-----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, SQjSIg62qn5ErIs8WbAjbXxj2aw61TtNDuw/bcty0f9E3zY+OpsJ4sTNEajLXGKC 3+6ArquDA7zgPlHTeeaeOw== 0000883041-98-000013.txt : 19980916 0000883041-98-000013.hdr.sgml : 19980916 ACCESSION NUMBER: 0000883041-98-000013 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980915 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERACTIVE TECHNOLOGIES CORP 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: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-19796 FILM NUMBER: 98709208 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 10KSB/A 1 10KSB/A FOR FYE 5/31/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-KSB/A AMENDMENT NO.1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 FOR THE FISCAL YEAR ENDED May 31, 1998 COMMISSION FILE NUMBER: 0-19796 INTERACTIVE TECHNOLOGIES CORPORATION, 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 106 Dallas, Texas 75248 (Address of Principal Executive Offices) Registrant's telephone number including area code: 972-960-9400 Securities Registered Under Section 12(b) of the Exchange Act: NONE Securities Registered Under Section 12(g) of the Exchange Act: COMMON STOCK, $0.01 PAR VALUE. Check whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. _X_ The Registrant's operating revenues for its most recent fiscal year were: $0.00 for the parent and $1,125,444 consolidated with AIC. The aggregate market value of voting stock held by non-affiliates of the Registrant, based on the average of the closing bid and asked prices of the Registrant's Common Stock in the NASDAQ market as reported by NASDAQ on May 31, 1998, was approximately $10,238,041. Shares of voting stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive. As of May 31, 1998, 25,370,171 shares of Common Stock, $0.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE None. LOCATION OF EXHIBIT INDEX The index of exhibits is contained in PART IV, Item 13 herein on page 15. TABLE OF CONTENTS PART I: Page Item 1. Description of Business 2 Item 2. Description of Properties 9 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II: Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Management's Discussion and Analysis 10 Item 7 Financial Statements 13 Item 8 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 31 PART III: Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act 31 Item 10. Executive Compensation 32 Item 11. Security Ownership of Certain Beneficial Owners and Management 32 Item 12. Certain Relationships and Related Transactions 33 PART IV: Item 13. Exhibits, and Reports on Form 8-K 34 SIGNATURES 35 1 PART I Item 1. Description of Business. - - -------------------------------- Background. Interactive Technologies Corporation, Inc. (ITC) was incorporated in the state of Wyoming on August 8, 1991. At that time, ITC was engaged in the business of exploiting its rights under a license granted by CST Entertainment Imaging, Inc. ("CST"). Such license gave ITC the exclusive right to use CST's coloring process to convert to color black-and-white film and videotape, including black-and-white theatrical films and television programs produced for distribution in Europe. ITC also had exclusive right to use CST's technology to provide digital special visual effects for new film and video productions produced for distribution primarily in the European territory. ITC ceased this effort on October 18, 1995, when it exchanged the license in satisfaction of certain of its debt. On October 20, 1995, ITC entered into an agreement to acquire assets of Syneractive, Inc. ("SI"), a Florida corporation. SI's assets included intellectual property consisting of a television production and the trade name Rebate TV. The assets also included license rights from the FCC to provide Interactive Video and Data Service ("IVDS") in the Charleston-North Charleston, South Carolina, and Melbourne-Titusville-Palm Bay, Florida metropolitan areas. In exchange for such assets, ITC issued 5,700,000 shares of common stock to Perry Douglas West, its current sole director and officer. On May 31, 1998, ITC completed the purchase of 95.502% of the issued and outstanding shares of Airtech International Corporation, Inc.,(AIC) and it's subsidiaries. Under the terms of the Stock Purchase Agreement entered into in May of 1997 and amended in August 1997 ITC tendered to purchase 100% of the issued and outstanding stock AIC. Currently ITC has issued 10,027,731 shares of common stock, 11,324,642 shares of convertible preferred stock and $8,595,180 of convertible 10% debentures in exchange for 16,010,335 of AIC common stock. ITC will continue to purchase the additional shares of AIC as they are offered by AIC shareholders. Principal Products or Services and Their Markets. General. ITC develops and produces interactive television and interactive digital media programming for distribution on cable, by broadcast and direct satellite television, and over the Internet. ITC's principal interactive programming product is Rebate TV(TM) The product allows a consumer to receive a cash rebate from ITC for purchases of products advertised on the Rebate TV(TM) television program by incorporating interactive media and computer data management. Rebate TV(TM) is designed to utilize existing communication technologies for consumer responses. It now uses the telephone and the Internet as return links. However, it is also designed to easily accommodate the emerging interactive television systems as they come into use, such as IVDS and Interactive Television (via fiber optic cable/telephone cable etc.) As a result of the completion of the acquisition of AIC the Rebate TV(TM) has been re-evaluated and offered for sale as a unit during fiscal 1999. ITC obtained an updated business appraisal on the Rebate TV program establishing an estimated value of $4,200,000. ITC is concentrating on the operations on the business of AIC and it's subsidiaries. Airtech was founded in 1994 as a distributor for Honeywell/Enviracaire's air purification products. In January of 1996, AIC started manufacturing its own line of air purification products. Two years later AIC is regarded as an emerging leader in the industry, especially for superior-quality commercial products. AIC currently manufactures ceiling-mounted units, a down draft table, portable automobile products and will soon have a portable residential unit that will be available for Medicare recipients and other consumers. 2 Airsopure (ASP), a wholly owned subsidiary of AIC was formed in March 1997 for the implementation and operation of a franchise program. ASP provides exclusive marketing for AIC's indoor air purification products. In creating this new subsidiary, a new marketing format was introduced to the industry and ASP became the first home-based franchise organization to offer individuals an opportunity to join a team that would train and authorize the franchisee's the exclusive rights to ASP air purification products. ASP is currently supplying its products to Host Marriott airport locations, Del Frisco's Double Eagle restaurants, Bennigans's, Denny's, NEC, Southwest Airlines and many others. ASP's new S-14 hotel unit is currently being tested by six large hotel chains with the S-12 and S-16 units under contract for installation in the Georgia State Capital Building and in the Georgia Dome during the fall of 1998. MSS, Inc., was acquired by AIC in November of 1995 and is responsible for the installation and service of the AIC product line in Dallas/Fort Worth Metroplex. MSS began operations in 1982 in the HVAC industry. MSS local markets include commercial and residential, new construction, retrofit, repairs and sheet metal fabrication. MSS recently became affiliated with Nations Preferred Home Warranty (NPHW), which offers exclusive home warranty coverage programs for buyers and sellers of pre-owned homes. As a result of this new affiliation MSS anticipates adding 2,000 new customers during fiscal 1999. Markets. ITC is concentrating on the indoor air contamination markets developed by AIC and its subsidiaries. "Indoor air contamination" exist in the form of particulates and/or gases in virtually every cubic inch of air breathed, whether in an office building, homes or retail establishments. Statistics indicate that 60% of legitimate employee absenteeism is "respiratory related" and that such absenteeism has a profoundly negative impact on a companies productivity and profits. Air contamination encompasses bacteria, pollen, dust mites, smoke, plant spores, dust, solvents, glues formaldehyde, carbon monoxide, carbon dioxide, viruses, and also includes diseases such as tuberculosis, meningitis and hepatitis. It also includes Volatile Organic Compounds (VOC's) which are a combination of two different but recognizable molecules that when combined, become unstable and potentially fatal. Historically, the only know methods of addressing and treating indoor air contamination were (1) open windows and doors to bring fresh air into an area, and (2) the use of electro-static air filters to attempt to purify the existing air in an area. The indoor air purification industry is in its infancy but currently considered by EPA to be a $1.8 billion market. Current sales of national commercial product lines are approximately $100 million. Until now, no company has taken an aggressive, professional marketing stance to educate and service the needs of the public in indoor air quality. The following markets for distribution of the AIC product lines have been identified and specific models have been developed for these markets; (1)Hotel industry (2) Restaurant (3) Schools (4) Automobiles (5) consumers and (6) Medicare and other insurance recipients. Distribution of the indoor air products will be thru a net work of Franchisees, International Licenses, HVAC contractors, Internet direct sales, Retail distribution, Home/Shopping/Infomercial, Joint Ventures, Network Marketing, and for Medicare the Durable Medical Equipment suppliers. Revenue Sources. ITC will receive its revenues from the acquired majority owned subsidiary AIC. AIC revenues will be from the sales of its air purification product lines, the sale of franchises, the sale of international licenses and from its subsidiary MSS. On completion of design and testing of additional product lines AIC anticipates revenues for fiscal 1999 to be in the $22 million range. Product Development and Design AIC has developed eleven unique products for market niches that have shown incredible product demand. Each of the products incorporates at least 3 proven filtration devices, capturing particles, gases and odors. For these and products, the AIC already has an increasing number of recognizable, steady and satisfied customers. Currently, other available technologies to clean indoor air include; activated carbon filters, HEPA (High Efficiency Particulate Air) Filter, air Ozonation - Ozone Generators, anti-Microbial chemically treated filters, high Energy UV light, ionization, electrostatic Precipitators and charged media filters. 