UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

            /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     FOR FISCAL YEAR ENDED DECEMBER 31, 2005

            / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE TRANSITION PERIOD FROM __ TO __

                                    001-16237
                             Commission File Number

                                  AIRTRAX, INC.
                                  -------------
                 (Name of small business issuer in its charter)

        New Jersey                                               22-3506376
        ----------                                               ----------
State or other jurisdiction                                     IRS Employer
      of incorporation                                       Identification No.

                200 Freeway Drive, Unit One, Blackwood, NJ 08012
                ------------------------------------------------
                    (Address of principal executive offices)

                    Issuer's telephone number: (856) 232-3000

      Securities registered under Section 12(b) of the Exchange Act: None.

     Securities registered under Section 12(g) of the Exchange Act: Common
Stock, no par value.

Check whether the issuer (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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained 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. [ ].

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State the registrant's revenues for its most recent fiscal year: $714,280 for
the year ended December 31, 2005.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $25,650,484 as of March 31, 2006.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of April 11 , 2006, the registrant
had 22,283,624 shares of common stock, no par value per share, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]

<PAGE>
                                TABLE OF CONTENTS

                                                                        Page
                                     PART I

Item 1.   Description of Business.............................................3

Item 2.   Description of Property............................................12

Item 3.   Legal Proceedings..................................................12

Item 4.   Submission of Matter to Vote of
          Security Holders ..................................................12

                                     PART II

Item 5.   Market for Common Equity and Related Stockholder
          Matters............................................................12

Item 6.   Management's Discussion and Analysis
          or Plan of Operation ..............................................17

Item 7.   Financial Statements .....................................F-1 to F-20

Item 8.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure ..........................................25

Item 8A.  Controls and Procedures ...........................................25

Item 8B.  Other Information .................................................25

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act  ................26

Item 10.  Executive Compensation ............................................27

Item 11.  Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters ...................................30

Item 12.  Certain Relationships and Related Transactions ....................31

Item 13.  Exhibits . ........................................................32

Item 14.  Principal Accountant Fees and Services ............................35

          Signatures and Certifications......................................36

<PAGE>
                                     PART I

NOTE REGARDING FORWARD LOOKING INFORMATION

Various statements in this Form 10-KSB and in future filings by us with the
Securities and Exchange Commission, in our press releases and in oral statements
made by or with the approval of authorized personnel constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are based on current expectations and are
indicated by words or phrases such as "anticipate," "could," "currently
envision," "estimate," "expect," "intend," "may," "project," "seeks," "we
believe," and similar words or phrases and involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by those forward-looking statements.

These forward-looking statements are based largely on our expectations and are
subject to a number of risks and uncertainties, many of which are beyond our
control. Actual results could differ materially from these forward-looking
statements as a result of the facts described in "Risk Factors." We undertake no
obligation to update publicly or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks and uncertainties, we cannot assure you that the forward-looking
information contained in this Form 10-KSB will, in fact, transpire.

Our fiscal year ends on December 31. References to a fiscal year refer to the
calendar year in which such fiscal year ends.

ITEM 1. DESCRIPTION OF BUSINESS

Company History

We were incorporated in the State of New Jersey on April 17, 1997. On May 19,
1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.

Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and
were the surviving company in the merger. Pursuant to the Agreement and Plan of
Merger, as amended, each share of common stock of MAS was converted to 0.00674
shares of our company. After giving effect to fractional and other reductions,
MAS shareholders received 57,280 of our shares as a result of the merger.

In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In October 2004, Mr. Filipov and we agreed to modify our
agreement in principal so as to increase the number of shares of the capital
stock of Filco GmbH which we would acquire, if we had finalized the acquisition,
from 51% to 75.1%. In April 2003, Filco GmbH acquired substantially all of the
assets of Clark Material Handling of Europe GmbH which were located at Clark's
facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets consisted of
all of the tooling, machinery, equipment, inventory, intellectual property,
office furniture and fixtures, and personnel necessary to build the entire Clark
line of lift trucks, but excluded the building and land, as well as the rights
to the Clark name.

We have loaned Filco GmbH an aggregate amount of $6,275,881.10 as of December
31, 2005, exclusive of interest at 8% per annum, pursuant to a series of secured
and unsecured promissory notes. The loans are to be repaid on or prior to
December 31, 2006. Of the $6,275,881.10 in loans to Filco, which approximately
$5,400,000 is secured by Filco's plant machinery, equipment and other plant
property, and intellectual property, including designs and drawings, and
approximately $876,419.10 is unsecured in accord with the loan agreements and
certified equipment appraisal. Interest earned to date in not included in the
figures stated above. The amounts stated herein represent the appraised
valuation of the machinery and equipment and does not include intellectual
property, as no value has been appraised for intellectual property.

On January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006. We
are currently in discussions with the receiver in Germany to determine the
status of our secured and unsecured loans to Filco, as well as to explore the
possibility of purchasing all or a portion of the assets of Filco. This is
dependent upon our ability to secure financing adequate to purchase the assets
of Filco and supply necessary operating capital. We currently have no financing
agreements in place and there can be no assurance that we will obtain financing
on terms that are favorable to us. As a creditor, we have filed liens against
Filco's machinery and equipment and intellectual property. We will seek to
recover on our secured and unsecured loans asset forth above through appropriate
legal channels in the event an asset purchase does not materialize.

INTRODUCTION

Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured for us. Eighteen commercial
omni-directional lift trucks, including ten carrying the UL Label, have been
sold to customers in the United States, New Zealand, South Africa and Canada as
of December 31, 2005 and others are ready to ship pending receipt of funds or
consummation of letters of credit or other credit facilities. 18 units totaling
$714,280 with options have been billed from January 1, through December 31,
2005.

We have commenced production and have received the parts required for production
of a total of 57 trucks, since the beginning of production of our Sidewinder
ATX-3000 Omni-Directional Lift Truck. As of December 31, 2005, we did not have


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all of the parts required from every vendor for completion of the trucks other
than those heretofore noted. The assembly and sale of these trucks is dependent
upon delivery of all of the required parts.

Omni-Directional means that vehicles designed and built by us can travel in any
direction. Our Omni-directional vehicles are controlled with a joystick. The
vehicle will travel in the direction the joystick is pushed. If the operator
pushes the joystick sideways, the vehicle will travel sideways. If the operator
were to twist the joystick the vehicle will travel in circles. Our
omni-directional vehicles have one motor and one motor controller for each
wheel. The omni-directional movement is caused by coordinating the speed and
direction of each motor with joystick inputs which are routed to a
micro-processor, then from the micro-processor to the motor controllers and
finally to the motor itself.

Complete assembly is conducted by us at our newly leased facilities at 200
Freeway Drive Unit One, Blackwood, NJ 08012. Approximately 50% of the frames are
manufactured in the USA. These frames are shipped to the Blackwood plant for
complete assembly. Besides the assembly of vehicles at Blackwood, partially
assembled vehicles are shipped to the Blackwood facility from the Filco plant in
Germany. To date, partial assembly of approximately 19 lift trucks have been
completed at the Filco plant, 14 of which and have been shipped to the USA for
final assembly. To date, a total of approximately 60 lift trucks have been
shipped from Bulgaria to the Filco plant for partial assembly and approximately
30 of these have been shipped to the Blackwood plant for final assembly during
the fourth quarter of 2005. All assembly or partial assembly from the Filco
plant ceased on January 20, 2006 after Filco filed for insolvency. Additional
frames and other parts totaling some $450,000 remain at Filco awaiting release
by the receiver to us. Most frames manufactured in Bulgaria had to be
re-machined to be within the tolerances required for these frames. The
re-machining charges will be back-charged to the frame manufacturer. The frame
manufacturer will adjust tooling to get the tolerances to the required
specifications for future deliveries.

We have incurred losses and experienced negative operating cash flow since our
formation. For our fiscal years ended December 31, 2005 and 2004, we had a net
loss of $(14,935,478) and $(3,491,950), respectively. We expect to continue to
incur significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.

Our principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.

OMNI-DIRECTIONAL TECHNOLOGY

Prior History

Omni directional vehicle technology has been the subject of research and
development by universities, the Department of Defense, and industry for over 25
years. A Swedish inventor patented an early stage omni-directional wheel.
Thereafter, the technology was purchased by the United States Navy and was
advanced at the Naval Surface Warfare Center. The US Navy held the patent until
its expiration in 1990. In 1996, the Navy transferred this technology to us for
commercialization through a Cooperative Research and Development Agreement
(CRADA).

Technology Description

Since the technology transfer under the CRADA agreement, we have examined and
redesigned many aspects of the system for use in various applications including
forklifts and other material handling equipment. In this regard, we refined
control software and hardware, and tested a variety of drive component features
on our pilot omni directional lift trucks and scissor-lifts. Extensive
demonstrations of prototype vehicles for commercial and military users in
combination with market research enabled us to direct our initial development
efforts towards the material handling products, offering the best probability
for successful market entry.

Our management designed other aspects of our machine to complement the unique
functionality of our omni-directional technology. In so doing, we achieved a
virtually maintenance free unit which allows the operator free and unrestricted
movement during operation. Each vehicle is powered with AC motors eliminating
brushes and commutators of conventional DC motors. The AC motors also are
lubricated for life thereby eliminating the need for additional greasing and
fittings. The transmission uses a synthetic lubricant, and is sealed for life.
The joystick controls all vehicle movement; therefore conventional drive trains,
steering racks, hydraulic valve levers, and foot petals for braking and
acceleration are all non-existent.

On a four-wheel omni-directional vehicle employing our technology, each wheel
has a separate electric motor, making the vehicle capable of traveling in any
direction. The motion of the vehicle is controlled by coordinating all four
wheels through a microprocessor that receives input from an operator-controlled
joystick. The joystick controls all vehicle movement (starting, steering, and
stopping). The framework of our omni-directional lift truck consists primarily
of a steel frame mobilized with four omni-directional wheels. The AC electric
motor for each wheel turns its own wheel hub. Each wheel hub is encircled with
multiple tapered rollers that are offset 45 degrees. The tapered rollers,
covered with polyurethane, are extremely durable. By independently controlling
the forward or rearward rotation of each wheel, the vehicle has the capability
of traveling in any direction. The technology allows the vehicle to move
forward, laterally, diagonally, or completely rotate within its own footprint,
thereby allowing it to move into confined spaces without difficulty. The
navigational options of an omni-directional vehicle are virtually limitless. The
omni-directional wheel can be manufactured in almost any size depending upon the
application. For instance, our management believes the wheel can be used on
miniature vehicles or massive load-carrying vehicles.


                                       4
<PAGE>
EXISTING AND PROPOSED PRODUCTS

Sidewinder Omni-Directional Lift Truck. We anticipate that our Sidewinder
Omni-Directional lift truck will be available with rated lift capacities ranging
from 3,000 pounds and higher. Our SIDEWINDER ATX-3000 Omni-Directional lift
truck, which is our 3,000-pound model, features our omni-directional technology.
Conventional steering racks and foot petals are non-existent allowing impediment
free ingress and egress. This lift truck will deliver unequaled maneuverability
providing significantly improved operating efficiencies in the materials
handling industry. The dealer price is expected to retail at prices similar to
or slightly higher than high-end, comparably sized standard forklifts. The
"street prices" of similar rated, standard (non-omni-directional) forklifts
range from $16,000 to $31,000 per unit. Other specialty forklifts, that are
multi-directional sell for $42,000 and greater, and vehicles considered very
narrow aisle (VNA), are priced from $75,000 and higher per unit. We believe
that, due to its unique features, the omni-directional lift truck will support a
price slightly higher than the average selling price of a conventional forklift.

