formsb2a.htm
As filed with the Securities and Exchange Commission on August 2, 2007
An Exhibit List can be found on page II-7.
Registration No. 333-142644
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
____________________________
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
 
AIRTRAX, INC.
(Name of small business issuer in its charter)
 

 New Jersey
 3537
 22-3506376
(State or other Jurisdiction of Incorporation or Organization)
 (Primary Standard Industrial Classification Code Number)
 (I.R.S. Employer Identification No.)
     
 
200 Freeway Drive, Unit One
Blackwood, NJ 08012
(856) 232-3000
(Address and telephone number of principal executive offices and principal place of business)
 
Robert M. Watson, Chief Executive Officer
AIRTRAX, INC.
200 Freeway Drive, Unit One
Blackwood, NJ 08012
(856) 232-3000
(Name, address and telephone number of agent for service)

Copies to:
Richard A. Friedman, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Flr.
New York, New York 10006
(212) 930-9700
(212) 930-9725 (fax)

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.




If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. _________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. _________

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. _________





CALCULATION OF REGISTRATION FEE


 
 
 
 
 
 
 
 
 
 
Title of Each Class Of
Securities To Be Registered
   
Amount To Be
Registered (1) 
   
Proposed Maximum
Offering Price
Per Security (2) 
   
Proposed Maximum
Aggregate
Offering Price 
   
Amount Of
Registration Fee 
 
                           
Common Stock, no par value per share
   
278,444
 
$
0.52
 
$
144,790.88
 
$
4.45
 
Common Stock, no par value per share, issuable upon exercise of convertible debentures
   
13,186,168
 
$
0.52
 
$
6,856,807.36
 
$
210.50
 
Common Stock, no par value per share, issuable upon exercise of warrants exercisable at $0.45 per share
   
6,291,308
 
$
0.52
 
$
3,271,480.16
 
$
100.43
 
Common Stock, no par value per share, issuable upon exercise of warrants exercisable at $0.54 per share
   
9,013,200
 
$
0.54
 
$
4,867,128.00
 
$
149.42
 
Common Stock, no par value per share, issuable upon exercise of warrants exercisable at $0.75 per share
   
4,148,933
 
$
0.75
 
$
3,111,699.75
 
$
95.53
 
Common Stock, no par value per share, issuable upon exercise of warrants exercisable at $1.25 per share
   
4,325,433
 
$
1.25
 
$
5,406,791.25
 
$
165.99
 
Common Stock, no par value per share, issuable upon exercise of warrants exercisable at $1.65 per share
   
72,200
 
$
1.65
 
$
119,130.00
 
$
3.66
 
Common Stock, no par value per share, issuable upon exercise of warrants exercisable at $2.50 per share
   
534,595
 
$
2.50
 
$
1,336,487.50
 
$
41.03
 
Total
   
37,850,281
       
$
25,114,297.90
 
$
771.01
 
 
(2)
Includes shares of our common stock, no par value per share, which may be offered pursuant to this registration statement, which shares are issuable upon conversion of secured convertible debentures and exercise of warrants.
 
 
(2)
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) and Rule 457(g) under the Securities Act of 1933, using the average of the high and low price as reported on the Over-The-Counter Bulletin Board on May 2, 2007, which was $0.52 per share.
   

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Pursuant to Rule 429 promulgated under the Securities Act of 1933, the enclosed prospectus constitutes a combined prospectus also relating to an aggregate of up to 6,760,188 shares of our common stock that were previously registered for sale in a Registration Statement on Form S-2, Registration No. 333-116475, as amended by Registration Statements Amendment No. 1, Amendment No. 2 on Form S-2, Post-Effective Amendment No. 1, Registration Nos. 333-116475 and Post-Effective Amendment No. 2 to the Registration Statement on Form S-2, Registration No. 333-116475. As such, this prospectus also constitutes Post-Effective Amendment No. 3 to the Registration Statement on Form S-2, Registration No. 333-116475, which shall hereafter become effective concurrently with the effectiveness of this Registration Statement on Form SB-2 in accordance with Section 8(c) of the Securities Act of 1933.



 
The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 2, 2007

PROSPECTUS

AIRTRAX, INC.

37,850,281 Shares of Common Stock

This prospectus relates to the resale by the selling stockholders of up to 37,850,281 shares of our common stock, including 278,444 shares of common stock, up to 13,186,168 shares of common stock underlying secured convertible debentures in the face amount of $6,074,836.37, up to 6,291,308 shares underlying warrants exercisable at $0.45 per share, up to 9,013,200 shares underlying warrants exercisable at $0.54 per share, up to 4,148,933 shares underlying warrants exercisable at $0.75 per share, up to 4,325,433 shares underlying warrants exercisable at $1.25 per share, up to 72,200 shares underlying warrants exercisable at $1.65 per share and up to 534,595 shares underlying warrants exercisable at $2.50 per share. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders may be deemed underwriters of the shares of common stock which they are offering. We will pay the expenses of registering these shares.

Our common stock is traded on the Over-The-Counter Bulletin Board under the symbol “AITX.” On July 27, 2007, the last reported sale price of our common stock on the Over-The-Counter Bulletin Board was $0.48 per share.

The securities offered in this prospectus involve a high degree of risk. See "Risk Factors" beginning on page 3 of this prospectus to read about factors you should consider before buying shares of our common stock. 

The selling stockholders are offering these shares of common stock. The selling stockholders may sell all or a portion of these shares from time to time in market transactions through any market on which our common stock is then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The selling stockholders will receive all proceeds from the sale of the common stock. For additional information on the methods of sale, you should refer to the section entitled "Plan of Distribution."

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is ____, 2007

 




TABLE OF CONTENTS

 
  
Page
Prospectus Summary
  
1
Risk Factors
  
2
Use of Proceeds
  
9
Market For Common Stock and Related Stockholder Matters
 
9
Management’s Discussion and Analysis and Plan of Operations
 
10
Business
  
19
Description of Property
 
25
Legal Proceedings
 
26
Management
  
27
Executive Compensation
 
29
Certain Relationships and Related Transactions
  
31
Security Ownership of Certain Beneficial Owners and Management
  
32
Description of Securities
  
33
Indemnification for Securities Act Liabilities
  
35
Plan of Distribution
 
36
Selling Stockholders
 
38
Legal Matters
  
90
Experts
  
90
Additional Information
  
91
Index to Financial Statements
  
92

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale of these securities is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

All references herein to our fiscal year and our fiscal year end represent the twelve months ended December 31 and December 31, respectively, and all references herein to our fiscal quarters ended refer to March 31, June 30 and September 30, as appropriate.





PROSPECTUS SUMMARY

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the “risk factors” section, the financial statements and the secured convertible notes to the financial statements.

AIRTRAX, INC.

Since 1995, substantially all of our resources and operations have been directed towards the development of the Omni-Directional wheel, related components, Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the components, including the unique shaped wheels, motors, and frames, have been designed by Airtrax and are specially manufactured for us.
Omni-Directional means that vehicles designed and built by us can travel in any direction. Our Omni-directional vehicles are controlled with a joystick. The vehicle will travel in the direction the joystick is pushed. If the operator pushes the joystick sideways, the vehicle will travel sideways. If the operator were to twist the joystick the vehicle will travel in circles. Our omni-directional vehicles have one motor and one motor controller for each wheel. The omni-directional movement is caused by coordinating the speed and direction of each motor with joystick inputs which are routed to a micro-processor, then from the micro-processor to the motor controllers and finally to the motor itself.

During the year ended December 31, 2006, we continued development of the COBRA and KING COBRA scissor lifts and the Omni-Directional power chair. We anticipate incurring more costs on these products and plan to begin production of the first COBRA model and the KING COBRA in 2007. The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue operations. However, we are in discussions with lenders to raise capital in order to continue operating, although we have no contracts or commitments for additional capital at this time. We currently do not have adequate cash to meet our short or long term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders. However, there can be no assurance that additional financing will be available at terms that are suitable to us.

The assembly of our products is conducted at our executive offices. Currently 100% of our vehicle frames are being manufactured in the USA. These frames are shipped to the Blackwood plant for final assembly. Previously, partially assembled vehicles were shipped to the Blackwood facility from the Filco plant in Germany. Fourteen were shipped to the USA for final assembly. A total of approximately sixty frames were shipped from Bulgaria to the Filco plant for partial assembly. None of the frames shipped from Bulgaria were within specification. The twenty-seven frames shipped to the United States required re-machining in order to make them useable. The balance were rejected and abandoned with other parts inventory that was stored in the Filco plant.

We have incurred losses and experienced negative operating cash flow since our formation. For our fiscal years ended December 31, 2006 and 2005, we had net losses of approximately $4,200,000 and $15,200,000, respectively. For the three months ended March 31, 2007, we incurred a net loss of $5,906,586. We expect to continue to incur significant expenses. Our operating expenses have been and are expected to continue to outpace revenues and result in significant losses in the near term. We may never be able to reduce these losses, which will require us to seek additional debt or equity financing.

Our principal executive offices and assembly plant are located at 200 Freeway Drive, Unit One, Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are a New Jersey corporation.

The Offering
 
Common stock offered by selling stockholders
 
Up to 37,850,281 shares, including the following:
     
   
- 278,444 shares of common stock;
   
- up to 13,186,168 shares of common stock underlying secured convertible debentures in the face amount of $6,074,836.37;
   
- up to 6,291,308 shares underlying warrants exercisable at $0.45 per share;
   
- up to 9,013,200 shares underlying warrants exercisable at $0.54 per share;
   
- up to 4,148,933 shares underlying warrants exercisable at $0.75 per share;
   
- up to 4,325,433 shares underlying warrants exercisable at $1.25 per share;
   
- up to 72,200 shares underlying warrants exercisable at $1.65 per share; and
   
- up to 534,595 shares underlying warrants exercisable at $2.50 per share.
 
   
Shares outstanding prior to offering
 
25,700,993 shares as of July 27, 2007
     
Shares to be outstanding after the offering
 
63,272,830
 
   
Use of proceeds
 
We will not receive any proceeds from the sale of the common stock. However, we will receive the sale price of any common stock we sell to the selling stockholder upon exercise of the warrants. However, most of warrants entitle the holder to exercise their warrants on a cashless basis. In the event that any investor exercises its warrants on a cashless basis, then we will not receive any proceeds from the exercise of those warrants. We expect to use the proceeds received from the exercise of the warrants, if any, for general working capital purposes.
 
   
Over-The-Counter Bulletin Board symbol
 
AITX

The above information regarding common stock to be outstanding after the offering is based on 25,700,993 shares of common stock outstanding as of July 27, 2007 and assumes the conversion of the debentures and exercise of the warrants.


 
1


RISK FACTORS

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.

Risks Related to Our Financial Condition and Business:

WE MAY NEVER BECOME PROFITABLE AND CONTINUE AS A GOING CONCERN BECAUSE WE HAVE HAD LOSSES SINCE OUR INCEPTION.

We may never become profitable because we have incurred losses and experienced negative operating cash flow since our formation. For our fiscal years ended December 31, 2006 and 2005, we had a net loss attributable to common stockholders of approximately $(4.2 million) and $(15.2 million), respectively. For the three months ended March 31, 2007, we had a net loss attributable to common stockholders of approximately $(5.9 million). 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 anticipate that our cash requirements to fund operating or investing cash requirements over the next 12 months will be greater than our current cash on hand. We may never be able to reduce these losses, which will require us to seek additional debt or equity financing. We do not currently have commitments for additional funds and there can be no assurance that additional financing will be available, or if available, will be on acceptable terms. If we are unable to obtain sufficient funds during the next 12 months we will further reduce the size of our organization and may be forced to reduce and/or curtail our production and operations, all of which could have a material adverse impact on our business prospects.

OUR BUSINESS OPERATIONS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING.

Our business operations will be harmed if we are unable to obtain additional funding. We do not know if additional financing will be available when needed, or if it is available, if it will be available on acceptable terms. Insufficient funds may prevent us from implementing our business strategy or may require us to delay, scale back or eliminate certain opportunities for the provision of our technology and products.

On January 20, 2006, Filco filed for insolvency in Germany and a receiver was appointed. As a result, on February 7, 2006, we terminated the tentative agreement to acquired 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, were 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 had not been appraised. Due to the uncertainty of our position under German bankruptcy law, $4,275,881 of the Filco advances were written off in 2005, and the remaining $2,000,000 was written off in 2006. In addition, $413,174 of our inventory stored at the Filco plant was abandoned and written off during 2006. During 2006, an auction of Filco assets was conducted by the receiver who did not acknowledge our liens against property and equipment.

THE PRICING POLICY FOR OUR LIFT TRUCKS MAY BE SUBJECT TO CHANGE, AND ACTUAL SALES OR OPERATING MARGINS MAY BE LESS THAN PROJECTED.

We are assessing present and projected component pricing in order to establish a pricing policy for the SIDEWINDER Lift Truck. We have not finalized our assessment as current prices for certain lift truck components reflect special development charges, which are expected to be reduced as order volume for such components increase and as manufacturing efficiencies improve. We intend to price our lift trucks so as to maximize sales yet provide sufficient operating margins. Given the uniqueness of our product, we have not yet established final pricing sensitivity in the market. Consequently, the pricing policy for its lift trucks may be subject to change, and actual sales or operating margins may be less than projected.


 
2


WE HAVE RECEIVED LIMITED INDICATIONS OF THE COMMERCIAL ACCEPTABILITY OF OUR OMNI-DIRECTIONAL LIFT TRUCK. ACCORDINGLY, WE CANNOT PREDICT WHETHER OUR OMNI-DIRECTIONAL PRODUCTS CAN BE MARKETED AND SOLD IN A COMMERCIAL MANNER.

Our success will be dependent upon our ability to sell Omni-Directional products in quantities sufficient to yield profitable results. To date, we have received limited indications of the commercial acceptability of our Omni-Directional lift truck. Accordingly, we cannot predict whether the Omni-Directional product can be marketed and sold in a commercial manner.

