As filed with the Securities and Exchange Commission on November 3, 2005
An Exhibit List can be found on page II-6.
Registration No. 333-122771
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AIRTRAX, INC.
(Name of small business issuer in its charter)
New Jersey 22-3506376
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
200 Freeway Drive, Unit One
---------------------------
Blackwood, NJ 08012
-------------------
(856) 232-3000
--------------
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
PETER AMICO, PRESIDENT AND CEO
200 Freeway Drive, Unit One
Blackwood, NJ 08012
(856) 232-3000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
WITH COPIES TO:
RICHARD A. FRIEDMAN, ESQ.
ERIC A. PINERO, ESQ.
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 AVENUE OF AMERICAS
NEW YORK, NEW YORK 10018
(212) 930-9700
Fax: (212) 930-9725
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Pursuant to Rule 429 promulgated under the Securities Act of 1933, the enclosed
prospectus constitutes a combined prospectus also relating to an aggregate of up
to 6,760,188 shares of our common stock that were previously registered for sale
in a Registration Statement on Form S-2, Registration No. 333-116475, as amended
by Registration Statements Amendment No. 1, Amendment No. 2 on Form S-2 and
Post-Effective Amendment No. 1, Registration Nos. 333-116475. As such, this
prospectus also constitutes Post-Effective Amendment No. 2 to the Registration
Statement on Form S-2, Registration No. 333-116475, which shall hereafter become
effective concurrently with the effectiveness of this Registration Statement on
Form SB-2 in accordance with Section 8(c) of the Securities Act of 1933.
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------
Common Stock, no par value 1,640,000(2) $2.20 $3,608,000 $424.66*
--------------------------------------------------------------------------------------------------------------------
Common Stock, no par value 1,184,001(3) $2.20 $2,604,802.20 $306.59*
--------------------------------------------------------------------------------------------------------------------
Common Stock, no par value 3,874,605(4) $3.05(6) $11,817,545.25 $1,390.93**
--------------------------------------------------------------------------------------------------------------------
Common Stock, no par value 3,269,234(5) $3.05(6) $9,971,163.70 $1,173.61**
--------------------------------------------------------------------------------------------------------------------
TOTAL 9,967,840 $3,245.33
====================================================================================================================
*Previously paid.
** Filing fee to be paid upon filing of this Amendment No. 1 to the Company's
registration statement on Form SB-2.
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of 1933,
using the average of the high and low price as reported on the Over-The-Counter
Bulletin Board on February 10, 2005.
(2) Represents shares of common stock issued to certain of the selling
stockholders pursuant to the Company's November 2004 Private Placement.
(3) Represents shares of common stock underlying warrants issued to certain of
the selling stockholders pursuant to the Company's November 2004 Private
Placement.
(4) Represents shares of common stock issued upon a conversion of principal and
interest payable to certain of the selling stockholders under our 6% convertible
promissory note pursuant to the Company's February 2005 Private Placement.
(5) Represents shares of common stock underlying warrants issued to certain of
the selling stockholders pursuant to the Company's February 2005 Private
Placement.
(6) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of 1933,
using the average of the high and low price as reported on the Over-The-Counter
Bulletin Board on November 2, 2005.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
EXPLANATORY NOTE
In addition to responding to a comment letter from the Commission dated as of
March 11, 2005, this Amendment No. 1 to our registration statement on Form SB-2
is being filed in order to register an aggregate of 7,143,836 shares of our
common stock, including (i) 3,874,605 shares issued upon a conversion of
principal and interest payable to certain of the selling stockholders under our
6% convertible promissory notes; and (ii) 3,269,231 shares underlying warrants
issued to certain of the selling stockholders pursuant to a certain Subscription
Agreement dated as of February 11, 2005. Any issuance of shares of common stock
pursuant to the Subscription Agreement that would require us to issue shares of
2
common stock in excess of our authorized capital was contingent upon us
obtaining shareholder approval to increase our authorized shares of common stock
from 20,000,000 to 100,000,000 and filing the certificate of amendment to our
certificate of incorporation. We held a special meeting of our shareholders on
March 28, 2005 pursuant to which a majority of our shareholders approved an
amendment to our certificate of incorporation to increase our authorized common
stock from 20,000,000 to 100,000,000 shares. Accordingly, we are registering the
aforementioned shares of common stock pursuant to the Subscription Agreement.
3
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED NOVEMBER 3, 2005
PROSPECTUS
Airtrax, Inc.
16,593,028 Shares of Common Stock
This prospectus relates to the resale by the selling stockholder of 16,593,028
shares of our common stock, including 7,550,645 shares issuable upon the
exercise of warrants and 3,874,605 shares issuable upon conversion of our 6%
convertible promissory notes. The selling stockholder may sell common stock from
time to time in the principal market on which the stock is traded at the
prevailing market price or in negotiated transactions.
We will pay the expenses of registering these shares. We will not receive any
proceeds from the sale of shares of common stock in this offering. All of the
net proceeds from the sale of our common stock will go to the selling
stockholders.
Our common stock is registered under Section 12(g) of the Securities Exchange
Act of 1934 and is listed on the Over-The-Counter Bulletin Board under the
symbol "AITX." The last reported sales price per share of our common stock as
reported by the Over-The-Counter Bulletin Board on November 2, 2005 was $3.05.
Investing in these securities involves significant risks. Investors should not
buy these securities unless they can afford to lose their entire investment.
SEE "RISK FACTORS" BEGINNING ON PAGE 12.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is November__, 2005.
The information in this prospectus is not complete and may be changed. This
prospectus is included in the registration statement that was filed by Airtrax,
Inc., with the Securities and Exchange Commission. The Selling Stockholder may
not sell these securities until the registration statement becomes effective.
This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
4
TABLE OF CONTENTS
Page
-------
Prospectus Summary 6
Recent Developments 8
Risk Factors 12
Use of Proceeds 16
Market for Common Equity and Related Stockholder Matters 16
Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Business 25
Description of Property 35
Legal Proceedings 36
Management 36
Executive Compensation 37
Certain Relationships and Related Transactions 39
Security Ownership of Certain Beneficial Owners and Management 41
Description of Securities Being Registered 43
Indemnification for Securities Act Liabilities 44
Selling Stockholders 45
Plan of Distribution 53
Legal Matters 56
Experts 56
Available Information 56
Index to Consolidated Financial Statements 57
Part II. Information Not Required in Prospectus 94
Indemnification of Directors and Officers 94
Other Expenses of Issuance and Distribution 94
Recent Sales of Unregistered Securities 94
Exhibits 97
Undertakings 99
Signatures 100
5
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements.
Airtrax, Inc.
Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured. Ten commercial omni-directional lift
trucks carrying the UL Label have been delivered to customers in the United
States and Canada as of October 25, 2005 and several others are ready to ship
pending receipt of funds or consummation of letters of credit or other credit
facilities. We believe that up to a total of 84 units could be manufactured and
sold through the fourth quarter of 2005 pending receipt of parts by certain
vendors.
We have commenced production and have most of the parts required for production
of another 74 units of our Sidewinder ATX-3000 Omni-Directional Lift Truck
during the 4th quarter of 2005. As of October 27, 2005 we do not have all of the
parts required from every vendor for completion of the 74 trucks heretofore
noted. The assembly and sale is dependent upon delivery of all of the required
parts.
Omni-Directional means that vehicles designed and built by us can travel in any
direction. Our Omni-directional vehicles are controlled with a joystick. The
vehicle will travel in the direction the joystick is pushed. If the operator
pushes the joystick sideways, the vehicle will travel sideways. If the operator
were to twist the joystick the vehicle will travel in circles. Our
omni-directional vehicles have one motor and one motor controller for each
wheel. The omni-directional movement is caused by coordinating the speed and
direction of each motor with joystick inputs which are routed to a
micro-processor, then from the micro-processor to the motor controllers and
finally to the motor itself.
Complete assembly is conducted by us at our newly leased facilities at 200
Freeway Drive Unit One, Blackwood, NJ 08012. Approximately 50% of the frames are
manufactured in the United States. These frames are shipped to the Blackwood
plant for complete assembly. In addition to the assembly of vehicles at
Blackwood, partially assembled vehicles are shipped to the Blackwood facility
from the Filco plant in Germany. To date, partial assembly of approximately 19
lift trucks have been completed at the Filco plant, 14 of which and have been
shipped to the USA for final assembly. To date, a total of approximately 80 lift
trucks will be shipped from Bulgaria to the Filco plant for partial assembly and
shipped to the Blackwood plant for final assembly during the fourth quarter of
2005.
We have incurred losses and experienced negative operating cash flow since our
formation. For the six months ended June 30, 2005 and 2004, we had a net loss of
$(2,157,103) and $(783,880), respectively. For our fiscal years ended December
31, 2004 and 2003, we had a net loss of $(2,272,200) and $(2,282,946),
respectively. We expect to continue to incur significant expenses. Our operating
expenses have been and are expected to continue to outpace revenues and result
in significant losses in the near term. We may never be able to reduce these
losses, which will require us to seek additional debt or equity financing.
Our principal executive offices and assembly plant are located at 200 Freeway
Drive, Unit One, Blackwood, NJ 08012 and our telephone number is (856)
232-3000). We are incorporated in the State of New Jersey.
The Offering
Common stock offered by selling stockholders........................Up to 16,593,028 shares, including up to 7,550,645 shares
issuable upon the exercise of common stock purchase
warrants, assuming full exercise of the warrants, and
3,874,605 shares issuable upon conversion of our 6%
convertible promissory notes, assuming full conversion of
the notes. This number represents 75.8% of the total number
of shares to be outstanding following this offering assuming
the exercise of all securities being registered.
Common stock to be outstanding after the offering................... Up to 33,331,424 shares
Use of proceeds..................................................... We will not receive any proceeds from the sale of the common
stock. However, we will receive the exercise price of any
common stock we issue to the selling stockholders upon
exercise of the warrants, if and when exercised by the
selling stockholders. We expect to use the proceeds received
from the exercise of their warrants, if any, for general
working capital purposes.
6
Over-The-Counter Bulletin Board Symbol.............................. AITX
The above information regarding common stock to be outstanding after the
offering is based on 21,906,174 shares of common stock outstanding as of October
31, 2005 and assumes the subsequent issuance of common stock to the selling
stockholders and exercise of warrants by our selling stockholders.
7
EXPLANATORY NOTE
In addition to responding to a comment letter from the Commission dated as of
March 11, 2005, this Amendment No. 1 to our registration statement on Form SB-2
is being filed in order to register an aggregate of 7,143,836 shares of our
common stock, including (i) 3,874,605 shares issued upon a conversion of
principal and interest payable to certain of the selling stockholders under our
6% convertible promissory notes; and (ii) 3,269,231 shares underlying warrants
issued to certain of the selling stockholders pursuant to a certain Subscription
Agreement dated as of February 11, 2005. Any issuance of shares of common stock
pursuant to the Subscription Agreement that would require us to issue shares of
common stock in excess of our authorized capital was contingent upon us
obtaining shareholder approval to increase our authorized shares of common stock
from 20,000,000 to 100,000,000 and filing the certificate of amendment to our
certificate of incorporation. We held a special meeting of our shareholders on
March 28, 2005 pursuant to which a majority of our shareholders approved an
amendment to our certificate of incorporation to increase our authorized common
stock from 20,000,000 to 100,000,000 shares. Accordingly, we are registering the
aforementioned shares of common stock pursuant to the Subscription Agreement.
RECENT DEVELOPMENTS
May 2004 Private Placement
On May 7, 2004, Airtrax, Inc. ("AITX" or "we") and several accredited investors
(collectively, the "Investors") entered into a Subscription Agreement whereby
the Investors agreed to purchase an aggregate of 3,600,125 shares of common
stock at a price of $0.80 per share for an aggregate purchase price of
$2,855,100. In addition, the Investors received warrants, exercisable at $1.25
per share, to purchase 50% of the shares issued. The market price of our common
stock on May 7, 2004 was $1.24.
In connection with Subscription Agreement, AITX and the Investors also entered
into a Registration Rights Agreement. AITX is obligated to file a registration
statement covering the above-referenced common stock and shares underlying the
warrants within 30 days of closing. If the Registration Statement is not filed
within the 30 day period, or declared effective within 105 days of the closing,
AITX will pay a penalty of 1% of the offering proceeds for the first month and
2% of such amount per month thereafter in penalties until such default is cured,
on a pro-rated daily basis.
Pursuant to Rule 429 under the Securities Act, the prospectus filed as part of
this registration statement also relates to securities of the registrant
registered pursuant to the registration statement of the registrant on Form S-2,
Registration No. 333-116475, as amended by Registration Statements Amendment No.
1 and Amendment No. 2 on Form S-2, Registration Nos. 333-116475.
November 2004 Private Placements
On November 22, 2004, we entered into a Purchase Agreement (the "Purchase
Agreement") pursuant to which we sold and issued 1,125,000 shares of Common
Stock, no par value (the "Common Shares"), and common stock purchase warrants
(the "Warrants") to purchase 562,500 shares of our Common Stock (the "Warrant
Shares") to certain purchasers who are a party to the Purchase Agreement (the
"Purchasers") for an aggregate purchase price of $900,000. Thereafter, on
November 23, 2004, we entered into Joinders to the Purchase Agreement pursuant
to which we sold and issued an additional 515,000 shares of common stock and
Warrants to purchase an additional 257,500 Warrant Shares to certain purchasers
who are a party to the Joinders to the Purchase Agreement for an aggregate
purchase price of $412,000. The market price of our common stock on November 22,
and 23, 2004, the first and second closings of the November 2004 private
placement, was $1.04 and $1.06, respectively.
The Warrants are exercisable from November 22, 2004 until November 22, 2009 for
up to 562,500 shares of common stock and from November 23, 2004 until November
23, 2009 for up to 257,500 shares of common stock, each at an exercise price of
$1.25 per share, subject to adjustment upon the occurrence of specific events,
including stock dividends, stock splits, combinations or reclassifications of
our common stock or distributions of cash or other assets. In addition, the
Warrants contain provisions protecting against dilution resulting from the sale
of additional shares of our common stock for less than the exercise price of the
Warrants, or the market price of the common stock, on the date of such issuance
or sale (the "Anti-Dilution Shares"). The Warrants do not entitle the holders to
any voting or other rights as a stockholder until such Warrants are exercised
and common stock is issued.
8
In addition, we entered into a Registration Rights Agreement on November 22,
2004 and a Joinder to the Registration Rights Agreement on November 23, 2004
with the Purchasers and the Placement Agent (as defined below) pursuant to which
we are obligated to file a registration statement on Form SB-2 (or if Form SB-2
is not then available to us, on such form of registration statement that is
available to effect the registration of the Common Shares) within 45 days after
the closing date. We must register at least the number of shares of our Common
Stock equal to the Common Shares plus the number of shares necessary to permit
the exercise in full of the Warrants. If we do not file the registration
statements with the SEC within 45 days after the closing date, we are required
to make pro rata payments to the Purchasers, as liquidated damages and not as a
penalty, in an amount equal to 2.0% of the aggregate amount invested by each
Purchaser for each 30 day period or pro rata for any portion thereof following
the date by which such registration statement should have been filed.
We are also obligated to file a one or more registration statements on Form SB-2
or amend the registration statement previously filed, as described in the
preceding paragraph, if such registration statement has not previously been
declared effective covering the Anti-Dilution Shares within 10 days following
written demand by any Purchaser following the issuance of Anti-Dilution Shares.
If a registration statement covering the Anti-Dilution Shares is required to be
filed and is not filed with the SEC within 10 days of the request of any
Purchaser, we will make pro rata payments to each Purchaser in an amount equal
to 2.0% of the aggregate amount invested by such Purchaser for each 30-day
period or pro rata for any portion thereof following the date by which such
registration statement should have been filed for which no registration
statement is filed with respect to the Anti-Dilution Shares.
If a registration statement covering the Common Shares is not declared effective
by the SEC within 90 days after the closing date or if a registration statement
covering Anti-Dilution Shares is not declared effective by the SEC within 90
days following the time such registration statement was required to be filed,
then the Company will make pro rata payments to each Purchaser, as liquidated
damages and not as a penalty, in an amount equal to 2,0% of the aggregate amount
invested by such Purchaser for each 30-day period or pro rata for any portion
thereof following the date by which such registration statement should have been
effective.
First Montauk Securities Corp. (the "Selling Agent") acted as selling agent in
connection with the offering. We issued a total of 176,500 Warrants on November
22 & 23, 2004 to the Selling Agent and the Selling Agent received gross fees of
$174,560, as consideration for services performed in connection with the
issuance of the Common Shares and Warrants to the Purchasers pursuant to the
Purchase Agreement. The Selling Agent has no obligation to buy any Common Shares
from us. In addition, we have agreed to indemnify the Selling Agent and other
persons against specific liabilities under the Securities Act of 1933, as
amended.
The issuance of the shares and the warrants was exempt from registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) of such
Securities Act and Regulation D promulgated thereunder based upon the
representations of each of the Investors that it was an "accredited investor"
(as defined under Rule 501 of Regulation D) and that it was purchasing such
securities without a present view toward a distribution of the securities. In
addition, there was no general advertisement conducted in connection with the
sale of the securities.
February 2005 Private Placement
On February 11, 2005, we entered into a Subscription Agreement (the
"Subscription Agreement") pursuant to which we sold an aggregate of $5,000,000
of principal amount promissory notes (the "Notes") convertible into shares of
our common stock, no par value, and Class A and Class B share purchase warrants
(the "Warrants") to purchase shares of our common stock to certain purchasers
who are a party to the Subscription Agreement (the "Purchasers"). The market
price of our common stock on February 11, 2005 was $2.20.
We utilized the proceeds from the February 2005 private placement in the
following manner:
o approximately $450,000 for salaries and fees;
o approximately $200,000 to purchase, rent or lease, and installation,
of machinery and equipment;
o approximately $168,000 for the construction and/or leasing of plant
buildings and facilities;
o approximately $1,500,000 in loans to Filco GmbH;
o approximately $1,259,500 for working capital;
o approximately $700,000 for engineering, inventory and marketing; and
o approximately $722,500 in commissions and legal fees.
9
In addition, proceeds utilized for working capital were partially for the
production of the Sidewinder Omni-Directional Lift Truck and the Cobra Aerial
Work Platform System. Initiating production of the aforementioned vehicles
require substantial investment in inventories and tooling. Our loan to Filco
GmbH in the amount of approximately $1.5 million was used to bring this plant
into the production phase of conventional forklift trucks. In addition, Filco
partially assembles the Sidewinder Lift Truck from parts made for us which have
a European origin. These European parts, include, but are not limited to, the
frame, transmissions, brakes, motors, controllers, seats and the mast, are being
assembled at Filco in Germany and shipped to the United States for final
assembly.
The Notes mature on August 10, 2005 and pay simple interest accruing at the
annual rate of 6%, either in the form of freely-tradeable common stock, which
shall be valued at the conversion price in effect at the maturity date, or cash,
each at our option. The Notes are convertible into shares of our common stock at
a conversion price equal to $1.30, subject to adjustment in certain events,
including, without limitation, upon our consolidation, merger or sale of all 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. We may
in our discretion require that the Purchasers convert all or a portion of the
Notes and the Purchasers may in their discretion require that we redeem all or a
portion of the Notes pursuant to the Subscription Agreement.
In addition, we issued an aggregate of 1,923,077 Class A Warrants and 961,538
Class B Warrants, representing 50 Class A Warrants and 25 Class B Warrants for
each 100 shares of common stock which would be issued on the closing date
assuming the complete conversion of the Notes issued on the closing date at the
conversion price in effect on the closing date. The Class A Warrants are
exercisable at a price equal to $1.85 from the date of issuance until 5 years
after the closing date. The Class B Warrants are exercisable at a price equal to
$2.11, representing 101% of the 3 day average closing bid prices of our common
stock on the trading day immediately preceding the closing date, from the date
of issuance until 5 years after the closing date. The Class A and Class B
Warrants both have a cashless feature.
Under the Subscription Agreement, we are obligated to file a registration
statement on Form SB-2 (or if Form SB-2 is not then available to us, on such
form of registration statement that is available to effect the registration of
the common stock issuable upon conversion of the Notes and exercise of the
Warrants) within 10 days after the effectiveness of this registration statement.
We are obligated to use our best efforts to amend this registration statement to
include the shares of our common stock issuable upon conversion of the Notes and
exercise of the Warrants. In addition, we shall cause the registration statement
to be declared effective no later than 105 days after the filing date.
First Montauk Securities Corp. (the "Selling Agent") acted as selling agent in
connection with the offering. We issued a total of 384,616 Warrants on February
11, 2005 to the Selling Agent and the Selling Agent received gross fees of
$650,000, as consideration for services performed in connection with the
issuance of the Notes and Warrants to the Purchasers pursuant to the
Subscription Agreement. The Selling Agent has no obligation to buy any Notes or
Warrants from us. In addition, we have agreed to indemnify the Selling Agent and
other persons against specific liabilities under the Securities Act of 1933, as
amended.
The issuance of the Notes and the Warrants was exempt from registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) of such
Securities Act and Regulation D promulgated thereunder based upon the
representations of each of the Purchasers that it was an "accredited investor"
(as defined under Rule 501 of Regulation D) and that it was purchasing such
securities without a present view toward a distribution of the securities. In
addition, there was no general advertisement conducted in connection with the
sale of the securities.
May 2005 Private Placement
On May 31, 2005, we entered into a 8% Series B Unsecured Convertible Debenture
and Warrants Purchase Agreement (the "Purchase Agreement") with one accredited
investor pursuant to which we sold a $500,000 principal amount unsecured
convertible debenture (the "Debenture") convertible into shares of our common
stock, no par value, and stock purchase warrants (the "Warrants") to purchase
shares of our common stock to a certain investor who is a party to the Purchase
Agreement (the "Investor") for an aggregate purchase price of $500,000.
The Debenture matures on May 31, 2007 and pays simple interest quarterly
accruing at the annual rate of 8%, either in the form of our common stock, which
shall be valued at the conversion price in effect on the trading day prior to
the date interest is due, or cash, each at our option. The Debenture is
convertible into shares of our common stock at a conversion price equal to
$1.30, subject to adjustment in certain events, including, without limitation,
10
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. We may in our
discretion require that the Investor convert all or a portion of the Debenture
and the Investor may in its discretion require that we redeem all or a portion
of the Debenture.
In addition, we issued 384,615 Warrants to the Investor, representing an amount
of Warrants equal to 100% of the quotient of (i) the principal amount of the
Debenture issued at the closing date divided by (ii) the conversion price on the
closing date. The Warrants are exercisable at a price equal to $2.11, subject to
adjustment in certain events, including, without limitation, upon our
consolidation, merger or sale of all 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, from the date of issuance until 5
years after the closing date.
Under the Registration Rights Agreement we entered into with the Investor on May
31, 2005, we are obligated to file a registration statement on Form S-3 or Form
SB-2 (or if such Forms are not then available to us, on such form of
registration statement that is available to effect the registration of 120% the
common stock issuable upon conversion of the Debenture and exercise of the
Warrants) within 75 days after the date of effectiveness of the registration
statement we filed with the Securities and Exchange Commission (the "SEC") on
February 2, 2005. We are obligated to use our best efforts to cause the
registration statement to be declared effective no later than 35 days after the
filing date (in the event of no SEC review of the registration statement) and no
later than 75 days after the filing date (in the event of SEC review of the
registration statement). If we do not file the registration statement, or if the
registration statement is not declared effective by the SEC, within the
deadlines specified in the preceding sentence, we shall pay to the Investor, as
liquidated damages, an amount equal to 2% of the amount invested by the Investor
on a pro rata basis for each 30-day period of such registration default.
First Montauk Securities Corp. (the "Selling Agent") acted as selling agent in
connection with the offering. We issued a total of 38,462 Warrants on May 31,
2005 to the Selling Agent and the Selling Agent received gross fees of $65,000,
as consideration for services performed in connection with the issuance of the
Debenture and Warrants to the Investor pursuant to the Purchase Agreement. The
Selling Agent has no obligation to buy any Debenture or Warrants from us. In
addition, we have agreed to indemnify the Selling Agent and other persons
against specific liabilities under the Securities Act of 1933, as amended.
Payment of Liquidated Damages
On May 31, 2005 we entered into a Letter Agreement (the "Letter Agreement") with
the accredited investors who participated in our November 2004 private placement
(the "November 2004 Investors") pursuant to which we agreed to pay to the
November 2004 Investors an aggregate amount of $120,429.33, representing an
amount equal to 2% of the aggregate amount invested by the November 2004
Investors for each 30-day period or pro rata for any portion thereof, as
liquidated damages for our failure to file the registration statement within 45
days of November 22, 2004 and for our failure to have such registration
statement declared effective by the SEC within 90 days of November 22, 2004. The
amount paid to the November 2004 Investors pursuant to the Letter Agreement
represents a default of 36 days with respect to filing the registration
statement and a default of 100 days with respect to having the registration
statement declared effective by the SEC. Under the Letter Agreement, the
liquidated damages paid to the November 2004 Investors satisfies our obligations
until June 30, 2005. Further liquidated damages have accrued after June 30,
2005, since as of the date hereof, the SEC has not declared this registration
statement effective.
October 2005 Private Placement
On October 18, 2005, we entered into a 8% Series C Unsecured Convertible
Debenture and Warrants Purchase Agreement with certain accredited investors
pursuant to which we sold an aggregate of $1,000,000 principal amount unsecured
convertible debentures convertible into shares of our common stock, no par
value, and stock purchase warrants to purchase shares of our Common Stock to
certain accredited investors who are parties to the Purchase Agreement for an
aggregate purchase price of $1,000,000.
11
The Debentures mature on October 18, 2007; provided, however, that if our Common
Stock is trading at a closing bid price of less than $2.00 on said maturity
date, the maturity date shall be extended to April 18, 2008. Provided there then
exists no event of default by us under the Debentures, the principal of and any
accrued but unpaid interest due under the Debentures on the maturity date shall
automatically be converted into shares of Common Stock on the maturity date at
the then applicable conversion price. The Debentures pay simple interest
quarterly accruing at the annual rate of 8%, either in the form of our Common
Stock, which shall be valued and computed based upon the lower of (i) $2.00, or
(ii) eighty five (85%) percent the average closing price for our Common Stock
for the 10 trading days prior to the payment due date, or cash, each at our
option. The Debentures are convertible into shares of our Common Stock at a
conversion price equal to $2.00, 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. We may
in our discretion require that the Investors convert all or a portion of the
Debentures and we may also redeem the Debentures at a price equal to 120% of the
principal balance and accrued interest thereon that are requested to be
redeemed.
In addition, we issued 500,000 Warrants to the Investors, representing an amount
of Warrants equal to 100% of the quotient of (i) the principal amount of the
Debentures issued at the closing date divided by (ii) the conversion price on
the closing date. The Warrants are exercisable at a price equal to $3.25, from
the date of issuance until 5 years after the closing date, 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.
Under the Registration Rights Agreement we entered into with the Investors on
October 18, 2005, we are obligated to file a registration statement on Form SB-2
to effect the registration of 200% the Common Stock issuable upon conversion of
the Debentures and exercise of the Warrants within 150 days after October 18,
2005. We are obligated to use our best efforts to cause the registration
statement to be declared effective no later than 35 days after the filing date.
If we do not file the registration statement, or if the registration statement
is not declared effective by the SEC, each within the deadlines specified in the
preceding sentence, we shall pay to the Investors, as liquidated damages, an
amount equal to 2% of the amount invested by the Investors on a pro rata basis
for each 30-day period of such registration default. However, we shall only be
required pay liquidated damages, if any, to the Investors for a total of 9
months, either in the aggregate or for 9 consecutive months.
Further, we paid commissions of $100,000, a non-accountable expense allowance of
$30,000, and issued 50,000 Warrants to the placement agent, a registered broker
dealer firm, each as consideration for services performed in connection with the
issuance of the Debentures and Warrants to the Investors pursuant to the
Purchase Agreement. The placement agent has no obligation to buy any Debentures
or Warrants from us. In addition, we have agreed to indemnify the placement
agent and other persons against specific liabilities under the Securities Act of
1933, as amended.
RISK FACTORS
If you purchase shares of our common stock, you will take on a financial risk.
In deciding whether to invest, you should consider carefully the following
factors, the information contained in this prospectus and the other information
to which we have referred you. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS
WE MAY NEVER BECOME PROFITABLE AND CONTINUE AS A GOING CONCERN BECAUSE WE HAVE
HAD LOSSES SINCE OUR INCEPTION.
12
We may never become profitable and continue as a going concern because we have
incurred losses and experienced negative operating cash flow since our
formation. For the six months ended June 30, 2005 and 2004, we had a net loss of
$(2,157,103) and $(783,880), respectively. For our fiscal years ended December
31, 2004 and 2003, we had a net loss of $(2,272,200) and $(2,282,946),
respectively. We expect to continue to incur significant expenses. Our operating
expenses have been and are expected to continue to outpace revenues and result
in significant losses in the near term. We may never be able to reduce these
losses, which will require us to seek additional debt or equity financing. If
such financing is available you may experience significant additional dilution.
WE HAVE A LIMITED OPERATING HISTORY
We are development stage company, and, together with our predecessor, have been
in operation since 1995. However, since 1995, our operations have been limited
to the development of our omni-directional products, and limited revenue has
been generated during this period. Consequently, our business may be subject to
the many risks and pitfalls commonly experienced by development stage companies.
OUR BUSINESS OPERATIONS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL
FUNDING.
Our business operations will be harmed if we are unable to obtain additional
funding. We believe that our available short-term assets and investment income
will be sufficient to meet our operating expenses and capital expenditures
through the end of fiscal year 2004. We do not know if additional financing will
be available when needed, or if it is available, if it will be available on
acceptable terms. Insufficient funds may prevent us from implementing our
business strategy or may require us to delay, scale back or eliminate certain
opportunities for the provision of our technology and products. In addition to
our own need of working capital, we also will need working capital to fund the
operations of Filco GmbH. Filco has informed us that its working capital needs
are approximately $5,000,000 until it can achieve profitable operations, which
includes approximately $1,300,000 required under the Filco agreement. As of June
30, 2005, we have loaned $5,266,136 to Filco. If we are unable to complete the
terms of the Filco agreement and loan Filco the remaining amounts due
thereunder, Filco may be unable to continue its operations and the repayment of
amounts loaned to Filco by us may be jeopardized.
