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, 1997 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)
102 South Harbor City Boulevard
Melbourne, Florida 32901
(address of Principal Executive Offices)
407-953-4811
(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 14,773,024 shares of common stock, par value $0.01 per
share issued and outstanding as of November 30, 1997.
Traditional Small Business Disclosure Format
Yes _____X_____ No __________
<PAGE>
Interactive Technologies Corporation, Inc.
Table of Contents
PART I - FINANCIAL INFORMATION Page No.
Item 1. Interactive Technologies Corp, Inc.
Financial Statements
Balance Sheet as of November 30, 1997 and 1996
Statement of Operations for the three
months ended November 30, 1997 and 1996
Consolidated Statement of Stockholders' Equity
Statement of Cash Flows for the six months
ended November 30, 1997 and 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis and
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities None
Item 3. Defaults upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information
Interactive Technologies/Airtech International
Pro Forma Financial Information
Item 6. Exhibits and Reports on Form 8-K
Airtech International Financial Statements
SIGNATURE PAGE
<PAGE>
Part 1-Financial Information
Item 1 Financial Statements
-----------------------------
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1997 and 1996
(unaudited)
Assets
1997 1996
---- ----
Current assets:
Cash $133,210 $12,579
Accounts and note receivable, trade, 35,235
net of $25,000, of allowance for
uncollectible amounts 41,945 -
Notes receivable - 150,000
Prepaid expenses and other assets 111,368 8,810
--------- --------
Total current assets 286,523 206,624
--------- --------
Property and equipment, at cost, net of
$39,684 and $18,541, respectively of
accumulated depreciation 75,457 96,289
--------- --------
Other assets:
Organizational costs, net of $2,734
and $1,934, respectively of
accumulated amortization 1,266 2,066
Investment in Subsidiary - SNT - 296,608
License rights, net of $371,250
and $236,250, respectively of
accumulated amortization 303,750 438,750
Proprietary software and trademark,
net of $1,257,028 and 483,129,
respectively of accumulated
amortization 4,154,015 4,927,914
Investment & Joint Venture 284,766 -
--------- ---------
4,743,797 5,665,338
--------- ---------
$5,105,777 $5,968,251
========== ==========
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1997 AND 1996
(unaudited)
Liabilities and Stockholders' Equity
1997 1996
---- ----
Current liabilities:
Accounts payable, trade $ 99,408 $ 135,509
Accrued expenses 80,126 80,382
Contract of sale deposit - -
Loans Payable
Related Parties - -
Others 277,185 144,200
Current portion of long-term
liabilities 210,077 171,227
--------- --------
Total current liabilities 666,796 531,318
--------- ----------
Long-term liabilities:
License rights payable 329,923 499,573
Convertible debentures payable - 800,000
--------- ---------
329,923 1,299,573
Commitments and contingencies:
Stockholders' equity:
Common stock, $.01 par value
50,000,000 and 12,500,000 shares
authorized, respectively
14,773,024 and 12,159,863,
respectively, shares issued
and outstanding 147,730 121,397
Preferred Stock, $.01 par value
20,000,000 and -0- shares
authorized, respectively
5,000,000 and -0- designated
as Series M
350,000 and -0- respectively,
shares issued and outstanding 350 -
Series M - PPM Cost (36,159) -
Paid in capital in excess of par 11,741,227 9,492,845
Accumulated deficit ( 7,744,090) (5,476,882)
------------ -----------
4,109,058 4,137,360
------------ -----------
$ 5,105,777 $ 5,968,251
============ ============
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Interactive Technologies Corporation, Incorporated
Statements of Operations
For the Three Months Ended November 30, 1997 and 1996
(unaudited)
1997 1996
------------- -----------
Revenue $ (3,328) $ 177,736
------------- -----------
Operating expenses:
Depreciation 5,414 5,403
Amortization 227,202 236,868
Production costs 9,463 -
General and administrative 122,163 513,069
Interest expense:
Stockholder - -
Other 12,264 34,635
------------- -----------
376,506 789,975
------------- -----------
Loss from operations (379,834) (612,239)
Gain on sale of 90% of
Charleston license - 311,500
Income/(loss) before income taxes (379,834) (300,739)
------------- ------------
Net income/(loss) $ (379,834) $ (300,739)
============= ============
Net income/(loss) per share
Primary $ (0.02) $ (0.03)
Diluted $ (0.02) $ (0.03)
Accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED NOVEMBER 30, 1997
<CAPTION>
Common Stock Preferred Add'l Pd Accumulated
Shares Amount Shares Amount In Capital Deficit Total
------ ------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Bal at 5/31/97 13,479,613 $134,796 10,836,034 $(7,016,829) 3,954,001
Net Loss ( 347,426) (347,426)
========== ======== ======= ======= ========== =========== =========
Bal at 8/31/97 13,479,613 $134,796 $10,836,034 $(7,364,255) $3,606,575
Issuance of common
stock for cash 421,000 4,210 206,290 - 210,500
Issuance of common
stock in exchange
for services 125,443 1,254 75,621 - 76,875
Issuance of common
stock upon
conversion of debt 746,968 7,470 273,632 - 281,102
Issuance of
Preferred Stock,
Series M 350,000 350 349,650 313,841
($36,159 PPM cost)
Net loss ( 379,835) (379,835)
--------- ------- -------- ---- ---------- ---------- ---------
Bal at 11/30/97 14,773,024 $147,730 350,000 350 $11,741,227 $(7,744,090) $4,109,058
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
Interactive Technologies Corporation, Incorporated
Statement of Cash Flows
For the Six Months Ended November 30, 1997 and 1996
1997 1996
------------ -----------
Cash received from customers $ 109,766 $ 79,731
Interest received 797 -
Cash paid to employees ( 57,036) ( 390,659)
Cash paid to suppliers ( 235,997) ( 745,977)
Interest paid:
Stockholder - -
Others - ( 34,635)
------------ -----------
Net cash used in operating activities $ ( 182,470) $(1,091,540)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment ( 665)
Capitalized software development reduction 50,000
Decrease in subsidiary investment - 104,719
License rights payment - (232,000)
Joint Interest Investment 29,075 -
------------ -----------
Net cash used in investing activities 29,075 $ (77,946)
------------ -----------
Cash flows from financing activities:
Issuance of convertible debentures - 300,000
Proceeds from note payable 273,000 -
Common stock issued for cash - 576,852
Promissory notes isssued for cash 144,000
Contract of sale deposits received 98,099
License rights payment - (232,000)
------------ -----------
Net cash provided by financing activities 273,000 1,118,951
------------ -----------
Net change in cash 119,605 (50,535)
Cash at beginning of period 13,605 63,114
------------ -----------
Cash at end of period $ 133,210 $ 12,579
============ ===========
Accompanying notes are an integral part of the financial statements.