Airtrax Conventional Forklift. In the event of the successful acquisition of
Filco GmbH assets through the German receiver, we expect to use the Filco plant
and operations to produce and sell a line of conventional forklifts possibly
manufactured under the Airtrax name for distribution in the United States and
other geographical markets. In the event that the purchase of Filco's assets
does not occur, we plan on having conventional trucks privately labeled under
our name or a suitable alternative name for distribution to our dealers.

Omni-Directional Aerial Work Platform. In late February 2004, we, in
collaboration with MEC Aerial Platform Sales Corporation of Fresno, California
("MEC"), introduced a concept version of a scissor lift at the American Rental
Association trade show in Atlanta. The scissor lift called the "Cobra(TM)"
incorporated our omni-directional technology along with an MEC platform and lift
mechanisms. The vehicle contains features presently unavailable on conventional
aerial work platforms. For example, similar to our lift truck, the aerial work
platform's movement is controlled by a joystick. Movement to a particular spot
or location at a job site can be accomplished easily due to the omni-directional
technology, thereby eliminating the back and forth positioning typically
associated with conventional platforms. Our designed control systems allow the
operator to move at very regulated and easily controlled acceleration and speed,
virtually eliminating operator error. The machine can climb over obstacles that
would impede other machines. Our aerial work platform has the ability to climb
over obstacles up to a height of one-third the overall wheel diameter. The wheel
used on the aerial work platform has a 17" total diameter. Accordingly, this
vehicle can climb over obstacles more than 5.66" high. The ability to "climb
over" obstacles is an inherent advantage of our omni-directional technology.

This is a feature which we believe no other aerial work platform can perform, or
if another aerial work platform can perform, it is to a very limited degree.
Generally, any "wheeled" vehicle can "climb" over some obstacles, however, other
"wheeled" vehicles cannot climb over obstacles as high as the one-third of the
wheel's diameter. We believe that, similar to our lift truck, the improved
functionality of the aerial work platform will result in increased productivity
at the job-site.

On March 13, 2004, we entered into a draft Product Development, Sales and
Representation Agreement with MEC. The draft agreement calls for the joint
development of a proto-type and production versions of an omni-directional
aerial work platform called the "Cobra(TM)". During the development stage, each
party will provide the parts, which apply to that party's area of
responsibility. We will provide all of the parts required for the
omni-directional traction system and related control systems, and MEC will
provide all of the parts required for the scissor lift and lifting apparatus and
the control systems for the scissor lift apparatus. After development of the
prototype version, the parties will establish the cost of a commercial product,
and if the cost of a commercial product is considered commercially viable, the
parties will jointly develop a commercial version of the aerial work platform.
If commercial production results, we will be responsible for product
manufacturing, and MEC or its affiliate will be responsible to promote, market
and sell the product to their network of approximately 200 distributors. Aerial
work platform sales made by MEC will be subject to a royalty to us and, likewise
sales made by us will be subject to a royalty to MEC. The amount of the
respective royalties will be subject to agreement by the parties. Orders placed
by MEC will be financed by MEC subject to agreed production schedules. We also
plan to manufacture the Cobra(TM) using the lifting mechanism as designed by us
or procured from MEC and vendors other than MEC.

During 2004, MEC was repositioned to perform manufacturing in the United States
thus removing their obligation under the agreement. During the latter part of
2004, we presented MEC with invoices for payment of tooling and engineering
costs related to development of the Cobra(TM). The invoices were not paid by MEC
who was, at that time, in the process of realigning their finances. As a result
of the aforementioned changes, the agreement was modified. The modification
stated that the Cobra(TM) projector and aerial work platform projects would be
products of our company instead of an MEC vehicle. This meant that the project
would be henceforth designed and built by us. MEC would still have the ability
to make suggestions regarding vehicle design or construction, but the final
product is and will be our product. In addition, the agreement was revise to
provide that we will build another vehicle product line, the Cobra, which will
be marketed exclusively by our dealers. The parties expect to enter into a more
formal agreement to further define the relationship of the parties. At this
time, we cannot predict whether a formal agreement will be entered into between
the parties, or whether any sales will result form the aerial work platform to
be developed by the parties.

Omni-directional Wheelchair. Over 43 million disabled and aging Americans are
protected by the Americans with Disabilities Act of 1990 (ADA). This law became
effective in 1991, and now requires businesses with over 15 employees to comply
with specifications which enable persons with disabilities access buildings. As
a result of increased physical access, we believe that persons with disabilities
will experience an increased number of employment and other opportunities. We
have conducted a preliminary design of an omni-directional wheel for wheelchair
applications. Based upon the preliminary design, we believe that we can retail
an omni-directional wheelchair for under $6,000. Wheelchair pricing ranges from
$3,500 for a standard unit to $30,000 for units with improved functionality such
as stair climbing capability.


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We will require additional funds to complete a structural and ergonomic design
of a proto-type wheelchair, and to construct the proto-type for further
evaluation and testing. We cannot predict whether we will be able to
successfully develop this product.

Military Products. During 1999, we were awarded a Phase I research contract
under the Department of Defense's Small Business Innovation Research program
(SBIR) to develop an omni-directional Multiple Purpose Mobility Platform (MP2).
Under the Phase I base contract, we studied the application of the
omni-directional technology for military use and were supervised by the Naval
Air Warfare Center Aircraft Division (NAWC-AD) in Lakehurst, New Jersey. The
contemplated use includes the installation of jet engines on military aircraft
and the transportation of munitions and other military goods. We completed the
Phase I base contract in 1999 and were subsequently awarded a Phase I option
from NAWC-AD to further define the uses of the MP2. In July 2000, we were
awarded a Phase II research contract under the SBIR program. Under the Phase II
contract, we are studying the feasibility of the MP2 for military purposes, and
will culminate with the construction of one or more proto-type devices. This
contract (with the option) was extended twice for 6 months each past the
42-month contract time period. Contract revenues were $749,044. Through December
31, 2004,we have received approximately $749,044 in revenues from the Phase II
contract, and completed the production design of the MP2. A completed proto-type
MP2 was delivered to the US Navy during the end of the first quarter of 2004 for
testing purposes. A second vehicle, an omni-directional jet engine installation
machine is being constructed for the US Navy, pending receipt of additional
funding from the SBIR program. We have been advised by the US Navy that a
non-SBIR sponsor for the MP2 program must be identified before a Phase II option
is exercised. A Phase III contract could be awarded without such a sponsor.
Although our management believes the underlying omni-directional technology for
the proposed MP2 has significant potential for both commercial and military
applications, we cannot predict whether any sales beyond the Phase II contract
will result from the SBIR program. It is the belief of management that sales to
the military for products such as the MP2 or the MHU-110 engine handler will not
materialize until the omni-directional technology achieves commercial
acceptance. We do believe, however, that products such as the ATX-3000 or the
Cobra AWP can and will be sold to the US government, possibly including the
military and made an application with DSCP (Defense Services Contracting,
Philadelphia) in early 2006, which is similar to GSA excepting that DSCP sells
to military only as compared to GSA selling to the entire government.

In connection with the MP2, on December 11, 2003, we entered into a Teaming
Agreement with United Defense, L.P., Arlington, Virginia. Under the agreement,
United Defense agreed to provide the exclusive manufacture, marketing and
support for the MP2 and any derivative products in respect to any contracts
awarded to us by U.S. Department of Defense and any international military
customers under the SBIR arrangement.

We have also developed a traditional helicopter ground handling machine which
has been marketed by us on a limited basis. This vehicle, Helitrax, was a
patented design using technology that we purchased in 1995 under our predecessor
company, Air Track Inc. The patented device was redesigned by us to include many
features which we believe are needed by industry maintenance crews and by
pilots. Helitrax was sold from 1995 through 2001 in limited amounts, in no more
than approximately 30 units total, and sales were discontinued because of time
constraints required getting the Sidewinder Omni-Directional lift truck to
market.

CURRENT OPERATIONS

Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured. Eighteen commercial omni-directional
lift trucks, including ten carrying the UL Label, have been sold to customers in
the United States, New Zealand, South Africa and Canada as of December 31, 2005
and several others are ready to ship pending receipt of funds or consummation of
letters of credit or other credit facilities in the beginning of 2006. 18 units
totaling $714,280 with options have been billed from January 1, through December
31, 2005.

ANSI testing refers to a series of tests including tilt testing the vehicle with
each of the masts it will use to make certain that it will not fall over with a
raised load at specified tilt angles. In addition, ANSI testing includes drop
testing specified loads on the overhead guard to make certain that the overhead
guard will not fail and crush the operator. These tests require us to turn the
vehicle over to prove that the battery door lock will contain the battery in the
event the vehicle is overturned. ANSI testing was performed by us and certified
and documented that the tests have been completed and the vehicle has passed in
all respects. This testing was required prior to the vehicle being sold to the
public in the United States.

UL testing is completed on lift trucks because we believes it is more productive
to sell vehicles that have passed the extra safety and performance test
requirements mandated by UL. Generally UL testing hinges around electrical
issues that could cause fires to the vehicles and/or property. Most of the more
prominent lift truck manufacturers complete UL testing on electrically operated
lift trucks. Completion of UL testing is generally considered the mark of
companies who will take extra steps and precautions to protect their customers.
UL approval is a feature that salespersons can use to their advantage when
selling vehicles because many insurers will not insure premises that use lift
trucks that are not UL rated.

Although we anticipated that the initial production run of the Sidewinder Lift
Truck would be completed during the second quarter of 2004, we did not complete
our initial production run until the first quarter of 2005. We encountered
several unforeseen delays in getting this product to market. Wheels,
manufactured for us by The Timken Corporation with a promised delivery of May
2004, proved to be a more challenging operation than Timken first anticipated.
In addition to meeting the high standards we require from the wheel
manufacturer, Timken was obligated to manufacture the wheels within specified
cost parameters. This required certain "manufacturing design" changes that
insured both wheel integrity and cost savings. The first limited "production"
wheels were shipped to us in August 2004 with final deliveries in March 2005.


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These wheels were considered "production" wheels by us but considered "pilot"
wheels by Timken, the primary difference being that while Timken delivered
wheels in accordance with our production requirements, Timken did not produce
the first 56 wheels from their "production" facility but rather their "research"
facility. As a result, the first wheels coming from a Timken "production"
facility were not delivered until August 2005.

During the past two years, in anticipation of commercial production, we
solicited interest from targeted dealers nationwide, and in certain instances,
received contracts from a number of these dealers. Due to the delay in
establishing commercial production, the contracts were not fulfilled. In 2004,
we began soliciting dealers for distribution and during the first quarter of
2004 have reached an agreement with certain dealers. Principal terms of the
agreement reached is that these dealers will purchase our products which include
the ATX-3000, the Cobra AWP (scissor lift) and conventional lift trucks and
thereafter sell these products to their clients. Certain of the dealers were
given "exclusive" territories, such as Airtrax Canada (Airtrax Canada is not
owned or operated by us but we have authorized their use of the Airtrax name.)
Airtrax Canada is required to purchase a minimum of 250 units of our Sidewinder
or Cobra AWP or Filco trucks to maintain the "exclusivity" portion of the
agreement between firms. They cannot lose their exclusivity because we cannot
meet their sales requirements. This same type arrangement was reached with
Lakeland in New Zealand for 125 vehicles each year, Airtrax Africa for 125 units
each year, Omnilink in Greece and the Balkans for 125 units each year and
others. Most dealers in the US have not been given exclusive territorial rights,
though some have. They are required to purchase one or more vehicles, however,
to become a dealer. Credit is not authorized to any dealers or foreign
representatives at this time, but this no credit policy will change as required
and as we advance our credit facilities. Currently all sales are paid in
advance, under terms of an irrevocable letter of credit or cash on demand. Not
all dealers have agreed to represent the conventional lift trucks line as some
are established with other lift truck manufacturers and representing a competing
product could be a violation of their existing agreement(s). Targeted dealers
will consist of selected premier forklift dealers, currently selling other
forklift products. It is our goal to have only a dealer network that consists of
dealers who have substantial market share in the US, with a history of being
able to sell and repair forklifts and/or related material handling solutions.
Several of the targeted dealers are significant sized entities, having annual
sales in excess of $100 million. We expect to provide a sales incentive to
dealers through an aggressive pricing structure. Typically, a dealer will earn a
commission ranging from $500 to $1,000 on the sale of a competitive forklift.
Our pricing structure will enable the dealer to receive commissions from $3,500
to $4,000 per sale of the SIDEWINDER ATX-3000.