3 On their own, none of these technologies have proven to be completely effective. To achieve acceptable results, a combination of several of these technologies must be implemented, such as the technologies utilized by AIC. The advantages of AIC's products are: 1. Biological air contaminants are destroyed or removed rather than transferred to another media 2. The process cleans and with certain products, disinfects the air 3. The process is effective for microbes, endotoxins, toxins, allergens, VOCs and organic odors 4. No toxic chemicals are employed 5. No ozone is generated or introduced into the air 6. The process is regenerating 7. The process works well at room temperature 8. The required pressure drop and energy needs are low 9. Self-cleaning process does not reintroduce toxic post process residue into air stream 10. Economical to operate 11. Industry guidelines met re: single-pass contaminant removal efficiency and particulate filtration The following AIC products have design completed and are being marketed currently or are in the last stage of development before distribution: Status: Type: Applications: Series 12 complete ceiling unit restaurants,print shops, casinos, etc Series 14 complete wall unit hotels, offices Series 14M complete wall unit homes Medicare recipients) Series 16 complete ceiling (hidden) unit offices, nursing homes, restaurants Series 22 complete ceiling (hidden) unit multi-office building, industrial Series 900 complete portable auto unit autos (via retail sales) Series 999 complete trunk-mounted auto unit autos (via sales to auto dealers) Series 950 complete portable floor model homes, offices Series 850 complete portable floor model homes, offices Series 220/230 complete down draft table beauty and nail salons Product Description Series S-12: The series S-12 is designed to fit into a 2 foot x 4-foot space of a ceiling. When installed in a ceiling opening, 5.5 inches of the unit's decorative ABS plastic lid protrudes from the ceiling. This unit filters approximately 1200 cubic feet of air each minute removing particulates, gases and odors. Markets for this unit include the food and beverage industry, hospital and nursing homes, print shops, office buildings and other industries with problems involving cigarette or cigar smoke, odors and particulates larger than .3 microns. Series S-14: The series S-14, is designed to mount against a wall at the joining point of wall to ceiling. This system is approximately 36" x 14" x 14" with the visible portion being molded ABS plastic, having a sculptured geometric appeal. The unit filters approximately 400 cubic feet of air per minute. The markets for this product are those having problems with any particulate, gas or odor found in rooms under 400-sq. ft. such as hotel and motel rooms, offices, classrooms, patient rooms and small shops. Multiple units can be installed to accommodate larger rooms. Series S-16: The series S-16, developed particularly for smaller offices, nursing homes and some hotels. This system can be flush mounted in the ceiling without protruding visibly below the ceiling and can also handle approximately 400 CFM. The unit measures 2' x 2' x 14". Series S-22: The series S-22 is a ductable unit for both commercial and light industrial applications. This unit will allow remote positioning (i.e. on the roof) and collection of contaminants from distant zones. The clean air discharge can be directed to zones as needed. This unit permits creation of negative and positive pressure zones providing maximum control of airborne contaminant movement. The air cleaning capacity will be approximately 1800 cubic feet per minute. This unit will also be available for the upscale residential market for both new construction. 4 Series 900: The series 900 is a small portable unit designed for the automobile that will remove both gases and particulates. It will clean approximately 30 cubic feet of air per minute. With mounting anxiety over air quality, new car buyers and automakers are examining options for improving the environment in the interior of vehicles. Some industry experts currently predict that the non-existent market for auto filtration systems in the U.S. will skyrocket to $200 million by the year 2000. To date, no filtration system for automobiles has been developed that will remove particulates and gases at a price less than $500. The series 900 will retail for $149. Series 999: Is being developed as an automotive after market product to be mounted in the trunk of new and used cars. The unit was designed to move 60 cubic feet of air per minute with a complete air change every 30 seconds. This product will retail for under $500 and should be a leader in the automotive after market upon its release. Series 950: A working proto-type of this unit is currently being developed and finalized. This is the unit is being designed as a Class II Medical Device and for approval under Medicare Part B with related charges. The product incorporates a 5-stage filtration system which includes the following: (1) Antimicrobial pre-filter (2) Ultraviolet bulbs (3) Hospital grade 99.97% HEPA filter - for removal of particles (4) Trisorbent filtration - for removal of gases (5) Ionizer for destruction of remaining gas molecules Series 850: The series 850 is a modified version of the series 950. It will be sold to the general public via multilevel marketing companies and private label distributors. It will look like the series 950 but will not incorporate as extensive a cleansing process nor will it be specifically designed for the elderly. Series S-220 Down Draft Table: The series S-200 was designed for the nail manicure industry and was first introduced in January 1996. It has been modified to reduce manufacturing cost and ease of servicing while improving gas, odor and particulate filtration efficiency and extending the life of the sorbent media filter. This series has a single speed 450 CFM blower with a sorbent media filter designed for the special needs of this industry.. Series S-230 Down Draft Table: The series S-300 is designed to appeal to the pathology/histology environment, the dental lab industry and other light industrial markets. This series utilizes a 700-CFM, two-speed blower using sorbent media filter, a polyester pre-filter as a standard and offer up to a 95% ASHRAE 2" x 4" pleated as an option. Marketing and Sales Strategy AIC's marketing strategy, perhaps as much as any other factor, will be the reason for tremendous growth in sales. Very few other companies in this industry have aggressively marketed high-quality products to more than just a few groups of end-user customers. Most of the time in this industry, the sales and marketing job is left to an HVAC contractor or repairman armed with little more than a product installation guide. AIC is targeting several distribution channels for direct exposure of its products and teaching consumers about the costs and solutions for indoor air contamination. Management is using a carefully mapped multi-channel approach to market its product line, and believes this differentiator, in addition to its superior products, will yield substantial growth for the next several years. For example, the following channels are being utilized: Franchise- AIC formed its wholly-owned subsidiary Airsopure, Inc. to develop and market a franchise program. Under this program a franchisee can purchase the rights for a specific geographic area for the exclusive rights to AIC's air filtration equipment. 5 International Licenses - AIRTECH has already licensed the distribution rights to its name and technology in the countries of Taiwan, the Philippines, Turkey and Canada. The Company, now that it has a full product line to offer, intends to more aggressively pursue international distribution relationships. All sales are made in U.S. dollars, FOB Dallas. Entire countries sell for a minimum of $100,000. Manufacturer's Reps - There are approximately 260,000 HVAC Contractors in the U.S. alone. This unconsolidated group of professionals accounts for a significant amount of the current sales of air purification and cleaning units. The Company will make certain products available to them, such as the Series 12, 16 and 22. Internet - Internet usage has doubled over the last 12 months and consumer purchasing will continue to grow in accordance. 73% of web users search for information about products and services, and 7.4 million users have made at least one purchase over the internet. The demographics of web users also fit well with the Company's products. Most are well educated and earn significantly more income than average. According to Bill Gates, founder of Microsoft, "Like the PC, the internet is a tidal wave. It will wash over the computer industry...drowning those who don't learn to swim in its waves." Airsopure website is www.airsopure.com. Here, the AIC products can b learned about, viewed and ordered. The AIC intends to spend additional funds in an effort to direct more internet traffic to this website. AIC's website is www.airtechgroup.com. These websites give several additional advantages:access to 60 million people worldwide, reduction in distribution costs, quicker advertising response times, direct feedback from customers and instantaneous updating of information. The keys to successful marketing on the internet will be exposure and association with other well-traveled websites, security, a clean design and ease of use and product testimonials which will also be included in the website. Retail Distribution - AIC has developed several important products which it believes suitable for retail distribution. Most notable are the portable Series 900 and the Series 850, both of which have low price points and appeal to the broad market of consumers. Discussions are currently in process with one of the largest retailers in the world for distribution of both the Series 900 and 850. Home Shopping/ Infomercial - The Series 900 and 850 will also be distributed via a powerful