THE PRICING POLICY FOR OUR FORKLIFTS MAY BE SUBJECT TO CHANGE, AND ACTUAL SALES
OR OPERATING MARGINS MAY BE LESS THAN PROJECTED.
We are assessing present and projected component pricing in order to establish a
pricing policy for the SIDEWINDER Lift Truck. We have not finalized our
assessment as current prices for certain forklift components reflect special
development charges which are expected to be reduced as order volume for such
components increase and as manufacturing efficiencies improve. We intend to
price our forklifts so as to maximize sales yet provide sufficient operating
margins. Given the uniqueness of our product, we have not yet established final
pricing sensitivity in the market. Consequently, the pricing policy for its
forklifts may be subject to change, and actual sales or operating margins may be
less than projected.
WE HAVE RECEIVED LIMITED INDICATIONS OF THE COMMERCIAL ACCEPTABILITY OF OUR
OMNI-DIRECTIONAL FORKLIFT. ACCORDINGLY, WE CANNOT PREDICT WHETHER OUR
OMNI-DIRECTIONAL PRODUCTS CAN BE MARKETED AND SOLD IN A COMMERCIAL MANNER.
Our success will be dependent upon our ability to sell omni-directional products
in quantities sufficient to yield profitable results. To date, we have received
limited indications of the commercial acceptability of our omni-directional
forklift. Accordingly, we cannot predict whether the omni-directional product
can be marketed and sold in a commercial manner.
WE CANNOT ASSURE THAT WE WILL HAVE IN PLACE PATENT PROTECTION AND
CONFIDENTIALITY AGREEMENTS FOR OUR PROPRIETARY TECHNOLOGY. IF WE DO NOT
ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THERE IS A RISK THAT THEY
WILL BE INFRINGED UPON OR THAT OUR TECHNOLOGY INFRINGES UPON ONE OF OUR
COMPETITOR'S PATENTS. AS A RESULT, WE MAY EXPERIENCE A LOSS OF REVENUE AND OUR
OPERATIONS MAY BE MATERIALLY HARMED.
Our success will be dependent, in part, upon the protection of our proprietary
omni-directional technology from competitive use. A form of our omni-directional
technology was originally patented in 1973 and was sold to the US Navy. We
secured a transfer of this technology from the Navy in 1996 under the terms of a
CRADA agreement (Cooperative Research and Development Agreement) and we have
worked since that time to commercialize omni-directional products. We received 3
patents regarding the "redesign" of the wheel. In addition, we have received
patent protection regarding the algorithms used to control vehicular movement.
Further, we have applied for patents for a movable operator's control station
and a munitions handler. Notwithstanding the foregoing, we believe our lack of
patent protection is a material competitive risk. Our competitors could reverse
engineer our technology to build similar products. Also, certain variations to
the technology could be made whereby our competitors may use the technology
13
without infringing upon our intellectual property. The patent for the
omni-directional wheel expired in 1990. We, however, have received patent
protection of certain other aspects of its omni-directional wheel, and for
features specific to our forklift. In addition to the patent applications, we
rely on a combination of trade secrets, nondisclosure agreements and other
contractual provisions to protect our intellectual property rights.
Nevertheless, these measures may be inadequate to safeguard our underlying
technology. If these measures do not protect the intellectual property rights,
third parties could use our technology, and our ability to compete in the market
would be reduced significantly. In addition, if the sale of our product extends
to foreign countries, we may not be able to effectively protect its intellectual
property rights in such foreign countries.
In the future, we may be required to protect or enforce our patents and patent
rights through patent litigation against third parties, such as infringement
suits or interference proceedings. These lawsuits could be expensive, take
significant time, and could divert management's attention from other business
concerns. These actions could put our patents at risk of being invalidated or
interpreted narrowly, and any patent applications at risk of not issuing. In
defense of any such action, these third parties may assert claims against us. We
cannot provide any assurance that we will have sufficient funds to vigorously
prosecute any patent litigation, that we will prevail in any of these suits, or
that the damages or other remedies awarded, if any, will be commercially
valuable. During the course of these suits, there may be public announcements of
the results of hearings, motions and other interim proceedings or developments
in the litigation. If securities analysts or investors perceive any of these
results to be negative, it could cause the price of our common stock to decline.
WE CURRENTLY LACK ESTABLISHED DISTRIBUTION CHANNELS FOR OUR FORKLIFT PRODUCT
LINE
We do not have an established channel of distribution for our forklift product
line. We have initiated efforts to establish a network of designated dealers
throughout the United States. Although we have received indications of interest
from a number of equipment distributors, to date, such indications have been
limited. We cannot predict whether we will be successful in establishing our
intended dealer network.
If we are unable to retain the services of Mr. Peter Amico, or if we are unable
to successfully recruit qualified personnel, we may not be able to continue
operations.
Our ability to successfully conduct our business affairs will be dependent upon
the capabilities and business acumen of current management including Peter
Amico, our President. Accordingly, shareholders must be willing to entrust all
aspects of our business affairs to our current management. Further, the loss of
any one of our management team could have a material adverse impact on our
continued operation.
OUR INDUSTRY AND PRODUCTS ARE CONSIDERED TO BE HIGH-RISK WITH A HIGH INCIDENCE
OF SERIES PERSONAL INJURY OR PROPERTY LOSS WHICH COULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR BUSINESS.
The manufacture, sale and use of omni-directional forklifts and other mobility
or material handling equipment is generally considered to be an industry of a
high risk with a high incidence of serious personal injury or property loss. In
addition, although we intend to provide on-site safety demonstrations, the
unique, sideways movement of the forklift may heighten potential safety risks.
Despite the fact that we intend to maintain sufficient liability insurance for
the manufacture and use of our products, one or more incidents of personal
injury or property loss resulting from the operation of our products could have
a material adverse impact on our business.
If we do not successfully distinguish and commercialize our developed
proprietary products and services, we will not attract a sufficient number of
customers. Accordingly, we may be unable to compete successfully with our
competitors or to generate revenue significant to sustain our operations.
Although management believes our product will have significant competitive
advantages to conventional forklifts, we are competing in an industry populated
by some of the foremost equipment and vehicle manufacturers in the world. All of
these companies have greater financial, engineering and other resources than us.
No assurances can be given that any advances or developments made by such
companies will not supersede the competitive advantages of our omni-directional
forklift. In addition, many of our competitors have long-standing arrangements
with equipment distributors and carry one or more of competitive products in
addition to forklifts. These distributors are prospective dealers for our
company. It therefore is conceivable that some distributors may be loath to
enter into any relationships with us for fear of jeopardizing existing
relationships with one or more competitors.
THERE CAN BE NO ASSURANCE THAT WE WILL COMPLETE OUR PROPOSED ACQUISITION OF
FILCO GMBH OR RAISE SUFFICIENT FUNDS NECESSARY TO FUND THE WORKING CAPITAL NEEDS
OF FILCO. IF WE DO NOT COMPLETE THE PROPOSED ACQUISITION
In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
14
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide $1.3 million to be allocated in
the form of equity in Filco and Filipov would also capitalize 1.3 million Euros
that he had loaned Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. However, once we complete the acquisition, we are responsible
to provide adequate operating capital to insure a successful business. A later
addendum to the tentative agreement stated that we would acquire 75.1%
controlling ownership interest in Filco.
There can be no assurance that we will be able to secure financing on terms
which are favorable to us, or at all, which would be sufficient to fund the
working capital needs of Filco GmbH. Accordingly, there can be no assurance that
we will complete the proposed acquisition. If we do not complete the proposed
acquisition, we would have to attempt to recover our loans in the aggregate
amount of $6,170,171 made to Filco to date and there can be no assurance that we
will be able to do so. If we are unable to recover our loans, we may have to
curtail our operations or seek additional financing.
RISKS RELATING TO OUR COMMON STOCK
THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE BECAUSE THERE ARE WARRANTS THAT
MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE
MARKET PRICE.
The market price of our common stock may decline because there are a large
number of warrants that may be available for future sale, and the sale of these
shares may depress the market price. As of October 31, 2005, we had
approximately 21,906,174 shares of common stock issued and outstanding and
8,536,298 outstanding options and warrants to purchase up to 8,536,298 shares of
common stock. All of the shares included in this prospectus may be sold without
restriction. The sale of these shares may adversely affect the market price of
our common stock.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:
o that a broker or dealer approve a person's account for transactions in penny
stocks; and
o the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of the
person; and
o make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the suitability
determination; and
o that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
15
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the selling
stockholder. All of the net proceeds from the sale of our common stock will go
to the selling stockholder. In connection with our May 2004 Private Placement,
we will receive the proceeds from the exercise of warrants, if and when
exercised by the selling stockholders, entitling the selling stockholders to
purchase 2,160,063 shares from us at an exercise price of $1.25 per share,
135,000 shares from us at an exercise price of $1.00 per share, and 865,000
shares from us at an exercise price of $2.50 per share. If all warrants held by
the selling stockholders are exercised, we will receive $4,982,578 in proceeds.
In connection with the November 2004 Private Placement, we will receive the
proceeds from the exercise of warrants, if and when exercised by the selling
stockholders, entitling the selling stockholders to purchase 1,184,001 shares
from us at an exercise price of $1.25 per share. If all warrants held by the
selling stockholders are exercised, we will receive $1,480,001.25 in proceeds.
We anticipate that any proceeds from the exercise of warrants (if an when
exercised) by the selling stockholders will be used for general corporate
purposes, which may include but are not limited to working capital, capital
expenditures, acquisitions and the repayment or refinancing of our indebtedness.
Pending the application of any proceeds from the exercise of warrants, if any,
by the selling stockholders, we expect to invest the proceeds in short-term,
interest-bearing instruments or other investment-grade securities.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded on the Over-The-Counter Bulletin Board under
the symbol "AITX". The table below sets forth, for the periods indicated, the
high and low closing prices per share of the common stock as reported on the
Over-The-Counter Bulletin Board. These quotations reflect prices between
dealers, do not include retail mark-ups, markdowns, and commissions and may not
necessarily represent actual transactions. The prices are adjusted to reflect
all stock splits.
High Low
---- ---
2005 First Quarter 3.07 1.83
Second Quarter 2.95 1.85
Third Quarter* 4.70 2.07
2004 First Quarter 1.60 0.65
Second Quarter 1.45 0.75
Third Quarter 1.15 0.61
Fourth Quarter 3.35 0.81
2003
First Quarter 1.50 0.80
Second Quarter 1.68 0.87
*As of October 31, 2005.
As of October 31, 2005, there were 21,906,174 shares of common stock
outstanding.
As of October 31, 2005, there were approximately 956 stockholders of record of
our common stock, respectively. This does not reflect those shares held
beneficially or those shares held in "street" name.
We have not paid cash dividends in the past, nor do we expect to pay cash
dividends for the foreseeable future. We anticipate that earnings, if any, will
be retained for the development of our business.
16
Equity Compensation Plan Information
------------------- --------------------------------- ---------------------------------- ------------------------------------------
Plan category Number of securities to be issued Weighted-average exercise price of Number of securities remaining available
upon exercise of outstanding outstanding options, warrants and forfuture issuance under equity
options, warrants and rights rights compensation plans (excluding securities
reflected in column (a))
(a) (b) (c)
------------------- --------------------------------- ---------------------------------- -------------------------------------------
Equity compensation -0- -0- -0-
plans approved by
security holders
------------------- --------------------------------- ---------------------------------- -------------------------------------------
Equity compensation -0- -0- -0-
plans not approved
by security holders
------------------- --------------------------------- ---------------------------------- -------------------------------------------
Total -0- -0- -0-
------------------- --------------------------------- ---------------------------------- -------------------------------------------
We currently do not have an equity compensation plan for our officers,
directors, employees or consultants. However, certain of our officers are
compensated with stock options to purchase shares of our common stock. A
description of these options can be found in this registration statement under
the heading "Management", "Executive Employment Agreements".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Some of the information in this Form SB-2 contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate" and "continue", or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; and
o state other "forward-looking" information.
17
We believe it is important to communicate our expectations. However, there may
be events in the future that we are not able to accurately predict or over which
we have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."
Overview
Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured. Ten commercial omni-directional lift
trucks carrying the UL Label have been delivered to customers in the USA and
Canada as of October 25, 2005 and several others are ready to ship pending
receipt of funds or consummation of letters of credit or other credit
facilities. Up to a total of 84 units could be manufactured and sold through the
fourth quarter of 2005 pending receipt of parts by certain vendors.
We have commenced production and have most of the parts required for production
of another 74 units of our Sidewinder ATX-3000 Omni-Directional Lift Truck
during the 4th quarter of 2005. As of October 27, 2005 we do not have all of the
parts required from every vendor for completion of the 74 trucks heretofore
noted. The assembly and sale is dependent upon delivery of all of the required
parts.
Omni-Directional means that vehicles designed and built by us can travel in any
direction. Our Omni-directional vehicles are controlled with a joystick. The
vehicle will travel in the direction the joystick is pushed. If the operator
pushes the joystick sideways, the vehicle will travel sideways. If the operator
were to twist the joystick the vehicle will travel in circles. Our
omni-directional vehicles have one motor and one motor controller for each
wheel. The omni-directional movement is caused by coordinating the speed and
direction of each motor with joystick inputs which are routed to a
micro-processor, then from the micro-processor to the motor controllers and
finally to the motor itself.
Complete assembly is conducted by us at our newly leased facilities at 200
Freeway Drive Unit One, Blackwood, NJ 08012. Approximately 50% of the frames are
manufactured in the USA. These frames are shipped to the Blackwood plant for
complete assembly. Besides the assembly of vehicles at Blackwood, partially
assembled vehicles are shipped to the Blackwood facility from the Filco plant in
Germany. To date, partial assembly of approximately 19 lift trucks have been
completed at the Filco plant, 14 of which and have been shipped to the USA for
final assembly. To date, a total of approximately 80 lift trucks will be shipped
from Bulgaria to the Filco plant for partial assembly and shipped to the
Blackwood plant for final assembly during the forth quarter of 2005.
We have incurred losses and experienced negative operating cash flow since our
formation. For the six months ended June 30, 2005 and 2004, we had a net loss of
$(2,157,103) and $(783,880), respectively. For our fiscal years ended December
31, 2004 and 2003, we had a net loss of $(2,272,200) and $(2,282,946),
respectively. We expect to continue to incur significant expenses. Our operating
expenses have been and are expected to continue to outpace revenues and result
in significant losses in the near term. We may never be able to reduce these
losses, which will require us to seek additional debt or equity financing.
Our principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.
Company History
We were incorporated in the State of New Jersey on April 17, 1997. On May 19,
1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.
Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and
were the surviving company in the merger. Pursuant to the Agreement and Plan of
Merger, as amended, each share of common stock of MAS was converted to 0.00674
shares of our company. After giving effect to fractional and other reductions,
MAS shareholders received 57,280 of our shares as a result of the merger.
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH has
been operating this plant since July 1, 2003.
18
In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH which
we will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of this change is to give us control of Filco GmbH in accordance with USGAAP and
German law considerations regarding consolidation and capitalization. Further,
this change was offered and accepted in consideration of our agreeing to advance
Filco additional funds, in the form of a loan, to fund the start up of the Filco
operation prior to the consummation of the transaction. All other conditions and
terms of the agreement between the parties shall remain the same.
We have not yet finalized nor executed the acquisition agreement but have loaned
Filco GmbH an aggregate principal amount of $6,170,171 as of October 20, 2005
pursuant to a series of secured and unsecured promissory notes. We have used
proceeds from the private placement offerings that we completed during 2004 and
2005 to fund such loans. Our analysis shows that additional estimated working
capital needs during the next year will be approximately $5,000,000, with
$1,750,000 needed during November 2005, in order for it to achieve profitable
operations. Should we complete the acquisition of Filco GmbH, we will need to
raise additional capital or proper lines of credit in order to fund the working
capital needs of Filco GmbH.
In general, the Filco transaction could provide us access to strategic
partnerships in personnel and successful business ventures, sales and market
exposure in Europe.
The proposed acquisition of Filco may include a leased manufacturing facility,
with an experienced workforce, inventory, intellectual property, and machinery
sufficient to fill 200,000 square feet of assembly and manufacturing. Filco
could provide us with cliental throughout Europe and the Middle East. This could
provide us with the ability to sell a complete line of lift trucks beyond the
limited sized Sidewinder Omni-Directional Lift Truck. It would provide
manufacturing or assembly for our products, including, but not limited to, the
aerial work platforms or any other products we develop or can contract to
assemble with other companies.
In addition, if the acquisition is completed we anticipate that we will
establish manufacturing capability in Europe, to complement our manufacturing in
the United States. We currently purchase a high percentage of our parts in
Europe, including, but not limited to, the frames from Bulgaria, motors and
controllers manufactured in the Czech Republic and Sweden, and transmissions,
brakes and seats manufactured in Germany. The mast could be manufactured, the
frames could be powder coated (painted), and European parts could be assembled
at the Filco plant. Partially assembled vehicles would be shipped to the United
States for final assembly. Wheels and other parts for the vehicles may be sold
in Europe or Middle Eastern countries could be shipped from the United States
for the completion of manufacturing at Filco. We believe we could cut
manufacturing costs because our material handling equipment could be
manufactured in the continent in which it is sold, i.e., Europe. With our
manufacturing capabilities in the United States, this potential acquisition
would allow a portion of the Sidewinder becoming assembled and manufactured in
each of the two continents that purchase and use about 70% of all material
handling equipment worldwide.
The primary objective that must be achieved to reach the aforementioned goal(s)
is to secure the necessary financing required to fund the acquisition and
manufacturing objectives of Filco and us. There can be no assurance that we will
be able to raise sufficient capital necessary to complete the acquisition and
fund the manufacturing objectives of Filco and us.
Loans to Filco GmbH
From May 5, 2003 through September 2, 2003, we loaned Filco $365,435 to acquire
our initial interest in Filco. Such funds were provided in the form of a loan
because we were not able to come up with sufficient funding to acquire our
initial interest. Filco repaid principal and interest under this loan to us.
In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide $1.3 million to be allocated in
the form of equity in Filco and Filipov would also capitalize 1.3 million Euros
that he had loaned Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. However, once we complete the acquisition, we are responsible
to provide adequate operating capital to insure a successful business. A later
addendum to the tentative agreement stated that we would acquire 75.1%
controlling ownership interest in Filco.
The amounts loaned to Filco to date, in the aggregate amount of $6,170,171, even
if unrecoverable, would not prevent us from commencing the manufacture of the
Sidewinder Omni-Directional Lift Truck. The manufacture and sale of
omni-directional material handling equipment is our primary goal. During the
first, second and third quarters of 2005, we realized limited revenues from
sales of the Sidewinder Omni-Directional Lift Truck.
19
We believe that our secured and unsecured loans to Filco are recoverable if the
proposed acquisition is not completed. Should Filco default with loan repayment,
if such payment were due and requested, it would be much easier to put Filco
into bankruptcy in Germany than it would be in the United States. Should Filco
be put into bankruptcy, we, as the largest creditor, would be in position to do
a legal takeover through bankruptcy administrators.
We loaned Filco approximately $2.7 million through the end of 2004 and loaned a
total of $6,170,171 as of October 20, 2005. We intend to provide another $5
million to Filco, either in the form of guaranteed credit lines or through
additional sales our securities.
Filco GmbH's Financial Condition
The improvement of Filco's financial condition and results of operations, as set
forth below, furthers our belief that we would be able to recover principal and
interest due under our unsecured loans to Filco in the event that the proposed
acquisition is not completed.
Filco manufactured approximately 550 lift trucks in 2003 and very limited
numbers in 2004. In 2004, Filco did not have adequate operating capital to
conduct business operations and had numerous issues with its worker's union to
resolve. It was and is considered by Filco's management, a better long term
negotiating tactic with unions to threaten to close the facility completely than
to attempt to run the facility during negotiations. Accordingly, for this reason
as well as the lack of funding, Filco's plant was closed for much of 2004 and
the beginning of 2005.
Filco reached accord with the union on March 30, 2005. Employees will be
required to work a 40-hour week instead of 35 prior to additional hires. Wages
have been decreased 20%. The resolution of the problems Filco was experiencing
with its union is critical to the future success of the company. In addition,
the loans that we granted to Filco as of the date hereof have created
considerable improvements in Filco's financial condition and results of
operations.
As a result of the above, Filco recommenced very limited production of standard
forklifts during the second quarter of 2005. In April 2005, Filco shipped at
least 14 re-conditioned vehicles. In addition, Filco began the assembly of a
Russian tractor for distribution in Europe. This agreement calls for the
production of 700 units to be assembled each year at a price of 2,800 Euros
each. After the prototypes, large quantities of tractors will be assembled. It
is expected that volume assembly will commence early 2006. The Russian company
will supply all parts. It is anticipated that Filco will be in full forklift
production late in the third quarter or early in the 4th quarter of 2005. The
final production schedule is contingent upon supply of parts from various
venders.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
Not all of the accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, the following policies
could be deemed to be critical within the SEC definition.
Revenue Recognition
Revenue on product sales is recognized when persuasive evidence of an
arrangement exists, such as when a purchase order or contract is received from
the customer, the price is fixed, title to the goods has changed and there is a
reasonable assurance of collection of the sales proceeds. We obtain written
purchase authorizations from our customers for a specified amount of product at
a specified price and consider delivery to have occurred at the time of
shipment. Revenue is recognized at shipment and we record a reserve for
estimated sales returns, which is reflected as a reduction of revenue at the
time of revenue recognition.
Revenues from research and development activities relating to firm fixed-price
contracts are generally recognized as billing occurs. Revenues from research and
development activities relating to cost-plus-fee contracts include costs
incurred plus a portion of estimated fees or profits based on the relationship
of costs incurred to total estimated costs. Contract costs include all direct
material and labor costs and an allocation of allowable indirect costs as
defined by each contract, as periodically adjusted to reflect revised agreed
upon rates. These rates are subject to audit by the other party. Amounts can be
billed on a bi-monthly basis. Billing is based on subjective cost investment
factors.
Results of Operations
20
THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004
We have been a development stage company for the periods ended June 30, 2005 and
2004 and have not engaged in full-scale operations for the periods indicated.
The limited revenues for the periods have been derived from the first sales of
the Sidewinder Omni-Directional Lift Truck. During 2005, we expect to transition
from a development stage company to an operating company as we begin production
and sales of the Sidewinder Omni-Directional Lift Truck. Consequently,
management believes that the year-to-year comparisons described below are not
indicative of future year-to-year comparative results.
Revenues
For the three-month period ended June 30, 2005, we had sales revenue of $90,544.
This compares to revenues of $-0- for the three months ended June 30, 2004. The
increase in sales revenue represents the first sales of the SIDEWINDER
Omni-Directional Lift Truck to Airtrax Canada, a non-affiliate.
Cost of Goods Sold
Our cost of goods sold for the three months ended June 30, 2005 amounted to
$107,765. For the three months ended June 30, 2004, our cost of goods sold was
$-0-. Our $107,765 cost of goods sold reflects the cost of the lift trucks sold
during the three months ended June 30, 2005.
We are entitled to a benefit for the effect on income taxes on the net operating
loss. Accordingly, a benefit in the amount of $166,301 has been recorded for the
second quarter of 2005 and $41,811 was recorded during the second quarter of
2004.
Operating and Administrative Expenses
Operating and administrative expenses includes administrative salaries and
overhead. For the three months ended June 30, 2005, our operating and
administrative expenses totaled $1,284,288. Operating and administrative
expenses totaled $549,332 for the three months ended June 30, 2004. For the
three months ended June 30, 2005 operating and administrative expenses increased
$734,956 compared with the same period of 2004. These changes are a result of
the time and material costs preparing for production of the SIDEWINDER and other
production related issues including labor and materials used to outfit the new
Airtrax assembly plant in Blackwood NJ.
Research and Development
We did not incur any research and development expenses for the three months
ended June 30, 2005.
Loss Before Income Taxes
Loss before income taxes for the three month period ended June 30, 2005 totaled
$1,224,426. For the three months ended June 30, 2004, loss before income taxes
totaled $545,237. The increase in loss before income tax for the three months
ended June 30, 2005 compared with the same period of 2004 was caused by the time
and material allocations preparing for production of the SIDEWINDER and other
production related issues including labor and materials used to outfit the new
Airtrax assembly plant in Blackwood NJ.
Preferred Stock Dividends
During the three months ended June 30, 2005, we paid $51,563 dividends on
preferred stock. During the three months ended June 30, 2004, we paid dividends
on preferred stock in the amount of $-0-. The preferred stock dividends are
payable to a company that is owned by our President.
SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30,
2004
Revenues
For the six-month period ended June 30, 2005, we had sales revenue of $167,545.
This compares to revenues of $-0- for the six months ended June 30, 2004. The
increase in sales revenue represents the first sales of a total of 4 SIDEWINDER
Omni-Directional Lift Trucks plus batteries and chargers.
Cost of Goods Sold
Our cost of goods sold for the six months ended June 30, 2005 amounted to
$160,126. For the six months ended June 30, 2004, our cost of goods sold was
$-0-. Our $160,126 cost of goods sold reflects the cost of the lift trucks sold
during the six months ended June 30, 2005.
We are entitled to a benefit for the effect on income taxes on the net operating
loss. Accordingly, a benefit in the amount of $224,446 has been recorded for the
six months ended June 30, 2005 and $67,770 was recorded during the six months
ended June 30, 2004.
21
Operating and Administrative Expenses
Operating and administrative expenses includes administrative salaries and
overhead. For the six months ended June 30, 2005, our operating and
administrative expenses totaled $2,007,882. Operating and administrative
expenses totaled $848,141 for the six months ended June 30, 2004. For the six
months ended June 30, 2005 operating and administrative expenses increased
$1,159,741 compared with the same period of 2004. These changes are a result of
the time and material costs preparing for production of the SIDEWINDER and other
production related issues including labor and materials used to outfit the new
Airtrax assembly plant in Blackwood NJ.
Research and Development
We did not incur any research and development expenses for the six months ended
June 30, 2005.
Loss Before Income Taxes
Loss before income taxes for the six month period ended June 30, 2005 totaled
$6,116,113. For the six months ended June 30, 2004, loss before income taxes
totaled $851,650. The principal reason for the increase in loss before income
taxes for the six months ended June 30, 2005 compared with the same period of
2004 was two amounts charged to interest expense which totaled $4,213,731. These
charges stemmed from the convertible bond issue and are described in Note 3 to
the financial statements. Other factors contributing to the increase in the 2005
loss were time and materials devoted to preparing for production of the
SIDEWINDER and preparing the new assembly plant in Blackwood New Jersey.
Preferred Stock Dividends
During the six months ended June 30, 2005, we paid $51,563 on preferred stock.
During the six months ended June 30, 2004, we paid dividends on preferred stock
in the amount of $-0-. The preferred stock dividends are payable to a company
that is owned by our President.
Liquidity and Capital Resources
As of June 30, 2005, our cash on hand was $1,098,691 and working capital was
$2,623,593. Since its inception, we have financed our operations through the
private placement of our common stock. During the six months ended June 30,
2005, we sold an aggregate of 68,750 shares of common stock to accredited and
institutional investors. During the three months ended June 30, 2004, we sold an
aggregate of 1,778,875 shares of common stock to accredited and institutional
investors and issued an aggregate of 163,745 shares of common stock in
consideration for services rendered.
We have experienced negative cash flows from operations of $1,616,824 during
2004 and $705,790 during 2003. These negative results stem primarily from
operating losses of $2,272,200 in 2004 and $2,191,657 in 2003. These results are
not unusual for a company in the development state; it is noteworthy that
significant portions of the losses result from non cash charges, primarily from
equity securities issued for services.
We have consistently demonstrated our ability to meet our cash requirements
through private placements of its common stock. We have continued to similarly
satisfy those requirements during the six month period ended June 30, 2005.
We anticipate that our cash requirements for the foreseeable future will be
significant. In particular, management expects substantial expenditures for
inventory, production, and advertising in anticipation of the rollout of our
omni-directional forklift. We expect that we will be required to raise funds
through the private or public offering of our securities.
Our initial production run of ten SIDEWINDER Omni-Directional Lift Trucks was
completed in the first quarter of 2005. We will need additional funds to support
production requirements beyond the initial production run of our forklift which
are estimated to be $10,000,000. Of the total amount, approximately 25% is
projected for parts and component inventory and manufacturing costs, with the
balance projected as general operating expenditures, which includes overhead and
salaries and the additional funds to complete the proposed acquisition of the
75.1% interest in Filco GmbH ("Filco"), primarily for Filco's working capital
needs. As of June 30, 2005, we have loaned to Filco a total of $6,170,171. We
intend to complete the acquisition of Filco once operating capital for Filco is
secured to finance their operations. We anticipate that operating capital in the
amount of $5 million will be required during calendar year 2005 to sufficiently
fund Filco operations. We leased facilities starting in the second quarter of
2005 as corporate headquarters. This building will also facilitate the assembly
of the SIDEWINDER and other omni-directional products, partial assembly of Filco
lift trucks, if the proposed acquisition is completed, warranty work, and
product distribution. We currently rents or leases space at Warminster PA and
Flemington NJ. These leases and/or rentals will be terminated as the workload
permits.
As of June 30, 2005, our working capital was $2,623,593. Fixed assets, net of
accumulated depreciation, and total assets, as of June 30, 2005 and 2004, were
$146,518 and $9,678,152, respectively. Current liabilities as of June 30, 2005
were $1,017,521.
22
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Results of Operations
We have been a development stage company for the 2004 and 2003 periods and have
not engaged in full-scale operations for the periods indicated. The limited
revenues for the periods have been derived from the sales of a
non-omni-directional product and from contracts with the United States Navy that
relate to the research and potential application of omni-directional technology
for military use. The available dollar limits of contracts with the United
States Navy were substantially completed during 2002, and we recognized limited
revenues from the United States Navy contract during 2003. During 2005, we
expect to transition from a development stage company to an operating company as
we completes the initial run of its forklifts. Consequently, management believes
that the year-to-year comparisons described below are not indicative of future
year-to-year comparative results.