WE CANNOT ASSURE THAT WE WILL HAVE IN PLACE PATENT PROTECTION AND CONFIDENTIALITY AGREEMENTS FOR OUR PROPRIETARY TECHNOLOGY. IF WE DO NOT ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THERE IS A RISK THAT THEY WILL BE INFRINGED UPON OR THAT OUR TECHNOLOGY INFRINGES UPON ONE OF OUR COMPETITOR'S PATENTS. AS A RESULT, WE MAY EXPERIENCE A LOSS OF REVENUE AND OUR OPERATIONS MAY BE MATERIALLY HARMED.

Our success will be dependent, in part, upon the protection of our proprietary Omni-Directional technology from competitive use. A form of our Omni-Directional technology was originally patented in 1973 and was sold to the US Navy. We secured a transfer of this technology from the Navy in 1996 under the terms of a CRADA agreement (Cooperative Research and Development Agreement) and we have worked since that time to commercialize Omni-Directional products. We received 3 patents regarding the "redesign" of the wheel. In addition, we have a license agreements for the algorithms used to control vehicular movement, and a patent for this technology has been applied for. Further, we have applied for patents for a movable operator's control station and a munitions handler. Notwithstanding the foregoing, we believe our lack of patent protection is a material competitive risk. Our competitors could reverse engineer our technology to build similar products. Also, certain variations to the technology could be made whereby our competitors may use the technology without infringing upon our intellectual property. The patent for the Omni-Directional wheel expired in 1990. We, however, have received patent protection of certain other aspects of its Omni-Directional wheel, and for features specific to our lift truck. In addition to the patent applications, we rely on a combination of trade secrets, nondisclosure agreements and other contractual provisions to protect our intellectual property rights. Nevertheless, these measures may be inadequate to safeguard our underlying technology. If these measures do not protect the intellectual property rights, third parties could use our technology, and our ability to compete in the market would be reduced significantly. In addition, if the sale of our product extends to foreign countries, we may not be able to effectively protect its intellectual property rights in such foreign countries.

In the future, we may be required to protect or enforce our patents and patent rights through patent litigation against third parties, such as infringement suits or interference proceedings. These lawsuits could be expensive, take significant time, and could divert management's attention from other business concerns. These actions could put our patents at risk of being invalidated or interpreted narrowly, and any patent applications at risk of not issuing. In defense of any such action, these third parties may assert claims against us. We cannot provide any assurance that we will have sufficient funds to vigorously prosecute any patent litigation, that we will prevail in any of these suits, or that the damages or other remedies awarded, if any, will be commercially valuable. During the course of these suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive any of these results to be negative, it could cause the price of our common stock to decline.

WE CURRENTLY LACK ESTABLISHED DISTRIBUTION CHANNELS FOR OUR LIFT TRUCK PRODUCT LINE.
We do not have an established channel of distribution for our lift truck product line. We have initiated efforts to establish a network of designated dealers throughout the United States. Although we have received indications of interest from a number of equipment distributors, to date, such indications have been limited. We cannot predict whether we will be successful in establishing our intended dealer network.

 
3


IF WE ARE UNABLE TO RETAIN THE SERVICES OF ROBERT M. WATSON, OUR CHIEF EXECUTIVE OFFICER, OR IF WE ARE UNABLE TO SUCCESSFULLY RECRUIT, QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO CONTINUE OPERATIONS.

Our ability to successfully conduct our business affairs will be dependent upon the capabilities and business acumen of current management including Robert M. Watson, our President and Chief Executive Officer. We have entered into an employment agreement with Mr. Watson, however, we do not maintain key man life insurance with respect to Mr. Watson. Accordingly, shareholders must be willing to entrust all aspects of our business affairs to our current management. Further, the loss of any one of our management team could have a material adverse impact on our continued operation.

OUR INDUSTRY AND PRODUCTS ARE CONSIDERED TO BE HIGH-RISK WITH A HIGH INCIDENCE OF SERIES PERSONAL INJURY OR PROPERTY LOSS WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS.

The manufacture, sale and use of Omni-Directional lift trucks and other mobility or material handling equipment is generally considered to be an industry of a high risk with a high incidence of serious personal injury or property loss. In addition, although we intend to provide on-site safety demonstrations, the unique, sideways movement of the lift truck may heighten potential safety risks. Despite the fact that we intend to maintain sufficient liability insurance for the manufacture and use of our products, one or more incidents of personal injury or property loss resulting from the operation of our products could have a material adverse impact on our business.

IF WE DO NOT SUCCESSFULLY DISTINGUISH AND COMMERCIALIZE OUR DEVELOPED PROPRIETARY PRODUCTS AND SERVICES, WE WILL NOT ATTRACT A SUFFICIENT NUMBER OF CUSTOMERS. ACCORDINGLY, WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS OR TO GENERATE REVENUE SIGNIFICANT TO SUSTAIN OUR OPERATIONS.

Although management believes our product will have significant competitive advantages to conventional lift trucks, we are competing in an industry populated by some of the foremost equipment and vehicle manufacturers in the world. All of these companies have greater financial, engineering and other resources than us. No assurances can be given that any advances or developments made by such companies will not supersede the competitive advantages of our Omni-Directional lift truck. In addition, many of our competitors have long-standing arrangements with equipment distributors and carry one or more of competitive products in addition to lift trucks. These distributors are prospective dealers for our company. It therefore is conceivable that some distributors may be loath to enter into any relationships with us for fear of jeopardizing existing relationships with one or more competitors.

Risks Relating to Our Common Stock:

WE HAVE ISSUED COMMON STOCK, WARRANTS, AND CONVERTIBLE NOTES TO INVESTORS AND IN EXCHANGE FOR FEES AND SERVICES AT A DISCOUNT TO THE MARKET PRICE OF OUR COMMON STOCK AT THE TIME OF SUCH ISSUANCE. THIS RESULTS IN A LARGE NUMBER OF SHARES WHICH HAVE BEEN ISSUED AND A LARGE NUMBER OF SHARES UNDERLYING OUR WARRANTS AND OTHER CONVERTIBLE SECURITIES THAT ARE OR MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

We had 25,700,993 shares of common stock outstanding as of July 27, 2007, and we had $6,321,633.57 in convertible notes outstanding issued pursuant to private placements in May and October 2005, July 2006 and February 2007 and settlement of outstanding liquidated damages, which require the issuance of 13,734,606 additional shares of common stock. Additionally, warrants which require the issuance of 24,385,669 additional shares of common stock pursuant to our private placements in November 2004, February, May and October 2005, February and July 2006 and February 2007 and settlement of outstanding liquidated damages. Further, we often issue common stock and warrants in exchange for fees and services at a discount to the market price of our common stock at the time of such issuance. This results in a large number of shares, which have been issued, a large number of shares underlying our warrants and other convertible securities that are or may be available for future sale, and may create an overhang of securities for sale. The sale of these shares which were or will be issued upon exercise or conversion of our securities at a discount to the market price of our common stock at the time of issuance may depress the market price of our common stock and is dilutive to shareholder value.

 
4



IF WE FAIL TO REMAIN CURRENT IN OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN THE SECONDARY MARKET.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

·  
that a broker or dealer approve a person's account for transactions in penny stocks; and
·  
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

·  
obtain financial information and investment experience objectives of the person; and
·  
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

·  
sets forth the basis on which the broker or dealer made the suitability determination; and
·  
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.


 
5



USE OF PROCEEDS

We will not receive any proceeds from the sale of the common stock. However, we will receive the sale price of any common stock we sell to the selling stockholder upon exercise of the warrants. However, most of warrants entitle the holder to exercise their warrants on a cashless basis. In the event that any investor exercises its warrants on a cashless basis, then we will not receive any proceeds from the exercise of those warrants. We expect to use the proceeds received from the exercise of the warrants, if any, for general working capital purposes.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the OTC Bulletin Board under the symbol “AITX”.

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

   
Fiscal Year 2005
 
   
High
 
Low
 
First Quarter
 
$
3.07
 
$
1.83
 
Second Quarter
 
$
2.95
 
$
1.85
 
Third Quarter
 
$
4.70
 
$
2.07
 
Fourth Quarter
 
$
3.40
 
$
2.20
 

   
Fiscal Year 2006
 
   
High
 
Low
 
First Quarter
 
$
2.39
 
$
1.08
 
Second Quarter
 
$
2.17
 
$
1.15
 
Third Quarter
 
$
2.03
 
$
0.92
 
Fourth Quarter
 
$
1.01
 
$
0.42
 

   
Fiscal Year 2007
 
   
High
 
Low
 
First Quarter
 
$
0.97
 
$
0.48
 
Second Quarter
 
$
0.60
 
$
0.45
 
Third Quarter  (1)
 
0.56
 
0.46
 
Fourth Quarter
   
xxx
   
xxx
 

(1) As of July 27, 2007.
 
Holders

As of July 27, 2007, we had approximately 871 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Signature Stock Transfer, 301 Ohio Drive, Suite 100, Plano, TX 75093.

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.

 
6


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS

Some of the information in this Form SB-2 contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

 
·
discuss our future expectations;
 
·
contain projections of our future results of operations or of our financial condition; and
· 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,” “Business” and elsewhere in this prospectus. See “Risk Factors.”

Overview

Since 1995, substantially all of our resources and operations have been directed towards the development of the Omni-Directional wheel, related components, Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the components, including the unique shaped wheels, motors, and frames, have been designed by Airtrax and are specially manufactured for us.

Omni-Directional means that vehicles designed and built by us can travel in any direction. Our Omni-directional vehicles are controlled with a joystick. The vehicle will travel in the direction the joystick is pushed. If the operator pushes the joystick sideways, the vehicle will travel sideways. If the operator were to twist the joystick the vehicle will travel in circles. Our omni-directional vehicles have one motor and one motor controller for each wheel. The omni-directional movement is caused by coordinating the speed and direction of each motor with joystick inputs which are routed to a micro-processor, then from the micro-processor to the motor controllers and finally to the motor itself.

During the year ended December 31, 2006, we continued development of the COBRA and KING COBRA scissor lifts and the Omni-Directional power chair. We anticipate incurring more costs on these products and plan to begin production of the first COBRA and the KING COBRA models in 2007. The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue operations. However, we are in discussions with lenders to raise capital in order to continue operating. We currently do not have adequate cash to meet our short or long term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders. There can be no assurance that additional financing will be available at terms that are suitable to us.

We have incurred losses and experienced negative operating cash flow since our inception. For the twelve month period ended December 31, 2006 and 2005, we had net losses attributable to common shareholders of approximately $4.2 million and $15.2 million, respectively. The net loss in both periods includes conversion expenses of $1 million and $6.6 million in 2006 and 2005, respectively, offset by revaluation income $3.7 million and $1 million in 2006 and 2005, respectively, in connection with the repricing of the conversion ratios of convertible debenture issues and of warrant conversion prices. We also wrote down the advances to Filco of $2.0 million and $4.7 million in 2006 and 2005, respectively. We expect to continue to incur significant expenses. Our operating expenses have been and are expected to continue to outpace revenue and result in additional losses in the near term. We may never be able to reduce these losses, which will require us to seek additional debt or equity financing. While we are in discussions with several prospective lenders, we do not currently have commitments for these funds and there can be no assurance that additional financing will be available, or if available, will be on acceptable terms.

 
7


Results of Operations for the Year Ended December 31, 2006 Compared to the Year Ended December 31, 2005

Liquidity constraints and limited access to additional capital for production in 2005 and 2006 and the unexpected death of our Chief Executive Officer and President, Peter Amico in August 2006 have limited production and sales of omni-directional technology. Consequently, management believes that the year-to-year comparisons described below are not indicative of future year-to-year comparative results.

In September 2006, Airtrax was awarded a $415,000 contract to design and build a customized MP2 Equipment Handling Unit for the Israeli Air Force. The contract includes an option to build five additional units at $95,000 each upon the acceptance of the first unit. It is estimated that the follow on orders that could result from this contract would be from 29 to 100 units over the next one to three years. The Critical Design Review was completed in November 2006, the design was approved and initial deliverables were provided. As a result, we received a first process payment of $170,000 on December 12 2006. We expect to begin the Acceptance Test Procedure in mid April 2007 and upon successful completion, will receive a second payment of $162,000. We cannot predict whether we will be able to successfully pass all of the acceptance tests and complete the contract, or that if we do so, that any subsequent orders will result.

We believe that the joint cooperation between us and the United States Navy with the MP2 contract, including building the ETU-110 omni-directional engine handler and our contract to design and build a customized MP2 Equipment Handling Unit for the Israeli Air Force, has bolstered the potential use of our technology within the military. We do not intend to incur additional costs with the US Navy unless we incur potential expenses in demonstrating the ETU-110 omni-directional engine handler, or other omni-directional vehicles in connection with the Israeli contract.

Revenue

Revenue for the twelve-month period ended December 31, 2006 was approximately $1.3 million, representing an increase of approximately $600,000 from revenue of $719,000 for the comparable period in 2005. This increase in revenue, is primarily, attributed to sales of our SIDEWINDER ATX-3000.

Cost of Goods Sold

Our cost of goods sold for the twelve month period months ended December 31, 2006 amounted to approximately $1.5 million, an increase of approximately $800,000 from $729,000 for the twelve months ended December 31, 2005. This increase in cost of goods sold, is primarily, attributed to sales of our SIDEWINDER ATX-3000.

Operating and Administrative Expenses.

Operating and administrative expenses which include administrative salaries, depreciation and other expenses for the twelve month period ended December 31, 2006 totaled $4.7 million which represents an decrease of approximately $400,000 from $5.1 million incurred in the twelve month period ended December 31, 2005. The decrease is primarily due to recording of stock option expenses of $1.1 million in 2005, compared to $76,000 in 2006, partially by additional expenses relating to the increase in production of our SIDEWINDER ATX-3000 and Cobra and King Cobra scissor lift and Omni-Directional Power Chair development costs.

Loss Attributable to Common Shareholders.

Loss attributable to common shareholders for the twelve months ended December 31, 2006 was approximately $(4.2) million compared with a loss of $(15.2) million for the same period in 2005. The decrease is due primarily to the recording of stock option expenses of approximately $1.1 million in 2005, compared with $76,000 in the current period, and conversion expense recorded in the twelve months ended December 31, 2005 of approximately $6.6 million compared with $1.0 million in 2006. Additionally, we recorded revaluation income of $3.7 million in 2006 compared with $1 million in 2005 in connection with the repricing of certain conversion ratios of convertible debenture issues and of warrant conversion prices. We also wrote down the remaining Filco advance of $2. million during 2006 compared with $4.7 million in 2005. We also recorded approximately $300,000 of deemed dividend expense in each year.

