U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB/A
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the period ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the transition period from ___ to ____.
Commission file number: 0-25791
AIRTRAX, INC.
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(Name of Small Business Issuer in its charter)
New Jersey 22-3506376
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(State of Incorporation) (I.R.S. Employer I.D.Number)
870B Central Avenue, Hammonton, New Jersey 08037
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number 609-567-7800.
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Securities registered under Section 12 (b) of the Act:
Title of each class Name of exchange on which
to be registered each class is to be registered
None None
Securities registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
Check whether issuer (1) filed all reports to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
1). Yes: X No
2). Yes: X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State issuer's revenues for the most recent fiscal year. $21,879
As of March 15, 2004, the aggregate market value of the voting and non-voting
common equity held by non-affiliates was approximately $6,005,361. This
calculation is based upon the average bid price of $1.10 and asked price of
$0.90 of the common stock on such date.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS]
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes _____ No ____
[APPLICABLE ONLY TO CORPORATE REGISTRANTS]
The number of shares issued and outstanding of issuer's common stock, no par
value, as of March 15, 2004 was 8,876,552.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (Check One): Yes No: X
EXPLANATORY NOTE
In connection with the preparation of the Airtrax, Inc. (the "Company")
registration statement on Form SB-2, on January 12, 2005, the Company determined
that the financials statements included in the Company's Annual Report on Form
10-KSB for the period ended December 31, 2003 did not contain certain expenses
which were incurred during that period. Such financial statements should no
longer be relied upon. In particular:
o A deemed dividend in the amount of $188,412 was charged to operations
during 2003 but not reported on the 10-KSB financial statements in the
statement of operations as an expense. This deemed dividend is the
excess of the fair market value of the 246,731 shares issued in
satisfaction of dividends on the Company's preferred stock over the
discounted amount at which they are issued. This deemed dividend was
added to paid in capital. This revision, coupled with certain other
increases in administrative and other expenses totaling $16,380,
resulted in an adjustment of the deficit accumulated by the Company
during its development stage to $2,363,695 for the year ended December
31, 2003, an increase of $204,792, as well as a corresponding
adjustment to the same from May 19, 1997, the date of the Company's
inception, to December 31, 2003.
In addition to the foregoing, the following additional changes to the Company's
financial statement have been made:
o The Company's balance sheet for the year ended December 31, 2003 was
adjusted to increase total assets by $1,620, which resulted in a
corresponding increase in stockholder's equity to $99,983. Further
offsetting changes resulting from the changes to the statement of
operations resulted in a revision of the common stock portion of the
Stockholders' Equity from 5,891,729 to 6,098,141.
o The statement of changes in stockholder's equity for the year ended
December 31, 2003 was revised to reflect an increase of 75,165 shares
which were issued for services, resulting in a balance of 8,696,552
shares as of December 31, 2003.
o The statement of cash flows for the years ended December 31, 2003 was
revised due to the aforementioned changes reflecting a net loss in the
amount of $2,282,946. In addition, the aforementioned changes resulted
in total net cash consumed by operating activities in the amount of
$(705,790), total net cash consumed by investing activities in the
amount of $(99,430) and total net cash produced by financing
activities in the amount of $791,177, each for the year ended December
31, 2003. Corresponding adjustments were made to operating, investing
and financing activities from May 17, 1997, the date of the Company's
inception, to December 31, 2003.
o Certain adjustments were made to Notes 5, 6, 7, and 8, and new Notes
9, 11, and 12 were added to the notes to the financial statements for
the year ended December 31, 2003.
The Company has discussed this matter with its independent accounting firm.
The new financial statements which should be relied upon are contained in this
Form 10-KSB/A to be filed concurrently with the Company's Current Report on Form
8-K.
2
PART I
Item 1. Description of Business.
INTRODUCTION.
Airtrax, Inc. ("Airtrax" or "Company") was incorporated in the State of New
Jersey on April 17, 1997. On May 19, 1997, the Company entered into a merger
agreement with a predecessor company that was incorporated on May 10, 1995. The
Company was the surviving company in the merger.
Effective November 5, 1999, the Company merged with MAS Acquisition IX Corp
("MAS"), and was 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 Airtrax. After giving effect to fractional and other
reductions, MAS shareholders received 57,280 shares of Airtrax as a result of
the merger.
As used in this Form 10-KSB, the terms "Company" or "Airtrax" refers to Airtrax,
Inc. and companies previously acquired.
Airtrax is a development stage company that has developed an omni-directional
wheel technology intended to be used for various commercial applications.
The Company's maintains its administrative office at 870B Central Avenue,
Hammonton, New Jersey 08037, its telephone number is (609) 567-7800, and its
website is www.Airtrax.com.
THE COMPANY
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 the
Company for commercialization through a Cooperative Research and Development
Agreement (CRADA).
Technology Description.
Since the technology transfer under the CRADA agreement, the Company has
examined and redesigned many aspects of the system for use in various
applications including forklifts and other material handling equipment. In this
regard, the Company refined control software and hardware, and tested a variety
of drive component features on its pilot omni directional lift trucks and
scissor-lifts. Extensive demonstrations of prototype vehicles for commercial and
military users in combination with market research enabled the Company to direct
its initial development efforts towards the material handling products, offering
the best probability for successful market entry.
Management designed other aspects of its machine to complement the unique
functionality of its omni-directional technology. In so doing, the Company
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 the Company's 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 micro-processor that receives input from
an operator-controlled joystick. The joystick controls all vehicle movement
(starting, steering, and stopping). The framework of the Company's
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,
management believes the wheel can be used on miniature vehicles or massive
load-carrying vehicles.
3
RECENT TRANSACTION WITH FILCO GMBH
On March 9, 2004, the Company entered into a Stock Acquisition Agreement, and
Addendum, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH, a
German company. In April 2003, Filco acquired substantially all of the assets of
Clark Material Handling of Europe GmbH at Clark's facility located in Rheinstar
Mulhiem a.d. Ruhr., Germany, excluding, however, building and land and rights to
the Clark name. Filco 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. (See "Current Operations -Transaction
with Filco GmbH" below)
EXISTING AND PROPOSED PRODUCTS.
Sidewinder ATX. The Company anticipates that its Sidewinder Omni-Directional
lift truck will be available with rated lift capacities ranging from 3000 pounds
and higher. The Company's SIDEWINDER ATX-3000 Omni-Directional lift truck, which
is its 3,000 pound model, features it's 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. The Company believes 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, the Company expects to use the Filco plant and operations to produce
and sell a line of conventional forklifts manufactured under an Airtrax name for
distribution in the United States and other geographical markets. It also is
contemplated that the SIDEWINDER ATX-3000 Omni-Directional lift truck will be
manufactured at the Filco plant and distributed by Filco to European or Middle
East markets.
Omni-Directional Aerial Work Platform. In late February 2004, the Company in
collaboration with MEC Aerial Platform Sales Corporation of Fresno, California
introduced a concept version of a scissor lift at the American Rental
Association trade show in Atlanta. The scissor lift called the "Phoenix"
incorporated the Company's 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 the
Company's 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.
Company 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.
The Company believes that, similar to its lift truck, the improved functionality
of the aerial work platform will result in increased productivity at the
job-site.
On March 13, 2004, the Company 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. The Company 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, the Company 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 Airtrax and,
likewise sales made by Airtrax 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.
The parties expect to enter into a more formal agreement to further define the
relationship of the parties. At this time, the Company 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.
4
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, the Company believes that persons with
disabilities will experience an increased number of employment and other
opportunities. The Company has conducted a preliminary design of an
omni-directional wheel for wheelchair applications. Based upon the preliminary
design, the Company believes that it 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.
The Company 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. The Company cannot predict whether it will be able to
successfully develop this product.
Military Products. During 1999, the Company was 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, the Company studied the application of
the omni-directional technology for military use and was 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. The Company
completed the Phase I base contract in 1999 and was subsequently awarded a Phase
I option from NAWC-AD to further define the uses of the MP2. In July 2000, the
Company was awarded a Phase II research contract under the SBIR program. Under
the Phase II contract, the Company is 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 the Company has 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. The Company has 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 management
believes the underlying omni-directional technology for the proposed MP2 has
significant potential for both commercial and military applications, the Company
cannot predict whether any sales beyond the Phase II contract will result from
the SBIR program.
In connection with the MP2, on December 11, 2003, the Company 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 the Company by U.S. Department of Defense and any international
military customers under the SBIR arrangement.
CURRENT OPERATIONS.
Since 1995, substantially all of the Company's 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 the Company and specially manufactured. Four pilot models
of the commercial omni-directional lift truck are currently operational.
The Company has commenced and is near completion of its initial production run
consisting of 10 units of its Sidewinder ATX-3000 Omni-Directional Lift Truck.