There was no billing for the Navy MP2 project in 2004. The MP2 munitions carrier
was delivered to the Navy on/or about April 1, 2004 for their evaluation and
testing. An Omni-Direction engine handler developed for and with the Navy is
expected to be "loaned" to the Navy during 2005 for an evaluation. An ETU-110
engine handler was delivered to us by the Navy and is US government property.
The ETU-110 was cleaned, re-painted, and placed in working condition by us. We
provided all required parts, labor and technology to make this vehicle
omni-directional. The cost for the parts and labor was allocated to "Cost Of
Goods Sold" in our financial statements for fiscal 2003. Since these funds
exceeded the amount contracted with the Navy, and an option for additional
services was not agreed upon, the labor and materials provided to the Navy for
building the ETU-110 engine handler remains our property. This piece of
equipment is therefore owned jointly by the US Navy and us and will be used to
demonstrate this technology to the US government and other military services.
We believe that the joint cooperation between us and the Navy with the MP2
contract, including the building of the ETU-110 omni-directional engine handler,
has bolstered the potential use of our technology within the military. We do not
intend to incur additional costs with the US Navy unless we incur potential
expenses in demonstrating the ETU-110 omni-directional engine handler, or other
omni-directional vehicles.
Revenues
Revenues for fiscal 2004 were $0, representing a decrease of $21,879 from
revenues of $21,879 for the 2003 period. This decrease is revenue can be
attributed to completion of our contract with the US Navy.
Cost of Goods Sold
Cost of sales for 2004 was $0 which reflects a $91,283 decrease from $91,283 in
fiscal 2003. This decrease in cost of goods sold can be attributed to completion
of our contract with the US Navy.
Operating and Administrative Expenses
Operating and administrative expenses which includes administrative salaries,
depreciation and overhead for the 2004 period totaled $2,529,77 5which
represents an increase of $421,405 from $2,180,370 incurred in 2003. The
increase is due primarily to consulting fees paid to various third parties in
the form of common stock which totaled $1,332,989, including, (i) $447,210 to
consulting firms; (ii) $55,870 for payment of legal services performed by our
legal counsel; (iii) $33,350 for the payment of rental expenses; (iv) $145,000
in consideration for public relations services including brochures, website, and
company videos; (v) $260,050 for services performed by our accounting
consultant; (vi) $55,500 to our directors as compensation for services
performed; (vii) $95,899 in employee stock options and bonuses; (viii) $0
in options to our CEO; and (ix) $146,892 as compensation for public relations
services. In addition, the increase is due to costs related to the further
development of our omni-directional technology, which included preparations for
the ANSI (American National Standards Institute), compliance testing, UL
(Underwriters Laboratories) compliance and preparation for initial production.
Interest expense payable to third party suppliers totaled $30,894 for the 2004
period, representing a $13,044 decrease from $43,938 for the 2003 period. In
2004, we posted $86,667 in other income from interest payments due from Filco
GmbH, which contrasts with $7,914 for the prior year end. Net loss before taxes
in 2004 was $2,471,023 which reflects an increase of $257,225 from $2,213,798 in
net loss before taxes for the 2003 period.
23
In 2004, we recorded $175,413 as the expected sale of our net operating losses
and tax credits under a New Jersey program described further in Liquidity and
Capital Resources below. This amount contrasts with $210,553 recorded during
2003.
Loss attributable to shareholders for 2004 was $2,272,200 which represents a
decrease of $80,543 from $2,191,657 during the 2003 period. During 2004, we paid
dividends on our preferred stock to a controlling shareholder of our company in
the amount of $131,771. For the year ended December 31, 2003, we paid dividends
on our preferred stock to a controlling shareholder of our company in the amount
of $80,749. Deficit accumulated during development stage during 2004 was
$2,403,971 (or a loss per share of $0.19 for common stockholders) which
represents an increase of $131,565 from $2,272,406 (or a loss per share of $0.29
for common stockholders) for the 2003 period.
Research and Development
We incurred $519,804 and $297,862 in research and development expenses during
the year ended December 31, 2004 and 2003, respectively. Research and
development activities during fiscal 2004 primarily involved continued testing
and evaluation of omni-directional components and preparing these components for
production in 2005. Our wheel design was changed from the "concept" to
"production" phase. This was and is an ongoing process between our and Timken'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. Danaher and
us 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. Portions of the costs we
incurred due to testing and research and development were charged to the US Navy
contract as provided therein.
Liquidity and Capital Resources
Since our inception, we have financed our operations through the private
placement of our common stock and from loans from our President. During 2004 and
2003 we raised net of offering costs $5,103,103 and $789,000, respectively, from
the private placement of our securities.
During 2000, we were approved by the State of New Jersey for our technology tax
transfer program pursuant to which we could sell our net operating losses and
research and development credits as calculated under state law. During 2004 and
2003, we recorded credits of $198,823 and $210,553, respectively from the sale
of our losses and credits (see Note 6 to financial statements).
We have experienced negative cash flows from operations of $1,614,687 during
2004 and $705,790 during 2003. These negative results stem primarily from
operating losses of $2,272,200 in 2004 and $2,191,657 in 2003. These results are
not unusual for a company in the development state; it is noteworthy that
significant portions of the losses result from non cash charges, primarily from
equity securities issued for services.
We have consistently demonstrated our ability to meet our cash requirements
through private placements of its common stock. We have continued to similarly
satisfy those requirements during the year ended December 31, 2004.
We anticipate that our cash requirements for the foreseeable future will be
significant. In particular, management expects substantial expenditures for
inventory, product production, and advertising in anticipation of the rollout of
its omni-directional forklift. On January 13, 2004, we entered into a placement
agency agreement with a NASD registered broker-dealer for the private placement
offering of our securities. Our securities consist of units comprised of one
share of common stock and a stock warrant to purchase 50% of an additional share
of common stock at a unit-offering price of $0.80. The warrant is exercisable at
$1.25 per share during a five-year term. The offering is being made on a best
efforts basis, for a total minimum amount of $1,000,000 and a total maximum
amount of $4,000,000, terminating May 7, 2004. During the first and second
quarters of 2004, we received $2,880,108 net of offering costs and expenses from
the offering. The offering is made pursuant to exemptions under the Securities
Act of 1933, as amended. We completed our initial production run of the
SIDEWINDER Lift Truck in the fourth quarter of 2004. We received sufficient
funds from the offering to complete the initial production run and to complete
ANSI and UL testing, as well as some special tooling costs.
24
We will require additional funds to continue our operations beyond the initial
production run. These funds are in addition to the funds required by Filco GmbH
as discussed above. We anticipate that operating capital in the amount of $5
million will be required during calendar year 2005 to sufficiently fund Filco
operations. Of the total amount, approximately 70% is projected for parts and
component inventory and manufacturing costs, with the balance projected as
general operating expenditures, which includes overhead and salaries. We expect
to recognize lower per unit manufacturing and part costs in the future due to
volume discounts, as well as lower per unit shipping costs as we transition from
the initial production run to full-scale production. We intend to fund these
additional cash requirements through the issuance of equity and/or debt
securities which may include the offering described above. We cannot predict
whether we will be successful in obtaining sufficient capital to fund continuing
operations. If we are unable to obtain sufficient funds in the near future, such
event will delay the rollout of its product and likely will have a material
adverse impact on us and our business prospects.
As of December 31, 2004, our working capital deficit was $(572,184). Fixed
assets, net of accumulated depreciation, and total assets, as of December 31,
2004, were $93,587 and $4,600,023, respectively. Current liabilities as of
December 31, 2004 were $2,291,153.
Subsequent Events
We have incurred penalties payable to the investors of our November 2004 private
placements because we did not file a registration statement on Form SB-2 within
the timeframe specified pursuant to the Registration Rights Agreement we entered
into with the investors on November 23, 2004. We were required to file the
registration statement on or prior to January 6, 2005, but it was not filed
until February 14, 2005. We have not yet accounted for these penalties, as they
were not incurred until 2005. We will account for such penalties in the first
quarter of 2005.
BUSINESS
OMNI-DIRECTIONAL TECHNOLOGY
Prior History
Omni directional vehicle technology has been the subject of research and
development by universities, the Department of Defense, and industry for over 25
years. A Swedish inventor patented an early stage omni-directional wheel.
Thereafter, the technology was purchased by the United States Navy and was
advanced at the Naval Surface Warfare Center. The US Navy held the patent until
its expiration in 1990. In 1996, the Navy transferred this technology to us for
commercialization through a Cooperative Research and Development Agreement
(CRADA).
Technology Description
Since the technology transfer under the CRADA agreement, we have examined and
redesigned many aspects of the system for use in various applications including
forklifts and other material handling equipment. In this regard, we refined
control software and hardware, and tested a variety of drive component features
25
on our pilot omni directional lift trucks and scissor-lifts. Extensive
demonstrations of prototype vehicles for commercial and military users in
combination with market research enabled us to direct our initial development
efforts towards the material handling products, offering the best probability
for successful market entry.
Our management designed other aspects of our machine to complement the unique
functionality of our omni-directional technology. In so doing, we achieved a
virtually maintenance free unit which allows the operator free and unrestricted
movement during operation. Each vehicle is powered with AC motors eliminating
brushes and commutators of conventional DC motors. The AC motors also are
lubricated for life thereby eliminating the need for additional greasing and
fittings. The transmission uses a synthetic lubricant, and is sealed for life.
The joystick controls all vehicle movement; therefore conventional drive trains,
steering racks, hydraulic valve levers, and foot petals for braking and
acceleration are all non-existent.
On a four-wheel omni-directional vehicle employing our technology, each wheel
has a separate electric motor, making the vehicle capable of traveling in any
direction. The motion of the vehicle is controlled by coordinating all four
wheels through a microprocessor that receives input from an operator-controlled
joystick. The joystick controls all vehicle movement (starting, steering, and
stopping). The framework of our omni-directional lift truck consists primarily
of a steel frame mobilized with four omni-directional wheels. The AC electric
motor for each wheel turns its own wheel hub. Each wheel hub is encircled with
multiple tapered rollers that are offset 45 degrees. The tapered rollers,
covered with polyurethane, are extremely durable. By independently controlling
the forward or rearward rotation of each wheel, the vehicle has the capability
of traveling in any direction. The technology allows the vehicle to move
forward, laterally, diagonally, or completely rotate within its own footprint,
thereby allowing it to move into confined spaces without difficulty. The
navigational options of an omni-directional vehicle are virtually limitless. The
omni-directional wheel can be manufactured in almost any size depending upon the
application. For instance, our management believes the wheel can be used on
miniature vehicles or massive load-carrying vehicles.
EXISTING AND PROPOSED PRODUCTS
Sidewinder Omni-Directional Lift Truck. We anticipate that our Sidewinder
Omni-Directional lift truck will be available with rated lift capacities ranging
from 3000 pounds and higher. Our SIDEWINDER ATX-3000 Omni-Directional lift
truck, which is our 3,000-pound model, features our revolutionary
omni-directional technology. Conventional steering racks and foot petals are
non-existent allowing impediment free ingress and egress. This lift truck will
deliver unequaled maneuverability providing significantly improved operating
efficiencies in the materials handling industry. The dealer price is expected to
retail at prices similar to or slightly higher than high-end, comparably sized
standard forklifts. The "street prices" of similar rated, standard
(non-omni-directional) forklifts range from $16,000 to $31,000 per unit. Other
specialty forklifts, that are multi-directional sell for $42,000 and greater,
and vehicles considered very narrow aisle (VNA), are priced from $75,000 and
higher per unit. We believe that, due to its unique features, the
omni-directional lift truck will support a price slightly higher than the
average selling price of a conventional forklift.
Airtrax Conventional Forklift. In the event of the successful acquisition of
Filco GmbH, we expect to use the Filco plant and operations to produce and sell
a line of conventional forklifts possibly manufactured under the Airtrax name
for distribution in the United States and other geographical markets. It also is
contemplated that the SIDEWINDER Omni-Directional lift truck will be
manufactured at the Filco plant and distributed by Filco to European or Middle
East markets.
26
Omni-Directional Aerial Work Platform. In late February 2004, we, in
collaboration with MEC Aerial Platform Sales Corporation of Fresno, California
("MEC"), introduced a concept version of a scissor lift at the American Rental
Association trade show in Atlanta. The scissor lift called the "Phoenix"
incorporated our omni-directional technology along with an MEC platform and lift
mechanisms. The vehicle contains features presently unavailable on conventional
aerial work platforms. For example, similar to our lift truck, the aerial work
platform's movement is controlled by a joystick. Movement to a particular spot
or location at a job site can be accomplished easily due to the omni-directional
technology, thereby eliminating the back and forth positioning typically
associated with conventional platforms. Our designed control systems allow the
operator to move at very regulated and easily controlled acceleration and speed,
virtually eliminating operator error. The machine can climb over obstacles that
would impede other machines. Our aerial work platform has the ability to climb
over obstacles up to a height of one-third the overall wheel diameter. The wheel
used on the aerial work platform has a 17" total diameter. Accordingly, this
vehicle can climb over obstacles more than 5.66" high. The ability to "climb
over" obstacles is an inherent advantage of our omni-directional technology.
This is a feature which we believe no other aerial work platform can perform, or
if another aerial work platform can perform, it is to a very limited degree.
Generally, any "wheeled" vehicle can "climb" over some obstacles, however, other
"wheeled" vehicles cannot climb over obstacles as high as the one-third of the
wheel's diameter. We believe that, similar to our lift truck, the improved
functionality of the aerial work platform will result in increased productivity
at the job-site.
On March 13, 2004, we entered into a draft Product Development, Sales and
Representation Agreement with MEC. The draft agreement calls for the joint
development of a proto-type and production versions of an omni-directional
aerial work platform called the "Phoenix". During the development stage, each
party will provide the parts, which apply to that party's area of
responsibility. We will provide all of the parts required for the
omni-directional traction system and related control systems, and MEC will
provide all of the parts required for the scissor lift and lifting apparatus and
the control systems for the scissor lift apparatus. After development of the
prototype version, the parties will establish the cost of a commercial product,
and if the cost of a commercial product is considered commercially viable, the
parties will jointly develop a commercial version of the aerial work platform.
If commercial production results, we will be responsible for product
manufacturing, and MEC or its affiliate will be responsible to promote, market
and sell the product to their network of approximately 200 distributors. Aerial
work platform sales made by MEC will be subject to a royalty to us and, likewise
sales made by us will be subject to a royalty to MEC. The amount of the
respective royalties will be subject to agreement by the parties. Orders placed
by MEC will be financed by MEC subject to agreed production schedules.
During 2004, MEC was repositioned to perform manufacturing in the United States
thus removing their obligation under the agreement. During the latter part of
2004, we presented MEC with invoices for payment of tooling and engineering
costs related to development of the Phoenix. The invoices were not paid by MEC
who was, at that time, in the process of realigning their finances. As a result
of the aforementioned changes, the agreement was modified. The modification
stated that the Phoenix projector and aerial work platform projects would be
products of our company instead of an MEC vehicle. This meant that the project
would be henceforth designed and built by us. MEC would still have the ability
to make suggestions regarding vehicle design or construction, but the final
product is and will be our product. In addition, the agreement was revise to
provide that we will build another vehicle product line, the Cobra, which will
be marketed exclusively by our dealers. The parties expect to enter into a more
formal agreement to further define the relationship of the parties. At this
time, we cannot predict whether a formal agreement will be entered into between
the parties, or whether any sales will result form the aerial work platform to
be developed by the parties.
27
Omni-directional Wheelchair . Over 43 million disabled and aging Americans are
protected by the Americans with Disabilities Act of 1990 (ADA). This law became
effective in 1991, and now requires businesses with over 15 employees to comply
with specifications which enable persons with disabilities access buildings. As
a result of increased physical access, we believe that persons with disabilities
will experience an increased number of employment and other opportunities. We
have conducted a preliminary design of an omni-directional wheel for wheelchair
applications. Based upon the preliminary design, we believe that we can retail
an omni-directional wheelchair for under $6,000. Wheelchair pricing ranges from
$3,500 for a standard unit to $30,000 for units with improved functionality such
as stair climbing capability.
We will require additional funds to complete a structural and ergonomic design
of a proto-type wheelchair, and to construct the proto-type for further
evaluation and testing. We cannot predict whether we will be able to
successfully develop this product.
Military Products . During 1999, we were awarded a Phase I research contract
under the Department of Defense's Small Business Innovation Research program
(SBIR) to develop an omni-directional Multiple Purpose Mobility Platform (MP2).
Under the Phase I base contract, we studied the application of the
omni-directional technology for military use and were supervised by the Naval
Air Warfare Center Aircraft Division (NAWC-AD) in Lakehurst, New Jersey. The
contemplated use includes the installation of jet engines on military aircraft
and the transportation of munitions and other military goods. We completed the
Phase I base contract in 1999 and were subsequently awarded a Phase I option
from NAWC-AD to further define the uses of the MP2. In July 2000, we were
awarded a Phase II research contract under the SBIR program. Under the Phase II
contract, we are studying the feasibility of the MP2 for military purposes, and
will culminate with the construction of one or more proto-type devices. This
contract (with the option) was extended twice for 6 months each past the
42-month contract time period. Contract revenues were $750,000. Through December
31, 2003 we have received approximately $720,000 in revenues from the Phase II
contract, and completed the production design of the MP2. A completed proto-type
MP2 was delivered to the US Navy during the end of the first quarter of 2004 for
testing purposes. A second vehicle, an omni-directional jet engine installation
machine is being constructed for the US Navy, pending receipt of additional
funding from the SBIR program. We have been advised by the US Navy that a
non-SBIR sponsor for the MP2 program must be identified before a Phase II option
is exercised. A Phase III contract could be awarded without such a sponsor.
Although our management believes the underlying omni-directional technology for
the proposed MP2 has significant potential for both commercial and military
applications, we cannot predict whether any sales beyond the Phase II contract
will result from the SBIR program. It is the belief of management that sales to
the military for products such as the MP2 or the MHU-110 engine handler will not
materialize until the omni-directional technology achieves commercial
acceptance. We do believe, however, that products such as the ATX-3000 or the
Cobra AWP can and will be sold to the US government, possibly including the
military.
In connection with the MP2, on December 11, 2003, we entered into a Teaming
Agreement with United Defense, L.P., Arlington, Virginia. Under the agreement,
United Defense agreed to provide the exclusive manufacture, marketing and
support for the MP2 and any derivative products in respect to any contracts
awarded to us by U.S. Department of Defense and any international military
customers under the SBIR arrangement.
We have also developed a traditional helicopter ground handling machine which
has been marketed by us on a limited basis. This vehicle, Helitrax, was a
patented design using technology that we purchased in 1995 under our predecessor
company, Air Track Inc. The patented device was redesigned by us to include many
features which we believe are needed by industry maintenance crews and by
pilots. Helitrax was sold from 1995 through 2001 in limited amounts, in no more
than approximately 30 units total, and sales were discontinued because of time
constraints required getting the Sidewinder Omni-Directional lift truck to
market.
28
CURRENT OPERATIONS
Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of its components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured. To date, October 25, 2005, 27
ATX-3000 have been assembled and 10 units have been shipped to clients, thus
far.
We commenced production of our Sidewinder ATX-3000 Omni-Directional Lift Truck.
Substantially all of the parts including frames, motors, controllers, and
micro-processors were ordered and have been received by us. Unit assembly has
been completed by us at our new assembly facility located in Blackwood, NJ. UL
(Underwriters Laboratories) and final ANSI (American National Standards
Institute) testing was completed. Following required testing, our
omni-directional lift trucks carry the UL Label.
ANSI testing refers to a series of tests including tilt testing the vehicle with
each of the masts it will use to make certain that it will not fall over with a
raised load at specified tilt angles. In addition, ANSI testing includes drop
testing specified loads on the overhead guard to make certain that the overhead
guard will not fail and crush the operator. These tests require us to turn the
vehicle over to prove that the battery door lock will contain the battery in the
event the vehicle is overturned. ANSI testing was performed by us and certified
and documented that the tests have been completed and the vehicle has passed in
all respects. This testing was required prior to the vehicle being sold to the
public in the United States.
UL testing is completed on lift trucks because we believes it is more productive
to sell vehicles that have passed the extra safety and performance test
requirements mandated by UL. Generally UL testing hinges around electrical
issues that could cause fires to the vehicles and/or property. Most of the more
prominent lift truck manufacturers complete UL testing on electrically operated
lift trucks. Completion of UL testing is generally considered the mark of
companies who will take extra steps and precautions to protect their customers.
UL approval is a feature that salespersons can use to their advantage when
selling vehicles because many insurers will not insure premises that use lift
trucks that are not UL rated.
Although we anticipated that the initial production run of the Sidewinder Lift
Truck would be completed during the second quarter of 2004, we did not complete
our initial production run until the first quarter of 2005. We encountered
several unforeseen delays in getting this product to market. Wheels,
manufactured for us by The Timken Corporation with a promised delivery of May
2004, proved to be a more challenging operation than Timken first anticipated.
In addition to meeting the high standards we require from the wheel
manufacturer, Timken was obligated to manufacture the wheels within specified
cost parameters. This required certain "manufacturing design" changes that
insured both wheel integrity and cost savings. The first limited "production"
wheels were shipped to us in August 2004 with final deliveries in March 2005.
These wheels were considered "production" wheels by us but considered "pilot"
wheels by Timken, the primary difference being that while Timken delivered
wheels in accordance with our production requirements, Timken did not produce
the first 56 wheels from their "production" facility but rather their "research"
facility. As a result, the first wheels coming from a Timken "production"
facility were not delivered until August 2005.
Transaction with Filco GmbH
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH has
been operating this plant since July 1, 2003.
29
In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH which
we will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of this change is to give us control of Filco GmbH in accordance with USGAAP and
German law considerations regarding consolidation and capitalization. Further,
this change was offered and accepted in consideration of our agreeing to advance
Filco additional funds, in the form of a loan, to fund the start up of the Filco
operation prior to the consummation of the transaction. All other conditions and
terms of the agreement between the parties shall remain the same.
The consideration for the proposed acquisition consists of the issuance of
options to Mr. Filipov to purchase 900,000 shares of our common stock at an
exercise price of $0.01. No more than 12.5% of such options can be exercised
during any one year. Accordingly, Mr. Filipov cannot exercise the options to
receive more than an aggregate of 112,500 shares of our common stock per year.
Any increase on this exercise limit is subject to the approval of our board of
directors. In addition, we agreed to loan Filco GmbH approximately $1,300,000,
which, if the acquisition is completed, will be converted into equity of Filco
GmbH along with approximately 1,300,000 Euros, plus interest, currently owed to
Fil Filipov by Filco GmbH. Finally, the agreement in principal provided for Mr.
Filipov to be appointed a director of our company and to receive an additional
100,000 options of our common stock for serving as a director. In December 2004,
Mr. Filipov was appointed as a director of our company. Although the proposed
acquisition with Filco has not yet been completed, we appointed Mr. Filipov a
director of our company because management believes that his credentials are
extremely viable and valuable to our credibility in the investment and materials
handling communities, particularly in Europe. Mr. Filipov has been employed in
the materials handling industry virtually all of his life. We believe that his
associations and relations in this industry can and will aid us as we pursue our
business objectives.
The agreement in principal provides that we will register with the Securities
and Exchange Commission all of the shares issuable to Mr. Filipov, including
those underlying the described stock options.
We have not yet finalized nor executed the acquisition agreement but have loaned
Filco GmbH an aggregate principal amount of $6,170,171 as of October 20, 2005
pursuant to a series of secured and unsecured promissory notes. We have used
proceeds from the private placement offerings that we completed during 2004 and
2005 to fund such loans. Our analysis shows that additional estimated working
capital needs during the next year will be approximately $5,000,000, with
$1,750,000 needed during November 2005, in order for it to achieve profitable
operations. Should we complete the acquisition of Filco GmbH, we will need to
raise additional capital or proper lines of credit in order to fund the working
capital needs of Filco GmbH.
If the acquisition is completed, portions of the loans are part of a larger
capitalization plan. In accordance with the tentative purchase agreement, Mr.
Filipov has loaned Filco 1.22 million Euros. A portion of the loans we granted
to Filco in the amount of approximately $1.3 million and the 1.22 million Euros,
plus interest, loaned by Mr. Filipov to Filco, will be converted to Filco
equity. In each case the interest due to each party for the loans will also be
converted to Filco equity. Any amounts loaned by us beyond the $1.3 million will
be carried as loans with interest due in conformance with the loan agreements.
The amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is our
primary goal. During the second quarter of 2005, we realized limited revenues f
from the first sales of the Sidewinder Omni-Directional Lift Truck.
We believe that our unsecured loans to Filco are recoverable if the proposed
acquisition is not completed. Should Filco default with loan repayment, if such
payment were due and requested, it would be much easier to put Filco into
bankruptcy in Germany than it would be in the United States. Should Filco be put
into bankruptcy, we, as the largest creditor, would be in position to do a legal
takeover through bankruptcy administrators.
30
We loaned Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005. We intend to provide
another $5 million to Filco, either in the form of guaranteed credit lines or
through additional sales our securities.
No assurance can be given that the acquisition agreement will be finalized, or
that if it agreement is finalized, that the conditions to closing in such a
final agreement will be satisfied, or that we will raise sufficient funds to pay
all amounts due under the acquisition agreement. Further, in the event that we
consummate the acquisition agreement, no assurance can be given that we will be
able to raise sufficient funds to meet the working capital needs of Filco, as
well as our own working capital needs. Our inability to raise sufficient capital
as discussed herein may impair Filco's operations as well as our own operations.
History of Filco GmbH and History of Our Relationship with Filco
Clark Material Handling Co. was the largest forklift manufacturer in the world
in the 1980's. Clark Material Handling Co. of Europe owned approximately 50% of
the assets and completed an estimated 50% of the sales of Clark forklifts. Clark
was bought by Terex in 1994 and sold for $140 million in 1996. During that
period it was managed by Fil Filipov, who was responsible for finding and
completing acquisitions for Terex. Clark declared bankruptcy in 2003. Filco GmbH
was formed by Fil Filipov in May of 2003 and Filco GmbH thereafter purchased the
assets of Clark Europe. The "assets" of Clark Europe included intellectual
property, inventory, machinery and equipment, existing cliental and a trained
workforce. The transaction by Mr. Filipov to acquire the Clark assets was a
purchase through the bankruptcy administrator which left all assets under his
control and ownership. Mr. Filipov paid approximately 500,000 Euros and had to
advance other fees to guarantee lease and other payments. This resulted in a
total purchase by Mr. Filipov in the amount of approximately 1,300,000 Euros.
Since that time, Filco has operated with very limited operating capital, and had
unresolved union issues. As a result, Filco has not operated profitably, or at
all. It was not until 2005 that Filco has commenced manufacturing after
receiving operating capital from us in the form of unsecured loans, then secured
loans. In addition, in 2005 Filco resolved its worker's union issues (as further
described in the section of this registration statement entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations").
Our President, Peter Amico, has maintained a working relationship with Mr.
Filipov since 2002.
Business Purposes of the Proposed Acquisition of Filco GmbH
In general, the Filco proposed acquisition could provide us access to strategic
partnerships in personnel and successful business ventures, sales and market
exposure in Europe.
31
The proposed acquisition of Filco may include a leased manufacturing facility,
with an experienced workforce, inventory, intellectual property, and machinery
sufficient to fill 200,000 square feet of assembly and manufacturing. Filco
could provide us with cliental throughout Europe and the Middle East. This could
provide us with the ability to sell a complete line of lift trucks beyond the
limited sized Sidewinder Omni-Directional Lift Truck. It would provide
manufacturing or assembly for our products, including, but not limited to, the
aerial work platforms or any other products we develop or can contract to
assemble with other companies.
In addition, if the acquisition is completed we anticipate that we will
establish manufacturing capability in Europe, to complement our manufacturing in
the United States. We currently purchase a high percentage of our parts in
Europe, including, but not limited to, the frames from Bulgaria, motors and
controllers manufactured in the Czech Republic and Sweden, and transmissions,
brakes and seats manufactured in Germany. The mast could be manufactured, the
frames could be powder coated (painted), and European parts could be assembled
at the Filco plant. Partially assembled vehicles would be shipped to the United
States for final assembly. Wheels and other parts for the vehicles may be sold
in Europe or Middle Eastern countries could be shipped from the United States
for the completion of manufacturing at Filco. We believe we could cut
manufacturing costs because our material handling equipment could be
manufactured in the continent in which it is sold, i.e., Europe. With our
manufacturing capabilities in the United States, this potential acquisition
would allow a portion of the Sidewinder becoming assembled and manufactured in
each of the two continents that purchase and use about 70% of all material
handling equipment worldwide.
The primary objective that must be achieved to reach the aforementioned goal(s)
is to secure the necessary financing required to fund the acquisition and
manufacturing objectives of Filco and us. There can be no assurance that we will
be able to raise sufficient capital necessary to complete the acquisition and
fund the manufacturing objectives of Filco and us.
MANUFACTURING AND SUPPLIERS
The initial production of our lift trucks was completed by us at the Warminster
PA facility with all further production moved to the newly leased 30,000 square
foot facility at Blackwood, NJ. The frames and overhead guards for the first
production run were manufactured in Bulgaria in accord with our specifications.
We presently receive frames and overhead guards from a US manufacturer as well
as from Bulgaria. The parties operate under the terms of written purchase
orders. Parts and assemblies for commercial models are ordered and/or procured
from other vendors. The initial production run was completed with wheels
manufactured for us by The Timken Corporation and components from other
suppliers. Frank Cooper, former plant manager for GM, is our plant manager. Mr.
Cooper has established the production assembly process and procedure for our
vehicle assembly. His processes have helped to develop procedures, and to
incorporate inventory control and quality assurance programs. We plan to create
the framework for rapidly scalable production capacity at the Blackwood facility
and initially this plant will be sized for nominal monthly production but
capable of ramping up for anticipated demand before year's end. We also plan to
manufacture the omni-directional lift truck at the Filco GmbH facility for
European and Middle Eastern sales.
