UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended March 31, 2006.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
FOR THE TRANSITION PERIOD FROM __ TO __
Commission file number: 001-16237
AIRTRAX, INC.
(Name of Small Business Issuer in its charter)
New Jersey 22-3506376
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Freeway Drive, Unit One, Blackwood, NJ 08012
(Address of principal executive offices)
(856) 232-3000
(Issuer's telephone number)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court: Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 2006, the issuer had
21,250,215 shares of common stock, no par value, issued and outstanding.
Transitional Small Business Issuer Format (Check One): Yes [ ] No [X]
AIRTRAX, INC.
MARCH 31, 2006 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets 1
Statements of Operations and Deficit Accumulated During
Development Stage 2
Statements of Cash Flows 3
Notes to Financial Statements 4-7
Special Note Regarding Forward Looking Statements
Item 2. Management's Discussion and Analysis or Plan of Operations 8
Item 3. Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits 13
SIGNATURES 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRTRAX, INC.
FINANCIAL STATEMENTS
MARCH 31, 2006
(Unaudited)
------------------------------------------
AIRTRAX, INC.
BALANCE SHEET
March 31, 2006 December 31, 2005
(Unaudited) (Audited)
------------ ------------
ASSETS
Current Assets
Cash $ 81,300 $ 19,288
Accounts receivable 134,067 94,357
Inventory 1,965,430 2,005,139
Vendor advance 163,517 163,517
Deferred tax asset 1,061,786 977,302
------------ ------------
Total current assets 3,406,100 3,259,603
Fixed Assets
Office furniture and equipment 157,521 157,521
Automotive equipment 21,221 21,221
Shop equipment 53,668 43,349
Casts and tooling 270,688 270,688
------------ ------------
503,098 492,779
Less, accumulated depreciation 315,251 301,886
------------ ------------
Net fixed assets 187,847 190,893
Other Assets
Advances to Filco Gmbh 2,000,000 2,000,000
Patents - net 152,763 154,263
Deferred Charges - 388,392
Utility deposits 65 65
------------ ------------
Total other assets 2,152,828 2,542,720
------------ ------------
TOTAL ASSETS $ 5,746,775 $ 5,993,216
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 927,410 $ 885,463
Accrued liabilities 307,868 266,556
Obligation for outstanding options 1,372,949 1,330,948
Warrants and conversion option liability 1,513,810 3,516,462
Shareholder loans payable 151,253 186,961
Short term convertible debt 451,200 -
------------ ------------
Total current liabilities 4,724,490 6,186,390
Long Term Convertible Debt 2,198,000 2,048,000
------------ ------------
TOTAL LIABILITIES 6,922,490 8,234,390
------------ ------------
Stockholders' Deficit
Common stock - authorized, 100,000,000 shares
without par value; issued and outstanding -
22,091,316 and 21,939,360,
espectively 21,742,858 21,385,638
Paid in capital - warrants 1,243,140 1,042,400
Preferred stock - authorized, 500,000,000
shares without par value; 375,000 issued and
outstanding 545,491 545,491
Deficit accumulated during development stage (16,544,134) (16,544,134)
Retained deficit (8,163,070) (8,670,569)
------------ ------------
Total stockholders' deficit (1,175,715) (2,241,174)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$ 5,746,775 $ 5,993,216
============ ============
The accompanying notes are an integral part of these financial statements.
1
AIRTRAX, INC.