Eighteen commercial omni-directional lift trucks, including ten carrying the UL
Label, have been sold to customers in the United States, New Zealand, South
Africa and Canada as of December 31, 2005 and several others are ready to ship
pending receipt of funds or consummation of letters of credit or other credit
facilities in the beginning of 2006. 18 units totaling $714,280 with options
have been billed from January 1, through December 31, 2005.

We have a current backlog as shown above and have potential orders with DSCP and
other US Government agencies, though no orders are yet placed by the DSCP or
Government agencies to date.

Transaction with Filco GmbH

In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH has
been operating this plant since July 1, 2003. Filco's option to purchase the
200,000 square foot building and land for 4.7 million euros expired on December
31, 2005.

In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH which
we would acquire, if we had finalized the acquisition, from 51% to 75.1%. The
purpose of this change was to give us control of Filco GmbH in accordance with
USGAAP and German law considerations regarding consolidation and capitalization.
Further, this change was offered and accepted in consideration of our agreeing
to advance Filco additional funds, in the form of a loan, to fund the start up
of the Filco operation prior to the consummation of the transaction. All other
conditions and terms of the agreement between the parties shall remain the same.

The consideration for the proposed acquisition consisted of the issuance of
options to Mr. Filipov to purchase 900,000 shares of our common stock at an
exercise price of $0.01. No more than 12.5% of such options can be exercised
during any one year. Accordingly, Mr. Filipov cannot exercise the options to
receive more than an aggregate of 112,500 shares of our common stock per year.
Any increase on this exercise limit is subject to the approval of our board of
directors. In addition, we agreed to loan Filco GmbH approximately $1,300,000,
which, if the acquisition was completed, will be converted into equity of Filco
GmbH along with approximately 1,300,000 Euros, plus interest, currently owed to
Fil Filipov by Filco GmbH. Finally, the agreement in principal provided for Mr.
Filipov to be appointed a director of our company and to receive an additional
100,000 options of our common stock for serving as a director. In December 2004,
Mr. Filipov was appointed as a director of our company. Although the proposed
acquisition with Filco was not completed and we are still in the process of
negotiating with the German receiver to purchase the Filco assets, we appointed
Mr. Filipov a director of our company because management believes that his
credentials are extremely viable and valuable to our credibility in the
investment and materials handling communities, particularly in Europe. Mr.
Filipov has been employed in the materials handling industry virtually all of
his life. We believe that his associations and relations in this industry can
and will aid us as we pursue our business objectives.


                                       7
<PAGE>
Prior to our termination of the agreement in February 2006 (as further described
below), it provided that we would register with the Securities and Exchange
Commission all of the shares issuable to Mr. Filipov, including those underlying
the described stock options.

We have loaned Filco GmbH an aggregate principal amount of $6,275,881.10 as of
December 31, 2005, exclusive of interest at 8% per annum, pursuant to a series
of secured and unsecured promissory notes. The loans are to be repaid on or
prior to December 31, 2006. Of the $6,275,881.10 in loans to Filco, which
approximately $5,400,000 is secured by Filco's plant machinery, equipment and
other plant property, and intellectual property, including designs and drawings,
and approximately $876,419.10 is unsecured in accord with the loan agreements
and certified equipment appraisal. Interest earned to date in not included in
the figures stated above. The amounts stated herein represent the appraised
valuation of the machinery and equipment and does not include intellectual
property, as no value has been appraised for intellectual property.

On January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006. As
a result of the receivership, there area several options available to us as the
largest creditor of Filco. A possibility exists for us to potentially write off
the loans in total or in part, providing that we are successful in purchasing
the entire assets of Filco from the German receiver. In the event that we cannot
successfully finance the purchase of assets, then we will file a legal action in
Germany for the recovery of our loans by enforcing our liens against Filco's
machinery and equipment, as well as the intellectual property that is the
subject of our secured interest. There can be no assurance that we would be able
to recover all or a portion of our secured and unsecured loans to Filco. We
maintain security interests in Filco's plant machinery, equipment and other
plant property, and intellectual property, including designs and drawings for
over 100 models of Clark lift trucks. An appraisal made by an independent
appraiser in July 2005 which establishes equipment and machinery value as of
April 2003 valued this machinery and equipment at 4,500,000 Euros (US
$5,400,000). Such appraisal did not include the valuation of Filco's
intellectual property, which we believe has significant value. We have used
proceeds from the private placement offerings that we completed during 2004 and
2005 to fund such loans. To purchase all of the assets of Filco from the
receiver, it is has been negotiated that 1.4 million Euros would be needed for
all machinery and equipment, intellectual property and inventory and another 3
million Euros for the purchase of the building and property. In addition, we
have determined that an additional $3.5 million will be required for operating
capital for Filco. Our analysis shows that additional estimated working capital
needs during the 2nd year will be another $5,000,000 to achieve profitable and
expanded operations. It should be noted that the operations we are describing
are different than previously discussed by management. Significant differences
exist in operations that could take place in the event of our proposed purchase
of Filco assets from the German receiver. First, we would own all of the assets,
have no debt (excepting that incurred to finance the asset purchase and would
have no union employees. Should we complete the purchase of Filco assets, we
will need to raise additional capital through equity or proper lines of credit
in order to fund the working capital needs. We intend to provide additional
funds, after year one, either in the form of guaranteed credit lines or through
additional sales our securities. We have contacted several financial
institutions attempting to secure credit lines necessary for successful
operations.

The funds which we loaned to Filco during the time when its plant was closed for
much of 2004 and through 2005 was used to assist the company in reopening its
plant prior to Filco filing for insolvency. Loans provided by us were used by
Filco to purchase inventory, pay some debt, to pay employee payroll at a 20%
short work rate (employees have been working 20% of the time and unemployment
has compensated the balance of their payroll), to pay current heating, lighting
and power, telephones, leases and to order parts to get into production.

The amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is our
primary goal. During the second quarter of 2005, we realized limited revenues f
from the first sales of the Sidewinder Omni-Directional Lift Truck.

We have not yet completed the purchase of Filco's assets from the German
receiver because we have not raised sufficient funding. We want to ensure that
this operation, should we purchase the assets of Filco, has the necessary
capital to achieve profitable and full operations. Filco had a cash burn rate of
approximately $300,000 per month. Over the past 9 months, Filco has burned
approximately $3 million with limited operations awaiting parts and funding from
us to properly function.

History of Filco GmbH and History of Our Relationship with Filco

Clark Material Handling Co. was the largest forklift manufacturer in the world
in the 1980's. Clark Material Handling Co. of Europe owned approximately 50% of
the assets and completed an estimated 50% of the sales of Clark forklifts. Clark
was bought by Terex in 1994 and sold for $140 million in 1996. During that
period it was managed by Fil Filipov, who was responsible for finding and
completing acquisitions for Terex. Clark declared bankruptcy in 2003. Filco GmbH
was formed by Fil Filipov in May of 2003 and Filco GmbH thereafter purchased the
assets of Clark Europe. The "assets" of Clark Europe included intellectual
property, inventory, machinery and equipment, existing cliental and a trained
workforce. The transaction by Mr. Filipov to acquire the Clark assets was a
purchase through the bankruptcy administrator which left all assets under his
control and ownership. Mr. Filipov paid approximately 500,000 Euros and had to
advance other fees to guarantee lease and other payments. This resulted in a
total purchase by Mr. Filipov in the amount of approximately 1,300,000 Euros.

Since that time, Filco has operated with very limited operating capital, and had
unresolved union issues. As a result, Filco has not operated profitably, or at
all. It was not until 2005 that Filco has commenced manufacturing after
receiving operating capital from us in the form of unsecured loans, then secured
loans. In addition, in 2005 Filco resolved its worker's union issues (as further
described in Management's Discussion and Analysis of Financial Condition and
Results of Operations"). During 2005, Filco has manufactured and or
reconditioned no more than 14 lift trucks. Filco has manufactured (assembled)
several prototype tractors for a Russian company which has signed agreements
with Filco to continue the assembly at its plant. Due to Filco's filing for


                                       8
<PAGE>
receivership on January 20, 2006, this contract has been terminated and the
prototype tractors were removed from the facility.

The intellectual property of Filco is generally not considered "state of the
art." The intellectual property generally consists of drawings for 103 model
lift trucks, masts and various other material handling parts and supplies. The
LPG or diesel lift trucks are generally very up to date and need little in the
way of updates or re-engineering to make them sellable in the current market.
However, our management believes that the electric trucks offered by Filco are
outdated and need to be re-engineered to be sellable in the modern marketplace.
For the most part, the changes would be from DC to AC electric motors and
controllers. These vehicles, whether gas, diesel or electric, are not
convertible to our products nor would this be considered. They offer us a
complete product line in the event a dealer or consumer needs a product other
than our omni-directional product.

Our President, Peter Amico, has maintained a working relationship with Mr.
Filipov since 2002. The working relationship between Messrs. Filipov and Amico
has been centered on Mr. Filipov informing Mr. Amico where to buy parts and
access better supply chain vendors in Eastern European Countries. This has lead
to us being able to purchase frames in Bulgaria at prices about 70% less than
the frames would cost in the US. Messrs. Filipov and Amico have shared
information regarding the unions in Germany and how to best run the Filco's
business once it is acquired. There has been no personal relationship other than
the friendship that the parties have enjoyed in their working relationship.

Business Purposes of the Proposed Asset Purchase of Filco GmbH

In general, the Filco proposed asset purchase from the German receiver could
provide us access to strategic partnerships in personnel and successful business
ventures, sales and market exposure in Europe.

The proposed purchase of Filco assets may include a leased manufacturing
facility, with an experienced workforce, inventory, intellectual property, and
machinery sufficient to fill 200,000 square feet of assembly and manufacturing.
Filco's assets could provide us with cliental throughout Europe and the Middle
East. This could provide us with the ability to sell a complete line of lift
trucks beyond the limited sized Sidewinder Omni-Directional Lift Truck. It would
provide manufacturing or assembly for our products, including, but not limited
to, the aerial work platforms or any other products we develop or can contract
to assemble with other companies.

In addition, if the asset purchase from the German receiver is completed, we
anticipate that we will establish manufacturing capability in Europe, to
complement our manufacturing in the United States. We currently purchase a high
percentage of our parts in Europe, including, but not limited to, the frames
from Bulgaria, motors and controllers manufactured in the Czech Republic and
Sweden, and transmissions, brakes and seats manufactured in Germany. The mast
could be manufactured, the frames could be powder coated (painted), and European
parts could be assembled at the Filco plant. Partially assembled vehicles would
be shipped to the United States for final assembly. Wheels and other parts for
the vehicles may be shipped from the United States for the completion of
manufacturing at Filco. We believe we could cut manufacturing costs because our
material handling equipment could be manufactured in the continent in which it
is sold, i.e., Europe. With our manufacturing capabilities in the United States,
this potential asset purchase would allow a portion of the Sidewinder becoming
assembled and manufactured in each of the two continents that purchase and use
about 70% of all material handling equipment worldwide. We recently sold two
Sidewinders to our dealer in Spain. The parts mentioned above were shipped to
the US for assembly at an approximate cost of $700 per truck. The finished
Sidewinders were shipped to Spain at a cost of $1,750 per truck. Therefore,
shipping in both directions cost almost $2,500 per truck. This dealer expects to
order 75 more trucks. If such order is made, we will spend over $200,000 in
shipping cost alone under present conditions.