Components for our forklifts consist of over the counter products and
proprietary products that have been specially designed and manufactured by
various suppliers in collaboration with us. We believe that continual
refinements of certain components will occur during the first six months of
initial production in response to user feedback and additional product testing.
We will strive to improve product functionality which may require additional
refinements in the future. The need for additional refinements on a continuing
basis may slow projected product sales.
We consider the specially designed and manufactured products proprietary, and
have entered into exclusive contractual agreements with certain suppliers to
protect the proprietary nature of these products. These arrangements prohibit
the supplier from producing the same or similar products for other companies. In
addition, while we maintain single sources for some of the the over the counter
components, we believes that other sources are available if necessary and are
working to insure that we have secondary suppliers.
DISTRIBUTION AND PRODUCT MARKETING
We intend to establish a national and international dealer network to sell our
forklift product line to existing equipment dealers. However, we may sell
directly to select national and international accounts and retailers. National
and international accounts or retailers include, but are not limited to,
nationally recognized businesses with national or international locations having
facilities in numerous states or countries.
32
During the past two years, in anticipation of commercial production, we
solicited interest from targeted dealers nationwide, and in certain instances,
received contracts from a number of these dealers. Due to the delay in
establishing commercial production, the contracts were not fulfilled. In 2004,
we began soliciting dealers for distribution and during the first quarter of
2004 have reached an agreement with approximately 40 dealers nationwide.
Principal terms of the agreement reached is that these dealers will purchase our
products which include the ATX-3000, the Cobra AWP (scissor lift) and
conventional lift trucks and thereafter sell these products to their clients.
Certain of the dealers were given "exclusive" territories, such as Airtrax
Canada (Airtrax Canada is not owned or operated by us but we have authorized
their use of the Airtrax Name.) Airtrax Canada is required to purchase a minimum
of 250 units of the Airtrax Sidewinder or Cobra AWP or Filco trucks to maintain
the "exclusivity" portion of the agreement between firms. They cannot lose their
exclusivity because we cannot meet their sales requirements. This same type
arrangement was reached with Lakeland in New Zealand for 125 vehicles each year,
Airtrax Africa for 125 units each year, Omnilink in Greece and the Balkans for
125 units each year and others. The dealers in the US have not been given
exclusive territorial rights. They are required to purchase one or more
vehicles, however, to become a dealer. Credit is not authorized to any dealers
or foreighn representatives. All sales are paid in advance, under terms of an
irrevocable letter of credit or COD. Not all dealers have agreed to represent
the conventional lift trucks line as some are established with other lift truck
manufacturers and representing a competing product could be a violation of their
existing agreement(s). Targeted dealers will consist of selected premier
forklift dealers, currently selling other forklift products. The dealer network
will consist of dealers who have substantial market share in the US, with a
history of being able to sell and repair forklifts and/or related material
handling solutions. Several of the targeted dealers are significant sized
entities, having annual sales in excess of $100 million. We expect to provide a
sales incentive to dealers through an aggressive pricing structure. Typically, a
dealer will earn a commission ranging from $500 to $1,000 on the sale of a
competitive forklift. Our pricing structure will enable the dealer to receive
commissions from $3,500 to $4,000 per sale of the SIDEWINDER ATX-3000.
In the materials handling industry, distributors of products like ours finance
their respective inventories in several different ways. The arrangement for
distributor financing varies, depending upon the credit worthiness, financial
capability and size of the distributor. Floor planning, which is arranged by the
dealer or by the manufacturer, usually consists of financing from 6 to 12 months
whereby the distributor pays interest only during the finance period. If at any
time during the finance period the distributor sells the product, or if the
finance period expires, the distributor is required to pay the principal. Many
dealers buy vehicles to lease or rent to consumers and finance the vehicle much
the same manner as a standard consumer. Under certain arrangements, the dealer
applies receipts against principal and interest.
We have recently formed a leasing company, Airtrax Financial Services, Inc.
("AFS"), wherein we will own a 48.5% interest but enjoy a 51% voting interest.
As of the date hereof, financing arrangements have been made whereby Commerce
Bank or other banks will provide funding for dealers or individual non-recourse
loans. None of our funds have yet been allocated to AFS. It has been agreed to
use no more than $50,000 worth of common stock to fund AFS, as funding is
required.
In May 2003, we entered into contracts with two Alaskan Native Corporation (ANC)
whose primary purpose is to manage assets and conduct business for the benefit
of its nearly 3,000 Alaskan Native shareholders. The two corporations have been
granted Section 8(a), small disadvantaged business status, under the Small
Business Administration. Under their Section 8(a) status, the two corporations
can provide sole source bid to provide services and products, such as those
developed by us, for resale to the United States Government. During fiscal 2003,
we did not effect any sales through this re-seller channel, and can not predict
whether we will be able to do so in the future. A primary reason, for the
non-sales is, of course, that we have not been in production.
33
In addition to establishing our own dealer network, we will attempt to
capitalize on the existing distribution network of MEC if we are able to reach a
formal agreement with MEC and successfully develop the omni-directional work
platform discussed above. We would seek to include our omni-directional forklift
into the distribution network of MEC, which consist of approximately 200 dealers
nationwide. We cannot predict whether a formal agreement will be entered into
between the parties, or whether any sales will result form the aerial work
platform to be developed by the parties.
We also intend to use trade shows and print and television media to advertise
and promote our omni-directional products. Print media will include
advertisements in national and international publications such as major material
handling equipment magazines, and direct mailings to targeted distributors and
end-users. Heavy equipment is rarely, if at all, advertised on television.
However, we believe that television will provide an effective media for our
product, due to its unique attributes. We believe that due to the current
economic conditions, we will be able to capitalize on favorable advertising
pricing. We also expect to be an exhibitor at industry trade shows from time to
time, including the bi-annual ProMat show located in Chicago, Illinois.
Product Warranty Policies
Our product warranty policy is similar to the warranty policies of other major
manufacturers, i.e., one-year warranties on all parts and labor, and two years
on major parts. However, our vehicles have very few parts to warranty. In
addition, manufacturers of our parts and vehicles have their own warranty
policies that, in effect, take the financial exposure from our company. There
are exceptions to this rule, such as the frame and significantly, the motors and
controllers. These parts have an eighteen-month guarantee or warranty, but the
coverage begins when the product is shipped to us and not when the product is
purchased. As a result of this policy, Danaher has increased the warranty from
12 to 18 months for us.
FACILITIES
We maintain our administrative offices and assembly facilities at 200 Freeway
Drive, Unit One, Blackwood, NJ 08012. This facility is a total of 30,000 square
feet with 3,000 square feet allocated to offices and cost a monthly rental fee
of $12,750. H&R Industries of Warminster PA provides contract manufacturing and
assembly services to us, including, but not limited to, manufacturing of our
prototype machines, and testing prototypes. Up until June of 2005, H&R
Industries was also used for the storage of production-readied parts. In
addition, H&R has provided rental space to assemble our first "production"
vehicles. Through December 31, 2002, the arrangement between the parties has
been rent-free. Effective January 1, 2003, we agreed to pay H&R Industries a
rental fee of $3,000 per month and have the option to pay in cash or in the form
of common stock. The arrangement was on a month-to-month basis. We left the
facility at H&R Industries and moved to our own facility in Blackwood NJ in June
2005.
MARKETS
Forklifts
Our initial market focus will be directed to the forklift market. We believe the
commercial version of the omni-directional forklift will revolutionize the
materials handling and warehousing industries creating potential markets
globally. Industry data shows that during 2003 approximately 174,000 and 550,000
units were sold in the United States and worldwide, respectively (Modern
Materials Handling). Based upon an average per unit sale price of $28,500
(Modern Materials Handling estimate), the total market in the United States
would approximate $5 billion in 2003. This amount represents sales of a broad
range of vehicles with price ranges from $18,000 to $31,000 for a standard
3000-pound rated vehicle to $75,000 or greater for specialty narrow aisle or
side loader vehicles. Of the total market, management expects to compete with
mid-range electrical and gas powered riders, and some specialty narrow aisle or
side loader vehicles.
34
Aerial Work Platforms
Aerial Work Platforms are used in the construction and warehousing industries,
and are ideally suited for omni directional technology. According to data
provided by the United States Department of Commerce, this market consists of
approximately $1.2 billion in annual sales. Aerial Work Platforms and man lifts
range in size from single user lifts to large off road machines. Of the total
market, we expect to compete with a range of indoor man lifts.
COMPETITION
We expect to confront competition from existing products, such as standard and
"very narrow aisle" forklifts, and from competing technologies. Competition with
standard forklifts, which retails from $16,000 to $31,000, will be on the basis
of utility, price, and reliability. We believe that we will compete favorably
with a standard forklift for reliability, and that a purchase decision will be
based upon weighing the operational advantages of our products against its
higher purchase price. VNA and sideloader forklifts retail at $75,000 or
greater. While our SIDEWINDER omni-directional lift truck cannot be considered
"very narrow aisle", it can perform "narrow aisle" functions at a significantly
less cost. We also are aware of multi-directional forklifts now being offered by
other manufacturers that retail from $42,000 and higher for the standard
version. These newer products have improved operational features, however, they
are unable to travel in all directions, and hence are not omni-directional.
These machines have to stop, turn all four wheels, and then proceed to drive in
the sideward direction. Despite these improved operational features, management
believes these manufacturers have adhered to older conventional methods and have
added a substantial amount of parts to their forklifts to achieve improved
functionality, which contrasts with the design and features of our product as
discussed previously herein. Therefore, to that extent, we believe that we
maintain a competitive advantage to these newer products.
We recognize that many of these manufacturers are subsidiaries of major national
and international equipment companies, and have significantly greater financial,
engineering, marketing, distribution, and other resources than us. In addition,
the patent on omni-directional technology expired in 1990. Although we have
received patent protection for certain aspects of our technology, no assurances
can be given that such patent protection will effectively thwart competition.
PATENTS AND PROPRIETARY RIGHTS
On January 22, 2002, we received US patent #6,340,065 relating to our low
vibrations wheels. On May 28, 2002, we received US patent #6,394,203
encompassing certain aspects of the omni-directional wheel with some features
specific to the forklift, and in April 15, 2003 we received US patent #6,394,203
relating to methods for designing low-vibration wheels. We also have several
patent applications pending relating to other aspects of our technology. We
expect to make future patent applications relating to various other aspects of
our omni-directional technology. We also have filed a patent application for our
power module. At this time, no foreign patents have been issued for any of our
technology. In December 1997, we were awarded a patent for an omni-directional
helicopter ground-handling device.
We also seek to protect our proprietary technology through exclusive supply
contracts with manufacturers for specially designed and manufactured components.
PRODUCT LIABILITY
Due to nature of our business, we may face claims for product liability
resulting from the use or operation of our forklifts or other products.
Presently, we maintain product liability insurance in the amount of $1 million.
This amount will be increased to $10 million in 2006 as we deem necessary to do
so. We obtained said insurance commensurate with the initial shipment of our
omni-directional forklifts
EMPLOYEES
As of October 31, 2005, we have nine full time employees which includes our
President, and 10 contract employees, and engage consultants from time to time..
We have no collective bargaining agreements with our employees and believe our
relations with our employees are good.
DESCRIPTION OF PROPERTY
We maintain our administrative offices and assembly facilities at 200 Freeway
Drive, Unit One, Blackwood, NJ 08012. This facility is a total of 30,000 square
feet with 3,000 square feet allocated to offices and cost a monthly rental fee
of $12,750. H&R Industries of Warminster PA provides contract manufacturing and
assembly services to us, including, but not limited to, manufacturing of our
prototype machines, and testing prototypes. Up until June of 2005, H&R
Industries was also used for the storage of production-readied parts. In
addition, H&R has provided rental space to assemble our first "production"
35
vehicles. Through December 31, 2002, the arrangement between the parties has
been rent-free. Effective January 1, 2003, we agreed to pay H&R Industries a
rental fee of $3,000 per month and have the option to pay in cash or in the form
of common stock. The arrangement was on a month-to-month basis. We left the
facility at H&R Industries and moved to our own facility in Blackwood NJ in June
2005.
LEGAL PROCEEDINGS
We are not currently a party to, nor is any of our property currently the
subject of, any pending legal proceeding. None of our directors, officers or
affiliates is involved in a proceeding adverse to our business or has a material
interest adverse to our business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Directors are elected at each meeting of stockholders and hold office until the
next annual meeting of stockholders and the election and qualifications of their
successors. Executive officers are elected by and serve at the discretion of the
board of directors.
Our executive officers and directors are as follows:
Name Age Position
---- --- --------
Peter Amico 61 President and Chairman of the Board of Directors
D. Barney Harris 43 Executive Vice President and Director
James Hudson 61 Director
William Hungerville 68 Director
Fil Filipov 58 Director
Peter Amico - Mr. Amico is the founder of the Company and has been President and
Chairman of the Company and its predecessor since their inception in April 1995.
Prior to 1995, Mr. Amico was president and majority shareholder of Titan
Aviation and Helicopter Services, Inc. ("Titan"). He has an extensive background
in sales and in structural steel design. His career in sales has spanned over
thirty years and he has held sales positions at Firestone Tire & Rubber and
Union Steel Products, Inc. As a consequence of separate helicopter and airplane
accidents involving Titan, Mr. Amico filed for bankruptcy protection in 1996.
D. Barney Harris* - Mr. Harris has been a Director of the Company since December
1998 and a Vice President since July 1999. From 1997 to July 1999, Mr. Harris
was employed by UTD, Inc. Manassas, Virginia. Prior to 1997, Mr. Harris was
employed by EG&G WASC, Inc., Gaithersburg, Maryland, as a Senior Engineer and
Manager of the Ocean Systems Department where he was responsible for the
activities of 45 scientists, engineers and technicians. During this period while
performing contract services for the US Navy, he was principally responsible for
the design of the omni-directional wheel presently used by the Company. Mr.
Harris received his B.S.M.E. from the United States Merchants Marine Academy in
1982.
James Hudson - Mr. Hudson has been a Director of the Company since May 1998.
From 1980 to present, he has been President of Grammer, Dempsey & Hudson, Inc.,
a steel distributor located in Newark, New Jersey.
William Hungerville - Mr. Hungerville has been a director since February 2002.
Since 1998, Mr. Hungerville has been retired from full time employment. From
1974 to 1998, he was the sole owner of a pension administrative service firm.
Mr. Hungerville is a graduate of Boston College, and attended an MBA program at
Harvard University for 2 years.
Fil Filipov - Mr. Filipov has been a director of the Company since December
2004. Mr. Filipov has served as the Chairman of Supervisory Board of Tatra, a
Czech Company, which is producing off highway trucks. . Mr. Filipov was
President & CEO of Terex Cranes, a $1 billion dollar business segment of Terex
Corporation. He was responsible for strategic acquisitions and served as
President and CEO from March 1995 through December 2003. From 1994 through 1996,
Mr. Filipov was the Managing Director of Clark Material Handling Company in
Germany (Filco GmbH). If the acquisition of Filco GmbH is completed Mr. Filipov
will retain 24.9% of Filco GmbH.
*Our engineers including the team initially lead by D. Barney Harris, Nicholas
Fenelli and Robert Mullowney designed and tested the "Airtrax" wheel which
corrected the "bumpy" ride in the technology as received from the US Navy at
speeds of 11 m.p.h. or more and alleviated it to the point wherein it was
considered acceptable in the materials handling industry. This design and
methods to achieve the design were patented by us as follows: (i) 6,340,065 -
low vibration omni-directional wheel on January 22, 2002, (ii) 6,394,203 -
method for designing low-vibration omni-directional wheels on May 28, 2002, and
(iii) 6,547,340 - low vibration omni-directional wheel on April 15, 2003.
36
Code of Ethics
We have not adopted a Code of Ethics that applies to all of our directors,
officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer.
Executive Officers of the Company
Officers are appointed to serve at the discretion of the Board of Directors.
None of our executive officers or directors has a family relationship with any
other of our executive officers or directors.
Committees of the Board of Directors
We currently do not have any committees, other than our audit committee of our
board of directors. We formed an audit committee during the first quarter of
2005. The Audit Committee is chaired by William Hungerville and includes James
Hudson and D. Barney Harris.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on the Company's review of copies of all disclosure reports filed by
directors and executive officers of the Company pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, all of our company's officers and
directors timely filed reports on Forms 3, 4 and 5.
EXECUTIVE COMPENSATION
The compensation for all directors and officers individually for services
rendered to the Company for the fiscal years ended December 31, 2004, 2003 and
2002 are set forth in the following table:
Summary Compensation Table:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) Awards($) (#) ($) Compensation
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
Peter Amico 2004 116,826(1) 0 237,500(3) - - - -
President and Chairman 2003 88,462(1) 0 64,000(2) - - - -
of the Board of Directors 2002 84,135(1) 0 51,399(2) - - - -
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
(1) During 2004, Mr. Amico was entitled to receive a salary of $185,000, however
$116, 825.62 was paid and the balance was deferred for future payment. During
2003, Mr. Amico was entitled to receive a salary of $100,000, however $88,461.68
was paid and the balance was deferred for future payment. In 2002, $84,135 was
paid as salary to Mr. Amico and $3,365 balance deferred for future payment. In
2002 and 2003, Mr. Amico received the use of a company automobile which we
valued at $1,000.
(2) Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico had outstanding options to acquire a total of 500,000 shares at a total
price of $0.85 per share. Pursuant to his employment agreement for the year 2003
through 2004, Mr. Amico had outstanding options to acquire a total of 50,000
shares at a total price of $0.01. Pursuant to previous employment agreements,
Mr. Amico had outstanding options to acquire a total of 180,000 shares of our
common stock. Of these options, 20,000 shares wee exercised at a total price of
$2.00, 50,000 shares were exercised at $0.315 per share, 60,000 shares wee
exercised at a price of $0.1575 per share, and 50,000 shares were exercised at a
total price of $0.01. On February 12, 2003, Mr. Amico exercised all of his
options in exchange for the payment of $25,202. The fair market value of the
underlying common stock was $1.26 per share, on the close of business on the
exercise date of February 12, 2003. The amount for 2003 represents the number of
options (50,000) multiplied by the fair market ($1.26) less his exercise costs
of $0.01. The amount for 2002 represents the number of options (50,000)
multiplied by the fair market ($1.26) less his exercise costs of $12,601. The
amount for 2001 represents the number of options (50,000) multiplied by the fair
market ($1.26) less his exercise costs of $12,601. In addition, for 2002 and
2003, the amounts include $1,000 for the value of an automobile usage.
(3) The value for the year 2004 is based upon statements of financial accounting
standards no. 123 and 148, which became a mandatory method for valuing options
in 2004.
37
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted to executive
officers named in the Summary Compensation Table during the fiscal year ended
December 31, 2004:
Individual Grants
(1) Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico has outstanding options to acquire a total of 500,000 shares at a total
price of $0.85 per share. Pursuant to his employment agreement for the year 2003
through 2004, Mr. Amico has outstanding options to acquire a total of 50,000
shares at a total price of $0.01.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the number and value, at
December 31, 2004, of unexercised options held by executive officers named in
the Summary Compensation Table:
Value of Unexercised In-the-Money
Number of Securities Underlying Unexercised Options at Options at FY-End ($)
Name FY-End (#) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---------------------- -----------------------------------------------------------------------------------------------
Peter Amico 50,000 50,000 .85 $42,500
President and Chairman 500,000 500,000 .39 $195,000
Compensation of Directors
Our directors are compensated at the rate of $250 per meeting and are reimbursed
for expenses incurred by them in connection with our business. During 2002 and
2001, each director, other than Mr. Amico, received an annual stock option to
purchase 5,000 shares of common stock exercisable at $0.50 per share. During
2003, each director, other than Mr. Amico, received a stock grant of 10,000
shares of our common stock. During 2004, each director received a stock grant of
10,000 shares of our common stock. Our board of directors approved stock grants
of 20,000 shares for each director for 2005, conditional upon us having
revenues.
Other than as described above, we do not have any other form of compensation
payable to our officers or directors, including any stock option plans, stock
appreciation rights, or long term incentive plan awards for the periods
indicated in the table.
Executive Employment Agreements
We and Peter Amico have entered into written employment agreements for Mr.
Amico's role as our President. The parties entered into an agreement covering
the period from April 1997 to June 30, 2002 ("Original Employment Agreement").
Effective July 1, 2002, the parties entered into a second employment agreement
for a one year term ("Second Employment Agreement"). Agreements for the year
2003 through 2004 and 2004 through 2006 were agreed to on November 30, 2004.
Under the Original Employment Agreement, Mr. Amico received an annual salary of
$75,000 per year, and received stock options to acquire up to 50,000 shares per
annum. Of the options, 10,000 shares were exercisable for a total consideration
of a $1.00 beginning in April 2000, 25,000 shares were exercisable at 30% of the
lowest price paid for the stock in the 30 day period preceding exercise for each
year of the contract, and 15,000 shares were exercisable at 15% of the lowest
price paid for the stock in the 30 day period preceding exercise beginning in
April 2000.
38
Under the Second Employment Agreement, Mr. Amico was entitled to receive an
annual salary of $100,000, and receives an option to acquire 50,000 shares of
our common stock for a total exercise price of $0.01. We may terminate the
agreement without cause upon 14 days' written notice to the Employee. The Second
Employment Agreement terminated on June 30, 2003. We and Mr. Amico entered into
new employment agreements as further described below.
Under a one year Employment Agreement, ratified by the Board of Directors on
November 30, 2004 for the period of July 1, 2003 through June 30, 2004, Mr.
Amico was entitled to receive an annual salary of $135,000, and receives an
option to acquire 50,000 shares of our common stock for a total exercise price
of $0.01. We may terminate the agreement without cause upon 14 days' written
notice to the Mr. Amico.
Under a two year Employment Agreement (covering July 1, 2004 through June 30,
2006) ratified by the Board of Directors on November 30, 2004, for the period of
July 1, 2004 through June 30, 2005, Mr. Amico is entitled to receive an annual
salary of $200,000, and receives options to purchase up to 500,000 shares of our
common stock at the rate equal to the "bid" price of one share of stock on the
beginning date of the employment agreement. Accordingly, the bid price of our
common stock on July 1, 2004, the beginning date of the employment agreement,
was $0.80 per share and all options, if exercised, will be at an exercise price
$0.80 per share. All options have a cashless exercise. We may terminate the
agreement without cause upon 14 days' written notice to Mr. Amico. Under the
second year of this Employment Agreement, for the period of July 1, 2005 through
June 30, 2006, Mr. Amico is entitled to receive an annual salary of $250,000,
and options to purchase up to 750,000 shares of our common stock at the rate
equal to the "bid" price of one share of stock on the beginning date of the
employment agreement. Accordingly, the bid price of our common stock on July 1,
2004, the beginning date of the employment agreement, was $0.80 per share and
all options, if exercised, will be at an exercise price $0.80 per share. All
options have a cashless exercise. We may terminate the agreement without cause
upon 14 days' written notice to Mr. Amico.
Two of our employees maintain annual stock options for 25,000 shares for each
year of employment during the term of their respective employment agreements.
The employment agreements may be terminated by either party with 14 days prior
notice, and do not contain a fixed term. Accordingly, the amount of stock
options issuable to such employees is 137,500 shares as of June 30, 2005.
The stock options for the 25,000 shares of our common stock are exercisable as
follows; 2,500 shares are exercisable for a total consideration of $1.00, 10,000
shares are exercisable at 35% of the lowest price paid for the stock in the 30
day period preceding exercise, and 12,500 shares are exercisable at 17.5% of the
lowest price paid for the stock in the 30 day period preceding exercise.
Accordingly, the amount of stock options issuable to such employees is 112,500
as of December 31, 2004 and 137,500 as of June 30, 2005. The 112,500 options had
not been exercised as of December 31, 2004.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Arcon Corp., a corporation wholly owned by our chairman and president Peter
Amico, owns 375,000 shares of our preferred stock. Each share of Preferred Stock
is entitled to 10 votes per share on all matters on which shareholders are
entitled to vote. The holders of our common stock and preferred stock vote as
one single class. Mr. Amico and Arcon Corp. together have 1,870,623 shares of
common stock, representing 1,870,623 votes, plus 375,000 shares of preferred
stock with 10 votes per share, or a total of 3,750,000 voting shares. The
aforementioned equals a total of 5,620,623 voting shares of capital stock by Mr.
Amico and Arcon. The preferred stock has a stated value per share of $5.00 and
an annual dividend per share equal to 5% of the stated value. The annual cash
dividend as of December 31, 2004 was $68,750. Dividends are cumulative and the
holder has a right during any quarter to waive any cash dividend and receive the
dividend in the form of common stock at a price per share equal to 30% of the
lowest private offering or trading price of the common stock. The preferred
stock is not convertible into common stock, however, has a preference over
common stockholders upon liquidation equal to the stated value per share.
39
The consideration paid by Mr. Amico and Arcon for the initial issuance of
275,000 shares of our preferred stock is as follows: Air Tracks, Inc. was
incorporated in May 1995. Peter Amico, our President and the largest shareholder
of Air Tracks, Inc., capitalized Air Tracks, Inc. with $20,000. In exchange, Mr.
Amico was issued 3.5 million shares of common stock of Air Tracks, Inc. We were
formed in April 1997 by Louis Perosi and Albert Walla. In April 1997, it was
agreed to merge our company with Air Tracks, Inc. Pursuant to the merger, Mr.
Amico exchanged 3.5 million shares of Air Tracks, Inc. stock for 1 million
shares of our common stock, plus 275,000 shares of preferred stock. It was
determined by the parties that the voting shares that would be held by Mr.
Amico/Arcon would be essentially the same. Since the preferred shares are not
convertible and thus held no exit metthod it was determined to provide a
dividend. The $5.00 per share was the price used to satisfy the issue.
For fiscal year 2001, Arcon received 246,731 shares of our common stock in lieu
of the cash dividend which was deemed to have a fair market value of $188.412.
For explanatory purposes, in 2001 the $188,412 fair market value of the stock
represents the $68,750 yearly dividend due for 275,000 shares owned in 2001,
valued at $5.00 per share, which is used to purchase common stock at a 30%
discount. This equates to $188,412 divided by 30% ($56,524) minus the difference
of the actual stock price which varied during the purchase period. For fiscal
year 2002, Arcon received a cash dividend of $17,187.50, and received 100,000
preferred shares in lieu of 221,892 shares of our common stock in lieu of the
cash payment for the balance of the dividend. For fiscal year 2003, Arcon
expects to receive 19,097 shares of common stock in lieu of the cash payment of
the dividend. In 2004, Arcon received payments of $17,187.50 for dividends due
in 2002, $63,020.86 for dividends due in 2003 and $51,562.52 for dividends due
in 2004, of which $17,187.50 remains payable in accrued dividends to Arcon.
Arcon Corp. and our President have made loans from time to time to us in varying
amounts. The loan is due on demand and bears interest at 12%. As of December 31,
2004, the loan balance was $33,455.
Mrs. Patricia Amico, the wife of our President, performed services to us during
2004, 2003, 2002, and 2001 for which she received $13,030, $11,579, $9,930, and
$9,126, respectively.
Mr. Frank Basile, a former director of our company, was a partner of a law firm
that performed legal services to us during fiscal 2004, 2003 and 2002. The
billing amount for such services for each year was less than $10,000.
During 2002 and 2001, each director of our company, other than Mr. Amico,
received a stock option to acquire 5,000 shares of common stock at a price per
share of $0.50, and in 2003, each director, other than Mr. Amico, received a
grant from us of 10,000 shares of common stock, and in 2004, each director
received a grant from us in the amount of 10,000 shares of common stock.
From May 5, 2003 through September 2, 2003, we loaned Filco GmbH $365,435 to
acquire our initial interest in Filco. Such funds were provided in the form of a
loan because we were not able to come up with sufficient funding to acquire our
initial interest.
Filco repaid principal and interest under this loan to us.
In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide $1.3 million to be allocated in
the form of equity in Filco and Filipov would also capitalize 1.3 million Euros
that he had loaned Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. However, once we complete the acquisition, we are responsible
to provide adequate operating capital to insure a successful business. A later
addendum to the tentative agreement stated that we would acquire 75.1%
controlling ownership interest in Filco.
The amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is our
primary goal. During the second quarter of 2005, we realized limited revenues f
from the first sales of the Sidewinder Omni-Directional Lift Truck.
We believe that our secured and unsecured loans to Filco are recoverable if the
proposed acquisition is not completed. Should Filco default with loan repayment,
if such payment were due and requested, it would be much easier to put Filco
into bankruptcy in Germany than it would be in the United States. Should Filco
be put into bankruptcy, we, as the largest creditor, would be in position to do
a legal takeover through bankruptcy administrators.
We loaned Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005. We intend to provide
another $5 million to Filco, either in the form of guaranteed credit lines or
through additional sales our securities.
40
Fil Filipov is to be issued options to purchase 100,000 shares of our common
stock at an exercise price of $.0001 as compensation for services performed as
our director. If the proposed acquisition of Filco GmbH is completed, the
tentative agreement provides that Mr. Filipov will receive options to purchase
an additional 900,000 shares of our common stock at an exercise price of $.0001.
Accordingly, Mr. Filipov cannot exercise the options to receive more than an
aggregate of 112,500 shares of our common stock per year. Any increase on this
exercise limit is subject to the approval of our board of directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table identifies as of November 1, 2005 information regarding the
current directors and executive officers of the Company and those persons or
entities who beneficially own more than 5% of its common stock and Preferred
Stock of the Company, the number of and percent of the Company's common stock
beneficially owned by:
o all directors and nominees, naming them,
o our executive officers,
o our directors and executive officers as a group, without naming them, and o
persons or groups known by us to own beneficially 5% or more of our common
stock:
The Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
A person is deemed to be the beneficial owner of securities that can be acquired
by him within 60 days from November 1, 2005 upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage ownership
is determined by assuming that options, warrants or convertible securities that
are held by him, but not those held by any other person, and which are
exercisable within 60 days of November 1, 2005 have been exercised and
converted.