home-shopping medium such as QVC or the Home Shopping Network. In this well established marketplace, over 80% of all U.S. cable homes can be reached through the television or computer. Over 40 million Americans have purchased products through a home shopping medium, and some 400 new products get introduced to television viewers each week. Joint Venture - the Company has begun discussions with several possible joint venture partners for international manufacturing, outsourcing, marketing and distribution. In some countries, the air quality is dramatically worse than it is in the U.S. and the Company feels that its products would be highly marketable in these areas. Just a few examples are Chile, Brazil and Mexico. Network Marketing - One of AIC's target markets is the "Portable Room Air Cleaner" market. Entry for this product will be gained thru relationships with both retail organizations and large network marketing firms. Several such firms have indicated interest in the products, representing they could sell a very high quantity of machines. The worldwide market for portable room air cleaners based on particulate filtration technology is approximately $750 million. Growth is estimated between 10-15% annually. Due to its superior technology, competitive pricing and economical operation, AIC is confident that it can capture a significant share of this market. The advantage of this channel is that AIC will be able to private label licensed products and drop ship large trucks of finished manufactured goods straight to the network marketing company's warehouse, not acting as the final distribution point or returns center. 6 Medicare/DME's - AIC knows that physicians regularly recommend the use of portable air filtration systems for their patients suffering from chronic and acute episodes of illness related to allergies, asthma and general upper respiratory distress. In the absence of a Medicare "code", patients are generally forced to incur the expense of such technology on a non-reimbursable basis. These medical conditions are frequently elevated from a chronic status to acute episodes due to the inhaling by patients of various airborne contaminants. The Medicare code and charge are awarded through a review process conducted under the auspices of the Health Care Financing Administration (HCFA) and its agencies that include the Statistical Agency for Durable Medical Equipment Regional Council (SADMERC) and the Durable Medical Equipment Regional Council (DMERC). Once awarded a Medicare code and charge, patients suffering from respiratory problems are able to secure through a variety of durable medical equipment (DME) providers, medical technology prescribed by their attending physicians that will be paid for by Medicare or their insurance carrier of record. AIRTECH also knows that third party payers such as managed care and indemnity insurance plans will more readily reimburse the patient for the AIRTECH 950 after the technology receives a Medicare code. Clearly, the successful acquisition of the code will precipitate substantial and ongoing revenues for the 950 that will accrue to the benefit of the company and its stockholders. AIC has in place a national distribution network composed of highly successful durable medical equipment (DME) distributors that have existing sales forces and marketing infrastructures. Association with the DME's creates an immediate distribution network for the Model 950 without forcing AIC to incur the management challenges of creating and maintaining its own sales force or recreating the DMEs' existing client bases. The DME's already work with physicians providing other medical devices such as walkers, wheelchairs, hospital beds and electronic monitoring devices. The Model 950 becomes a new product for the DME's within an industry where new products are not common. AIC has initiated the steps necessary to secure the Medicare code and expects to receive final approval for the product by the end of 1998. There are approximately 38.8 million enrollees in the Medicare system. Of these, approximately 31 million individuals suffer from some sort of upper-respiratory problem. This represents the end-user market for Model 950. A 1% market penetration would represent to AIC approximately $100 million in revenues. The channel to tap this market is the already-established DME channel, of which there are approximately 10,000 DME suppliers in the U.S. These DME's already sell millions of dollars of highly competitive products, and with the Model 950, will be able to sell a product at comparably high margins with essentially no supplier competition. With the distribution strategy of utilizing the existing DME's, the Company will only incur very limited sales and marketing expenses. Automobile Dealers - There are approximately 24,000 automobile dealers in the U.S. Some of the auto makers have begun to experiment with various air cleaning systems, such as Mercedes Benz and BMW. The Automotive Clean Air Council was formed after the disclosure of research conducted by a leading educational institution: that the quality of air in many automobile air conditioners may be poor due to contamination with fungi and spores which are unhealthy, and which can trigger allergic reactions. The first indication that this problem exists is an odor detectable when the AC unit or the air circulation system is activated. It is important, however, to note that the bacteria might be present without and before the odor is detected. This condition is caused by buildup of mold and bacteria in the evaporator. The infecting of the AC Unit causes allergic reactions and other symptoms by breathing in the waste products of these unwanted and growing microbes. Overall, the applications for the Company's products are limitless, since the cost to implement any of AIC's products is small compared to the benefits that typically accrue to the user. 7 Product Assembly and Start up Cost The Company currently maintains a warehouse facility in Dallas Texas having approximately 10,000 square feet. In this facility the Series S-12 and S-14 are currently being assembled at an average rate of 100 units per month. This space is adequate for increased production of these units to 800 to 1,000 units per month. The anticipated unit volume of the Series 999, the automobile unit and Series 950, the Medicare unit during fiscal 1999 has caused management to select out-sourcing of these units for production. The Company is currently seeking to finalize an agreement with Sure Micro (SM), a Dallas Texas based manufacturing facility that would assemble these products. SM is both an ISO 9000 and ISO 9001 designated facility having approximately 55,000 square feet of space for its sub assembly work. Under the proposed agreement SM would assembly, warehouse and ship the ITC Series 999 and Series 950 units. Management feels using SM would greatly reduce its initial startup production cost and the resulting operating cost while providing strong controls on product quality and inventories. The Company plans to shift assembly of its other units to SM during fiscal 1999. The Company will incur design start up cost during fiscal 1999 on its Series 999, Series 950 and redesign of Series S-14. These products cases will in ABA plastic requiring injection molding. The engineering and mold tooling cost for these products should be in the range of $ 400,000 for the Series 999, $500,000 for the Series 950 and $500,000 for the Series S-14. Once the engineering and mold tooling has been completed the Company plans to out-source the actual injection molding required for these units. Management is currently in contract process with International Purity Corporation (IP) to do its injection molding in their 110,000 square foot facility in Saginaw Texas. IP has a staff of 70 full time employees and does injection molding and assembly for a large number of water purification products. The Company's management feels that the out-sourcing indicated above will reduce the start up production cost by eliminating the necessity for an additional large facility for production and warehousing, the hiring and training of a large employee base and the related insurance and payroll cost. This will also reduce the start up time required to begin production thus allowing the Company to have available products for sale to meet the anticipated volume requirements. Competitive Conditions. Trion, Inc., a publicly traded company in the air purification operations consist of two principal segments: engineered products and consumer products. The engineered products group designs, manufactures and sells commercial indoor air quality and dust collection equipment and accounted for 70% of the company's total sales in 1997. The consumer products manufactures and markets appliance air cleaners, including both table top and free standing console units Ceco Environmental manufactures and sells industrial air filters and filter fabric, as well as supplies air quality improvement systems. Environmental Elements designs equipment and supplies systems and services to the air pollution industry and designs large scale systems to control gaseous emissions. In addition Environmental Elements designs electrostatic precipitators, fabric filters and scrubbing systems. Honeywell/Enviracaire has both commerical and consumer divisions with primary sales being from the consumer division. Competition in the commerical market is very specialized with no one company offering a complete line of air filtration equipment but rather specialized in very destinct markets. In most major areas in the US there will also be various small commerical air filtration suppliers but not with a product line competitive with AIC's commerical units. In the consumer market many suppliers and manufacturers have a varity of air filtration products. AIC's entrance into the consumer market will be thru its Medicare code and charge which will have no competition for some period of time. The private label licensing of this product to network marketing organizations will also be outside of direct competition with the many retail products current available with none of these products offering the technological inovations of AIC consumer products line. Many of the AIC products will be protected by patents or trademarks. 