SECURITIES AND EXCHANGE COMMISSION
Washington, DC
FORM 10-QSB
Pursuant to Section 13 or 15(d) of
the Securities Act of 1934
For the Quarter Ended Commission File
February 28, 2001 Number 0-19796
AIRTECH INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in charter)
Wyoming 98-0120805
--------------- ------------------
(State or other (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
15400 Knoll Trail, Ste. 200
Dallas, Texas 75248
(Address of Principal Executive Offices)
972-960-9400
(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The Registrant has 27,958,641 shares of common stock, par value of $0.05 per
share issued and outstanding as of February 28, 2001
Traditional Small Business Disclosure Format
Yes X No
--- ---
1
Airtech International Group, Inc.
Table of Contents
Page No.
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Independent Accountant's Report 3
PART I--FINANCIAL INFORMATION
Item 1. Airtech International Group, Inc. Financial Statements (Unaudited):
Balance Sheet as of February 28, 2001and 2000 4
Statement of Operations for the nine months ended February 28, 2001and 2000 6
Statement of Operations for the three months ended February 28, 2001 and 2200 7
Statement of Cash Flows for the nine months ended February 28, 2001 and 2000 8
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis 14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE PAGE 20
2
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors and Stockholders
Airtech International Group, Inc. and subsidiaries
Dallas, Texas
We have reviewed the accompanying consolidated balance sheet of Airtech
International Group, Inc. and subsidiaries as of February 28, 2001 and the
related statement of operations, stockholders' equity and cash flows for the
three months and nine months then ended. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statement taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying February 28, 2001 consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
/s/ Turner, Stone & Company, LLP
Certified Public Accountants
April 13, 2001
3
PART 1--Financial Information
Item I Financial Statements
Airtech International Group, Inc. and Subsidiaries
Consolidated Balance Sheets
February 28, 2001 and 2000
ASSETS
CURRENT ASSETS 2001 2000
------- ------ ---------- ----------
Cash $ 53,368 $ 559,385
Marketable Securities 0 2,000,000
Trade accounts receivables, net of allowance for doubtful accounts of
$60,000 and $20,000 respectively 731,315 225,352
Notes receivable, current portion 437,250 75,000
Inventory 1,305,559 317,665
Prepaid expenses and other assets 113,257 204,524
---------- ----------
Total current assets 2,640,749 3,381,926
---------- ----------
PROPERTY AND EQUIPMENT--net of accumulated depreciation of
$198,159 and $149,123 respectively 112,740 116,875
NOTES RECEIVABLE--net of current portion, net of allowance for
Doubtful accounts of $0 and $0, respectively 1,078,312 575,000
OTHER ASSETS
Goodwill, net of $45,810 and $84,763 of accumulated amortization,
respectively 92,432 94,291
Intellectual properties, net of $167,300 and $58,060 of accumulated
amortization, respectively 919,597 968,112
Other, Prepaid Royalties 294,988 519,688
---------- ----------
Total other assets 1,307,017 1,582,091
---------- ----------
$5,138,818 $5,655,892
========== ==========
The accompanying notes are an integral part of the financial statements.
4
Airtech International Group, Inc. and Subsidiaries
Consolidated Balance Sheets
February 28,2001 and 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES 2001 2000
----------- -----------
Notes payable --current portion $ 277,185 $ 277,185
Accounts payable, trade 750,526 608,850
Note payable-officers 210,338 216,488
Accrued payroll and payroll taxes 507,753 323,692
Other accrued expenses 608,843 417,511
----------- -----------
Total current liabilities 2,354,645 1,843,726
----------- -----------
LONG-TERM LIABILITIES
Deferred revenue 340,000 400,000
Product Marketing Obligation 430,000 405,000
Convertible Debentures 2,350,000 2,800,000
----------- -----------
Total long-term liabilities 3,120,000 3,605,000
----------- -----------
Total liabilities 5,474,645 5,448,726
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series M cumulative, convertible preferred, 990,625
and 1,143,750 outstanding respectively; liquidation
preference of $1.00 per share 991 1,143
Common stock--$.05 par value, 50,000,000 shares
authorized; 27,958,641 and 20,364,417 shares
issued and outstanding, respectively 1,397,932 1,018,220
Additional paid-in capital 8,251,966 6,682,210
-----------
Retained deficit (9,986,716) (7,494,407)
----------- -----------
Total stockholders' equity (335,827) 207,166
----------- -----------
$ 5,138,818 $ 5,655,892
=========== ===========
The accompanying notes are an integral part of the financial statements.
