-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJKdviCeRRBsG7BTA8P3kJ5FBojpsHE9fCNCT99x0PBkNIKBBcOgmKX0bkGcfPD5 fadznaARKu/5OSMaTiV2mw== 0000883041-00-000001.txt : 20000202 0000883041-00-000001.hdr.sgml : 20000202 ACCESSION NUMBER: 0000883041-00-000001 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRTECH INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0000883041 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 980120805 STATE OF INCORPORATION: WY FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19796 FILM NUMBER: 507946 BUSINESS ADDRESS: STREET 1: 15400 KNOLL TRAIL # 106 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9729609400 MAIL ADDRESS: STREET 1: 15400 KNOLL TRAIL # 106 CITY: DALLAS STATE: TX ZIP: 75248 FORMER COMPANY: FORMER CONFORMED NAME: INTERACTIVE TECHNOLOGIES CORP INC DATE OF NAME CHANGE: 19930328 10QSB 1 10QSB 11/30/99 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-QSB Pursuant to Section 13 or 15(d) of the Securities Act of 1934 For the Quarter Ended Commission File November 30, 1999 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 16,560,440 shares of common stock, par value $0.05 per share issued and outstanding as of November 30, 1999. Traditional Small Business Disclosure Format Yes [ X ] No [ ] Airtech International Group, Inc. Table of Contents PART I - FINANCIAL INFORMATION Page No. Item 1. Airtech International Group, Inc. 1 - 9 Financial Statements (Unaudited) Balance Sheet as of November 30, 1999 and 1998 Statement of Operations for the six months ended November 30, 1999 and 1998 Statement of Operations for the three months ended November 30, 1999 and 1998 Statement of Cash Flows for the six months ended November 30, 1999 and 1998 Notes to Financial Statements Item 2. Management's Discussion and Analysis 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None SIGNATURE PAGE 12 PART 1. FINANCIAL INFORMATION Item 1 Financial Statements
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 1999 AND 1998 UNAUDITED ASSETS 1999 1998 ---- ---- CURRENT ASSETS Cash $ 14,544 $127,400 Receivables Trade accounts, net of allowance for doubtful accounts of $20,000 and 10,000, respectively 295,385 163,131 Other 205,511 - Notes receivable, current portion 143,750 - Inventory 242,665 323,489 Prepaid expenses and other assets - 61,996 ------------ ------------ Total current assets 901,855 676,016 ------------ ------------ PROPERTY AND EQUIPMENT - net of accumulated depreciation of $138,117 and $250,338, respectively 117,086 170,252 ------------ ------------ NOTES RECEIVABLE - net of current portion, net of allowance for doubtful accounts of $0 and $0, respectively 431,250 899,833 ------------ ------------ OTHER ASSETS Organizational costs, net of accumulated amortization 9,000 4,047 of $0 and $3,334, respectively Goodwill, net of accumulated amortization of 6,000,541 6,487,072 $486,531 and $305,281, respectively Net assets of discontinued operations, held for resale 840,000 3,463,762 Intellectual properties, net of accumulated amortization of $1,485,993 and $305,281, respectively 20,811,691 21,996,603 Trademarks 9,000 - Other 516,208 531,772 ------------ ------------ Total other assets 28,186,440 32,483,256 ------------ ------------ $ 29,636,631 $ 34,229,357 ============ ============ The accompanying notes are an integral part of the financial statements.
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AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 1999 AND 1998 LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 ---- ---- CURRENT LIABILITIES Notes payable - current portion $ 277,185 $ 66,748 Accounts payable, trade 654,563 403,318 Advances from officers 236,488 48,900 Accrued payroll and payroll taxes 354,802 Other accrued expenses 415,912 170,812 Current portion of license rights payable - 210,077 ------------ ------------ Total current liabilities 1,938,950 899,855 ------------ ------------ LONG-TERM LIABILITIES License rights payable - 329,923 Notes Payable - 277,185 Deferred revenue 400,000 400,000 Product Marketing Obligation 405,000 - Deferred tax liability 6,219,834 6,487,072 ------------ ------------ Total long-term liabilities 7,024,834 7,494,180 ------------ ------------ Total liabilities 8,963,784 8,394,035 ------------ ------------ COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Series M cumulative, convertible preferred, 1,143,750 and 1,143,750 shares issued and outstanding, respectively; liquidation preference of $1.00 per share 1,143 1,143 Common stock - $.05 par value, 50,000,000 shares authorized, 16,560,440 and 10,637,380 shares issued and outstanding, respectively 828,022 531,869 Additional paid-in capital 37,480,172 36,691,619 Retained earnings (17,636,490) (11,389,309) ------------ ------------- Total stockholders' equity 20,672,847 25,835,322 ------------ ------------- $ 29,636,631 $ 34,229,357 ============ ============= The accompanying notes are an integral part of the financial statements.