 
8


 
Research and Development

We incurred $519,134 and $544,933 in research and development expenses during the year ended December 31, 2006 and 2005, respectively. Research and development activities during fiscal 2005 primarily involved continued testing and evaluation of omni-directional components and preparing these components for production in 2005. Our wheel design was changed from the "concept" to "production" phase. This was and is an ongoing process between our company and vendor’s engineers to insure manufacturability. The motors and controllers were designed and/or changed in design in order to meet ANSI (American National Standards Institute) and UL (Underwriters Laboratories) testing requirements. We and Danaher revised the algorithms used in the motor controllers as well the microprocessor that runs the machines. Research and development activities also included further changes to existing designs and new designs that were patented or for those patents with pending applications.
 
Results of Operations for the Three Months ended March 31, 2007 Compared to the Three Months March 31, 2006

Liquidity constraints and limited access to additional capital for production in 2004 and 2005 and the unexpected death of our then Chief Executive Officer and President, Peter Amico in August 2006 have limited production and sales of omni-directional technology. Consequently, management believes that the year-to-year comparisons described below are not indicative of future year-to-year comparative results.

In September 2006, Airtrax was awarded a $415,000 contract to design and build a customized MP2 Equipment Handling Unit for the Israeli Air Force. The contract includes an option to build five additional units at $95,000 each upon the acceptance of the first unit. It is estimated that the follow on orders that could result from this contract would be from 29 to 100 units over the next one to three years. The Critical Design Review was completed in November 2006, the design was approved and initial deliverables were provided. As a result, we received a first process payment of $170,000 on December 12 2006. We completed the Acceptance Test Procedure in mid April 2007 and we expect to receive a second payment of $162,000. We cannot predict whether we will be able to successfully pass all of the acceptance tests and complete the contract, or that if we do so, that any subsequent orders will result.

We believe that the joint cooperation between us and the United States Navy with the MP2 contract, including building the ETU-110 omni-directional engine handler and our contract to design and build a customized MP2 Equipment Handling Unit for the Israeli Air Force, has bolstered the potential use of our technology within the military. We do not intend to incur additional costs with the US Navy unless we incur potential expenses in demonstrating the ETU-110 omni-directional engine handler, or other omni-directional vehicles in connection with the Israeli contract.

Revenue
 
  Revenue for the three-month period ended March 31, 2007 was approximately $92,000, representing a decrease of approximately $567,000 from revenue of $659,000 for the three-month period ended March 31, 2006. This decrease in revenue, is primarily, attributed to the reduction in sales of our SIDEWINDER ATX-3000.

Cost of Goods Sold
 
Our cost of goods sold for the three-month period ended March 31, 2007 amounted to approximately $134,000, a decrease of approximately $459,000 from $593,000 for the three-month period ended March 31, 2006. This decrease in cost of goods sold is primarily attributed to the reduction in sales of our SIDEWINDER ATX-3000.

 
9


Operating and Administrative Expenses
 
Operating and administrative expenses which include administrative salaries, depreciation and other expenses for the three-month period ended March 31, 2007 totaled $797,000 which represents a decrease of approximately $159,000 from $956,000 incurred in the three-month period ended March 31, 2006. The decrease is primarily due the reduction in production of our SIDEWINDER ATX-3000 off set by development costs for the Cobra and King Cobra scissor lift and Omni-Directional Power Chair.
 
Loss Attributable to Common Shareholders
 
Loss attributable to common shareholders for the three-month period ended March 31, 2007 was $(5.9) million compared with income of $536,000 for the same period in 2006. The decrease in income is due primarily to the recording of conversion expense in this period of $4.9 million compared with $600,000 in 2006. Additionally, we recorded revaluation expense of ($117,000) in 2007 compared with $2.0 million of revaluation income in 2006, in connection with the repricing of certain conversion ratios of convertible debenture issues and of warrant conversion prices.

Research and Development

We incurred $23,579 and $61,593 in research and development expenses during the three month period ended March 31, 2007 and 2006, respectively. Research and development activities during fiscal 2007 primarily involved continued testing and evaluation of omni-directional components and preparing these components for production in 2007. Our wheel design was changed from the "concept" to "production" phase. This was and is an ongoing process between our Company and a vendor’s engineers to insure manufacturability. The motors and controllers were designed and/or changed in design in order to meet ANSI (American National Standards Institute) and UL (Underwriters Laboratories) testing requirements. Danaher and us revised the algorithms used in the motor controllers as well the microprocessor that runs the machines. Research and development activities also included further changes to existing designs and new designs that were patented or for those patents with pending applications.
 
Liquidity and Capital Resources

Since our inception, we have financed our operations through the private placement of our common stock and sales of convertible debt. During the twelve months ended December 31, 2006 and 2005, we raised net of offering costs approximately $1.3 million and $6.0 million, respectively, from the private placement of our securities.

During 2000, we were approved by the State of New Jersey for our technology tax transfer program pursuant to which we could sell our net operating losses and research and development credits as calculated under state law. In the years 2006 and 2005, we recorded credits of $437,803 and $867,413, 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 twelve months ended December 31, 2006. However, there can be no assurances that we will be successful in raising the required capital to continue our current operating plan.

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 start of Cobra and King Cobra (Scissors-Lift) production.

We will require additional funds to continue our operations beyond the initial production run. We anticipate that operating capital in the amount of approximately $3 to 5 million will be required during the next 12 months to sufficiently fund operations. We 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 rate to larger-scale production. While we are in discussions with several prospective lenders, we do not currently have commitments for additional funds and there can be no assurance that additional financing will be available, or if available, will be on acceptable terms. If we are unable to obtain sufficient funds during the next six months we will further reduce the size of our organization and may be forced to reduce and/or curtail our production and operations, all of which could have a material adverse impact on our business prospects.

10

As a result of our liquidity issues, we have experienced delays in the repayment of certain promissory notes upon maturity and payments to vendors and others. If in the future, the holders of our promissory notes may demand repayment of principal and accrued interest instead of electing to extend the due date and if we are unable to repay our debt when due because of our liquidity issues, we may be forced to refinance these notes on terms less favorable to us than the existing notes, seek protection under the federal bankruptcy laws or be forced into an involuntary bankruptcy filing.

As of March 31, 2007, our working capital deficit was $4.5 million.  Fixed assets, net of accumulated depreciation, as of March 31, 2007 and December 31, 2006, were $265,470 and $283,920, respectively.  Current liabilities as of March 31, 2007 were $8.7 million compared with $4.1 million as of December 31, 2006. Current liabilities in 2007 and 2006 include liabilities for options and conversion rights of $5.5 million and $.3 million, respectively.

February 2007 Financing

On February 20, 2007, we entered into a Securities Purchase Agreement with certain accredited and/or qualified institutional investors pursuant to which we sold an aggregate of $3,734,040 principal amount secured convertible debentures convertible into shares of our common stock at a conversion price equal to $0.45 for an aggregate purchase price of $3,219,000. The difference between the face amount of the borrowing $3,734,040 and proceeds $3,219,000 was recorded as prepaid interest and is being amortized over the life of the loan. In addition, we issued to the investors (i) warrants to purchase 8,297,866 shares of our common stock at an exercise price equal to $0.54 per share, which represents 100% of the number of shares issuable upon conversion of the debentures; (ii) callable warrants to purchase 4,148,933 shares of our common stock at an exercise price equal to $0.75 per share, which represents 50% of the number of shares issuable upon conversion of the debentures; and (iii) callable warrants to purchase 4,148,933 shares of our common stock at an exercise price equal to $1.25 per share, which represents 50% of the number of shares issuable upon conversion of the debentures.

The debentures mature on February 20, 2009. We may in our discretion redeem the debentures, subject to certain equity conditions being met by us as set forth in the debentures, at a price equal to 150% of the principal balance, accrued interest, and all liquidated damages, if any, thereon that are requested to be redeemed. Our obligations under the securities purchase agreement, the debentures and the additional definitive agreements with respect to this transaction are secured by all of our assets.

Off-Balance Sheet Arrangements.

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenue, results of operations, liquidity or capital expenditures.

Liquidated Damages

In connection with financings we entered into with various investors in November 2004, October 2005 and February 2007, we provided such investors registration rights. Pursuant to those registration rights, in the event that we did not file a registration statement by a certain date registering for resale shares of common stock issuable upon conversion of their securities or have such registration statement effective by another date, we agreed to pay to such investors liquidated damages.  All of the liquidated damages in connection with the November 2004 and October 2005 have been settled and no further liability exists.  On May 4, 2007, we filed a registration statement, and as a result have an obligation for liquidated damages in connection with the February 2007 financing.  When the conditions in FAS # 5 are satisfied, we will establish a liability regarding the effectiveness provisions of the February 2007 issue.

During 2006, to the investors in the November 2004 financing, we issued an aggregate principal amount $198,248 of our 4% Unsecured Convertible Debentures and 5 year warrants to purchase an aggregate of 72,201 shares of our common stock in exchange for the settlement of $244,632 in accrued liquidated damages through June 30, 2006. The debentures mature on March 1, 2008, and September 30, 2008, respectively, pay simple interest at a rate of 4% per annum and are convertible into shares of our common stock at a price equal to $1.56 per share. The warrants are exercisable into shares of our common stock at a price equal to $1.56 per share. In addition, the investors agreed to forego any future accrual and payment of such liquidated damages.

In July 2006 we issued 2% Unsecured Convertible Debentures to the investors in the October 2005 financing, aggregating $359,549 and Stock Purchase Warrants to acquire 110,808 shares of our common stock at $1.65 per share, in full settlement of liquidated damages resulting from our not filing a registration statement by a certain date registering for resale shares of common stock issuable upon conversion of their securities. The conversion price of the shares underlying the note was $1.56. Both the conversion price and the warrants purchase price have been adjusted to $0.45 due to the pricing of the February 20, 2007 private placement.

 
11


Critical Accounting Policies and Estimates

Revenue

Revenue on product sales is recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from the customer, the price is fixed, title to the goods has changed and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment. Revenue is recognized at shipment.
 
Revenue from research and development activities relating to firm fixed-price contracts is generally recognized as billing occurs. Revenue from research and development activities relating to cost-plus-fee contracts include costs incurred plus a portion of estimated fees or profits based on the relationship of costs incurred to total estimated costs. Contract costs include all direct material and labor costs and an allocation of allowable indirect costs as defined by each contract, as periodically adjusted to reflect revised agreed upon rates. These rates are subject to audit by the other party. Amounts can be billed on a bi-monthly basis. Billing is based on subjective cost investment factors.

Intangibles

We continually evaluate whether events and changes in circumstances warrant revised estimates of useful lives or recognition of an impairment loss of our intangibles, which as of March 31, 2007, consist mainly patents and licensing agreements. The conditions that would trigger an impairment assessment of our intangible assets include a significant, sustained negative trend in our operating results or cash flows, a decrease in demand for our products, a change in the competitive environment and other industry and economic factors.

Accounting for Income Taxes

As part of the process of preparing our financial statements, we are required to estimate our income taxes. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. If there was not persuasive evidence that recovery will occur, we would establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statement of operations.
 
Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $8.3 million as of March 31, 2007, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating losses carried forward before they expire and certain accrued expenses, which are deferred for income tax purposes until paid. The valuation allowance is based on our estimates of taxable income and the period over which our deferred tax assets will be recoverable. The net deferred tax asset as of December 31, 2006 was $919,889, net of the valuation allowance.
 
Issuances of Common Stock

Because of the significant liquidity issues we have faced since our inception, we have been required to issue common stock to third party vendors and others in order to pay for services rendered. Such issuances are recorded as an expense in the period in which the services are performed. During the three months ended March 31, 2007, we issued an aggregate of 330,108 shares of common stock to third parties in exchange for services performed. These services were valued at $178,257 for the three months ended March 31, 2007.


 
12


Recent Accounting Pronouncement

The Financial Accounting Standards Board (FASB) has recently issued FASB Staff Position EITF 00-19-2 which modifies the accounting treatment of derivatives that flow from financings involving embedded derivatives. This Staff Position is effective for financial statements for periods beginning January 1, 2007.
 
The Company’s policy with respect to the classification of derivatives as either equity or derivative liability will not change based on EITF 00-19-2, since the prior classification was made based on features independent of the presence of a Registration Payment Agreement, as is suggested in EITF 00-19-2.

We will still continue to recognize liquidated damages, as required.  Whereas they were previously recognized based on the incidence of a “Registration Default,” that expense will now be recognized based upon the standards in SFAS # 5, “Contingencies”.  These standards are probability and susceptibility to reasonable estimation.

 
13


BUSINESS

CORPORATE INFORMATION AND HISTORY

We were incorporated in the State of New Jersey on April 17, 1997. On May 19, 1997, we entered into a merger agreement with a predecessor company that was incorporated on May 10, 1995. We were the surviving company in the merger.

Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and were the surviving company in the merger. Pursuant to the Agreement and Plan of Merger, as amended, each share of common stock of MAS was converted to 0.00674 shares of our company. After giving effect to fractional and other reductions, MAS shareholders received 57,280 of our shares as a result of the merger.

In March 2004, we reached an agreement in principal, subject to certain closing conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH, a German corporation. In 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 could acquire, if we had finalized the acquisition, from 51% to 75.1%. Through December 31, 2005, we had loaned Filco GmbH an aggregate principal amount of $6,275,881 with no loans made by us in 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.

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's assets occurred on May 10, 2006. Due to the uncertainty of our position under German bankruptcy law, $4,275,881 of the Filco advances was written off in 2005, and the remaining $2,000,000 was written off in 2006. Accordingly, any inventory, equipment or outstanding advances to Filco have been written off during 2006 and there is no indication that the proceeds of any inventory or equipment at the Filco plant will be returned to us.

INTRODUCTION

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.

Since 1995, substantially all of our resources and operations have been directed towards the development of the Omni-Directional wheel, related components, Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the components, including the unique shaped wheels, motors, and frames, have been designed by Airtrax and are specially manufactured for us.