5
Airtech International Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Nine Months Ended February 28, 2001 and 2000
REVENUES 2001 2000
----------- -----------
Product sales $ 1,412,607 $ 604,474
Franchisee fees and other revenues 25,000 175,000
----------- -----------
Total revenues 1,437,607 779,474
----------- -----------
COSTS AND EXPENSES
Salaries and wages 787,490 901,729
Research and Development 283,927 100,000
Cost of sales 780,235 515,127
Advertising 241,358 101,197
Depreciation and amortization 233,188 127,421
Other general & administrative expense 639,544 645,073
----------- -----------
Total costs and expenses 2,965,742 2,390,547
----------- -----------
LOSS FROM OPERATIONS (1,528,135) (1,611,073)
Interest expense ( 175,114) (41,462)
----------- -----------
NET LOSS BEFORE INCOME TAXES (1,703,249) (1,652,535)
Income taxes -- --
----------- -----------
NET LOSS $(1,703,249) $(1,652,535)
=========== ===========
LOSS PER COMMON SHARE--BASIC $( 0.07) $( 0.08)
=========== ===========
LOSS PER COMMON SHARE--DILUTED $( 0.07) $( 0.08)
=========== ===========
The accompanying notes are an integral part of the financial statements.
6
Airtech International Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended February 28, 2001 and 2000
REVENUES 2001 2000
--------- ----------
Product sales $ 418,034 $ 186,136
Franchisee fees and other revenues 15,000 60,000
--------- ----------
Total revenues 433,034 246,136
--------- ----------
COSTS AND EXPENSES
Salaries and wages 285,375 516,591
Research and Development 52,677 50,000
Costs of sales 220,845 99,478
Advertising 55,963 51,002
Depreciation and amortization 72,716 54,665
Other general and administrative expense 208,006 318,560
--------- ----------
Total costs and expenses 895,582 1,090,296
--------- ----------
LOSS FROM OPERATIONS (462,548) (844,160)
Interest expense ( 52,404) ( 4,185)
--------- ----------
NET LOSS BEFORE INCOME TAXES (514,952) (848,345)
Income taxes -- --
--------- ----------
NET LOSS $(514,952) $ (848,345)
========= ==========
LOSS PER COMMON SHARE--BASIC $ (0.02) $ (0.04)
========= ==========
LOSS PER COMMON SHARE--DILUTED $ (0.02) $ (0.04)
========= ==========
The accompanying notes are an integral part of the financial statements.
7
Airtech International Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended February 28, 2001 and 2000
CASH FLOWS FROM OPERATING ACTIVITIES: 2001 2000
----------- -----------
Net Loss $(1,703,249) $(1,652,534)
Adjustments to reconcile net income to cash
Depreciation and amortization 233,188 127,421
Stock payments to employees and consultants -- 486,189
Changes in operating assets and liabilities
Accounts receivable (461,344) ( 51,401)
Inventory (766,607) (75,000)
Accounts payable 490,424 98,657
Accrued expenses 294,436 88,823
Other Receivables (75,045) (347,955)
----------- -----------
Net cash used in operating activities (1,988,197) (1,325,800)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for other assets 60,085 (57,212)
(Expenditure for) Redemption Marketable Securities 1,000,000 (2,000,000)
Repayment of Notes Payable (500,000)
----------- -----------
Net cash used in investing activities 560,685 (2,057,212)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures 2,800,000
Proceeds from issuance of common stock 993,834 1,080,589
----------- -----------
Net cash provided by financing activities 993,834 3,880,589
----------- -----------
INCREASE (DECREASE) IN CASH (1,434,278) 497,577
CASH, BEGINNING OF PERIOD 1,487,646 61,808
----------- -----------
CASH, END OF PERIOD $ 53,368 $ 559,385
=========== ===========
The accompanying notes are an integral part of the financial statements.
8
Airtech International Group, Inc. and Subsidiaries
Notes to Financial Statements
Summary of Significant Accounting Policies
Organization
Airtech International Group, Inc. (the Company), formerly Interactive
Technologies Corporation (ITC), was incorporated in the state of Wyoming on
August 8, 1991. As of May 31, 1998, in connection with the acquisition
discussed below, the Company manufactures and sells a full line of air
purification products.