2
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998 UNAUDITED 1999 1998 ---- ---- REVENUES Product sales $ 418,338 $ 640,601 Franchisee fees 115,000 Other revenues 225 ------------ ----------- Total revenues 533,563 640,601 COSTS AND EXPENSES Salaries and wages 385,138 Cost of sales 415,649 346,230 Advertising 50,195 21,234 Depreciation and amortization 880,660 337,360 General & administrative expenses 407,332 691,947 ------------ ----------- Total costs and expenses 2,138,974 1,396,771 ------------ ----------- LOSS FROM OPERATIONS (1,605,411) (756,170) Interest expense (37,276) (170,817) ------------ ----------- NET LOSS BEFORE INCOME TAXES BENEFIT (1,642,687) (926,987) Income taxe benefit - - ------------ ----------- NET LOSS $(1,642,687) $ (926,987) ============ =========== LOSS PER COMMON SHARE - BASIC $ (0.11) $ (0.09) ============ =========== LOSS PER COMMON SHARE - DILUTED $ (0.11) $ (0.09) ============ =========== The accompanying notes are an integral part of the financial statements.
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AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998 UNAUDITED 1999 1998 ---- ---- REVENUES Product sales $ 72,897 $ 168,236 Franchisee fees 100,000 Other revenues 225 ------------ ----------- Total revenues 173,122 168,236 COSTS AND EXPENSES Salaries and wages 168,968 Cost of sales 93,100 84,354 Advertising 25,555 21,234 Depreciation and amortization 440,329 317,916 General & administrative expenses 339,539 456,725 ------------ ----------- Total costs and expenses 1,067,491 880,229 ------------ ----------- LOSS FROM OPERATIONS (894,369) (711,993) Interest expense (18,680) (48,338) ------------ ----------- NET LOSS BEFORE INCOME TAXES BENEFIT (913,049) (760,331) Income taxe benefit - - ------------ ----------- NET LOSS $ (913,049) $ (760,331) ============ =========== LOSS PER COMMON SHARE - BASIC $ (0.06) $ (0.08) ============ =========== LOSS PER COMMON SHARE - DILUTED $ (0.06) $ (0.08) ============ =========== The accompanying notes are an integral part of the financial statements.
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AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998 UNAUDITED 1999 1998 ---- ---- Cash flows from operating activities: Cash received from customers $ 317,601 $ 611,009 Cash paid to employees (385,138) (299,827) Cash paid to suppliers (271,555) (688,123) ------------ ------------ Net cash used in operating activities (339,092) (376,941) ------------ ------------ Cash flows from financing activities: Advances to Subsidiaries - (132,395) Proceeds from issuance of preferred stock, net offering costs - 112,500 Repayments of notes payable 291,828 (20,668) Proceeds from issuance of common stock - 399,060 ------------ ------------ Net cash provided by financing activities 291,828 358,497 ------------ ------------ Net increase (decrease) in cash (47,264) (18,444) Cash at beginning of period 61,808 145,844 ------------ ------------ Cash at end of period $ 14,544 $ 127,400 ============ ============ The accompanying notes are an integral part of the financial statements.
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AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998 UNAUDITED Reconciliation of Net Income to Net Cash Used in Operating Activities 1999 1998 ---- ---- Net loss $(1,642,687) $ (926,987) Adjustments to reconcile net loss to net cash used in operating activities: Amortization and Depreciation 880,660 337,360 Common stock for services 263,618 150,000 (Increase) decrease in accounts receivable (121,434) 9,006 (Increase) decrease in prepaid expenses - 5,218 (Increase) decrease in other assets 19,970 (94,756) Increase (decrease) accounts payable 144,370 266,363 Increase (decrease) in accrued expenses 116,411 (123,145) ------------- ------------- Total adjustments 1,303,595 550,046 ------------- ------------- Net cash (used) in operating activities $ (339,092) $ (376,941) ============= ============= The accompanying notes are an integral part of the financial statements.