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
2006 2005
------------ ------------
SALES $ 658,976 $ 76,991
COST OF GOODS SOLD 527,678 52,361
------------ ------------
Gross Profit 131,298 24,630
OPERATING AND ADMINISTRATIVE EXPENSES 1,021,573 723,594
------------ ------------
OPERATING LOSS (890,275) (698,964)
OTHER INCOME AND EXPENSE
Conversion Expense (581,438) -
Interest expense (48,751) (40,272)
Revaluation income 1,943,479 -
Interest income - 61,144
Other income - 136
------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES 423,015 (677,956)
INCOME TAX BENEFIT (STATE):
Current 84,484 58,145
------------ ------------
NET INCOME (LOSS) $ 507,499 $ (619,811)
============= ============
NET INCOME (LOSS) PER SHARE:
NET INCOME (LOSS) ALLOCABLE TO COMMON SHAREHOLDERS $ 507,499 $ (619,811)
ADJUSTMENT FOR PREFERRED DIVIDENDS ACCUMULATED BUT UNPAID (21,875) (17,188)
------------ ------------
INCOME (LOSS) ALLOCABLE TO COMMON SHAREHOLDERS $ 485,624 $ (636,999)
============ ============
NET INCOME (LOSS) PER SHARE - Basic and Diluted $ .02 $ (.04)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,014,543 15,523,209
The accompanying notes are an integral part of these financial statements.
2
AIRTRAX, INC.
STATEMENTS OF CASHFLOWS
For the Three Month Periods Ended March 31,
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 507,499 $ (619,811)
Adjustments to reconcile net income to net cash consumed by
operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 14,865 10,833
Value of common stock issued for services 250,166 5,113
Expense of settling certain liquidated damages 108,417
Conversion expense 581,438
Value of options granted for services 42,000 83,650
Increase in accrual of deferred tax benefit (84,484) (58,145)
Revaluation of liabilities for warrants and conversion privileges (1,943,479)
Interest accrued on shareholder loan 1,739 1,004
Changes in current assets and liabilities:
Increase in accrued interest receivable - (60,780)
Increase in accounts receivable (39,710) (76,991)
Increase in vendor advances - (77,000)
Increase (decrease) in accounts payable 41,947 51,886
Increase (decrease) in accrued liabilities 138,471 (82,204)
Decrease (increase) in inventory 39,709 (341,271)
------------ ------------
Net cash consumed by operating activities (341,422) (1,163,716)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (10,319) (7,986)
Additions to patent cost - (14,298)
Advances to FiLCO GmbH - (1,155,000)
------------ ------------
Net cash consumed by investing activities (10,319) (1,177,284)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of issuance of convertible debt 451,200 4,277,500
Net proceeds of common stock sales - 55,000
Proceeds of exercises of warrants - 554,913
Repayment of stockholder loans (37,447) -
------------ ------------
Net cash provided by financing activities 413,753 4,887,413
============ ============
Net increase in cash 62,012 2,546,413
Balance at beginning of period 19,288 641,477
------------ ------------
Balance at end of period $ 81,300 $ 3,187,890
============ ============
The accompanying notes are an integral part of these financial statements.
3
AIRTRAX, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements of AirTrax, Inc. ("the Company") as
of March 31, 2006 and for the three month periods ended March 31, 2006 and 2005
have been prepared in accordance with accounting principles generally accepted
in the United States of America. In the opinion of management, such information
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of such periods. The results of
operations for the quarter ended March 31, 2006 are not necessarily indicative
of the results to be expected for the full fiscal year ending December 31, 2006.
Certain information and disclosures normally included in the notes to financial
statements have been condensed or omitted as permitted by the rules and
regulations of the Securities and Exchange Commission, although the Company
believes the disclosure is adequate to make the information presented not
misleading. The accompanying unaudited financial statements should be read in
conjunction with the financial statements of the Company for the year ended
December 31, 2005.
2. ACCOUNTING PRONOUNCEMENTS
On January 1, 2006 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123(R), "Accounting for Stock-Based Compensation," using
the modified prospective transition ("MPT") method. This change had a negligible
effect on results of operations.
3. CONVERTIBLE NOTE FINANCINGS AND STOCK SALES
On February 13, 2006, the Company issued $451,200 of 8% Convertible Notes, due
on February 13, 2007. After a period of ninety days, the notes are convertible
to stock at a conversion price of $1.56 per share. Accompanying the notes were
289,231 warrants to purchase common stock, exercisable at $1.75 per share for a
period of five years, starting immediately.