On May 31, 1998, the Company acquired all of the outstanding common stock
shares of Airtech International Corporation (AIC), which through its
subsidiaries, manufactures and sells various air filtration and purification
products. The total purchase price of $22,937,760 was funded through the
issuance of 10,500,000 shares of common stock valued at $.625 per share, the
issuance of 11,858,016 shares of Series A convertible preferred stock shares
valued at $.625 per share and the issuance of $9,000,000 of convertible
debentures.
However, because these convertible securities were converted into common stock
within two months following acquisition, the shareholders of AIC obtained
control of the company. As a result, AIC became the acquiror for financial
reporting purposes.
The transaction was accounted for using the purchase method of accounting with
AIC for accounting and reporting purposes the acquiror. Accordingly, the
purchase price of the net assets acquired has been allocated among the net
assets based on their relative fair value of zero.
Principles of consolidation
The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc., Airsopure
International Group, Inc. and McCleskey Sales and Service, Inc. (dormant) each
of which has a fiscal year ended May 31, and AIC's investment in Airsopure
999LP, a Texas Limited partnership with a December 31 year end. All material
intercompany accounts and balances have been eliminated in the consolidation.
Turner, Stone & Company, the Company's independent accountants, has performed
limited reviews of the interim financial information included herein. Their
report on such reviews accompanies this filing.
Amortization
Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization beginning when the product is initially inventoried for
sale. Amortization is recorded ratably over a ten-year term.
9
Airtech International Group, Inc. and Subsidiaries
Notes to Financial Statements (Continued)
Goodwill acquired and recorded in the financial acquisition of ITC, is being
amortized under the straight line method over 5 years.
A prepaid royalty fee, paid pursuant to a December 1995 agreement and related
to the Company's portable medical unit, is being amortized using the straight-
line method over 24 months beginning January 2000.
Inventories
Inventories are carried at the lower of cost or net realizable value (market)
and include component parts used in the assembly of the Company's line of air
purification units, filters and finished goods comprised of completed products.
The costs of inventories are based upon specific identification of direct costs
and allocable costs of direct labor, packaging and other indirect costs.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line and accelerated methods for financial and tax reporting purposes,
respectively, over estimated useful lives of five years.
Product marketing obligation
Property marketing obligations pursuant to Statement of Financial Accounting
Standards, "SFAS" No. 68, the Company has recorded funds raised in an
arrangement to develop, produce and market the Model S-999 as a product
marketing obligation.
Revenue recognition
Revenues from the Company's operations are recognized at the time products are
shipped or services are provided. Revenue from franchise sales are recognized
at the time all material services relating to the sale of a franchise have been
performed by the Company.
10
Airtech International Group, Inc. and Subsidiaries
Notes to Financial Statements (Continued)
Management estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash flow
For purposes of the statement of cash flows, cash includes demand deposits,
short term cash equivalent investments and time deposits with maturities of less
than three months. None of the Company's cash is restricted.
Loss per share
The basic and diluted loss per share are based upon 25,269,142 and 24,479,321
respectively, weighted average shares of common stock outstanding over the three
and nine month period ending February 28, 2001. No effect has been given to the
assumed conversion of convertible preferred stock, convertible debentures,
product market obligation guarantees and the assumed exercise of stock options
and warrants, as the effect would be antidilutive.
Convertible debentures (6%)
On February 22, 2000, the Company entered into a securities purchase agreement
with PK Investors LLC (`PKI') to raise up to $5,000,000 through the sale to PKI
of up to $5,000,000 in principal amount of the Company's 6% Convertible
Debentures (`Debentures') and Warrants to purchase up to 500,000 shares of the
Company's Common Stock (`Warrants'). Upon execution of the securities purchase
agreement, PKI purchased $2,500,000 in principal amount of the Debentures and
Warrants to purchase 250,000 shares of Common Stock for a purchase price of
$2,500,000. The Company was responsible and paid legal, investment banker
commissions, accounting and SEC filing fees totaling $427,000. Under the terms
of the securities purchase agreement, the Company also issued to PKI a
Conditional Warrant to purchase the remaining $2,500,000 in principal amount of
Debentures and the remaining Warrants to purchase 250,000 shares of the
Company's Common Stock. The Conditional Warrants expired on December 22, 2000.