6 AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Airtech International Group, Inc. (the Company), (formerly Interactive Technologies Corporation, 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 Airtech International Group (AIC), which through its subsidiaries manufacture and sell various air filtration and purification products. The total purchase price of $22,937,760 was funded through the issuance of 10,500,000 of its common stock shares valued at $.625 per share, the issuance of 11,858,016 of its Series A convertible preferred stock shares valued at $.625 per share and the issuance of $9,000,000 of convertible debentures. The transaction was accounted for using the purchase method of accounting. Accordingly, the purchase price of the net assets acquired has been allocated among the net assets based on their relative fair values with $22,297,684 of the purchase price allocated to intellectual properties based on an independent asset appraisal and $6,487,072 allocated to goodwill. The acquired goodwill will be amortized using the straight-line method over 20 years. Principles of consolidation The accompanying consolidated financial statements include the general accounts of the Company and its subsidiaries, AIC, Airsopure, Inc. and McCleskey Sales and Service, Inc., each of which has fiscal year ends of May 31, and the Company's investment in Airsopure 999 LP, a Texas Limited Partnership with a December year end. All material intercompany accounts and balances have been eliminated in the consolidation. 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. For the quarter ended November 30, 1999 and 1998, amortization expense totaled $350,000 and $305,281, respectively. Goodwill recorded in the acquisition of AIC, is being amortized under the straight-line method over 20 years. For the quarter ended November 30, 1999 and 1998, amortization expense totalled $81,089 and $12,635, respectively. 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 and 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. 7 AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Intellectual properties In its acquisition of AIC the Company purchased certain intellectual properties. Costs incurred by the Company in developing its products consisting primarily of design, testing and completion of working prototypes, which are not considered patentable, are capitalized and will be amortized over the estimated useful life of the related patents once a unit has been placed in production. 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. 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 and time deposits with maturities of less than three months. None of the Company's cash is restricted. Earnings per share Basic and diluted loss per share are based upon 16,560,440 and 10,637,380, respectively, weighted average shares of common stock outstanding. No effect has been given to the assumed conversion of convertible preferred stock and convertible debentures and the assumed exercise of stock options and warrants as the effect would be antidilutive. 2. COMMITMENTS AND CONTINGENCIES Operating Leases The Company is currently obligated under a noncancellable operating lease for its Dallas office facilities which expire in January 2002. Minimum future rental payments required under the above operating lease is as follows. Year ending May 31 2000 $ 28,044 2001 59,820 2002 42,376 ------------------ $ 130,240 ================== 8 AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 3. FINANCIAL INSTRUMENTS The Company's financial instruments consist of its cash, accounts and notes receivable, trade payable. Cash The Company maintains its cash in bank deposit and other accounts , which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts, and does not believes 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. 4. ASSETS HELD FOR SALE In February 1998, the Company formally discontinued its Rebate TV operations and adopted a plan to dispose of the only asset of this business segment, the proprietary software and trademark. The Company also adopted a plan to dispose of its FCC license rights, the only asset of its interactive video and data services business segment, which were never operational. Management expects to sell these assets by May 31, 2000. At November 30, 1999 and 1998, net assets of these discontinued operating segments, stated at the lower of cost or net realizable value, were comprised of the following: 1999 1998 ------------ ------------ License rights, net of $438,760 and $438,760, respectively, of of accumulted amortization and net of license rights payable of $540,000 $ (303,750) $ (303,750) Proprietary software and trademark net of $0 and $1,643,53, respectively of accumulated amortization 1,143,750 3,767,512 ------------ ------------ $ 840,000 $3,463,762 ============ ============ 5. STOCK OPTIONS AND WARRANTS Through the quarter ended November 30, 1999 and 1998, 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. The options and warrants expire between December 1999 and December 2008 and are exercisable at prices from $0.20 to $22.50 per option or warrant. Exercise prices were set at or above the underlying common stock's fair market value on the date of grant. 6. RELATED PARTIES For the six months ended November 30, 1999, the Chief Executive Officer and the President made cash advances of $20,000 and $20,000 and received repayments of $0 and $0, respectively. The advances are to be paid as cash is avaiable or by the issuance of common stock. These advances are unsecured but bear interest at 15% per annum. As of November 30, 1999, advances payable to these officers totaled $20,000 and $20,000, respectively 9 PART I ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS 1. Results of operations The Company's operations for the three months ending November 30, 1999 resulted in a net loss of $913,049.00 or a $0.06 basic loss per share. This is compared to a loss of $760,331.00 or $0.08 per share for the same period in 1998. The Company through its wholly owned subsidiary, Airsopure Inc. reflected increased sales totaling $173,122 for the three months ended November 30, 1999. This was primarily the result of sales of air purification equipment, installation and sales of replacement filters. This compares to sales of $168,236 for the three months ended November 30, 1998. Included in these sales is a sale of one franchise for 1999 totaling $100,000.00. The Company's sales of air purification equipment