The primary objective that must be achieved to reach the aforementioned goal(s)
is to secure the necessary financing required to fund the asset purchase from
the German receiver and manufacturing objectives. There can be no assurance that
we will be able to raise sufficient capital necessary to complete the asset
purchase and fund the manufacturing objectives.

MANUFACTURING AND SUPPLIERS

The initial production of our lift trucks was completed by us at the Warminster
PA facility with all further production moved to the newly leased 30,000 square
foot facility at Blackwood, NJ. The frames and overhead guards for the first
production run were manufactured in Bulgaria in accord with our specifications.
We presently receive frames and overhead guards from a US manufacturer as well
as from Bulgaria. The parties operate under the terms of written purchase
orders. Parts and assemblies for commercial models are ordered and/or procured
from other vendors. The initial production run was completed with wheels
manufactured for us by The Timken Corporation and components from other
suppliers. Frank Cooper, former plant manager for GM, is our plant manager. Mr.
Cooper has established the production assembly process and procedure for our
vehicle assembly. His processes have helped to develop procedures, and to
incorporate inventory control and quality assurance programs. We plan to create
the framework for rapidly scalable production capacity at the Blackwood facility
and initially this plant will be sized for nominal monthly production but
capable of ramping up for anticipated demand before year's end. We also plan to
manufacture the omni-directional lift truck at the Filco facility for European
and Middle Eastern sales should we complete the asset purchase of Filco from the
German receiver.

Components for our forklifts consist of over the counter products and
proprietary products that have been specially designed and manufactured by
various suppliers in collaboration with us. We believe that continual
refinements of certain components will occur during the first six months of
initial production in response to user feedback and additional product testing.
We will strive to improve product functionality which may require additional
refinements in the future. The need for additional refinements on a continuing
basis may slow projected product sales.


                                       9
<PAGE>
We consider the specially designed and manufactured products proprietary, and
have entered into exclusive contractual agreements with certain suppliers to
protect the proprietary nature of these products. These arrangements prohibit
the supplier from producing the same or similar products for other companies. In
addition, while we maintain single sources for some of the over the counter
components, we believes that other sources are available if necessary and are
working to insure that we have secondary suppliers.

DISTRIBUTION AND PRODUCT MARKETING

We intend to establish a national and international dealer network to sell our
forklift product line to existing equipment dealers. However, we may sell
directly to select national and international accounts and retailers. National
and international accounts or retailers include, but are not limited to,
nationally recognized businesses with national or international locations having
facilities in numerous states or countries.

During the past two years, in anticipation of commercial production, we
solicited interest from targeted dealers nationwide, and in certain instances,
received contracts from a number of these dealers. Due to the delay in
establishing commercial production, the contracts were not fulfilled. In 2004,
we began soliciting dealers for distribution and during the first quarter of
2004 have reached an agreement with a number of dealers nationwide, as well as
in several foreign countries. Principal terms of the agreement reached is that
these dealers will purchase our products which include the ATX-3000, the Cobra
AWP (scissor lift) and conventional lift trucks and thereafter sell these
products to their clients. Certain of the dealers were given "exclusive"
territories, such as Airtrax Canada (Airtrax Canada is not owned or operated by
us but we have authorized their use of the Airtrax Name.) Airtrax Canada is
required to purchase a minimum of 250 units of the Airtrax Sidewinder or Cobra
AWP or Filco trucks, or private labeled Airtrax conventional trucks, to maintain
the "exclusivity" portion of the agreement between firms. They cannot lose their
exclusivity because we cannot meet their sales requirements. This same type
arrangement was reached with Lakeland in New Zealand for 125 vehicles each year,
Airtrax Africa for 125 units each year, Omnilink in Greece and the Balkans for
125 units each year and others. The dealers in the US generally have not been
given exclusive territorial rights, but that has occurred in some areas. They
are required to purchase one or more vehicles, however, to become a dealer.
Credit terms are now available to approved dealers while foreign dealers are
only sold under the terms of letters of creditAll sales are paid in advance,
under terms of an irrevocable letter of credit or approved credit terms. Not all
dealers have agreed to represent the conventional lift trucks line as some are
established with other lift truck manufacturers and representing a competing
product could be a violation of their existing agreement(s). Targeted dealers
will consist of selected premier forklift dealers, currently selling other
forklift products. The dealer network will consist of dealers who have
substantial market share in the US, with a history of being able to sell and
repair forklifts and/or related material handling solutions. Several of the
targeted dealers are significant sized entities, having annual sales in excess
of $100 million. We expect to provide a sales incentive to dealers through an
aggressive pricing structure. Typically, a dealer will earn a commission ranging
from $500 to $1,000 on the sale of a competitive forklift. Our pricing structure
will enable the dealer to receive commissions from $3,500 to $4,000 per sale of
the SIDEWINDER ATX-3000.

In the materials handling industry, distributors of products like ours finance
their respective inventories in several different ways. The arrangement for
distributor financing varies, depending upon the credit worthiness, financial
capability and size of the distributor. Floor planning, which is arranged by the
dealer or by the manufacturer, usually consists of financing from 6 to 12 months
whereby the distributor pays interest only during the finance period. If at any
time during the finance period the distributor sells the product, or if the
finance period expires, the distributor is required to pay the principal. Many
dealers buy vehicles to lease or rent to consumers and finance the vehicle much
the same manner as a standard consumer. Under certain arrangements, the dealer
applies receipts against principal and interest.

We have recently formed a leasing company, Airtrax Financial Services, Inc.
("AFS"), wherein we own a 48.5% interest but enjoy a 51% voting interest. As of
the date hereof, financing arrangements have been made whereby Commerce Bank or
other banks will provide funding for dealers or individual non-recourse loans.
None of our funds have yet been allocated to AFS. It has been agreed to use no
more than $50,000 worth of common stock to fund AFS, as funding is required.

In addition to establishing our own dealer network, we will attempt to
capitalize on the existing distribution network of MEC if we are able to reach a
formal agreement with MEC and successfully develop the omni-directional work
platform discussed above. We would seek to include our omni-directional forklift
into the distribution network of MEC, which consist of approximately 200
dealers. We cannot predict whether a formal agreement will be entered into
between the parties, or whether any sales will result form the aerial work
platform to be developed by the parties.

We also intend to use trade shows and print and television media to advertise
and promote our omni-directional products. Print media will include
advertisements in national and international publications such as major material
handling equipment magazines, and direct mailings to targeted distributors and
end-users. Heavy equipment is rarely, if at all, advertised on television.
However, we believe that television will provide an effective media for our
product, due to its unique attributes. We believe that due to the current
economic conditions, we will be able to capitalize on favorable advertising
pricing. We also expect to be an exhibitor at industry trade shows from time to
time, including the bi-annual ProMat show located in Chicago, Illinois.

Product Warranty Policies

Our product warranty policy is similar to the warranty policies of other major
manufacturers, i.e., one-year warranties on all parts and labor, and two years
on major parts. However, our vehicles have very few parts to warranty. In
addition, manufacturers of our parts and vehicles have their own warranty
policies that, in effect, take the financial exposure from our company. There
are exceptions to this rule, such as the frame and significantly, the motors and
controllers. These parts have an eighteen-month guarantee or warranty, but the
coverage begins when the product is shipped to us and not when the product is
purchased. As a result of this policy, Danaher has increased the warranty from
12 to 18 months for us.


                                       10
<PAGE>
FACILITIES

We maintain our administrative offices and assembly facilities at 200 Freeway
Drive, Unit One, Blackwood, NJ 08012. This facility is a total of 30,000 square
feet with 3,000 square feet allocated to offices and cost a monthly rental fee
of $12,750. H&R Industries of Warminster PA provides contract manufacturing and
assembly services to us, including, but not limited to, manufacturing of our
prototype machines, and testing prototypes. Up until June of 2005, H&R
Industries was also used for the storage of production-readied parts. In
addition, H&R has provided rental space to assemble our first "production"
vehicles. Through December 31, 2002, the arrangement between the parties has
been rent-free. Effective January 1, 2003, we agreed to pay H&R Industries a
rental fee of $3,000 per month and have the option to pay in cash or in the form
of common stock. The arrangement was on a month-to-month basis. We left the
facility at H&R Industries and moved to our own facility in Blackwood NJ in June
2005.

MARKETS

Forklifts

Our initial market focus will be directed to the forklift market. We believe the
commercial version of the omni-directional forklift will revolutionize the
materials handling and warehousing industries creating potential markets
globally. Industry data shows that during 2003 approximately 174,000 and 550,000
units were sold in the United States and worldwide, respectively (Modern
Materials Handling). Based upon an average per unit sale price of $28,500
(Modern Materials Handling estimate), the total market in the United States
would approximate $5 billion in 2003. This amount represents sales of a broad
range of vehicles with price ranges from $18,000 to $31,000 for a standard
3000-pound rated vehicle to $75,000 or greater for specialty narrow aisle or
side loader vehicles. Of the total market, management expects to compete with
mid-range electrical and gas powered riders, and some specialty narrow aisle or
side loader vehicles.

Aerial Work Platforms

Aerial Work Platforms are used in the construction and warehousing industries,
and are ideally suited for omni directional technology. According to data
provided by the United States Department of Commerce, this market consists of
approximately $1.2 billion in annual sales. Aerial Work Platforms and man lifts
range in size from single user lifts to large off road machines. Of the total
market, we expect to compete with a range of indoor man lifts.

COMPETITION

We expect to confront competition from existing products, such as standard and
"very narrow aisle" forklifts, and from competing technologies. Competition with
standard forklifts, which retails from $16,000 to $31,000, will be on the basis
of utility, price, and reliability. We believe that we will compete favorably
with a standard forklift for reliability, and that a purchase decision will be
based upon weighing the operational advantages of our products against its
higher purchase price. VNA and sideloader forklifts retail at $75,000 or
greater. While our SIDEWINDER omni-directional lift truck cannot be considered
"very narrow aisle", it can perform "narrow aisle" functions at a significantly
less cost. We also are aware of multi-directional forklifts now being offered by
other manufacturers that retail from $42,000 and higher for the standard
version. These newer products have improved operational features, however, they
are unable to travel in all directions, and hence are not omni-directional.
These machines have to stop, turn all four wheels, and then proceed to drive in
the sideward direction. Despite these improved operational features, management
believes these manufacturers have adhered to older conventional methods and have
added a substantial amount of parts to their forklifts to achieve improved
functionality, which contrasts with the design and features of our product as
discussed previously herein. Therefore, to that extent, we believe that we
maintain a competitive advantage to these newer products.

We recognize that many of these manufacturers are subsidiaries of major national
and international equipment companies, and have significantly greater financial,
engineering, marketing, distribution, and other resources than us. In addition,
the patent on omni-directional technology expired in 1990. Although we have
received patent protection for certain aspects of our technology, no assurances
can be given that such patent protection will effectively thwart competition.

PATENTS AND PROPRIETARY RIGHTS

On January 22, 2002, we received US patent #6,340,065 relating to our low
vibrations wheels. On May 28, 2002, we received US patent #6,394,203
encompassing certain aspects of the omni-directional wheel with some features
specific to the forklift, and in April 15, 2003 we received US patent #6,394,203
relating to methods for designing low-vibration wheels. We also have several
patent applications pending relating to other aspects of our technology. We
expect to make future patent applications relating to various other aspects of
our omni-directional technology. We also have filed a patent application for our
power module. At this time, no foreign patents have been issued for any of our
technology. In December 1997, we were awarded a patent for an omni-directional
helicopter ground-handling device.