The Debentures, Warrants, and Conditional Warrant were sold and issued to PKI in
a private transaction exempt from registration under Section 4 (2) of the
Securities Act of 1933.
11
Airtech International Group, Inc. and Subsidiaries
Notes to Financial Statements (Continued)
Convertible Debentures (12%)
During the year ended May 31, 2000, the Company issued $350,000 of convertible
debentures maturing on September 1, 2004. Interest is payable at 12% semi-
annually. Interest has been deferred until May 2001. The debentures are
convertible at the holder's option at any time beginning one year after issuance
at a conversion price of $1.00 per share. The debentures include warrants to
purchase 350,000 common shares at a price of $2.00 per share. The warrants
expire two years from the date of issuance.
Convertible Preferred Stock
During the year ended May 31, 1998, the Company, from the 5,000,000 shares,
authorized, issued 1,143,750 of convertible preferred stock for $1 per share.
The shares have a par value of $.001, do not pay dividends, are convertible at
the holder's option for one share of the Company's common stock, and receive up
to 20%, if totally subscribed, of the gross proceeds from the Company's sales of
its portable individual air purifier for a two-year period. As of February 28,
2001 and 2000, there were 990,625 and 1,143,750 shares of preferred stock
outstanding, respectively.
Commitments and Contingencies
Operating Leases
The company is currently obligated under noncancellable operating leases for
its Dallas office and warehouse facilities, which expire in December 2001 and
January 2004, respectively.
Minimum future rental payments required under the above operating lease is as
follows:
Year ending May 31
------------------
2001 ....................................... $100,275
2002 ....................................... 73,566
2003 ....................................... 16,080
2004 ....................................... 9,380
--------
$199,301
========
12
Financial instruments
The Company's financial instruments consist of its cash, marketable securities
accounts and notes receivable, and trade payables.
Airtech International Group, Inc. and Subsidiaries
Notes to Financial Statements (Continued)
Cash and Marketable Securities
The Company maintains its cash in bank deposit and other accounts, which, at
times, may exceed federally insured limits. The Company invests excess cash not
required for operations in US Treasury repurchase agreements in connection with
its cash management account with its primary bank. The Company has not
experienced any losses in such accounts, and does not believe it is subject to
any credit risks involving its cash.
Accounts and notes receivable, trade
The Company accounts and notes receivables are unsecured and represent sales
not collected to date. Management believes these accounts and notes receivables
are fairly stated at estimated net realizable amounts.
Stock options and warrants
Through the quarter ended February 28, 2001 and 2000, the Company has issued
various stock options and warrants to employees and others and uses the
intrinsic value method of accounting for these stock options. Compensation cost
for options granted has not been recognized in the accompanying financial
statements because the amounts are not material and its exercise price exceeded
the common stock fair market value at the date of option. The options and
warrants expire between September 2000 and February 2006 and are exercisable at
prices from $0.10 to $10.00 per option or warrant. Exercise prices were set at
or above the underlying common stock's fair market value on the date of grant.
Subsequent event
On November 2, 2000, the Company and its subsidiary entered into a Stock
Purchase Agreement with Southern Therapy, Inc. and its principal shareholders
("STI") to purchase the majority of shares of STI. At this time the Parties
have agreed not to consummate this merger. Under the terms of the Stock
Purchase Agreement, the Company would swap stock for the purchase price. Due to
the decreasing market price of the underlying shares of Company Common Stock
since the Agreement was reached, the Company has decided that the cost of the
transaction has exceeded the number of shares of stock that prudently should be
issued based upon the stock price of the Company Common Stock.
However, recognizing the strengths of STI, the Company has entered into a
Distribution Agreement with STI. STI will exclusively represent the Company in
marketing and selling the portable air-purification unit to the US medical
industry.
13
Airtech International Group, Inc. and Subsidiaries
Notes to Financial Statements (Continued)
PART I
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
The Company restated and refilled its Financial Statements for the year ended
May 31, 1999 and the comparable period ending May 31, 1998 in conformance with
the reverse merger with ITC. The Company originally filed the May 31,2000 10-
K/SB and February 28, 2000 financial statements incorporating this reverse
merger.
1. Results of Operations
Revenues
The Company's Revenues for the three months ended February 28, 2001
increased $186,898 or 76% more than the comparable $246,136 revenue in 2000.