Previous Convertible Issues had contained "Most Favored Nations" clauses that
guaranteed the investors that subsequent issues of stock or notes would not be
made on more favorable terms. As a result, the following warrant and conversion
prices were adjusted:
1. The exercise price for warrants associated with the May 2005 $500,000
convertible offering was adjusted from $2.11 per share to $1.56 per
share.
2. The conversion price for the October, 2005 $1,548,000 issue was
adjusted from $2.00 per share to $1.56 per share. 3. The exercise
price for the 774,000 warrants associated with the October 2005 issue
was adjusted from $3.25 per share to $1.56 per share.
The affect of these changes is included in the calculation of the $1,943,479
revaluation income.
4
AIRTRAX, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
3. CONVERTIBLE NOTE FINANCINGS AND STOCK SALES (CONT'D)
Included in the funds raised during 2004 through stock sales was $1,312,000
raised through the sale of 1,640,000 shares under a Purchase Agreement dated
November 22, 2004. That agreement required, among other things, that a
registration statement be filed with the SEC and that the registration statement
be declared effective by the SEC within a prescribed time. The Company did not
fulfill these obligations. As a result, it is subject to penalties equal to 2%
of the amount invested for each 30 day period following the default date. On May
31, 2005, the Company entered into a letter agreement with a representative of
this shareholder group under which $120,429 was paid to settle the penalties
which had accrued. Under the May 31, 2005 agreement, no further penalties would
accrue until after June 30, 2005. The obligation concerning effectiveness of the
registration statement has not been satisfied and penalties have accrued since
June 30, 2005 at the rate of approximately $26,240 per month. The penalties paid
thusfar, and penalties that accrued subsequent to June 30, 2005, were charged to
expense during the periods in which they accrued. For the year ended December
2005 an additional $160,851 of unpaid liquidated damages had accrued and an
additional $66,320 accrued during the first quarter of 2006. As discussed in the
next paragraph, a portion of the liquidated damages accrued from July 1, 2005 to
March 1, 2006 (91,160) was settled as of March 1, 2006.
On March 1, 2006, the Company issued $150,000 of 4% Convertible Notes, due on
March 1, 2008. The notes are convertible at $1.56 per share over two years.
These notes were accompanied by 48,077 warrants to purchase common stock at
$1.65 per share over five years. The notes, as further discussed in Note 5, were
issued as consideration for a waiver of rights to liquidated damages, both
currently due and those that would have accrued in the future, from certain
investors of the November, 2004 stock offering.
There were three private placement offerings during 2005. Under the provisions
of the first of these offerings, penalties will not accrue as the registration
requirements of that offering have been satisfied. Under the second such
offering, there is no provision for penalties. Under the third such offering,
penalties were effective 150 days after October 18, 2005, which date is March
17, 2006. Such penalties will accrue at the rate of 2% per month of the amount
raised in that offering, which was $1,548,000. A total of $15,480 was accrued
for the penalty on this offering in the first quarter of 2006.
There was no provision for damages in the convertible issue sold in the first
quarter of 2006 or in the convertible notes described in the second preceding
paragraph.
5
AIRTRAX, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
4. WARRANTS
The Company has issued warrants both as part of "stock units" and as an integral
part of convertible note issues. The convertible notes include prices for
conversion to stock. The value of the warrants and conversion options classified
as liabilities are revalued each reporting period based upon their comparative
fair values. These values from a Black Scholes valuation model, consistent with
the requirements of SFAS No.133.
The following is a summary of warrants outstanding at March 31, 2006:
Warrants outstanding at December 31, 2005 10,875,558
Warrants issued with 2006 convertible notes 337,308
-----------
Warrants outstanding March 31, 2006 11,212,876
===========
5. SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest was $0 and $4, respectively, for the quarters ended March
31, 2006 and March 31, 2005. There was no cash paid for income taxes during
either the 2005 or 2004 quarters.
There were no noncash investing activities during either the 2006 or 2005
periods. The following noncash financing activities occurred during 2006.
Shares of common stock were issued for services in 2006; these totaled 144,456
shares.
