION PRO FORMA
INC. AND SUBSIDIARIES COMBINED
BALANCE SHEET
ASSETS
Current Assets $ 2,486,832 $ 3,483,759 $ (34,000) $ 5,936,591
Property & Equipment 160,955 269,935 430,890
Notes Receivable 1,078,312 400,000 1,478,312
Other Assets 1,311,510 46,516 1,358,028
------------ ------------ ------------ ------------
Total $ 5,037,609 $ 4,200,210 $ (34,000) $ 9,203,819
============ ============ ============ ============
LIABILITIES
Current Liabilities $ 2,208,409 $ 3,389,774 $ (25,500) $ 5,572,693
Long Term Liabilities 3,295,000 3,170,000 6,465,000
------------ ------------ ------------
Total Liabilities 5,503,419 6,559,774 12,037,693
Stockholders' Deficit (465,810) (2,359,564) $ (8,500) (2,833,874)
------------ ------------ ------------ ------------
Total $ 5,037,609 $ 4,200,210 $ (34,000) $ 9,203,819
============ ============ ============ ============
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000
AIRTECH INTERNATIONAL GROUP SOUTHERN THERAPY, INC. ELIMINATION PRO FORMA
INC. AND SUBSIDIARIES COMBINED
STATEMENT OF
OPERATIONS
Revenues $ 1,004,573 $2,586,828 $ 25,500 $ 3,565,901
Costs and Expenses 2,070,160 3,173,065 (17,000) 5,226,225
Interest Expense 122,710 245,865 368,575
Income Tax -- -- --
Gain on Sale of Subsidiary -- 227,279 227,279
----------- ---------- --------- -----------
Net Loss $(1,188,297) $ (604,823) $ 8,500 $(1,801,620)
=========== ========== ========== ===========
14
PART I
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
The Company restated and refilled its Financial Statements for the year
ended May 31, 1999 and the comparable period ending May 31, 1998 in conformance
with the reverse merger with ITC. The Company originally filed the May 31, 2000
10-K/SB and November 30, 2000 financial statements incorporating this reverse
merger. The November 30, 1999 comparable period financial statements were also
restated to reflect the reverse merger.
1. RESULTS OF OPERATIONS
Revenues
The Company's Revenues for the three months ended November 30, 2000
increased $312,814 or 181% more than the comparable $173,122 revenue in
1999. This increase is due to sales of Company products exceeding the prior
period sales by $403,039. This increase was partially offset by a decrease
of $90,225 in Franchise Fee and Other Income revenues for 1999 compared to
$10,000 for 2000. The Company is currently waiving franchise fees for
prospective franchisees that possess direct marketing skills and indoor air
quality experience. The waiver is in lieu of extensive training and start
up time lags that net save the Company money.
For the six months ended November 30, 2000, the Revenues increased
$471,010 or 88% over the comparable six months ended November 30, 1999. The
increase in Revenues were likewise partially offset by the decrease in
Franchise Fees and Other Income of $105,225 with $10,000 in comparable
income for the current six months ended November 30, 2000.
Costs and Expenses
The Company's Salaries and Wages increased 54% or $92,497 for the
current three-month period compared to the three months ended November 30,
1999. The increase is due to additional sales personnel in the direct sales
commercial division and the salaries for the Company Franchise store. There
were no comparable Company Franchise Stores open in 1999 and fewer
Commercial sales persons.
For the six-month periods, salaries and wages increased $216,977 or 56%
to total $602,115 at November 30, 2000. The Company owned three additional
franchise stores during the three months ended November 30, 2000 compared
to the six months ended November 30, 2000. As in the three-month period
there were no comparable sales persons nor Company stores in 1999.
The Research and Development expense increased 57% or $20,375 and
$48,750 or 59% for the three and six month periods ended November 30, 2000
compared to the three and six months in the prior year, 1999. The increase
was primarily due to increased testing and development of the Company's new
in-line unit, the Model S-30.