5
<PAGE>
Interactive Technologies Corporation, Inc.
Statement of Cash Flows
For the Six Months Ended November 30, 1997 and 1996
Reconciliation of Net Income to Net Cash
Used in Operating Activities
(unaudited)
1997 1996
------------- -----------
Net income/loss $ ( 727,261) $(1,192,420)
Adjustments to reconcile net
income/loss to net cash used in
operating activities:
Amortization 477,297 477,677
Depreciation 10,829 10,806
Increase/Decrease in accounts receivable 108,711 ( 11,906)
Increase in notes receivable - (150,000)
Decrease in accounts payable ( 10,896) (227,293)
Increase in prepaid expenses ( 96,578) ( 14,550)
Increase/Decrease in accrued expenses ( 11,448) ( 39,288)
Stock issued for supplies and services 66,876 366,934
Gain on sale of Charleston license (311,500)
------------ ----------
Total adjustments $ 544,791 $ 100,880
------------ ----------
Net cash used in operating activities $ ( 182,470) $(1,091,540)
============ ===========
Accompanying notes are an integral part of the financial statements.
6
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
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. On October 20, 1995, the Company
entered into a reverse acquisition transaction, described below, with
Syneractive, Inc. (SI). SI was incorporated in the state of Florida on August
31, 1995. Prior to October 20, 1995, the Company was engaged primarily in the
business of exploiting its rights under a license granted by CST Entertainment
Imaging, Inc. The license gave the Company the exclusive right to colorize
black-and-white film and videotape, including black-and-white theatrical films
and television programs, which were originally produced for distribution
primarily within European countries. However, the Company abandoned the business
of exploiting the license (see Note 3) on October 18, 1995 as a result of being
unable to realize any revenue from the license. SI, which was acquired in a
reverse acquisition, obtained license rights from the Federal Communications
Commission to operate interactive and data service systems in the Charleston -
North Charleston, SC and Melbourne - Titusville, Florida metropolitan areas.
Syneractive, Inc. also acquired 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 rebate 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 April 15, 1996
and serve customers in the eastern United States. Management expects
exploitation of the FCC licenses to commence in 1997. They intend to hire the
necessary management personnel, raise addition capital and generate profitable
operations needed to continue its existence.
Syneractive, Inc. was dissolved on October 30, 1995.
Reverse acquisition
- -------------------
On October 1, 1995, the Company issued 5,700,000 shares of common stock to
its current sole director and officer in exchange for the net assets of SI.
After the issuance of such stock, the current director and officer effectively
controlled the Company, holding approximately 50.1% of the outstanding common
stock.
Prior to the reverse acquisition, the current sole director and officer of
the Company owned all of the outstanding common stock of SI. Accordingly, the
reverse acquisition has been accounted for at the historical cost of the assets
acquired.
Basis of Presentation
- ---------------------
The financial information presented as of any date other than May 31 has
been prepared from the books and records without audit. The accompanying
financial statements have been prepared in accordance with the instructions to
Form 10QSB and do not include all of the information and the footnotes required
by generally accepted accounting principals for complete statements. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial statements,
have been included.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended May 31,
1996 contained in the Company's 10KSB Annual Report.
7
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
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.
Earnings per share
- ------------------
Primary and fully diluted earnings per share amounts are based upon
14,773,024 and 12,159,863, respectively, weighted average shares of common stock
and common stock equivalents outstanding. No effect has been given to the
assumed exercise of stock options and warrants and convertible debentures as the
effect would be antidilutive.
In February 1997, the Financial Standards Accounting Board (FASB) issued
Statement of Financial Accounting Standards No. 128 Earnings Per Share effective
for financial statement periods ending after December 15, 1997. Earlier
application is not permitted. For pro forma disclosure purposes, there is no
difference in the amounts of net loss per share and weighted average shares of
common stock outstanding computed using FASB 128 and those reflected in the
accompanying financial statements.
2. COMMITMENTS AND CONTINGENCIES
Operating leases
- ----------------
Through October 31, 1995, the Company used office space provided free of
charge by its stockholder, the value of which was not material. The Company
presently leases its facilities in Florida under non-cancelable operating lease
agreements expiring through April 1998.
Minimum future rental payments required under the above operating leases
are as follows.
Year Ending
May 31, Amount
1998 $ 4,820
=========
License fees payable
- --------------------
The Company, through SI, 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 license were formally issued.
Future principal payments under the remaining Titusville, FL license right
obligation are as follows:
Year Ending
May 31, Amount
1998 $ 210,077
1999 183,113
2000 146,810
-----------
$ 540,000
8
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
3. 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 2). 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 2) for equipment located in the
New Jersey facilities and contractually precluded from being removed from the
facilities. Although the Company anticipates a favorable result of this lawsuit
the outcome of it is uncertain. The accompanying financial statements do not
contain any reserve for this contingency.
4. CONVERTIBLE DEBENTURES
NONE
5. 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 March 1998 and are unsecured.