The Company issued $150,000 of 4% convertible notes due March 1, 2008 in
consideration for certain investors waiving their rights to liquidated damages
accruing under the November 2004 stock offering. A charge of $108,417 was
recorded during the 2006 quarter, representing the difference between accrued
damages settled ($91,160) and the value of the convertible notes and associated
derivatives.
6
AIRTRAX, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
6. OPERATING AND ADMINISTRATIVE EXPENSES
Details of operating and administrative expenses are presented below:
3 Months Ended 3 Months Ended
3/31/06 3/31/05
----------- -----------
Options expense $ 42,000 $ 83,650
Salaries 156,630 121,594
Marketing expense 13,702 133,012
Production costs 61,593 100,903
Professional fees 158,861 118,364
Commissions 50,845 -
Consulting - administrative 14,150 5,113
Settlement expense 108,417
Liquidated damages 81,800 -
Consulting - marketing 47,925 -
Rent 38,250 10,500
Fees - assembly labor 65,221 -
Employee awards 53,250 -
Other expenses 128,929 150,458
----------- -----------
Totals $ 1,021,573 $ 723,594
=========== ===========
7. CONTINGENCIES
On February 19, 2004, the Company reached a tentative agreement to purchase
capital stock of FiLCO GmgH., a German manufacturer of fork trucks (formerly
Clark Material Handling Company of Europe) with a manufacturing facility in
Mulheim, Germany (FiLCO). It was expected that the Company would acquire 75.1%
of FiLCO. While negotiations were continuing, the Company agreed to make
advances to FiLCO. Through December 31, 2005 advances totaling $6,275,881 had
thus been made.
On January 20, 2006, Filco filed for insolvency in Germany and a receiver was
appointed. As a result, on February 7, 2006 the Company terminated the tentative
agreement to acquire Filco stock and began negotiations with the receiver to
acquire some or all of the Filco assets. The $6,275,881 of advances to Filco
that were outstanding at December 31, 2005, are secured by liens filed against
the machinery and equipment owned by Filco, which in 2003 was appraised at
$5,400,000, and by liens filed against its intellectual property, which has not
been appraised. Due to the uncertainty of the Company's position under German
bankruptcy law, the Filco advances have been written down to $2,000,000. An
auction sale of Filco assets occurred on May 10, 2006. The Company will be
advised of the outcome through it's German legal counsel, but has not received a
report. The Company will seek to recover on its secured loans through
appropriate legal channels.
7
Item 2. Management's Discussion and Analysis and Results of Operations
Forward Looking Statements
Some of the information in this annual report contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate" and "continue", or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our financial
condition; and
o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there may
be events in the future that we are not able to accurately predict or over which
we have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors."
Overview
Since 1995, substantially all of our resources and operations have been directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured for us. Sixteen commercial
omni-directional lift trucks were sold to customers in the United States, South
Africa, Spain, Canada and Panama as of March 31, 2006 and others are ready to
ship pending receipt of funds or consummation of letters of credit or other
credit facilities. These sixteen units, which included optional equipment,
produced billings of $658,976 from January 1, through March 31, 2006.
We have commenced production and have received the parts required for production
of a total of fourteen units of our Sidewinder ATX-3000 Omni-Directional Lift
Truck, but believe that as many as thirty two units could be assembled by June
30, 2006 depending upon supply chain deliveries. As of March 31, 2006, we did
not have all of the parts required from every vendor for completion of the
trucks other than those heretofore noted. The assembly and sale is dependent
upon delivery of all of the required parts.
Omni-Directional means that vehicles designed and built by us can travel in any
direction. Our Omni-directional vehicles are controlled with a joystick. The
vehicle will travel in the direction the joystick is pushed. If the operator
pushes the joystick sideways, the vehicle will travel sideways. If the operator
were to twist the joystick the vehicle will travel in circles. Our
omni-directional vehicles have one motor and one motor controller for each
wheel. The omni-directional movement is caused by coordinating the speed and
direction of each motor with joystick inputs which are routed to a
micro-processor, then from the micro-processor to the motor controllers and
finally to the motor itself.