8 Number of Persons Employed As of August 1, 1998 ITC and its subsidaries had 27 full-time employees The Company's fiscal year runs June 1 to May 31 of each year. Item 2. Description of Properties - ---------------------------------- The Company consolidated executive operations to 15400 Knoll Trail, Suite 106, Dallas, Texas and a warehouse facility located at , Dallas Texas. These facilities having a total of approximately 13,000 and a total rental cost for fiscal 1998 of $64,000. It is anticipated that additional facilities will be required during fiscal 1999 due to the expansion of the Company's business. Item 3. Legal Proceedings - -------------------------- The Company is in litigation with LLB Realty, L.L.C. which has filed a claim alleging claims under an office lease agreement in Superior Court of New Jersey, Mercer County. The Company has asseted claims against L.L.B. Realty, L.L.C. for failure to perform under the conditions of the agreement. Settlement negotiations have been ongoing and the Company expects this matter to be settled in a manner not unfavorable to the Company. (See notes to audited financial statements). The Company is not a party to any other legal proceedings except for claims and lawsuits arising in the normal course of business. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ NONE PART II Item 5. Market for Registrants's Common Equity and Related Stockholder Matters. - -------------------------------------------------------------------------------- a. Market Information Interactive Technologies, Inc. common shares were traded on the National Association of Securities Dealers Automated Quotation Systems (NASDAQ) SmallCapMarket under the symbol "ITNL" until October 23, 1997. Following a rule change by NASDAQ for qualifying for a SmallCapMarket listing it was determined that the Company was no longer eligible for a listing. Since October 23, 1997 the Company's shares have been traded in the "over-the-counter" or "Bulletin Board" market. High and low quotes for the quarters of fiscal year 1997 and 1998 were: High Low Fiscal Year 1998 Bulletin Board 4th Quarter 5/8 $0.23 3rd Quarter $0.49 1/4 SmallCaps 2nd Quarter 1 1/16 1/4 1st Quarter 1 5/16 3/4 Fiscal Year 1997 4th Quarter 1 15/16 3/8 3rd Quarter 1 1/2 1 1/8 2nd Quarter 4 1 1/4 1st Quarter 5 1/4 4 1/4 9 b. Holders As of August 1, 1998, there were approximately 1194 record holder of the Company's Common Stcok. c. Dividends The Series "A" Preferred Stock does not bear a prefrencial dividend. The Series "M" Preferred Stock has a preferred dividend right that are tied to the income from the Medicare Series 950 unit. (See Series "M" for details.) Item 6 Management's Discussion and Analysis - --------------------------------------------- Results of Operations ITC's consolidated operations for the fiscal year ended May 31, 1998, based on pro forma information in Note 1 to the audited financial statements, consisted of primarily of revenues from AIC and its subsidiaries. Net consolidated revenues for this period were $1,125,444. ITC has developed and operates a computer system and communications system to support its Rebate TV(TM) program on a national basis and during this period produced no revenues. ITC suspended operations of its Rebate TV (TM) program during this fiscal year. The consolidated General and Administrative Expenses of $2,773,522 of which $1,345,166 was attributable to ITC and $1,428,356 to AIC. This resulted in a net loss from operations of $2,227,870. During this period ITC realized a gain of $113,333 from the sale of shares of AIC acquired and sold. ITC's majority owned subsidiary AIC completed the development of its air purification product line and started manufacturing of several of the models. Development of AIC's basic line of products being substantially complete has begun marketing its products directly and through its new franchise program. During this period 10 franchises were sold and 4 international license agreements were entered into. In August of 1998 AIC entered into contracts with the State of Georgia and the Georgia Dome to supply air filtration equipment totaling approximately $1.5 million with delivery scheduled before December 31, 1998. Production of the AIC Series 999 automobile unit is scheduled to begin in the fall of 1998 with projected sales during fiscal 1999 of approximately $5.1 million. The AIC Series 950 Medicare units is scheduled for testing in the fall of 1998 with the designation as a Class II Medical Device and the filing for approval under Medicare Part B with related charges. AIC anticipates Medicare approval of its Series 950 before the end of 1998 with production beginning in the first quarter of 1999. AIC has installed its Series S-12, S-14 and S-16 in several hotels on a test basis. As a result of the current testing program AIC anticipates orders for these units of approximately $2.5 million during fiscal 1999. The result of these various programs should increase consolidated revenues by approximately $11 million during fiscal 1999 making the Company profitable during this period. ITC will pursue the sale of its Rebate TV product lines during fiscal 1999 valued in a current appraisal at $4 million. Material Changes in Operations and Financial Condition Having completed the acquisition of AIC, the Company will focus operations on the air filtration product lines by developing marketing and production programs. ITC is confident that with the market and products available for the AIC air filtration products that gross revenues will increase to a range of $20 million during fiscal 1999 and $40 million during fiscal 2000. The approval of the Series 950 by Medicare will provide approximately $31 million during these fiscal periods. 10 By the Company out-sourcing its production and assembly processes, management feels that these projected revenues can be accomplished without an appreciable increase in general and administrative expenses. The consolidation of the Company's offices with completion of the sale of the Rebate TV and Licenses will reduce the operating loss by approximately $1.4 million while providing income from these sales. Liquidity and Capital Resources During the fiscal ended May 31, 1998, ITC and AIC continued to fund operations and expansion through revenues and private sales of equity securities and debt. In fiscal year 1998,ITC received net cash from financing activities in the amount of $839,366 with AIC receiving $125,031 during that period. For the fiscal period referenced above, the combined companies received $964,397 in cash from financing activities. Although ITC has no commitments for future funding other than sales of its Series M Preferred Stock, management believes that it can continue to raise additional capital for expansion of its markets though revenue, debt financing and private sources. ITC is continuing the sale of its $5,000,000 in Series M Preferred Stock (the Series M Stock) on a private basis to accredited investors in the form of 200 units consisting of 25,000 shares of convertible preferred stock convertible into common at the rate of one share for one share of preferred and 25,000 warrants convertible into common stock at a price of $2.00 per share. The preference for this series is to a pro rata portion of 20% of the Gross Profits from the sales of the AIRTECH Model 950 Air Purification and Filtration System being developed as a Class II Medical Device for Medicare Recipients with Respiratory Conditions. This preference is for a period of three years from the date production begins. AIRTECH has agreed to assign a 25% interest in this revenue stream to ITC out of which this 20% will be set aside for this preference. The Series M Stock will be offered pursuant to Rule 506 of Regulation D of the Securities Act of 1933. Twenty-five percent (25%) of the net proceeds of the sale of the Series M Stock will be used for market expansion and distribution of the Rebate TV(TM) programming, and seventy-five percent (75%) of such net proceeds will be allocated for the development and distribution of the AIRTECH Model 950. ITC does not have an underwriter for this placement. On July 31, 1998 the Board of Directors ended the sale of Series M Preferred Stock electing to withdraw the offering for additional sales. Following the fiscal year end May 31, 1998 no additionals shares of Series M Preferred Stock were sold by the Company. On July 31, 1998 the Board of Directors of ITC exercised its conversion right with respect to the Series A convertible preferred stock and the convertible debentures. As of July 31, 1998 ITC had issued 10,982,730 shares of its Series A convertible preferred stock and $8,595,180 in convertible debentures for the purchase of 16,010,335 shares of Airtech common stock representing 95.502% of the total common stock outstanding of Airtech. Pursuant to this conversion ITC will issue approximately 10,982,730 shares of its unissued common stock for the Series A preferred stock, 12,227,883 shares of its unissued common stock to retire the convertible debentures and an additional 204,467 shares of its unissued common stock for the payment of interest due on the debentures as of July 31, 1998. The completion of this conversion will increase common shares issued and outstanding by 23,415,080. On August 28, 1998 Mr. Perry Douglas West former CEO and Chairman of the Board returned to ITC for cancellation 3,400,000 shares of common stock held by him as required by the stock purchase agreement dated August 1, 1997 with Airtech. Following the conversion of the Series A preferred stock and the debentures and the cancellation of Mr. West common stock the Company will have approximately 45,436,376 shares of common stock issued and outstanding. 