We also seek to protect our proprietary technology through exclusive supply
contracts with manufacturers for specially designed and manufactured components.


                                       11
<PAGE>
PRODUCT LIABILITY

Due to nature of our business, we may face claims for product liability
resulting from the use or operation of our forklifts or other products.

Presently, we maintain product liability insurance in the amount of $1 million.
This amount will be increased to $10 million in the future, as we deem necessary
to do so. We obtained said insurance commensurate with the initial shipment of
our omni-directional forklifts.

EMPLOYEES

As of April 11, 2006, we have nine full time employees which includes our
President, and 10 contract employees, and engage consultants from time to time.
We have no collective bargaining agreements with our employees and believe our
relations with our employees are good.

ITEM 2. DESCRIPTION OF PROPERTY

We maintain our administrative offices and assembly facilities at 200 Freeway
Drive, Unit One, Blackwood, NJ 08012. This facility is a total of 30,000 square
feet with 3,000 square feet allocated to offices and cost a monthly rental fee
of $12,750. H&R Industries of Warminster PA provides contract manufacturing and
assembly services to us, including, but not limited to, manufacturing of our
prototype machines, and testing prototypes. Up until June of 2005, H&R
Industries was also used for the storage of production-readied parts. In
addition, H&R has provided rental space to assemble our first "production"
vehicles. Through December 31, 2002, the arrangement between the parties has
been rent-free. Effective January 1, 2003, we agreed to pay H&R Industries a
rental fee of $3,000 per month and have the option to pay in cash or in the form
of common stock. The arrangement was on a month-to-month basis. We left the
facility at H&R Industries and moved to our own facility in Blackwood NJ in June
2005.

ITEM 3. LEGAL PROCEEDINGS.

We are not currently a party to, nor is any of our property currently the
subject of, any pending legal proceeding. None of our directors, officers or
affiliates is involved in a proceeding adverse to our business or has a material
interest adverse to our business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

                          MARKET FOR OUR COMMON SHARES

Our common stock has been traded on the Over-The-Counter Bulletin Board under
the symbol "AITX". The table below sets forth, for the periods indicated, the
high and low closing prices per share of the common stock as reported on the
Over-The-Counter Bulletin Board. These quotations reflect prices between
dealers, do not include retail mark-ups, markdowns, and commissions and may not
necessarily represent actual transactions. The prices are adjusted to reflect
all stock splits.


                                                   $High          $Low
                                                    ----           ----

2006    First Quarter                               2.39           1.08

2005    First Quarter                               3.07           1.83
        Second Quarter                              2.95           1.85
        Third Quarter                               4.70           2.07
        Fourth Quarter                              3.40           2.20

2004    First Quarter                               1.60           0.65
        Second Quarter                              1.45           0.75
        Third Quarter                               1.15           0.61
        Fourth Quarter                              3.35           0.81

As of April 11, 2006, there were 22,283,624 shares of common stock outstanding.

As of April 11, 2006, there were approximately 935 stockholders of record of our
common stock, respectively. This does not reflect those shares held beneficially
or those shares held in "street" name.

We have not paid cash dividends in the past, nor do we expect to pay cash
dividends for the foreseeable future. We anticipate that earnings, if any, will
be retained for the development of our business.


                                       12
<PAGE>
<TABLE>
<CAPTION>
EQUITY COMPENSATION PLAN INFORMATION
------------------- -----------------------  -------------------- ---------------------------------
Plan category      Number of securities to   Weighted-average      Number of securities
                   be issued upon exercise   exercise price of     remaining available
                   of outstanding options,   outstanding options,  for future issuance
                    warrants and rights      warrants and rights   under equity compensation plans
                                                                   (excluding securities
                                                                   reflected in column (a))
                              (a)                   (b)                        (c)

------------------- ----------------------- --------------------- ---------------------------------
<S>                            <C>                   <C>                        <C>
Equity compensation           -0-                   -0-                        -0-
plans approved by
security holders
------------------- ----------------------- --------------------- ---------------------------------
Equity compensation           -0-                   -0-                        -0-
plans not approved
by security holders
------------------- ----------------------- --------------------- ---------------------------------
 Total                        -0-                   -0-                        -0-
------------------- ----------------------- --------------------- ---------------------------------
</TABLE>

We currently do not have an equity compensation plan for our officers,
directors, employees or consultants. However, certain of our officers are
compensated with stock options to purchase shares of our common stock. A
description of these options can be found in this annual report under the
heading "Item 10", "Executive Compensation".

RECENT SALES OF UNREGISTERED EQUITY SECURITIES

On March 1, 2006, we issued an aggregate principal amount $150,000 of our 4%
Unsecured Convertible Debentures and 5 year warrants to purchase an aggregate of
48,077 shares of our common stock to two of the investors in our November 2004
private placement. The debentures mature on March 1, 2008, pay simple interest
at a rate of 4% per annum and are convertible into shares of our common stock at
a price equal to 1.56 per share. The warrants are exercisable into shares of our
common stock at a price equal to $1.65 per share. Our issuance of the
aforementioned securities were in settlement of accrued liquidated damages which
we owed to these investors for our inability to have the SEC declare our
registration statement on Form SB-2 effective within the specified timeframe as
set forth in the Registration Rights Agreement dated November 22, 2004. In
addition, the investors agreed to forego any future accrual and payment of such
liquidated damages.

On February 13, 2006, we completed a private placement of our 8% Series D
Unsecured Convertible Debentures and Stock Purchase Warrants to certain
accredited investors pursuant to that certain Subscription Agreement dated as of
February 13, 2006 under which we sold an aggregate of $391,200 principal amount
Debentures convertible into shares of our common stock, no par value, and
warrants to purchase 250,769 shares of our Common Stock to certain accredited
investors who are parties to the Subscription Agreement for an aggregate
purchase price of $391,200.

The Debentures mature on February 13, 2007. Provided there then exists no event
of default by us under the Debentures, the principal of and any accrued but
unpaid interest due under the Debentures on the maturity date shall
automatically be converted into shares of Common Stock on the maturity date at
the then applicable conversion price. The Debentures pay simple interest
quarterly accruing at the annual rate of 8%, either in the form cash or shares
of our Common Stock, at our election, which shall be valued and computed based
upon the conversion price of the Debentures. The Debentures are convertible into
shares of our Common Stock at a conversion price equal to $1.56. We may in our
discretion require, after 90 days from the closing date, that the Investors
convert all or a portion of the Debentures at a price equal to$1.56 per share.

In addition, we issued 250,769 Warrants to the Investors, representing an amount
of Warrants equal to 100% of the quotient of (i) the principal amount of the
Debentures issued at the closing date divided by (ii) the conversion price of
the Debentures. The Warrants are exercisable at a price equal to $2.50, from the
date of issuance until 5 years after the closing date.

On October 18, 2005, we entered into a 8% Series C Unsecured Convertible
Debenture and Warrants Purchase Agreement with certain accredited investors
pursuant to which we sold an aggregate of $1,000,000 principal amount unsecured
convertible debentures convertible into shares of our common stock, no par
value, at a conversion price of $2.00 per share, and an aggregate of 500,000
stock purchase warrants to purchase shares of our Common Stock at $3.25 per
share to certain accredited investors who are parties to the Purchase Agreement
for an aggregate purchase price of $1,000,000. Further, we issued 50,000
Warrants to the placement agent, a registered broker dealer firm, exercisable at
$3.25 per share, as consideration for services performed in connection with the
issuance of the Debentures and Warrants to the Investors pursuant to the
Purchase Agreement.

On October 28, 2005, we held our second and final closing with certain
accredited investors pursuant to a right of participation which was granted to
such investors under that certain securities purchase agreement dated as of
November 23 and 24, 2004 and the subscription agreement dated as of February


                                       13
<PAGE>
11,2005. In connection with the second closing, we sold an aggregate of $548,000
principle amount of Debentures convertible into shares of our common stock, no
par value, at a conversion price of $2.00 per share, and issued 275,000 warrants
exercisable at $3.25 per share for an aggregate purchase price of $ 548,000.

First Montauk Securities Corp. (the "Selling Agent") acted as selling agent in
connection with the first and second closings of the Offering in which an
aggregate amount of $1,548,000 of Debentures and Warrants were sold. Pursuant to
the second closing, we paid commissions of $54,800, a non-accountable expense
allowance of $16,440, and issued 27,400 Warrants to the placement agent, a
registered broker dealer firm, exercisable at $3.25 per share, each as
consideration for services performed in connection with the issuance of the
Debenture and Warrants to the Investor pursuant to the Purchase Agreement.

On August 25, 2005, we issued an aggregate of 187,939 shares of common stock to
a certain creditor of Filco GmbH pursuant to a certain Assignment and Purchase
Agreement which we entered into with the creditor.

On July 1, 2005 we issued options to purchase an aggregate of 750,000 shares of
our common stock at an exercise price of $.85 per share to certain of our
employees and consultants as compensation for services performed on our behalf.

In April and July of 2005, we issued an aggregate of 30,000 shares of common
stock to a certain investor relations consulting firm as compensation for
services performed on our behalf.

On May 31, 2005, we entered into a 8% Series B Unsecured Convertible Debenture
and Warrants Purchase Agreement with one accredited investor pursuant to which
we sold a $500,000 principal amount unsecured convertible debenture (the
"Debenture") convertible into shares of our common stock, no par value, at a
conversion price equal to $1.30 per share, and stock purchase warrants to
purchase 384,615 shares of our common stock at an exercise price equal to $3.25
per share, to a certain investor who is a party to the Purchase Agreement for an
aggregate purchase price of $500,000. First Montauk Securities Corp. acted as
selling agent in connection with the offering. We issued a total of 38,462
warrants on May 31, 2005 to the selling agent as partial consideration for
services performed in connection with the offering. The warrants are exercisable
at a price equal to $2.11 for a period of 5 years from the closing date.

On April 7, 2005, we issued an aggregate of 28,453 shares of our common stock to
the holders of our convertible promissory notes at a conversion price of $1.30
per share which we issued pursuant to our February 11, 2005 Subscription
Agreement, as payment, in lieu of cash, of accrued interest due to the holders
under such notes. The closing price for our common stock on the date the
conversion, March 29, 2005, was $2.35 per share.

In February and May of 2005, 30,000 shares of common stock to two public
relations consulting firm as compensation for services performed on our behalf.

On February 11, 2005, we entered into a Subscription Agreement pursuant to which
we sold an aggregate of $5,000,000 of principal amount promissory notes
convertible into shares of our common stock, no par value, at a conversion price
equal to $1.30 per share, and an aggregate of 2,884,615 Class A and Class B
share purchase warrants to purchase shares of our common stock to certain
purchasers who are a party to the Subscription Agreement. First Montauk
Securities Corp. acted as selling agent in connection with the offering. We
issued a total of 384,616 warrants on February 11, 2005 to the selling agent as
partial consideration for services performed in connection with the offering.
The Class A warrants are exercisable at a price equal to $1.85 from the date of
issuance until 5 years after the closing date. The Class B warrants are
exercisable at a price equal to $2.11, representing 101% of the 3 day average
closing bid prices of our common stock on the trading day immediately preceding
the closing date, from the date of issuance until 5 years after the closing
date. The Class A and Class B warrants both have a cashless feature.

