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
August 31, 1999 Number 0-19796
AIRTECH INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in charter)
Wyoming 98-0120805
- ------------------ ------------------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
15400 Knoll Trail, Ste 106
Dallas, Texas 75248
(address of Principal Executive Offices)
972-960-9400
(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes_____X____ No __________
The Registrant has 14,654,332 shares of common stock, par value $0.05 per
share issued and outstanding as of August 31, 1999.
Traditional Small Business Disclosure Format
Yes _____X_____ No __________
<PAGE>
Interactive Technologies Corporation, Inc.
Table of Contents
PART I - FINANCIAL INFORMATION Page No.
Item 1. Airtech International Group, Inc. 1 - 9
Financial Statements (Unaudited)
Balance Sheet as of August 31, 1999 and 1998
Statement of Operations for the three
months ended August 31, 1999 and 1998
Statement of Cash Flows for the three months
ended August 31, 1999 and 1998
Notes to Financial Statements
Item 2. Management's Discussion and Analysis 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
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 None
Item 6. Exhibits and Reports on Form 8-K None
SIGNATURE PAGE 12
<PAGE>
Part 1-Financial Information
Item 1 Financial Statements
<TABLE>
<CAPTION>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 AND 1998
ASSETS
1999 1998
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash $ 20,106 $ 40,356
Receivables
Trade accounts, net of allowance for doubtful
accounts of $20,000 and $0, respectively 292,139 245,925
Other 87,135 -
Notes receivable, current portion 143,750 -
Inventory 242,665 293,727
Prepaid expenses - 118,884
------------ ------------
Total current assets 785,795 698,892
PROPERTY AND EQUIPMENT - net of accumulated depreciation
of $128,876 and $219,758, respectively 80,327 192,849
NOTES RECEIVABLE - net of current portion, net of allowance
for doubtful accounts of $0 and $0, respectively 431,250 899,833
OTHER ASSETS
Organizational costs, net of $7,081 and $3,334, respectively
accumulated amortization - 4,047
Goodwill, net of $405,442 and $0 of accumulated amortization, 6,081,630 6,487,072
respectively
Net assets of discontinued operations, held for resale 840,000 3,463,762
Intellectual properties, net of $1,135,993 and $4,063 of accumulated
amortization, respectively 21,161,691 22,297,621
Trademarks 9,000 -
Other 515,208 531,772
------------ ------------
Total other assets 28,607,529 32,784,274
------------ ------------
$ 29,904,901 $ 34,575,848
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - current portion $ 277,185 $ 109,795
Accounts payable, trade 704,209 392,475
Advances from officers 216,488 40,602
Current portion of obligations under capital leases -
Accrued payroll and payroll taxes 357,644
Other accrued expenses 373,622 100,245
Current portion of license rights payable - 210,077
------------ ------------
Total current liabilities 1,929,148 853,194
LONG-TERM LIABILITIES
License rights payable - 329,923
Deferred revenue 400,000 400,000
Product Marketing Obligation 405,000 -
Deferred tax liability 6,219,834 6,487,072
------------ ------------
Total long-term liabilities 7,024,834 7,216,995
------------ ------------
Total liabilities 8,953,982 8,070,189
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock - 5,000,000 shares authorized, $.005 par value
Series A cumulative, convertible preferred, none and none
shares issued and outstanding, respectively;
liquidation preference of $1.00 per share -
Series M cumulative, convertible preferred, 1,143,750 and
1,029,750 shares issued and outstanding, respectively;
liquidation preference of $1.00 per share 1,144 1,143
Common stock - $.05 par value, 50,000,000 shares authorized,
14,654,332 and 5,074,034 shares issued and outstanding,
respectively 732,716 482,299
Additional paid-in capital 36,667,496 34,745,298
Retained earnings (16,450,437) (8,723,081)
------------ -------------
Total stockholders' equity 20,950,919 26,505,659
------------ -------------
$ 29,904,901 $ 34,575,848
============ =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER ENDED AUGUST 31, 1999 AND 1998
1999 1998
---- ----
<S> <C> <C>
REVENUES
Product sales $ 345,441 $ 452,365
Franchisee fees 15,000 20,000
Other revenues -
----------- -----------
Total revenues 360,441 472,365
COSTS AND EXPENSES
Salaries and wages 216,170
Cost of sales 322,549 261,876
Advertising 24,640
Depreciation and amortization 440,331 19,444
Other