Omni-Directional means that vehicles designed and built by us can travel in any direction. Our Omni-directional vehicles are controlled with a joystick. The vehicle will travel in the direction the joystick is pushed. If the operator pushes the joystick sideways, the vehicle will travel sideways. If the operator were to twist the joystick the vehicle will travel in circles. Our omni-directional vehicles have one motor and one motor controller for each wheel. The omni-directional movement is caused by coordinating the speed and direction of each motor with joystick inputs which are routed to a micro-processor, then from the micro-processor to the motor controllers and finally to the motor itself.

During the year ended December 31, 2006, we continued development of the COBRA and KING COBRA scissor lifts and the Omni-Directional power chair. We anticipate incurring more costs on these products and plan to begin production of the first COBRA model and the KING COBRA in 2007. The growth and development of our business will require a significant amount of additional working capital. We currently have limited financial resources and based on our current operating plan, we will need to raise additional capital in order to continue operations. However, we are in discussions with lenders to raise capital in order to continue operating, although we have no contracts or commitments for additional capital at this time. We currently do not have adequate cash to meet our short or long term objectives. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders. However, there can be no assurance that additional financing will be available at terms that are suitable to us.

 
14

 
The assembly of our products is conducted at our executive offices. Currently 100% of our vehicle frames are being manufactured in the USA. These frames are shipped to the Blackwood plant for final assembly. Previously, partially assembled vehicles were shipped to the Blackwood facility from the Filco plant in Germany. Fourteen were shipped to the USA for final assembly. A total of approximately sixty frames were shipped from Bulgaria to the Filco plant for partial assembly. None of the frames shipped from Bulgaria were within specification. The twenty-seven frames shipped to the United States required re-machining in order to make them useable. The balance were rejected and abandoned with other parts inventory that was stored in the Filco plant.

OMNI-DIRECTIONAL TECHNOLOGY

Prior History

Omni directional vehicle technology has been the subject of research and development by universities, the Department of Defense, and industry for over 25 years. A Swedish inventor patented an early stage omni-directional wheel. Thereafter, the technology was purchased by the United States Navy and was advanced at the Naval Surface Warfare Center. The US Navy held the patent until its expiration in 1990. In 1996, the Navy transferred this technology to us for commercialization through a Cooperative Research and Development Agreement (CRADA).

Technology Description

Since the technology transfer under the CRADA agreement, we have examined and redesigned many aspects of the system for use in various applications including lift trucks and other material handling equipment. In this regard, we refined control software and hardware, and tested a variety of drive component features on our pilot Omni-Directional lift trucks, scissor-lifts, and multi-purpose mobility platforms. Extensive demonstrations of prototype vehicles for commercial and military users in combination with market research have enabled us to direct our development efforts towards the products offering the best probability of success in the market.

Our engineers have designed other aspects of our machine to complement the unique functionality of our Omni-Directional technology. In so doing, we achieved a virtually maintenance free drive system which allows the vehicle free and unrestricted movement during operation. Each vehicle is powered with electric motors that eliminate brushes and commutators of conventional DC motors. The motors also are lubricated for life thereby eliminating the need for additional greasing and fittings. The ATX-3000 transmission uses a synthetic lubricant, and is sealed for life. The joysticks control all vehicle movement. Conventional drive trains, steering racks, hydraulic valve levers, and foot petals for braking and acceleration are all non-existent.
On vehicles employing our Omni-Directional Technology, each wheel powered 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 powered wheels through a microprocessor that receives input from an operator-controlled joystick(s). The joystick(s) control all vehicle movement (starting, steering, and stopping). The frame of our ATX-3000 Omni-Directional Lift Truck consists of a steel main frame and attached articulating axle, 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 specially shaped rollers that are offset 45 degrees. 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.

EXISTING AND PROPOSED PRODUCTS

SIDEWINDER Omni-Directional Lift Trucks. We anticipate that we will add additional models of lift trucks to the SIDEWINDER line, including a Reach truck and an Order Picker truck..

 
15


Omni-Directional Aerial Work Platform. In late February 2004, we, in collaboration with MEC Aerial Platform Sales Corporation of Fresno, California ("MEC"), introduced a concept version of a scissor lift at the American Rental Association trade show in Atlanta. The scissor lift called the "PHOENIX(TM)", incorporated our Omni-Directional technology along with an MEC platform and lift mechanisms.

On March 13, 2004, we entered into a draft Product Development, Sales and Representation Agreement with MEC. The draft agreement called for the joint development of a proto-type and production versions of an Omni-Directional aerial work platform called the "3068ODS". During the development stage, each party was to provide the parts, which apply to that party's area of responsibility. We would provide all of the parts required for the Omni-Directional traction system and related control systems, and MEC would 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 were to establish the cost of a commercial product, and if the cost of a commercial product was considered commercially viable, the parties would jointly develop a commercial version of the aerial work platform. If commercial production resulted, we would have been responsible for product manufacturing, and MEC or its affiliate would have been responsible to promote, market and sell the product to their network of approximately 200 distributors. Aerial work platform sales made by MEC would be subject to a royalty to us and, likewise sales made by us would be subject to a royalty to MEC. The amount of the respective royalties would be subject to agreement by the parties. Orders placed by MEC would be financed by MEC subject to agreed production schedules. We also planned to manufacture the COBRA(TM) AWP using the lifting mechanism as designed by us or procured from MEC and vendors other than MEC.

During 2004, MEC was repositioned to perform manufacturing in the United States thus removing their obligation under the agreement. During the latter part of 2004, we presented MEC with invoices for payment of tooling and engineering costs related to development of the PHOENIX(TM). The invoices were not paid by MEC who was, at that time, in the process of realigning their finances. As a result of the aforementioned changes, the agreement was modified. The modification stated that the 3068ODS aerial work platform project would be products of our company instead of an MEC designed or built vehicle. This meant that the project would be henceforth designed and built by us. MEC would still have the ability to make suggestions regarding vehicle design or construction, but the final product would be our product. In addition, the agreement was revised to provide that we would build another vehicle product line, the COBRA, which will be marketed exclusively by our dealers. The parties mutually agreed to the dissolution of the agreement and Airtrax has decided to design, build and market the AWP's under the COBRA brand exclusively. Discussions with MEC regarding ways that they can make Omni-Directional AWP's available to their customers are on going.
Omni-Directional Personal Mobility Devices. We have begun the development of new technologies which will enable us in the future, to develop Omni-Directional Personal Mobility Devices such as Power Chairs, Scooters, and patient beds or lifts. We have had discussions with several equipment manufacturers who may be interested in developing and marketing such products using these technologies. No agreements have been made. We will require additional funds to complete structural and ergonomic designs and proto-type vehicles, for further evaluation and testing. We cannot predict whether we will be able to successfully develop these products.

Military Products. During 1999, we were awarded a Phase I research contract under the Department of Defense's Small Business Innovation Research program (SBIR) to develop an Omni-Directional Multiple Purpose Mobility Platform (MP2). Under the Phase I base contract, we studied the application of the omni-directional technology for military use and were supervised by the Naval Air Warfare Center Aircraft Division (NAWC-AD) in Lakehurst, New Jersey. The contemplated use includes the installation of jet engines on military aircraft and the transportation of munitions and other military goods. We completed the Phase I base contract in 1999 and were subsequently awarded a Phase I option from NAWC-AD to further define the uses of the MP2. In July 2000, we were awarded a Phase II research contract under the SBIR program. Under the Phase II contract, we studied the feasibility of the MP2 for military purposes, and constructed two proto-type devices. This contract (with the option) was extended twice for 6 months each past the 42-month contract time period.. 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 design, an Omni-Directional Jet Engine Handler conversion kit was constructed, and demonstrated as proof of concept of the modularity of the design. We have been advised by the US Navy that a non-SBIR sponsor for the MP2 program must be identified before a Phase II option is exercised. A Phase III contract could be awarded without such a sponsor. Although our management believes the underlying Omni-Directional Technology for the proposed MP2

 
16


has significant potential for both commercial and military applications, we cannot predict whether any sales beyond the Phase II contract will result from the SBIR program. It is the belief of management that sales to the US military for products such as the MP2 will not materialize until the Omni-Directional Technology achieves commercial acceptance. We do believe, however, that products such as the ATX-3000 or the COBRA AWP can and will be sold to the US government, possibly including the military, through a GSA Multiple Awards Contract. We have begun the application process and hope it will be awarded by the end of 2007. We cannot predict whether we will be successful in our application.

On September 7, 2006, we were awarded a $415,000 contract to design and build a customized MP2 Equipment Handling Unit for the Israeli Air Force. The contract includes an option to build 5 additional units at $95,000 each upon the acceptance of the first unit. It is estimated that the follow on orders that could result from this contract would be from 29 to 100 units over the next one to three years. The Critical Design Review was completed in November 2006, the design was approved and initial deliverables were provided. As a result, we received a first process payment of $170,000 on December 12, 2006. We began the Acceptance Test Procedure in April 2007, which is continuing to date, and upon successful completion, will receive a second payment of $162,000. We cannot predict whether we will be able to successfully pass all of the acceptance tests and complete the contract, or that if we do so, that any subsequent orders will result.

CURRENT OPERATIONS

Since 1995, substantially all of our resources and operations have been directed towards the development of the Omni-Directional wheel, related components, Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the components, including the unique shaped wheels, motors, and frames, have been designed by Airtrax and are specially manufactured for us. 29 ATX-3000 Omni-Directional lift trucks, carrying ANSI certification and the UL Label, have been shipped to customers in 2006, and nine others are ready to ship pending receipt of orders.
 
 
ANSI testing refers to a series of tests including tilt testing the vehicle with masts it will use to make certain that it will not tip over in normal use. In addition, ANSI testing includes drop testing specified loads on the overhead guard to make certain that the overhead guard will not fail and crush the operator. These tests require us to turn the vehicle on its side to prove that the battery door lock will retain the battery in the event the vehicle is overturned. ANSI testing was performed and documented by us and we have certified that the tests have been completed and the vehicle has passed in all respects. This testing was required prior to the vehicle being sold to the public in the United States.

UL testing is completed on lift trucks to certify that is free of hazards with respect to fire and electrical shock. Completion of UL testing is generally considered the mark of companies who will take extra steps and precautions to protect their customers.

MANUFACTURING AND SUPPLIERS

There was limited production in the second through fourth quarters of 2006. All of the units shipped in 2006 and our current inventory were assembled in the last quarter of 2005 and the first quarter 2006. Our General Manager for plant production, a former plant manager for GM, has established the production assembly process and procedure for our vehicle assembly. His efforts have helped to develop procedures, and to incorporate inventory control and quality assurance programs so that we stand ready to rapidly scale production capacity at the Blackwood facility. Initially this plant was equipped for nominal monthly production but is capable of ramping up for anticipated demand before year's end. We also plan to manufacture the KING COBRA Omni-Directional AWP in the Blackwood plant beginning in the third quarter of 2007.

Components for our products consist of over the counter products and proprietary products that have been specially designed and manufactured by various suppliers in collaboration with us. We believe that continual refinements of certain components will occur during the first six months of initial KING COBRA production in response to user feedback and additional product testing. We will strive to improve product functionality which may require additional refinements in the future. We consider the specially designed and manufactured products proprietary, and have entered into exclusive contractual agreements with certain suppliers to protect the proprietary nature of these products. These arrangements prohibit the supplier from producing the same or similar products for other companies who would want to compete directly with us in the omni-directional vehicle market. In addition, while we maintain single sources for some of the over the counter components, we are engaged in qualifying and securing agreements with second sources for all possible components

 
17



DISTRIBUTION AND PRODUCT MARKETING

We intend to establish a national and international network of distributors and dealers to sell our SIDEWINDER and COBRA lines to users, however, we may sell directly to select national and international accounts and retailers. National and international accounts or retailers include, but are not limited to, nationally recognized businesses with national or international locations having facilities in numerous states or countries.
 
During 2004 and 2005, in anticipation of commercial production, we solicited interest from targeted dealers nationwide, and in certain instances, received contracts from a number of these dealers. Due to the delay in establishing commercial production, the contracts were not fulfilled. In 2004, we began soliciting dealers nationwide and distributors in several foreign countries. Principal terms of the agreement reached is that these dealers will purchase our products which include the SIDEWINDER or the COBRA AWP (scissor lift), or both and sell these products to their clients. Certain of the distributors were given "exclusive" territories, such as Airtrax Canada (Airtrax Canada is not owned or operated by us but we have authorized their use of the Airtrax Name). Airtrax Canada was required to purchase a minimum number of SIDEWINDER units to maintain the "exclusivity" portion of the agreement between firms. Airtrax Canada lost their exclusivity in 2006, as they did not meet the minimum requirements of the agreement. Presently, we are unable to distribute quantities of vehicles in Europe due to our inability to be certified compliant ("CE") with Europe. We expect to be CE compliant and able to distribute vehicles in 2007, although no assurances can be given. The dealers in the US generally have not been given exclusive territorial rights, but that has occurred in some areas. They are required to purchase one or more vehicles, however, to become a dealer. Credit terms are now available to approved dealers while foreign distributors are only sold under the terms of letters of credit. All foreign sales are paid in advance, under terms of an irrevocable letter of credit or approved credit terms. Targeted dealers for the SIDEWINDER brand will consist of selected premier equipment dealers, currently selling other lift truck 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 lift trucks and/or related material handling solutions. Several of the targeted dealers are significant sized entities, having annual sales in excess of $100 million. We expect to provide a sales incentive to dealers through an aggressive pricing structure. Typically, a dealer will earn a commission ranging from $500 to $1,000 on the sale of a competitive lift truck. Our pricing structure will enable the dealer to receive much higher commissions from the sale of the SIDEWINDER products.

We also intend to use trade shows and print and television media to advertise and promote our Omni-Directional products. Print media will include advertisements in national and international publications such as web based ads, major material handling equipment magazines, and direct mailings to targeted distributors and end-users. Heavy equipment is rarely, if at all, advertised on television. However, we believe that television will provide an effective media for our product, due to its unique attributes. We believe that due to the current economic conditions, we will be able to capitalize on favorable advertising pricing. We also expect to be an exhibitor at industry trade shows from time to time, including the bi-annual ProMat show located in Chicago, Illinois.