6. INCOME TAXES
The Company used the accrual method of accounting for tax and financial
reporting purposes. At November 30, 1997, the Company had net operating loss
carryforwards for financial and tax reporting purposes of approximately
$7,800,000. This carryforwards expire through the year 2011, and are further
subject to the provisions of Internal Revenue Code Section 382.
7. SUBSEQUENT EVENT
Subsequent to May 1997, the Company entered into an agreement to acquire
Airtech International Corporation (AIC), a Texas corporation, through the
issuance of its common stock shares in a transaction to be accounted as an
acquisition by ITC. The transaction is subject to final AIC stockholder approval
upon the effective date of a Form S-4 Registration Statement, which has been
filed.
On August 1, 1997, ITC entered into a Manufacture and Distribution
Agreement with Airtech. This agreement relating to the Medicare madel 950 air
filtration unit, has been used by ITC for the Private Placement of additional
Securities. This agreement and the working arrangements are being treated as a
Joint Venture between ITC and Airtech until such time as the merger of the two
companies is complete. Accordingly all receipts from the sales of securities and
disbursement of funds are accounted for as a Joint Venture. At November 30, 1997
350,000 shares of the PPM Series M Perferred stock had been completed.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTERIM PERIOD FROM JUNE 1, 1996 THROUGH NOVEMBER 30, 1997.
During the quarter, the Company's efforts were directed at program
development involving the next RebateTV program and the initiation of program
development of "Assualt on the Liberty" a DocuDrama about the sinking of the
United States Ship "Liberty" during the Seven Day War. The Company has
contracted for creative work on the Development and Prep phases for the
"Liberty" project as well as for development work by Bottomline, Inc. of
Atlanta, Georgia. Both the "Liberty" project and the newest RebateTV program are
under creative direction by Michael Hamilton who has designed, directed and
produced such television series as "Magnum P.I., "Simon & Simon", "Wings" and
"The Twilight Zone". His commercial experience includes such clients as
Cadillac, Texaco, Coca Cola, Heineken, American Airlines, Donna Karan, Elizabeth
Arden, QVC, Business Technology Management and the Family Channel.
The computer development efforts related to Rebate TV were done at the
Company's engineering offices in Melbourne, Florida, where the hardware and
software designs and specifications were developed, tested and implemented
during the current fiscal year, to:
(*) manage the large amounts of data and transactions involved in
collecting and verifying sales information from the Rebate TV
retailers;
(*) calculate the rebates, record the credits, and issue the checks
to the consumer;
(*) accommodate and record the telephone rebate requests, and provide
automated participation information to the public.
Internet Access. ITC's Internet home pages for use with Rebate TV allow
viewers to access the program's data base through the Internet. It allows them
to view the status of their accounts, enter vendor rebate claims, and later will
allow viewers to access a variety of products and services associated with
Rebate TV which the Company expects to include. Rebate TV is located at
http://www.rebatetv.com.
Interactive Video and Data Services. As part of ITC's commitment to the
evolution of interactive television, its Federal Communications Commission
Interactive Video and Data Services (IVDS) radio station license in the
Melbourne-Titusville-Palm Bay, FL and a 10% interest in Charleston-North
Charleston, SC service areas represent an additional enhancement to the
Company's programming distribution. These licenses have a duration of an initial
five years, and are renewable if all conditions of the license are met. IVDS, a
two way communications system, will allow viewers to take an active role in
systems delivered through broadcast television, cable television, wireless
cable, direct broadcast satellite or other future television delivery methods.
IVDS is regulated as a personal radio service under the rules of the FCC which
has allocated spectrum in the 218-219 MHz range for its use. IVDS systems are
designed to operate with a hand-held remote control device that controls the
interactive set top device on the subscriber's television set. A viewer would
interact with the TV station through a radio signal using an IVDS frequency.
The Company is reviewing alternative uses and equipment proposals for its
Melbourne-Titusville-Palm Bay, FL license and expects to proceed to install a
system for this license within the next 24 - 36 months.
Although ITC will run its Rebate TV and other programs on its own service
area systems, the programs it develops are intended for use on various
interactive delivery systems and are not specific to Interactive Video and Data
Services systems. They are marketed to all of these various delivery systems.
For broadcast of Rebate TV programming the Company currently uses and plans to
use standard video media distribution methods such as cable, broadcast stations,
wireless cable and direct broadcast satellite. Although the Company has designed
its programs to utilize an IVDS return link (a "return link" is the method by
which data is sent from the consumer or viewer back to the originator of the
program), they are also designed to accommodate other return links such as the
telephone. The Company has purchased equipment and software to provide a
telephone return link as an interim return link for its own license areas as
well as other areas where it is providing programming, to be utilized where IVDS
is not available; until the installation an operation of the IVDS equipment as a
return link is completed as well as for use with non subscribers to IVDS.
10
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Revenues from operations for the Quarter reported were $(3,328), down from
$177,736 for the same period for the previous year. The Company has concluded
its beta test period for Rebate TV and continues to prepare for network
operations. Operating expenses for the Quarter reported decreased to $376,506
from $789,975 the previous year. The Company's computer operations were
developed to operate at a level to service a national market and those
operations will make up a significant portion of the operating expenses which
will proportionately decrease as the Company adds markets for its productions.
The Company expects its expenses to expand at a decreasing percentag as it
expands into additional markets.
During the six months of the current fiscal year, the Company received
$210,500 net of cost from the private sale of its common stock and an dditional
$52,500 in loans. The Company does not expect to receive significant revenues
from projects other that Rebate TV during the next quarter. The Company expects
to require additional funds over the next 12 months for the expansion and
addition of market for its products and operations.
PART II Other Information
Item l. 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 no unfavorable to the Company.