This increase is due to sales of Company products exceeding the prior period
sales by $231,898. This increase was partially offset by a decrease of
$45,000 in Franchise Fee and Other Income revenues for 2000 compared to
$15,000 for 2001. The Company is currently waiving franchise fees for
prospective franchisees that possess direct marketing skills and indoor air
quality experience. The waiver is in lieu of extensive training and start up
time lags that net save the Company money. During the nine month period
ending February 28, 2001 two new franchisees were brought on stream. This
compares to one larger franchise signed up in the period ending February 28,
2000.
For the nine months ended February 28, 2001, the Revenues increased
$658,133 or 84% over the comparable nine months ended February 28, 2000. The
increase in Revenues were likewise partially offset by the decrease in
Franchise Fees and Other Income of $150,000 with $25,000 in comparable
income for the current nine months ended February 28, 2001.
Costs and Expenses
The Company's Total Costs and Expenses decreased $194,714 or a 18%
decrease over the $895,582 in expenses for the three months ended February
28, 2001. The costs for the nine months ended February 28, 2001 increased
$575,195 or a 24% increase to total $2,965,742 for the nine months ended
February 28, 2001 compared to $2,390,547 for the nine months ended February
28, 2000. The costs and expenses are as follows:
The Company's Salaries and Wages decreased 44% or $231,216 for the
current three-month period totaling $285,375 compared to the three months
ended February 28, 2000, that totals $516,591. The decrease is due to
additional sales personnel in the direct sales commercial division and the
salaries for the Company Franchise store. There were no comparable Company
Franchise Stores open in 2000 and fewer Commercial sales persons. The
Directors and Officers of the Company elected to receive wages in common
stock of the Company during the period ended February 28, 2001.
14
For the nine-month periods, Salaries and Wages decreased $114,239 or 13%
to total $787,490 at February 28, 2001 The Company owned four franchise
stores during the nine months ended February 28, 2001 compared to one (just
opened ) for the nine months ended February 28, 2000. As in the three-month
period there were no comparable sales persons nor Company stores in 2000.
The Company has discontinued the Company stores during 2001.
The Research and Development expense increased 5% or $2,677 and $183,927
or 183% for the three and nine month periods ended February 28, 2001
compared to the three and nine months in the prior year, 2000. The increase
was primarily due to increased testing and development of the Company's new
in-line unit, the Model S-30, and testing of the portable unit Model S-950,
along with the upgrading of the commercial model S-12.
The Cost of Sales increased $265,108 for the nine months ended February
28, 2001, resulting in $780,235 in costs. This increase, however, is the
result of additional product sales such that, as a percentage of sales, the
costs decreased from over 85% of product sales to 55% for the current nine
month period. The prior periods reflected inventory write-offs and other
adjustments.
For the three month period, the cost of sales as a percentage of product
sales decreased from over 53% to 52% for the three months. The overall costs
increased $121,367 between the periods.
Similarly, the Advertising and marketing expenses, including, design and
development of brochures increased 10% or $4,961 to total $55,963 for the
three months and 51% or $265,108 to total $241,358 for the nine months ended
February 28, 2001 compared to the costs for the three and nine months ended
February 28, 2000. The increases are the result of increased marketing
expenses for the Model S-30 and Model S-950 along with the Company franchise
store advertising and marketing expenses.
Depreciation and Amortization increased $18,051 and $105,767 to total
$72,716 and $233,188, respectively, for the three and nine months ended
February 28, 2001 compared to $54,665 and $127,421 for the 2000 three and
nine month periods ending February 28. The 33% and 83% increase,
respectively, is due to the commencement in January (at the end of the third
quarter) 2000 of the amortization of Prepaid Royalties that was not required
in the prior quarters of fiscal year 2000.
General and Administrative expenses of $208,006 decreased $110,554 or 34%
for the three months ended February 28, 2001 compared to $318,560 for the
three months in 2000. General and Administrative expenses reflected one time
charges in 2000 for legal expenses with no comparable expense in 2001.
Conversely the comparable nine-month periods show a decrease in General and
Administrative expenses of $5,529 or 1% resulting in a $639,544 expense for
the nine months ended February 28, 2001. The General expense increased due
to the operating overhead expenses for the Company owned franchise stores as
well as general corporate legal and accounting increased expenses.