Product Warranty Policies

Our product warranty policy is similar to the warranty policies of other major manufacturers, i.e., one-year warranties on all parts and labor, and two years on major parts, however, our vehicles have fewer parts to warranty. In addition, manufacturers of our parts and vehicles have their own warranty policies that, in effect, take the financial exposure from our company. There are exceptions to the one year rule, such as the frame and significantly, the motors and controllers. These parts have an eighteen-month warranty, because the coverage begins when the product is shipped to us and not when the product is purchased.


 
18


MARKETS

Lift Trucks

Our initial market focus was directed to the lift truck market. We believe that commercial versions of Omni-Directional Lift Trucks will improve the materials handling and warehousing industries creating potential markets globally. Industry data shows that during 2003 approximately 174,000 and 550,000 units were sold in the United States and worldwide, respectively (Modern Materials Handling). Based upon an average per unit sale price of $28,500 (Modern Materials Handling estimate), the total market in the United States would approximate $5 billion in 2003. This amount represents sales of a broad range of vehicles with price ranges from $18,000 to $31,000 for a standard 3,000-pound rated vehicle to $75,000 or greater for specialty narrow aisle or side loader vehicles. We expect to continue to make inroads into this market with the introduction of additional SIDEWINDER brand material handling vehicles in the future.
Aerial Work Platforms

Aerial Work Platforms are used in the construction and warehousing industries, and are ideally suited for our Omni-Directional Technology. According to data provided by the United States Department of Commerce, this market consists of approximately $1.2 billion in annual sales. Aerial Work Platforms and man lifts range in size from single user lifts to large off road machines. Of the total market, we expect to compete with a range of indoor man lifts. Great strides were made in our development of our AWP products during 2006, and we now plan to introduce two models under the COBRA brand in 2007, and additional units in 2008.

COMPETITION

We expect to confront competition from existing products, such as standard and "Narrow Aisle or NA" lift trucks, and from competing technologies. Competition with standard lift trucks, which retail from $16,000 to $31,000, will be on the basis of utility, price, and reliability. We believe that we will compete favorably with a standard lift truck for reliability, and that a purchase decision will be based upon weighing the operational advantages of our products against its higher purchase price. NA and sideloader lift trucks retail at $45,000 or greater. While our SIDEWINDER Omni-Directional Lift Truck cannot be classified as "narrow aisle", it can perform "narrow aisle" functions at a significantly less cost. We also are aware of multi-directional lift trucks 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 lift trucks to achieve improved functionality, which contrasts with the design and features of our product as discussed previously herein. Therefore, to that extent, we believe that we maintain a competitive advantage to these newer products.

We recognize that many of these manufacturers are subsidiaries of major national and international equipment companies, and have significantly greater financial, engineering, marketing, distribution, and other resources than us. In addition, the patent on the first omni-directional wheels expired in 1990. Although we have received patent protection for certain aspects of our advanced technology, no assurances can be given that such patent protection will effectively thwart competition.

PATENTS AND PROPRIETARY RIGHTS

In December 1997, we were awarded a patent for an omni-directional helicopter ground-handling device. On January 22, 2002, we received US patent #6,340,065 relating to our low vibrations wheels. On May 28, 2002, we received US patent #6,394,203 encompassing certain aspects of the omni-directional wheel with some features specific to the lift truck, and in April 15, 2003 we received US patent #6,394,203 relating to methods for designing low-vibration wheels. We also have several patent applications pending relating to other aspects of our technology. We expect to make future patent applications relating to various other aspects of our omni-directional technology. We also have filed a patent application for our hybrid power module concepts. At this time, no foreign patents have been issued for any of our technology.

 
19


On September 8, 2003, we entered an exclusive license agreement with Excalibur Design Services, Inc. and Nicholas Fenelli (Inventor), to secure and use certain proprietary intellectual properties known collectively as "Omni-Directional Vehicle Control Algorithms". Mr. Fenelli is also our Chief Operating Officer. Due to severe cash flow restrictions in 2006, we were unable to fulfill our obligations under the terms of the agreement and Excalibur rescinded the exclusivity portion of the agreement. As of December 31, 2006, no other party was granted rights to use the property. On February 19, 2007 we negotiated an amendment with Excalibur to reinstate our exclusive rights to the "Omni-Directional Vehicle Control Algorithms". We expect to resolve all issues to the mutual benefit of the two companies during 2007.

We also seek to protect our proprietary technology through exclusive supply contracts with manufacturers for specially designed and manufactured components.

PRODUCT LIABILITY

Due to nature of our business, we may face claims for product liability resulting from the use or operation of our lift trucks or other products.

Presently, we maintain product liability insurance in the amount of $1 million. We anticipate increasing this amount to $10 million in the future, as we deem necessary to do so. We obtained our insurance commensurate with the initial shipment of our Omni-Directional Lift Trucks.

EMPLOYEES
 
    As of July 30, 2007, we have 14 full time employees, and one contract employee, and engage consultants from time to time. We have no collective bargaining agreements with our employees and believe our relations with our employees are good.

DESCRIPTION OF PROPERTIES

We maintain our administrative offices and assembly facilities at 200 Freeway Drive, Unit One, Blackwood, NJ 08012. This facility is a total of 30,000 square feet with 3,000 square feet allocated to offices and cost a monthly rental fee of $12,750. We do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to us.

LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.


 
20

MANAGEMENT

Directors and Executive Officers

Name
Age
Position
Robert M. Watson
59
Chief Executive Officer, Acting Chief Financial Officer and Director
D. Barney Harris
46
Director
James Hudson
64
Director
William Hungerville
71
Director
Fil Filipov
60
Director
Andrew Guzzetti
59
Chairman of the Board of Directors
Peter Amico, Jr.
42
Director
Robert Borski, Jr.
58
Director
Nicholas Fenelli
52
Chief Operations Officer

Directors serve until the next annual meeting and until their successors are elected and qualified. The Directors of our company are elected by the vote of a majority in interest of the holders of the voting stock of our company and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.  

A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board individually or collectively consent in writing to the action.
 
Officers are appointed to serve for one year until the meeting of the board of directors following the annual meeting of stockholders and until their successors have been elected and qualified.
 
The principal occupations for the past five years (and, in some instances, for prior years) of each of our executive officers and directors, followed by our key employees, are as follows:
 
Robert M. Watson - Mr. Watson has been our Chief Executive Officer and a Director since November 1, 2006. From 2001 until October 2006, Mr. Watson was President and CEO of Hartz & Company, a manufacturer of tailored clothing, with two production facilities in the United States with sales and marketing offices in New York City. From 1996 to 2001, Mr. Watson served as the Vice President, CFO and COO of America's Best Contacts and Eyeglasses, a retail chain with 118 locations, a full service laboratory and distribution center. His experience in the public arena was with Continental Can Company, from 1967 through 1986, where he served as Controller for the food packaging company with 29 manufacturing facilities and sales in excess of $1 billion. Mr. Watson received a BS in accounting from Fairleigh Dickinson University and an EMBA from the University of New Haven.

D. Barney Harris - Mr. Harris has been a Director since December 1998. From 1997 to July 1999, Mr. Harris was employed by UTD, Inc. Manassas, Virginia. Prior to 1997, Mr. Harris was employed by EG&G WASC, Inc., Gaithersburg, Maryland, as a Senior Engineer and Manager of the Ocean Systems Department where he was responsible for the activities of 45 scientists, engineers and technicians. During this period while performing contract services for the US Navy, he was principally responsible for the design of the omni-directional wheel presently used by the Company. Mr. Harris received his B.S.M.E. from the United States Merchants Marine Academy in 1982.
 
James Hudson - Mr. Hudson has been a Director since May 1998. From 1980 to present, he has been President of Grammer, Dempsey & Hudson, Inc., a steel distributor located in Newark, New Jersey.

William Hungerville - Mr. Hungerville has been a Director since February 2002. Since 1998, Mr. Hungerville has been retired from full time employment. From 1974 to 1998, he was the sole owner of a pension administrative service firm. Mr. Hungerville is a graduate of Boston College, and attended an MBA program at Harvard University for 2 years.

 
21


Fil Filipov - Mr. Filipov has been a Director since December 2004. Mr. Filipov has served as the Chairman of Supervisory Board of Tatra, a Czech Company, which is producing off highway trucks. . Mr. Filipov was President & CEO of Terex Cranes, a $1 billion dollar business segment of Terex Corporation. He was responsible for strategic acquisitions and served as President and CEO from March 1995 through December 2003. From 1994 through 1996, Mr. Filipov was the Managing Director of Clark Material Handling Company in Germany (Filco GmbH).

Andrew Guzzetti - Mr. Guzzetti has been a director since April 1, 2006 and Chairman since August 31, 2006. From September 2004 to the present, Andrew G. Guzzetti has served as Managing Director of the Private Client Group of McGinn Smith and Co., Inc., an investment banking and retail brokerage firm, where he is responsible for building the wealth management private client group through recruitment and training. From February 2004 through September 2004, Mr. Guzzetti served as Managing Director of the Private Client Division of The Keystone Equities Group in which he was responsible for building the retail brokerage arm of this company. From February 2002 through February 2004, Mr. Guzzetti was a private investor consultant in which he assisted start-up public and private companies in raising funds. From November 1995 through February 2002, Mr. Guzzetti served as Senior Vice President and Branch Manager of Salomon Smith Barney where he was responsible for increasing the financial consultant population through recruitment and training. Mr. Guzzetti received his BA in Economics from Utica College in 1969.

Peter Amico, Jr. - From 1988 to the present, Mr. Amico has served as a police officer in the State of New Jersey where he has managed and trained personnel and directed police operations. Mr. Amico served as a Police Investigator from 1994 to 1995 and was promoted to Supervisor in 1996. From 1983 to 1987, he served in the United States Marine Corps. where his service included police duties and training coordination. In addition, Mr. Amico received an Associates Degree in Law Enforcement from Gloucester County College in 2003.

Robert Borski, Jr. - From 1982 to 2003, Mr. Borski represented the Third Congressional District of Pennsylvania for ten terms in the United States House of Representatives, where he was a senior member of the House Transportation and Infrastructure Committee and a vocal advocate for an improved national transportation system. He was awarded the American Public Transportation Association's National Distinguished Service Award in 2002 and the Silver Order of the de Fleury Medal from the Army Engineering Association. In 2003, Mr. Borski formed Borski Associates, a government relations firm specializing in transportation and economic development issues. He is a driving force behind efforts to revitalize the North Delaware riverfront, an area of abandoned industrial sites, into a center of residential and commercial activity. Currently, Mr. Borski serves on the Board of Directors of the Northeast-Midwest Institute, an organization promoting economic vitality for Northeastern and Midwestern states, and on the Board of Directors of Pennoni Associates, a civil engineering firm. Mr. Borski received a Bachelor of Arts degree from the University of Baltimore in 1971.

Nicholas Fenelli - Nicholas E. Fenelli has been with our company since 2001 serving first as Project Engineer, and as Vice President of Concept Development. From 1996 to 1998, Mr. Fenelli served as Project Engineer NACCO Materials Handling Group, Inc, where his work included the ergonomic improvement project for the Hyster/Yale order picker trucks, and work on the development of the three wheeled sit down rider truck. From 1990 to 1995, Mr. Fenelli was Plant Manager for Cammerzell Machinery Company, a manufacturer of powder compaction and robotic conveying equipment for the Ceramic, Refractory, and Pharmaceutical industries. Between 1988 and 2002, Mr. Fenelli served as Treasurer and as a member of the Board of Directors of the Engineers Club of Trenton. He received a BS in Mechanical Engineering from Lehigh University in 1978.
 
COMMITTEES OF THE BOARD
 
Audit Committee
 
        Our Audit Committee currently consists of William Hungerville, James Hudson and D. Barney Harris, with Mr. Hungerville elected as Chairman of the Committee. Our Board of Directors has determined that each of Messrs. Hungerville, Hudson and Harris are "independent" as that term is defined under applicable SEC rules. Mr. Hungerville is our audit committee financial expert.
 
        Our Audit Committee’s responsibilities include: (i) reviewing the independence, qualifications, services, fees, and performance of the independent auditors, (ii) appointing, replacing and discharging the independent auditor, (iii) pre-approving the professional services provided by the independent auditor, (iv) reviewing the scope of the annual audit and reports and recommendations submitted by the independent auditor, and (v) reviewing our financial reporting and accounting policies, including any significant changes, with management and the independent auditor.
 
        We currently have no compensation committee or nominations and governance committee of our board of directors.

FAMILY RELATIONSHIPS

There are no family relationships among our executive officers and directors.

 
22

 
LEGAL PROCEEDINGS

As of the date of this prospectus, there are no material proceedings to which any of our directors, executive officers, affiliates or stockholders is a party adverse to us.

CODE OF ETHICS

We have not adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the Securities Exchange Act of 1934.

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of our company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the fiscal year ended December 31, 2006, and Forms 5 and amendments thereto furnished to us with respect to the fiscal year ended December 31, 2006, we believe that during the year ended December 31, 2006, our executive officers, directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements.

 
23


EXECUTIVE COMPENSATION

The following table sets forth the cash compensation (including cash bonuses) paid or accrued by us to our Chief Executive Officer and our four most highly compensated officers other than the Chief Executive Officer as of December 31, 2006 and December 31, 2005.

Name & Principal Position
 
Year
 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)
 
Option Awards
($)
 
Non-Equity Incentive Plan Compensation ($)
 
Change in Pension Value and Non-Qualified Deferred Compensation Earnings
($)
 
All Other Compensation ($)
 
Total
($)
 
Peter Amico,
CEO, President & Director
 
 
 
2006
2005
 
 
$168,269
$303,751
 
 
$0
$0
 
 
0
0
 
 
0
$975,000
 
 
0
0
 
 
0
0
 
 
 
0
0
 
 
$168,269
$303,751
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nicholas Fenelli, Vice President & COO
 
 
2006
2005
 
 
$96,798
$78,202
 
 
$0
$0
 
 
0
0
 
 
$24,000
$53,500
 
 
0
0
 
 
 
0
0
 
 
0
0
 
 
$96,798
$78,202
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Robert M. Watson. CEO, President & Director
 
 
2006
2005
 
 
$11,538
$0
 
 
$50,000
0
 
 
 
 
 
$45,000
0
 
 
0
0
 
 
0
0
 
 
0
0
 
 
$61,538
0
 

Outstanding Equity Awards at Fiscal Year-End Table.