Complete assembly is conducted by us at our newly leased facilities at 200
Freeway Drive Unit One, Blackwood, NJ 08012. Approximately 50% of the frames
have been manufactured in the USA. These frames are shipped to the Blackwood
plant for complete assembly. Besides the assembly of vehicles at Blackwood,
partially assembled vehicles have been shipped to the Blackwood facility from
the Filco plant in Germany. These shipments ceased when Filco declared
insolvency on January 20, 2006. Partial assembly of approximately nineteen lift
trucks has been completed at the Filco plant, fourteen of which and have been
shipped to the USA for final assembly. To date, a total of approximately sixty
lift trucks have been shipped from Bulgaria to the Filco plant for partial
assembly. Additional frames and other parts totaling some $450,000 remain at the
Filco facility awaiting release by the receiver to us. Most of the frames
manufactured in Bulgaria had to be re-machined to be within certain tolerances
required for these frames. The re-machining charges will be back-charged to the
frame manufacturer. The frame manufacturer will adjust tooling to get the
tolerances to the required specifications for future deliveries.
We have incurred losses and experienced negative operating cash flow since our
formation. For the three months ended March 31, 2006 and 2005, we had net income
of $507,499 and a net loss of $(619,811), respectively. The net income in the
year is primarily related to revaluation income in connection with the repricing
of conversion ratios of convertible debenture issues and of warrant conversion
prices. (See Note 3 to the financial statements). We expect to continue to incur
significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.
Our principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.
Company History
We were incorporated in the State of New Jersey on April 17, 1997. On May 19,
1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.
8
Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and
were the surviving company in the merger. Pursuant to the Agreement and Plan of
Merger, as amended, each share of common stock of MAS was converted to 0.00674
shares of our company. After giving effect to fractional and other reductions,
MAS shareholders received 57,280 of our shares as a result of the merger.
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name.
In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH which
we will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of this change is to give us control of Filco GmbH in accordance with USGAAP and
German law considerations regarding consolidation and capitalization. Further,
this change was offered and accepted in consideration of our agreeing to advance
Filco additional funds, in the form of a loan, to fund the start up of the Filco
operation prior to the consummation of the transaction. All other conditions and
terms of the agreement between the parties remained the same. On January 20,
2006, Filco filed for insolvency in Germany. As a result of the filing by Filco,
we terminated the Acquisition Agreement on February 7, 2006. An auction sale of
Filco assets occurred on May 10, 2006. We will be advised of the outcome through
our German legal counsel, but has not received a report as of the date hereof.
As a creditor, we have filed liens against Filco's machinery and equipment and
intellectual property. We will seek to recover on our secured loans asset forth
above through appropriate legal channels.
Loans to Filco GmbH
We loaned Filco GmbH an aggregate principal amount of $6,275,881 through March
31, 2006, exclusive of interest at 8% per annum, pursuant to a series of secured
promissory notes. Security for these loans consisted of Filco's plant machinery,
equipment and other plant property, and intellectual property, including designs
and drawings. We used proceeds from the private placement offerings that we
completed during 2004 and 2005 to fund the Filco loans.
The loans to Filco were to be repaid on or prior to December 31, 2006. On
January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the acquisition agreement on February 7, 2006. An
auction sale of Filco assets occurred on May 10, 2006. We will be advised of the
outcome through it's German legal counsel forthwith, but has not received a
report as of the date hereof. As a creditor, we have filed liens against Filco's
machinery and equipment and intellectual property. We will seek to recover on
our secured loans through appropriate legal channels.
The security interests which we have in Filco's property include the Filco
equipment and machinery, and intellectual property, including designs and
drawings for over 100 models of Clark lift trucks. An appraisal made by an
independent appraiser in July 2005, which established values as of April 2003,
valued the machinery and equipment at 4,500,000 Euros (US $5,400,000). Such
appraisal did not include a valuation of Filco's intellectual property which we
believe has significant value.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission defines "critical accounting policies" as
those that require application of management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and may change in subsequent
periods.