Other general & administrative expenses 67,793 235,222
----------- -----------
Total costs and expenses 1,071,483 516,542
----------- -----------
INCOME (LOSS) FROM OPERATIONS (711,042) (44,177)
Interest income -
Interest expense (18,596) (122,479)
---------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES (729,638) (166,656)
Income taxes
----------- -----------
NET INCOME (LOSS) $ (729,638) $ (166,656)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE - BASIC $ (0.05) $ (0.01)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE - DILUTED $ (0.05) $ (0.01)
=========== ===========
Shares used in the calculation of per share amounts:
Basic earnings per common share
Dilutive impact of stock options
Diluted earnings per common share - -
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Cash received from customers $ 146,244 $ 398,577
Cash paid to employees ( 122,252) ( 145,957)
Cash paid to suppliers ( 277,644) ( 301,066)
Taxes paid - -
Net cash used in operating activities ( 253,652) ( 170,925)
------------ ------------
Cash flows from investing activities:
Advances to Subsidiaries - ( 132,395)
Proceeds from issuance of preferred
stock, net offering costs - 112,500
Proceeds from notes payable - -
Repayments of notes payable - ( 20,668)
Proceeds from issuance of common stock 211,950 106,000
------------ ------------
Net cash provided by financing activities 211,950 65,437
------------ ------------
Net increase (decrease) in cash ( 41,702) ( 105,448)
Cash at beginning of period 61,808 145,844
------------ ------------
Cash at end of period $ 20,106 $ 40,356
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
Reconciliation of Net Income to Net Cash
Used in Operating Activities
1999 1998
---- ----
<S> <C> <C>
Net loss $( 729,638) $( 166,654)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Amortization 431,088 4,263
Depreciation 9,242 15,181
Common stock issued for services - 71,450
(Increase) decrease in accounts receivable ( 205,323) 73,788
(Increase) decrease in prepaid expenses - 15,000
(Increase) decrease in other assets 10,000 -
Increase (decrease) accounts payable 194,016 69,520
Increase (decrease) in accrued expenses 56,963 ( 105,897)
------------- -------------
Total adjustments 495,986 ( 4,271)
------------- -------------
Net cash used in operating activities $ ( 253,652) $( 170,925)
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
5
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Airtech International Group, Inc. (the Company), (formerly Interactive
Technologies Corporation, was incorporated in the state of Wyoming on August 8,
1991. As of May 31, 1998, in connection with the acquisition discussed below,
the Company manufactures and sells a full line of air purification products.
On May 31, 1998, the Company acquired all of the outstanding common stock shares
of AIC, which through its subsidiaries manufacture and sell various air
filtration and purification products. The total purchase price of $22,937,760
was funded through the issuance of 10,500,000 of its common stock shares valued
at $.625 per share, the issuance of 11,858,016 of its Series A convertible
preferred stock shares valued at $.625 per share and the issuance of $9,000,000
of convertible debentures.
The transaction was accounted for using the purchase method of accounting.
Accordingly, the purchase price of the net assets acquired has been allocated
among the net assets based on their relative fair values with $22,297,684 of the
purchase price allocated to intellectual properties based on an independent
asset appraisal and $6,487,072 allocated to goodwill. The acquired goodwill will
be amortized using the straight-line method over 20 years.
Principles of consolidation
The accompanying consolidated financial statements include the general accounts
of the Company and its subsidiaries, AIC, Airsopure, Inc. and McCleskey Sales
and Service, Inc., each of which has fiscal year ends of May 31. All material
intercompany accounts and balances have been eliminated in the consolidation.
Amortization
Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization beginning when the product is initially inventoried for
sale. Amortization is recorded over a ten-year term. For the quarter ended
August 31, 1999 and 1998, amortization expense totaled $350,000 and $0,
respectively.
Goodwill recorded in the acquisition of AIC, is being amortized under the
straight-line method over 20 years. For the quarter ended August 31, 1999 and
19998, amortization expense totalled $81,089 and $0, respectively.