Peter Amico(1) Common Stock 1,870,623 (6) 12.36% (2)
870B Central Avenue Preferred Stock 3,750,000 (3)(5) 100%
Hammonton, NJ 08037
D. Barney Harris(1) Common Stock 236,025 (7) 1.56% (2)
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
Frank Basile(1) Common Stock 142,873 (8) *
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
James Hudson(1) Common Stock 75,800 (9) *
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
William Hungerville(1) Common Stock 165,950 (10) *
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
All Officers and Directors Common Stock 2,491,271 (11) 16.47% (2)
As a Group (5 persons) Preferred Stock 3,750,000 100%
----------------------------
Arcon Corp. Common Stock 1,580,623 (4) 10.45%
870B Central Avenue Preferred Stock 3,750,000 (3)(5) 100%
Hammonton, NJ 08037
*Less than 1%
(1) The address of each beneficial owner is the address of the Company.
(2) Based on 21,906,174 shares of common stock outstanding as of October 31,
2005, except that shares of common stock underlying options or warrants
exercisable within 60 days of the date hereof are deemed to be outstanding for
purposes of calculating the beneficial ownership of securities of the holder of
such options or warrants.
41
(3) Based upon 375,000 outstanding shares of preferred stock after giving effect
to the 10 for 1 voting rights.
(4) Represents 1,580,623 shares held by Arcon Corp., a corporation wholly owned
by Mr. Amico ("Arcon"), and however, excludes common stock that may be issued to
Arcon as a dividend on the preferred stock.
(5) Represents shares held by Arcon.
(6) Represents 1,580,623 shares of common stock held by Arcon as stated in
footnote (4) above, and 305,000 shares of common stock held individually by Mr.
Amico.
(7) Represents 200,625 shares of common stock held individually, 25,000 shares
of common stock issuable under his employment agreement, and 5,000 shares of
common stock issuable upon exercise of director's options for 2002.
(8) Represents 100,000 shares held individually, 15,000 shares of common stock
issuable upon exercise under director's options for 2002 and 2001, 12,046 shares
held by an affiliate, and 10,000 shares held by his spouse. The amount excludes
shares of common stock to the Company's that may be granted to directors during
2004.
(9) Represents 41,300 shares of common stock held by an affiliate. The amount
excludes shares of common stock to the Company's that may be granted to
directors during 2004.
(10) Represents 34,300 shares of common stock held individually, 700 shares held
by his spouse and 10,000 shares held by a family trust. The amount excludes
shares of common stock to the Company's that may be granted to directors during
2004.
(11) Includes (4), (6), (7), (8), (9), and (10).
42
DESCRIPTION OF SECURITIES BEING REGISTERED
COMMON STOCK
We held a special meeting of our shareholders on March 28, 2005 pursuant to
which a majority of our shareholders approved an amendment to our certificate of
incorporation to increase our authorized common stock from 20,000,000 to
100,000,000 shares. Accordingly, we are authorized to issue up to 100,000,000
shares of Common Stock without par value. As of October 31, 2005, there were
21,906,174 shares of common stock outstanding. The holders of the issued and
outstanding shares of our common stock are entitled to receive dividends if
declared by our board of directors out of any funds lawfully available
therefore. The board of directors intends to retain future earnings to finance
the development and expansion of our business and does not expect to declare any
dividends in the foreseeable future. The holders of the common stock have the
right, in the event of liquidation, to receive pro rata all assets remaining
after payment of debts and expenses. The common stock does not have any
preemptive rights and does not have cumulative voting rights. The issued and
outstanding shares of common stock are fully paid and nonassessable.
Holders of shares of common stock are entitled to vote at all meetings of such
shareholders for the election of directors and for other purposes. Such holders
have one vote per share for each share of common stock held by them.
We have engaged Signature Stock Transfer as independent transfer agent and
registrar.
PREFERRED STOCK
We held a special meeting of our shareholders on March 28, 2005 pursuant to
which a majority of our shareholders approved an amendment to our certificate of
incorporation to increase our authorized preferred stock from 500,000 to
5,000,000 shares. Accordingly, we are authorized to issue up to 5,000,000 shares
of preferred stock. In addition, pursuant to said meeting, a majority of our
shareholders approved an amendment to our certificate of incorporation to
provide that the shares of preferred stock may be issued in series, and shall
have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for the issuance
of such stock adopted from time to time by the board of directors. Accordingly,
our board of directors is expressly vested with the authority to determine and
fix in the resolution or resolutions providing for the issuances of preferred
stock the voting powers, designations, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each such series to the
full extent now or hereafter permitted by the laws of the State of New Jersey.
The holders of the preferred stock are entitled to receive, when, as, and if
declared by our board of directors, out of funds legally available therefore,
cash dividends on each share of preferred stock at the rate of 5% per annum. The
preferred stock, in respect of dividends and distributions upon our liquidation,
winding-up, and dissolution, shall rank senior to all classes of our common
stock and each other class of capital stock or series of preferred stock created
that does not expressly provide that it ranks senior to, or on a parity with,
the preferred stock. The holders of preferred stock are entitled to cast 10
votes for each share held of the preferred Stock on all matters presented to our
shareholders for shareholder vote.
43
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
We held a special meeting of our shareholders on March 28, 2005 pursuant to
which a majority of our shareholders approved an amendment to our certificate of
incorporation to provide, to the fullest extent permitted under the laws of the
State of New Jersey, that our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our articles of
incorporation is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our articles of incorporation, if
approved by our shareholders, are necessary to attract and retain qualified
persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
44
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares of
common stock by the selling stockholders. We will not receive any proceeds from
the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants, if and when exercised by the selling
stockholders. Assuming all the shares registered below are sold by the selling
stockholders, none of the selling stockholders will continue to own any shares
of our common stock.
The following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering After the Offering
------------------------------- ----------------------------------
Total
Shares
Name Number (1) Percent Registered (1) Number Percent
--------------------------------- ------------------- -------------- ------------------ ------------ ------------
Lerner Enterprises (2) 1,144,670 5.2% 1,144,670 0 0
Wilfred Shearer 375,000 1.71% 375,000 0 0
Richard Spencer 187,500 * 187,500 0 0
Bais Yakov Moishe 187,500 * 187,500 0 0
Michael Vanechanos 187,500 * 187,500 0 0
Harry & Linda Whale 187,500 * 187,500 0 0
Herbert Strauss 181,500 * 181,500 0 0
Sara Heiman 178,125 * 178,125 0 0
Eliezer Rosenthal 159,375 * 159,375 0 0
Professional Traders Fund (3) 150,000 * 150,000 0 0
Frank Vero and Sharon Vero 112,500 * 112,500 0 0
Mark A. Phelps Catherine L. Phelps (30) 304,638 1.39% 304,638 0 0
Mitchell Quintner 93,750 * 93,750 0 0
Danny Goode 93,750 * 93,750 0 0
Kellog Capital Group LLC (4) 93,750 * 93,750 0 0
Leon Goldenberg 93,750 * 93,750 0 0
Douglas P. Cone, Jr 93,750 * 93,750 0 0
Judith Glaser 93,750 * 93,750 0 0
Ami Silberman & Karen 93,750 * 93,750 0 0
Century Development Corp (5) 93,750 * 93,750 0 0
Noel Ischy 93,750 * 93,750 0 0
Shalom Torah Center (6) 75,000 * 75,000 0 0
Van Wyck Window Fashion (7) 75,000 * 75,000 0 0
Judy Rosenthal 75,000 * 75,000 0 0
Anthony Costanzo 69,375 * 69,375 0 0
Ateres Mechoel, Inc. (8) 65,625 * 65,625 0 0
Anne Oldham (31) 126,546 * 126,546 0 0
James & Maureen Mcmullen 56,250 * 56,250 0 0
Dr. Dushan Kosovich 56,250 * 56,250 0 0
James Schultz 46,875 * 46,875 0 0
Stuart Margolis 46,875 * 46,875 0 0
Raymond Labella 46,875 * 46,875 0 0
David Rubenstein and Deborah S. Rubenstein 46,875 * 46,875 0 0
Murry Weitman and Toby Weitman 46,875 * 46,875 0 0
Edward Jaffe (32) 117,171 * 117,171 0 0
Salvatore Amato 46,875 * 46,875 0 0
Rachel Mendelowitz (33) 182,058 * 182,058 0 0
Sal Marsella 46,875 * 46,875 0 0
Richard Weir Wendy A. Weir 46,875 * 46,875 0 0
Jerome Miller 46,875 * 46,875 0 0
45
Fedele Volpe 46,875 * 46,875 0 0
James Blumenthal 46,875 * 46,875 0 0
James Woodworth (33) 182,058 * 182,058 0 0
John Pearson 46,875 * 46,875 0 0
Bella Jacobs 46,875 * 46,875 0 0
Shmyer Breuer 46,875 * 46,875 0 0
Jacob Gold 46,875 * 46,875 0 0
Lloyd Cox 46,875 * 46,875 0 0
Tighe Taylor 46,875 * 46,875 0 0
Abraham Muller 46,875 * 46,875 0 0
James Moore Def benefit pl (9) 46,875 * 46,875 0 0
William Kurinsky (10) 48,437 * 48,437 0 0
Benjamin Bekhore 46,875 * 46,875 0 0
Maria Marsella 46,875 * 46,875 0 0
Salvatore & Carlo Amato 46,875 * 46,875 0 0
More Int'l Investments, Inc. (11) 46,875 * 46,875 0 0
Evangelos Xistris and Carol Monroe 40,875 * 40,875 0 0
Jay & Marsha Bloom 23,438 * 23,438 0 0
Edward Pikus 23,438 * 23,438 0 0
Nuala O'Halloran and Daniel O'Halloran 23,438 * 23,438 0 0
Israel David Zajac 46,875 * 46,875 0 0
George Scritchfield (12) 35,000 * 35,000 0 0
Wahl, William, Sr.(13) 100,000 * 100,000 0 0
Raymond James & Assoc. Inc Custodian,
Thompson, William (13) (14) 100,000 * 100,000 0 0
46
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering After the Offering
------------------------------- ----------------------------------
Total
Shares
Name Number (1) Percent Registered (1) Number Percent
--------------------------------- ------------------- -------------- ------------------ ------------ ------------
Entrust Admin Services, Inc. FBO
Angela Metelitsa (29) 20,500 * 5,500 0 0
Thompson, John IRA 1106030101(13) (15) 80,000 * 80,000 0 0
Thompson, John(13) 70,000 * 70,000 0 0
Hiliard Lyons Custodian Guzzetti Andrew
IRA(13) (16) 50,000 * 50,000 0 0
Paine, Nicholas c/o Cayman Management
Ltd.(13) (17) 35,000 * 35,000 0 0
Shaver,William M(13) 35,000 * 35,000 0 0
Canuso, Gerald L(13) 35,000 * 35,000 0 0
Moorehouse, Thomas R.(13) 35,000 * 35,000 0 0
Bloom, Jay and Marsha(13) 35,000 * 35,000 0 0
Paine, Nicholas(13) 35,000 * 35,000 0 0
Van Note, Stephen(13) 35,000 * 35,000 0 0
Prudential Securities C/F, Millet-IRA,
Julien(13) (18) 35,000 * 35,000 0 0
Dunning, John D., CrossFire Ventures(13) (19) 20,000 * 20,000 0 0
Seidel, Jerome Jr.(13) 20,000 * 20,000 0 0
Pober, Lionel(13) 17,500 * 17,500 0 0
Wagner Jr., Alvin(13) 17,500 * 17,500 0 0
Pober, Lionel(13) 17,500 * 17,500 0 0
Wagner Jr., Alvin(13) 17,500 * 17,500 0 0
Mandel, Mathew(13) 10,000 * 10,000 0 0
Siegel, Dean M.(13) 10,000 * 10,000 0 0
Indictor, Gregg(13) 10,000 * 10,000 0 0
Lustig, S. Jeffrey(13) 10,000 * 10,000 0 0
Schiller, Robert B(13) 10,000 * 10,000 0 0
Entrust Admin Services, Inc. FBO, Steven
Bolden IRA #1114030102(13) (20) 10,000 * 10,000 0 0
Seidel, Jerome Jr.(13) 5,000 * 5,000 0 0
John Jr. and Mary Ferrino(13) 10,000 * 10,000 0 0
Excalibur Limited Partnership(21) 937,500 4.28% 937,500 0 0
Stonestreet Limited Partnership(22) 1,129,118 5.15% 1,129,118 0 0
Whalehaven Capital Fund(23) 801,270 3.66% 801,270 0 0
Linda Hechter(24) 375,000 * 375,000 0 0
First Montauk Securities Corp.(25) 493,624 * 493,624 0 0
Ernest Pellegrino(26) 330,058 * 330,058 0 0
Max Povolotsky(27) 162,125 * 162,125 0 0
Shirang Jeurkar(28) 51,000 * 51,000 0 0
Kevin Shebar (34) 26,923 * 26,923 0 0
Yitzchak Weitman (34) 12,885 * 12,885 0 0
Joseph Shiro (34) 10,000 * 10,000 0 0
Ellis International, Inc. (35) 135,183 * 135,183 0 0
Sam Nebenzahl (36) 182,498 * 182,498 0 0
Michael P. Bailey & Kristen E. Bailey (37) 135,183 * 135,183 0 0
Zichron Avrohon Abba (38) 135,183 * 135,183 0 0
Chuck Lipson (39) 67,592 * 67,592 0 0
Nite Capital, L.P. (40) 675,920 3.09% 675,920 0 0
Chestnut Ridge Partners, L.P. (41) 337,962 1.54% 337,960 0 0
Crescent International, Ltd. (42) 404,201 1.85% 404,201 0 0
Alpha Capital Aktiengesellshaft (43) 405,552 1.85% 405,552 0 0
DKR Soundshore Oasis Holding Fund Ltd. (44) 337,961 1.54% 337,960 0 0
Meadowbrook Opportunity Fund LLC (45) 527,219 2.41% 527,219 0 0
Iriquois Capital, L.P. (46) 405,552 1.85% 405,552 0 0
CSL Associates, L.P. (47) 337,960 1.54% 337,960 0 0
Torrey Pines Master Fund Ltd. (48) 629,961 2.88% 629,959 0 0
* Less than 1%
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the exercise
of the warrants is subject to adjustment depending on, among other factors, the
future market price of the common stock, and could be materially less or more
than the number estimated in the table.
47
(1) Unless otherwise specified below, with the exception of First Montauk
Securities Corp., the number of shares owned and being registered is comprised
of 53.59% of shares of common stock and 46.41% of shares of common stock
underlying warrants. First Montauk Securities Corp. owns (i) 339,938 shares of
common stock underlying warrants exercisable at $1.25 per share; and (ii) 25,000
warrants shares of common stock underlying exercisable at $1.00 per share.
(2) Includes (i) 251,204 shares of common stock issued pursuant to the November
2004 Private Placement; (ii) 217,546 shares of common stock underlying warrants
issued pursuant to the November 2004 Private Placement; (iii) 384,615 and 2,845
shares of common issued upon a conversion of principal and interest,
respectively, pursuant to the February 2005 Private Placement; (iv) 192,307
shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (v) 96,153 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. In accordance with rule 13d-3 under the securities exchange act of
1934, Edward L. Cohen, Robert K. Tanenbaun, Mark D. Lerner and Theodore N.
Lerner may be deemed control persons, with voting and investment control, of the
shares owned by such entity. The selling stockholder has notified us that they
are not broker-dealers or affiliates of broker-dealers and that they believe
they are not required to be broker-dealers.
(3) In accordance with rule 13d-3 under the securities exchange act of 1934,
Marc Swickle and Alex Cherepakhov may be deemed control persons, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(4) The selling stockholder has notified us that they are broker-dealers and/or
affiliates of broker-dealers.
(5) The selling stockholder has notified us that they are not broker-dealers or
affiliates of broker-dealers and that they believe they are not required to be
broker-dealers.
(6) In accordance with rule 13d-3 under the securities exchange act of 1934,
Yisroel Kellner may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(7) In accordance with rule 13d-3 under the securities exchange act of 1934,
Faye Lamm may be deemed a control person, with voting and investment control, of
the shares owned by such entity. The selling stockholder has notified us that
they are not broker-dealers or affiliates of broker-dealers and that they
believe they are not required to be broker-dealers.
(8) In accordance with rule 13d-3 under the securities exchange act of 1934,
Hillel Mendelovitz may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(9) In accordance with rule 13d-3 under the securities exchange act of 1934,
James Moore may be deemed a control person, with voting and investment control,
of the shares owned by such entity. The selling stockholder has notified us that
they are not broker-dealers or affiliates of broker-dealers and that they
believe they are not required to be broker-dealers.
(10) Includes (i) 31,250 shares of common stock; and (ii) 17,187 shares of
common stock underlying warrants. The selling stockholder has notified us that
he is not broker-dealer or an affiliate of a broker-dealer and that he believes
he is not required to be a broker-dealer.
(11) In accordance with rule 13d-3 under the securities exchange act of 1934,
Herman Verhand and Milan Verhand may be deemed control persons, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(12) Includes 35,000 shares of common stock underlying warrants exercisable at
$1.00 per share. The selling stockholder has notified us that he is not
broker-dealer or an affiliate of a broker-dealer and that he believes he is not
required to be a broker-dealer.
(13) Includes shares of common stock underlying warrants exercisable at $2.50
per share. The selling stockholders have notified us that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
48
(14) In accordance with rule 13d-3 under the securities exchange act of 1934,
William Thompson may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(15) In accordance with rule 13d-3 under the securities exchange act of 1934,
John Thompson may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(16) In accordance with rule 13d-3 under the securities exchange act of 1934,
Andrew Guzzetti may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(17) In accordance with rule 13d-3 under the securities exchange act of 1934,
Nicholas Paine may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(18) In accordance with rule 13d-3 under the securities exchange act of 1934,
Julien Millet may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(19) In accordance with rule 13d-3 under the securities exchange act of 1934,
John D. Dunning may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(20) In accordance with rule 13d-3 under the securities exchange act of 1934,
Steven Bolden may be deemed a control person, with voting and investment
control, of the shares owned by such entity. The selling stockholder has
notified us that they are not broker-dealers or affiliates of broker-dealers and
that they believe they are not required to be broker-dealers.
(21) Includes (i) 625,000 shares of common stock; and (ii) 312,500 shares of
common stock underlying warrants exercisable at $1.25 per share. In accordance
with rule 13d-3 under the securities exchange act of 1934, William Hechter may
be deemed a control person, with voting and investment control, of the shares
owned by such entity. The selling stockholder has notified us that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
(22) Includes (i) 546,250 shares of common stock; (ii) 312,500 shares of common
stock underlying warrants exercisable at $1.25 per share; (iii) 153,846 and
1,138 shares of common issued upon a conversion of principal and interest,
respectively, pursuant to the February 2005 Private Placement; (iv) 76,923
shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (v) 38,461 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. In accordance with rule 13d-3 under the securities exchange act of
1934, Michael Finkelstein and Libby Leonard may be deemed control persons, with
voting and investment control, of the shares owned by such entity. The selling
stockholder has notified us that they are not broker-dealers or affiliates of
broker-dealers and that they believe they are not required to be broker-dealers.
(23) Includes (i) 218,750 shares of common stock; (ii) 109,375 shares of common
stock underlying warrants exercisable at $1.25 per share; (iii) 269,231 and
1,992 shares of common issued upon a conversion of principal and interest,
respectively, pursuant to the February 2005 Private Placement; (iv) 134,615
shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (v) 67,307 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. In accordance with rule 13d-3 under the securities exchange act of
1934, Evan Schemenauer, Arthur Jones and Jennifer Kelly may be deemed control
persons, with voting and investment control, of the shares owned by such entity.
The selling stockholder has notified us that they are not broker-dealers or
affiliates of broker-dealers and that they believe they are not required to be
broker-dealers.
(24) Includes (i) 250,000 shares of common stock; and (ii) 125,000 shares of
common stock underlying warrants exercisable at $1.25 per share. The selling
stockholder has notified us that she is not broker-dealer or an affiliate of a
broker-dealer and that she believes she is not required to be broker-dealers.
49
(25) Includes (i) 339,938 shares of common stock underlying warrants exercisable
at $1.25 per share; (ii) 25,000 warrants shares of common stock underlying
exercisable at $1.00 per share; and (iii) 103,626 shares of common stock
underlying warrants exercisable at $1.85 per share. In accordance with rule
13d-3 under the securities exchange act of 1934, the Board of Directors of the
selling stockholders may be deemed control persons, with voting and investment
control, of the shares owned by such entity and has acquired these securities in
the ordinary course of business as compensation.
(26) Includes (i) 172,251 shares of common stock underlying warrants exercisable
at $1.25 per share; (ii) 53,500 shares underlying warrants exercisable at $1.00
per share; and (iii) 104,307 shares of common stock underlying warrants
exercisable at $1.85 per share. Mr. Pellegrino is affiliated with First Montauk
Securities, a broker-dealer and has acquired these securities in the ordinary
course of business as compensation.
(27) Includes (i) 65,250 shares of common stock underlying warrants exercisable
at $1.25 per share; and (ii) 96,875 shares of common stock underlying warrants
exercisable at $1.85 per share. Mr. Povolotsky is affiliated with First Montauk
Securities, a broker-dealer and has acquired these securities in the ordinary
course of business as compensation.
(28) Includes (i) 16,000 shares of common stock underlying warrants exercisable
at $1.00 per share; (ii) 20,000 shares of common stock underlying warrants
exercisable at $1.25 per share; and (iii) 15,000 shares of common stock
underlying warrants exercisable at $1.85 per share. Mr. Jeurkar is affiliated
with First Montauk Securities, a broker-dealer and has acquired these securities
in the ordinary course of business as compensation.
(29) Includes (i) 5,500 shares of common stock underlying warrants exercisable
at $1.00 per share; and (ii) 15,000 shares of common stock underlying warrants
exercisable at $1.85 per share. Ms. Metelitsa is affiliated with First Montauk
Securities, a broker-dealer and has acquired these securities in the ordinary
course of business as compensation.
(30) Includes (i) 50,241 shares of common stock issued pursuant to the November
2004 Private Placement; (ii) 43,509 shares of common stock underlying warrants
issued pursuant to the November 2004 Private Placement; (iii) 120,000 and 888
shares of common issued upon a conversion of principal and interest,
respectively, pursuant to the February 2005 Private Placement; (iv) 60,000
shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (v) 30,000 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. The selling stockholder has notified us that he is not broker-dealer
or an affiliate of a broker-dealer and that he believes he is not required to be
a broker-dealer.
(31) Includes (i) 30,144 shares of common stock issued pursuant to the November
2004 Private Placement; (ii) 26,106 shares of common stock underlying warrants
issued pursuant to the November 2004 Private Placement; (iii) 40,000 and 296
shares of common issued upon a conversion of principal and interest,
respectively, pursuant to the February 2005 Private Placement; (iv) 20,000
shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (v) 10,000 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. The selling stockholder has notified us that she is not broker-dealer
or an affiliate of a broker-dealer and that she believes he is not required to
be a broker-dealer.
(32) Includes (i) 25,120 shares of common stock issued pursuant to the November
2004 Private Placement; (ii) 21,755 shares of common stock underlying warrants
issued pursuant to the November 2004 Private Placement; (iii) 40,000 and 296
shares of common issued upon a conversion of principal and interest,
respectively, pursuant to the February 2005 Private Placement; (iv) 20,000
shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (v) 10,000 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. The selling stockholder has notified us that he is not broker-dealer
or an affiliate of a broker-dealer and that he believes he is not required to be
a broker-dealer.
(33) Includes (i) 25,120 shares of common stock issued pursuant to the November
2004 Private Placement; (ii) 21,755 shares of common stock underlying warrants
issued pursuant to the November 2004 Private Placement; (iii) 76,923 and 569
shares of common issued upon a conversion of principal and interest,
respectively, pursuant to the February 2005 Private Placement; (iv) 38,461
shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (v) 19,230 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. The selling stockholders have notified us that they are not
broker-dealers or affiliated of a broker-dealer and that they believe they are
not required to be broker-dealers.
(34) Includes shares of common stock underlying warrants exercisable at $1.85
per share. The selling stockholders are affiliated with First Montauk
Securities, a broker-dealer and have acquired these securities in the ordinary
course of business as compensation.
50
(35) Includes (i) 76,923 and 569 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 38,461 shares of common stock underlying Class A warrants issued
pursuant to the February 2005 Private Placement; and (iii) 19,230 shares of
common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Wilhelm Ungar may be deemed a control person, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(36) Includes (i) 103,846 and 768 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 51,923 shares of common stock underlying Class A warrants issued
pursuant to the February 2005 Private Placement; and (iii) 25,961 shares of
common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. The selling stockholder has notified us that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
(37) Includes (i) 76,923 and 569 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 38,461 shares of common stock underlying Class A warrants issued
pursuant to the February 2005 Private Placement; and (iii) 19,230 shares of
common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. The selling stockholder has notified us that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
(38) Includes (i) 76,923 and 569 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 38,461 shares of common stock underlying Class A warrants issued
pursuant to the February 2005 Private Placement; and (iii) 19,230 shares of
common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. The selling stockholder has notified us that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
(39) Includes (i) 38,462 and 285 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 19,230 shares of common stock underlying Class A warrants issued
pursuant to the February 2005 Private Placement; and (iii) 9,615 shares of
common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. The selling stockholder has notified us that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
(40) Includes (i) 384,615 and 2,845 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 192,307 shares of common stock underlying Class A warrants
issued pursuant to the February 2005 Private Placement; and (iii) 96,153 shares
of common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Keith Goodman may be deemed a control person, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(41) Includes (i) 192,308 and 1,423 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 96,154 shares of common stock underlying Class A warrants issued
pursuant to the February 2005 Private Placement; and (iii) 48,077 shares of
common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Kenneth Pasternak may be deemed a control person, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(42) Includes (i) 230,000 and 1,701 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 115,000 shares of common stock underlying Class A warrants
issued pursuant to the February 2005 Private Placement; and (iii) 57,500 shares
of common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. Mel Craw, Maxi Brezzi and Bachir Taleb-Ibrahimi, in their
capacity as managers of Cantara (Switzerland) SA, the investment advisor to
Crescent International Ltd., have voting control and investment discretion over
the shares owned by Crescent International Ltd. Messrs. Craw, Brezzi and
Taleb-Ibrahimi disclaim beneficial ownership of such shares. The selling
stockholder has notified us that they are not broker-dealers or affiliates of
broker-dealers and that they believe they are not required to be broker-dealers.
(43) Includes (i) 230,769 and 1,707 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
51
Placement; (ii) 115,384 shares of common stock underlying Class A warrants
issued pursuant to the February 2005 Private Placement; and (iii) 57,692 shares
of common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Konrad Ackerman and Rainer Posch may be deemed a control person,
with voting and investment control, of the shares owned by such entity. The
selling stockholder has notified us that they are not broker-dealers or
affiliates of broker-dealers and that they believe they are not required to be
broker-dealers.
(44) Includes (i) 184,115 shares of common issued upon conversion by us of
principal and interest pursuant to the February 2005 Private Placement; (ii)
91,346 shares of common stock underlying Class A warrants issued pursuant to the
February 2005 Private Placement; and (iii) 45,673 shares of common stock
underlying Class B warrants issued pursuant to the February 2005 Private
Placement. DKR SoundShore Oasis Holding Fund Ltd. (the "Fund") is a master fund
in a master-feeder structure. The Fund's investment manager is DKR Oasis
Management Company LP (the "Investment Manager"). Pursuant to an investment
management agreement among the Fund, the feeder funds and the Investment
Manager, the Investment Manager has the authority to do any and all acts on
behalf of the Fund, including voting any shares held by the Fund. Mr. Seth
Fischer is the managing partner of Oasis Management Holdings LLC, one of the
general partners of the Investment Manager. Mr. Fischer has ultimate
responsibility for trading with respect to the Fund. Mr. Fischer disclaims
beneficial ownership of the shares. The Fund has notified us that it is not a
broker-dealers or affiliate of a broker-dealer and that it believes that it is
not required to be a broker-dealer. In addition, Includes (i) 9,615 shares of
common issued upon conversion by us of principal and interest pursuant to the
February 2005 Private Placement; (ii) 4,808 shares of common stock underlying
Class A warrants issued pursuant to the February 2005 Private Placement; and
(iii) 2,404 shares of common stock underlying Class B warrants issued pursuant
to the February 2005 Private Placement. DKR SoundShore Strategic Holding Fund
Ltd. (the "Fund") is a master fund in a master-feeder structure. The Fund's
investment manager is DKR Capital Partners L.P. (the "Investment Manager").
Pursuant to an investment management agreement among the Fund, the feeder funds
and the Investment Manager, the Investment Manager has the authority to do any
and all acts on behalf of the Fund, including voting any shares held by the
Fund. The Fund is multi-managed and, with respect to the shares covered by this
registration statement, Mr. Seth Fischer has ultimate trading authority. Mr.
Fischer disclaims beneficial ownership of the shares. The Fund has notified us
that it is not a broker-dealers or affiliate of a broker-dealer and that it
believes that it is not required to be a broker-dealer.