The Company is not as party to any other pending legal proceedings except
for claims and lawsuits arising in the normal course of business. ITC does not
believe that these claims or lawsuits will have a material effect on ITC's
financial condition or results of operations
Item 5. Other Information
The purchase of the outstanding stock of Airtech International Corporation
has not been completed as of November 30, 1997. This transaction will be
completed upon the effective notice of the registration statement filed with the
Securities and Exchange Commission. The Company is electing to report current
Proforma Combined Financial Statements of the Company and Airtech as if the
transaction had been completed on November 30, 1997. And is providing under Item
6 as an Exhibit the November 30, 1997 unaudited Financial Statements of Airtech.
On August 1, 1997 the Company and Airtech International Corporation (AIC)
entered into a Manufacture and Distribution Agreement or Joint Venture for the
Production of the Airtech Model 950 air filtration unit. As a result of this
agreement the Company began a Private Placement of its designated Series M
Preferred Stock, with the maximum placement being 5,000,000 shares at a price of
$1.00 per share with one convertible warrants attached to each Preferred share.
If this Private Placement is completed the Company will contribute 75% of the
net proceeds to the Joint Venture or such lesser amount if the total shares of
Preferred Stock are not sold.
11
<PAGE>
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION INC.
PROFORMA COMBINED BALANCE SHEETS
NOVEMBER 30, 1997
(Unaudited)
<CAPTION>
Historical
--------------------------------
Acquired
Interactive
Technologies Airtech Adjustments
Corporation International For
Inc. Corporation Acquisition Combined
-------------- ------------- ------------ -----------
ASSETS
<S> <C> <C> <C> <C>
Current Assets $286,523 $721,690 $1,008,213
Property and equipment net
of depreciation 75,457 235,489 310,946
Notes receivable 899,833 899,833
Intellectual properties net of
Amortization 4,457,765(2) 1,204,895(3) 12,250,000(4) 17,912,660
Investment in subsidiary 650,000 650,000
Investment in Joint Venture 284,766 (137,824) 146,942
Goodwill 1,329,252(4) 1,329,252
Other assets 1,266 527,918 529,184
------------- ------------ -------------- ------------
Total Assets $5,105,777 $4,102,001 $13,579,252 $22,787,030
============= ============ ============== ============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C> <C> <C>
Current Liabilities $666,796 $874,942 $1,541,738
Deferred Revenue 400,000 400,000
Long-term liabilities 329,923 45,749 375,672
9,000,000(4) 9,000,000
------------- ------------ -------------- -----------
Total Liabilities 996,719 1,320,691 11,317,410
Commitments and contingencies (5)
Stockholders' Equity
Paid in Capital 11,853,148 3,825,571 4,579,252(4) 20,257,971
Retained Earning (Deficit)
(7,744,090) (1,044,261) (8,788,351)
--------------- ------------- -------------- ------------
4,109,058 2,781,310 4,579,252 11,469,620
--------------- ------------- -------------- ------------
Total Liabilities and
Stockholders' Equity $5,105,777 $4,102,001 $13,579,252 $22,787,030
=============== ============= ============== =============
</TABLE>
See notes to Pro-Forma Combined Financial Statements
12
<PAGE>
<TABLE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
PROFORMA COMBINED STATEMENTS OF INCOME
For the Six Months Ended November 30, 1997
(Unaudited)
<CAPTION>
Historical Adjustments
------------------------------- -------------
Acquired
--------
Interactive
Technologies Airtech Adjustments
Corporation International For
Inc. Corporation Acquisition Combined
------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Net revenues $ (3,325) $ 242,768 $ 239,443
Cost of Sales
- 158,142 158,142
------------- -------------- ------------
Gross income
(3,325) 84,626 81,301
General and Administrative
143,893 310,841 454,734
------------ --------------- ------------
Net income from operations
Before depreciation,
Amortization and taxes
(147,218) (226,215) (373,433)
Depreciation and amortization 232,616 8,250 240,866
----------- --------------- ------------
Net income (loss)
From operations
(379,834) (234,465) (614,299)
Income taxes
- - -
----------- --------------- -------------
Net Income (Loss) $(379,834) $ (234,465) $ (614,299)
=========== =============== =============
Primary (loss) per share $ (0.02)(1) $ (0.01)(1) $ (0.03)
Diluted (loss) per share $ (0.02)(1) $ (0.01)(1) $ (0.03)
</TABLE>
See notes to Pro-Forma Combined Financial Statements
13
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
November 30, 1997
(Unaudited)
1. Basis of Presentation
The accompanying Pro-Forma Combined balance sheet at August 31, 1997 and
related combined statement of operations for the nine months then ended have
been prepared as if the business combination had occurred on June 1, 1997 the
start of the current fiscal year of Interactive.
The purchase of the outstanding stock of Airtech by Interactive is being
reflected in these Pro-Forma Combined Financial Statements using the purchase
method for recording the transaction. The excess of cost over book value has
been reclassified to other assets of Airtech based on managements estimates and
outside valuation based on projected cash flows and revenues from the revalued
assets. No provision for amortization of these revalued assets or goodwill are
reflected in these combined financial statements.
There have been no changes in generally accepted accounting principals in
the presentation of the combined financial statements from the historical
audited financial statements included herein by reference as previously filed or
in the audited financial statements of Airtech for its fiscal year ended May 31,
1997.