11 On July 31, 1998, the Board of Directors authorized a five for one reverse stock split of the Company's common stock. This matter will be submitted to the stockholders of the Company for approval. On September 4, 1998 the Company filed Schedule 14A Information with the SEC setting a special stockholders' meeting for October 5, 1998 to vote on this matter for common stockholders of record as of August 24, 1998. If the five for one reverse stock split is approved by the stockholders at this special stockholders meeting the number of shares outstanding would be decreased from the 45,436,376 shares after the conversion above to 9,087,275 shares of common stock outstanding. The Board of Directors also authorized the increase in the par value of the common stock from $0.01 to $0.05 as a result of the five for one reverse split if approved by the stockholders of the Company. This action was taken because the Board of Directors is of the opinion that the Reverse Stock Split is advisable in the best interest of the Company and its shareholders. The Board of Directors of the Company believes that the relatively low market price of the common stock may impair the acceptability of the common stock to members of the investing public. Although the number of shares outstanding should not affect either the marketability of the common stock, the type of investor who acquires it, or a Company's reputation in the financial community, certain brokerage firms, as a matter of policy will not extend margin credit on stocks trading at low prices. Further, many brokerage firms are reluctant to recommend lower-priced stocks to their clients or to hold them in their own portfolios, and a variety of brokerage firms policies and practices discourage individual brokers within those firms from dealing in low-priced stock because of the time-consuming procedures that make the handling of low-priced stock economically unattractive. In addition, the Board of directors believes that the decrease in the number of shares of common stock outstanding as a consequence of the proposed Reverse Stock Split and the resulting anticipated increased price level will encourage greater interest in the common stock by the financial community and the investing public. There can be no assurance, however, that the foregoing hoped-for effects will occur following the Reverse Stock Split, that the market price of the new common stock immediately after implementation of this proposed Reverse Stock Split will be maintained for any period of time, that such market price will approximate five times the market price before the proposed Reverse Stock Split, or that such market price will exceed or remain in excess of the current market price. The expansion of revenues of the Company during fiscal 1999 herein above will require additional working capital. If the proposed Reverse Stock Split is approved the book value would increase from approximately $0.59 after the conversion of the Series A preferred and debentures to approximately $2.95. The Board of Directors is of the opinion that this increase in the per share book value of the stock will have a positive effect on the Company's ability to obtain the required additional working capital either from borrowing or from the equity capital markets. Following approval of the proposed Reverse Stock Split the Company anticipates a private placement of common stock to raise approximately $5 million in working capital that is necessary for the growth in revenues during fiscal 1999. There can be no assurance that this proposed private placement of common stock will be completed or that the funds will otherwise be available to fund the operations and growth of the Company. 12 Item 7. Financial Statement. - ----------------------------- TURNER, STONE & COMPANY Certified Public Accountants 12700 Park Central Drive, Suite 1610 Dallas, TX 75251 (972) 239-1660 Independent Auditor's Report Board of Directors Interactive Technologies Corporation, Inc. Melbourne, Florida We have audited the accompanying consolidated balance sheets of Interactive Technologies Corporation, Inc. and subsidiaries as of May 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interactive Technologies Corporation, Inc. and subsidiary at May 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ TURNER, STONE & COMPANY - --------------------------- Certified Public Accountants September 9, 1998 13 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MAY 31, 1998 AND 1997 Assets 1998 1997 Current assets: Cash $ 145,844 $ 13,605 Accounts and note receivable, trade, net of $0 and $25,000, respectively of allowance for uncollectible amounts 172,137 150,656 Inventories 284,332 - Prepaid expenses and other assets 133,881 14,790 ---------- ------------ Total current assets 736,194 179,051 ---------- ------------ Property and equipment, at cost, net of $217,733 and $28,855, respectively of accumulated depreciation 205,874 86,285 ---------- ------------ Other assets: Organizational costs, net of $3,134 and $2,334, respectively of accumulated amortization 866 1,666 License rights, net of $438,750 and $303,750, respectively of accumulated amortization 236,250 371,250 Proprietary software and trademark, net of $1,643,531 and $870,525, respectively of accumulated amortization 3,767,512 4,540,518 Intellectual properties, net of $0 of accumulated amortization 22,297,684 - Notes receivable, net of $0 of allowance for uncollectible amounts 899,833 - Other 534,234 - ---------- ----------- 27,736,379 4,913,434 ---------- ----------- $28,678,447 $5,178,770 ========== =========== The accompanying notes are an integral part of the financial statements. 14 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MAY 31, 1998 AND 1997 Liabilities and Stockholders' Equity 1998 1997 Current liabilities: Accounts payable, trade $ 322,955 $ 172,656 Accrued expenses 246,694 68,678 Notes payable 340,540 224,685 Current portion of license rights payable 210,077 210,077 ---------- ------------- Total current liabilities 1,120,266 676,096 ---------- ------------- Long-term liabilities: License rights payable 329,923 329,923 Capital lease obligation - 218,750 Convertible debentures payable 9,000,000 - Deferred revenue 400,000 - ---------- ------------- 9,729,923 548,673 ---------- ------------- Commitments and contingencies: - - Stockholders' equity: Preferred stock Series M, $.001 par value, 5,000,000 shares authorized, 1,029,500 and 0, respectively, shares issued and outstanding 1,030 - Preferred stock Series A, $1.00 par value, 15,000,000 shares authorized, 11,868,016 and 0, respectively, shares issued and outstanding 11,858,016 - Common stock, $.01 par value 50,000,000 shares authorized, 25,370,171 and 13,479,613, respectively, shares issued and outstanding 253,701 134,796 Paid in capital in excess of par 14,271,935 10,836,034 Accumulated deficit ( 8,556,424) ( 7,016,829) ------------ -------------- 17,828,258 3,954,001 ------------ -------------- $28,678,447 $ 5,178,770 ============ ============== The accompanying notes are an integral part of the financial statements. 15 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEARS ENDED MAY 31, 1998 AND 1997 1998 1997 Revenue $ - $ 197,781 ----------- -------------- Operating expenses: Depreciation 19,835 49,669 Amortization 908,806 932,973 Production costs 241,280 286,646 General and administrative 261,491 1,652,853 Interest expense 73,435 177,213 ----------- -------------- 1,504,847 3,099,354 ----------- -------------- Loss from operations ( 1,504,847) ( 2,901,573) Gain from sale of license rights - 543,501 Loss from sale of equipment ( 34,748) ( 297,095) ------------ -------------- Loss before income taxes ( 1,539,595) ( 2,655,167) Provision for income taxes - - ------------ -------------- Net loss $( 1,539,595) $( 2,655,167) ============= =============== Net loss per share: Basic $( .11) $( .22) Diluted $( .11) $( .22) The accompanying notes are an integral part of the financial statements. 16 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED MAY 31, 1998 AND 1997
Preferred Stock Preferred Stock Common Stock (Series M) (Series A) Add'l Paid Accumulated Shares Amount Shares Amount Shares Amount In Capital Deficit Total --------------------- ------------------ --------------------- ----------- ----------- ----------- Balance at May 31, 1996 11,742,044 $ 117,420 - $ - - $ - $ 8,392,240 $(4,361,662) $ 4,147,998 Issuance of common stock for cash 289,549 2,895 - - - - 749,978 - 752,873 Issuance of common stock in exchange for services 248,021 2,481 - - - - 543,039 - 545,520 Issuance of common stock upon conversion of debt 1,199,999 12,000 - - - - 1,150,777 - 1,162,777 Net loss - - - - - - - ( 2,655,167) (2,655,167) ---------- -------- -------- -------- --------- ----------- ---------- ------------ ---------- Balance at May 31, 1997 13,479,613 134,796 - - - - 10,836,034 ( 7,016,829) 3,954,001 Issuance of common stock for cash 421,000 4,210 - - - - 206,290 - 210,500 Issuance of common stock in exchange for services 294,558 2,945 - - - - 166,530 - 169,475 Issuance of common stock in settlement of capital lease 675,000 6,750 - - - - 212,000 - 218,750 Issuance of preferred stock for cash - - 1,029,750 1,030 - - 840,337 - 841,367 Issuance of common and preferred stock in acquisition of AIC 10,500,000 105,000 - - 11,856,016 11,858,016 2,010,744 - 13,973,760 Net loss - - - - - - ( 1,539,595) (1,539,595) ---------- -------- --------- -------- ---------- ---------- ----------- -------------- ----------- 25,370,171 $ 253,701 1,029,750 $ 1,030 11,858,016 $11,858,016 $14,271,935 $( 8,556,424) $17,828,258 ========== ========= ========= ======== ========== =========== =========== =============== ===========
The accompanying notes are an integral part of the financial statements. 17 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED MAY 31, 1998 AND 1997 1998 1997 ---- ---- Cash flows from operating activities: Cash received from customers $ 136,006 $ 53,917 Cash paid to employees ( 99,676) ( 363,452) Cash paid to suppliers ( 536,918) ( 1,173,869) Interest paid - ( 52,869) Taxes paid - - ------------ ------------ Net cash used in operating activities ( 500,588) ( 1,536,273) ------------ ------------ Cash flows from investing activities: Advances to AIC prior to acquisition ( 493,000) - Cash purchased with AIC acquisition 24,294 - Purchase of property and equipment ( 4,834) ( 976) Proceeds from sale of assets 2,000 - ------------ ------------ Net cash used in investing activities ( 471,540) ( 976) ------------ ------------ Cash flows from financing activities: Issuance of convertible debentures - 419,200 Proceeds from issuance of preferred stock, net of offering costs 841,367 - Proceeds from notes payable 52,500 452,947 Repayments of notes payable - ( 228,262) Contract of sale deposits received - 98,099 Repayment of capital lease obligation - ( 7,117) Proceeds from issuance of common stock 210,500 752,873 ------------ ------------ Net cash provided by financing activities 1,104,367 1,487,740 ------------ ------------ Net increase (decrease) in cash 132,239 ( 49,509) Cash at beginning of period 13,605 63,114 ------------ ------------ Cash at end of period $ 145,844 $ 13,605 ============ ============ The accompanying notes are an integral part of the financial statements. 