Substantially all of the parts including frames, motors, controllers, and
micro-processors have been ordered and received by the Company, and are
partially assembled. The initial production run will be completed upon receipt
of wheels and other components from suppliers which is expected in the second
quarter of 2004. Unit assembly is undertaken by Crane and Machinery, Inc.,
Bridgeview, Illinois under Company specifications. UL and final ANSI testing is
expected to be completed from 30 to 90 days from production completion.
Following required testing, the Company expects to sell these units to select
dealers in the United States. The Company has received purchase orders for its
initial production run of 10 units.
Transaction with Filco GmbH.
On March 9, 2004, the Company entered into a Stock Acquisition Agreement, and
Addendum, 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 at Clark's facility located in
Rheinstar Mulhiem a.d. Ruhr., Germany, excluding, however, building and land and
rights to the Clark name. Filco 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. Filco GmbH has been operating this
plant since July 1, 2003.
5
The consideration for the acquisition of equity interest in Filco is the payment
to Filco of approximately $1,300,000 and the issuance of stock options to Mr.
Filipov to acquire 900,000 shares of common stock of the Company. Of the total
amount due, $300,000 has been paid by the Company, $300,000 was due on March 15,
2004, $300,000 is due on May 2, 2004 and the balance is due on June 2, 2004. The
Company has used proceeds from its private placement offering conducted during
the first quarter of 2004 to pay the initial $300,000, and expects to use
additional proceeds from the offering to pay the balance due under the
agreement. The amounts paid to Filco will be in the form of working capital
loans to Filco. After payment of the entire amount, the Company's loan and an
existing loan in favor of Mr. Filipov for the same approximate amount may be
converted to equity of Filco. The stock option to be issued to Mr. Filipov to
acquire 900,000 shares of the Company's common stock will be exercisable at a
price per share of $0.01. No more than 12.5% of the options can be exercised
during any one year, and the exercise period for such annual amount is three
years. Mr. Filipov also will be appointed a director of the Company and will
receive an additional 100,000 shares of common stock of the Company for his role
as director. The Company will be required to register with the Securities and
Exchange Commission all of the shares issuable to Mr. Filipov under Form SB-2,
including those underlying the described stock options. The Company can not
predict whether it will raise sufficient funds to pay all amounts due under the
Filco agreement. On March 9, 2004, the Company filed a Form 8-K which includes a
copy of the Filco agreement and addendum, and the above description is qualified
in its entirety by the terms of the agreement.
Filco has informed the Company that it will require total working capital in the
amount of $5,000,000 in order for it to achieve profitable operations. This
amount includes funds required to be provided to Filco by the Company under the
Filco agreement described above. The Company expects to raise additional funds
from the sale of its securities in order to meet its loan obligations with
Filco, as well as its own working capital needs as discussed in the Management's
Discussion and Analysis section below. The Company cannot guarantee that it will
be able to raise sufficient funds to meet the working capital needs of Filco, as
well as its own working capital needs. The Company's inability to raise
sufficient capital as discussed herein may impair Filco's operations as well as
its own operations.
MANUFACTURING AND SUPPLIERS.
The initial production run of the Company's lift truck is being assembled at
Crane and Machinery, Inc., Bridgeview, Illinois. Crane and Machinery also has
constructed the frames and overhead guards for this production run in accordance
with Airtrax specifications. The parties operate under the terms of written
purchase orders. Parts and assemblies for the first commercial models have being
ordered and/or procured from other vendors. The initial production run will be
completed upon receipt of wheels manufactured for Airtrax by The Timken
Corporation and components from other suppliers. The initial run will refine the
assembly line, help develop procedures, and incorporate inventory control and
quality assurance. Management anticipates that the initial run of forklifts
should be completed in the first half of 2004. The Company plans to create the
framework for rapidly scalable production capacity at the Crane and Machinery
facility, initially sized for nominal monthly production but capable of ramping
up for anticipated demand before year's end. The Company also plans to
manufacture the its omni-directional lift truck at the Filco GmbH facility for
European and Middle Eastern sales.
Components for the Company's forklifts consist of over the counter products and
proprietary products that have been specially designed and manufactured by
various suppliers in collaboration with the Company. The Company believes 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. The Company 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.
The Company considers the specially designed and manufactured products
proprietary, and has 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 the Company maintains single sources for
the over the counter components, it believes that other sources are available if
necessary.
DISTRIBUTION AND PRODUCT MARKETING.
The Company intends to establish a national and international dealer network to
sell its fork-lift product line to existing equipment dealers. However, the
Company may sell directly to select national and international accounts, such as
Home Depot and Lowe's.
During the past two years, in anticipation of commercial production, the Company
solicited interest from targeted dealers nationwide, and in certain instances,
received contracts from a number of these dealers. Due to the delay in the
6
establishing commercial production, the contracts were not fulfilled. In 2004,
the Company began soliciting dealers for distribution and during the first
quarter of 2004 has reached an agreement with approximately 20 dealers
nationwide. 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. The Company expects 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. The Company's pricing structure will enable the dealer to
receive commissions from $3,500 to $4,000 per sale of the SIDEWINDER ATX-3000.
In May 2003, the Company 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 the Company, for resale to the United
States Government. During fiscal 2003, the Company did not effect any sales
through this re-seller channel, and can not predict whether it will be able to
do so in the future.
In addition to establishing its own dealer network, the Company will attempt to
capitalize on the existing distribution network of MEC if the Company is able to
reach a formal agreement with MEC and successfully develop the omni-directional
work platform discussed above. The Company would seek to include its
omni-directional forklift into the distribution network of MEC, which consist of
approximately 200 dealers nationwide. The Company can not 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.
The Company also intends to use trade shows and print and television media to
advertise and promote its 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, the Company believes that television will provide an effective media
for its product, due to its unique attributes. The Company believes that due to
the current economic conditions, it will be able to capitalize on favorable
advertising pricing. The Company also expects to be an exhibitor at industry
trade shows from time to time, including the bi-annual ProMat show located in
Chicago, Illinois.
FACILITIES.
The Company maintains its administrative offices at 870B Central Avenue,
Hammonton, New Jersey 08361 on premises owned by the Company's President. As of
December 31, 2003, the arrangement between the parties has been rent-free. In
addition, the Company maintains limited offices at H&R Industries, Inc. ("H&R
Industries"), located at 100 Park Avenue, Warminster, Pennsylvania 18974. H&R
Industries provides contract manufacturing and assembly services to the Company.
Through December 31, 2002, the arrangement between the parties has been
rent-free. Effective January 1, 2003, the Company has agreed to pay H&R
Industries a rental fee of $3,000 per month and has the option to pay in cash or
in the form of common stock. The arrangement is on a month to month basis.
MARKETS
Forklifts.
The Company's initial market focus will be directed to the forklift market. The
Company believes the commercial version of the omni-directional forklift will
revolutionize the materials handling and warehousing industries creating
potential markets globally. Industry data indicates that during 1998
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 1998. 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 loaders. Of the total market, management expects
to compete with mid-range electrical and gas powered riders, and some specialty
narrow aisle or side loaders.
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, the Company expects to compete with a range of indoor man lifts.
7
COMPETITION
The Company expects 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. The Company believes that it
will compete favorably with a standard forklift for reliability, and that a
purchase decision will be based upon weighing the operational advantages of the
Company's products against its higher purchase price. VNA and sideloader
forklifts retail at $75,000 or greater. While the Company's SIDEWINDER
omni-directional lift truck cannot be considered "very narrow aisle", it can
perform "narrow aisle" functions at a significantly less cost. The Company also
is 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 the Company's
product as discussed previously herein. Therefore, to that extent, the Company
believes that it maintains a competitive advantage to these newer products.
The Company recognizes 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 the Company. In addition, the patent on omni-directional technology expired
in 1990. Although the Company has received patent protection for certain aspects
of its technology, no assurances can be given that such patent protection will
effectively thwart competition.
PATENTS AND PROPRIETARY RIGHTS.
On January 22, 2002, the Company received US patent #6,340,065 relating to its
low vibrations wheels. On May 28, 2002, the Company 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 the Company received US
patent #6,394,203 relating to methods for designing low-vibration wheels. The
Company also has several patent applications pending relating to other aspects
of its technology. The Company expects to make future patent applications
relating to various other aspects of its omni-directional technology. The
Company also has filed a patent application for its power module. At this time,
no foreign patents have been issued for any of the Company's technology. In
December 1997, the Company was awarded a patent for an omni-directional
helicopter ground-handling device.
The Company also seeks to protect its proprietary technology through exclusive
supply contracts with manufacturers for specially designed and manufactured
components.
PRODUCT LIABILITY.
Due to nature of the Company's business, the Company may face claims for product
liability resulting from the use or operation of the Company's forklifts or
other products.
Presently, the Company does not maintain any product liability insurance. It
intends to obtain such insurance commensurate with the initial shipment of its
omni-directional forklifts.