Earnings per Share (EPS) is reflected as primary earning per share and
fully dilluted earnings per share set forth in the following table used for EPS
computation:
Historical
------------------------------
ITC Airtech
Weighted average number of shares 12,139,865 17,485,000
Less shares cancelled ( 3,400,000)
Add shares issued for debentures 1,144,444
Adjustment for combined presentation (17,485,000)
Common shares issued for acquired 8,000,000
-----------
Primary shares outstanding 17,884,309
Assuming conversion of convertable
preferred issued for acquired 8,850,000
Assuming conversion of convertable
Debentures issued for acquired 12,857,143
-----------
Fully diluted shares outstanding 39,591,452
Notes to Historical Financial Statements
1. Intellectual properties reflected on the balance sheet of Interactive
consist of the following:
License rights net of accumulated amortization
of $371,250 $ 303,750
Proprietary software and trademark, net of accumulated
amortization of $1,257,028 4,154,015
-----------
$4,457,765
14
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
November 30, 1997
(Unaudited)
License rights consist of ITC's Federal Communications Commission
Interactive Video and Data Services (IVDS) radio station license in the
Melbourne-Titusville-Palm Bay, Florida and the retained 10% interest in IVDS
license in the Charleston-North Charleston, South Carolina service areas
representing an additional enhancement to ITC=s programming distribution. These
licenses have a duration of an initial five years, and are renewable if all
conditions of the license are met. IVDS, a two way communications system , will
allow viewer to take an active role in systems delivered through broadcast
television, cable television, wireless cable, direct broadcast satellite or
other future television delivery methods. IVDS is regulated as a personal radio
service under the rules of the FCC which has allocated spectrum in the 218-219
MHZ range for its use. IVDS systems are designed to operate with a hand-held
remote control device that controls the interactive set top[ device on the
subscriber's television set. A viewer would interact with the TV station through
a radio signal using an IVDS frequency.
Proprietary software and trademarks consist of software developed for
integration into the rebate television market and a trademark known as Rebate TV
(TM) purchased in October 1995. This proprietary software allows ITC to be a
developer and producer of television, interactive television and interactive
digital media programming. These programs can be developed in various
interactive formats for cable, broadcast and direct broadcast satellite
television as well as for Internet distribution. Rebate TV is a television
program which incorporates interactive media and computer data management
allowing retail vendors to communicate their message to consumers, the allow the
consumer to verify his or her purchase, with the consumer receiving a cash
rebate from ITC for their purchases. Retailers represent a broad spectrum of the
business community including grocer chains, furniture stores, tire service
stores, banks, restaurants, car dealers and a variety of other specialty
businesses.
2. Intellectual properties reflected on the balance of Airtech consist of
the cost incurred to date for the development of a full line of air purification
products for commercial, consumer, automobile and medical use. Several of the
products will be eligible for a US and foreign patents with patent applications
currently in process or planned .
Adjustments for Acquisition
3. Per the stock purchase agreement entered into on May 8, 1997 between
Interactive Technologies Corporation, Inc. and Airtech International Corporation
the following presents the securities and the related valuation of the purchase
of 100% of the issued and outstanding common stock of Airtech:
Value
Description of Securities Per Share Total
8,000,000 shares of Interactive
Common Stock, registered $0.56(a) $4,480,000
8,850,000 shares of Interactive
Preferred Stock, registered and
convertible into Common Stock $0.45(b) 3,982,500
$9,000,000 in Convertible
Debentures At Face 9,000,000
----------
Total value of purchase of 100% of
Airtech Common Stock $ 17,462,500
15
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
November 30, 1997
(Unaudited)
(a) The closing of bid price of Interactive common stock on May 8, 1997 was
$1.125, for valuation of a private placement type transaction of registered
shares of common stock Interactive has discounted the price per share by 50%.
(b) The Preferred Stock is convertible into one (1) share of Common Stock after
24 months or can be called by the Company during that time, for valuation
purposes the assigned value of the common shares was reduced by 20%.
The following represents the allocation of the purchase price:
Book value of Airtech common stock $ 3,804,026
Intellectual properties 12,250,000
Excess of purchase price over cost 1,408,474
-------------
Total Purchase Price $17,462,500
4. Interactive Technologies has the following litigation pending:
The Company is a defendant in a proceeding filed in the United States
District Court for the Southern District of New York. It accepted service April
5, 1997 in an action brought by Studiolink Corporation and Steven Campus for
damages arising out of an equipment lease agreement. The Company expects to
assert counterclaims against the Plaintiffs for losses suffered as a result of
their failure to perform. Settlement discussions have been ongoing and the
Company expects this matter to be settled in a manner not unfavorable to the
Company. In addition, in related matters, 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
asserted 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. .
The Company is not a party to any other pending legal proceedings except
for claims and lawsuits arising in the normal course of business. The Company
does not believe that these claims or lawsuits will have a material effect on
ITC=s financial condition or results of operations. Accordingly no provision or
accrual for potential losses are reflected in the Pro-Forma Combined Financial
Statements.
Airtech International Corporation has the following litigation pending:
Airtech International Corporation, McCleskey Sales and Service, Inc., C.J.
Comu and John Potter, plaintiffs vs Honeywell, Inc., Honeywell Environmental Air
Control, Inc. And Suzanne Haas, defendants; No. 3:96CV-1855-D, United States
District Court for the Northern District of Texas, Dallas Division.
In this case, Airtech, a subsidiary and two of its officers filed suit
against Honeywell, Inc. And a Honeywell subsidiary and an employee asserting
several causes of action. These causes of action include breach of contract
relating to termination of the Company=s Full Service Distributorship
agreements, for defamation and tortious interference with contract relating to a
merger agreement between the Company and DCX, Inc., for unfair competition
regarding claims made by Honeywell about it air purification products, for
negligent misrepresentation regarding representations made to the Company and
its subsidiary regarding the exclusivity of certain arrangements with the
defendants, and for declaratory relief and attorney=s fees. Honeywell filed a
counterclaim against the Company, McCleskey, Comu and Potter. Honeywell alleges
that the Company and McCleskey owe Honeywell money for past purchases, and that
Comu and Potter interfered with the relationship between McCleskey and
Honeywell. Honeywell seeks $71,000 in actual damages and unspecified punitive
damages and attorney=s fees. The Company has denied all of the material
allegations of Honeywell=s counterclaim. The Company plans to vigorously defend
the counterclaim and believes the counterclaim to be without merit. Honeywell,
Inc., plaintiff, vs Airtech International Corporation, AirSoPure, Inc. And
Richard Allegrati, defendants: No. WMN 97-238 United States District Court for
the District of Maryland, Baltimore Division.