(45) Includes (i) 300,000 and 2,219 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 150,000 shares of common stock underlying Class A warrants
issued pursuant to the February 2005 Private Placement; and (iii) 75,000 shares
of common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Michael Ragins may be deemed a control person, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(46) Includes (i) 230,769 and 1,707 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 115,384 shares of common stock underlying Class A warrants
issued pursuant to the February 2005 Private Placement; and (iii) 57,692 shares
of common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Josh Silverman may be deemed a control person, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(47) Includes (i) 192,308 and 1,423 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 96,153 shares of common stock underlying Class A warrants issued
pursuant to the February 2005 Private Placement; and (iii) 48,076 shares of
common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Chuck Lipson may be deemed a control person, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(48) Includes (i) 358,462 and 2,652 shares of common issued upon a conversion of
principal and interest, respectively, pursuant to the February 2005 Private
Placement; (ii) 179,231 shares of common stock underlying Class A warrants
issued pursuant to the February 2005 Private Placement; and (iii) 89,616 shares
of common stock underlying Class B warrants issued pursuant to the February 2005
Private Placement. In accordance with rule 13d-3 under the securities exchange
act of 1934, Rob Jafek may be deemed a control person, with voting and
investment control, of the shares owned by such entity. The selling stockholder
has notified us that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
52
PLAN OF DISTRIBUTION
Each Selling Stockholder (the "Selling Stockholders") of the common stock
("Common Stock") of Airtrax, Inc., a New Jersey corporation (the "Company") and
any of their pledgees, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of Common Stock on the American Stock
Exchange or any other stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o settlement of short sales;
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. One
of the Selling Stockholders, First Montauk Securities Corp., is a registered
broker dealer and NASD member firm. First Montauk served as placement agent in
our recently completed May 2004 private placement, and received, in addition to
commissions, warrants to purchase an aggregate of 360,000 shares of our Common
Stock with an exercise price of $1.25 per share. First Montauk also served as
placement agent in our recently completed November 2004 private placements and
received, in addition to commissions, warrants to purchase an aggregate of
164,000 shares of our Common Stock with an exercise price of $1.25 per share. In
addition, we are obligated to issue First Montauk warrants to purchase 100,000
shares of our common stock as compensation pursuant to an advisory agreement we
have entered into with First Montauk. The registration statement of which this
Prospectus forms a part includes the shares underlying the warrants held by
First Montauk. In addition, First Montauk has been retained as a financial
consultant to Airtrax, for which it received cash compensation of $30,000.
In connection with the sale of our common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any agreement or understanding, directly or
indirectly, with any person to distribute the Common Stock, however, they may
elect to sell their shares through First Montauk Securities Corp. as described
below. As a broker dealer who is also a selling shareholder, First Montauk may
be deemed an underwriter with respect to the shares it may sell pursuant to this
Prospectus.
53
In order to comply with the securities laws of some states, the selling
shareholders must sell the shares in those states only through registered or
licensed brokers or dealers. In addition, in some states the Selling
Stockholders must sell the shares only if we have registered or qualified those
shares for sale in the applicable state or an exemption from the registration or
qualification requirement is available and the selling shareholder complies with
the exemption.
The Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each Selling
Stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the Selling
Stockholders.
First Montauk Securities Corp. served as placement agent in connection with the
private placement offering recently completed by us in which we raised
$2,880,100 in gross proceeds. First Montauk is a National Association of
Securities Dealers, Inc. member brokerage firm. First Montauk received 360,000
warrants as compensation for its services as placement agent. The warrants have
an exercise price of $1.25 per share. The warrants expire on May 13, 2009.
Pursuant to NASD Rule 2710(g)(1), the 360,000 shares of common stock issued or
issuable upon conversion of placement agent warrants received by First Montauk
are restricted from sale, transfer, assignment or hypothecation for a period of
six months from the effective date of this Registration Statement except to
officers or partners (not directors) of First Montauk and members of the selling
group and/or their officers or partners. Additionally, William Kurinsky, who is
listed as a selling shareholder, is an officer of First Montauk Securities Corp.
All securities (48,437 total shares and warrants) held by Mr. Kurinsky (or any
other person who might be associated with First Montauk Securities and receives
securities as a transferee in compliance with NASD Rule 2710) will be subject to
the same resale, transfer and assignment restrictions as set forth in NASD Rule
2710(g)(1) for six months from the effective date of the Registration Statement.
First Montauk Securities Corp. also served as placement agent in connection with
the November 2004 private placement offerings recently completed by us in which
we raised $1,312,840 in gross proceeds. First Montauk is a National Association
of Securities Dealers, Inc. member brokerage firm. First Montauk and certain of
its affiliated members received 164,000 warrants as compensation for its
services as placement agent. The warrants have an exercise price of $1.25 per
share. The warrants expire on November 22 and 23, 2009. In addition, we are
obligated to issue First Montauk warrants to purchase 100,000 shares of our
common stock as compensation pursuant to an advisory agreement we have entered
into with First Montauk.
First Montauk has indicated to us its willingness to act as selling agent on
behalf of the selling shareholders named in the Prospectus under "Selling
Stockholders" that purchased our privately placed securities. All shares sold,
if any, on behalf of selling shareholders by First Montauk would be in
transactions executed by First Montauk on an agency basis and commissions
charged to its customers in connection with each transaction shall not exceed a
maximum of 4.5% of the gross proceeds. First Montauk does not have an
underwriting agreement with us and/or the selling shareholders and no selling
shareholders are required to execute transactions through First Montauk. In the
event that there are other broker dealer firms involved in the distribution of
securities on behalf of selling shareholders, the maximum commission or discount
to be received will not be greater than 8% of the sale of any securities which
were registered pursuant to this prospectus under SEC Rule 415.
NASD Notice to Members 88-101 states that in the event a selling shareholder
intends to sell any of the shares registered for resale in this Prospectus
through a member of the NASD participating in a distribution of our securities,
such member is responsible for insuring that a timely filing is first made with
the Corporate Finance Department of the NASD and disclosing to the NASD the
following:
o it intends to take possession of the registered securities or to facilitate
the transfer of such certificates;
o the complete details of how the selling shareholders shares are and will be
held, including location of the particular accounts;
o whether the member firm or any direct or indirect affiliates thereof have
entered into, will facilitate or otherwise participate in any type of payment
transaction with the selling shareholders, including details regarding any such
transactions; and
54
o in the event any of the securities offered by the selling shareholders are
sold, transferred, assigned or hypothecated by any selling shareholder in a
transaction that directly or indirectly involves a member firm of the NASD or
any affiliates thereof, that prior to or at the time of said transaction the
member firm will timely file all relevant documents with respect to such
transaction(s) with the Corporate Finance Department of the NASD for review.
No persons associated with us or the selling shareholders may participate in the
distribution of the shares to be offered by selling shareholders unless they
meet the safe harbor provisions of the SEC Rule 3a4-1 promulgated under the
Securities Exchange Act of 1934 with respect to exemption from registration as a
broker/dealer.
We agreed to keep this prospectus effective until the earlier of (i) the date on
which the shares may be resold by the Selling Stockholders without registration
and without regard to any volume limitations by reason of Rule 144(e) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to the prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
Selling Stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.
Any selling shareholder may from time to time pledge or grant a security
interest in some or all of the shares of common stock or warrants owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling shareholders to include the pledgee, transferee or
other successors in interest as selling shareholders under this prospectus.
The selling shareholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
At the time a selling shareholder makes a particular offer of shares we will, if
required under applicable rules and regulations, distribute a Prospectus
supplement that will set forth:
o the number of shares that the Selling Holder is offering;
o the terms of the offering, including the name of any underwriter, dealer or
agent;
o the purchase price paid by any underwriter;
o any discount, commission and other underwriter compensation;
o any discount, commission or concession allowed or reallowed or paid to any
dealer; and
o the proposed selling price to the public.
We will not receive any proceeds from sales of any shares by the selling
shareholders.
55
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an opinion
with respect to the validity of the shares of common stock being offered hereby.
EXPERTS
The financial statements as of December 31, 2004 and for the years ended
December 31, 2004 and 2003 incorporated in this prospectus, to the extent and
for the periods indicated in their reports, have been audited by Robert G.
Jeffrey, Certified Public Accountant, and are included herein in reliance upon
the authority of this firms as experts in accounting and auditing.
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement and the documents incorporated by
reference in this prospectus contain forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events.
In some cases, you can identify forward-looking statements by words such as
"may," "should," "expect," "plan," "could," "anticipate," "intend," "believe,"
"estimate," "predict," "potential," "goal," or "continue" or similar
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks outlined under "Risk
Factors," that may cause our or our industry's 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.
Unless we are required to do so under U.S. federal securities laws or other
applicable laws, we do not intend to update or revise any forward-looking
statements.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act of
1933, as amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Airtrax, Inc. filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities Exchange Act
of 1934, which requires us to file reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information may be inspected at public reference facilities
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
You should rely only on the information contained in this prospectus or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This prospectus may only be used where it is
legal to sell these securities. The information in this prospectus may only be
accurate on the date of this prospectus.
56
FINANCIAL STATEMENT INDEX
AIRTRAX, INC.
(A Development Stage Company)
Financial Statements
June 30, 2005
(Unaudited)
Page
Balance Sheets 58
Statements of Operations and Deficit Accumulated
During Development Stage 59
Statements of Cash Flows 60
Notes to Financial Statements 61
57
AIRTRAX, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, 2005 December 31, 2004
(Unaudited) (Audited)
ASSETS
Current Assets
Cash $ 1,098,691 $ 641,477
Accounts receivable 2,445 -
Accrued interest receivable 244,666 86,667
Inventory 1,673,435 709,281
Prepaid expense - 5,113
Vendor advance 173,017 52,017
Deferred tax asset 448,860 224,414
--------------- ---------------
Total current assets 3,641,114 1,718,969
Fixed Assets
Office furniture and equipment 111,786 90,714
Automotive equipment 21,221 21,221
Shop equipment 43,619 24,553
Casts and tooling 236,484 205,485
--------------- ---------------
413,110 341,973
Less, accumulated depreciation 266,592 248,386
--------------- ---------------
Net fixed assets 146,518 93,587
Other Assets
Advances to FiLCO GmbH 5,266,136 2,670,000
Patents - net 145,152 117,402
Bond discount 479,167 -
Utility deposits 65 65
--------------- ---------------
Total other assets 5,890,520 2,787,467
--------------- ---------------
TOTAL ASSETS $ 9,678,152 $ 4,600,023
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 559,506 $ 394,959
Accrued liabilities 424,555 459,565
Shareholder deposits for stock - 1,403,174
Shareholder notes payable 33,460 33,455
--------------- ---------------
Total current liabilities 1,017,521 2,291,153
Long Term Convertible Debt 500,000 -
TOTAL LIABILITIES 1,517,521 2,291,153
--------------- ---------------
Stockholders' Equity
Common stock - authorized, 100,000,000 shares
without par value; issued
and outstanding - 21,639,926 and
15,089,342, respectively 19,911,659 10,822,854
Paid in capital warrants 2,652,812
Preferred stock - authorized, 5,000,000 shares without
par value; 375,000 issued and outstanding 545,491 12,950
Deficit accumulated during development stage (14,742,379) (8,319,982)
Deficit prior to development stage (206,952) (206,952)
--------------- ---------------
Total stockholders' equity 8,160,631 2,308,870
TOTAL LIABILITIES AND
--------------- ---------------
STOCKHOLDER'S EQUITY $ 9,678,152 $ 4,600,023
=============== ===============
The accompanying notes are an integral part of these financial statements.
58
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
For the Six Month Periods Ended June 30, 2005 and 2004
(Unaudited)
May 19, 1997
(Date of Inception)
2005 2004 to June 30, 2005
--------------- --------------- ---------------
SALES $ 167,545 $ - $ 1,190,668
COST OF GOODS SOLD 160,126 - 630,497
--------------- --------------- ---------------
Gross Profit (Loss) 7,419 - 560,171
OPERATING AND ADMINISTRATIVE
EXPENSES 2,007,882 848,141 10,956,103
--------------- --------------- ---------------
OPERATING LOSS (2,000,463) (848,141) (10,395,932)
OTHER INCOME AND EXPENSE
Interest expense (4,288,161) (13,730) (4,463,225)
Interest income 172,300 10,127 258,967
Other income 211 94 78,505
--------------- --------------- ---------------
NET LOSS BEFORE INCOME
TAXES (6,116,113) (851,650) (14,521,685)
--------------- --------------- ---------------
INCOME TAX BENEFIT (STATE):
Current 224,446 67,770 224,446
Prior years - - 717,142
--------------- --------------- ---------------
Total Benefit 224,446 67,770 941,588
--------------- --------------- ---------------
NET LOSS BEFORE DIVIDENDS (5,891,667) (783,880) (13,580,097)
DEEMED DIVIDENDS ON
PREFERRED STOCK 479,167 - 667,579
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS (6,370,834) (783,880) (14,247,676)
PREFERRED STOCK DIVIDENDS
DURING DEVELOPMENT STAGE (51,563) (85,937) (494,703)
DEFICIT ACCUMULATED $ (6,422,397) $ (869,817) $ (14,742,379)
=============== =============== ===============
NET LOSS PER SHARE -
Basic and Diluted $ (.33) $ (.08) -
WEIGHTED AVERAGE SHARES
OUTSTANDING 19,435,015 10,267,532
The accompanying notes are an integral part of these financial statements.
59
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Six Month Periods ended June 30, 2005 and 2004
(Unaudited)
May 19, 1997
(Date of
Inception)
2005 2004 to June 30, 2005
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,370,834) $ (783,880) $ (14,247,676)
Adjustments to reconcile net loss to net cash
consumed by operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 21,666 18,106 322,830
Amortization of bond discount 20,833 - 20,833
Equity securities issued for services 717,593 278,244 3,656,816
Warrants issued 944,500 - 944,500
Conversion benefit 3,269,231 - 3,269,231
Stock issued in settlement of interest obligations 36,986 - 36,986
Increase in accrual of deferred tax benefit (224,446) (67,770) (448,860)
Deemed dividends on preferred stock 479,167 - 667,579
Interest accrued on shareholder loan 2,007 2,925 23,648
Changes in current assets and liabilities:
Increase in accrued interest receivable (157,999) - (244,666)
Increase in accounts receivable (2,445) (37,485) (2,445)
Increase in vendor advances (121,000) - (173,017)
Increase (decrease) in accounts payable and
accrued liabilities 45,945 (345,261) 966,299
Increase in prepaid expenses - - (146,957)
Increase in inventory (964,154) (33,833) (1,673,435)
--------------- --------------- ---------------
Net Cash Consumed By
Operating Activities (2,302,950) (968,954) (7,028,334)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (71,137) (25,412) (419,421)
Additions to patent cost (31,460) - (189,391)
Advances to Filco GmbH (2,596,136) (1,000,000) (5,266,136)
--------------- --------------- ---------------
Net Cash Consumed By
Investing Activities (2,698,733) (1,025,412) (5,874,948)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of insurance of convertible debt 4,277,500 - 4,277,500
Net proceeds of common stock sales 55,000 2,457,212 8,627,611
Proceeds of convertible loan 409,913 - 409,913
Proceeds from exercise of warrants 718,486 - 812,236
Proceeds of sales of preferred stock - - 12,950
Proceeds from exercise of options - - 14,344
Borrowings (repayments) of stockholder loans (2,002) (52,005) 33,118
Preferred stock dividends paid in cash - (85,937) (185,274)
Principal payments on installation note - (471) (425)
--------------- --------------- ---------------
Net Cash Provided By
Financing Activities 5,458,897 2,318,799 14,001,973
--------------- --------------- ---------------
Net (Decrease) Increase In Cash 457,214 324,433 1,098,691
Balance at beginning of period 641,477 37,388 -
--------------- --------------- ---------------
Balance at end of period $1,098,691 $ 361,821 $ 1,098,691
=============== =============== ===============
The accompanying notes are an inte6gral part of these financial statements.
60
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements of AirTrax, Inc. ("the Company") as
of June 30, 2005 and for the six month periods ended June 30, 2005 and 2004,
respectively, have been prepared in accordance with accounting principals
generally accepted in the United States of America. In the opinion of
management, such information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for such
periods. The results of operations for the quarter and six month period ended
June 30, 2005 are not necessarily indicative of the results to be expected for
the full fiscal year ending December 31, 2005.
Certain information and disclosures normally included in the notes to financial
statements have been condensed or omitted as permitted by the rules and
regulations of the Securities and Exchange Commission, although the Company
believes the disclosure is adequate to make the information presented not
misleading. The accompanying unaudited financial statements should be read in
conjunction with the financial statements of the Company for the year ended
December 31, 2005.
2. RESTATEMENTS
Certain errors effecting the June 30, 2005 financial statements have been
discovered during a review by management. Correcting these errors resulted in an
increase in common stock and a reduction in paid in capital - warrants as of
June 30, 2005; and changes in the net losses attributable to common shareholders
with a resultant increase in the deficit accumulated during development stage,
and certain changes in the statements of cash flows, for the three and six month
periods ended June 30, 2005. The June 30, 2005 financial statements have,
therefore, been restated to correct these errors. The restated amounts are
compared with the amounts previously reported in the following tables.
BALANCE SHEET:
As Originally
Presented Adjustments As Restated
Stockholders'
Equity:
Common stock $ 15,005,573 $ 3,269,231 (1) $ 19,911,659
1,525,000 (2)
111,855 (3)
Paid in capital-warrants 3,233,312 (1,525,000)(2) 2,652,812
944,500 (4)
Preferred stock 545,491 - 545,491
Deficit accumulated during
development stage (10,416,793) (944,500)(4) (14,742,379)
(3,269,231)(1)
(111,855)(3)
Deficit accumulated prior
to development stage (206,952) - (206,952)
---------------- ---------------- ---------------
Total Stockholders' Equity $ 8,160,631 $ 8,160,631
================ ================ ===============
61
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
Six Months Ended June 30, 2005 May 19, 1997 (Date of Inception) to June 30, 2005
------------------------------ -------------------------------------------------
As Originally As Originally
Presented Adjustments As Restated Presented Adjustments As Restated
------------ ------------ -------------- ------------- ------------ --------------
Operating and Administrative
expenses $(2,007,882) $ - $ (2,007,882) $(10,844,248) $ (111,855)(3) $(10,956,103)
Interest expense (74,430) (3,269,231)(1) (4,288,161) (249,494) (3,269,231)(1) (4,463,225)
(944,500)(4) (944,500)(4)
------------- -----------
Loss accumulated during
development stage $(2,208,666) $ (4,213,731) $ (6,422,397) $(10,416,793) $(4,325,586) $(14,742,379)
============ ============= ============== ============= ============ =============
STATEMENT OF CASH FLOWS
As Originally As Originally
Presented Adjustments As Restated Presented Adjustments As Restated
Operating Activities:
Net loss $(2,157,103) $ (4,213,731)(5) $ (6,370,834) $ (9,922,090) $(4,325,586)(5) $(14,247,676)
Charges not requiring
outlay of cash:
Equity securities issued for
services - - - 3,544,961 111,855(3) 3,656,816
Conversion benefit - 3,269,231 (1) 3,269,231 - 3,269,231(1) 3,269,231
Value of warrants - 944,500 (4) 944,500 - 944,500(4) 944,500
------------ ------------
Net cash consumed by
Operating activities $(2,302,950) $ - $ (2,302,950) $ (7,028,334) $ (7,028,334)
------------ ------------ -------------- ------------- ------------ --------------
(1) Conversion benefit recognized as interest on converted notes.
(2) Reversal of value originally allocated to warrants as described in Note #3;
see (4) for replacement amount.
(3) Effect of prior year correction of shares issued for services.
(4) Portion of the proceeds of sale of convertible notes allocated to warrants
issued with the notes; this allocation resulted in a discount on the notes
which has been accounted for as additional interest, as described in Note
#3
(5) Net amount of charges on Statement of Operations and Deficit Accumulated
During Development Stage.
62
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
COMMON STOCK
The certificate of incorporation was amended on March 28, 2005 to increase the
number of authorized shares to 100,000,000 for the common no par stock, and to
5,000,000 for the preferred no par stock.
3. COMMON STOCK AND WARRANTS
On February 11, 2005, the Company issued $5,000,000 of 6% convertible promissory
notes, which were convertible into Company common stock and two classes of
warrants to purchase Company common stock. The notes were to mature on August
10, 2005. The Company retained the right to require conversion of the notes at a
price of $1.30 per share. Conversion occurred on March 29, 2005 and 3,846,154
shares of common stock were issued. In addition, warrants to purchase common
stock were issued in connection with this transaction, as follows: 1,923,077
Class A warrants and 961,538 Class B warrants. The Class A warrants are
exercisable for a five year period at a price per share of $1.85. The Class B
warrants are exercisable for a five year period at a price per share of $2.11.
As partial compensation, the broker-dealer which arranged this transaction was
awarded 484,616 warrants to purchase common stock, 384,616 at $1.85 per share,
and 100,000 at $1.00 per share.
This issuance of convertible promissory notes and warrants was accounted for as
required by Emerging Issues Task Force (EITF)98-5 "Accounting for Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios" and EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible
Investments." Accordingly, expense was increased by $944,500 representing the
value of the warrants and by $3,269,231 representing the value of the conversion
privilege.
On May 14, 2005, the Company issued a $ 500,000 8% convertible note. The note is
scheduled for maturity in two years. During that period, it can be converted to
stock at a rate of $ 1.30 per share, which would translate to 384,615 shares.
Accompanying the convertible note were 384,615 warrants to purchase common stock
at $2.11 per share; these warrants are exercisable over a five year period.
A total of 8,536,298 warrants were outstanding at June 30, 2005 as follows:
Other Total
Class A Class B Warrants Warrants
Outstanding at December 31, 2004 5,537,763 5,537,763
Issued in connection with sale
of $5,000,000 in convertible notes 1,923,077 961,538 484,616 3,369,231
Warrants issued in conjunction with
$500,000 of convertible debt 384,615 384,615
Other warrants issued 37,689 37,689
Reductions:
Warrants exercised (593,000) (593,000)
Warrants voided (200,000) (200,000)
---------- ----------
Outstanding, June 30, 2005 1,923,077 1,346,153 5,267,068 8,536,298
=========== ========= ========== ==========
63
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
3. COMMON STOCK AND WARRANTS (continued)
Shares of common stock were issued during the second quarter and first six
months of 2005 as follows:
Second Quarter Six Months
--------------- ---------------
Conversion of $5,000,000 notes 3,846,154
Private placement sales 68,750
Shares issued based on warrants exercised 130,858 593,000
Issuance of shares sold in prior year 1,749,827
Shares issued for services 264,400 264,400
Shares issued in settlement of interest
on convertible notes 28,453 28,453
--------------- ---------------
Total shares issued 423,711 6,550,584
--------------- ---------------
4. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $5, 803 and $10,135, respectively, for the six month
periods ended June 30, 2005 and June 30, 2004. There was no cash paid for income
taxes during either the 2005 or 2004 six month periods.
There were no noncash investing activities during either the 2005 or 2004
periods. The following noncash financing activities occurred during these
periods.
a. During the second quarter of 2005, the Company issued 24,853 shares in
settlement of the interest obligation on its $5,000,000 convertible
issue prior to the conversion of the notes to stock.
b. Shares of common stock were issued for services in 2005 and 2004;
these totaled 224,000 shares and 163,745 shares, respectively.
c. Shares were issued in 2005 and 2004 in settlement of shares paid for
in prior years. These amounted to 1,749,827 shares and 30,000 shares,
respectively.
64
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
5. OPERATING AND ADMINISTRATIVE EXPENSES
The following details expenses incurred during the six month periods ended June
30, 2005 and 2004:
2005 2004
------------- -------------
Options Expense $ 83,650 $ -
Payroll 254,894 150,573
Marketing 202,978 32,617
Production Costs 152,705 56,175
Professional Fees 306,068 66,674
Consulting Expenses 407,943 285,275
Insurance 129,879 54,480
Penalties 120,429 -
Other Expenses 349,336 202,347
------------- -------------
Totals $ 2,007,882 $ 848,141
------------- -------------
6. CONTINGENCY
The Company has a tentative agreement to purchase 75.1% of the stock of FiLCO
GmBH (FiLCO), a German manufacturer of fork trucks with a manufacturing facility
in Mulheim, Germany. During the pendency of the tentative agreement, the Company
has agreed to make advances to FiLCO. Through June 30, 2005, advances totaling
$5,266,236 had been made. A portion of these advances may be converted to
capital on the books of FiLCO. The seller, who will continue to own the
remaining 24.9% of the FiLCO stock, has agreed that if the Company converts
$1,220,000 of its advances to capital he will also convert to FiLCO capital a
loan of 1,225,000 Euros that FiLCO owes to him. As additional consideration for
this FiLCO stock purchase, the Company has agreed to pay the seller 12,750 Euros
and to issue to the seller 900,000 warrants to purchase Company stock; these
warrants would be exercisable at $.01 per share. The Company has appointed the
seller of the FiLCO stock a director of the Company and upon a closing of the
acquisition would grant him options to purchase 100,000 shares of Company stock
for $.01. Additionally, the Company agreed to advance funds, if needed, to FiLCO
to provide for its working capital needs. Any advances made under the latter
provision would be collateralized by the remaining 24.9% of FiLCO stock and
would be repaid only from dividends paid on the stock.
As of June 30, 2005, the Company had not concluded the contract and had not
issued any of the warrants or options contemplated by the tentative agreement.
65
AIRTRAX, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 2004
CONTENTS
Page
Accountant's Audit Report 67
Balance Sheet 68
Statements of Operations and Deficit Accumulated During Development Stage 69
Statements of Changes in Stockholder's Equity 70
Statements of Cash Flows 71
Notes to Financial Statements 72
66
ROBERT G. JEFFREY
CERTIFIED PUBLIC ACCOUNTANT
61 BERDAN AVENUE
WAYNE, NEW JERSEY 07470
LICENSED TO PRACTICE TEL: 973-628-0022
IN NEW YORK AND NEW JERSEY FAX: 973-696-9002
MEMBER OF AICPA E-MAIL: rgjcpa@erols.com
PRIVATE COMPANIES PRACTICE SECTION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
AirTrax, Inc.
I have audited the accompanying balance sheet of AirTrax, Inc. (a development
stage company) as of December 31, 2004, and the related statements of operations
and deficit accumulated during development stage, changes in stockholders'
equity, and cash flows for the years ended December 31, 2004 and 2003, and for
the period from May 19, 1997 (inception) to December 31, 2004. These financial
statements are the responsibility of the Company management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted the audit in accordance with the standards of Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor was I engaged to perform, an audit of its internal control over
financial reporting. My audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate under the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of AirTrax, Inc. as of December 31,
2004, and the results of its operations and its cash flows for the years ended
December 31, 2004 and 2003, and for the period from May 19, 1997 (inception) to
December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, certain errors were
discovered in the financial statements of the year ended December 31, 2003.
Accordingly, the 2003 statement of operations and deficit accumulated during
development stage has been restated to correct the errors and the balances of
common stock and deficit accumulated during development stage of 2004 have been
restated to correct the opening balances.
Robert G. Jeffrey
Certified Public Accountant
Wayne, New Jersey
October 3, 2005
67
AIRTRAX, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 2004
ASSETS
Current Assets
Cash $ 641,477
Accrued interest receivable 86,667
Inventory 709,281
Prepaid expenses 5,113
Vendor advance 52,017
Deferred tax asset 224,414
------------
Total current assets $ 1,718,969
Fixed Assets
Office furniture and equipment 90,714
Automotive equipment 21,221
Shop equipment 24,553
Casts and tooling 205,485
------------
341,973
Less, accumulated depreciation 248,386
------------
Net fixed assets 93,587
Other Assets
Advances to Filco Gmbh 2,670,000
Patents - net 117,402
Utility deposits 65
------------
Total other assets 2,787,467
------------
TOTAL ASSETS $ 4,600,023
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 394,959
Accrued liabilities 459,565
Shareholder deposits for stock 1,403,174
Shareholder notes payable 33,455
------------
Total current liabilities $ 2,291,153
------------
Stockholders' Equity
Common stock - authorized, 20,000,000 shares without
par value; 15,089,342 issued and outstanding 10,822,854
Preferred stock - authorized, 500,000 shares without
par value; 275,000 issued and outstanding 12,950
Deficit accumulated during the development stage (8,319,982)
Deficit prior to development stage (206,952)
------------
Total stockholders' equity 2,308,870
TOTAL LIABILITIES AND ------------
STOCKHOLDERS' EQUITY $ 4,600,023
============
The accompanying notes are an integral part of these financial statements.
68
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS and DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
For the Years Ended December 31, 2004 and 2003
May 19, 1997
(Date of Inception)
YEAR 2004 YEAR 2003 to December 31, 2004
------------ ------------ --------------------
CONSULTING REVENUE $ -- $ 21,879 $ 1,023,123
COST OF PROVIDING CONSULTING REVENUE -- 91,283 470,371
------------ ------------ ------------
Gross Profit (Loss) -- (69,404) 552,752
OPERATING AND ADMINISTRATIVE EXPENSES 2,529,775 2,108,370 (8,948,221)
------------ ------------ ------------
OPERATING LOSS (2,529,775) (2,177,774) (8,395,469)
OTHER INCOME AND (EXPENSE)
Interest expense (30,894) (43,938) (175,064)
Interest income 86,667 7,914 86,667
Other income 2,979 -- 78,294
------------ ------------ ------------
NET LOSS BEFORE INCOME TAXES (2,471,023) (2,213,798) (8,405,572)
------------ ------------ ------------
INCOME TAX BENEFIT (STATE):
Current 198,823 210,553 198,823
Prior years -- -- 518,319
------------ ------------ ------------
Total Benefit 198,823 210,553 717,142
------------ ------------ ------------
NET LOSS BEFORE DIVIDENDS (2,272,200) (2,003,245) (7,688,430)
DEEMED DIVIDENDS ON PREFERRED STOCK -- 188,412 188,412
------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS (2,272,200) (2,191,657) (7,876,842)
PREFERRED STOCK DIVIDENDS DURING
DEVELOPMENT STAGE (131,771) (80,749) (443,140)
------------ ------------ ------------
DEFICIT ACCUMULATED $(2,403,971) $(2,272,406) $(8,319,982)
============ ============ ============
EARNINGS PER SHARE:
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(2,272,200) $(2,191,657)
ADJUSTMENT FOR PREFERRED SHARE DIVIDENDS
ACCUMULATED BUT UNPAID 68,750 68,750
----------- -----------
LESS ALLOCABLE TO COMMON SHAREHOLDERS $(2,340,950) $(2,260,407)
=========== ============
NET LOSS PER SHARE - Basic and Diluted $ (.19) $ (.29)
=========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 12,075,448 7,818,400
=========== ============
The accompanying notes are an integral part of these financial statements.