EMPLOYEES.
As of December 31, 2003, the Company has three full time employees which
includes its President, three part time employees, and engages consultants from
time to time. The Company has no collective bargaining agreements with its
employees and believes its relations with its employees are good.
Item 2. Description of Property.
The Company maintains its administrative offices at 870B Central Avenue,
Hammonton, New Jersey 08361 on premises owned by the Company's President. As of
December 31, 2002, the arrangement between the parties has been rent-free. In
addition, the Company maintains limited offices at H&R Industries, Inc. ("H&R
Industries"), located at 100 Park Avenue, Warminster, Pennsylvania 18974. H&R
Industries provides contract manufacturing and assembly services to the Company.
As of December 31, 2002, the arrangement between the parties has been rent-free.
Effective February 1, 2003, the Company has agreed to pay H&R Industries a
rental fee of $3,000 per month and has the option to pay in cash or in the form
of common stock. The arrangement is on a month-to-month basis.
8
Item 3. Legal Proceedings.
During May 2002, the Company signed an agreement with a broker/dealer to provide
investment banking and financial advisory services, which included fund raising
on behalf of the Company. Under the agreement, the broker/dealer was entitled to
receive stock warrants exercisable into 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 has arisen between the parties regarding the agreement and its
performance. The Company has asserted that the third party induced the Company
to enter into the agreement through material misstatements and has not otherwise
performed its services under the agreement. The Company believes that the third
party is not entitled to the stated compensation, and has not issued the stock
warrants to the third party.
In addition, the Company from time to time is subject to routine litigation
incidental to its business from claims by various parties such vendors and
suppliers. Management does not believe the resolution of these matters will have
a material adverse impact upon the financial condition of the Company or results
of operation.
Item 4. Submission of Matters to Vote of Security Holders.
On November 6, 2003, the Company mailed an Information Statement to its
shareholders in connection with the adoption of a Certificate of Amendment to
the Company's Certificate of Incorporation (the "Amendment") to increase of the
Company's authorized common stock from 10,000,000 to 20,000,000 shares by the
written consent of the holders of a majority in interest of the Company's voting
capital stock consisting of the Company's outstanding Common Stock, no par
value, and outstanding 5% Voting Preferred Stock, no par value. On October 15,
2003, the Company's Board of Directors, approved and recommended the corporate
action, and on November 4, 2003, consent of a majority of shareholders approved
the corporate action.
PART II
Item 5. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
The Company's common stock has traded on the NASDAQ OTC Bulletin Board since
March 6, 2000 under the symbol "AITX". Prior to such time, the Company's common
stock traded on the National Quotation Bureau's "pink sheets".
The table below sets forth the high and low bid prices of the common stock of
the Company as reported by NASDAQ. The quotations reflect inter-dealer prices,
without retail mark-up, markdown, or commissions and may not necessarily
represent actual transactions. There is an absence of an established trading
market for the Company's common stock, as the market is limited, sporadic and
highly volatile. The absence of an active market may have an effect upon the
high and low priced as reported.
2001 Low Bid High Bid
---- ------- --------
1st Quarter $1.63 $2.75
2nd Quarter 1.90 3.38
3rd Quarter 2.25 1.60
4th Quarter 0.65 1.90
2002 Low Bid High Bid
---- ------- --------
1st Quarter $0.75 $3.00
2nd Quarter 0.75 2.00
3rd Quarter 0.90 2.25
4th Quarter 1.01 2.00
2003 Low Bid High Bid
---- ------- --------
1st Quarter $0.80 $1.50
2nd Quarter 0.87 1.61
3rd Quarter 0.80 1.20
4th Quarter 0.65 1.01
9
As of March 15, 2004, there are 873 shareholders of record of the Company's
common stock. Although there are no restrictions on the Company's ability to
declare or pay dividends, the Company has not declared or paid any dividends
since its inception' and does not anticipate paying dividends in the future.
Equity Compensation Plan Information.
Equity Compensation Plan Information
------------------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
------------------------- ----------------------- -------------------- ------------------------
Equity compensation plans
approved by security
holders (1) -0- -0- -0-
------------------------- ----------------------- -------------------- ------------------------
Equity compensation plans
not approved by security Not Not
holders (2) Determinable(1) Determinable(2) -0-
------------------------- ----------------------- -------------------- ------------------------
Not Not
Total Determinable(1) Determinable(2) -0-
------------------------- ----------------------- -------------------- ------------------------
(1). Mr. Barney Harris maintains stock options for 25,000 shares of common stock
of the Company which remains under his employment agreement as Executive Vice
President. The agreement expires in 2004. In addition, two employees of the
Company maintain annual stock options for 25,000 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 in not
determinable. The Company and Mr. Peter Amico, the Company's President, entered
into a one year employment agreement which expired June 30, 2003. Under the
agreement, Mr. Amico was entitled to a stock option to acquire 50,000 shares of
common stock of the Company for a total exercise price of $0.01. The Company and
Mr. Amico expect to enter into a new employment agreement which may include
stock options similar to those of his expired agreement retroactive to July 1,
2003 and for periods subsequent to fiscal 2003; however, the terms of the new
employment agreement has not been finalized by the parties, and is subject to
approval by the Board of Directors. (2). The stock options for shares of common
stock of the Company identified in (1) above 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. The options
had not been exercised as of December 31, 2003 and weighted average exercise
price is not determinable.
Recent Sales of Unregistered Securities.
Through January 7, 2004, the Company received gross proceeds of $855,000 in
connection with the private placement of its securities. The securities, in the
form of units were sold at a $1.00 per unit, and consisted of one share of
common stock and a stock purchase warrant. The warrant entitled the holder to
acquire one share of common stock of the company at an exercise price of $2.50
during a three year exercise period. The offering was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"),
including Rule 506 of Regulation D promulgated under the Act. Each subscriber
was an "accredited investor," each subscriber represented his or her intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof, appropriate legends were affixed to
the share certificates issued in such transactions, and no advertisement or
general solicitation was used in connection with the offering.
During the same period, the Company issued; (i) 180,000 shares of common stock
to the Company's President in connection with the exercise of stock options
under his employment agreement for which the Company received $25,202, (ii)
10,000 shares of common stock in connection with the exercise of stock options
by a director for which the Company received $5,000, (iii) 15,700 shares of
common stock in connection with services rendered in the amount of $11,783, (iv)
7,500 shares of common stock in connection with stock options granted to two
employees for which the Company received $877, and 1,090,638 shares of common
stock to eight consultants in exchange for consulting services rendered by each
such consultant. The stock issuances were exempt from registration pursuant to
Section 3 (b) and/or 4(2) of the Securities Act of 1933, as amended, as the
offering was made to less than 35 individuals.
10
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discusses the financial results of the Company for the periods
indicated.
Results of Operations
Fiscal year end 2003 compared with fiscal year end 2002.
The Company has been a development stage company for the 2003 and 2002 periods
and has 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 the Company recognized
limited revenues from the United States Navy contract during 2003. During 2004,
the Company expects to transition from a development stage company to an
operating company as it 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.
Revenues for fiscal 2003 were $21,879 representing a decrease of $529,243 from
revenues of $551,122 for the 2002 period. Revenues for the 2003 period were
attributable to the US Navy contract. The revenue mix for 2002 consisted of;
$5,686 in sales of a non omni-directional parts, $490,658 in contract revenues
from the United States Navy, and $54,778 in sub-contract revenue.
Cost of sales for 2003 was $91,283 which reflects a $116,382 decrease from
$207,665 in fiscal 2002. Cost of sales for 2003 consisted of entirely of
salaries and material incurred in connection with the performance of the US Navy
contract, while amounts for the 2002 period consisted of principally of salaries
and material incurred in connection with the performance of the US Navy contract
and sub-contract work, and to a lesser extent cost of equipment for
non-omni-directional sales.
Operating and administrative expenses which includes administrative salaries,
depreciation and overhead for the 2003 period totaled $2,199,659 which
represents an increase of $1,185,253 from $1,014,406 incurred in 2002. The
increase is due primarily to consulting fees paid to various third parties in
the form of common stock which totaled $1,424,278, and costs related to the
development of its omni-directional technology. Interest expense payable to
third party suppliers totaled $43,938 for the 2003 period, representing a slight
increase from $33,174 for the 2002 period. In 2003, the Company received $7,914
in other income from interest payments from Filco GmbH, which contrasts with
$4,215 for the prior period. Net loss before taxes in 2003 was $2,305,087 which
reflects on increase of $1,605,179 from $699,908 in net loss before taxes for
the 2002 period.
In 2003, the Company recorded $210,553 as the expected sale of its net operating
losses and tax credits under a New Jersey program described further in Liquidity
and Capital Resources below. This amount contrasts with $59,292 recorded during
2002.