reflect the completion of the Company's efforts to introduce a full line of commercial and consumer air purification and sanitation equipment. The sale of equipment was hampered by the Company's financing shortfall resulting in a lower inventory of finished goods. During the Quarter ended November 30,1999, the Company made an application to the Medicare administration on its new Model S-950 and expects an affirmative response by February 3, 2000. At the same time the Company has announced the opening of two Company retail sales stores in Dallas and Las Vegas to facilitate the sale of the Company's home consumer products. The Company expects this marketing approach to complement the Medicare market. Production and sales of the Model S-999 auto unit was slowed by the Company's due diligence in finding a replacement out-sourced manufacturer. The acceptance of the auto unit in such a new market has been enhanced during the Quarter by the sales and marketing efforts and expenditures of the Company. The media attention and the increased public awareness of the auto emissions, for example Houston TX. replacing Los Angeles CA. as the dirtiest US city, should allow the unit to gain market acceptance. The clinical efficacy test results should be available in the quarter, triggering sales to fleet services and Police Departments to mention only two end users that will benefit from the unit. The European auto accessory after market continues to review the auto unit and the Company is reviewing its EU sales strategy. The Company's commercial lines of products continue to have very favorable after sale satisfaction. The replacement filter market is growing and keeps customer satisfaction high. The Company will be focusing on adding qualified Franchisees worldwide to take care of the demand for pure air. The Cost of goods sold for the three months ended November 30, 1999 was $93,100 as compared to $84,354 for the prior period, November 30, 1998. These costs are higher than Management anticipates due to the manufacturing overhead being absorbed by lower sales and the current lack of economies of scale in purchasing. Operating expenses were $974,391 for the three months ended November 30, 1999 compared to $795,875. for the prior three months ending November 30, 1998. This increase is primarily due to the full amortization of the intangible assets acquired in the Merger, an increase of $122,413. Salaries and wages along with General and administration expenses increased $51,782 due to increased staffing to promote the Company and its products. For the six months ended November 30, 1999 the Company reflects a loss from operations of $1,642,687, or $0.11 per share, as compared to a loss of $926,987 or $0.09 loss per share for the comparable period in 1998. The six months comparisons are similar. Sales reflect two new franchisees and the inventory liquidity ramifications. The only expense differences are the larger Amortization expenses due to the merger where the expense is $543,300 larger for the six months ended November 30,1999 than 1998. Also, the larger consulting expense attributable to the new consumer products brought on line is reflected in a larger general and administrative category. 10 2. Liquidity and Capital Resources During the three and six months ended November 30, 1999 the Company continued to fund operations through revenues, private sales of securities and paying certain debts and business services in Company common stock. As of November 30, 1999 the Company has invested $295,385 in accounts receivable and $654,563 in Trade accounts payable. As of January 15, 2000, the Company is in the final stages of negotiation with a number of parties to provide the financing required to manufacture sufficient inventory and provide the cash flow for operational support for at least the next year. 3. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Statements contained in this document which are not historical fact are forward looking statements based upon management's current expectations that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward looking statements. These risks are described in the Company's Form 10-KSB for the fiscal year ended May 31,1999 filed with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 1: Legal Proceedings On October 26, 1999 the Company was named as a defendant in an action entitled Carlo Gavazzi Inc. v. Airtech International Corporation and Airtech International Group, Inc., Case no-99-11101-D, County Court No. 4, Dallas Texas. The suit alleges failure to pay invoices on goods shipped to the Company, on goods not shipped, for raw materials and damage claims totaling a relief sought of $1,600,000. The Company has answered with affirmative defenses and denied all of the allegations. The Company has sued Carlo Gavazzi Inc. in a cross action suit, joined to the above styled case seeking a relief of over $1,000,000 in damages. The Company expects to prevail in this suit and has fully reserved for the delivered goods in the financial statements. The Company has been named as a defendant in a number of routine litigations seeking payment for goods delivered or for services rendered to the Company. The Company has also had several judgements rendered against the Company in the cases. The Company has answered these causes of action where appropriate, is in negotiation for settlement where appropriate and is under payment schedules with others. The Company has fully reserved for these in the Financial Statements. Item 4: Submission of Matters To a Vote of Security Holders The Company held its Annual Securities Holders Meeting on November 26, 1999. The Securities Holders elected R. John Harris, Dr. Andrew Welch, M.D. Robert Galvan as directors of the Company for a term of one year and re-elected CJ Comu and John Potter for the same term. 11 Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on January 14, 2000. AIRTECH INTERNATIONAL GROUP, INC. by: /s/ CJ Comu ----------------------------------- CJ Comu, Chief Executive Officer by: /s/ James R. Halter ---------------------------------------- Chief Financial Officer, General Counsel 12 EX-27 2 ARTICLES 5 FDS 10Q 11/99
5 3-MOS MAY-21-2000 AUG-01-1999 NOV-30-1999 14,544 0 644,646 (20,000) 242,665 901,855 255,203 (138,117) 29,636,631 1,938,950 0 0 1,144 928,022 37,480,172 29,636,631 173,122 173,122 93,100 93,100 974,391 0 18,680 (913,049) 0 (913,049) 0 0 0 (913,049) (0.06) (0.06)
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