18 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED MAY 31, 1998 AND 1997 Reconciliation of Net Income to Net Cash Used in Operating Activities 1998 1997 ---- ---- Net loss $( 1,539,595) $( 2,655,167) ------------- ------------- Adjustments to reconcile net loss to net cash used in operating activities: Amortization 908,806 932,973 Depreciation 19,835 49,669 Provision for uncollectible accounts - 25,000 Common stock issued for services 169,475 545,520 Loss on disposition of assets 34,748 - Gain on sale of license rights - ( 543,501) Loss on abandonment of capital lease equipment - 297,095 (Increase) decrease in accounts receivable 136,006 ( 143,864) (Increase) decrease in prepaid expenses ( 5,240) 34,363 Increase (decrease) accounts payable ( 160,074) ( 140,146) Increase (decrease) in accrued expenses ( 64,551) 61,785 ------------- ------------ Total adjustments 1,039,007 1,118,894 ------------- ------------ Net cash used in operating activities $ ( 500,588) $(1,536,273) ============= ============ The accompanying notes are an integral part of the financial statements. 19 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED MAY 31, 1998 AND 1997 Supplemental Schedule of Non-Cash Investing and Financing Activities Issuance of common stock, preferred stock and debentures for assets, net of various liabilities in purchase acquisition of AIC $ 22,973,760 $ - Common stock issued in settlement of capital lease obligation $ 218,750 $ - Reduction of proprietory software costs in exchange for accounts payable reduction $ - $ 50,000 Common stock issued in exchange for services $ 169,475 $ 545,520 Abandonment of equipment, net of accumulated depreciation and related capital lease obligation $ - $ 297,095 Sale of license rights, net of accumulated amortization and related license rights obligation $ - $ 543,501 The accompanying notes are an integral part of the financial statements. 20 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Interactive Technologies Corporation, Inc. (the Company) was incorporated in the state of Wyoming on August 8, 1991. The Company owns proprietary software and a trademark known as Rebate TV, which is a marketing and sales medium for a wide variety of products and services. Advertisers on Rebate TV will offer substantial rebates to the network's viewers through a unique interactive program. Touch-tone phones will initially interact the network to secured earned rebates, and later the network will be accessed via wireless digital communications networks currently under development. The Rebate TV operations commenced in April 1996 serving customers in the eastern United States but was temporarily discontinued subject to the sale of the show to a national media market buyer. The Company also owns license rights obtained from the Federal Communications Commission to operate an interactive and data service system in the Charleston - North Charleston, South Carolina. Another system in the Melbourne - Titusville, Florida metropolitan area was sold during the year ended May 31, 1997(Note 3). Management expects exploitation of these license rights to commence in 1999. Acquisition of Airtech International Corporation (AIC) On May 31, 1998, the Company acquired all of the outstanding common stock shares of 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 (Note 7) and the issuance of $9,000,000 of convertible debentures (Note 5). 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. The following pro forma information presents a summary of consolidated results of operations and earnings per share of the Company and AIC as if the acquisition had occurred June 1, 1996, the beginning of the earliest period presented in the accompanying consolidated financial statements. 1998 1997 ---- ---- Revenues $ 1,126,499 $ 2,073,045 Net loss $( 2,410,266) $( 2,814,433) Net loss per common share $( .10) $( .12) Shares used in computation 24,693,154 22,562,320 These pro forma results have been presented for comparative purposes and include certain adjustments, such as additional amortization and depreciation expense. They are not indicative of the actual results that would have occurred had the acquisition been consummated on June 1, 1996 or of the future operations of the consolidated companies under the management of the Company. 21 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Consolidated principles On April 9, 1996, the Company formed a wholly owned subsidiary, Satellite Network Television (SNT), by issuing 1,000,000 common stock shares to ITC. Through October 1996, when the Company and SNT encountered problems with its leased equipment and New Jersey facilities (Notes 3 and 4), SNT operated a television studio, a post production facility and satellite link producing commercials, infomericals, business videos, commercial programming, and remote broadcasts for both the Company's Rebate TV operations and for outside customers. These operations have ceased and management does not anticipate them to resume. The accompanying consolidated financial statements include the general accounts of the Company, SNT and AIC and its subsidiaries each of which have fiscal year ends of May 31. All material intercompany accounts and balances have been eliminated in the consolidation. Impairment of long-lived assets Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and long-lived assets and certain identifiable intangibles to be disposed of. The Company periodically evaluates, using independent appraisals and projected undiscounted cash flows, the carrying value of its long-lived assets and certain identifiable intangibles to be held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, long-lived assets and identifiable intangibles to be disposed of are reported at the lower of carrying value or fair value less cost to sell. Amortization Organizational costs are being amortized using the straight line method over five years. For the years ended May 31, 1998 and 1997, amortization expense totaled $800 and $800, respectively. License rights are being amortized over the initial five year term of the licenses. Although they are renewable at no additional consideration, there is no guarantee the Company will renew these licenses. For the years ended May 31, 1998 and 1997, amortization expense totaled $135,000 and $159,167, 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. 22 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS At May 31, 1998, inventories consisted of the following: Component parts $ 262,230 Finished goods 22,102 ---------- $ 284,332 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. Capitalized software expenditures Software and trademark costs are amortized, pursuant to Statement of Financial Accounting Standards No. 86, at an annual amount equal to the greater of the amount computed using (a) the ratio that current gross revenues bear to the total of current and anticipated future gross revenues or (b) the straight-line method over a seven year estimated economic life beginning April 18, 1996. For each of the years ended May 31, 1998 and 1997, amortization expense totaled $773,006. 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 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 RebateTV operations are recognized at the time production and related services are provided. Advertising The Company's advertising costs, which consist of radio airtime for the Rebate TV operations, are charged to expense when incurred. For the years ended May 31, 1998 and 1997, advertising costs totaled $0 and $33,146, respectively. 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. 23 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 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 earnings per share amounts are based upon 14,193,154 and 12,062,320, respectively, weighted average shares of common stock and common stock equivalents 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. PREFERRED STOCK Convertible preferred stock - Series A In connection with the Company's acquisition of AIC (Note 1), the Company established this equity class and authorized 15,000,000 shares. The shares have a par value of $1.00, do not pay dividends and are convertible at the Company's option at any time within 24 months after issuance for one share of the Company's common stock. Convertible preferred stock - Series M During the year ended May 31, 1998, the Company established this equity class and authorized 5,000,000 shares. During the same period, 1,029,750 of these shares were issued for $1.00 cash, net of $188,383 of offering costs. The shares have a par value of $.001, do not pay dividends and are convertible at the Company's option at any time within 36 months after issuance for one share of the Company's common stock. In addition, attached to each share is one warrant to purchase one share of common stock at a price of $2.00 per share exercisable within two years after issuance. 3. NOTES RECEIVABLE Notes receivable relate to AIC sales of area franchises (Note 1), bear interest at 6% to 8%, are payable in terms ranging from 12 to 36 months and secured by the area franchises. Credit is extended on evaluation of the payee's financial condition and general credit information. At May 31, 1998, notes receivable are comprised of the following: Domestic notes receivable $ 300,000 Foreign notes receivable 666,500 ---------- 966,500 Less: Current maturities ( 66,667) ---------- $ 899,833 ============ 24 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 4. NOTES PAYABLE The Company's notes payable consist of loans from various corporations and individuals provided for working capital purposes. The notes, which contain no significant restrictions, bear interest at rates of 10.0% to 18.0%, are due through May 1999 and are unsecured. At May 31, 1998, $277,183 of these notes payable were in default. 5. CONVERTIBLE DEBENTURES During the years ended May 31, 1997 and 1996, the Company issued $419,200 and $630,800, respectively, of 8% convertible debentures maturing through April 2001. The bonds are convertible into shares of the Company's common stock at conversion prices of $1.00 to $3.75 During the year ended May 31, 1997, the entire $1,050,000 of outstanding debentures were converted into 1,199,999 common stock shares. Also issued in connection with the conversion were 1,199,999 warrants entitling the holders to purchase one common stock share at exercise prices of $.75 to $1.00 per share. The warrants are exerciseable any time before May 31, 2002 (Note 11). In connection with the Company's acquisition of AIC, the Company also issued $9,000,000 of convertible debentures secured by the shares of AIC acquired. The debentures bear interest at 10% payable annually on May 31 of each year, are due on May 31, 2000 and are convertible at the Company's option at any time within the two years into shares of the Company's common stock at a conversion price of $.70. 