15
The Cost of Sales increased $143,741 for the six months ended November
30, 2000, resulting in $559,390 in costs. This increase, however, is the
result of additional product sales such that, as a percentage of sales, the
costs decreased from over 90% to 56% for the current six month period. The
prior periods reflected inventory writeoffs and other adjustments. For the
three month period, the cost of sales as a percentage of product sales
decreased from over 100% to 58% for these months.
Similarly, the advertising and marketing expenses, including, design
and development of brochures increased 42% or $36,236 for the three months
and 69% or $135,200 for the six months ended November 30, 2000 compared to
the costs for the three and six months ended November 30, 1999. The
increases are the result of increased marketing expenses for the Model S-30
and Company franchise store advertising expenses.
Depreciation and Amortization increased $62,950 and $87,716 to total
$82,285 and $160,472, respectively, for the three and six months ended
November 30, 2000 compared to $19,335 and $72,756 for the 1999 three and
six month periods. The 42% and 69% increase, respectively, is due to the
commencement in 2000 of the amortization of Prepaid Royalties that was not
required in 1999.
General and Administrative expenses of $181,033 decreased $92,062 or
34% for the three months ended November 30, 2000 compared to $273,095 for
the three months in 1999. General and Administrative expenses reflect one
time charges in 1999 for legal expenses with no comparable expense in 2000.
Conversely the comparable six-month periods show an increase in General and
Administrative expenses of $137,525 or 46% resulting in a $431,538 expense
for the six months ended November 30, 1999. The General expense increased
due to the operating overhead expenses for the Company owned franchise
stores as well as general corporate legal and accounting increased
expenses.
Interest Expense
Interest expenses increased over the prior year due to the provision
for interest on the Convertible Debentures that were sold in early 2000 and
not outstanding in the comparable periods ended November 30, 1999. The over
222% increase resulted in a $41,420 and $85,434 increase over the prior
years, resulting in $60,100 and $122,710 in interest expense for the
current three and six month periods ending November 30, 2000.
In total, the net loss for the three months ended November 30, 2000
increased 6% or $30,420 to a $491,656 loss, which is a $0.02 loss per share
for that period. This compares to a $1,188,297 or $0.05 loss per share for
the six months ended November 30, 2000, or a $384,333 increase in losses
over the six months ended November 30, 1999. The November 30, 1999 loss was
$461,236 or $0.03 per share for the three months and $803,964 or $0.05 per
share for the six-month period.
2. LIQUIDITY AND CAPITAL RESOURCES
During the calendar year 2000, the overall financial markets eroded as
exemplified by the NASDAQ Composite Index free falling over 40% during that
period. Likewise interest rates in this period alone increased 100 basis
points in the same time frame. Add the longest Presidential
16
election decision and some Middle East unrest, it is easy to see that
the Company was not immune from this recessionary bias. The Company is
in discussion with the New York City investment company that funded
$2,500,000 of a $5,000,000 6% Convertible Debenture to extend the
funding period for the conditional warrant from the December 22, 2000
due date. The Company has no assurance that the date can be extended nor
that the conditional warrants will be exercised. The Company expects to
be able to consummate up to $10,000,000 in a stock based equity line of
credit, sale of an additional $2,000,000 to $5,000,000 in Convertible
Debentures or a combination of equity backed collateral financing. The
Company is selling Consumer Franchises and expects to sell 50 to 100
Franchises by the end of the year. Although the fees have been waived
for the first number of franchisees that have Indoor Air Quality and
direct sale experience, the franchise fees to be generated could result
in up to $1,400,000 in fees to the Company. The proposed merger with
Southern Therapy Inc. is not complete at this time. The Company can not
assure you that it will close, however, if the merger occurs the Company
feels that the additional sales of Company products into the medical
markets and the normal sales for the subsidiary will produce additional
cash flow for the combined Company. The Company feels that these
resources along with increased sales of Company products, including the
new Model S-30, will enable the Company to aggressively pursue the
indoor air purification and durable medical equipment supply market with
adequate funding.