16
<PAGE>
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
November 30, 1997
(Unaudited)
Honeywell filed suit against the Company, a subsidiary and an employee,
alleging violations of the Lanham Act and the Maryland Uniform Trade Secrets Act
and the common law. The suit alleges that certain Airtech and AirSoPure products
were sold in violation of the Honeywell=s trademarks, and that the cover design
of certain products of Airtech/AirSoPure was wrongfully obtained. The suit seeks
an injunction and unspecified damages. Rather than incur substantial additional
attorney=s fees, the Company agreed to the entry of a preliminary injunction
regarding the sale of a very small number of modified Honeywell products,
immaterial to the Company=s business. The Company denies all of the material
allegations of Honeywell=s claims, is vigorously defending this case. The
Company believes Honeywell=s claims to be without merit.
Accordingly no reserve or accrual has been reflected in these Combined
Pro-Forma Financial Statements for this pending litigation.
17
<PAGE>
Item 6. Exhibits
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
November 30, 1997
(Unaudited)
1997 1996
------------- -------------
Assets
Current Assets:
Cash and cash equivalents $ 21,509 $ 345,570
Accounts Receivable 247,185 369,361
Inventories 274,042 198,922
Other Currents Assets 178,954 12,240
------------- -------------
Total Current Assets 721,690 926,093
Property, Plant and Equipment Net of
Accumulated Depreciation 235,489 153,710
Property held for Resale 400,000
Intellectual Properties 1,204,895 161,387
Notes Receivable-Long Term 899,833 -
Investment in Subsidiaries 650,000 650,000
Other Assets 527,918 519,050
------------- -------------
Total Assets $ 4,239,825 $ 2,810,240
================ =============
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 24,253 $ 10,391
Accounts Payable-trade 339,493 94,004
Accrued Payroll and employee benefits 415,196 1,772
Joint Venture Advances 137,824
Loans from Officers 96,000 -
---------------- -------------
Total Current Liabilities 1,012,766 106,167
Long-Term Debt 45,749 18,129
Deferred Revenue 400,000 -
Commitments and Contingent Liabilities
Stockholders' Equity
Common Stock, issued 16,223,642 shares
in 1997 and 14,917,342 shares in 1996 164 149
Series C Preferred Stock, issued 1,000
shares in 1997 and 1,000 shares in 1996 1,000 1,000
Paid-in Capital 3,824,407 3,410,363
Retained Earnings (Deficit) (1,044,261) (725,568)
---------------- -------------
Total Stockholders' Equity 2,781,310 2,685,944
---------------- -------------
Total Liabilities and Stockholders' Equity $ 4,239,825 $ 2,810,240
================ =============
See Notes to Consolidated Financial Statements
18
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended November 30, 1997 and 1996
(Unaudited)
1997 1996
-------------- --------------
Sales $ 242,768 $ 214,111
Cost of Sales 158,142 110,987
--------------- -------------
Gross Income 84,626 103,124
General and Administrative expenses 319,091 351,152
--------------- -------------
Net Income ( Loss) $ (234,465) $ (248,028)
================ =============
Primary Income ( Loss) per share $ (0.01) $ (0.02)
Dulited Income ( Loss) per share $ (0.01) $ (0.02)
See Notes to Consolidated Financial Statements
19
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended November 30, 1997 and 1996
(Unaudited)
1997 1996
--------------- ---------------
Sales $ 510,692 $ 540,131
Cost of Sales 342,350 228,296
--------------- ---------------
Gross Income 168,342 311,835
General and Administrative expenses
609,907 557,717
--------------- ---------------
Net Income ( Loss) $ (441,565) $ (245,882)
=============== ===============
Primary Income ( Loss) per share $ ( 0.03) $ ( 0.02)
Dulited Income ( Loss) per share $ ( 0.03) $ ( 0.02)
See Notes to Consolidated Financial Statements
20
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997 and 1996
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Organization. Airtech International Corporation (the Company) was
incorporated in the state of Texas in March of 1995. In August of 1995, the
Company became a Full Service Distributor for Honeywell Enviracaire, a
manufacturer of commercial air filtration systems, and began marketing and sales
of these products. In August of 1995, the Company determined that the
Enviracaire model 13000 could be eligible for Medicare Part B Code and began the
pursuit of an application for such code, receiving notification of a pending
issuance of a Medicare Part B Code in April of 1996. In May of 1996, Honeywell
Enviracaire cancelled the Company's Full Service Distributorship and the Company
withdrew its Medicare application.
In December 1995, the Company acquired 100% of McCleskey Sales and Service,
Inc., (MSS) a Texas corporation, in exchange for 165,000 shares of common stock.
MSS is engaged in the sales and service of heating and air conditioning
equipment. MSS was also a Honeywell Enviracaire Full Service Distributor with
prior knowledge of the installation and service of this air filtration
equipment.
In September 1996, the Company initiated a design program to create a
complete line of air filtration and purification products. This line of products
includes commercial ceiling mounted units, wall mounted units, ductable units
and a down draft salon table for the nail industry as well as a portable
automobile unit and a portable unit for Medicare. The technology being developed
by the Company will combine ozone generation with air filtration, a new concept.
In March 1996, the Company incorporated AirSoPure, Incorporated (ASP) in
the state of Texas as a wholly-owned subsidiary. ASP was formed to establish a
franchise program for the Airtech products. The franchisees will be the primary
source for the marketing, sales and distribution of the Company's commercial
technology.
Basis of Financial Statement Presentation. The consolidated financial
statements include the accounts of the Company and its subsidiaries.
Intercompany transactions and accounts have been eliminated. Subsidiaries
purchased are recorded at cost using the equity method of accounting for
acquisitions.
Cash Equivalents. Holdings of highly liquid investments with maturities of
three months or less when purchased are considered to be cash equivalents.
Inventories. Inventories are valued at the lower of the first-in, first-out
(FIFO) cost or market. Assembled units are valued at the cost of components plus
allocated labor.