Inventories
Inventories are carried at the lower of cost or net realizable value (market)
and include component parts used in the assembly of the Company's line of air
purification units and filters and finished goods comprised of completed
products. The costs of inventories are based upon specific identification of
direct costs and allocable costs of direct labor, packaging and other indirect
costs.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line and accelerated methods for financial and tax reporting purposes,
respectively, over estimated useful lives of five years.
6
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Intellectual properties
In its acquisition of AIC the Company purchased certain intellectual properties.
Costs incurred by the Company in developing its products consisting primarily of
design, testing and completion of working prototypes, which are not considered
patentable, are capitalized and will be amortized over the estimated useful life
of the related patents once a unit has been placed in production.
Revenue recognition
Revenues from the Company's operations are recognized at the time products are
shipped or services are provided. Revenue from francise sales are recognized at
the time all material services relating to the sale of a franchise have been
performed by the Company.
Management estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash flow
For purposes of the statement of cash flows, cash includes demand deposits and
time deposits with maturities of less than three months. None of the Company's
cash is restricted.
Earnings per share
Basic and diluted loss per share are based upon 13,937,536 and 9,645,923,
respectively, weighted average shares of common stock outstanding. No effect has
been given to the assumed conversion of convertible preferred stock and
convertible debentures and the assumed exercise of stock options and warrants as
the effect would be antidilutive.
COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is currently obligated under a noncancellable operating lease for
its Dallas office facilities which expire in September 2000.
Minimum future rental payments required under the above operating lease is as
follows.
Year ending May 31
2000 $ 77,184
2001 29,436
2002 9,812
------------------
$ 116,432
==================
7
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Year 2000 computer compliance
The Company is currently using computer hardware and software that is not in
compliance with the year 2000 dating issues. However, new software and hardware
components have been ordered, therefore the Company anticipates to be in
compliance prior to December 31, 1999. To date, the Company has incurred
approximately $15,000 of costs related to this effort. Management does not
believe any additional significant cost will be incurred and the accompanying
consolidated financial statements do not contain any reserve for this
contingency.
Based on the unpredictable nature of the year 2000 issue, its effects and the
success of related remediation effots will not be fully determinable until the
year 2000 and thereafter. Management cannot assure that the Company is or will
be year 2000 ready, that the Company's remediation efforts will be successful in
whole or in part, or that parties with whom the Company does business will be
year 2000 ready.
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. 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 for equipment located in the New Jersey facilities and
contractually precluded from being removed from the facilities. Although the
Company anticipates a favorable settlement of this lawsuit the outcome of it is
uncertain. A reserve for $200,000 has been established in anticipation of
settling this obligation.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts and notes
receivable, trade payable.
Cash
The Company maintains its cash in bank deposit and other accounts , which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believes it is subject to any credit risks
involving its cash.
Accounts and notes receivable, trade
The Company accounts and notes receivables are unsecured and represent sales not
collected to date. Management believes these accounts and notes receivables are
fairly stated at estimated net realizable amounts.
ASSETS HELD FOR SALE
In February 1998, the Company formally discontinued its Rebate TV operations and
adopted a plan to dispose of the only asset of this business segment, the
proprietary software and trademark. The Company also adopted a plan to dispose
of its FCC license rights, the only asset of its interactive video and data
services business segment, which were never operational. Management expects to
sell these assets by May 31, 2000.
8
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The accompanying consolidated statement of operations for 1998 reflects the
revenues and expenses of the Company's Rebate TV business segment, the only
segment operated during the fiscal year.
At May 31, 1999 and 1998, net assets of these discontinued operating segments,
stated at the lower of cost or net realizable value, were comprised of the
following:
1999 1998
---------------------------------
License rights, net of $438,760
and $438,760, respectively, of
of accumulted amortization and
net of license rights payable
of $540,000 $ (303,750) $ (303,750)
Proprietary software and trademark
net of $0 and $1,643,53, respectively
of accumulated amortization 1,143,750 3,767,512
---------------------------------
$ 840,000 $ 3,463,762
=================================
STOCK OPTIONS AND WARRANTS
Through the quarter ended August 31, 1999 and 1998, the Company has issued
various stock options and warrants to employees and others and uses the
intrinsic value method of accounting for these stock options. Compensation cost
for options granted has not been recognized in the accompanying financial
statements because the amounts are not material. The options and warrants expire
between January 1999 and December 2008 and are exercisable at prices from $0.20
to $22.50 per option or warrant. Exercise prices were set at or above the
underlying common stock's fair market value on the date of grant.
