form8k.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 OR 15(d) of The Securities Exchange Act of
1934
Date
of Report (Date of earliest event reported): November 2,
2007
Airtrax,
Inc.
(Exact
name of registrant as specified in its charter)
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New
Jersey
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0-25791
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22-3506376
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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200
Freeway Drive Unit One, Blackwood, NJ 08012
(Address
of principal executive offices and Zip Code)
Registrant's
telephone number, including area code: (856) 232-3000
Copies
to:
Richard
A. Friedman, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32nd
Floor
New
York,
New York 10006
Phone:
(212) 930-9700
Fax:
(212) 930-9725
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[
]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[
]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[
]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
[
]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
(17 CFR 240.13e-4(c))
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ITEM
4.02
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Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report
or
Completed Interim Review.
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Management
of Airtrax, Inc. (the “Company”), in conjunction with its independent registered
public accounting firm and professional advisors, conducted an analysis of
the
Company’s various financial instruments and agreements involving convertible
debt and common stock financings accompanied by warrants, with a
particular focus on the accounting treatment of derivative financial
instruments under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities (“SFAS
133”), the Emerging Issues Task Force issued EITF Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock (“EITF 00-19”), and FASB Staff
Position No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements” (“FSP No. EITF 00-19-2”), (collectively, the “Derivative
Accounting Pronouncements”). Accordingly, certain accounting policies previously
considered by the Company to reflect what was deemed to be appropriate at the
time when the financings were previously reported, have been modified by recent
interpretations, including the Derivative Accounting
Pronouncements.
On
November 2, 2007, as a result of this analysis, the Company decided to restate
its previously filed financial statements in the annual reports for the
years ended December 31, 2004, 2005 and 2006 filed on Form 10-KSB, together
with
the quarterly reports on Form 10-QSB for the quarters ending March 31,
2005, June 30, 2005, September 30, 2005, March 31, 2006, June 30, 2006,
September 30, 2006, March 31, 2007, and June 30, 2007 (collectively, the
“Reports”). The restatement is required to properly reflect the Company’s
financial results for certain non-cash, and non-operational related charges
or
credits to earnings associated with both embedded and freestanding derivative
liabilities, and the accounting for certain derivatives under the control of
the
issuer due to the revised interpretation and implementation of the Derivative
Accounting Pronouncements. As a result, such financial statements included
within the Reports noted above should no longer be relied upon.
Under
EITF 00-19, warrants are considered free-standing instruments in that they
are
legally detachable and separately exercisable. The conversion benefits, which
are embedded in these debt issues, derive value from the relationship between
the stock price and debt conversion price, and are considered embedded
derivatives under the provisions of SFAS 133. The fair values of both the
warrants and conversion benefits are calculated using a Black-Scholes Option
Pricing Model, taking into consideration factors such as the underlying price
of
the common stock, the exercise price for warrants or the conversion price for
the conversion benefit, the stock volatility, and the risk-free interest rates
available for comparable time periods.
Free-standing
instruments (warrants), and embedded derivatives (conversion benefits) which
are
initially bifurcated or separated from the host financial instrument, are
recorded as separate liabilities, in cases where the security holder has
a right
to choose to receive a “net settlement” of cash. The identification of such net
settlement provisions for prior convertible debt issuances with warrants
and
conversion privileges resulted in the Company concluding that such securities
should have been identified as “derivatives”, and therefore warrant and
conversion privilege liabilities must be recorded as separate derivative
liability accounts on the Company’s restated balance sheet, and marked to market
for each subsequent reporting period with any non-cash charges or credits
attributed to the revised fair value of the liability being recognized through
earnings (after the reversal of previously incorrectly recorded charges and/or
credits to earnings).
If
the
decision to settle the outstanding liability remains with the Company, the
value
of the warrants should be recorded in an equity account. The identification
of
the settlement provisions being controlled by the Company under certain debt
issuances resulted in the Company determining that the warrants should be
reflected in the restated Reports as components of equity, as compared to having
been previously recorded as liabilities with non-cash charges and/or credits
to
earnings as a result of being marked to market for each period
presented.
FSP
No. EITF 00-19-2 specifies that the contingent obligations to make
future payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a provision
of a financial instrument or other agreement, should be separately recognized
and measured in accordance with SFAS No. 5, “Accounting for Contingencies.”
FSP No. EITF 00-19-2 also requires additional disclosure regarding the
nature of any registration payment arrangements, alternative settlement methods,
the maximum potential amount of consideration and the current carrying amount
of
the liability, if any. The Company previously adopted the provisions of FSP
No. EITF 00-19-2 for the reporting period December 31, 2006, and does
not estimate that any additional contingency accruals and/or disclosures would
be required to be included in the Company’s restated Reports other than those
items expected to be reflected in the respective amended and restated
Reports.
The
Company
also previously sold stock units which included warrants along with common
stock. In these cases, a portion of the proceeds equal to the value of the
warrants is allocated to the warrants, with the balance allocated to the
stock.
In such cases where a net settlement provision for cash exists, the values
of
the warrants are treated as liabilities, and the balance is revalued at the
end
of each reporting period with any change in value being recognized currently
as
a non-cash charge and/or credit to earnings. When a warrant classified as
a
liability is exercised or cancelled, the fair value of the warrant, as
determined at the time of exercise or cancellation, is transferred to equity,
and is no longer revalued. A similar adjustment is made for a conversion
benefit
classified as a liability when the debt is converted to stock, or
cancelled.
The
Company plans to first file its quarterly report on Form 10-QSB for the quarter
ended September 30, 2007, which will include the proper accounting treatment
for
the prior financings. The Company intends to diligently work with its
professional advisors to file restated Reports that will be included in amended
Form 10-KSB and Form 10-QSB filings, which are expected to be filed by December
15, 2007.
On
November
8, 2007, the Company provided Robert G. Jeffrey, CPA with a copy of the
disclosures it is making in response to Item 4.02 on this Form 8-K, and has
requested that Robert G. Jeffrey, CPA, furnish it with a letter addressed to
the
Securities and Exchange Commission stating whether it agrees with the above
statements as promptly as possible. Such letter is filed herewith as Exhibit
16.1.
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Item
9.01
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Financial
Statements and Exhibits.
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(a)
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Financial
statements of business
acquired.
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Not
applicable.
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(b)
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Pro
forma financial
information.
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Not
applicable.
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Exhibit
Number
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Description
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99.1
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Letter
from Robert G. Jeffrey, CPA dated as of November 8,
2007.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Airtrax,
Inc.
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Date:
November
8, 2007
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By:
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/s/ Robert
M. Watson |
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Robert
M. Watson |
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Chief
Executive Officer |
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