On November 22, 2004, we entered into a Purchase Agreement (the "Purchase
Agreement") pursuant to which we sold and issued 1,125,000 shares of common
stock, no par value, and common stock purchase warrants to purchase 562,500
shares of our common stock to several accredited investors who are a party to
the Purchase Agreement for an aggregate purchase price of $900,000. Thereafter,
on November 23, 2004, we entered into Joinders to the Purchase Agreement
pursuant to which we sold and issued an additional 515,000 shares of common
stock and warrants to purchase an additional 257,500 shares of our common stock
to several accredited investors who are a party to the Joinders to the Purchase
Agreement for an aggregate purchase price of $412,000. The closing price for our
common stock on November 22 and November 23, 2004 was $1.56 and $1.40 per share,
respectively. The stock had a per share purchase price equal to $.80. First
Montauk Securities Corp. acted as placement agent in connection with the
offering. We issued 125,000 warrants on November 22, 2004 and 51,500 warrants on
November 23, 2004 to the placement agent and to certain partners of the
placement agent as partial consideration for services performed in connection
with the issuance of common stock and warrants to the purchasers pursuant to the
Purchase Agreement to purchase 62,500 and 25,750 shares of our Common Stock,
respectively. The warrants are exercisable from November 22, 2004 until November
22, 2009 and from November 23, 2004 until November 23, 2009, each at an exercise
price of $1.25 per share.

In October 2004, we issued an aggregate of 114,324 shares of common stock to 6
of our directors as compensation for services performed on our behalf in each of
their capacities as directors of our company. The closing price for our common
stock on October 15, 2004 was $1.04 per share, resulting in an aggregate value
of $118,897 for this compensation.

In October 2004, we issued an aggregate of 86,050 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The closing price for our common stock on October 15,
2004 was $1.04 per share, resulting in an aggregate value of $89,492 for this
compensation.


                                       14
<PAGE>
In October 2004, we issued an aggregate of 24,000 shares of common stock to a
certain public relations consulting firm as compensation for services performed
on our behalf. The closing price for our common stock on October 15, 2004 was
$1.04 per share, resulting in an aggregate value of $24,960 for this
compensation.

Between September 8, 2004 and December 20, 2004, we received subscriptions for
an aggregate of 1,812,403 shares of our common stock and an aggregate of 906,200
shares of common stock issuable upon exercise of common stock purchase warrants
to 33 accredited investors pursuant to a private placement offering. The stock
was sold at $.80 per share. The closing price of our common stock between
September 8, 2004 and December 20, 2004 ranged from a low of $.80 to a high of
$1.58 per share. The warrants are exercisable at a price equal to $1.25 for a
period of 5 years from the date of issuance.

In June and October 2004, we issued an aggregate of 47,850 shares of common
stock to a certain vendor as compensation for dealer account solicitation
services performed on our behalf. The closing price of our common stock on June
15, 2004 and October 15, 2004 was $1.05 and $1.04 per share, respectively,
resulting in an aggregate value of $50,003.25 for this compensation.

In May 2004, we and several accredited investors entered into a Subscription
Agreement whereby the investors agreed to purchase an aggregate of 3,600,125
shares of common stock at a price of $0.80 per share for an aggregate purchase
price of $2,855,100. In addition, the investors received warrants, exercisable
at $1.25 per share, to purchase 50% of the shares issued. The closing price of
our common stock on May 13, 2004, the closing date for this private placement,
was $.99 per share.

On April 15, 2004, we issued an aggregate of 10,767 shares of common stock to
Basile & Testa, PA, as compensation for legal services performed on our behalf.
One of our former directors, Mr. Frank Basile, was a partner at this firm. This
represented payment of $7,866.54 at $.73 per share for services performed from
February 28, 2002 through April 14, 2004. The share price on April 15, 2004 was
$.99 per share.

On March 31, 2004, we issued an aggregate of 14,529 shares of common stock to a
certain engineering firm as compensation for electrical engineering services
performed on our behalf. The closing price of our common stock on March 28, 2004
was $1.04 per share, resulting in an aggregate value of $15,010.16 for this
compensation.

In October 2003, we issued an aggregate of 345,000 shares of common stock to a
certain consulting firm as compensation for services performed on our behalf.
The closing price of our common stock on October 15, 2003 was $.99, resulting in
an aggregate value of $341,550 for this compensation.

In August 2003 and February 2004, we issued an aggregate of 12,500 shares of
common stock to an employee as compensation for services performed on our
behalf. The closing price of our common stock was $1.05 and $.67, resulting in
an aggregate value of $10,750 for this compensation.

From July to September 2003, we issued an aggregate of 91,020 shares of common
stock to a certain investor relations consulting firm as compensation for
services performed on our behalf. The average closing price of our common stock
between July and September of 2003 was $.99, resulting in an aggregate value of
$90,109.80 for this compensation.

In June and September 2004, we issued an aggregate of 6,174 shares of common
stock to certain consultants for computer programming services performed on our
behalf. The closing price of our common stock on September 15, 2004 was $.82,
resulting in an aggregate value of $5,062.68 for this compensation.

On June 10, 2003, we issued an aggregate of 30,000 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The closing price of our common stock on June 10, 2003
was $1.45, resulting in an aggregate value of $43,500 for this compensation.

On May 8, 2003, we issued an aggregate of 350,000 shares of common stock to
third parties pursuant to certain sales agreements. The closing price of our
common stock on May 8, 2003 was $1.50, resulting in an aggregate value of
$525,000 for this compensation.

In April and November of 2003, we issued an aggregate of 57,139 shares of common
stock to a certain financial consultant as compensation for services performed
on our behalf. The closing price of our common stock was $1.05 and $.85,
resulting in an aggregate value of $54,282.05 for this compensation.

In April and June of 2003, we issued an aggregate of 60,000 shares of common
stock to 6 of our directors as compensation for services performed on our behalf
in each of their capacities as directors of our company. The closing price of
our common stock was $1.01 and $1.45, resulting in an aggregate value of $73,800
for this compensation.

On January 20, 2003, we issued options to purchase an aggregate of 180,000
shares of common stock to our President, Peter Amico, as compensation for
services performed on our behalf under Mr. Amico's Original Employment
Agreement. Of the options, 1/5 of the options were exercisable for a total
consideration of a $1.00, 1/2 of the options were exercisable at 30% of the
lowest price paid for the stock in the 30 day period preceding exercise for each
year of the contract, and the remaining options were exercisable at 15% of the
lowest price paid for the stock in the 30 day period preceding exercise. The
closing price of our common stock on July 1, 2002 was $2.20 share.


                                       15
<PAGE>
From October 2002 through April 2005, we issued an aggregate of 137,500 shares
of common stock to three of our employees as compensation for services performed
on our behalf, and as employee incentive bonuses.

In August 2002, we issued an aggregate of 25,000 shares of common stock to one
of our directors, and options to purchase 5,000 shares of common stock to our
Secretary, each as compensation for services performed on our behalf in their
respective capacities. The closing price of our common stock on August 15, 2002
was $1.86 share.

On July 23, 2002, we issued an aggregate of 160,000 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The closing price of our common stock on July 23, 2002
was $1.50, resulting in an aggregate value of $240,000 for this compensation.

In April 2002, we issued an aggregate of 1,930 shares of common stock to a
certain engineering firm as compensation for electrical engineering services
performed on our behalf. The closing price of our common stock on April 15, 2002
was $1.01, resulting in an aggregate value of $1,949.30 for this compensation.

From January 2002 through April 2005, we issued an aggregate of 60,200 shares of
our common stock to Harry Schmidt Associates, PA as rental payments under
certain leases which we entered into with said firm. These stock payments
represented lease payments of $3,000.00 per month from January 2002 through
April 2005, or 40 months, totaling $120,000.00.

* All of the above offerings and sales were deemed to be exempt under rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of Airtrax or executive officers of
Airtrax, and transfer was restricted by Airtrax in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.


                                       16
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Some of the information in this annual report contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate" and "continue", or similar words. You should
read statements that contain these words carefully because they:

o discuss our future expectations;

o contain projections of our future results of operations or of our financial
condition; and

o state other "forward-looking" information.

We believe it is important to communicate our expectations. However, there may
be events in the future that we are not able to accurately predict or over which
we have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."

OVERVIEW

Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured for us. Eighteen commercial
omni-directional lift trucks, including ten carrying the UL Label, have been
sold to customers in the United States, New Zealand, South Africa and Canada as
of December 31, 2005 and others are ready to ship pending receipt of funds or
consummation of letters of credit or other credit facilities. 18 units totaling
$714,280 with options have been billed from January 1, through December 31,
2005.

We have commenced production and have received the parts required for production
of a total of 57 trucks of our Sidewinder ATX-3000 Omni-Directional Lift Truck.
As of December 31, 2005, we did not have all of the parts required from every
vendor for completion of the trucks other than those heretofore noted. The
assembly and sale is dependent upon delivery of all of the required parts.

Omni-Directional means that vehicles designed and built by us can travel in any
direction. Our Omni-directional vehicles are controlled with a joystick. The
vehicle will travel in the direction the joystick is pushed. If the operator
pushes the joystick sideways, the vehicle will travel sideways. If the operator
were to twist the joystick the vehicle will travel in circles. Our
omni-directional vehicles have one motor and one motor controller for each
wheel. The omni-directional movement is caused by coordinating the speed and
direction of each motor with joystick inputs which are routed to a
micro-processor, then from the micro-processor to the motor controllers and
finally to the motor itself.

Complete assembly is conducted by us at our newly leased facilities at 200
Freeway Drive Unit One, Blackwood, NJ 08012. Approximately 50% of the frames are
manufactured in the USA. These frames are shipped to the Blackwood plant for
complete assembly. Besides the assembly of vehicles at Blackwood, partially
assembled vehicles are shipped to the Blackwood facility from the Filco plant in
Germany. To date, partial assembly of approximately 19 lift trucks have been
completed at the Filco plant, 14 of which and have been shipped to the USA for
final assembly. To date, a total of approximately 60 lift trucks have been
shipped from Bulgaria to the Filco plant for partial assembly and approximately
30 of these have been shipped to the Blackwood plant for final assembly during
the fourth quarter of 2005. All assembly or partial assembly from the Filco
plant ceased on January 20, 2006 after Filco filed for insolvency. Additional
frames and other parts totaling some $450,000 remain at Filco awaiting release
by the receiver to us. Most frames manufactured in Bulgaria had to be
re-machined to be within the tolerances required for these frames. The
re-machining charges will be back-charged to the frame manufacturer. The frame
manufacturer will adjust tooling to get the tolerances to the required
specifications for future deliveries.

We have incurred losses and experienced negative operating cash flow since our
formation. For our fiscal years ended December 31, 2005 and 2004, we had a net
loss of $(14,935,478) and $(3,491,950), respectively. We expect to continue to
incur significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.

Our principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.

COMPANY HISTORY

We were incorporated in the State of New Jersey on April 17, 1997. On May 19,
1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.

Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and
were the surviving company in the merger. Pursuant to the Agreement and Plan of
Merger, as amended, each share of common stock of MAS was converted to 0.00674
shares of our company. After giving effect to fractional and other reductions,
MAS shareholders received 57,280 of our shares as a result of the merger.


                                       17
<PAGE>
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH has
been operating this plant since July 1, 2003. Filco's option to purchase the
200,000 square foot building and land for 4.7 million euros expires on December
31, 2005.

In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH which
we will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of this change is to give us control of Filco GmbH in accordance with USGAAP and
German law considerations regarding consolidation and capitalization. Further,
this change was offered and accepted in consideration of our agreeing to advance
Filco additional funds, in the form of a loan, to fund the start up of the Filco
operation prior to the consummation of the transaction. All other conditions and
terms of the agreement between the parties shall remain the same.