Loss attributable to shareholders for 2003 was $2,282,946 which represents an
increase of $1,642,330 from $640,616 during the 2002 period. During 2003, the
Company paid dividends on its preferred stock to a controlling shareholder of
the Company in the amount of $80,749. No such dividends were paid in 2002.
Deficit accumulated during development stage during 2003 was $2,363,695 (or a
loss per share of $0.30 for common stockholders) which represents an increase of
$1,723,079 from $640,616 (or a loss per share of $0.12 for common stockholders)
for the 2002 period.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through the private
placement of its common stock and from loans from the Company's President.
During 2003 and 2002, the Company raised net of offering costs $789,000 and
$396,630 from the private placement of its securities.
During 2000, the Company was approved by the State of New Jersey for its
technology tax transfer program pursuant to which the Company could sell its net
operating losses and research and development credits as calculated under state
law. During 2003 and 2002, the Company recorded credits of $210,553 and $59,292,
respectively from the sale of its losses and credits (see Note 6 to financial
statements).
The Company anticipates that its 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, the Company
entered into a placement agency agreement with a NASD registered broker-dealer
11
for the private placement offering of the Company securities. The Company's
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 April 26, 2004. During the first quarter of 2004, the Company
received $1,213,874 net of offering costs and expenses from the offering. The
offering is made pursuant to exemptions under the Securities Act of 1933, as
amended. The Company expects to complete its initial production run of its
SIDEWINDER Lift Truck in the second quarter of 2004. The Company expects to
receive sufficient funds from the offering to complete the initial production
run and to complete ANSI and UL testing, as well as special tooling costs.
The Company will require additional funds to continue its operations beyond the
initial production run. These funds are in addition to the funds required by
Filco GmbH as discussed above. (See "Item 1- Description of Business - Current
Operations - Transactions with Filco GmbH") The Company's cash requirements for
the next 12 months are projected to be $2,500,000. Of the total amount,
approximately 75-90% are projected for parts and component inventory and
manufacturing costs, with the balance projected as general operating
expenditures, which includes overhead and salaries. The Company expects 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 it transitions
from the initial production run to full-scale production. The Company intends to
fund these additional cash requirements through the issuance of equity and/or
debt securities which may include the offering described above. The Company
cannot predict whether the Company will be successful in obtaining sufficient
capital to fund its continuing operations. If the Company is 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 the Company and its
business prospects.
As of December 31, 2003, the Company's working capital deficit was $77,359.
Fixed assets, net of accumulated depreciation, and total assets, as of December
31, 2003, were $138,198 and $1,072,253, respectively. Current liabilities and
long term liabilities, as of December 31, 2003, were $968,296 and $3,974,
respectively.
Disclosure Regarding Forward Looking Statements and Cautionary Statements.
Forward Looking Statements. Certain of the statements contained in this Annual
Report on Form 10-KSB includes "forward looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange
Act"). All statements other than statements of historical facts included in this
Form 10-KSB regarding the Company's financial position, business strategy, and
plans and objectives of management for future operations and capital
expenditures, and other matters, are forward looking statements. These
forward-looking statements are based upon management's expectations of future
events. Although the Company believes the expectations reflected in such forward
looking statements are reasonable, there can be no assurances that such
expectations will prove to be correct. Additional statements concerning
important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed below in the
Cautionary Statements section and elsewhere in this Form 10-KSB. All written and
oral forward looking statements attributable to the Company or persons acting on
behalf of the Company subsequent to the date of this Form 10-KSB are expressly
qualified in their entirety by the Cautionary Statements.
Cautionary Statements. Certain risks and uncertainties are inherent in the
Company's business. In addition to other information contained in this Form
10-KSB, the following Cautionary Statements should be considered when evaluating
the forward-looking statements contained in this Form 10-KSB:
NEED FOR ADDITIONAL CAPITAL FOR INTERNAL OPERATIONS. The Company will require
additional capital immediately and long term to meet its ongoing operating
requirements. In the future, in order to initiate full-scale production, the
Company will require significant funds for inventory, manufacturing costs and
for other working capital needs. The Company intends to raise the capital
through a private or public financing of debt or equity. Presently, the Company
has no commitment for any such funding. The Company cannot predict whether it
will be successful in obtaining such financing on terms acceptable to the
Company or on any terms. The inability to obtain such financing will have a
material adverse affect on the Company.
NEED OF ADDITIONAL CAPITAL FOR FILCO'S OPERATIONS. In addition to its own need
of working capital, the Company also will need working capital to funds the
operations of Filco GmbH. Filco has informed the Company 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. During the first quarter of 2004, the Company has loaned $300,000 to
Filco. If the Company is 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 the Company may
be jeopardized.
12
LACK OF COMMERCIAL PRODUCT. The Company has developed pilot versions of its
unique, omni-directional forklift. The commercial introduction of the product is
subject, however, to additional testing and component refinement. Due to the
unique performance attributes of the forklift, the forklift will undergo a
series of unprecedented tests relating to these attributes. Although management
has performed substantially all of these tests or is otherwise confident of the
performance capabilities of the forklift, final testing has not been completed.
In addition, the Company's product must be sufficiently durable to withstand the
day-to-day rigors of its anticipated work environment. As stated above, although
the Company has conducted numerous tests, the product has not been subjected to
the normal day-to-day usage typically required of forklifts. Therefore, it is
conceivable that final testing, or durability issues after prolonged use, could
result in component refinement or redesign, which could delay the commercial
introduction or continued sale of the forklift.
LACK OF A DETERMINED PRODUCT PRICES AND IMPACT ON PROFIT MARGINS. The Company is
assessing present and projected component pricing in order to establish a
pricing policy for the SIDEWINDER Lift Truck. The Company has not finalized its
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. The Company
intends to price its forklifts so as to maximize sales yet provide sufficient
operating margins. Given the uniqueness of its product, the Company has 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.
LIMITED OPERATING HISTORY. The Company is a development stage company, and,
together with its predecessor, has been in operation since 1995. However, since
1995, the Company's operations have been limited to the development of its
omni-directional products, and limited revenue has been generated during this
period. Consequently, its business may be subject to the many risks and pitfalls
commonly experienced by development stage companies.
LACK OF INDICATIONS OF PRODUCT ACCEPTABILITY. The success of the Company will be
dependent upon its ability to sell omni-directional products in quantities
sufficient to yield profitable results. To date, the Company has received
limited indications of the commercial acceptability of its omni-directional
forklift. Accordingly, the Company can not predict whether its omni-directional
products can be marketed and sold in a commercial manner.
PROTECTION OF INTELLECTUAL PROPERTY. The success of the Company will be
dependent, in part, upon the protection of its proprietary omni-directional
technology from competitive use. The patent for the omni-directional wheel
expired in 1990. The Company, however, has received patent protection of certain
other aspects of its omni-directional wheel, and for features specific to its
forklift. In addition to the patent applications, the Company relies on a
combination of trade secrets, nondisclosure agreements and other contractual
provisions to protect its intellectual property rights. Nevertheless, these
measures may be inadequate to safeguard the Company's underlying technology. If
these measures do not protect the intellectual property rights, third parties
could use the Company's technology, and its ability to compete in the market
would be reduced significantly. In addition, if the sale of the Company's
product extends to foreign countries, the Company may not be able to effectively
protect its intellectual property rights in such foreign countries.
In the future, the Company may be required to protect or enforce its 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 the Company's 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 the Company. The Company cannot provide any assurance that
it will have sufficient funds to vigorously prosecute any patent litigation,
that it 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 the Company's common stock to decline.
LACK OF ESTABLISHED DISTRIBUTION CHANNELS. The Company does not have an
established channel of distribution for its forklift product line. The Company
has initiated its efforts to establish a network of designated dealers
throughout the United States. Although the Company has received indications of
interest from a number of equipment distributors, to date, such indications have
been limited. The Company can not predict whether it will be successful in
establishing its intended dealer network.
FEATURES OF PREFERRED STOCK. The Company has 275,000 shares of preferred stock
outstanding that are held by an affiliate of the President. The stock carries a
10 for 1 voting right and a stated value of $5.00 per share. The preferred stock
carries a liquidation preference equal to the stated value and an annual,
cumulative dividend of five percent, in preference to the common shareholders.
13
In addition, the holder may elect to receive the dividend in the form of common
stock at a deep discount to the market price (see Item 12 Certain Relationships
and Related Transactions). In addition, 225,000 shares of preferred stock remain
authorized and unissued, however, they are subject to rights, privileges and
preferences determined by the Board of Directors. These shares of preferred
stock, if and when issued, could create dilution to existing shareholders, or
impose financial requirements on the Company.
MANAGEMENT. The ability of the Company to successfully conduct its business
affairs will be dependent upon the capabilities and business acumen of current
management including Peter Amico, the Company's President. Accordingly,
shareholders must be willing to entrust all aspects of the business affairs of
the Company to its current management. Further, the loss of any one of the
Company's management team could have a material adverse impact on its continued
operation.