Property, Plant, and Equipment. Property, plant, and equipment are recorded
at cost less depreciation and amortization. Depreciation and amortization are
primarily accounted for on the straight line method based on estimated useful
lives. The amortization of leasehold improvements is based on the shorter of the
lease term or the life of the improvement. Betterments and large renewals which
extend the life of the asset are capitalized whereas maintenance and repairs and
small renewals are expended as incurred.
Sales. Income is recognized in the financial statements (and the customer
billed) either when materials are shipped from stock or when the vendor bills
the Company for the order. Net sales are arrived at by deducting discounts,
freight, and sales tax from gross sales.
Franchise Fees. Franchise fees are recognized in the financial statements
when all material services relating to the sale of a franchise have been
performed by the Company and there is no obligation to refund any cash received
or forgive any unpaid notes or receivables.
21
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997 and 1996
(Unaudited)
Intellectual Properties. Cost incurred by the Company in developing its
products which are considered patentable are capitalized and will be amortized
over the estimated useful life of the related patents. The technical
requirements for the design, testing and completion of working proto-types are
the primary cost capitalized. Amortization will be recorded after a unit has
been placed in production.
Income Taxes. The Company uses the asset and liability method as identified
in SFAS 109, Accounting for Income Taxes.
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.
Stock-Based Compensation. The Company follows the intrinsic value based
method of accounting as prescribed by APB 25, Accounting for Stock Issued to
Employees, for its stock-base compensation.
Principals of Consolidation. The Company acquired McCleskey Sales and
Service, Inc. in November 1995 electing the equity purchase method for
accounting for this purchase. The Company incorporated AirSoPure Incorporated in
March 1997. The accompanying consolidated financial statements include the
general accounts of the Company and these wholly owned subsidiaries. All
material intercompany accounts and balances have been eliminated in the
consolidation except for cash advances to a subsidiary.
Nature of Operations. The Company's primary business is the manufacture,
sales and distribution of air filtration equipment. The technology utilized in
the Company's air filtration equipment will remove odors, gases, viruses,
pollen, mold spores and other airborne particulates. Uses of this technology
include, restaurants, medical facilities, public buildings, schools, gaming and
bingo facilities.
Note 2: Other Current Assets
At November 30, 1997 and 1996 other assets are comprised of the following:
1997 1996
------- ---------
Prepaid expenses $ 49,836 $
Prepaid legal 122,401
Other 6,721 12,240
---------- ---------
Total $ 178,954 $ 12,240
The Company has entered into a contingent fee agreement with the law firm
representing its interest in the Honeywell law suit. Under the terms of this
agreement the Company will pay certain out-of-pocket expenses incurred during
the litigation, to date these expenses have totaled $118,841.
22
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997 and 1996
(Unaudited)
Note 3: Property, Plant and Equipment
At November 30, 1997 and 1996, property plant and equipment comprised of
the following:
1997 1996
--------- ----------
Furniture and fixtures $ 17,750 $ 17,750
Computers and equipment 139,412 124,184
Vehicles 127,783 77,686
Leasehold improvements 9,388 1,202
Assembly equipment 65,266 3,560
--------- ----------
Total 359,599 224,382
Less: Accumulated depreciation 124,110 70,672
--------- ----------
Net $ 235,489 $ 153,710
Note 4: Property Held for Resale
In 1995 the Company purchased the exclusive rights to Honeywell Enviracaire
products for the county of Turkey for $250,000 and for the country of Taiwan for
$150,000.
Note 5: Intellectual Properties
Prior to the cancellation of the Company's Full Service Distributorship in
the U.S. by Honeywell in May of 1996 the Company had received notification of
approval within 90 days of its Medicare Part B application for a portable air
filtration system manufactured by Honeywell. Subsequent to this cancellation the
Company withdrew it Medicare Part B application. While the Company is pursuing
the development of a full line of commercial air filtration systems, its primary
focus has been on the development of a portable air filtration system that will
qualify for Medicare Part B and a portable air filtration unit for vehicles.
The Company has incurred costs totaling $1,204,895 at November 30, 1997 and
$161,387 at November 30, 1996 in its design and testing of these products. The
Company currently has in production one commercial model and anticipates its
complete line of commercial air filtration products to be in production during
the 1998 fiscal year. The portable air filtration unit for vehicle use is
scheduled for production by the end of 1997. The air filtration system being
designed for Medicare Part B applications should be in a working proto-type by
the end of 1997 and the application submitted during the first quarter of 1998.
The Company forecast additional cost of approximately $1 million dollars for
completion of the vehicle and Medicare Part B units. The Company has and will
continue to apply for patents on its products.
Note 6: Notes Receivable
At November 30, 1997 and 1996, notes receivable is comprised of the
following:
1997 1996
--------- --------
Domestic notes receivable $ 300,000 $ 0
Foreign notes receivable 666,500 0
--------- --------
Total 966,500 0
Less: Current Maturities 66,667
--------- --------
Long Term Notes Receivable $ 899,833 $ 0
23
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997 and 1996
(Unaudited)
These notes receivable bear interest at 8% and are payable in terms ranging
from 12 months to 36 months. Credit is extended on a evaluation of the payee's
financial condition and general credit information. If the note is for a
franchise fee or for equipment, these will serve as collateral.
Note 7: Other Assets
At November 30, 1997 and 1996, other assets is comprised of the following:
1997 1996
----------- --------
Deposits $ 16,739 $ 16,279
Prepaid royalties 500,000 500,000
Other 11,179 2,771
----------- --------
Total $ 527,918 $ 519,050
Note 8 Notes Payable
At November 30, 1997 and 1996, notes payable is comprised of the following:
1997 1996
------------ ---------
Nations Bank $ 21,413 $ 28,520
Compass Bank 11,597
Resource One 37,019
------------ ---------
Total 70,002 28,520
Less: Current maturities 24,253 10,391
------------ ---------
Long-Term Debt $ 45,749 $ 18,129
Note 9: Earnings Per Common Share
Earnings per common share are computed by dividing net income by the
average number of Common shares outstanding during the period. The weighted
average number of Common shares outstanding at November 30, 1997 were
approximately 16,100,000 and approximately 9,200,000 at November 30, 1996.