We have loaned Filco GmbH an aggregate principal amount of $6,275,881.10 as of
December 31, 2005, exclusive of interest at 8% per annum, pursuant to a series
of secured and unsecured promissory notes. The loans are to be repaid on or
prior to December 31, 2006. Of the $6,275,881.10 in loans to Filco, which
approximately $5,400,000 is secured by Filco's plant machinery, equipment and
other plant property, and intellectual property, including designs and drawings,
and approximately $876,419.10is unsecured in accord with the loan agreements and
certified equipment appraisal. Interest earned to date in not included in the
figures stated above. The amounts stated herein represent the appraised
valuation of the machinery and equipment and does not include intellectual
property, as no value has been appraised for intellectual property.

On January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006. We
are currently in discussions with the receiver in Germany to determine the
status of our secured and unsecured loans to Filco, as well as to explore the
possibility of purchasing all or a portion of the assets of Filco. This is
dependent upon our ability to secure financing adequate to purchase the assets
of Filco and supply necessary operating capital. We currently have no financing
agreements in place and there can be no assurance that we will obtain financing
on terms that are favorable to us. As a creditor, we have filed liens against
Filco's machinery and equipment and intellectual property. We will seek to
recover on our secured and unsecured loans asset forth above through appropriate
legal channels in the event an asset purchase does not materialize.

We have not yet completed the purchase of Filco's assets from the German
receiver because we have not raised sufficient funding. We want to ensure that
this operation, should we purchase the assets of Filco, has the necessary
capital to achieve profitable and full operations. Filco had a cash burn rate of
approximately $300,000 per month. Over the past 9 months, Filco has burned
approximately $3 million with limited operations awaiting parts and funding from
us to properly function.

The funds which we loaned to Filco during the time when its plant was closed for
much of 2004 and through 2005 was used to assist the company in reopening its
plant prior to Filco filing for insolvency. Loans provided by us were used by
Filco to purchase inventory, pay some debt, to pay employee payroll at a 20%
short work rate (employees have been working 20% of the time and unemployment
has compensated the balance of their payroll), to pay current heating, lighting
and power, telephones, leases and to order parts to get into production.

Loans to Filco GmbH

We loaned Filco GmbH an aggregate principal amount of $6,255,462 as of March 31,
2006, exclusive of interest at 8% per annum, pursuant to a series of secured and
unsecured promissory notes. The loans are to be repaid on or prior to December
31, 2006. Of the $6,255,462 in loans to Filco, approximately $5,400,000 is
secured liens against Filco's plant machinery, equipment and other plant
property, and intellectual property, including designs and drawings, and
approximately $856,000 is unsecured in accord with the loan agreements and
certified equipment appraisal. Interest earned to date in not included in the
figures stated above. The amounts stated herein represent the appraised
valuation of the machinery and equipment and does not include intellectual
property, as no value has been appraised for intellectual property.

The loans are to be repaid on or prior to December 31, 2006. On January 20,
2006, Filco filed for insolvency in Germany. As a result of the filing by Filco,
we terminated the Acquisition Agreement on February 7, 2006. As a result of the
receivership, there area several options available to us as the largest creditor
of Filco. A possibility exists for us to potentially write off the loans in
total or in part, providing that we are successful in purchasing the entire
assets of Filco from the German receiver. In the event that we cannot
successfully finance the purchase of assets, then we will file a legal action in
Germany for the recovery of our loans by enforcing our liens against Filco's
machinery and equipment, as well as the intellectual property, that is the
subject of our secured interest. There can be no assurance that we would be able
to recover all or a portion of our secured and unsecured loans to Filco. We
maintain security interests in Filco's plant machinery, equipment and other
plant property, and intellectual property, including designs and drawings for
over 100 models of Clark lift trucks. An appraisal made by an independent
appraiser in July 2005 which establishes equipment and machinery value as of
April 2003 valued this machinery and equipment at 4,500,000 Euros (US
$5,400,000). Such appraisal did not include the valuation of Filco's
intellectual property, which we believe has significant value. We have used
proceeds from the private placement offerings that we completed during 2004 and
2005 to fund such loans. To purchase all of the assets of Filco from the
receiver, it is has been negotiated that 1.4 million Euros would be needed for
all machinery and equipment, intellectual property and inventory and another 3
million Euros for the purchase of the building and property. In addition, we


                                       18
<PAGE>
have determined that an additional $3.5 million will be required for operating
capital for Filco. Our analysis shows that additional estimated working capital
needs during the 2nd year will be another $5,000,000 to achieve profitable and
expanded operations. It should be noted that the operations we are describing
are different than previously discussed by management. Significant differences
exist in operations that could take place in the event of our proposed purchase
of Filco assets from the German receiver. First, we could own all of the assets,
have no debt (excepting that incurred to finance the asset purchase and would
have no union employees). Should we complete the purchase of Filco assets, we
will need to raise additional capital through equity or proper lines of credit
in order to fund the working capital needs. We intend to provide additional
funds, after year one, either in the form of guaranteed credit lines or through
additional sales our securities. We have contacted several financial
institutions attempting to secure credit lines necessary for successful
operations.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission defines "critical accounting policies" as
those that require application of management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and may change in subsequent
periods.

Not all of the accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, the following policies
could be deemed to be critical within the SEC definition.

REVENUE RECOGNITION

Revenue on product sales is recognized when persuasive evidence of an
arrangement exists, such as when a purchase order or contract is received from
the customer, the price is fixed, title to the goods has changed and there is a
reasonable assurance of collection of the sales proceeds. We obtain written
purchase authorizations from our customers for a specified amount of product at
a specified price and consider delivery to have occurred at the time of
shipment. Revenue is recognized at shipment and we record a reserve for
estimated sales returns, which is reflected as a reduction of revenue at the
time of revenue recognition.

Revenues from research and development activities relating to firm fixed-price
contracts are generally recognized as billing occurs. Revenues from research and
development activities relating to cost-plus-fee contracts include costs
incurred plus a portion of estimated fees or profits based on the relationship
of costs incurred to total estimated costs. Contract costs include all direct
material and labor costs and an allocation of allowable indirect costs as
defined by each contract, as periodically adjusted to reflect revised agreed
upon rates. These rates are subject to audit by the other party. Amounts can be
billed on a bi-monthly basis. Billing is based on subjective cost investment
factors.

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

RESULTS OF OPERATIONS

We have been a development stage company for much of 2005 and all of 2004
periods and have not engaged in full-scale operations for the periods indicated.
The limited revenues for the periods in 2005 have been derived from the sales of
omni-directional lift trucks. The available dollar limits of contracts with the
United States Navy were substantially completed during 2002, and we recognized
limited revenues from the United States Navy contract during 2003. During 2006,
we hope to commence full production. Consequently, management believes that the
year-to-year comparisons described below are not indicative of future
year-to-year comparative results.

There was no billing for the Navy MP2 project in 2004. The MP2 munitions carrier
was delivered to the Navy on/or about April 1, 2004 for their evaluation and
testing. An Omni-Direction engine handler developed for and with the Navy is
expected to be "loaned" to the Navy during 2005 for an evaluation. An ETU-110
engine handler was delivered to us by the Navy and is US government property.
The ETU-110 was cleaned, re-painted, and placed in working condition by us. We
provided all required parts, labor and technology to make this vehicle
omni-directional. The cost for the parts and labor was allocated to "Cost Of
Goods Sold" in our financial statements for fiscal 2003. Since these funds
exceeded the amount contracted with the Navy, and an option for additional
services was not agreed upon, the labor and materials provided to the Navy for
building the ETU-110 engine handler remains our property. This piece of
equipment is therefore owned jointly by the US Navy and us and will be used to
demonstrate this technology to the US government and other military services.

We believe that the joint cooperation between us and the Navy with the MP2
contract, including the building of the ETU-110 omni-directionalengine handler,
has bolstered the potential use of our technology within the military. We do not
intend to incur additional costs with the US Navy unless we incur potential
expenses in demonstrating the ETU-110 omni-directional engine handler, or other
omni-directional vehicles.

REVENUES

Revenues for fiscal 2005 were $781,202, representing a increase of $781,202 from
revenues of $0 for the 2004 period. This increase is revenue can be attributed
to our realized revenues from the first sales of the Sidewinder Omni-Directional
Lift Truck in 2005.


                                       19
<PAGE>
COST OF GOODS SOLD

Cost of sales for 2005 was $729,080 which reflects a $729,080 increase from $0
in fiscal 2004. This increase in cost of goods sold can be attributed to our
realized revenues from the first sales of the Sidewinder Omni-Directional Lift
Truck in 2005.

OPERATING AND ADMINISTRATIVE EXPENSES

Operating and administrative  expenses which includes  administrative  salaries,
depreciation  and  overhead  for  the  2005  period  totaled   $9,758,435  which
represents  an increase of  $7,228,660  from  $2,529,775  incurred in 2004.  The
increase is due primarily to (i) the  impairment  adjustment due to Filco in the
amount of approximately  $4,700,839;  (ii) approximately $195,876 in Filco audit
fees;  (iii)  increased  options  for  services  in the amount of  approximately
$861,550;  (iv) liquidated damages in the amount of approximately  $281,281, and
(v) approximately  $153,911 in payroll.  Interest expense payable to third party
suppliers  totaled $97,115 for the 2005 period,  representing a $66,221 increase
from $30,894 for the 2004  period.  In 2005,  we posted  $15,247 in other income
from interest payments due from Filco GmbH, which contrasts with $86,667 for the
prior year-end.  Net loss before taxes in 2005 was $15,802,891 which reflects an
increase of  $12,112,118  from  $3,690,773 in net loss before taxes for the 2004
period.

In 2005, we realized $114,525 on the sale of our net operating losses and tax
credits under a New Jersey program described further in Liquidity and Capital
Resources below. This amount contrasts with $175,413 recorded during 2004.

Loss attributable to shareholders for 2005 was $15,416,456 which represents a
increase of $11,924,506 from $3,491,950 during the 2004 period. During 2005, we
paid dividends on our preferred stock to a controlling shareholder of our
company in the amount of $51,563. For the year ended December 31, 2004, we paid
dividends on our preferred stock to a controlling shareholder of our company in
the amount of $131,771. Deficit accumulated during development stage during 2005
was $15,468,019 (or a loss per share of $0.72 for common stockholders) which
represents an increase of $11,844,298 from $3,623,721 (or a loss per share of
$0.29 for common stockholders) for the 2004 period.

RESEARCH AND DEVELOPMENT

We incurred $544,933 and $519,804 in research and development expenses during
the year ended December 31, 2005 and 2004, respectively. Research and
development activities during fiscal 2005 primarily involved continued testing
and evaluation of omni-directional components and preparing these components for
production in 2005. Our wheel design was changed from the "concept" to
"production" phase. This was and is an ongoing process between our and Timken's
engineers to insure manufacturability. The motors and controllers were designed
and/or changed in design in order to meet ANSI (American National Standards
Institute) and UL (Underwriters Laboratories) testing requirements. Danaher and
us revised the algorithms used in the motor controllers as well the
microprocessor that runs the machines. Research and development activities also
included further changes to existing designs and new designs that were patented
or for those patents with pending applications. Portions of the costs we
incurred due to testing and research and development were charged to the US Navy
contract as provided therein.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations through the private
placement of our common stock and from loans from our President. During 2005 and
2004 we raised net of offering costs $5,991,638 and $5,103,103, respectively,
from the private placement of our securities.

During 2000, we were approved by the State of New Jersey for our technology tax
transfer program pursuant to which we could sell our net operating losses and
research and development credits as calculated under state law. During 2005 and
2004, we recorded credits of $867,413 and $198,823, respectively from the sale
of our losses and credits (see Note 9 to financial statements).

We have experienced negative cash flows from operations of $3,701,875 during
2005 and $1,614,687 during 2004. These negative results stem primarily from
losses attributable to common shareholders of $15,416,456 in 2005 and $3,491,950
in 2004. These results are not unusual for a company in the development state;
it is noteworthy that significant portions of the losses in 2004 result from non
cash charges, primarily from equity securities issued for services. In 2005,
significant portions of the losses result from non-cash charges, from the
impairment adjustment due to Filco, conversion expense and equity securities
issued for services.