Interest Expense
Interest expenses increased over the prior year due to the provision for
interest on the Convertible Debentures that were sold in early 2000 and
outstanding for a short period in the
15
comparable periods ended February 28, 2000. The over 369% increase resulted
in a $48,219 and $133,652 increase over the prior three and nine month
periods ending February 28, 2001 and 2000, resulting in $52,404 and $175,114
in interest expense for the current three and six month periods ending
February 28, 2001.
In total, the Net Loss for the three months ended February 28, 2001
decreased 39% or $333,393 to a $514,952 loss, which is a $0.02 loss per
share for that period. This compares to a $1,703,249 or $0.07 loss per share
for the nine months ended February 28, 2001, or a $50,715 increase in losses
over the nine months ended February 28, 2000. The February 28, 2000 loss was
$848,345 or $0.04 per share for the three months and $1,652,534 or $0.08 per
share for the nine-month periods.
2. Liquidity and Capital Resources
During the calendar year 2000 and 2001 to date, the overall financial
markets eroded as exemplified by the NASDAQ Composite Index free falling
over 68% during that period. In this environment, the Company was in
discussion with several investment companies for additional capital. The
Company entered into an agreement to raise up to $1,000,000 through the sale
of the Corporation's 12% Secured Convertible Debenture. The 12% Debentures
are convertible at the option of the holder into shares of the Company's
common stock. The conversion price and number of shares of common stock to
be issued on conversion are determined from a formula which relates to the
average trading price of the Company's common stock on the over the counter
bulletin board during the 20 trading days prior to the date of conversion.
The Company is selling Consumer Franchises and expects to sell up to 25
Franchises by the end of the calendar year. Although the fees have been
waived for the first number of franchisees that have Indoor Air Quality or
direct sale experience, the franchise fees to be generated could result in
up to $300,000 in fees to the Company.
The current distributorship contractual agreement with Southern Therapy
Inc. should result in additional sales to the Medical Market. In addition,
the application for approval in the HCPCS coding system for the Model S-950
has been processed. The granting of a HCPCS code, if it is granted which the
Company can not guarantee, does not by itself increase sales. However the
Company and its distributor will be in a better position to market the unit
to the larger medical insurance companies in the US. The medical market,
even without a HCPCS code, could result in substantial sales. The agreement
with Southern Therapy calls for purchases of $1,000,000 in the first year
and substantial increases thereafter, however they are under no obligation
to purchase that amount.
The Company has also entered into a distributorship agreement with W & B
Service, Inc. to be the commercial distributor for the Company's commercial
products. The Company can not assure you that there will be additional sales
for these markets, however the Company currently has contracted for W & B to
purchase at a minimum $4,000,000 in Company product for the coming year,
with increases in years two and three.
The Company feels that these completed financing resources along with
increased sales of Company products through industry distributors, by the
increased foreign sales through in country distributors and the new Model S-
30 that is gaining market acceptance that combined , will enable the Company
to aggressively pursue the indoor air purification market with adequate
funding.
As a culmination of the two distributorship agreements, the Company has
decreased as of April 2001 corporate overhead by over $75,000 per month.
This represents a 40% decrease in those
16
overhead expenses compared to August 2000. The sales personnel and marketing
expenses will be absorbed by the new distributors. The lower profit margins
on the sales through the distributors are expected to be mitigated by the
increase in sales. As stated earlier the Company franchise stores have been
reallocated.
The Company does not have any plans for major capital outlays outside of
the regular course of business over the next twelve months. Any increased
expenditure will be based on consumer demand or made to order products,
thereby resulting in predictable payoff periods.
Certain statements in this form 10-Q/SB constitute "forward looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act"). The words "believe," "expect," "anticipate,"
"intend," "estimate," and other expressions which are predictions of or
indicate future events and trends and which do not relate to historical
matters identify forward-looking statements. The safe harbor provisions
provided in the Act do not apply to forward looking statements the Company
makes in this form 10-Q/SB. Readers are cautioned not to place undue
reliance on these forward-looking statements and to note that they speak
only as of the date hereof. Although forward-looking statements reflect
management's good faith beliefs, reliance should not be placed on
uncertainties and other factors, which may cause the actual results,
performance, or achievements of the Company to differ materially from
anticipated future results, performance, or achievements expressed or
implied by such forward-looking statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
17
PART II--OTHER INFORMATION
ITEM 1
Legal Proceedings
The company has been named as a defendant in a number of lawsuits arising in
the ordinary course of business. In some of these cases a judgment was rendered
against the Company. The Company has answered these routine causes of action
where appropriate and agreed to a payment schedule with respect to others. The
Company has fully reserved for these claims and causes of action in our
consolidated financial statements in the aggregate amount of $85,000.