CONTROL EXERCISED BY MANAGEMENT. As of March 15, 2004, the existing officers and
directors will control approximately 47.1% of the shareholder votes. This
control by management is in the form of common stock and preferred stock that
has 10 for 1 voting rights. Consequently, management will control the vote on
all matters brought before shareholders, and holders of common stock may have no
power in corporate decisions usually brought before shareholders.
NATURE OF BUSINESS/INSURANCE. 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 the Company intends to
provide on-site safety demonstrations, the unique, sideways movement of the
forklift may heighten potential safety risks. Despite the fact that the Company
intends to maintain sufficient liability insurance for the manufacture and use
of its products, one or more incidents of personal injury or property loss
resulting from the operation of its products could have a material adverse
impact on the business of the Company.
COMPETITION. Although management believes its product will have significant
competitive advantages to conventional forklifts, the Company will be 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 the Company. No assurances can be given
that any advances or developments made by such companies will not supersede the
competitive advantages of the Company's omni-directional forklift. In addition,
many of the Company's 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 the Company. It
therefore is conceivable that some distributors may be loath to enter into any
relationships with the Company for fear of jeopardizing existing relationships
with one or more competitors.
PENNY STOCK REGULATION. The Company's common stock may be deemed a "penny stock"
under federal securities laws. The Securities and Exchange Commission has
adopted regulations that define a "penny stock" generally to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. These regulations impose additional sales practice
requirements on any broker/dealer who sell such securities to other than
established investors and accredited investors. For transactions covered by this
rule, the broker/dealer must make certain suitability determinations and must
receive the purchaser's written consent prior to purchase. Additionally, any
transaction may require the delivery prior to sale of a disclosure schedule
prescribed by the Commission. Disclosure also is required to be made of
commissions payable to the broker/dealer and the registered representative, as
well as current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account of the customers and information on the limited market in penny
stocks. These requirements generally are considered restrictive to the purchase
of such stocks, and may limit the market liquidity for such securities.
Item 7. Financial Statements.
The Financial Statements that constitute Item 7 of this Annual Report on Form
10-KSB follow Item 14 below.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 8A . Controls and Procedures.
Within the 90-day period prior to the filing of this annual report on Form
10-KSB, the Company carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedures (as defined by Rule 13a-14(c) under
the Securities Exchange Act of 1934) under the supervision and with the
participation of the Company's chief executive officer and chief financial
officer. Based on and as of the date of such evaluation, the aforementioned
officers have concluded that the Company's disclosure controls and procedures
have functioned effectively so as to provide those officers the information
necessary whether:
14
(i) this annual report on Form 10-KSB contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report on Form
10-KSB, and(ii) the financial statements, and other financial information
included in this annual report on Form 10-KSB, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this annual report on Form
10-KSB.
There have been no significant changes in the Company's internal controls or in
other factors since the date of the Chief Executive Officer's and Principal
Financial Officer's evaluation that could significantly affect these internal
controls, including any corrective actions with regards to significant
deficiencies and material weaknesses.
Item 8B. Other Information.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officers of the Company, their ages, and the
positions they hold are set forth below. The directors of the Company hold
office until the next annual meeting of stockholders of the Company and until
their successors in office are elected and qualified. All officers serve at the
discretion of the Board of Directors. ] OFFICERS AND DIRECTORS
Name Age Title
---- --- -----
Peter Amico 60 President and Chairman
D. Barney Harris 43 Executive Vice President and Director
John Watt Jr. 69 Former Secretary and Former Director
Frank A. Basile, Esq. 68 Director
James Hudson 61 Director
William Hungerville 68 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 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.
John Watt Jr. - Mr. Watt has been Secretary and a Director of the Company from
August 1998 until December 11, 2003 when he resigned in both capacities. Since
March 2001, Mr. Watt has retired from full time employment and has performed
limited consulting services to the Company. From 1990 to the March 2001, he was
the President of Watt-Bollard Associates, Inc., a manufacturers' representative
sales agency located in Fort Washington, Pennsylvania.
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.
Frank A. Basile, Esq. - Mr. Basile has been a Director of the Company since
April 1999. Mr. Basile has been a practicing attorney since 1963 and is
president of the law firm Basile & Testa, Vineland, New Jersey.
15
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.
Item 10. Executive Compensation.
The compensation for all directors and officers individually for services
rendered to the Company for the fiscal years ended December 31, 2003, 2002 and
2001 are set forth in the following table:
SUMMARY COMPENSATION
Long Term
Annual Compensation Compensation Awards (5)
------------------- -----------------------
Name and
Principal Salary Bonus Other Securities underlying
Position Year ($) ($) ($) Options #
-------- ---- ---- ---- ----- ----------------
Peter Amico 2003 $ 88,462(1) -0- $64,000(2) -0-
Chairman and 2002 $ 84,135(1) -0- $52,399(2) -0-
President 2001 $ 75,000 -0- $51,399 -0-
--------------------------------------------------------------------------------
(1). 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 an automobile usage valued
at $1,000.
(2) Pursuant to his employment agreements, Mr. Amico had outstanding options to
acquire a total of 180,000 shares of common stock of the Company. Of these
options, 20,000 shares are exercisable at a total price of $2.00, 50,000 shares
are exercisable at $0.315 per share, 60,000 shares are exercisable 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 is
$1.26, the closing price of $1.26 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.
The Company and Mr. Amico were parties to an employment agreements governing Mr.
Amico's employment with the Company for a one year period terminating June 30,
2003, under which Mr. Amico received annual stock options not to exceed 50,000
shares of common stock of the Company (see "Employment Agreements" below"). The
Company and Mr. Amico expect to enter into a new employment agreement which may
include stock options similar to those of his expired agreement retroactive to
July 1, 2003 and for periods subsequent to fiscal 2003; however, the terms of
the new employment agreement has not been finalized by the parties, and will be
subject to approval by the Board of Directors.
Employment Agreements.
The Company and Peter Amico have entered into written employment agreements for
Mr. Amico's role as President of the Company. 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").
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 year three of the contract, 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 year three of the contract.
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
common stock of the Company for a total exercise price of $0.01. The Company may
terminate the agreement without cause upon 14 days' written notice to the
16
Employee. The Second Employment Agreement terminated on June 30, 2003, and the
parties have not entered into a subsequent agreement, however, Mr. Amico
continues to receive an annual salary of $100,000. The Company and Mr. Amico
expect to enter into a new employment agreement which may include stock options
similar to those of the Second Employment Agreement retroactive to July 1, 2003
and for periods subsequent to fiscal 2003; however, the terms of the new
employment agreement has not been finalized by the parties, and will be subject
to approval by the Board of Directors.
The Company and D. Barney Harris, as Vice President, have entered into a written
employment agreement for a period of five years from June 14, 1999. Under the
agreement, Mr. Harris receives an annual salary of $75,000, subject to annual
review by the Company. In addition, Mr. Harris receives annual stock options not
to exceed 25,000 shares of common stock, of which 2,500 shares are exercisable
for a total consideration of $1.00, 10,000 shares are exercisable at 35% of the
lowest price paid for the stock in the 30 day period preceding exercise, and
12,500 shares are exercisable at 17.5% of the lowest price paid for the stock in
the 30 day period preceding exercise. The parties have entered into discussions
to terminate the remainder of the term of the agreement; however, the specific
terms of such termination have not been finalized.
In August 2002, John Watt received 25,000 shares of common stock as compensation
for services rendered as Secretary to the Company for fiscal years 1999 and
2000.
Option Grants in Fiscal Year 2003
% of Total
Options to Exercise or Market Price
Options Employees in Base On Date of
Name Granted Fiscal Year Price ($/sh) Grant Expiration Date
Peter Amico 50,000 40% (1) $2.20(1) None(1)
President
And Chairman
(1). Pursuant to the New Employment Agreement, Mr. Amico received options for
50,000 shares of common stock per annum exercisable for a total consideration of
a $0.01. The date of grant is deemed to be July 1, 2002, the effective date of
the New Employment Agreement. The market price on the date of grant reflects the
closing price of the common stock of the Company on such date. The options do
not carry an expiration date.
17
Aggregate Option Exercises
In Last Fiscal Year and FY-End Option Values
Value of
# of Securities Unexercised
Unexercised In-the-Money
Options/SARs at Options at
Shares FY-End(#) FY-End($)at
Acquired On Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable(1)
Peter Amico 180,000 $201,598 -0- -0-
President and
Chairman
(1). Pursuant to his employment agreements, Mr. Amico had outstanding options to
`acquire a total of 180,000 shares of common stock of the Company. Of these
options, 20,000 shares are exercisable at a total price of $2.00, 50,000 shares
are exercisable at $0.315 per share, 60,000 shares are exercisable 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 is
$1.26, the closing price of $1.26 on the exercise date of February 12, 2003.