Not all of the accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, the following policies
could be deemed to be critical within the SEC definition.
REVENUE RECOGNITION
Revenue on product sales is recognized when persuasive evidence of an
arrangement exists, such as when a purchase order or contract is received from
the customer, the price is fixed, title to the goods has changed and there is a
reasonable assurance of collection of the sales proceeds. We obtain written
purchase authorizations from our customers for a specified amount of product at
a specified price and consider delivery to have occurred at the time of
shipment. Revenue is recognized at shipment and we record a reserve for
estimated sales returns, which is reflected as a reduction of revenue at the
time of revenue recognition.
Revenues from research and development activities relating to firm fixed-price
contracts are generally recognized as billing occurs. Revenues from research and
development activities relating to cost-plus-fee contracts include costs
incurred plus a portion of estimated fees or profits based on the relationship
of costs incurred to total estimated costs. Contract costs include all direct
material and labor costs and an allocation of allowable indirect costs as
defined by each contract, as periodically adjusted to reflect revised agreed
upon rates. These rates are subject to audit by the other party. Amounts can be
billed on a bi-monthly basis. Billing is based on subjective cost investment
factors.
9
Results of Operations - Three Months Ended March 31, 2006 compared with Three
Months Ended March 31, 2005
We had been a development stage company for much of 2005 and all of 2004 periods
and had not engaged in full-scale operations for the periods indicated. The
revenues for the periods in 2005 and the first quarter of 2006 have been derived
from the sales of omni-directional lift trucks. The available dollar limits of
contracts with the United States Navy were substantially completed during 2002,
and we recognized limited revenues from the United States Navy contract during
2003. During 2006, we hope to commence full production. Consequently, management
believes that the year-to-year comparisons described below are not indicative of
future year-to-year comparative results.
Revenues.
Revenues for the three-month period ended March 31, 2006 were $658,976,
representing an increase of $581,985 from revenues of $76,991 for the first
quarter of 2005. This increase is revenues can be attributed to our realized
revenues from the increased sales of the Sidewinder Omni-Directional Lift Truck
in the first quarter of 2006.
Cost of Goods Sold.
The Company's cost of goods sold for the three months ended March 31, 2006
amounted to $527,678, an increase of $475,317 from $52,361 for the three months
ended March 31, 2005. The Company's increase in cost of goods sold reflects the
cost associated with our realized revenues from increased sales of the
Sidewinder Omni-Directional Lift Truck in the first quarter of 2006 from the
fourth quarter of 2005.
The Company is entitled to a benefit for the effect on income taxes on the net
operating loss. Accordingly, a benefit in the amount of $75,868 has been
recorded for the first quarter of 2006 and $58,145 was recorded during the first
quarter of 2005.
Operating and Administrative Expenses.
Operating and administrative expenses which include administrative salaries,
depreciation and other expenses for three-month period ended March 31, 2006
totaled $1,021,573 which represents an increase of $297,979 from $723,594
incurred in the three-month period ended March 31, 2006. The increase is due
primarily to expenses related to the increase in production of SIDEWINDERS.
Interest expense payable to third party suppliers totaled $48,751 for the three
months ended March 31, 2006, representing an $8,479 increase from $40,272 for
the three months ended March 31, 2005.
Income (Loss) Before Income Taxes.
Net income before taxes in the three months ended March 31, 2006 was $423,015
which reflects an increase of $1,100,971 from $677,956 in net loss before taxes
for the three months ended March 31, 2005. This increase is attributable to an
increase in sales of our SIDEWINDER unit and $1,943,479 of revaluation income.
Loss Allocable to Shareholders.
Income allocable to shareholders for the three months ended March 31, 2006 was
$485,624, which represents an increase of $1,122,623 from $636,999 in loss
allocable to shareholders during the first quarter of 2005. This increase is
primarily attributable to an increase in sales of our SIDEWINDER unit and
$1,943,479 of revaluation income.