In 1978, the Company was also named as a defendant in a cause of action styled
LLB Realty, L.L.C. v Interactive Technologies, Corp., Cause No. MER-L-1534-97,
in the Superior Court of New Jersey, Mercer County. The complaint alleges
damages relating to a lease agreement entered into by the Company for office
facilities in New Jersey. The Company never occupied the space based upon the
plaintiff (lessor) failing to finish out the space pursuant to the Company's
specifications. The complaint alleges damages of approximately $607,000 for
remaining lease payments, finish-out costs and lost revenues. Although the
Company is currently in negotiations for a favorable settlement relating to the
complaint, the outcome of these negotiations is uncertain. The Company
established a reserve in our consolidated financial statements in the amount of
$200,000 in anticipation of a settlement.
The Company is also a defendant in a lawsuit filed March 2, 2000 called H.A.A.
Inc. v Airtech International Group, Inc., Cause No. oo CV-1603 (KMW) in the
United States District Court for the Southern District of New York. The
plaintiff is seeking specific performance of an alleged contract providing for
our sale to the plaintiff of 1,854,386 shares of our common stock for a cash
purchase price of $419,000. The case is in the later stages of discovery and we
intend to vigorously defend against the plaintiff's claims. We have not
established any reserves for this action.
In July 2000 the Company settled a law suit controversy with Carlo Gavazzi
Mupac, the Company has not made all payments required under the Settlement
Agreement, the remaining balance due under the Agreement is $380,000. The
Company has reflected the outcome of the settlement on its books and records.
The Company is in discussions to re-negotiate the Settlement Agreement.
ITEM 2
Changes in Securities:
During the three month period ending February 28, 2001, The Company issued
555,128 shares of common stock to management, employees and consultants for
services rendered, for prices from $0.10 to $0.25 per share under a S-8
Registration Statement and 800,000 under Section 4 (2) of the Securities Act.
The Company issued 2,104,534 shares to PK Investors in conversion of $450,000 of
6% Convertible Debentures, issued under a SB-2 Registration Statement. On
January 5, 2001, the Company issued 1,500,000 shares under Section 4 (2) of the
Securities Act to accredited investors for prices from $0.13 to $0.20 per share.
During the three months ended February 28, 2001, the Company issued under
Section 4 (2) of the Securities Act, 419,335 shares of common stock to
accredited investors for prices ranging from $0.15 to $0.25 per share.
18
ITEM 3
Defaults upon Senior Securities, None
ITEM 4
Submission of Matters to Vote of Security Holders: None
PART II--OTHER INFORMATION
(Continued)
ITEM 5
Other Information, None
ITEM 6
Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation filed December 27, 1991 of the
Company's predecessor in name, Interactive Technologies
Corporation, Inc.(incorporated by reference to the Company's
Registration Statement on Form SB-2 filed on May 8, 2000,
Registration No. 333-36554)
3.2 Articles of Amendment filed May 14, 1997 of the Company's
predecessor in name Interactive Technologies Corporation, Inc.
