UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-KSB/A
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:
$1,125,444.
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 $9,968,848. 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, 21,497,902 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.
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TABLE OF CONTENTS
PART I:
Page
Item 1. Description of Business 2
Item 2. Description of Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
PART II:
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Management's Plan of Operation 9
Item 7 Financial Statements 11
Item 8 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 12
PART III:
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the
Exchange Act 12
Item 10. Executive Compensation 13
Item 11. Security Ownership of Certain Beneficial
Owners and Management 13
Item 12. Certain Relationships and Related Transactions 14
PART IV:
Item 13. Exhibits, and Reports on Form 8-K 15
SIGNATURES 16
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PART I
Item 1. Description of Business.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
Number of Persons Employed
As of August 1, 1998 ITC and its subsidaries had 32 full-time employees
The Company's fiscal year runs June 1 to May 31 of each year.
Item 2. Description of Properties
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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
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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 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
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NONE
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PART II
Item 5. Market for Registrants's Common Equity and Related Stockholder Matters.
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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, 1998
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
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
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Results of Operations
ITC's consolidated operations for the fiscal year ended May 31, 1998
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 $3.5 million with delivery scheduled before December 31,
1998.
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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.
Audited ITC consolidated financial statements will be available after
September 1, 1998 therefore the following financial information is unaudited.
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
CONSOLIDATED SUMMARY BALANCE SHEET INFORMATION
MAY 31, 1998
(UNAUDITED)
Current assets $ 956,776
Property, plant and equipment 205,874
Intellectual properties 19,447,268
Notes receivable 924,833
Goodwill 600,250
Proprietary trademark and software 3,767,512
Other assets 772,620
-----------
Total Assets $26,675,133
Current Liabilities $ 968,606
Deferred income 400,000
Convertible debentures 8,595,180
Long term debt 369,038
-----------
Total Liabilities 10,332,824
Stockholders' Equity
Common stock 248,987
Preferred stock 114,276
Addition paid in capital 25,770,155
Retained earnings (deficit) ( 9,791,109)
Total Stockholder's Equity 16,342,309
-----------
Total Liabilities and Stockholders' Equity $26,675,133
10
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INTERACTIVE TECHNOLOGIES CORPORATION, INC.
CONSOLIDATED SUMMARY OF OPERATIONS
MAY 31, 1998
(UNAUDITED)
Net sales $ 1,125,444
Cost of sales 579,792
Gross Income 545,652
General and administrative expenses 2,773,522
Loss from operations (2,227,870)
Gain on sale of stock 113,333
Net Loss $ (2,114,537)
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.
Management expects that the sales of the Series M Stock will be completed,
although there is no assurance that either it will be completed or that the
funds will otherwise be available to fund the operations and expansion of the
combined companies.
Item 7. Financial Statement.
- -----------------------------
The Registrant is unable to file financial statements at the time of this
report in that its auditor has not completed the audit report with its financial
statements. The report will be filed in full with an amended 10-KSB Report
within 15 days.
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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.
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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 2,300,000 10.70
1270 Orange Avenue
Suite A
Winter Park, FL 32789
Common C. J. Comu 1,017,192 4.73
15400 Knoll Trail
Suite 106
Dallas, TX 75248
Common John Potter 691,503 3.22
15400 Knoll Trail
Suite 106
Dallas, TX 75248
All Directors and Officers 4,008,695 18.65
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 21,497,902 shares of Common Stock outstanding as of May 31,
1998.
13
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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
14
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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.
15
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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: August 28, 1998
16
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