69
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 30, 2004
DEFICIT DEFICIT
COMMON PREFERRED ACCUMULATED PRIOR
STOCK STOCK DURING TO
------------------------ ------------------------- DEVELOPMENT DEVELOPMENT
Shares Amount Shares Amount STAGE STAGE TOTAL
---------- ------------ ------------ ------------ ------------- ------------- ------------
Balance, December 31, 2002 6,247,730 $ 3,663,424 275,000 $ 12,950 $ (3,643,605) $ (206,952) $ (174,183)
Adjustment (21,912)
Sales of stock under
Regulation D offering 715,000 659,000 659,000
Shares issued for services 1,509,003 1,618,411 1,618,411
Shares in lieu of preferred
dividends 246,731 269,161 (80,749) 188,412
Net loss for the period (2,191,657) (2,191,657)
---------- ------------ ------------ ------------ ------------- ------------- ------------
Balance, December 31, 2003 8,696,552 6,209,996 275,000 12,950 (5,916,011) (206,952) 99,983
Issuance of shares sold in the
prior year 130,000 130,000 130,000
Sales of stock under
Regulation D offering 5,500,125 3,727,802 3,727,802
Exercise of warrants 75,000 93,750 93,750
Shares issued for services 687,665 661,306 661,306
Dividends - outstanding (131,771) (131,771)
Dividends paid
Net loss for the period (2,272,200) (2,272,200)
----------- ------------ ------------ ------------ ------------- ------------- ------------
Balance, December 31, 2004 15,089,342 $ 10,822,854 275,000 $ 12,950 $(8, 319,982) $ (206,952) $ 2,308,870
=========== ============ ============ ============ ============= ============= ============
The accompanying notes are an integral part of these financial statements.
70
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2004 and 2003
May 19, 1997
(Date of Inception)
Year 2004 Year 2003 to December 31, 2004
--------- --------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,272,200) $(2,191,657) $(7,876,842)
Adjustments to reconcile net income to net cash
consumed by operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 100,507 36,214 301,197
Value of equity securities issued for services 812,643 1,332,989 2,939,223
Deemed dividends on preferred stock 188,412 188,412
Interest accrued on shareholder loan 4,566 11,478 21,641
(Increase) decrease in accrual of deferred
tax benefit (23,409) (150,262) (224,414)
Changes in current assets and liabilities:
Decrease (increase) in inventory (324,527) (197,914) (709,281)
(Increase) decrease in receivables (138,684) 50,936 (138,684)
Increase (decrease) in accounts payable
and accrued liabilities 226,417 214,014 920,321
Increase in prepaid expense -- -- (146,957)
----------- ----------- -----------
Net Cash Consumed By
Operating Activities (1,614,687) (705,790) (4,725,384)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (49,306) (90,045) (348,284)
Additions to patent cost (80,939) (9,385) (157,931)
Advances to Filco Gmbh (2,670,000) (2,670,000)
----------- ----------- -----------
Net Cash Consumed By
Investing Activities (2,800,245) (99,430) (3,176,215)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of common stock sales 5,103,103 789,000 8,572,611
Proceeds from exercise of warrants 93,750 -- 93,750
Proceeds of option exercises 5,944 5,900 14,344
Proceeds of sales of preferred stock -- -- 12,950
Proceeds (repayment) of stockholder loans (52,005) (3,298) 35,120
Preferred stock dividends paid in cash (131,771) -- (185,274)
Partial repayment of equipment note -- (425) (425)
----------- ----------- -----------
Net Cash Provided By
Financing Activities 5,019,021 791,177 8,543,076
----------- ----------- -----------
Net Increase (Decrease) In Cash 604,089 (14,043) 641,477
Balance at beginning of period 37,388 51,431 --
----------- ----------- -----------
Balance at end of period $ 641,477 $ 37,388 $ 641,477
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
71
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company was formed April 17, 1997. It has designed a forklift 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 the past four years to the
construction of a prototype of this omni-directional forklift vehicle.
The Company has also developed a traditional helicopter ground handling machine
which has been marketed by the Company on a limited basis.
Development Stage Accounting
The Company is a development stage company, as defined in Statement of Financial
Accounting Standards No. 7. Generally accepted accounting principles that apply
to established operating enterprises govern the recognition of revenue by a
development stage enterprise and the accounting for costs and expenses. From
inception to May 19, 1997, the Company has been in the development stage and all
its efforts have been devoted to the development of a forklift vehicle with
omni-directional technology that is suitable for market. Only relatively small
amounts of revenue have been realized through December 31, 2004.
Basis of Presentation
The Company has incurred losses from inception of the development stage to May
19, 1997 of $7,876,842. Activities have been financed primarily through private
placements of equity securities. The Company may need to raise additional
capital through the issuance of debt or equity securities to fund its
operations.
Cash
For purposes of the statements of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Inventory
Inventory consists principally of component parts and supplies which will be
used to assemble forklift vehicles. Inventories are stated at the lower of cost
(determined on a first in-first out basis) or market.
72
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. (continued)
Fixed Assets
Fixed assets are recorded at cost. Depreciation is computed by using accelerated
methods, with useful lives of seven years for furniture and shop equipment and
five years for computers and automobiles.
Income Taxes
Deferred income taxes are recorded to reflect the tax consequences or benefits
to future years of temporary differences between the tax bases of assets and
liabilities, and of net operating loss carryforwards.
Intangible Assets
Patents
The Company incurred costs to acquire certain patent rights. These costs were
capitalized and are being amortized over a period of fifteen years on a
straight-line basis.
Prototype Equipment
The cost of developing and constructing the prototype omni-directional
helicopter handling vehicle and the omni-directional forklift vehicle is
expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimated.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate their fair values at December 31, 2004.
Research and Development Cost
The Company expenses all research and development cost unless the criteria
required by FASB #2 are met. To date there have been no research and development
cost capitalized. During the years 2004 and 2003 a total of $519,804 and
$297,862, respectively, was spent on development activity.
Advertising Costs
The Company expenses advertising costs when the advertisement occurs. There were
no advertising costs incurred during 2004 and 2003.
73
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. (continued)
Stock Options
Stock options are awarded to employees as compensation for services. Such awards
have been immediately exercisable. The Company accounts for stock-based
compensation under the intrinsic method permitted by Accounting Principles Board
Opinion No. 25. The following represents information about net loss and loss per
share as if the Company had applied the provisions of Statement of Financial
Accounting Standards ("SFAS")123. Accounting for Stock Based Compensation, to
all options granted.
Year Ended December 31,
($000's)
2004 2003
-------- --------
Net loss as reported $(2,272) $(2,192)
Less Stock-based employee compensation
determined under the Intrinsic Method 223 35
Add: Stock based compensation determined
under the Fair Value Method -260 -35
Pro forma net loss $(2,309) $(2,192)
-------- --------
Loss per share:
Basic and diluted as reported $ (.19) $ (.29)
======== ========
Basic and diluted-pro forma $ (.19) $ (.29)
======== ========
Pursuant to the requirements of SFAS 123, the weighted average fair value of
options granted during 2004 and 2003 were $.49 and $.98, respectively, on the
dates of grant. The fair values were determined using a Black Scholes
option-pricing model, using the following major assumptions:
2004 2003
---- ----
Volatility 91.45% 130.4%
Risk-free interest rate 3.63% 2.51%
Expected Life - years 4.33 3.89
74
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
In December 2004, the FASB issued SFAS 123 (revise 2004), Share-Based Payment
("SFAS 123R"), which revised SFAS 123, Accounting for Stock-Based Compensation.
SFAS 123R also supersedes APB 25, Accounting for Stock Issued to Employees, and
amends SFAS 95, Statement of Cash Flows. In general, the accounting required by
AFAS 123R is similar to that of SFAS 123. However, SFAS 123 gave companies a
choice to either recognize the fair value of stock options in their income
statements or to disclose the pro forma income statement effect of the fair
value stock options in the notes to the financial statements. SFAS 123R
eliminates that choice and requires the fair value of all share-based payments
to employees, including the fair value of grants of employee stock options, be
recognized in the income statement, generally over the option vesting period.
SFAS 123R must be adopted no later than July 1, 2005.
SFAS 123R permits adoption of its requirements using one of two transition
methods:
1. A modified prospective transition ("MPT") method in which compensation cost
is recognized beginning with the effective date (a) for all share-based payments
granted after the effective date and (b) for all awards granted to employees
prior to the effective date that remain unvested on the effective date.
2 A modified retrospective transition ("MRT") method which includes the
requirements of the MPT method described above, but also permits restatement of
financial statements based on the amounts previously disclosed under SFAS 123's
pro forma disclosure requirements either for (a) all prior periods presented or
(b) prior interim periods of the year of adoption.
The Company is currently evaluating the timing and manner in which it will adopt
SFAS 123R.
As permitted by SFAS 123, the Company currently accounts for share-based
payments to employees using APB 25's intrinsic value method and, as such, has
recognized no compensation cost for employee stock options. Accordingly,
adoption of SFAS 123R's fair value method will have a slight effect on results
of operations, although it will have no impact on overall financial position.
The impact of adoption of SFAS 123R cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future.
Segment Reporting
Management treats the operations of the Company as one segment.
Revenue Recognition
Revenue will be realized from product sales. Recognition will occur upon
shipment to customers, and where the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred; the sales price is
fixed or determinable; and collectability is reasonably assured. Some revenue
has been realized from performing services. 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.
Common Stock
Common stock is often issued in return for product, services, and as dividends
on the preferred stock. These issuances are assigned values equal to the value
of the common stock on the dates of issuance.
75
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
2. RESTATEMENTS
Certain errors affecting the 2003 financial statements have been discovered
during an internal review. Correcting these errors resulted in changes in the
net loss attributable to common shareholders with a resultant increase in the
deficit accumulated during development stage, an increase in common stock, and
certain changes in the statement of cash flows as of December 31, 2003 and for
the year then ended. The 2003 financial statements have, therefore, been
restated to correct these errors. The restated amounts are compared with the
amounts previously reported, in the following table.
STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE
As Originally
Presented Adjustments As Restated
------------ ------------ ------------
Operating and Administrative
Expenses $ 2,199,659 $ 91,289 (1) $ 2,108,370
Loss Accumulated During
------------ ------------ ------------
Development Stage $(2,282,946) $ 91,289 $(2,191,657)
============
STATEMENT OF CASH FLOWS
As Originally
Operating Activities Presented Adjustments As Restated
------------ ------------ ------------
Net Loss $ 2,282,946 $ 91,289 (2) $(2,191,657)
Value of equity securities
issued for services 1,424,278 (91,289) (1) 1,332,989
------------
Net Cash Consumed By
Operating Activities $ (705,790) $ - $ (705,790)
============
(1) Correction of recording expenses of stock options and stock grants.
(2) Net amount of Changes on Statement of Operations and Deficit Accumulated
During Development Stage.
These corrections caused changes in the opening balances of the deficit
accumulated during development stage, as follows:
Retained Deficit At Beginning
of year: 2004 2003
------------ ------------
As previously reported $(5,804,156) $(3,440,461)
Adjustment to correct accounting
for stock options and stock grants (111,855) (203,144)
Balance at beginning of year, as
Restated (5,916,011) (3,643,605)
Net loss, as restated (2,272,200) (2,191,657)
Dividends on preferred stock (131,771) (80,749)
------------ ------------
Retained Deficit at End of Year $(8,319,982) $(5,916,011)
============ ============
3. RELATED PARTY TRANSACTIONS
The majority shareholder corporation and the Company president make loans to the
Company from time to time. The related notes accrue interest at 12% and are due
on demand. The combined unpaid balance of principal and interest on these notes
was $33,455 at December 31, 2004.
During 2003, two Company employees exercised options, receiving a total of 7,500
shares of common stock in return for $877. The same two employees each received
bonuses of 15,000 shares. Each member of the Board of Directors was awarded
10,000 shares for services as directors; these shares were valued at a total of
$47,500. One director purchased 10,000 shares in return for $5,000; an
additional $5,000 was treated as compensation of the director. An affiliate of a
director received $3,940 for legal services. The Company president exercised
options for 180,000 shares (see Note 9) in return for $25,202.
76
During 2004, each member of the Board of Directors received 10,000 shares for
services as directors; these were valued at $50,500, reflecting the stock price
at time of award.
In 2004, the president of the Company was granted 550,000 options, valued at
$187,500.
Three employees were previously entitled under their employment contracts to
25,000 options each for each year of their contracts. One of these employees
retired during 2004, exercising his remaining options. Another employee
exercised his prior options and his 2004 options, for a total cost of $5,943.
The last employee has outstanding options granted during 2002, 2003, and 2004.
Since June 1999 the Company has made its headquarters in premises owened by the
company president which to date has been rent free. If rent was charged for this
space, it would be insignificant.
77
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
4. STOCK OPTIONS
The Company has awarded options under employment contracts with four employees.
These options entitle the employees to purchase Company stock at discounted
prices. These options have been immediately exercisable. There are no expiration
dates to these options; and none was forfeited during either year. A summary of
option activity is presented below.
2004 2003
---- ----
Weighted Weighted
Average Average
Excerised Excerised
-------------------- ----------------
Shares Price Shares Price
--------- -------- --------- -----
Options outstanding at beginning of year 115,000 $.38 247,500 $.20
Options granted during year 600,000 .74 50,000 .41
Options exercised during year (95,000) .39 (182,500) .14
--------- --------
Options outstanding at end of year 620,000 $.73 115,000 $.38
========= ========
Weighted average Fair Value of
options granted $.47 %.92
Weighted average remaining life of
outstanding options 4.33 3.89
5. PRIVATE PLACEMENT OFFERINGS
The Company conducted private placement offerings during 2004 and 2003,
primarily through an NASD registered broker dealer. These offerings were exempt
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder. A total of 7,218,687 shares of common stock was sold
under the offerings during 2004, and 845,000 shares were sold during 2003. These
sales resulted in net proceeds of $5,103,103 and $789,000, respectively. Of the
shares sole during 2004, 1,718,562 had not been issued at year end. There were
130,000 shares which had similarly not been issued at the end of 2003; these
were issued in 2004.
Included in the funds raised during 2004 through stock sales was $1,312,000
raised through the sale of 1,640,000 shares under a Purchase Agreement dated
November 22, 2004. That agreement required, among other things, that a
registration statements be filed with the SEC and that the registration
statement be declared effective by the SEC within a prescribed time. The Company
did not fulfill these obligations. As a result, it is subject to penalties equal
to 2% of the amount invested for each 30 day period following the default date.
On May 31, 2005, the Company entered into a letter agreement with a
representative of this shareholder group under which $120,429 was paid to settle
the penalties which had accrued. These penalties will be charged to expense
during 2005. Under the May 31, 2005 agreement, no further penalties will accrue
until after June 30, 2005. The obligation concerning effectiveness of the
registration statement has not been satisfied and penalties have accrued since
June 30, 2005.
On February 11, 2005, the Company issued $5,000,000 of 6% convertible promissory
notes, which were convertible into Company common stock and two classes of
warrants to purchase Company common stock. The notes were to mature on August
10, 2005. The Company retained the right to require conversion of the notes at a
price of $1.30 per shae. Conversion occurred on March 29, 2005 and 3,846,154
shares of common stock were issued. In addition, warrants to purchase common
stock were issued in connection with this the sale of the promissory notes, as
follows: 1,923,077 Class A warrants and 961,538 Class B warrants. The Class A
warrants are exercisable for a five year period at a price per share of $1.85.
The Class B warrants are exercisable for a five year period at a price per share
of $2.11. As partial compensation, the broker-dealer which arranged this
transaction was awarded 484,616 warrants to purchase common stock, 384,616 at
$1.85 per share, and 100,000 at $1.00 per share. These transactions will be
accounted for under the requirements of Emerging Issues Task Force (EITF)98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", and EITF 00-27, "Application of
Issue No. 98-5 to Certain Convertible Investments". Accordingly, expense will be
increased by $944,500 representing the value of the warrants and by $3,269,231
representing the value of the conversion privilege.
The shares issued through the registered broker dealer were sold as units, with
each unit consisting of one share of stock and a warrant to purchase 50% of an
additional share of stock. Other warrants were issued as compensation to the
broker dealer. At December 31, 2004, there were 5,537,763 warrants outstanding
at exercise price ranging between $1.00 and $2.50 per share.
78
A schedule of changes in the outstanding warrants is presented below.
Warrants outstanding, December 31, 2003 845,000
Warrants issued during 2004 4,767,763
----------
5,612,763
Warrants exercised during 2004 75,000
----------
Warrants outstanding, December 31, 2004 5,537,763
==========
A total of 3,388,882 shares were reserved for options and warrants at December
31, 2004.
79
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
6. PREFERRED STOCK
The Company is authorized to issue 500,000 shares of preferred stock, without
par value. At December 31, 2004, 275,000 of these shares had been issued. Each
of these shares entitles the holder to a 5% cumulative dividend based on a $5
per share stated value. If sufficient cash is not available, or at the option of
the shareholder, these dividends may be paid in common stock. If payment is in
stock, it is to be valued at a price calculated at thirty percent of the lower
of the last price traded in either a public or private transaction during the
applicable quarter. This issue of preferred stock also provides a voting right
of 10 votes for each share. The holder of this preferred stock is a corporation
wholly owned by the Company president and chairman.
At December 31, 2000, $11,999 of dividends had accrued on the preferred stock
but remained unpaid. An additional $68,750 of dividends accrued during 2001. The
$80,749 combination of these two amounts was satisfied in March 2003 through the
issuance of 246,731 shares of common stock. Additional dividends of $68,750
accrued during each of the years 2002, 2003, and 2004. Cash dividends of
$131,771 were paid during 2004, leaving a balance of unpaid dividends of $74,479
at December 31, 2004.
The majority shareholder had the right at December 31, 2004 to acquire 248,263
shares of common stock as accrued and unpaid dividends under the features of the
preferred stock issue.
A deemed dividend in the amount of $188,412 was charged to operations during
2003. This deemed dividend is the excess of the fair market value of the 246,731
shares issued in satisfaction of dividends on the preferred stock during 2003
over the discounted amount at which they were issued. This deemed dividend was
added to paid in capital.
The characteristics of the remaining 225,000 preferred shares authorized have
not been specified.
During December 2004 the Board of Directors approved the issuance of 100,000
shares of preferred stock to satisfy the remaining balance of unpaid preferred
dividends. On advice of Company attorneys, the stock has not been issued pending
stockholder approval. The 100,000 shares authorized by the Board would have
characteristics identical to those of the currently outstanding preferred stock.
7. EQUITY TRANSACTIONS
A schedule detailing equity transactions of the Company in non-cash transactions
during the years 2004 and 2003 is presented below.
YEAR ENDED DECEMBER 31, 2003
Number Grant Grant Grant Date
of shares Date Date Price Value
--------- ----- ---------- --------------
CONSULTANTS:
Financial consulting services 35,999 3/14 1.02 $ 36,719
Marketing services 200,000 1/28 1.20 240,000
Financial consulting services 200,000 4/1 0.95 190,000
40,480(1)
Legal award 50,000 4/1 0.95 47,500
Marketing services 70,000 4/2 1.00 70,000
33,754(1)
Stock in lieu of legal services 15,700 1/7 0.53 8,370
Marketing services for
government contract 350,000 5/8 1.50 525,000
(184,020)(2)
80
Marketing services 30,000 7/23 1.05 31,500
Contractor services 2,500 8/25 1.00 2,500
Investor relations 30,000 8/4 1.00 30,000
72,658(1)
Financial consulting services 21,165 12/30 0.68 9,124
Consulting services 17,139 12/30 .068 11,655
Marketing services 165,000 10/20 0.90 148,500
(130,600)(2)
Marketing services 15,000 12/30 0.68 13,500
----------- -----------
Total value of shares issued to consultants 1,202,503 1,196,640
OTHER:
Employee options exercised 187,500 - (3)
Value of employee options issued 27,999
Grants of shares to employees 30,000 12/30 0.68 20,400
Grants of shares to directors 50,000 4/1 0.95 47,500
Discount purchase by director 10,000 5/28 .71(4) 7,100
Shares in lieu of rent 29,000 1/7 1.15 33,350
----------- -----------
Total equity instruments issued for services 1,509,003 $ 1,332,989
=========== ===========
(1) Amortization of the cost of grants made in prior periods.
(2) Grants were issued for commitments for future service; these are the
expenses allocated to future periods.
(3) The expense associated with these options was recognized when options were
issued.
(4) This is the amount of the discount per share.
YEAR ENDED DECEMBER 31, 2004
Number Grant Grant Grant Date
of shares Date Date Price Value
---------- ----- ---------- --------------
CONSULTANTS:
Consulting services 10,000 1/2 $1.29 $ 12,900
Marketing services 15,000 6/14 1.12 16,800
122,680(2)
Investor relations 26,020 6/14 1.12 29,142
Consulting services 24,075 6/14 1.12 26,964
Investor relations 5,000 6/14 1.12 5,600
Consulting services 40,000 9/8 0.89 34,000
(5,113)(1)
Investor relations 50,000 8/9 0.86 43,000
Marketing services 165,000 3/15 1.05 173,250
145,110(2)
81
Investor relations 15,000 2/2 0.68 10,200
Industrial Relations and marketing services 16,500 10/14 1.05 17,325
Industrial Relations and marketing services 69,550 1/0 1.01 70,245
Consulting services 23,775 10/1 0.82 19,258
Marketing services 24,000 10/30 0.9 21,600
--------- ---------
Total of shares issued to consultants 483,920 742,961
OTHER:
Stock issued to settle accounts payable 37,421 -
Employee options exercised 104,324 10,182(3)
Stock issued in lieu of rent 12,000 various .75 9,000
Director awards 50,000 10/20 1.01 50,500
---------- ---------
Total equity instruments issued for services 687,665 $ 812,643
========== =========
(1) Grants were issued in return for commitments for future service; this is
the expense allocated to future periods.
(2) Amortization of the cost of grants issued in prior periods.
(3) Some issuances were compensated by eliminating liabilities owed to the
optionee; if the required option price exceeded the liability, the excess
was charged to expense.
Information detailing all equity transactions since inception of the development
stage is presented in the following schedule.
Common Preferred
Shares Stock
---------------------- ----------------------- Deficit Deficit reasury
Number Amount Number Amount Pre-Development Development Stock Net
---------- ---------- ---------- ---------- --------------- ------------ ---------- ----------
Shares to incorporators 1997 177,547 $ 1,630 $ 1,630
Subsequent sale to
incorporators 1997 275,000 2,750 2,750
Redemption of initial
preferred stock 1997 88,340 (275,000) (20,000) (20,000)
Stock issued in conjunction
with merger 1997 3,127,500 214,768 (206,952) 7,816
2004 57,434
----------- -----------
3,184,934 214,768
----------- -----------
Exchange of common stock
for preferred stock 1997 (1,500,000) (30,200) 275,000 10,200 20,000
Stock sold in private
placements 1997 83,213 148,984 148,984
1998 471,962 493,119 493,119
2004 614,552 872,268 872,268
2000 330,719 430,858 430,858
2001 235,999 348,600 348,600
2002 392,834 396,630 396,630
2003 715,000 659,000 659,000
2004 5,630,125 3,857,802 3,857,802
---------- ---------- ----------
8,474,404 7,207,261 7,207,261
---------- ---------- ----------
Stock issued for services 1997 30,000
1998 79,708
1999 18,629 17,238 17,238
2000 65,331 62,767 62,767
2001 97,183 95,746 95,746
2002 423,659 413,899 413,899
2003 1,509,003 1,618,411 1,618,411
2004 687,665 661,306 661,306
---------- ---------- ----------
2,911,178 2,869,367 2,869,367
---------- ---------- ----------
82
AIRTRAX, INC.
CUMULATIVE STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY
May 19, 1997 to December 31, 2004
Common Preferred
Shares Stock Deficit Deficit Treasury
Number Amount Number Amount Pre-Development Development Stock Net
---------- ---------- ---------- ---------- --------------- ------------ ---------- ----------
Net losses during
development stage 1997 (129,313) (129,313)
1998 (490,014) (490,014)
1999 (685,615) (685,615)
2000 (497,381) (497,381)
2001 (811,700) (811,700)
2002 (798,962) (798,962)
2003 (2,191,657) (2,191,657)
2004 (2,272,200) (2,272,200)
----------- -----------
(7,876,842) (7,876,842)
----------- -----------
Stock split 1998 1,021,825
Dividends paid in
common stock 1999 305,737 120,366 (120,366)
2000 95,558 56,751 (56,751)
2003 246,731 269,161 (80,749) 188,412
---------- ---------- ----------- -----------
648,026 446,278 (257,866) 188,412
---------- ----------
Dividends paid
in cash 1998 (13,005) (13,005)
1999 (40,498) (40,498)
2004 (131,771) (131,771)
----------- -----------
(185,274) (185,274)
----------- -----------
Adjustment 2003 (21,912)
Warrants exercised 2004 75,000 93,750 93,750
Redemptions of
promissory note 1997 30,000 20,000 20,000
Balances, December
31, 2004 15,089,342 $10,822,854 275,000 $12,950 $(206,952) $(8,319,982) $ 0 $2,308,870
========== =========== =========== ========== ========== ============ ========== ===========
83
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
8. LOSS PER SHARE
Stock options were granted to two Company employees during 2004. In addition,
dividends accrued on the preferred stock during 2004 and 2003 (see Note 4) which
at the option of the preferred shareholder could be paid in common stock. There
also were warrants outstanding to purchase common stock (see Note 3). These
shares and warrants were not included in the calculation of earnings per share
because such inclusion would have an antidilutive effect.
9. Operating and Administrative Expenses
Included in Operating and Administrative Expenses are the following:
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Payroll $ 217,454 $ 190,266
Officer's Compensation 185,000 114,978
Cost of stock options 202,000
Consulting Expense:
Administration 721,361 665,908
Marketing - 214,478
Marketing Expense 205,320 47,301
Production Development Cost 369,567 127,168
Director Awards 50,500 47,500
Other Expenses 578,573 700,771
------------- -------------
Total Operating &
Administarive
Expense $ 2,529,775 $ 2,108,370
============= =============
10. INCOME TAXES
The Company has experienced losses each year since its inception. As a result,
it has incurred no Federal income tax. The Internal Revenue Code allows net
operating losses (NOL's) to be carried forward and applied against future
profits for a period of twenty years. At December 31, 2004, the Company had NOL
carryforwards of $8,099,640 available for Federal taxes and $2,493,486 for New
Jersey taxes. The potential tax benefit of the state NOL's has been recognized
on the books of the Company; the potential benefit of the Federal NOL's has been
offset by a valuation allowance. If not used, these Federal carryforwards will
expire as follows:
2011 $ 206,952
2012 129,092
2018 486,799
2019 682,589
2020 501,169
2021 775,403
2022 590,764
2023 2,233,386
2024 2,493,486
During the year 2004, the Company realized $175,414 from the sale, as permitted
by New Jersey law, of its rights to use the New Jersey NOL'S and research and
development credits that had accrued during 2003. Similar sales of New Jersey
tax benefits were made in prior years. These potential New Jersey offsets for
periods prior to 2004 are, thus, no longer available to the Company.
Under Statement of Financial Accounting Standards No. 109, recognition of
deferred tax assets is permitted unless it is more likely than not that the
assets will not be realized. The Company has recorded deferred tax assets as
presented below, all stemming from NOL'S.
84
Current Non-current Total
-------- ------------- -------
Deferred Tax Assets $995,899 $ 1,806,175 $ 2,802,074
Valuation Allowance 771,485 1,806,175 2,577,660
-------- ------------ -----------
Balance Recognized $224,414 $ - $ 224,414
======== ============ ===========
The entire balance of the valuation allowance relates to Federal taxes. Since
state tax benefits for years prior to 2004 have been realized, no reserve is
deemed necessary for the benefit of state tax losses of 2004.
85
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
11. RENTALS UNDER OPERATING LEASES
At present, the Company is not obligated under any operating lease. The Company
rents warehouse space on a month to month basis.
Rent expense amounted to $49,500 in 2004 and $36,000 in 2003.
12. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for interest and income taxes is presented below:
2004 2003
---- ----
Interest $26,329 $35,828
Income taxes 0 500
Equipment purchases of $5,971 were paid with a promissory note. There were no
other noncash investing activities during either 2004 or 2003. The following
additional noncash financing activities occurred:
a. Shares of common stock were issued for services during 2004 and 2003; these
totaled 687,665 and 1,509,003 shares, respectively.
b. During 2004, 130,000 shares were issued in settlement of stock sales which
took place during 2003.
86
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
13. CONTINGENCIES
On February 19, 2004, the Company reached a tentative agreement to purchase
capital stock of FiLCO GmbH., a German manufacturer of fork trucks (formerly
Clark Material Handling Company of Europe) with a manufacturing facility in
Mulheim, Germany (FiLCO). It is expected that the Company will acquire 75.1% of
FiLCO. Until the tentative agreement is finalized and closed, the Company agreed
to make advances to FiLCO. Through December 31, 2004, advances totaling
$2,670,000 had been made. The seller, who will continue to own the remaining
24.9% of the FiLCO stock, has agreed that if the Company converts $1,220,000 of
its advances to capital he also will convert to FiLCO capital a loan of
1,225,000 Euros that FiLCO owes to him. As additional consideration for this
FiLCO stock purchase, FiLCO would pay the seller 12,750 Euros and the Company
would issue to the seller 900,000 warrants to purchase Company stock; these
warrants would be exercisable at $.01 per share. The Company has appointed the
seller of the FiLCO stock a director of the Company and, if the purchase is
concluded, would grant him options to purchase 100,000 shares of Company stock
for $.01as consideration for his service as a director. Additionally, the
Company agreed to advance funds, if needed, to FiLCO to provide for its working
capital needs. Any advances made under the latter provision would be
collateralized by the remaining 24.9% of FiLCO stock and would be repaid only
from dividends paid on the stock.
The Company also agreed as part of the tentative agreement to make available to
the management of FiLCO 100,000 shares of Company common stock and options to
purchase another 100,000 shares.
As of June 30, 2005, the Company had not concluded the contract and had not
issued any of the warrants or options contemplated by the tentative agreement.