(incorporated by reference to the Company's Registration Statement
on Form SB-2 filed on May 8, 2000, Registration No. 333-36554)
3.3 Articles of Amendment of the Company filed October 16, 1998
(incorporated by reference to the Company's Registration Statement
on Form SB-2 filed on May 8, 2000, Registration No. 333-36554)
3.4 Bylaws of the Company's predecessor in name, Interactive
Technologies Corporation, Inc. (incorporated by reference to the
Company's Form 10 filed on January 14, 1992)
4.1 Specimen Series "M" Preferred Stock Certificate (incorporated by
reference to the Company's Registration Statement on Form SB-2
filed on May 8, 2000, Registration No. 333-36554)
4.2 Specimen Common Stock Certificate (incorporated by reference to
the Company's Registration Statement on Form SB-2 filed on May 8,
2000, Registration No. 333-36554)
4.3 Form of Warrant to purchase shares of Common Stock granted to
holders of Series "M" Convertible Preferred Stock (incorporated by
reference to the Company's Registration Statement on Form SB-2
filed on May 8, 2000, Registration No. 333-36554)
4.4 Form of 6% Convertible Debenture Due 2002 (incorporated by
reference to the Company's Registration Statement on Form SB-2
filed on May 8, 2000, Registration No. 333-36554)
4.5 Form of Warrant to purchase shares of Common Stock granted to
holders of 6% Convertible Debentures Due 2002 (incorporated by
reference to the Company's Registration Statement on Form SB-2
filed on May 8, 2000, Registration No. 333-36554)
4.6 Form of Conditional Warrant to Purchase 6% Convertible Debentures
and Warrants to Purchase Common Stock (incorporated by reference
to the Company's Registration Statement on Form SB-2 filed on May
8, 2000, Registration No. 333-36554)
4.7 Form of 12% Convertible Debenture Due 2005 (incorporated by
reference to the Company's Form 10-KSB filed on September 7, 2000)
4.8 Form of Warrant to purchase shares of Common Stock granted to
holders of 12& Debentures Due 2005 (incorporated by reference to
the Company's Form 10-KSB filed on September 7, 2000)
(b) Reports on Form 8-K, None
19
PART II--OTHER INFORMATION
(Continued)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized, and in the capacity as the Registrant's
Chief Executive Officer and Chief Financial and Accounting Officer,
respectively.
Dated: April 16, 2001
AIRTECH INTERNATIONAL GROUP, INC.
By: /s/ C.J. Comu
-------------------------------------
CJ Comu
Chairman and Chief Executive Officer
By: /s/ James R. Halter
-------------------------------------
James R. Halter
Chief Financial and Accounting Officer
20
EXHIBIT INDEX
Exhibit Number Document
-------------- --------
3.1 Restated Articles of Incorporation filed
December 27, 1991 of the Company's
predecessor in name, Interactive Technologies
Corporation, Inc.(incorporated by reference to
the Company's Registration Statement on Form
SB-2 filed on May 8, 2000, Registration No.
333-36554)
3.2 Articles of Amendment filed May 14, 1997 of
the Company's predecessor in name Interactive
Technologies Corporation, Inc. (incorporated
by reference to the Company's Registration
Statement on Form SB-2 filed on May 8, 2000,
Registration No. 333-36554)
3.3 Articles of Amendment of the Company filed
October 16, 1998 (incorporated by reference to
the Company's Registration Statement on Form
SB-2 filed on May 8, 2000, Registration No.
333-36554)
3.4 Bylaws of the Company's predecessor in name,
Interactive Technologies Corporation, Inc.
(incorporated by reference to the Company's
Form 10 filed on January 14, 1992)
4.1 Specimen Series "M" Preferred Stock
Certificate (incorporated by reference to the
Company's Registration Statement on Form
SB-2 filed on May 8, 2000, Registration No.
333-36554)
4.2 Specimen Common Stock Certificate
(incorporated by reference to the Company's
Registration Statement on Form SB-2 filed on
May 8, 2000, Registration No. 333-36554)
Exhibit Number Document
-------------- --------
4.3 Form of Warrant to purchase shares of
Common Stock granted to holders of Series
"M" Convertible Preferred Stock (incorporated
by reference to the Company's Registration
Statement on Form SB-2 filed on May 8, 2000,
Registration No. 333-36554)
4.4 Form of 6% Convertible Debenture Due 2002
(incorporated by reference to the Company's
Registration Statement on Form SB-2 filed on
May 8, 2000, Registration No. 333-36554)
4.5 Form of Warrant to purchase shares of
Common Stock granted to holders of 6%
Convertible Debentures Due 2002
(incorporated by reference to the Company's
Registration Statement on Form SB-2 filed on
May 8, 2000, Registration No. 333-36554)
4.6 Form of Conditional Warrant to Purchase 6%
Convertible Debentures and Warrants to
Purchase Common Stock (incorporated by
reference to the Company's Registration
Statement on Form SB-2 filed on May 8, 2000,
Registration No. 333-36554)
4.7 Form of 12% Convertible Debenture Due 2005
(incorporated by reference to the Company's
Form 10-KSB filed on September 7, 2000)
4.8 Form of Warrant to purchase shares of
Common Stock granted to holders of 12&
Debentures Due 2005 (incorporated by
reference to the Company's Form 10-KSB filed
on September 7, 2000)