Compensation of Directors.
The Company's directors are compensated at the rate of $250 per meeting and are
reimbursed for expenses incurred by them in connection with the Company's
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 received a stock grant of 10,000
shares of the Company's common stock. The Company has not implemented a stock
grant or stock option plan for its board of directors for 2004, however it
expects to do so, the terms of which have not been established.
Other than as described above, the Company does not have any other form of
compensation payable to its officers or directors, including any stock option
plans, stock appreciation rights, or long term incentive plan awards for the
periods indicated in the table.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table identifies as of March 15, 2004 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:
Percentage of Percentage of
Common Stock Preferred Common Stock Preferred Stock
Beneficially Voting Stock Beneficially Beneficially
Name(1) Owned(2) Rights(3) Owned(2) Owned(3)
------ ------------- ------------ ------------- --------------
Arcon Corp. 1,734,210(4) 2,750,000(5) 19.5% 100%
Peter Amico
President and
Chairman 2,014,210(6) 2,750,000(5) 22.7% 100%
D. Barney Harris 191,301(7) -0- 2.2 -0-
Vice President and
Director
John Watt Jr. 151,200(8) -0- 1.7% -0-
Secretary and
Director
Frank Basile 137,046(9) -0- 1.5% -0-
Director
18
James Hudson 75,800(10) -0- <1% -0-
Director
William Hungerville 157,650(11) -0- 1.8% -0-
All directors 2,727,207(12) 2,750,000 30.7% 100%
and executive
officers as a
group (6 persons)
--------------------------------------------------------------------------------
(1). The address of each beneficial owner is the address of the Company.
(2). Based on 8,876,552 shares of common stock outstanding as of March 15, 2004,
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.
(3). Based upon 275,000 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 153,587 shares of common stock held by a third party
as collateral for a loan, however, excludes common stock that may be issued to
Arcon as a dividend on the preferred stock (See "Item 12. Certain Relationships
and Related Transactions").
(5). Represents shares held by Arcon.
(6). Represents 1,734,210 shares of common stock held by Arcon. as stated in
footnote (4) above, and 280,000 shares of common stock held individually by Mr.
Amico.
(7). Represents 161,301 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 51,200 shares of common stock held individually, and 100,000
shares held jointly with his spouse. Mr. Watt resigned as an officer and
director of the Company on December 11, 2003.
(9). 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 of the Company's that may be granted to directors during
2004.
(10). Represents 31,300 shares of common stock held individually, and 44,500
shares of common stock held by an affiliate. The amount excludes shares of
common stock of the Company's that may be granted to directors during 2004.
(11). Represents 146,950 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 of the Company's that may be granted to directors during
2004.
(12). Includes (4),(6),(7),(8),(9), (10) and (11).
Item 12. Certain Relationships and Related Transactions.
Arcon Cop., a corporation wholly owned by the Company's chairman and president,
owns 275,000 shares of preferred stock of the Company. Each share of Preferred
Stock is entitled to 10 voting rights on all matters on which shareholders are
entitled to vote. 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 is $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. For the fiscal 2001 dividend,
Arcon received 246,731 shares of common stock of the Company in lieu of the cash
dividend. For fiscal 2002 dividend, Arcon received a cash dividend of
$17,187.50, and will receive 221,892 shares of common stock of the Company in
lieu of the cash payment for the balance of the dividend. For the fiscal 2003
dividend, Arcon received a cash dividend of $28,646 and expects to receive an
additional $34,375 in cash dividends and 19,097 shares of common stock in lieu
of the cash payment of the dividend.
Arcon Corp. and the Company's President have made loans from time to time to the
Company in varying amounts. As of December 31, 2003, a loan in favor of the
Company's President in the amount of $80,995 is outstanding. The loan is due on
demand and bears interest at 12%. In July 2000, Arcon Corp. purchased 33,334
shares of common stock at a price per share of $1.50 for a total consideration
of $50,001.
Mrs. Patricia Amico, the wife of the Company's President, performed services to
the Company during 2003, 2002, and 2001 for which she received $11,579, $9,930,
and $9,126, respectively.
19
250
Mr. Frank Basile, a director of the Company, is a partner of a law firm that
performed legal services to the Company during fiscal 2003, 2002 and 2001. The
billing amount for such services for each year was less than $10,000.
During 2002 and 2001, each director of the 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 the Company of 10,000 shares of common stock.
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 exercisable into 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
has arisen 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 that the third party is not
entitled to the stated compensation, and has not issued the stock warrant to the
third party.
During June 2002, the Company entered into four separate consulting agreements
with third parties. The Company entered into a one year consulting agreement
with third party to provide financial consulting services to the Company.
Pursuant to the agreement, the Company issued 75,000 shares of common stock, and
agreed to pay the consultant the sum of $5,000 a month during the term. The
stated monthly fee can be paid in the form of common stock of the Company. The
Company entered into a consulting agreement with an individual to provide
web-site development and to develop corporate and product promotional videos and
CD-Roms, and issued 70,000 shares of common stock to the consultant in exchange
for such services. The Company entered into a consultant agreement with a third
party to provide financial public relations services. The Company issued the
consultant 100,000 shares of common stock and an option to purchase 100,000
shares of common stock at $3.00 per share during a two year term. Finally, the
Company entered into a consulting agreement with a third party to introduce the
Company's product to foreign markets, and issued 50,000 shares of common stock
in exchange for such services.
On May 5, 2003, the Company 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 Airtrax, to the United States Government.
Pursuant to the agreement, the issued a total of 350,000 shares of its common
stock.
On October 6, 2003, the Company entered into a consulting agreement with
American Machinery Export, L.L.C. Under the agreement, American Machinery will
endeavor to provide a contract from an entity representing the Republic of
Vietnam to purchase forklifts from the Company for an initial order of not less
than $12,000,000. The purchase contract must be guaranteed by an irrevocable
letter of credit issued, by a correspondent bank of Chase Manhattan Bank of New
York and on terms satisfactory to the Company. The Company issued the consultant
165,000 shares of common stock, and agreed to issue the consultant, 165,000
shares of common stock upon delivery of a contract acceptable to the Company,
and 500,000 shares of common stock upon delivery of a letter of credit
acceptable to the Company. If the consultant fails to deliver the purchase
contract by February 6, 2004, the 165,000 shares of common stock must be
returned to the Company or a cash equivalent paid to the Company. The Company
has agreed to file a Registration Statement with the Securities and Exchange
Commission under Form SB-2 within 60 days from receiving the purchase contract
to register the common stock issuable under the consulting agreement. American
Machinery Export LLC has agreed that it will not sell any registered stock until
30 days after effectiveness of the registration statement, and can sell no more
than 20% of total amount per month thereafter. There are no sale restrictions if
the Company's common stock is above $2.00 per share. The Company intends,
assuming the shares are earned, to include the American Machinery shares in the
registration statement to be filed for the securities in this Offering.
During fiscal 2003, the Company received $845,000 in connection with the private
placement of its securities. (See "Item 5. Market Price of and Dividends on the
Registrant's Common Equity and Related Stockholder Matters").
On March 9, 2004, the Company entered into a Stock Acquisition Agreement, and
Addendum, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH, a
German corporation (See "Item 1. Description of Business - Transactions with
Filco GmbH").
20
Item 13. Exhibits and reports on Form 8-K.
(a)(1). Exhibits
EXHIBIT INDEX
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 Amendment to Certificate of Incorporation of Airtrax, Inc.
dated November 11, 1999. (Filed as an exhibit to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 19, 1999).
3.3. 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).
3.4. 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).
3.5. Amended and Restated By-Laws of the Company. (Filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission on November
19, 1999).
10.1 Agreement and Plan of Merger by and between MAS Acquisition IX Corp. and
Airtrax, Inc. dated November 5, 1999. (Filed as an exhibit to the Company's Form
8-K filed with the Securities and Exchange Commission on January 13, 2000).
10.2. Employment agreement dated April 1, 1997 by and between the Company and
Peter Amico. (Filed as an exhibit to the Company's Form 8-K/A filed with the
Securities and Exchange Commission on January 13, 2000).
10.3. Employment agreement dated July 12, 1999, by and between the Company and
D. Barney Harris. (Filed as an exhibit to the Company's Form 8-K/A filed with
the Securities and Exchange Commission on November 19, 1999).
10.4. Consulting Agreement by and between MAS Financial Corp. and Airtrax, Inc.
dated October 26, 1999. (Filed as Exhibit 99(i) to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 19, 1999).
10.5. Employment Agreement effective July 1, 2002 by and between the Company and
Peter Amico (filed as an exhibit to the Company's Form 10-KSB for the period
ended December 31, 2002) 10.6 Agreement dated July 15, 2002 by and between the
Company and Swingbridge Capital LLC and Brian Klanica. (Filed as an exhibit to
the Company's Form 8-K filed on August 7, 2002).