Note 10: Income Taxes
The Company uses the accrual method of accounting for tax and financial
reporting purposes. At November 30, 1997 and 1996, the Company had net operating
loss carryforwards for financial and tax reporting purposes. These carryforwards
expire through the year 2011, and are further subject to the provisions of the
Internal Revenue Code Section 382.
Note 11: Operating Leases
The Company presently leases its facilities in Texas under non-cancelable
operating lease agreements expiring through September 1999. These leased
facilities total approximately 13,000 square feet of office and warehouse space.
Minimum future rental payments under the above operating leases are as
follows:
Amount
1998 $ 78,000
1999 37,680
----------
Total $ 15,680
24
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997 and 1996
(Unaudited)
Note 12: Commitments and Contingencies
An original petition was filed in State District Court, Dallas, Texas in
August 1995 by Kristen S. Venable naming McCleskey Sales and Service, Inc., and
Trane, Inc., Defendants, alleging breach of contract, breach of warranty and
negligence relating to the installation of Trane air conditioning equipment. The
complaint seeks damages in excess of the minimum, jurisdictional limits of the
Court, plus punitive and exemplary damages. McCleskey and Trane have filed
answers denying all claims. The matter is currently awaiting a trial date. The
claims against McCleskey are covered by insurance which coverage amount is
believed by management to be sufficient to cover the claims in the event of an
adverse judgement.
Airtech International Corporation, McCleskey Sales and Service, Inc., C.J.
Comu and John Potter, plaintiffs, vs Honeywell Environmental Air Control, Inc.,
and Suzanne Haas, defendants; No. 3:96CV-1855-D, United States District Court
for the Northern District of Texas, Dallas Division.
In this case, Airtech, a subsidiary and two of its officers filed suit
against Honeywell, Inc. and a Honeywell subsidiary and an employee asserting
several causes of action. These causes of action include breach of Contract
relating to the termination of the Company's Full Service Distributorship
agreements, for defamation and tortious interference with a contract relating to
a merger agreement, for unfair competition regarding claims made by Honeywell
about its air purification products, for negligent misrepresentation regarding
representations made to the Company and its subsidiary regarding the exclusivity
of certain arrangements with the defendants, and for declaratory relief and
attorney's fees. Honeywell filed a counter claim against the Company, McCleskey,
Comu and Potter. Honeywell alleges that the Company and McCleskey owe Honeywell
money for past purchases, and that Comu and Potter interfered with the
relationship between McCleskey and Honeywell. Honeywell seeks $71,000 in actual
damages and unspecified punitive damages and attorney's fees. The Company has
denied all of the material allegations of Honeywell's counterclaim. The Company
plans to vigorously defend the counterclaim and believes the counterclaim to be
without merit.
Honeywell, Inc., plaintiff, vs Airtech International Corporation,
AirSoPure, Inc. and Richard Allegrati, defendants: No. WMN 97-238 United States
District Court for the District of Maryland, Baltimore Division.
Honeywell filed suit against the Company, a subsidiary and an employee,
alleging violations of the Lanham Act and the Maryland Uniform Trade Secrets Act
and the common law. The suit alleges that certain Airtech and AirSoPure products
were sold in violation of the Honeywell trademarks, and that the cover design of
certain products of Airtech/AirSoPure was wrongfully obtained. The suit seeks an
injunction and unspecified damages. The venue of this suit has been changed to
United States District Court for the Northern District of Texas, Dallas
Division, without injunctive relief and will be included in the other action
pending before this court. The Company denies all of the material allegations of
Honeywell's claims, and is vigorously defending this case.
Note 19: Subsequent Events
On May 8, 1997 the Company entered into a Stock Purchase Agreement with
Interactive Technologies Corporation, Inc (ITC). Under the terms of this
agreement ITC will purchase a minimum of 81% of the outstanding common stock of
the Company in exchange for 8,000,000 shares of ITC Common stock, 8,850,000
shares of ITC convertible Preferred Stock and $9,000,000 in ITC 8% convertible
Debentures.
This transaction will be closed at such time as registration statement
filed with the Securities and Exchange. At November 30, 1997 a registration
statement had been filed and was pending action by the Securities and Exchange
Commission. On notification by the Commission that the registration is effective
and a minimum of 81% of the shares tendered have been offered for exchange.
25
<PAGE>
AIRTECH INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997 and 1996
(Unaudited)
On August 1, 1997, Airtech entered into a Manufacture and Distribution
Agreement withi Interactive. This agreement relating to the Medicare madel 950
air filtration unit, has been used by Interactive for the Private Placement of
additional Securities. This agreement and the working arrangements are being
treated as a Joint Venture between Airtech and Interactive until such time as
the merger of the two companies is complete. Accordingly all receipts from the
sales of securities and disbursement of funds are accounted for as a Joint
Venture. At November 30, 1997 350,000 shares of the PPM Series M Perferred stock
had been completed. The Joint Venture is not consolidated in these Financial
Statements only, the transactions directly effecting Airtech have been
reflected.
26
<PAGE>
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 Melbourne, State of Florida, on January 14, 1998.
Interactive Technologies Corporation, Inc.
by: /s/ Perry Douglas West
---------------------------
Perry Douglas West, Chief Executive Officer
27
<PAGE>
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<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1997
<PERIOD-START> JUN-01-1997 JUN-01-1996
<PERIOD-END> NOV-30-1997 NOV-30-1996
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<SECURITIES> 0 0
<RECEIVABLES> 41,945 185,235
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<CURRENT-ASSETS> 286,523 206,624
<PP&E> 115,141 114,830
<DEPRECIATION> 39,684 18,541
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