RELATED PARTIES
As of August 31, 1999, the Chief Executive Officer and the President made cash
advances of $100,000 and $186,000 and received repayments of $127,000 and $0,
respectively. The advances are to be paid as cash is avaiable or by the issuance
of common stock. These advances are unsecured but bear interest at 15% per
annum.
As of August 31, 1999, advances payable to these officers totaled $216,488 and
$186,000, respectively
9
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
Result of Operations
The Company's operations for the three months ending August 31, 1999 resulted in
a net loss of $729,638 or $0.05 basic loss per share, compared to a net loss of
$166,656 or $0.01 basic loss per share, for the comparable period in 1998.
The Company, entirely through its wholly owned subsidiary, Airsopure Inc., (ASP)
had sales of $360,441 for the three months ended August 31, 1999 primarily
composed of approximately $345,000 of sales of air purification equipment,
installation and replacement of air filters compared to Company's sales of
$452,365 for the comparable three months of 1998 a decrease of $106,942. The
Company also sold one new franchise during this period.
Airtech sales of air purification equipment reflect initial market penetration
and acceptance of newly introduced units. The Company has had success selling
equipment into business with existing or pending bans on smoking, such as hotels
and restaurants. The Company will be making its application to the Medicare
administration on its new Model S-950 and is seeking an affirmative response
prior to the end of the calendar year. Production and distribution of the Model
S-999 automobile unit has been slow due to a new market being cultivated by
Airtech. Increased media attention to this type of technology and its impact to
consumers lives should allow the product to gain more favorable market presence
and increased sales. The Company's products continue to have a high rate of
acceptance among the commercial accounts to which the Company markets while beta
site testing new models.
Cost of Goods sold was $322,549 compared to $261,876 for the three months ending
August 31,1999 and 1998 respectively. Management believes the cost of goods sold
as a percentage of sales will be approximately 40% in the future as sales of air
purification equipment increase and become the major portion of the Company's
sales.
Operating expenses were $748,934 compared to $254,666 for the three months
ending August 31, 1999 compared to the same quarter in 1998. The increase is
attributable to recording amortization and carry forward expenses, along with an
increase in general and administrative expenses. The increase in the G&A was
attributable to the increase in wages, advertising, an increase in reserve for
doubtful accounts and consulting expenses incurred by the subsidiary (ASP).
Liquidity and Capital Resources
During the three months ended August 31 1999 the Company continued to fund
operations through revenues, private sales of securities and paying certain
debts and business services in Company common stock. As of August 31, 1999 the
Company had invested $534,804 in accounts receivable and inventory an increase
of $118,188 over May 31, 1999. Likewise trade accounts payable increased
$194,016 between the two periods.
During the quarter, the Company sold 1,446,800 shares of its common stock for
$211,950.
10
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 Statements contained in this document which are not historical fact are
forward-looking statements based upon management's current expectations that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements.
These risks are described in the Company's Form 10-KSB for the fiscal year ended
May 31, 1999 filed with the Securities and Exchange Commission.
11
<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 Dallas, State of Texas, on October 15, 1999.
AIRTECH INTERNATIONAL GROUP, INC.
by: /s/ CJ Comu
-----------------------------------
CJ Comu, Chief Executive Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-21-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 20,106
<SECURITIES> 0
<RECEIVABLES> 543,024
<ALLOWANCES> (20,000)
<INVENTORY> 242,665
<CURRENT-ASSETS> 785,795
<PP&E> 209,203
<DEPRECIATION> (128,876)
<TOTAL-ASSETS> 29,904,901
<CURRENT-LIABILITIES> 1,929,148
<BONDS> 0
0
1,144
<COMMON> 732,716
<OTHER-SE> 20,217,059
<TOTAL-LIABILITY-AND-EQUITY> 29,904,901
<SALES> 360,441
<TOTAL-REVENUES> 360,441
<CGS> 322,549
<TOTAL-COSTS> 322,549
<OTHER-EXPENSES> 748,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,596
<INCOME-PRETAX> (729,638)
<INCOME-TAX> 0
<INCOME-CONTINUING> (729,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (729,638)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