10.7 Agreement dated March 9, 2004 by and between Airtrax, Inc., and Fil Filipov
and Addendum dated March 9, by and between Airtrax, Inc. and Fil Filipov. (Filed
as an exhibit to the Company's Form 8-K filed on March 9, 2004).
10.8 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).
10.9 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).
31.1 Chief Executive Officer and Principal Financial Officer Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer and Principal Financial Officer certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b). Reports on Form 8-K.
None
Item 14. Principal Accountant Fees and Services.
1. Audit Fees for 2003 were $19,307, and in 2002 were $21,494.
2. Audit Related Fees for both 2003 and 2002 were $0. -
3. Tax Fees for 2003 were $745 and in 2002 were $710.
4. All Other Fees for both 2003 and 2002 were $0.
5. N/A
6. The percentage of hours principal accountants engagement to audit the
financial statements of the Company for the most recent fiscal year that
were attributed to work performed by persons other than the principal
accountant's full time permanent employees was not greater than 50%.
21
AIRTRAX, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
DECEMBER 31, 2003
CONTENTS
--------
Page
Accountant's Audit Report.........................................22
Balance Sheet.....................................................23
Statements of Operations and Deficit Accumulated
During Development Stage..........................................24
Statements of Changes in Stockholder's Equity.....................25
Statements of Cash Flows..........................................26
Notes to Financial Statements.....................................27
22
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@optonline.net
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, 2003, 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, 2003 and 2002, and for
the period from May 19, 1997 (inception) to December 31, 2003. These financial
statements are the responsibility of the Company management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted the audits 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. 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 audits provide 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,
2003, and the results of its operations and its cash flows for the years ended
December 31, 2003 and 2002, and for the period from May 19, 1997 (inception) to
December 31, 2003, in conformity with U.S. generally accepted accounting
principles.
Robert G. Jeffrey
Certified Public Accountant
Wayne, New Jersey
March 29, 2004, except for Notes 10, 11, and 12, which is May 14, 2004
23
AIRTRAX, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 2003
ASSETS
Current Assets
Cash $ 37,388
Inventory 384,754
Prepaid expenses 267,790
Deferred tax asset 201,005
------------
Total current assets 890,937
Fixed Assets
Office furniture and equipment 75,652
Automotive equipment 21,221
Shop equipment 22,155
Casts and tooling 173,639
------------
292,667
Less, accumulated depreciation 154,469
------------
Net fixed assets 138,198
Other Assets
Patents - net 43,053
Utility deposits 65
------------
Total other assets 43,118
------------
TOTAL ASSETS $ 1,072,253
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 475,951
Payroll taxes and other accrued liabilities 279,878
Shareholder deposits for stock 130,000
Current portion of note payable 1,572
Stockholder notes payable 80,895
------------
Total current liabilities $ 968,296
Long Term Liabilities
Long term portion of note payable 3,974
------------
TOTAL LIABILITIES 972,270
Stockholders' Equity
Common stock - authorized, 20,000,000 shares without
par value; 8,696,552 issued and outstanding 6,098,141
Preferred stock - authorized, 500,000 shares without
par value; 275,000 issued and outstanding 12,950
Deficit accumulated during the development stage (5,804,156)
Deficit prior to development stage (206,952)
------------
Total stockholders' equity 99,983
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,072,253
------------
The accompanying notes are an integral part of these financial statements.
24
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS and DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
For the Years Ended December 31, 2003 and 2002
May 19, 1997
(Date of Inception)
YEAR 2003 YEAR 2002 to December 31, 2003
---------- ----------- --------------------
SALES $ 21,879 $ 551,122 $ 1,023,123
COST OF GOODS SOLD 91,283 207,665 470,371
----------- ------------ ------------
Gross Profit (Loss) (69,404) 343,457 552,752
OPERATING AND ADMINISTRATIVE EXPENSES 2,199,659 1,014,406 6,306,591
----------- ------------ ------------
OPERATING LOSS (2,269,063) (670,949) (5,753,839)
OTHER INCOME AND (EXPENSE)
Interest expense (43,938) (33,174) (144,170)
Other income 7,914 4,215 75,315
----------- ------------ ------------
NET LOSS BEFORE INCOME TAXES (2,305,087) (699,908) (5,822,694)
----------- ------------ ------------
INCOME TAX BENEFIT (STATE):
Current 210,553 59,292 210,553
Prior years - - 307,766
----------- ------------ ------------
Total Benefit 210,553 59,292 518,319
----------- ------------ ------------
NET LOSS BEFORE DIVIDENDS (2,094,534) (640,616) (5,304,375)
DEEMED DIVIDENDS ON PREFERRED STOCK 188,412 - 188,412
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS (2,282,946) (640,616) (5,492,787)
PREFERRED STOCK DIVIDENDS DURING
DEVELOPMENT STAGE (80,749) - (311,369)
----------- ------------ ------------
DEFICIT ACCUMULATED $(2,363,695) $ (640,616) $(5,804,156)
EARNINGS PER SHARE:
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ 2,282,946 $ 640,616
----------- ------------
ADJUSTMENT FOR PREFERRED STOCK
DIVIDENDS ACCUMULATED BUT UNPAID 68,750 68,750
----------- ------------
LOSS ALLOWABLE TO COMMON SHAREHOLDRS $ 2,351,696 $ 709,366
----------- ------------
NET LOSS PER SHARE - Basic and Diluted $(.30) $(.12)
----------- ------------
WEIGHTED AVERAGE SHARES OUTSTANDING 7,818,400 5,767,347
----------- ------------
The accompanying notes are an integral part of these financial statements.
25
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 30, 2003
COMMON PREFERRED DEFICIT ACCUMULATED DEFICIT PRIOR
STOCK STOCK DURING TO
Shares Amount Shares Amount DEVELOPMENT STAGE DEVELOPMENT STAGE TOTAL
---------- ----------- -------- -------- -------------- ---------- -----------
Balance, December 31, 2001 5,431,237 $2,852,895 275,000 $12,950 $(2,799,845) $(206,952) $ (140,952)
Sales of stock under
Regulation D offering 392.834 396,630 396,630
Shares issued for services 423,659 413,899 413,899
Net loss for period (640,616) (640,616)
---------- ----------- -------- -------- -------------- ---------- -----------
Balance, December 31, 2002 6,247,730 3,663,424 275,000 12,950 (3,440,461) (206,952) 28,961
Adjustment (21,912)
Sales of stock under
Regulation D offering 715,000 659,000 659,000
Shares issued for services 1,509,003 1,506,556 1,506,556
Shares in lieu of preferred
Dividends 246,731 269,161 (80,749) 188,412
Net loss for the period (2,282,946) (2,282,946)
---------- ----------- -------- -------- -------------- ---------- -----------
Balance, December 31, 2003 8,696,552 $6,098,141 275,000 $12,950 $(5,804,156) $(206,952) $ 99,983
---------- ----------- -------- -------- -------------- ---------- -----------
The accompanying notes are an integral part of these financial statements.
26
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003 and 2002
May 19, 1997
(Date of Inception)
Year 2003 Year 2002 to December 31, 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,282,946) $(640,616) $(5,492,787)
Adjustments to reconcile net income to net cash
consumed by operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 36,214 31,071 200,690
Value of common stock issued for services 1,424,278 413,899 2,014,725
Deemed dividends on preferred stock 188,412 188,412
Interest accrued on shareholder loan 11,478 2,800 17,075
(Increase) decrease in accrual of deferred
tax benefit (150,262) 19,043 (201,005)
Changes in current assets and liabilities:
Decrease (increase) in inventory (197,914) 46,410 (384,754)
(Increase) decrease in accounts receivable 50,936 (30,101) -
Increase (decrease) in accounts payable
and accrued liabilities 214,014 (107,294) 693,904
Increase in prepaid expense - (139,954) (146,957)
------------ ------------ ------------
Net Cash Consumed By
Operating Activities (705,790) (404,742) (3,110,697)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (90,045) (36,883) (298,978)
Additions to patent cost (9,385) - (76,992)
------------ ------------ ------------
Net Cash Consumed By
Investing Activities (99,430) (36,883) (375,970)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of common stock sales 789,000 396,630 3,469,508
Proceeds of option exercises 5,900 2,500 8,400
Proceeds of sales of preferred stock - - 12,950
Proceeds (repayment) of stockholder loans (3,298) 61,506 87,125
Preferred stock dividends paid in cash - - (53,503)
Partial repayment of equipment note (425) (425)
Net Cash Provided By
Financing Activities 791,177 460,636 3,524,055
Net Increase (Decrease) In Cash (14,043) 19,011 37,388
Balance at beginning of period 51,431 32,420 -
------------ ------------ ------------
Balance at end of period $ 37,388 $ 51,431 $ 37,388
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
27
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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 December 31, 2003, 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 small amounts
of revenue have been realized through December 31, 2003.