6. COMMITMENTS AND CONTINGENCIES Operating leases The Company is currently obligated under a noncancellable operating lease for its Dallas office facilities which expires in May 2000. The Company also leased facilities in Florida under a non-cancelable operating lease agreement which expired in April 1998. From May 1996 through August 1996, the Company leased facilities in New Jersey in connection with its SNT operations (Notes 1 and 3). For the years ended May 31, 1998 and 1997, rent expense under these leases totaled $6,776 and $62,803, respectively. Minimum future rental payments required under the above operating lease is as follows. Year Ending May 31, Amount 1999 $ 47,748 2000 47,748 ---------- $ 95,496 ============ 25 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Capital lease obligations On March 27, 1996, the Company acquired various studio equipment under a capital lease obligation payable monthly through March 2001 with imputed interest at 11.0%, secured by the equipment and 250,000 common stock shares of the Company. As part of the transaction, the stockholder of the lessor/corporation purchased 50,000 common stock shares of the Company for $200,000 cash and received warrants to purchase 50,000 common stock shares at $2.00 per share. At May 31, 1996, the cost of equipment acquired under this lease and related accumulated depreciation totaled $1,100,000 and $26,190, respectively. During the year ended May 31, 1997, the Company withdrew from this lease obligation, resulting in a lawsuit, (Notes 1 and 7) and wrote off the $1,100,000 capitalized cost of the equipment, $77,435 of additional related equipment, the related accumulated depreciation of $56,068 and all but $218,750 of the related capital lease obligation. On November 30, 1997, in settlement of the lawsuit, the Company issued 675,000 shares of its common stock at $.32 per share in complete satisfaction of this remaining capital lease obligation. License fees payable The Company has acquired licenses from the Federal Communications Commission to operate interactive video and data service systems in various metropolitan statistical areas (Note 1). The license rights are payable interest only, at 7.7 percent for two years with principal and interest payable monthly over the remaining three years of the licenses. Interest has been accrued from the dates the licenses were formally issued. An extension of time until December 1998 for making payments has been granted by the FCC. Future principal payments under the remaining Titusville, FL license right obligation are as follows: Year Ending May 31, Amount 1999 $ 210,077 2000 183,113 2001 146,810 ------------- $ 540,000 ============ Contract of sale deposit In October 1994, the Company entered an agreement with a Nevada corporation to sell its Charleston, South Carolina license rights (Note 1), net of the related obligation assumed, for $500,000 cash. The Company also retained 10% of the gross profits derived from the operations under the license rights. 26 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Through May 31, 1996, $401,901 was advanced to the Company pursuant to the terms of this agreement and was reflected as a liability until the sale was effective, pending approval by the FCC. During the year ended May 31, 1997, FCC approval was granted and the sale was completed. The difference between the $500,000 sales price, the net carrying value of the license rights and the remaining license rights obligation assumed are reflected in the accompanying consolidated financial statements as a gain. Employment agreement The Company is currently obligated under employment agreements with two members of executive management for annual compensation totaling $500,000 and discretionary bonuses determined by the Company's board of directors. The agreements expire in May 2008. The Company's current compensation benefits do not provide any other post-retirement or post-employment benefits. Year 2000 computer compliance The Company is currently using computer hardware and software that is not in compliance with the year 2000 dating issues. However, new software and hardware components have been ordered that will enable the Company to be in compliance prior to December 31, 1998. During the year ended May 31, 1998, the Company incurred approximately $15,000 of costs related to this effort. Management does not believe any additional significant cost will be incurred and the accompanying consolidated financial statements do not contain any reserve for this contingency. 7. LITIGATION Rental operating lease The Company is defendant, and it has filed counter claims, in a lawsuit filed by the lessor of office space facilities in New Jersey (Note 6). The Company never occupied the space due to the lessor's failures to finish out the space to the Company's specifications. The lessor seeks to recover remaining lease payments due under the lease of $606,913 and the Company seeks to recover damages under a capital lease obligation (Note 6) for equipment located in the New Jersey facilities and contractually precluded from being removed from the facilities. Although the Company anticipates a favorable settlement of this lawsuit the outcome of it is uncertain. The accompanying consolidated financial statements do not contain any reserve for this contingency. 27 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Capital lease obligation The Company was defendant, and it had filed counter claims, in a lawsuit filed by the lessor of equipment subject to a capital lease obligation (Note 6). The Company withdrew from the lease because of the lessor's inability to correct defects in a major revenue producing component of the equipment and the inability to use the equipment. The lessor sought to recover lease payments due under the lease totaling $1,043,021 and the Company sought to recover lost revenues caused by the deficient equipment. On August 21, 1997, the Company settled this lawsuit agreeing to issue 350,000 common stock shares (plus an additional 162,500 or 325,000 shares if the Company fails to file a Registration Statement with the S.E.C. by December 1, 1997 or January 2, 1998, respectively). The settlement loss was valued at the $.625 August 21st closing price of the common stock shares, or $218,750, and is recorded in the accompanying consolidated financial statements by reducing the carrying value of the capital lease obligation at May 31, 1997 to $218,750. On November 30, 1997, in settlement of the lawsuit, the Company issued 675,000 shares of its common stock at $.32 per share in complete satisfaction of this remaining capital lease obligation. 8. INCOME TAXES The Company used the accrual method of accounting for tax and financial reporting purposes. At May 31, 1998 and 1997, the Company had net operating loss carryforwards for financial and tax reporting purposes of approximately $8,500,000 and $7,000,000, respectively. These carryforwards expire through the year 2012, and are further subject to the provisions of Internal Revenue Code Section 382. Pursuant to Statement of Financial Accounting Standards No. 109, the Company has recognized a $2,909,184 deferred tax asset attributable to the net operating loss carryover, net of a $105,129 deferred tax liability related to amortization timing differences, in the amount of $2,804,055 which have been fully offset by a valuation allowances in the same amount, as follows: 1998 1997 ---- ---- Beginning balance $ 2,267,331 $ 1,469,703 Increase during period 536,724 797,628 -------------- --------------- Ending balance $ 2,804,055 $ 2,267,331 ============== =============== A reconciliation of income tax expense at the statutory federal rate to income tax expense at the Company's effective tax rate for the years ended May 31, 1998 and 1997 is as follows: 1998 1997 ---- ---- Tax benefit computed at statutory federal rate $( 523,462) $( 902,757) NOL carryover 523,462 902,757 -------------- -------------- Income tax expense $ - $ - ============== ============== 28 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 9. FINANCIAL INSTRUMENTS The Company's financial instruments consist of its cash, accounts and notes receivable, trade and its notes, license rights and convertible debentures 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 note receivable, trade The Company accounts and note receivable are unsecured and represent sales not collected at the end of the year. Management believes these accounts and note receivable are fairly stated at estimated net realizable amounts. Convertible debentures payable Management believes the carrying value of their debentures payable represents the fair value of these financial instruments because their terms are similar to those in the lending market for comparable loans with comparable risks. Notes payable and license rights payable Management believes the carrying value of their notes payable and license rights payable represents the fair value of these financial instruments because their terms are similar to those in the lending market for comparable loans with comparable risks. 10. SUBSEQUENT EVENT On July 31, 1998, the Company exercised its conversion right with respect to the Series A convertible preferred stock (Note 2) and the convertible debentures (Note 5). The $9,000,000 of convertible debentures and $150,000 of accrued interest were converted into 13,071,429 common stock shares and the 11,858,016 Series A convertible preferred stock shares were converted into 11,858,016 common stock shares. After this conversion, the total outstanding common stock shares of the Company approximated 50,300,000. On August 31, 1998, the Board of Directors authorized a five for one reverse stock split of the Company's common stock shares. This matter has been submitted to stockholders for vote and approval is anticipated by September 20, 1998. 11. STOCK OPTIONS AND WARRANTS During the years ended May 31, 1998 and 1997, the Company 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 January 1999 and May 2002 and are exercisable at prices from $.75 to $4.50 per option or warrant. Exercise prices were set at or above the underlying common stock's fair market value on the date of grant. 