The following table sets forth information with respect to grants of options to purchase our common stock to the named executive officers at December 31, 2006.

Option Awards
 
Stock Awards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Name 
 
 
 
 
 
 
 
 
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
 
 
 
 
 
 
 
 
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
 
 
 
 
 
Equity
Incentive
Plan
Awards:
Number
of
Securities Underlying
Unexercised
Unearned
Options
(#)
 
 
 
 
 
 
 
 
 
 
 
Option
Exercise
Price
($)
 
 
 
 
 
 
 
 
 
 
 
 
Option
Expiration
Date
 
 
 
 
 
 
 
 
Number
of Shares
or Units
of Stock
That Have
Not
Vested
(#)
 
 
 
 
 
 
 
Market
Value of
Shares or
Units of
Stock
That Have
Not
Vested
($)
 
  
 
Equity
Incentive
Plan Awards:
Number
of
Unearned
Shares,
Units or
Other Rights
That Have
Not
Vested
(#)
 
 
 
Equity Incentive
Plan Awards:
Market or Payout
Value
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
 
-Robert M. Watson
   
-300,000
   
-0
   
-400,000
   
-$0.46
   
-Nov. 30, 2008
   
-0
   
-0
   
-0
   
-0
 


 
24


Director Compensation

The following table sets forth with respect to the named directors, compensation information inclusive of equity awards and payments made at December 31, 2006.

Name
(a)
Fees Earned or Paid in Cash
($)
(b)
Stock Awards
($)
(c)
Option
Awards ($)
(d)
Non-Equity Incentive Plan Compensation ($)
(e)   
Change in Pension Value and Nonqualified Deferred Compensation Earnings
(f)   
All Other Compensation
($)
(g)   
Total
($)
(h)  
- Andrew Guzzetti
-
20,000
-  
$32,800
 
0
-
0
-
0
-
$32,800
-
-Robert M. Watson
-
-0
-
0-
0-
0-
-
James Hudson (1)-
-
35,000-
-$52,300
0-
0-
0-
--$52,300
William Hungerville (1)-
-
35,000-
-$52,300-
0-
0-
0-
-$52,300-
D. Barney Harris-(1)
-
35,000
-$52,300-
0-
0-
0-
-$52,300-
Fil Filipov-
-
0
-
0-
0-
0-
-
Robert Borski-
-
20,000-
$32,800-
0-
0-
0-
$32,800-  
Peter Amico, Jr,-
-
0
-
-
0-
0-
0-
  -

(1) Includes 15,000 shares issued for director fees earned in 2005.

EMPLOYMENT AGREEMENTS

On December 26, 2006, we entered into an Employment Agreement dated as of December 1, 2006 with Robert M. Watson, our President and Chief Executive Officer.

Pursuant to the Employment Agreement, we will employ Mr. Watson for a period of 2 years commencing December 1, 2006 unless terminated upon 30 days prior written notice by either party pursuant to the terms set forth therein. From December 1, 2006 through November 30, 2007, Mr. Watson will be paid an annual base salary of $150,000 ("Base Salary"). In addition, Mr. Watson was paid a start-up bonus in the amount of $50,000 for services rendered by him to our company prior to the execution of the Employment Agreement and Mr. Watson will be issued options to purchase 300,000 shares of our common stock at a price equal to $0.46 per share. From December 1, 2007 through November 30, 2008, Mr. Watson's Base Salary will increase to $200,000 per year. On December 1, 2007 and June 1, 2008, Mr. Watson shall be issued options to purchase 200,000 and 200,000 shares of our common stock, respectively, each at a price equal to $0.46 per share. Further, Mr. Watson will be eligible to earn an annual cash bonus at the discretion of our Board of Directors based on meeting performance objectives and bonus criteria.

During the term of his employment and for a period thereafter, Mr. Watson will be subject to confidentiality and non-competition provisions, subject to standard exceptions.

Equity Compensation Plan Information
 
The following table shows information with respect to each equity compensation plan under which our common stock is authorized for issuance as of December 31, 2006.
 

 
25


EQUITY COMPENSATION PLAN INFORMATION

Plan category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
 
(a)
(b)
(c)
Equity compensation plans approved by security holders
-0-
-0-
-0-
 
 
 
 
Equity compensation plans not approved by security holders
-0-
-0-
-0-
 
 
 
 
Total
-0-
-0-
-0-

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than as disclosed below, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.

Arcon Corp., a corporation wholly owned by the estate of our former chairman and president Peter Amico, owns 275,000 shares of our preferred stock. Each share of Preferred Stock is entitled to 10 votes per share on all matters on which shareholders are entitled to vote. The holders of our common stock and preferred stock vote as one single class. Mr. Amico and Arcon Corp. together have 1,870,623 shares of common stock, representing 1,870,623 votes, plus 275,000 shares of preferred stock with 10 votes per share, or a total of 2,750,000 voting shares. The aforementioned equals a total of 4,620,623 voting shares of capital stock by Mr. Amico and Arcon. The preferred stock has a stated value per share of $5.00 and an annual dividend per share equal to 5% of the stated value. The annual cash dividend as of December 31, 2004 was $68,750. Dividends are cumulative and the holder has a right during any quarter to waive any cash dividend and receive the dividend in the form of common stock at a price per share equal to 30% of the trading price of the common stock on the last day of the dividend period. 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.

The consideration paid by Mr. Amico and Arcon for the initial issuance of 275,000 shares of our preferred stock is as follows: Air Tracks, Inc. was incorporated in May 1995. Peter Amico, our President and the largest shareholder of Air Tracks, Inc., capitalized Air Tracks, Inc. with $20,000. In exchange, Mr. Amico was issued 3.5 million shares of common stock of Air Tracks, Inc. We were formed in April 1997 by Louis Perosi and Albert Walla. In April 1997, it was agreed to merge our company with Air Tracks, Inc. Pursuant to the merger, Mr. Amico exchanged 3.5 million shares of Air Tracks, Inc. stock for 1 million shares of our common stock, plus 275,000 shares of preferred stock. It was determined by the parties that the voting shares that would be held by Mr. Amico/Arcon would be essentially the same. Since the preferred shares are not convertible and thus held no exit method it was determined to provide a dividend. The $5.00 per share was the price used to satisfy the issue.
 
 
 

 
26

Dividends of $68,750 accrued on the preferred stock during each of the years 2002 through 2006. Cash dividends of $131,771 were paid during 2004. A stock dividend of 136,041 common shares will be paid in 2007, satisfying $51,563 of the unpaid dividends. In addition, common shares will be issued in 2007 to satisfy $112,500 of unpaid dividends. The balance of unpaid dividends at of December 31, 2006 was $47,916.
 
The financial statements at December 31, 2004 reflect 275,000 shares of preferred stock outstanding and disclosed that an additional 100,000 shares of preferred stock were deemed the equivalent of 221,892 shares of common stock that would have been required to settle an equivalent amount of preferred dividends. We have determined that the number of shares deemed the equivalent of the preferred stock dividend and has been recalculated based on our Articles of Incorporation, as amended, including on April 30, 2000. Accordingly, we will issue 136,041 shares of common stock to the sole holder of the preferred stock as payment of $51,561 of preferred stock dividends less other adjustments resulting from the recalculation of the number of common shares required to pay preferred stock dividends, subsequently approved. During the period January 1, 2003 through June 30, 2006, 200,238 shares of common stock were issued in excess of the amount required.


 
27


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of our common stock as of July 27, 2007.

· by each person who is known by us to beneficially own more than 5% of our common stock;
· by each of our officers and directors; and
· by all of our officers and directors as a group.
 
NAME AND ADDRESS
OF OWNER
TITLE OF
CLASS
NUMBER OF
SHARES OWNED (1)
PERCENTAGE OF CLASS PRIOR TO OFFERING (2)
PERCENTAGE OF CLASS AFTER OFFERING (3)
 
 
 
 
 
Robert M. Watson
Common Stock
320,000 (4)
1.23%
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 

D. Barney Harris
Common Stock
221,562
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 
 
 
 
 
 
James Hudson
Common Stock
140,800 (5)
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 
 
 
 
 
 
William Hungerville
Common Stock
221,000
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 
 
 
 
 
 
Fil Filipov
Common Stock
20,000
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 
 
 
 
 
 
Andrew Guzzetti
Common Stock
190,000
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 
 
 
 
 
 
Peter Amico, Jr.
Common Stock
52,500
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 
 
 
 
 
 
Robert Borski, Jr.
Common Stock
78,504
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 
 
 
 
 
 
Nicholas Fenelli
Common Stock
138,500
*
*
200 Freeway Drive, Unit 1
 
 
 
 
Blackwood, NJ 08012
 
 
 
 

All Officers and Directors
Common Stock
1,402,866 (4) (5)
5.40%
2.21%
As a Group (9 persons)
 
 
 
 
         
Crescent International, Ltd.
Common Stock
1,496,481 (6)
5.50%
0%
 
* Less than 1%.

 
28



(1) Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of July 27, 2007 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

(2) Based upon 25,700,993 shares issued and outstanding on July 27, 2007.

(3) Percentage based upon 63,272,830 shares of common stock outstanding after the offering, assuming all shares registered are sold.

(4) Includes 300,000 options for common stock issued in connection with Mr. Watson’s employment contract dated December 1, 2006.

(5) Includes 44,500 shares owned by a corporation owned by Mr. Hudson.

(6) Represents shares of common stock issuable upon conversion of convertible debentures and exercise of warrants. The percentage of class after offering assumes that all registered shares are sold.

 
29


DESCRIPTION OF SECURITIES

COMMON STOCK

We are authorized to issue up to 100,000,000 shares of common stock, no par value. As of July 27, 2007, there were 25,700,993 shares of common stock outstanding. Holders of the common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor. Upon the liquidation, dissolution, or winding up of our company, the holders of common stock are entitled to share ratably in all of our assets which are legally available for distribution after payment of all debts and other liabilities and liquidation preference of any outstanding common stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are validly issued, fully paid and nonassessable.

The transfer agent of our common stock is Signature Stock Transfer, 301 Ohio Drive, Suite 100, Plano, TX 75093.

PREFERRED STOCK

As of July 27, 2007, there were 275,000 shares of preferred stock outstanding. We held a special meeting of our shareholders on March 28, 2005 pursuant to which a majority of our shareholders approved an amendment to our certificate of incorporation to increase our authorized preferred stock from 500,000 to 5,000,000 shares. Accordingly, we are authorized to issue up to 5,000,000 shares of preferred stock. In addition, pursuant to said meeting, a majority of our shareholders approved an amendment to our certificate of incorporation to provide that the shares of preferred stock may be issued in series, and shall have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issuance of such stock adopted from time to time by the board of directors. Accordingly, our board of directors is expressly vested with the authority to determine and fix in the resolution or resolutions providing for the issuances of preferred stock the voting powers, designations, preferences and rights, and the qualifications, limitations or restrictions thereof, of each such series to the full extent now or hereafter permitted by the laws of the State of New Jersey.

The holders of the preferred stock are entitled to receive, when, as, and if declared by our board of directors, out of funds legally available therefore, cash dividends on each share of preferred stock at the rate of 5% per annum, or if cash is not legally available, in additional shares of common stock. The preferred stock, in respect of dividends and distributions upon our liquidation, winding-up, and dissolution, shall rank senior to all classes of our common stock and each other class of capital stock or series of preferred stock created that does not expressly provide that it ranks senior to, or on a parity with, the preferred stock. The holders of preferred stock are entitled to cast 10 votes for each share held of the preferred Stock on all matters presented to our shareholders for shareholder vote.

On April 1, 2005, we issued 100,000 shares of preferred stock to the sole holder of the preferred stock as payment of dividends in lieu of cash dividends with respect to previously issued shares of preferred stock. Our original Articles of Incorporation, as amended, including on April 30, 2000, do not support the issuance of additional shares of preferred stock as payment of dividends on shares of issued and outstanding preferred stock. Accordingly, the 100,000 shares of preferred stock which were issued to the holder on April 1, 2005 were issued in error.

Our Articles of Incorporation, as amended, including on April 30, 2000, similarly do not support the calculation we used in determining the number of shares of common stock used to pay preferred stock dividends. The difference being the date used in determining the stock price at the end of each preferred dividend period, as opposed to the lowest common stock price during the preferred dividend period, subject to a 70% discount, for calculating the number of common shares issued as payment of the period’s preferred stock dividend. Accordingly, the number of shares was greater than the number of shares required, and were issued in error.

 
30


Our financial statements at December 31, 2004 reflect 275,000 shares of preferred stock outstanding and disclosed that an additional 100,000 shares of preferred stock were deemed the equivalent of 221,892 shares of common stock that would have been required to settle an equivalent amount of preferred dividends. We have determined that the number of shares deemed the equivalent of the preferred stock dividend has been recalculated based on our Articles of Incorporation, as amended, including on April 30, 2000. Accordingly, we will issue 136,041 shares of common stock to the sole holder of the preferred stock as payment of $51,561 of preferred stock dividends less other adjustments resulting from the recalculation of the number of common shares required to pay preferred stock dividends, subsequently approved. During the period January 1, 2003 through June 30, 2006, 200,238 shares of common stock were issued in excess of the amount required.

OPTIONS

As of July 27, 2007, we had 1,715,500 options outstanding, with an average weighted exercise price of $0.73.

WARRANTS

In connection with various private placements we have conducted between November 2004 and February 2007 and settlement of liquidated damages, we have issued warrants to purchase an aggregate of total of 24,385,669 shares of our common stock, including warrants exercisable at $0.45 per share to purchase 6,291,308 shares of common stock, warrants exercisable at $0.54 per share to purchase 9,013,200 shares of common stock, warrants exercisable at $0.75 per share to purchase 4,148,933 shares of common stock, warrants exercisable at $1.25 per share to purchase 4,325,433 shares of common stock, warrants exercisable at $1.65 per share to purchase 72,200 shares of common stock and warrants exercisable at $2.50 per share to purchase 534,595 shares of common stock. Some of the warrants we have issued contain full or partial ratchet and anti-dilution provisions.