During May 2002, the Company signed an agreement with a broker-dealer to provide
investment banking and financial advisory services, which included the raising
of funds. Under the agreement, the broker-dealer was entitled to receive stock
warrants which if exercised would produce 450,000 shares of common stock of the
Company during a four year term at an exercise price of approximately $1.75 per
share. A dispute arose between the parties regarding the agreement and its
performance. The Company has asserted that the broker-dealer induced the Company
to enter into the agreement through material misstatements and has not otherwise
performed its services under the agreement. The Company believes the
broker-dealer is not entitled to the stated compensation, and has not issued the
stock warrants.
The Company has experienced losses and negative cash flows during each of its
years of existence. These raise doubts as to the ability of the Company to
continue as a going concern. Management of the Company has consistently been
successful in raising capital, principally through sales of equity securities.
Substantial sales of equity securities occurred during 2004 and other such
capital sales are expected in the future. These are expected to sustain the
Company as it progresses to full operations. For that reason, the financial
statements do not include any adjustments that might be necessary if the Company
was unable to continue as a going concern.
87
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
14. SUBSEQUENT EVENTS
On April 6, 2005, the certificate of incorporation of the Company was amended to
increase the number of authorized shares, as follows:
Common 100,000,000 shares of no par stock Preferred 5,000,000 shares of no par
stock
The characteristics of these shares are unchanged from the shares previous
authorized.
On February 11, 2005, the Company sold $5,000,000 of convertible debentures with
two issues of detachable warrants. Conversion of these bonds occurred on March
29, 2005 and 3,846,154 shares of common stock were issued in place of the bonds.
15. RECENT ACCOUTNING PRONOUNCEMENTS
Except for the expected effect of SEAS 123R which is described in Note 1 under
Stock Options, the Company does not expect adoption of rectly issued accounting
pronouncements to have a significant effect on the Company's results of
operations, financial position or cash flows.
88
AIRTRAX, INC.
PROFORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
On February 19, 2004, the Company reached a tentative agreement to acquire
capital stock of FiLCO GmBH, a German manufacturer of fork trucks with a
manufacturing facility in Mulheim, Germany (FiLCO). As later amended, the
tentative agreement calls for the acquisition of 75.1% of the capital stock of
FiLCO. In return, the Company would issue to the seller 900,000 warrants to
purchase Company stock at $.01 per share; the Company would arrange for the
seller to be paid 12,750 Euros and would appoint the seller to the Company Board
of Directors.
During the pendancy of this tentative agreement, the Company agreed to make
advances to FiLCO. Through December 31, 2004, advances totaling $2,670,000 had
been made; this total was increased to $5,266,234 at June 30, 2005. The seller,
who will continue to own the remaining 24.9% of the FiLCO capital stock, had
advanced to FiLCO 1,225,000 Euros. The seller has agreed that, if the Company
converts $1,220,000 of its advances to the capital of FiLCO, he also will
convert to FiLCO capital his loan in the amount of 1,225,000 Euros.
The accompanying condensed financial statements illustrate the effect of the
acquisition (proforma) on the financial position of the Company and the results
of its operations. The condensed balance sheet as of June 30, 2005 is based on
the combined historical balance sheets of the Company and FiLCO as of that date
and assumes the acquisition took place on that date. The condensed statements of
operations for the year ended December 31, 2004 and for the six month period
ended June 30, 2005 are based on the historical statements of operations of the
Company and FiLCO for those periods and assume the acquisition took place on
January 1, 2004.
The proforma condensed financial statements may not be indicative of the actual
results of the acquisition. In particular, the proforma condensed financial
statements are based on the current estimate of management of the allocation of
the purchase price; the actual allocation may differ.
The accompanying proforma financial statements should be read in conjunction
with the historical financial statements of the Company and FiLCO.
89
AIRTRAX, INC.
PRO-FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2004
(UNAUDITED)
Pro-Forma
Airtrax Filco Combined Adjustments Amounts
-------------- ------------ ---------------- --------------- ---------------
SALES $ - $ 1,366,143 $ 1,366,143 $ - $ 1,366,143
COST OF GOODS SOLD - 2,427,721 2,427,721 - 2,427,721
-------------- ------------ ---------------- --------------- ---------------
GROSS PROFIT (LOSS) - (1,061,578) (1,061,578) - (1,061,578)
SELLING, OPERATING
AND ADMINISTRATIVE
EXPENSES 2,529,775 4,652,310 7,182,085 295,000 (1) 7,477,085
-------------- ------------ ---------------- --------------- ---------------
OPERATING LOSS (2,529,775) (5,713,888) (8,243,663) (295,000) (8,538,663)
OTHER INCOME AND
EXPENSE:
Interest expense (30,894) (381,753) (412,647) 86,667 (2)
100,283 (3) (225,697)
Interest income 86,667 - 86,667 (86,667)(2) -
Other income 2,979 75,042 78,021 - 78,021
Other expenses - (98,597) (98,597) (98,597)
-------------- ------------ ---------------- --------------- ---------------
LOSS BEFORE MINORITY
INTEREST AND TAXES (2,471,023) (6,119,196) (8,590,219) (194,717) (8,784,936)
MINORITY INTEREST - - - 680,522 (4) 680,522
INCOME TAX BENEFIT 198,823 144,025 342,848 - 342,848
-------------- ------------ ---------------- --------------- ---------------
NET LOSS ATTRIBUTABLE
TO COMMON
SHAREHOLDERS (2,272,200) (5,975,171) (8,247,371) 485,805 (7,761,566)
PREFERRED STOCK
DIVIDENDS DURING
DEVELOPMENT STAGE (131,771) (131,771) (131,771)
-------------- ------------ ----------------- --------------- ---------------
DEFICIT ACCUMULATED $ (2,403,971) $(5,975,171) $ (8,379,142) $ 485,805 $ (7,893,337)
============== ============ ================= =============== ===============
NET LOSS PER SHARE-
Basic and Diluted $ (.64)
===============
WEIGHTED AVERAGE
SHARES OUTSTANDING 12,075,448
===============
(1) To record issuances of 100,000 options to prior sole owner of FiLCO, as per
tentative acquisition agreement.
(2) Elimination of intercompany interest income against related interest
expense.
(3) Elimination of interest expense associated with loan capitalized per
tentative acquisition agreement.
(4) Minority interest in loss, provided for up to the amount of the minority
interest at 12/31/03.
90
AIRTRAX, INC.
PRO-FORMA CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2005
(UNAUDITED)
Pro-Forma
Airtrax Filco Combined Adjustment Amounts
SALES $ 167,545 $ 190,785 $ 358,330 $ 358,330
COST OF GOODS SOLD 160,126 264,704 424,830 424,830
-------------- ------------ ---------------- --------------- ---------------
GROSS PROFIT (LOSS) 7,419 (73,919) (66,500) (66,500)
SELLING, OPERATING
AND ADMINISTRATIVE
EXPENSES 2,007,882 2,852,180 4,860,062 4,860,062
-------------- ------------ ---------------- --------------- ---------------
OPERATING LOSS (2,000,463) (2,926,099) (4,926,562) (4,926,562)
OTHER INCOME AND
EXPENSE
Interest expense (4,288,161) (261,025) (4,549,186) 172,300 (1) (4,329,587)
47,299 (2)
Interest income 172,300 172,300 (172,300)(1) 0
Other income 211 4,142 4,353 4,353
Other expenses (15,532) (15,532) (15,532)
-------------- ------------ ---------------- --------------- ---------------
NET LOSS BEFORE
INCOME TAXES (6,116,113) (3,198,514) (9,314,627) 47,299 (9,267,328)
INCOME TAX BENEFIT 224,446 111,253 335,699 335,699
-------------- ------------ ---------------- --------------- ---------------
NET LOSS BEFORE
DIVIDENDS (5,891,667) (3,087,261) (8,978,928) 47,299 (8,931,629)
DEEMED DIVIDENDS
ON PREFERRED STOCK 479,167 - 479,167 - 479,167
-------------- ------------ ---------------- --------------- ---------------
NET LOSS ATTRIBUTABLE
TO COMMON
SHAREHOLDERS (6,370,834) (3,087,261) (9,458,095) 47,299 (9,410,796)
-------------- ------------ ---------------- --------------- ---------------
PREFERRED STOCK
DIVIDENDS DURING
DEVELOPMENT STAGE (51,563) - (51,563) - (51,563)
DEFICIT ACCUMULATED $ (6,422,397) $(3,087,261) $(9,509,658) $ 47,299 $ (9,462,359)
============== ============ ================= =============== ===============
NET LOSS PER SHARE-
Basic and Diluted $ (.48)
===============
WEIGHTED AVERAGE
SHARES OUTSTANDING 19,435,015
===============
(1) To eliminate intercompany interest on the Airtrax loan to FiLCO (2) To
eliminate related party interest expense on capitalized loan.
91
AIRTRAX, INC.
PRO-FORMA CONDENSED BALANCE SHEETS
JUNE 30, 2005
(UNAUDITED)
Pro-Forma
Airtrax Filco Combined Adjustments Amounts
-------------- ------------ ---------------- --------------- ---------------
ASSETS:
Current Assets $ 3,641,114 $ 1,857,311 $ 5,498,425 $ (244,666)(4) $ 5,253,759
Fixed Assets (net) 146,518 3,365,718 3,512,236 3,512,236
Intangibles 145,217 59,581 204,798 204,798
Advances to FiLCO 5,266,136 - 5,266,136 (1,300,000)(1) -
(3,966,136)(3)
Bond Discount 479,167 - 479,167 479,167
Goodwill 2,655,000(6)
1,300,000(1) 3,955,000
-------------- ------------ ---------------- --------------- ---------------
TOTAL ASSETS $ 9,678,152 $ 5,262,610 $ 14,960,762 $(1,555,802) $ 13,404,960
============== ============ ================= =============== ===============
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable 559,506 805,216 1,364,722 - 1,364,722
Accrued liabilities 424,555 2,314,802 2,739,357 295,000(5) 3,034,357
Customer advances - 845,918 845,918 - 845,918
Short-term debt - 645,850 645,850 645,850
Related party loans - 5,510,802 5,510,802 (1,300,000)(1) -
(4,210,802)(3)
Advances from shareholders 33,460 1,674,427 1,707,887 (1,674,427)(2) 33,460
-------------- ------------ ---------------- --------------- ---------------
Total current liabilities 1,017,521 11,797,015 12,814,536 (6,890,229) 5,924,307
Long Term Debt 500,000 - 500,000 - 500,000
Deferred Taxes - 1,173,101 1,173,101 - 1,173,101
-------------- ------------ ---------------- --------------- ---------------
Total Liabilities 1,517,521 12,970,116 14,487,637 (6,890,229) 7,597,408
-------------- ------------ ---------------- --------------- ---------------
Stockholders Equity:
Common stock 19,799,804 3,198,545 22,998,349 1,300,000 (1) 28,627,776
1,674,427 (2)
2,655,000 (6)
Additional Paid In Capital-
Warrants 2,652,812 - 2,652,812 2,652,812
Preferred stock 545,491 - 545,491 - 545,491
Comprehensive income - 114,975 114,975 - 114,975
Accumulated deficit (14,837,476) (11,001,026) (25,838,502) (295,000)(5) ( 26,133,502)
-------------- ------------ ---------------- --------------- ---------------
Total Stockholders Equity 8,160,631 (7,687,506) 473,125 5,334,427 5,807,552
-------------- ------------ ---------------- --------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,678,152 $ 5,282,610 $ 14,960,762 $(1,555,802) $ 13,404,960
============== ============ ================= =============== ===============
(1) To capitalize Airtrax advances to FiLCO, as per proposed acquisition
agreement, and reflect amount as part of goodwill.
(2) To capitalize advance from FiLCO shareholder, as per proposed acquisition
agreement.
(3) To eliminate inter company advances against the related liabilities.
(4) To eliminate inter company interest receivable against the related
liability.
(5) To reflect options granted in consideration of services on Airtrax Board of
Directors, as per proposed acquisition agreement.
(6) To reflect issuance of options as required by tentative acquisition
agreement, per proposed acquisition agreement.
92
UP TO 16,593,028 SHARES
OF OUR
OF COMMON STOCK
TABLE OF CONTENTS
Page
Prospectus Summary 6
Recent Developments 8
Risk Factors 12
Use of Proceeds 16 Airtrax, Inc.
Market For Common Equity And Related Stockholder
Matters 16
Management's Discussion And Analysis or Plan Of
Operation 17
Business 25
Description of Property 35
Legal Proceedings 36
Management 36
Executive Compensation 37
Certain Relationships And Related Transactions 39 ----------------
Security Ownership Of Certain Beneficial Owners
And Management 41 PROSPECTUS
----------------
Description of Securities 43
Indemnification for Securities Act Liabilities 44
Selling Stockholders 45
Plan of Distribution 53
Legal Matters 56
Experts 56
Available Information 56
Index To Financial Statements 57 November 3, 2005
93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We held a special meeting of our shareholders on March 28, 2005 pursuant to
which a majority of our shareholders approved an amendment to our certificate of
incorporation to provide, to the fullest extent permitted under the laws of the
State of New Jersey, that our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our articles of
incorporation is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our articles of incorporation, if
approved by our shareholders, are necessary to attract and retain qualified
persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 3,295.79*
Accounting fees and expenses 15,000.00*
Legal fees and expenses 45,000.00*
-----------
TOTAL $ 63,245.33*
===========
* Includes a filing fee of $731.25 which was previously paid and a filing fee of
$2,564.54 which will be paid upon filing of this Amendment No. 1 on Form SB-2.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 18, 2005, we entered into a 8% Series C Unsecured Convertible
Debenture and Warrants Purchase Agreement with certain accredited investors
pursuant to which we sold an aggregate of $1,000,000 principal amount unsecured
convertible debentures convertible into shares of our common stock, no par
value, and an aggregate of 500,000 stock purchase warrants to purchase shares of
our Common Stock to certain accredited investors who are parties to the Purchase
Agreement for an aggregate purchase price of $1,000,000. Further, we issued
50,000 Warrants to the placement agent, a registered broker dealer firm, each as
consideration for services performed in connection with the issuance of the
Debentures and Warrants to the Investors pursuant to the Purchase Agreement.
On October 28, 2005, we held our second and final closing with certain
accredited investors (the "Investors") pursuant to a right of participation
which was granted to such investors under that certain securities purchase
agreement dated as of November 23 and 24, 2004 and the subscription agreement
dated as of February 11,2005. In connection with the second closing, we sold an
aggregate of $548,000 principle amount of Debentures and issued 275,000 capital
warrants for an aggregate purchase price of $ 548,000.
First Montauk Securities Corp. (the "Selling Agent") acted as selling agent in
connection with the first and second closings of the Offering in which an
aggregate amount of $1,548,000 of Debentures and Warrants were sold. Pursuant to
the second closing, we paid commissions of $54.800, a non-accountable expense
allowance of $16,440, and issued 27,400 Warrants to the placement agent, a
registered broker dealer firm, each as consideration for services performed in
connection with the issuance of the Debenture and Warrants to the Investor
pursuant to the Purchase Agreement.
On August 25, 2005, we issued an aggregate of 187,939 shares of common stock to
a certain creditor of Filco GmbH pursuant to a certain Assignment and Purchase
Agreement which we entered into with the creditor.
In April and July of 2005, we issued an aggregate of 30,000 shares of common
stock to a certain investor relations consulting firm as compensation for
services performed on our behalf.
94
On May 31, 2005, we entered into a 8% Series B Unsecured Convertible Debenture
and Warrants Purchase Agreement with one accredited investor pursuant to which
we sold a $500,000 principal amount unsecured convertible debenture (the
"Debenture") convertible into shares of our common stock, no par value, and
stock purchase warrants to purchase 384,615 shares of our common stock to a
certain investor who is a party to the Purchase Agreement for an aggregate
purchase price of $500,000. First Montauk Securities Corp. acted as selling
agent in connection with the offering. We issued a total of 38,462 warrants on
May 31, 2005 to the selling agent as partial consideration for services
performed in connection with the offering. The warrants are exercisable at a
price equal to $2.11 for a period of 5 years from the closing date.
On April 7, 2005, we issued an aggregate of 28,453 shares of our common stock to
the holders of our convertible promissory notes which we issued pursuant to our
February 11, 2005 Subscription Agreement, as payment, in lieu of cash, of
accrued interest due to the holders under such notes.
In February and May of 2005, 30,000 shares of common stock to two public
relations consulting firm as compensation for services performed on our behalf.
On February 11, 2005, we entered into a Subscription Agreement pursuant to which
we sold an aggregate of $5,000,000 of principal amount promissory notes
convertible into shares of our common stock, no par value, and an aggregate of
2,884,615 Class A and Class B share purchase warrants to purchase shares of our
common stock to certain purchasers who are a party to the Subscription
Agreement. First Montauk Securities Corp. acted as selling agent in connection
with the offering. We issued a total of 384,616 warrants on February 11, 2005 to
the selling agent as partial consideration for services performed in connection
with the offering. The Class A warrants are exercisable at a price equal to
$1.85 from the date of issuance until 5 years after the closing date. The Class
B warrants are exercisable at a price equal to $2.11, representing 101% of the 3
day average closing bid prices of our common stock on the trading day
immediately preceding the closing date, from the date of issuance until 5 years
after the closing date. The Class A and Class B warrants both have a cashless
feature.
On November 22, 2004, we entered into a Purchase Agreement (the "Purchase
Agreement") pursuant to which we sold and issued 1,125,000 shares of common
stock, no par value, and common stock purchase warrants to purchase 562,500
shares of our common stock to several accredited investors who are a party to
the Purchase Agreement for an aggregate purchase price of $900,000. Thereafter,
on November 23, 2004, we entered into Joinders to the Purchase Agreement
pursuant to which we sold and issued an additional 515,000 shares of common
stock and warrants to purchase an additional 257,500 shares of our common stock
to several accredited investors who are a party to the Joinders to the Purchase
Agreement for an aggregate purchase price of $412,000. First Montauk Securities
Corp. acted as placement agent in connection with the offering. We issued
125,000 warrants on November 22, 2004 and 51,500 warrants on November 23, 2004
to the placement agent and to certain partners of the placement agent as partial
consideration for services performed in connection with the issuance of common
stock and warrants to the purchasers pursuant to the Purchase Agreement to
purchase 62,500 and 25,750 shares of our Common Stock, respectively. The
warrants are exercisable from November 22, 2004 until November 22, 2009 and from
November 23, 2004 until November 23, 2009, each at an exercise price of $1.25
per share.
In October 2004, we issued an aggregate of 114,324 shares of common stock to 6
of our directors as compensation for services performed on our behalf in each of
their capacities as directors of our company.
In October 2004, we issued an aggregate of 86,050 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf.
In October 2004, we issued an aggregate of 24,000 shares of common stock to a
certain public relations consulting firm as compensation for services performed
on our behalf.
Between September 8, 2004 and December 20, 2004, we received subscriptions for
an aggregate of 1,812,403 shares of our common stock and an aggregate of 906,200
shares of common stock issuable upon exercise of common stock purchase warrants
to 33 accredited investors pursuant to a private placement offering. The
warrants are exercisable at a price equal to $1.25 for a period of 5 years from
the date of issuance.
95
In June and October 2004, we issued an aggregate of 47,850 shares of common
stock to a certain vendor as compensation for dealer account solicitation
services performed on our behalf.
In May 2004, we and several accredited investors entered into a Subscription
Agreement whereby the investors agreed to purchase an aggregate of 3,600,125
shares of common stock at a price of $0.80 per share for an aggregate purchase
price of $2,855,100. In addition, the investors received warrants, exercisable
at $1.25 per share, to purchase 50% of the shares issued.
On April 15, 2004, we issued an aggregate of 10,767 shares of common stock to
Basile & Testa, PA, as compensation for legal services performed on our behalf.
One of our former directors, Mr. Frank Basile, was a partner at this firm.
On March 31, 2004, we issued an aggregate of 14,529 shares of common stock to a
certain engineering firm as compensation for electrical engineering services
performed on our behalf.
In October 2003, we issued an aggregate of 345,000 shares of common stock to a
certain consulting firm as compensation for services performed on our behalf.
In August 2003 and February 2004, we issued an aggregate of 12,500 shares of
common stock to an employee as compensation for services performed on our
behalf.
From July to September 2003, we issued an aggregate of 91,020 shares of common
stock to a certain investor relations consulting firm as compensation for
services performed on our behalf.
In June and September 2004, we issued an aggregate of 6,174 shares of common
stock to certain consultants for computer programming services performed on our
behalf.
On June 10, 2003, we issued an aggregate of 30,000 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf.
On May 8, 2003, we issued an aggregate of 350,000 shares of common stock to
third parties pursuant to certain sales agreements.
In April and November of 2003, we issued an aggregate of 57,139 shares of common
stock to a certain financial consultant as compensation for services performed
on our behalf.
In April and June of 2003, we issued an aggregate of 60,000 shares of common
stock to 6 of our directors as compensation for services performed on our behalf
in each of their capacities as directors of our company.
On January 20, 2003, we issued options to purchase an aggregate of 180,000
shares of common stock to our President, Peter Amico, as compensation for
services performed on our behalf under Mr. Amico's Original Employment
Agreement. Of the options, 1/5 of the options were exercisable for a total
consideration of a $1.00, 1/2 of the options were exercisable at 30% of the
lowest price paid for the stock in the 30 day period preceding exercise for each
year of the contract, and the remaining options were exercisable at 15% of the
lowest price paid for the stock in the 30 day period preceding exercise.
From October 2002 through April 2005, we issued an aggregate of 127,500 shares
of common stock to two of our employees as compensation for services performed
on our behalf, and as employee incentive bonuses.
In August 2002, we issued an aggregate of 25,000 shares of common stock to one
of our directors, and options to purchase 5,000 shares of common stock to our
Secretary, each as compensation for services performed on our behalf in their
respective capacities.
On July 23, 2002, we issued an aggregate of 160,000 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf.
In April 2002, we issued an aggregate of 1,930 shares of common stock to a
certain engineering firm as compensation for electrical engineering services
performed on our behalf.
From January 2002 through April 2005, we issued an aggregate of 60,200 shares of
our common stock to Harry Schmidt Associates, PA as rental payments for our
equipment under certain leases which we entered into with said firm.
96
* All of the above offerings and sales were deemed to be exempt under rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of Airtrax or executive officers of
Airtrax, and transfer was restricted by Airtrax in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References to
"the Company" in this Exhibit List mean Airtrax, Inc., a New Jersey corporation.
3.1 Certificate of Incorporation of Airtrax, Inc. dated April 11, 1997.
(Filed as an exhibit to the Company's Form 8-K filed with the Securities
and Exchange Commission on November 19, 1999).
3.2 Certificate of Correction of the Company dated April 30, 2000 (Filed as
an exhibit to Company's Form 8-K filed with the Securities and Exchange
Commission on November 17, 1999).
3.3 Certificate of Amendment of Certificate of Incorporation dated March 19,
2001 (Filed as an exhibit to Company's Form 8-K filed with the
Securities and Exchange Commission on November 17, 1999).
3.4 Amended and Restated By-Laws of the Company. (Filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission on
November 19, 1999).
4.1 Form of Common Stock Purchase Warrant issued to investors pursuant to
the May 2004 private placement.
4.2 Form of Common Stock Purchase Warrant dated as of November 22, 2004 and
November 23, 2004. (Filed as an exhibit to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 30, 2004).
4.3 Form of Series A Convertible Note dated as of February 11, 2005 (Filed
as an exhibit to the Company's Form 8-K filed on February 11, 2005).
4.4 Form of Class A Common Stock Purchase Warrant dated as of February 11,
2005 (Filed as an exhibit to the Company's Form 8-K filed on February
11, 2005).
4.5 Form of Class B Common Stock Purchase Warrant dated as of February 11,
2005 (Filed as an exhibit to the Company's Form 8-K filed on February
11, 2005).
4.6 Form of Broker's Common Stock Purchase Warrant dated as of February 11,
2005 (Filed as an exhibit to the Company's Form 8-K filed on February
11, 2005).
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent
10.1 Agreement and Plan of Merger by and between MAS Acquisition IX Corp. and
Airtrax , Inc. dated November 5, 1999. (Filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission on
January 13, 2000).
10.2 Employment agreement dated April 1, 1997 by and between the Company and
Peter Amico. (Filed as an exhibit to the Company's Form 8-K/A filed with
the Securities and Exchange Commission on January 13, 2000).
10.3 Employment agreement dated July 12, 1999, by and between the Company and
D. Barney Harris. (Filed as an exhibit to the Company's Form 8-K/A filed
with the Securities and Exchange Commission on January 13, 2000).
10.4 Consulting Agreement by and between MAS Financial Corp. and Airtrax,
Inc. dated October 26, 1999. (Filed as exhibit to the Company's Form 8-K
filed with the Securities and Exchange Commission on November 19, 1999).
10.5 Employment Agreement effective July 1, 2002 by and between the Company
and Peter Amico (filed as an exhibit to the Company's Form 10-KSB for
the period ended December 31, 2002)
10.6 Agreement dated July 15, 2002 by and between the Company and Swingbridge
Capital LLC and Brian Klanica. (Filed as an exhibit to the Company's
Form 8-K filed on August 7, 2002).
97
10.7 Product Development, Sales and Manufacturing Representation Agreement
dated March 13, 2004 by and between Airtrax, Inc., and MEC Aerial
Platform Sales Corporation. (Filed as an exhibit to the Company's Form
8-K filed on March 15, 2004).
10.8 General Sales Contract and Amendment dated March 10, 2004 by and between
Airtrax , Inc with Incomex Saigon. (Filed as an exhibit to the Company's
Form 8-K filed on March 22, 2004).
10.9 Purchase Agreement, dated November 22, 2004, by and among Airtrax, Inc.
and Excalibur Limited Partnership, Stonestreet Limited Partnership,
Whalehaven Capital Fund. (Filed as an exhibit to the Company's Form 8-K
filed on November 30, 2004).
10.10 Joinder to the Purchase Agreement, dated November 23, 2004, by and among
Airtrax, Inc. and Excalibur Limited Partnership, Stonestreet Limited
Partnership and Linda Hechter. (Filed as an exhibit to the Company's
Form 8-K filed on November 30, 2004).
10.11 Registration Rights Agreement, dated November 22, 2004, by and among
Airtrax, Inc. and Excalibur Limited Partnership, Stonestreet Limited
Partnership, Whalehaven Capital Fund and First Montauk Securities Corp.
(Filed as an exhibit to the Company's Form 8-K filed on November 30,
2004).
10.12 Joinder to the Registration Rights Agreement, dated November 23, 2004,
by and among Airtrax, Inc. and Excalibur Limited Partnership,
Stonestreet Limited Partnership, Linda Hechter and First Montauk
Securities Corp. (Filed as an exhibit to the Company's Form 8-K filed on
November 30, 2004).
10.13 Subscription Agreement dated February 11, 2005 by and among Airtrax,
Inc. and the investors named in the signature pages thereto (Filed as an
exhibit to the Company's Form 8-K filed on February 11, 2005).
10.14 Series B Unsecured Convertible Debenture and Warrants Purchase
Agreement, dated May 31, 2005, by and between Airtrax, Inc. and the
investor named on the signature page thereto (Filed as an exhibit to the
Company's Form 8-K filed on June 6, 2005).
10.15 Registration Rights Agreement dated May 31, 2005, by and between
Airtrax, Inc. and the investor named on the signature page thereto
(Filed as an exhibit to the Company's Form 8-K filed on June 6, 2005).
10.16 Series B Unsecured Convertible Debenture of Airtrax, Inc. (Filed as an
exhibit to the Company's Form 8-K filed on June 6, 2005).
10.17 Form of Stock Purchase Warrant of Airtrax, Inc. (Filed as an exhibit to
the Company's Form 8-K filed on June 6, 2005).
10.18 Letter Agreement dated May 31, 2005 by and among Airtrax, Inc. and the
investors named on the signature page thereto (Filed as an exhibit to
the Company's Form 8-K filed on June 6, 2005).
10.19 Series C Unsecured Convertible Debenture and Warrants Purchase
Agreement, dated October 18, 2005 by and between Airtrax, Inc. and the
investor named on the signature page thereto (Filed as an exhibit to the
Company's Form 8-K filed on October 24, 2005).
10.20 Registration Rights Agreement dated October 18, 2005, by and between
Airtrax, Inc. and the investor named on the signature page thereto
(Filed as an exhibit to the Company's Form 8-K filed on October 24,
2005).
10.21 Series C Unsecured Convertible Debenture of Airtrax, Inc. (Filed as an
exhibit to the Company's Form 8-K filed on October 24, 2005).
10.22 Form of Stock Purchase Warrant of Airtrax, Inc. (Filed as an exhibit to
the Company's Form 8-K filed on October 24, 2005).
10.23 Amended and Restated Stock Acquisition Agreement effective as of as of
February 19, 2004 by and between Airtrax, Inc. and Fil Filipov (Filed
herewith).
23.1 Consent of Independent Certified Public Accountant - Robert G. Jeffrey
23.2 Consent of Sichenzia Ross Friedman Ference LLP (see Exhibit 5.1).
98
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant, Airtrax, Inc., certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and has duly
caused this Registration Statement on Form SB-2 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of Hammonton, State of
New Jersey on the 3rd day of November 2005.
AIRTRAX, INC.
Name: /s/ Peter Amico
----------------
Peter Amico
Title: President, Chief Executive Officer and
Acting Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Peter Amico
his or her true and lawful attorney in fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post effective amendments) to the Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and all post effective amendments thereto,
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, each acting alone, or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-2 has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
---------------------------- ----------------------------- -------------------
By: /s/ Peter Amico President, Chief
----------------------- Executive Officer, Acting November 3, 2005
Peter Amico Chief Financial Officer
and Director
By: /s/ D. Barney Harris
-----------------------
D. Barney Harris Director November 3, 2005
By: /s/James Hudson
-----------------------
James Hudson Director November 3, 2005
By: /s/William Hungerville
-----------------------
William Hungerville Director November 3, 2005
By: /s/Fil Filipov
------------------------
Fil Filipov Director November 3, 2005
100