Liquidity and Capital Resources - Three Months Ended March 31, 2006 compared
with Three Months Ended March 31, 2005
Since our inception, we have financed our operations through the private
placement of our common stock and sales of convertible debt. During the first
quarter of 2006 and 2005, we raised net of offering costs $451,200 and
$4,887,413, respectively, from the private placement of our securities.
During 2000, we were approved by the State of New Jersey for our technology tax
transfer program pursuant to which we could sell our net operating losses and
research and development credits as calculated under state law. During the first
quarter of 2006 and 2005, we recorded credits of $84,484 and $58,145,
respectively from the sale of our losses and credits.
We have consistently demonstrated our ability to meet our cash requirements
through private placements of our common stock and convertible notes. We have
continued to similarly satisfy those requirements during the quarter ended March
31, 2006.
We anticipate that our cash requirements for the foreseeable future will be
significant. In particular, management expects substantial expenditures for
inventory, product production, and advertising with production of its
omni-directional lift truck and the anticipated start of Cobra (Scissors-Lift)
production.
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We will require additional funds to continue our operations beyond the initial
production run. We anticipate that operating capital in the amount of $4 million
will be required during calendar year 2006 to sufficiently fund operations. Of
the total amount, approximately 80% is projected for parts and component
inventory costs, with the balance projected as general operating expenditures,
which includes overhead and salaries. We expect to recognize lower per unit
manufacturing and part costs in the future due to volume discounts, as well as
lower per unit shipping costs as we transition from the initial production run
to full-scale production. We partially funded these additional cash requirements
through the issuance of equity and/or debt securities which may be similar to
the offering described above. We cannot predict whether we will be successful in
obtaining sufficient capital to fund continuing operations. If we are unable to
obtain sufficient funds in the near future, such event will delay production of
its product(s) and likely will have a material adverse impact on us and our
business prospects.
As of March 31, 2006, our working capital deficit was $(1,318,390). Fixed
assets, net of accumulated depreciation, and total assets, as of March 31, 2006,
were $187,847 and $5,746,775, respectively. Current liabilities as of March 31,
2006 were $4,724,490.
Off-Balance Sheet Arrangements.
We do not have any off balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Liquidated Damages
On May 31, 2005 we entered into a Letter Agreement (the "Letter Agreement") with
the accredited investors who participated in our November 2004 private placement
(the "November 2004 Investors") pursuant to which we agreed to pay to the
November 2004 Investors an aggregate amount of $120,429.33, representing an
amount equal to 2% of the aggregate amount invested by the November 2004
Investors for each 30-day period or pro rata for any portion thereof, as
liquidated damages for our failure to file a registration statement within 45
days of November 22, 2004 and for our failure to have such registration
statement declared effective by the SEC within 90 days of November 22, 2004. The
amount paid to the November 2004 Investors pursuant to the Letter Agreement
represents a default of 36 days with respect to filing the registration
statement and a default of 100 days with respect to having the registration
statement declared effective by the SEC. Under the Letter Agreement, the
liquidated damages paid to the November 2004 Investors satisfies our obligations
until June 30, 2005.
From July 1, 2005 through March 31, 2006, an aggregate amount of approximately
$212,457 had accrued in liquidated damages payable to the November 2004
Investors. Further liquidated damages will continue to accrue since we withdrew
the registration statement which registered the shares underlying the securities
issued in the November 2004 private placement. On March 1, 2006, we issued of an
aggregate principal amount $150,000 of our 4% Unsecured Convertible Debentures
and 5 year warrants to purchase an aggregate of 48,077 shares of our common
stock. The debentures mature on March 1, 2008, pay simple interest at a rate of
4% per annum and are convertible into shares of our common stock at a price
equal to 1.56 per share. The warrants are exercisable into shares of our common
stock at a price equal to $1.65 per share. Our issuance of the aforementioned
securities were in settlement of accrued liquidated damages which we owed to two
of the four investors for our inability to have the SEC declare our registration
statement on Form SB-2 effective within the specified timeframe as set forth in
the Registration Rights Agreement dated November 22, 2004. In addition, the
investors agreed to forego any future accrual and payment of such liquidated
damages. We are currently negotiating with the remaining two investors of the
November 2004 private placement to settle the liquidated damages which we
currently owe, and in the future will owe. As of the date hereof, the November
2004 Investors not included in the settlement have not demanded payment of
unpaid and accrued liquidated damages from us.