CONVERTIBLE SECURITIES

We have outstanding convertible debentures in an aggregate principal amount of approximately $6,321,633.57, including $6,123,385.80 of convertible debentures convertible into shares of our common stock at $0.45 per share and approximately $198,247.57 of convertible debentures convertible into shares of our common stock at $1.56 per share. The convertible debentures are convertible into approximately 13,734,606 shares of common stock. Some of the convertible dentures contain full or partial ratchet and anti-dilution provisions. A more detailed summary of the terms of the secured convertible debentures and related agreements as set forth elsewhere under the heading “Selling Stockholders - Private Placements.”

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our Articles of Incorporation, as amended, provide to the fullest extent permitted by New Jersey law, our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of our Articles of Incorporation, as amended, is to eliminate our rights and our shareholders (through shareholders' derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation, as amended, are necessary to attract and retain qualified persons as directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act” or “Securities Act”) may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.


 
31


PLAN OF DISTRIBUTION

Each selling stockholder of the common stock and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on the OTC Bulletin Board or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:
 
 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
 
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
 
·
an exchange distribution in accordance with the rules of the applicable exchange;
 
 
·
privately negotiated transactions;
 
 
·
settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
 
 
·
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
 
 
·
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
 
 
·
a combination of any such methods of sale; or
 
 
·
any other method permitted pursuant to applicable law.
 
The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.
 
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.
 
In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
 
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed 8%.
 

 
32


 
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933.
 
Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act of 1933 including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933 may be sold under Rule 144 rather than under this prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.
 
We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
 
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
 

 
33


SELLING STOCKHOLDERS

The following table sets forth the common stock ownership of the selling stockholders as of May 2, 2007, including the number of shares of common stock issuable upon the exercise of warrants held by the selling stockholders. Other than as set forth in the following table, the selling stockholders have not held any position or office or had any other material relationship with us or any of our predecessors or affiliates within the past three years.
 
 
 
Beneficial Ownership Prior to this Offering (1)
 
 
 
Beneficial Ownership After this Offering (1) ( 2)
 
 
Selling Stockholder
 
Number of
Shares
 
Percent
of Class
 
Shares That May be Offered and Sold Hereby
 
Number of
Shares
 
Percent
of Class
 
 
Zirchon Avrohon Abba and Leon Goldenberg
 
223,190
 
*
 
223,190
(27)
   
0
   
0%
   
Alpha Capital Aktiengesellshaft (3)
 
4,039,743
 
13.58%
(53)
4,039,743
(28)
   
0
   
0%
   
Michael P. Bailey and Kristen Bailey
 
57,693
 
*
 
57,693
(26)
   
0
   
0%
   
Patricia Bailey
 
32,332
 
*
 
32,332
(26)
   
0
   
0%
   
Patricia Baldt
 
                  6,410
 
*
 
                  6,410
(26)
   
0
   
0%
   
Howard Blackmon & Mary Ann Oldham
 
100,703
 
*
 
100,703
(29)
   
0
   
0%
   
James G. Blumenthal
 
966,666
 
3.62%
 
966,666
(30)
   
0
   
0%
   
Robert Borski
 
38,504
 
*
 
38,504
(26)
   
0
   
0%
   
Gori Chandran
 
6,559
 
*
 
6,559
(26)
   
0
   
0%
   
Chestnut Ridge Partners, L.P. (4)
 
144,231
 
*
 
144,231
(26)
   
0
   
0%
   
Crescent International, Ltd. (5)
 
1,496,481
 
5.50%
 
1,496,481
(31)
   
0
   
0%
   
CSL Associates, L.P. (6)
 
806,221
 
3.04%
 
806,221
(32)
   
0
   
0%
   
DKR Soundshore Oasis Holding Fund Ltd. (7)
 
144,231
 
*
 
144,231
(26)
   
0
   
0%
   
Ellis International LP (8)
 
1,991,025
 
7.19%
(53)
1,991,025
(33)
   
0
   
0%
   
Excalibur Limited Partnership (9)
 
2,203,191
 
7.90%
(53)
2,203,191
(34)
   
0
   
0%
   
First Montauk Securities Corporation (10)
 
1,314,911
 
4.87%
 
1,314,911
(26)
   
0
   
0%
   
Leon Goldenberg
 
773,334
 
2.92%
 
773,334
(35)
   
0
   
0%
   
Harborview Master Fund LP (11)
 
1,933,332
 
7.00%
(53)
1,933,332
(36)
   
0
   
0%
   
Linda Hechter
 
263,431
 
1.01%
 
263,431
(37)
   
0
   
0%
   
Iroquois Capital, L.P. (12)
 
173,077
 
*
 
173,077
(26)
   
0
   
0%
   
Edward M. Jaffe
 
89,579
 
*
 
89,579
(38)
   
0
   
0%
   
Lerner Enterprises LLC (13)
 
288,462
 
1.11%
 
288,462
(26)
   
0
   
0%
   
Grace Lipson and Charles Lipson
 
194,343
 
*
 
194,343
(39)
   
0
   
0%
   
Stuart A. Margolis
 
232,000
 
*
 
232,000
(40)
   
0
   
0%
   
Meadowbrook Opportunity Fund LLC (14)
 
225,000
 
*
 
225,000
(26)
   
0
   
0%
   
Rachel Medelowitz
 
1,166,527
 
4.34%
 
1,166,527
(41)
   
0
   
0%
   
MNJ1 LLC (15)
 
773,334
 
2.92%
 
773,334
(35)
   
0
   
0%
   
Motivated Minds LLC (16)
 
1,107,077
 
4.16%
 
1,107,077
(42)
   
0
   
0%
   
Thomas R. Morehouse
 
18,395
 
*
 
18,395
(26)
   
0
   
0%
   
Chris Musso
 
10,011
 
*
 
10,011
(26)
   
0
   
0%
   
Samuel Nebenzahl
 
77,885
 
*
 
77,885
(26)
   
0
   
0%
   
Nite Capital LP (17)
 
784,954
 
2.96%
 
784,954
(43)
   
0
   
0%
   
Mark A. Phelps
 
354,797
 
1.36%
 
354,797
(44)
   
0
   
0%
   
Platinum Partners (18)
 
3,866,666
 
13.08%
(53)
3,866,666
(45)
   
0
   
0%
   
Lionel Porber
 
190,007
 
*
 
190,007
(26)
   
0
   
0%
   
Quinto Corp (19)
 
48,492
 
*
 
48,492
(26)
   
0
   
0%
   
Peter Rand
 
1,180,106
 
4.39%
 
1,180,106
(46)
   
0
   
0%
   
Matthrew Rei
 
32,887
 
*
 
32,887
(26)
   
0
   
0%
   
Alan Robinson
 
20,465
 
*
 
20,465
(26)
   
0
   
0%
   
William Samuel
 
6,410
 
*
 
6,410
(26)
   
0
   
0%
   
Tim Scott
 
13,155
 
*
 
13,155
(26)
   
0
   
0%
   
Willfred Shearer
 
773,334
 
2.92%
 
773,334
(35)
   
0
   
0%
   
Sichenzia Ross Friedman Ference LLP (20)
 
94,444
 
*
 
94,444
     
0
   
0%
 
 
NFS/FMTC IRA FBO Richard Spencer
 
274,534
 
1.06%
 
274,534
(47)
   
0
   
0%
 
 
Richard Lee Spencer Jr.
 
702,960
 
2.66%
 
702,960
(48)
   
0
   
0%
 
 
JN Stauffer
 
16,447
 
*
 
16,447
(26)
   
0
   
0%
 
 
Stonestreet Limited Partnership (21)
 
633,098
 
2.40%
 
633,098
(49)
   
0
   
0%
 
 
Torrey Pines Master Fund Ltd. (22)
 
268,846
 
1.04%
 
268,846
(26)
   
0
   
0%
 
 
Unbeatable Trading Inc. (23)
 
773,334
 
2.92%
 
773,334
(35)
   
0
   
0%
 
 
Unity Capital (24)
 
1,546,668
 
5.68%
(53)
1,546,668
(50)
   
0
   
0%
 
 
Alvin Wagner, Jr.
 
23,055
 
*
 
23,055
(26)
   
0
   
0%
 
 
Jeffrey Walsh
 
6,577
 
*
 
6,577
(26)
   
0
   
0%
 
 
Abraham Weitman & Daniel Altstadter
 
773,334
 
2.92%
 
773,334
(35)
   
0
   
0%
 
 
Sidney Welz
 
657,334
 
2.49%
 
657,334
(51)
   
0
   
0%
 
 
Henry & Linda Whale
 
64,889
 
*
 
64,889
(26)
   
0
   
0%
 
 
Whalehaven Capital Fund (25)
 
3,014,583
 
10.50%
(53)
3,014,583
(52)
   
0
   
0%
 
 
James W. Woodworth
 
57,693
 
*
 
57,693
(26)
   
0
   
0%
   
Jose Zajac
 
773,334
 
2.92%
 
773,334
(35)
   
0
   
0%
   
 
* Less than 1%.

(1)
Percentage calculated on the basis of 25,700,993 shares of common stock outstanding on May 2, 2007.
 
 

(2)
Assumes the sale of all shares of common stock registered pursuant to this prospectus, although the selling stockholders are under no obligations known to us to sell any shares of common stock at this time.
       
(3)
In accordance with rule 13d-3 under the securities exchange act of 1934, Konrad Ackerman and Rainer Posch may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(4)
In accordance with rule 13d-3 under the securities exchange act of 1934, Kenneth Pasternak may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(5)
Mel Craw, Maxi Brezzi and Bachir Taleb-Ibrahimi, in their capacity as managers of Cantara (Switzerland) SA, the investment advisor to Crescent International Ltd., have voting control and investment discretion over the shares owned by Crescent International Ltd. Messrs. Craw, Brezzi and Taleb-Ibrahimi disclaim beneficial ownership of such shares. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(6)
In accordance with rule 13d-3 under the securities exchange act of 1934, Chuck Lipson may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(7)
DKR SoundShore Oasis Holding Fund Ltd. (the "Fund") is a master fund in a master-feeder structure. The Fund's investment manager is DKR Oasis Management Company LP (the "Investment Manager"). Pursuant to an investment management agreement among the Fund, the feeder funds and the Investment Manager, the Investment Manager has the authority to do any and all acts on behalf of the Fund, including voting any shares held by the Fund. Mr. Seth Fischer is the managing partner of Oasis Management Holdings LLC, one of the general partners of the Investment Manager. Mr. Fischer has ultimate responsibility for trading with respect to the Fund. Mr. Fischer disclaims beneficial ownership of the shares. The Fund has notified us that it is not a broker-dealers or affiliate of a broker-dealer and that it believes that it is not required to be a broker-dealer.
       
(8)
In accordance with rule 13d-3 under the securities exchange act of 1934, Wilhelm Ungar may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(9)
In accordance with rule 13d-3 under the securities exchange act of 1934, William Hechter may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       

 
34



(10)
In accordance with rule 13d-3 under the securities exchange act of 1934, the Board of Directors of the selling stockholders may be deemed control persons, with voting and investment control, of the shares owned by such entity and has acquired these securities in the ordinary course of business as compensation.
       
(11)
Voting and investment power over shares beneficially owned by Harbourview Master Fund LP is ultimately held by Messrs. Richard Rosenblum and David Stefansky, in their capacities as General Partners of Harborview Master Fund, LP.  Messrs. Rosenblum and Stefansky disclaim beneficial ownership of the shares held by Harbourview Master Fund LP.
   
(12)
Joshua Silverman has voting control and investment discretion over securities held by Iroquois Capital LP. Mr. Silverman disclaims beneficial ownership of the shares held by Iroquois Capital LP.
   
       
(13)
In accordance with rule 13d-3 under the securities exchange act of 1934, Edward L. Cohen, Robert K. Tanenbaun, Mark D. Lerner and Theodore N. Lerner may be deemed control persons, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(14)
In accordance with rule 13d-3 under the securities exchange act of 1934, Michael Ragins may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(15)
In accordance with rule 13d-3 under the securities exchange act of 1934, Moshe Singer may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(16)
In accordance with rule 13d-3 under the securities exchange act of 1934, Ira Gaines may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(17)
In accordance with rule 13d-3 under the securities exchange act of 1934, Keith Goodman may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(18)
In accordance with rule 13d-3 under the securities exchange act of 1934, Mark Nordlicht may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(19)
Voting and investment control for the shares of common stock owned is vested in the entity’s board of directors.
   
       
(20)
In accordance with rule 13d-3 under the securities exchange act of 1934, Greg Sichenzia, Marc Ross, Richard Friedman and Michael Ference may be deemed control persons, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(21)
In accordance with rule 13d-3 under the securities exchange act of 1934, Michael Finkelstein and Libby Leonard may be deemed control persons, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(22)
In accordance with rule 13d-3 under the securities exchange act of 1934, Rob Jafek may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       

 
35



(23)
In accordance with rule 13d-3 under the securities exchange act of 1934, Jacob Gold may be deemed a control person, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(24)
In accordance with rule 13d-3 under the securities exchange act of 1934, Eli Schick and Anat Seliger Schick may be deemed control persons, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
   
(25)
In accordance with rule 13d-3 under the securities exchange act of 1934, Evan Schemenauer, Arthur Jones and Jennifer Kelly may be deemed control persons, with voting and investment control, of the shares owned by such entity. The selling stockholder has notified us that they are not broker-dealers or affiliates of broker-dealers and that they believe they are not required to be broker-dealers.
       
(26)
Represents shares issuable upon exercise of warrants.
   
       
(27)
Includes 136,918 shares issuable upon conversion of convertible debentures and 86,272 shares issuable upon exercise of warrants.
   
       
(28)
Includes 1,288,889 shares issuable upon conversion of convertible debentures and 2,750,854 shares issuable upon exercise of warrants.
   