29 INTERACTIVE TECHNOLOGIES CORPORATION, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The following is a schedule of the activity relating to the Company's stock options and warrants. Other than the 1,029,500 and 1,200,000 warrant identified below as granted during the year ended May 31, 1998 and 1997, respectively (Note 4), all other amounts relate to stock options the Company has issued. Year Ended Year Ended May 31, 1998 May 31, 1997 ------------ ------------- Weighted Avg. Weighted Avg. Shares Exercise Shares Exercise (x 1,000) Price (x 1,000) Price --------- ----------- --------- -------- Options and warrants outstanding at beginning of year 1,369 $ 1.08 169 $ 2.79 Granted 1,030 $ 2.00 1,200 $ .83 Exercised - - Expired - - ----- ----- Options and warrants outstanding and exercisable at end of year 2,399 $ 1.47 1,369 $ 1.08 ===== ===== Weighted average fair value of options and warrants granted during the year $ .60 $ .13 The following table summarizes information about the Company's stock options and warrants outstanding at May 31, 1998, all of which are exercisable. Weighted Average Range of Number Remaining Weighted Average Exercise Prices Outstanding Contractual Life Exercise Price $.75-1.00 1,200 4.0 years $ .83 $2.00 1145 2.1 years $ 2.00 $4.50 54 2.0 years $ 4.50 The following pro forma disclosures reflect the Company's net loss and net loss per share amounts assuming the Company accounted for stock options granted using the fair value method pursuant to Statement of Financial Accounting Standards No. 123. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 5.6%; no expected dividends; expected lives of 3 to 6 years; and expected volatility of 153.4%. Year Ended Year Ended May 31, 1998 May 31, 1997 Net loss $( 1,552,736) $( 2,811,167) Net loss per share $( .11) $( .23) During the year ended May 31, 1998 and 1997, the Company also issued 294,558 and 248,021 common stock shares, respectively, in exchange for services. These services were recorded at their fair value of $169,475 and $545,520, respectively, and were charged to expense. 30 Item 8. Changes In and Disagreements With Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - -------------------- By unanimous consent of the Board of Directors of the Company on November 10, 1995, the Registrant engaged the accounting firm of Turner, Stone & Company of Dallas, Texas as independent accountants for the Registrant for the fiscal years beginning June 1, 1995. By unanimous consent of the Board of Directors of the Company engaged the accounting firm of Alvin L. Dahl & Associates, PC of Dallas, Texas as independent accountants its Airtech subsidiary. During the previous two fiscal years ending May 31, 1996 and May 31,1997 there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure or any reportable events. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; - ---------------------------------------------------------------------- Compliance With Section 16(a) of the Exchange Act. --------------------------------------------------- a. Directors and Executive Officers. The following table sets forth the names, ages and positions of the directors and executive officers of the Company as of May 31, 1998. A summary of the background and experience of each of these individuals is set forth after the table. The directors and executive officers are: NAME AGE POSITION C. J. Comu 38 Chairman and Chief Executive officer John Potter 54 Director and President Perry Douglas West 51 Director The Board of Directors currently consists of three Directors, each holding office for a term of one year. Mr. West resigned as director after the end of the fiscal year. Perry Douglas West joined the Company in October 1995, as Chairman and Chief Executive Officer of the Company. Mr. West resigned as Chief Executive officer and Chairman of the Company during the fiscal year after operations were relocated to Dallas, Texas. Mr. West co-founded American Financial Network in July of l985. Headquartered in Dallas, Texas, American Financial Network operated a national computerized mortgage loan origination network. Mr. West served as Executive Vice President/Director and General Counsel of this public company from 1985 to 1991. Mr. West has practiced law in Florida since 1974, representing various business institutions in the financial, computer, natural resources and general business industries and international transactions. He was graduated with a Bachelor of Arts degree from The Florida State University in l968 and with a Juris Doctorate degree from The Florida State University, College of Law in l974. C. J. Comu began his career in the stock and commodities industry as a specialist in precious metals and currencies. He co-founded MBA Corporate Group, one of the largest financial applications software companies in the country. Mr. Comu has been an entrepreneur, financier and turnaround professional to several start ups and operating companies during has term as President of Credit America Holdings Group, a privately held consulting firm. 31 John Potter began his business career with Xerox Corporation and later moved into the world of finance with Wells Fargo & Company, handling their national leasing division. Mr Potter was the founder of Alpha Leasing, which grew into one of the largest leasing companies in the Southwest. Prior to beginning his business career, Mr. Potter was an officer in the US Army. Item 10. Executive Compensation - -------------------------------- C. J. Comu and John Potter have employment contracts with the Company for annual compensation of $250,000 each. Under the terms of this contract and agreements with the Board of Directors Mr. Comu and Mr. Potter this contract will only be funded at such time as the Company is in a financial position to pay the salaries under this contract. Back compensation is not subject to accrual or any other form of direct liability to the Company. Perry Douglas West has no employment contract with the Company and any compensation for his prior services will be determined by the Board of Directors at such time as the Company is in a financial position. Item 11. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------- a. Security Ownership of Certain Beneficial Owners. The Company knows of no persons or groups being the beneficial owner of more than 5% of the Company's Common Shares other than Mr. West, Mr. Comu and Mr. Potter. b. Security Ownership of Management. The following table sets forth information with respect to the share ownership of Common Stock, par value $0.01, of the Company by its officers and directors, both individually and as a group, who are the beneficial owner of more than 5% of the Company's Common Shares. - ----------------------------------------------------------------------- (1) (2) (3) (4) Title of Class Name Amount and Percent of Address of Nature of Class3 Beneficial Beneficial Owner1 Ownership2 - ----------------------------------------------------------------------- Common Perry Douglas West 5,700,000(4) 22.47 1270 Orange Avenue Suite A Winter Park, FL 32789 Common C. J. Comu 1,017,192 4.01 15400 Knoll Trail Suite 106 Dallas, TX 75248 Common John Potter 691,503 2.73 15400 Knoll Trail Suite 106 Dallas, TX 75248 All Directors and Officers 7,408,695 29.21 as a group NOTES 1. Each person has sole voting and investment power with respect to the as shares indicated as owned beneficially by each person. 2. Except as other wise noted, all shares listed are owned both of record and beneficially. 3. Based upon 25,370,171 shares of Common Stock outstanding as of May 31, 1998. 4. Subsequant to the fiscal year, on August 28, 1998 Mr. West returned to the Company 3,400,000 shares of his common stock to be cancelled as required in the stock purchase agreement dated August 1, 1997. 32 C. Changes in Control. Control of the registrant prior to the purchase of Airtech International Corporation, Inc. was in the hands of Perry Douglas West who previously owned approximately 46% of the outstanding common stock. Under terms of the Stock Purchase Agreement with Airtech Mr. West surrendered 3,400,000 reducing his ownership to 2,300,000 shares of the issued and outstanding stock of the registrant. As a result of this transaction the directors and officers of the Registrant as a whole own 18.65% of the issued and outstanding common stock down from the 46% in the prior fiscal year. Following the conversion by the Registrant of the convertible debentures and preferred stock this precentage of ownership will be reduced. Item 12. Certain Relationships and Related Transactions. - -------------------------------------------------------- NONE 33 Item 13. Exhibits and Reports on Form 8-K. - ------------------------------------------ EXHIBIT INDEX (a.) Exhibit Page 3.0 Charter and By-Laws (1) 4.0 Instruments Defining Rights of Securities Holders 4.1 Form S-4 Registration Statement filed 8-22-97 defining rights of securities to be acquired by Airtech International Corporation shareholders (2) 10.0 Material Contracts 10.1 ITC lease with The Network Group, Inc. for Melbourne, Florida (3) office and engineering space, dated October 25, 1997 10.5 Stock Purchase Agreement dated May 5, 1997 with Airtech International Corporation (4) 99.0 Additional Exhibits 99.1 Proforma Balance Sheet and Statement of Operations for Registrant and Airtech International Corporation dated 2-28-97 (4) (1) This exhibit was previously filed as an exhibit to the Registrant's Form 10 filed January 14, 1992 and is herein incorporated by reference. (2) Filed form S-3 August 22, 1997 (3) Set out in Form KSB for year ended May 31, 1996. (4) This exhibit was previously filed with Registrants For 10KSB for year ended May 31, 1997. (b.) Reports on Form 8-K. Form 8-K dated March 17, 1997 setting out Company's filing of Form S-8 with Securities and Exchang Commission Form 8-K dated May 5, 1997 setting out changes in the Company's Articles of Incorporation increasing authorized capital to 50,000,000 common shares and 20,000,000 preferred shares Form 8-K dated May 22, 1997 setting out agreement for the acquisition of all of the outstanding stock in Airtech International Corporation of Dallas Texas. Form 8-K dated December 8, 1997 setting out 421,000 shares of Common Stock in exchange for $210,500.00 paid in cash to the Company, use of proceeds included the preparation and development phases of "Assault on the Liberty" a docudrama in progress. 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Interactive Technologies Corporation, Inc. by: /s/ C. J. Comu ----------------------------------- C. J. Comu, Chief Executive Officer DATED: September 14, 1998 35 -----END PRIVACY-ENHANCED MESSAGE-----