The Company and its proposed subsidiary do not have any plans for major
capital outlays outside of the regular course of business over the next
twelve months. Any increased expenditure will be based on consumer demand
or made to order products, thereby resulting in predictable payoff periods.
Certain statements in this form 10-Q/SB constitute "forward looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act"). The words "believe," "expect,"
"anticipate," "intend," "estimate," and other expressions which are
predictions of or indicate future events and trends and which do not relate
to historical matters identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements
and to note that they speak only as of the date hereof. Although
forward-looking statements reflect management's good faith beliefs,
reliance should not be placed on uncertainties and other factors, which may
cause the actual results, performance, or achievements of the Company to
differ materially from anticipated future results, performance, or
achievements expressed or implied by such forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise.
17
PART II-OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
The company has been named as a defendant in a number of lawsuits
arising in the ordinary course of business. In some of these cases a judgment
was rendered against the Company. The Company has answered these routine causes
of action where appropriate and agreed to a payment schedule with respect to
others. The Company has fully reserved for these claims and causes of action in
our consolidated financial statements in the aggregate amount of $68,000.
In 1978, the Company was also named as a defendant in a cause of action
styled LLB REALTY, L.L.C. V INTERACTIVE TECHNOLOGIES, CORP., Cause No.
MER-L-1534-97, in the Superior Court of New Jersey, Mercer County. The complaint
alleges damages relating to a lease agreement entered into by the Company for
office facilities in New Jersey. The Company never occupied the space based upon
the plaintiff (lessor) failing to finish out the space pursuant to the Company's
specifications. The complaint alleges damages of approximately $607,000 for
remaining lease payments, finish-out costs and lost revenues. Although the
Company is currently in negotiations for a favorable settlement relating to the
complaint, the outcome of these negotiations is uncertain. The Company
established a reserve in our consolidated financial statements in the amount of
$200,000 in anticipation of a settlement.
The Company is also a defendant in a lawsuit filed March 2, 2000 called
H.A.A. INC. V AIRTECH INTERNATIONAL GROUP, INC., Cause No. oo CV-1603 (KMW) in
the United States District Court for the Southern District of New York. The
plaintiff is seeking specific performance of an alleged contract providing for
our sale to the plaintiff of 1,854,386 shares of our common stock for a cash
purchase price of $419,000. The case is in the later stages of discovery and we
intend to vigorously defend against the plaintiff's claims. We have not
established any reserves for this action.
ITEM 2
Changes in Securities, None
ITEM 3
Defaults upon Senior Securities, None
ITEM 4
Submission of Matters to Vote of Security Holders:
During the six months ended November 30, 2000 there was one submission
of matters for shareholders' vote. At the Annual Shareholders Meeting, five (5)
Directors were elected to serve until the next Annual Meeting or until the
successors are elected. The elected Directors are: CJ Comu, James R. Halter, R.
John Harris, Dr. Andrew Welch, MD, and Robert Galvan. In addition, the
shareholders approved Turner, Stone & Company LLP as auditors for the 2001
fiscal year. No other matters were submitted for shareholder vote.
18
PART II-OTHER INFORMATION
(CONTINUED)
ITEM 5
Other Information, None
ITEM 6
Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K, None
19
PART II-OTHER INFORMATION
(CONTINUED)
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, thereunder duly authorized, and in the capacity as the Registrant's
Chief Executive Officer and Chief Financial Officer, respectively.
Dated: January 19, 2001
AIRTECH INTERNATIONAL GROUP, INC.
By: /s/ CJ Comu
----------------------------------------
CJ Comu
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /s/ James R. Halter
----------------------------------------
James R. Halter
CHIEF FINANCIAL AND ACCOUNTING OFFICER
20