       
(29)
Includes 33,550 shares issuable upon conversion of convertible debentures and 67,153 shares issuable upon exercise of warrants.
   
       
(30)
Includes 322,222 shares issuable upon conversion of convertible debentures and 644,444 shares issuable upon exercise of warrants.
   
       
(31)
Includes 1,095,348 shares issuable upon conversion of convertible debentures and 401,133 shares issuable upon exercise of warrants.
   
       
(32)
Includes 547,674 shares issuable upon conversion of convertible debentures and 258,547 shares issuable upon exercise of warrants.
   
       
(33)
Includes 644,444 shares issuable upon conversion of convertible debentures and 1,346,581 shares issuable upon exercise of warrants.
   
       
(34)
Includes 455,348 shares issuable upon conversion of convertible debentures and 1,747,843 shares issuable upon exercise of warrants.
   
       
(35)
Includes 257,778 shares issuable upon conversion of convertible debentures and 515,556 shares issuable upon exercise of warrants.
   
       
(36)
Includes 644,444 shares issuable upon conversion of convertible debentures and 1,288,888 shares issuable upon exercise of warrants.
   
       
(37)
Includes 27,473 shares issuable upon conversion of convertible debentures and 235,958 shares issuable upon exercise of warrants.
   
       
(38)
Includes 49,291 shares issuable upon conversion of convertible debentures and 40,288 shares issuable upon exercise of warrants.
   
       
(39)
Includes 136,918 shares issuable upon conversion of convertible debentures and 57,425 shares issuable upon exercise of warrants.
   
       
(40)
Includes 77,333 shares issuable upon conversion of convertible debentures and 154,667 shares issuable upon exercise of warrants.
   
       
(41)
Includes 917,354 shares issuable upon conversion of convertible debentures and 249,173 shares issuable upon exercise of warrants.
   
       
(42)
Includes 666,667 shares issuable upon conversion of convertible debentures and 256,410 shares issuable upon exercise of warrants.
   
       
(43)
Includes 410,755 shares issuable upon conversion of convertible debentures and 374,199 shares issuable upon exercise of warrants.
   
       
(44)
Includes 219,070 shares issuable upon conversion of convertible debentures and 135,727 shares issuable upon exercise of warrants.
   
       
(45)
Includes 1,288,889 shares issuable upon conversion of convertible debentures and 2,577,777 shares issuable upon exercise of warrants.
   
       
(46)
Includes 393,369 shares issuable upon conversion of convertible debentures and 786,737 shares issuable upon exercise of warrants.
   
       
(47)
Includes 91,511 shares issuable upon conversion of convertible debentures and 183,023 shares issuable upon exercise of warrants.
   
       
(48)
Includes 234,320 shares issuable upon conversion of convertible debentures and 468,640 shares issuable upon exercise of warrants.
   
       
(49)
Includes 18,066 shares issuable upon conversion of convertible debentures and 615,032 shares issuable upon exercise of warrants.
   
       
(50)
Includes 515,556 shares issuable upon conversion of convertible debentures and 1,031,112 shares issuable upon exercise of warrants.
   
       
(51)
Includes 219,111 shares issuable upon conversion of convertible debentures and 438,223 shares issuable upon exercise of warrants.
   
       
(52)
Includes 1,204,980 shares issuable upon conversion of convertible debentures and 1,809,603 shares issuable upon exercise of warrants.
   
       
(53)
Assumes full conversion of the debentures and exercise of the warrants. However the selling stockholder has contractually agreed to restrict their ability to convert their convertible debentures or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock as determined in accordance with Section 13(d) of the Exchange Act. Accordingly, the number of shares of common stock set forth in the table for the selling stockholders exceeds the number of shares of common stock that the selling stockholders could own beneficially at any given time through their ownership of the secured convertible notes and the warrants. In that regard, the beneficial ownership of the common stock by the selling stockholder set forth in the table is not determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
 
 
36

Additional Disclosure

NOVEMBER 2004 PRIVATE PLACEMENT

Dollar Value of Securities Underlying Convertible Securities Registered for Resale in this Prospectus

None.

Interest and Liquidated Damages Payments in Connection with the Transaction

We paid First Montauk Securities Corp. fees of $174,560 and a warrant to purchase 176,500 shares of common stock at an exercise price of $1.25 per share as selling agent, who has no relationship, contractual or otherwise, with the investors in this transaction.  We agreed to pay the legal fees, up to $40,000, to the attorneys representing the investors.  No other fees or expenses were paid pursuant to this private placement.

In connection with the registration rights agreement, we were required to pay liquidated damages of 2.0% of the aggregate purchase price per investor for every 30 day period in which a resale registration statement was either not filed or effective pursuant to the registration rights agreement we entered into with the investors.  These liquidated damages were accrued but not paid. Between March and June 2006, we entered into a settlement agreement with these investors, pursuant to which we issued the investors convertible debentures and warrants as settlement for all accrued liquidated damages and waiver of any liquidated damages in the future under the registration rights agreement. The face value of the convertible debentures is $198,247.57.  These convertible debentures and warrants are described in detail under “Additional Disclosure – Settlement of November 2004 Liquidated Damages.”

Net Proceeds to Airtrax

Airtrax received net proceeds from this transaction of $1,0977,440, which represents gross proceeds of $1,312,000, minus $40,000 paid to investors’ legal counsel and $174,560 to First Montauk Securities Corp. as selling agent.

Potential Total Profit to the Selling Stockholders from Debentures Held by the Selling Stockholders

None, as we are only registering shares underlying Warrants for this transaction.

Potential Total Profit to the Selling Stockholders from Other Securities Held by the Selling Stockholders
 
Selling Shareholder
Transaction
Type
Date
Market Price
Exercise Price
Total Shares  to be received
 
Combined Market Price
 
Combined Exercise Price
 
Discount to Market
Excaliber Limited Partnership
PIPE
Warrants
 
11/22/04
$1.56
$1.25
312,500
 
$487,500
 
$390,625.00
 
$96,875.00
Stonestreet Limited Partnership
PIPE
Warrants
 
11/22/04
$1.56
$1.25
273,125
 
$426,075
 
$341,406.25
 
$84,668.75
Whalehaven Capital Fund
PIPE
Warrants
11/22/04
$.56
$1.25
109,375
 
$170,625
 
$136,718.75
 
$33,906.25
Linda Hechter
PIPE
Warrants
11/22/04
$1.56
$1.25
125,000
 
$195,000
 
$156,250.00
 
$38,750.00
First Montauk Securities
Placement agent services
Warrants
11/22/04
$1.56
$1.25
176,500
 
$275,340
 
$220,625.00
 
$54,715.00
Totals
         
     996,500
 
$1,554,540
 
$1,245,625.00
 
$308,915.00

Total of Possible Payments and Discounts as a Percentage of Net Proceeds

The following information presents the sum of all possible payments as a percentage of the net proceeds to the issuer from the sale of the shares of common stock, as well as the amount of that resulting percentage.

37

 
The percentage computation methodology utilized considers the following factors:

 
the gross proceeds paid to us from the sale of common stock;

 
all payments that we have made or that may be required to be made

 
the resulting net proceeds to us; and

 
the combined total possible profit to be realized by the investors as a result of any conversion discounts regarding the warrants that are held by the selling shareholders or any affiliates of the selling shareholders.
     

     
Gross proceeds paid to the issuer in the private placement
  $
1,312,000
 
All payments made or that may be may be required to be made by the issuer as disclosed above
  $
412,807.57
 
Net proceeds to issuer, as Gross proceeds are reduced by the total of all possible payments (excluding principal)
  $
899,192.43
 
         
Combined total possible profit to be realized as a result of any conversion discounts disclosed above
  $
308,915
 
 Percentage of the total amount of all possible payments divided by the net proceeds to the issuer from the sale of the common stock    
45.91
% 
 
Prior Securities Transactions Between Airtrax and Selling Shareholders

None.

Relationship Between Shares Issued and Outstanding and Shares Held by Selling Stockholders

The following tabular disclosure reflects:

 
the number of shares outstanding prior to the private placement that are held by persons other than the selling shareholders, affiliates of the company, and affiliates of the selling shareholder;

 
the number of shares registered for resale by the selling shareholders or affiliates of the selling shareholders in prior registration statements;

 
the number of shares registered for resale by the selling shareholders or affiliates of the selling shareholders that continue to be held by the selling shareholders or affiliates of the selling shareholders;

 
the number of shares that have been sold in registered resale transactions by the selling shareholders or affiliates of the selling shareholders

 
the number of shares registered for resale on behalf of the selling shareholders or affiliates of the selling shareholders in the current transaction.

In this analysis, the calculation of the number of outstanding shares excludes any securities underlying any outstanding convertible securities, options, or warrants.
38


 
 
 
 
 
 
 
 
Selling Shareholders
 
Shares held by persons other than the selling shareholders, affiliates of the company, and affiliates of the selling shareholder prior to the current transaction
   
Shares registered for resale by the selling shareholders or affiliates of the selling shareholders in prior registration statements
   
Shares registered for resale by the selling shareholders or affiliates of the selling shareholders that continue to be held by same
   
Shares registered for resale on behalf of the selling shareholders or affiliates of the selling shareholders in the current transaction
 
                         
Excalibur Limited Partnership
   
-
     
0
     
0
     
555,555
 
Stonestreet Limited Partnership
   
-
     
0
     
0
     
485,556
 
Whalehaven Capital Fund
   
-
     
0
     
0
     
194,444
 
Linda Hechter
   
-
     
0
     
0
     
222,222
 
First Montauk Securities
   
-
     
0
     
0
     
176,500
 
Others
   
13,374,342
     
-
     
-
     
-
 
Totals
   
13,374,342
     
0
     
0
     
1,634,278
 

Our Financial Ability to Satisfy our Obligations to the Selling Shareholders

There is nothing to repay, as this transaction involved the sale of common stock and warrants.

Existing Short Positions by Selling Shareholders

Based upon information provided by the selling shareholders, to the best of our knowledge, we are not aware of any of the selling shareholders having an existing short position in our common stock.

Relationships Between Us and Selling Shareholders and Affiliates

We hereby confirms that a description of the relationships and arrangements between and among those parties already is presented in the prospectus and that all agreements between and/or among those parties are included as exhibits to the registration statement by incorporation by reference.

Method of Determining the Number of Shares Registered in this Prospectus

Pursuant to our registration rights agreement with the investors, entered into on November 22, 2004, we are required to register all of the shares issuable upon exercise of the warrants issued to the investors.

Fee Table
Amount to be registered
Shares of common stock issuable upon exercise of warrants
1,634,278
Total
1,634,278
 
 
39


 
Selling Stockholders

Investor
Convertible Debentures
 
Warrants
 
Common Stock
 
Shares of Common Stock Included in Prospectus*
 
Excalibur Limited Partnership
     
555,555
       
555,555
 
Stonestreet Limited Partnership
     
485,556
       
485,556
 
Whalehaven Capital Fund
     
194,444
       
194,444
 
Linda Hechter
     
222,222
       
222,222
 
First Montauk Securities
     
176,500
       
176,500
 
Total
     
1,634,278
       
1,634,278
 

* Combined with the additional securities described herein, this reconciles the amounts due to each selling stockholder within the prospectus listed within the Selling Stockholder schedule, column 4 beginning on page 35.
 
40

FEBRUARY 2005 PRIVATE PLACEMENT

Dollar Value of Securities Underlying Convertible Securities Registered for Resale in this Prospectus

None.

Interest and Liquidated Damages Payments in Connection with the Transaction

We paid First Montauk Securities Corp. fees of $650,000 and a warrant to purchase 384,616, shares of common stock at an exercise price of $1.85 per share as selling agent, who has no relationship, contractual or otherwise, with the investors in this transaction.  We agreed to pay the legal fees of $25,000, to the attorneys representing the investors.  The convertible debentures issued in this transaction accrued interest at the rate of 6% per annum.  When the convertible debentures were converted into shares of common stock on maturity, the Company paid an aggregate of $150,000 in interest to the investors.

No other fees or expenses were paid pursuant to this private placement.

Net Proceeds to Airtrax

Airtrax received net proceeds from this transaction of $4,175,000, which represents gross proceeds of $5,000,000, minus $25,000 paid to investors’ legal counsel, $150,000 in interest and $650,000 to First Montauk Securities Corp. as selling agent.

Potential Total Profit

We are not registering the shares of common stock that were issued upon conversion of the convertible debentures.

Potential Total Profit to the Selling Stockholders from Other Securities Held by the Selling Stockholders

Selling Shareholder
Transaction
Type
Date
 
Market Price
   
Exercise Price
   
Total Shares to be received
   
Combined Market Price
   
Combined Exercise Price
   
Discount to Market
 
Stonestreet Limited Partnership
PIPE
Warrants
 
2/11/05
  $
2.37
    $
1.85
     
76,923
    $
182,307.51
    $
142,307.55
    $
39,999.96
 
Whalehaven Capital Fund
PIPE
Warrants
 
2/11/05
  $
2.37
    $
1.85
     
134,615
    $
319,037.55
    $
249,037.75
    $
69,999.80
 
Nite Capital LP
PIPE
Warrants
2/11/05
  $
2.37
    $
1.85
     
192,308
    $
455,769.96
    $
355,769.80
    $
100,000.16
 
Rachel Medelowitz
PIPE
Warrants
2/11/05
  $
2.37
    $
1.85
     
38,462
    $
91,154.94
    $
71,154.70
    $
20,000.24
 
Howard Blackmon & Mary Ann Oldham
 
 
PIPE
Warrants
 
 
2/11/05
  $
2.37
    $
1.85
     
20,000
    $
47,400.00
    $
37,000.00
    $
10,400.00
 
Edward M. Jaffe
PIPE
Warrants
2/11/05
  $
2.37
    $
1.85
     
20,000
    $
47,400.00
    $
37,000.00
    $
10,400.00
 
Mark A. Phelps
PIPE
Warrants
2/11/05
  $
2.37
    $
1.85
     
60,000
    $
142,200.00
    $
111,000.00
    $
31,200.00
 
Samuel Nebenzahl
PIPE
Warrants
2/11/05
  $
2.37
    $
1.85
     
51,923
    $
123,057.51
    $
96,057.55
    $
26,999.96