Liquidated Damages
On March 17, 2006, we began to accrue liquidated damages to the investors of the
first and second closings of our October 2005 private placement because we did
not register shares of our common stock underlying the Series C Unsecured
Convertible Debentures and common stock purchase warrants within 150 days from
the initial closing date of October 18, 2005. As of March 31, 2006, an aggregate
amount of approximately $15,480 has accrued in liquidated damages payable to the
investors. We have begun discussions with the lead investor of the October 2005
private placement, and intend to engage in negotiations with the remaining
investors, to settle the liquidated damages which we currently, and in the
future will, owe
Item 3. Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our chief executive officer
and chief financial officer of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. There was
no change in our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 13, 2006, we completed a private placement of our 8% Series D
Unsecured Convertible Debentures and Stock Purchase Warrants to certain
accredited investors pursuant to that certain Subscription Agreement dated as of
February 13, 2006 under which we sold an aggregate of $451,200 principal amount
debentures convertible into shares of our common stock, no par value per share,
and warrants to purchase 289,231 shares of our common stock to certain
accredited investors who are parties to the Subscription Agreement for an
aggregate purchase price of $451,200.
The debentures mature on February 13, 2007. Provided there then exists no event
of default by us under the debentures, the principal of and any accrued but
unpaid interest due under the debentures on the maturity date shall
automatically be converted into shares of common stock on the maturity date at
the then applicable conversion price. The debentures pay simple interest
quarterly accruing at the annual rate of 8%, either in the form cash or shares
of our common stock, at our election, which shall be valued and computed based
upon the conversion price of the debentures. The debentures are convertible into
shares of our common stock at a conversion price equal to $1.56. We may in our
discretion require, after 90 days from the closing date, that the Investors
convert all or a portion of the debentures at a price equal to$1.56 per share.
In addition, we issued 289,231 warrants to the investors, representing an amount
of warrants equal to 100% of the quotient of (i) the principal amount of the
debentures issued at the closing date divided by (ii) the conversion price of
the debentures. The warrants are exercisable at a price equal to $1.75 from the
date of issuance until 5 years after the closing date.
On March 1, 2006, we issued an aggregate principal amount $150,000 of our 4%
Unsecured Convertible Debentures and 5 year warrants to purchase an aggregate of
48,077 shares of our common stock to two of the investors in our November 2004
private placement. The debentures mature on March 1, 2008, pay simple interest
at a rate of 4% per annum and are convertible into shares of our common stock at
a price equal to 1.56 per share. The warrants are exercisable into shares of our
common stock at a price equal to $1.65 per share. Our issuance of the
aforementioned securities were in settlement of accrued liquidated damages which
we owed to these investors for our inability to have the SEC declare our
registration statement on Form SB-2 effective within the specified timeframe as
set forth in the Registration Rights Agreement dated November 22, 2004. In
addition, the investors agreed to forego any future accrual and payment of such
liquidated damages. We are currently negotiating with the remaining two
investors of the November 2004 private placement to settle the liquidated
damages which we currently, and in the future will, owe.
* All of the above offerings and sales were deemed to be exempt under rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of Airtrax or executive officers of
Airtrax, and transfer was restricted by Airtrax in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits.
31.1 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to Sarbanes-Oxley Section 302 (filed herewith).
32.1 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 (filed herewith).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIRTRAX, INC.
By: /s/ Peter Amico
----------------------------------
Peter Amico, President,
Chief Executive Officer,
Chairman of the Board of
Directors, and Acting
Chief Financial Officer
May 22, 2006
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