Basis of Presentation
The Company has incurred losses from inception to December 31, 2003 of
$5,304,375. 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.
28
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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, 2003.
Advertising Costs
The Company expenses advertising costs when the advertisement occurs.
Advertising costs amounted to $33,640 in 2002; there were no advertising
expenses in 2003.
Stock Options
Stock options are occasionally awarded to employees, directors and outside
parties as compensation for services. Such awards are immediately exercisable.
They are accounted for by changing income in the year of grant with the excess
of the fair market value of the underlying stock at the date of grant over the
exercise price.
29
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
1. (continued)
Segment Reporting
Management treats the operations of the Company as one segment.
Revenue Recognition
Revenue is realized from product sales and consulting services. Recognition
occurs upon delivery of goods or services.
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 product or service received or the market value of the common stock, with
appropriate discounts, whichever is most clearly evident.
2. 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 $80,885 at December 31, 2003, including interest accrued on these notes of
$11,478.
During 2002, a non-employee director exercised options, receiving 5,000 shares
of common stock in return for $2,500. A director who is also an employee
exercised options, receiving 25,000 shares for $3,129. Two directors received a
total of 58,802 shares in return for services valued at $51,951, and an
affiliate of a director received 2,164 shares in return for services valued at
$1,623.
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
$50,000. 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.
Since June 1999, the Company has made its headquarters in premises owned by the
Company president, which to date has been rent-free.
30
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
3. PRIVATE PLACEMENT OFFERINGS
The Company conducted private placement offerings during 2003 and 2002. These
offerings were exempt under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder. A total of 845,000 shares of
common stock was sold under the offerings during 2003, and 392,834 shares were
issued during 2002. These sales resulted in net proceeds of $789,000 and
$396,630, respectively. The 2003 offerings were for units, with each unit
comprised of one share of common stock and one warrant to purchase one share of
common stock at a price of $2.50 per share; the warrants expire three years from
date of issuance. Of the shares sold during 2003, 130,000 had not been issued as
of December 31, 2003; these were issued during 2004. There were 845,000 warrants
outstanding at December 31, 2003.
4. PREFERRED STOCK
The Company is authorized to issue 500,000 shares of preferred stock, without
par value. At December 31, 2003, 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 the majority
shareholder of the Company, which is a corporation wholly owned by the Company
president and chairman.
During the year 2003 unpaid preferred dividends that had accumulated during the
years 2000 and 200, totaling $80,749, were paid through the issuance of 246,731
shares of common stock. Additional dividends of $68,750 accrued during each of
the years 2002 and 2003, and remained unpaid at December 31, 2003. The majority
shareholder had the right at December 31, 2003 to acquire 557,861 shares of
common stock as accrued and unpaid dividends under the features of the preferred
stock issue. A partial payment was made on these unpaid dividends in March 2004
by a cash payment of $45,833.
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 over the
discounted amount at which they are issued. This deemed dividend was added to
paid in capital.
The characteristics of the remaining 225,000 preferred shares authorized have
not been specified.
31
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
5. LOSS PER SHARE
Stock options were granted to two Company employees during 2003. These are
described in Note 9. In addition, dividends accrued on the preferred stock
during 2002 and 2003 (see Note 4) which at the option of the preferred
shareholder could be paid in common stock. There also were 845,000 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.
6. 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, 2003, the Company had NOL
carryforwards of $5,606,154 available for Federal taxes and $2,233,386 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
During the year 2003, the Company realized $60,291 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 2002. These potential New Jersey
offsets for periods prior to 2003 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
follows:
Current Non-current Total
Deferred Tax Assets $892,015 $1,146,741 $2,038,756
Valuation Allowance 691,010 1,146,741 1,837,751
Balance Recognized $201,005 $ - $ 201,005
The entire balance of the valuation allowance relates to Federal taxes. Since
state tax benefits for years prior to 2003 have been realized, no reserve is
deemed necessary for the benefit of state tax losses of 2003.
32
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
7. RENTALS UNDER OPERATING LEASES
Office equipment was leased under an operating lease that was fully paid during
2002. At present, the Company is not obligated under any operating lease.
Rent expense amounted to $36,000 in 2003 and $6,000 in 2002.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for interest and income taxes is presented below:
2003 2002
Interest $35,828 $27,927
Income taxes 500 200
There were no noncash investing activities during either 2003 or 2002. The
following noncash financing activities occurred:
a. Shares of common stock were issued for services during 2003 and 2002;
these totaled 1,509,003 and 423,659 shares, respectively.
b. Shareholder notes payable was reduced by $25,202 as compensation for
the exercise by the Company president of options to purchase 180,000
shares of common stock.
c. Equipment of $5,971 was purchased by the issuance of a note.
d. Preferred dividends totaling $80,749 were satisfied by the issuance of
246,731 shares of common stock.
9. WARRANTS AND OPTIONS
Note 10 describes several circumstances in which rights to purchase common stock
have been issued. At March 29, 2004 outstanding options and warrants to purchase
Company common stock totaled 215,000 and 1,998,750, respectively.
33
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
10. CONTINGENCIES
The Company had employment agreements during 2003 with its president and three
employees. The president's contract, which expired June 30, 2003, provided in
part for options permitting the president to acquire up to 50,000 shares of
common stock per year, with portions of these options accumulating if not
exercised. Options for 180,000 shares which had accumulated through 2003 from
grants of previous years were exercised during 2003, generating proceeds to the
Company of $25,202.
Contracts with the three employees provide in part for options permitting the
acquisition of up to 25,000 shares per year. One employee, who was also a
director, exercised these options during 2002; another employee exercised
options for 2,500 shares during 2002. Two employees exercised options for 7,500
shares during 2003. At December 31, 2003, there were options for 115,000 shares
outstanding.
During January 2004, the Company entered into an agreement with an NASD
registered broker dealer to raise additional capital through a private placement
offering. The offering consists of units, with each unit comprised of one share
of common stock and a warrant to purchase 50% of an additional share at an
exercise price of $.80. These warrants have a five-year term. Through March 29,
2004, there had been two closings on this offering, with 1,831,250 units issued
yielding net proceeds of $1,213,874. At least one additional closing is
expected. The Company agreed, as part of the fee of the placement agent, to sell
additional warrants to the placement agent equal to 10% of the units sold, at a
price of $.01 per warrant. These warrants would allow the agent to purchase
common stock during a five-year term at $1.25 per share.
On March 9, 2004, the Company 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 manufacturer of fork trucks with a manufacturing
facility in Mulheim, Germany (FiLCO). As partial consideration for this
acquisition, the Company agreed to lend approximately $1,220,000 to FiLCO, to be
advanced in monthly installments through June 2, 2004. If the Company lends the
entire amount to FiLCO, the Company and FiLCO's sole shareholder have agreed to
convert all existing loans to FiLCO capital. Through March 29, 2004, loans
totaling $500,000 had been made to FiLCO by the Company and loans totaling
1,225,000 Euros had been made to FiLCO by it's sole shareholder. As additional
consideration for this FiLCO stock purchase, the Company agreed to pay the
seller 12,750 Euros and to issue to the seller 900,000 warrants to purchase
Company stock; these warrants would be exercisable at $.01 per share. The
Company also agreed to appoint the seller of the FiLCO stock as a director of
the Company and grant him options to purchase 100,000 shares of Company stock at
a price of $.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 49% of FiLCO stock and
would be repaid only from dividends paid on that 49% stock. As of March 29,
2004, the Company had not paid the 12,750 Euros to the sole shareholder and had
not issued the warrants to purchase 900,000 shares of Company common stock.
34
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
10. CONTINGENCIES (CONTINUED)
The Company also agreed to make available to the management of FiLCO 100,000
shares of Company common stock and options to purchase another 100,000 shares.
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.
11. SUBSEQUENT EVENTS
On May 14, 2004, a final closing occurred of the private placement referred to
in Note 10. The Company raised an additional $2,880,100 and issued 3.6 million
shares of common stock and 1.8 million warrants with and exercise price of
$1.25.
12. RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not anticipate the adoption of recently issued accounting
pronouncements to have a significant effect on the Company's results of
operations, financial position, or cash flows.
35
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Airtrax, Inc.
/s/ Peter Amico January 28, 2005
---------------
Peter Amico Date
Chairman, Principal Financial Officer and
Principal Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Peter Amico January 28, 2005
---------------
Peter Amico Date
Director
/s/ D. Barney Harris January 28, 2005
--------------------
D. Barney Harris Date
Director
James Hudson January 28, 2005
Director
Date
Frank Basile January 28, 2005
Director
Date
/s/ William Hungerville January 28, 2005
-----------------------
William Hungerville Date
Director
/s/ Fil Filipov January 28, 2005
---------------
Fil Filipov Date
Director
36