We have consistently demonstrated our ability to meet our cash requirements
through private placements of its common stock. We have continued to similarly
satisfy those requirements during the year ended December 31, 2005.

We anticipate that our cash requirements for the foreseeable future will be
significant. In particular, management expects substantial expenditures for
inventory, product production, and advertising in anticipation of the rollout of
its omni-directional forklift.

We will require additional funds to continue our operations beyond the initial
production run. We anticipate that operating capital in the amount of $3 million
will be required during calendar year 2006 to sufficiently fund operations. Of
the total amount, approximately 80% is projected for parts and component
inventory costs, with the balance projected as general operating expenditures,
which includes overhead and salaries. We expect to recognize lower per unit
manufacturing and part costs in the future due to volume discounts, as well as
lower per unit shipping costs as we transition from the initial production run
to full-scale production. We partially funded these additional cash requirements


                                       20
<PAGE>
through the issuance of equity and/or debt securities which may be similar to
the offering described above. We cannot predict whether we will be successful in
obtaining sufficient capital to fund continuing operations. If we are unable to
obtain sufficient funds in the near future, such event will delay the rollout of
its product and likely will have a material adverse impact on us and our
business prospects.

As of December 31, 2005, our working capital deficit was $(2,926,787). Fixed
assets, net of accumulated depreciation, and total assets, as of December 31,
2005, were $190,893 and $5,993,216, respectively. Current liabilities as of
December 31, 2005 were $6,186,390.

Liquidated Damages

On May 31, 2005 we entered into a Letter Agreement (the "Letter Agreement") with
the accredited investors who participated in our November 2004 private placement
(the "November 2004 Investors") pursuant to which we agreed to pay to the
November 2004 Investors an aggregate amount of $120,429.33, representing an
amount equal to 2% of the aggregate amount invested by the November 2004
Investors for each 30-day period or pro rata for any portion thereof, as
liquidated damages for our failure to file the registration statement within 45
days of November 22, 2004 and for our failure to have such registration
statement declared effective by the SEC within 90 days of November 22, 2004. The
amount paid to the November 2004 Investors pursuant to the Letter Agreement
represents a default of 36 days with respect to filing the registration
statement and a default of 100 days with respect to having the registration
statement declared effective by the SEC. Under the Letter Agreement, the
liquidated damages paid to the November 2004 Investors satisfies our obligations
until June 30, 2005.

From July 1, 2005 through January 6, 2006, an aggregate amount of approximately
$271,146 has accrued in liquidated damages payable to the November 2004
Investors. Further liquidated damages will continue to accrue since we withdrew
the registration statement which registered the shares underlying the securities
issued in the November 2004 private placement. As of the date hereof, the
November 2004 Investors have not demanded payment of the aforementioned unpaid
and accrued liquidated damages from us.

SUBSEQUENT EVENTS

On March 1, 2006, we issued an aggregate principal amount $150,000 of our 4%
Unsecured Convertible Debentures and 5 year warrants to purchase an aggregate of
48,077 shares of our common stock to two of the investors in our November 2004
private placement. The debentures mature on March 1, 2008, pay simple interest
at a rate of 4% per annum and are convertible into shares of our common stock at
a price equal to 1.56 per share. The warrants are exercisable into shares of our
common stock at a price equal to $1.65 per share. Our issuance of the
aforementioned securities were in settlement of accrued liquidated damages which
we owed to these investors for our inability to have the SEC declare our
registration statement on Form SB-2 effective within the specified timeframe as
set forth in the Registration Rights Agreement dated November 22, 2004. In
addition, the investors agreed to forego any future accrual and payment of such
liquidated damages. We are currently negotiating with the remaining two
investors of the November 2004 private placement to settle the liquidated
damages which we currently, and in the future will, owe.

Liquidated Damages

On March 17, 2006, we began to accrue liquidated damages to the investors of the
first and second closings of our October 2005 private placement because we did
not register shares of our common stock underlying the Series C Unsecured
Convertible Debentures and common stock purchase warrants within 150 days from
the initial closing date of October 18, 2005. We have begun discussions with the
lead investor of the October 2005 private placement, and intend to engage in
negotiations with the remaining investors, to settle the liquidated damages
which we currently, and in the future will, owe.

                                  RISK FACTORS

In addition to other information contained in this Form 10-KSB, the following
Risk Factors should be considered when evaluating the forward-looking statements
contained in this Form 10-KSB:

              RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS

WE MAY NEVER BECOME PROFITABLE AND CONTINUE AS A GOING CONCERN BECAUSE WE HAVE
HAD LOSSES SINCE OUR INCEPTION.

We may never become profitable and continue as a going concern because we have
incurred losses and experienced negative operating cash flow since our
formation. For our fiscal years ended December 31, 2005 and 2004, we had a net
loss of $(14,935,478) and $(3,491,950), respectively. We expect to continue to
incur significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing. If such financing is available you may
experience significant additional dilution.

WE HAVE A LIMITED OPERATING HISTORY

We have been in operation since 1995. However, since 1995, our operations have
been limited to the development of our omni-directional products, and limited
revenue has been generated during this period. Consequently, our business may be
subject to the many risks and pitfalls commonly experienced by companies with
limited operations.

                                       21
<PAGE>
OUR BUSINESS OPERATIONS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL
FUNDING.

Our business operations will be harmed if we are unable to obtain additional
funding. We do not know if additional financing will be available when needed,
or if it is available, if it will be available on acceptable terms. Insufficient
funds may prevent us from implementing our business strategy or may require us
to delay, scale back or eliminate certain opportunities for the provision of our
technology and products. As of December 31, 2005, we have loaned $6,275,881.10
to Filco. On, January 20, 2006, Filco filed for insolvency in Germany. As a
result of the filing by Filco, we terminated the Acquisition Agreement on
February 7, 2006. We are currently in discussions with the receiver in Germany
to determine the status of our secured and unsecured loans to Filco, as well as
to explore the possibility of purchasing all or a portion of the assets of
Filco. This is dependent upon our ability to secure financing adequate to
purchase the assets of Filco and supply necessary operating capital. We
currently have no financing agreements in place and there can be no assurance
that we will obtain financing on terms that are favorable to us. As a creditor,
we have filed liens against Filco's machinery and equipment and intellectual
property. We will seek to recover on our secured and unsecured loans asset forth
above through appropriate legal channels in the event an asset purchase does not
materialize.

THE PRICING POLICY FOR OUR FORKLIFTS MAY BE SUBJECT TO CHANGE, AND ACTUAL SALES
OR OPERATING MARGINS MAY BE LESS THAN PROJECTED.

We are assessing present and projected component pricing in order to establish a
pricing policy for the SIDEWINDER Lift Truck. We have not finalized our
assessment as current prices for certain forklift components reflect special
development charges which are expected to be reduced as order volume for such
components increase and as manufacturing efficiencies improve. We intend to
price our forklifts so as to maximize sales yet provide sufficient operating
margins. Given the uniqueness of our product, we have not yet established final
pricing sensitivity in the market. Consequently, the pricing policy for its
forklifts may be subject to change, and actual sales or operating margins may be
less than projected.

WE HAVE RECEIVED LIMITED INDICATIONS OF THE COMMERCIAL ACCEPTABILITY OF OUR
OMNI-DIRECTIONAL FORKLIFT. ACCORDINGLY, WE CANNOT PREDICT WHETHER OUR
OMNI-DIRECTIONAL PRODUCTS CAN BE MARKETED AND SOLD IN A COMMERCIAL MANNER.

Our success will be dependent upon our ability to sell omni-directional products
in quantities sufficient to yield profitable results. To date, we have received
limited indications of the commercial acceptability of our omni-directional
forklift. Accordingly, we cannot predict whether the omni-directional product
can be marketed and sold in a commercial manner.

WE CANNOT ASSURE THAT WE WILL HAVE IN PLACE PATENT PROTECTION AND
CONFIDENTIALITY AGREEMENTS FOR OUR PROPRIETARY TECHNOLOGY. IF WE DO NOT
ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THERE IS A RISK THAT THEY
WILL BE INFRINGED UPON OR THAT OUR TECHNOLOGY INFRINGES UPON ONE OF OUR
COMPETITOR'S PATENTS. AS A RESULT, WE MAY EXPERIENCE A LOSS OF REVENUE AND OUR
OPERATIONS MAY BE MATERIALLY HARMED.

Our success will be dependent, in part, upon the protection of our proprietary
omni-directional technology from competitive use. A form of our omni-directional
technology was originally patented in 1973 and was sold to the US Navy. We
secured a transfer of this technology from the Navy in 1996 under the terms of a
CRADA agreement (Cooperative Research and Development Agreement) and we have
worked since that time to commercialize omni-directional products. We received 3
patents regarding the "redesign" of the wheel. In addition, we have received
patent protection regarding the algorithms used to control vehicular movement.
Further, we have applied for patents for a movable operator's control station
and a munitions handler. Notwithstanding the foregoing, we believe our lack of
patent protection is a material competitive risk. Our competitors could reverse
engineer our technology to build similar products. Also, certain variations to
the technology could be made whereby our competitors may use the technology
without infringing upon our intellectual property. The patent for the
omni-directional wheel expired in 1990. We, however, have received patent
protection of certain other aspects of its omni-directional wheel, and for
features specific to our forklift. In addition to the patent applications, we
rely on a combination of trade secrets, nondisclosure agreements and other
contractual provisions to protect our intellectual property rights.
Nevertheless, these measures may be inadequate to safeguard our underlying
technology. If these measures do not protect the intellectual property rights,
third parties could use our technology, and our ability to compete in the market
would be reduced significantly. In addition, if the sale of our product extends
to foreign countries, we may not be able to effectively protect its intellectual
property rights in such foreign countries.

In the future, we may be required to protect or enforce our patents and patent
rights through patent litigation against third parties, such as infringement
suits or interference proceedings. These lawsuits could be expensive, take
significant time, and could divert management's attention from other business
concerns. These actions could put our patents at risk of being invalidated or
interpreted narrowly, and any patent applications at risk of not issuing. In
defense of any such action, these third parties may assert claims against us. We
cannot provide any assurance that we will have sufficient funds to vigorously
prosecute any patent litigation, that we will prevail in any of these suits, or
that the damages or other remedies awarded, if any, will be commercially
valuable. During the course of these suits, there may be public announcements of
the results of hearings, motions and other interim proceedings or developments
in the litigation. If securities analysts or investors perceive any of these
results to be negative, it could cause the price of our common stock to decline.


                                       22
<PAGE>
WE CURRENTLY LACK ESTABLISHED DISTRIBUTION CHANNELS FOR OUR FORKLIFT PRODUCT
LINE.

We do not have an established channel of distribution for our forklift product
line. We have initiated efforts to establish a network of designated dealers
throughout the United States. Although we have received indications of interest
from a number of equipment distributors, to date, such indications have been
limited. We cannot predict whether we will be successful in establishing our
intended dealer network.

IF WE ARE UNABLE TO RETAIN THE SERVICES OF MR. PETER AMICO, OR IF WE ARE UNABLE
TO SUCCESSFULLY RECRUIT QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO CONTINUE
OPERATIONS.

Our ability to successfully conduct our business affairs will be dependent upon
the capabilities and business acumen of current management including Peter
Amico, our President. Accordingly, shareholders must be willing to entrust all
aspects of our business affairs to our current management. Further, the loss of
any one of our management team could have a material adverse impact on our
continued operation.

OUR INDUSTRY AND PRODUCTS ARE CONSIDERED TO BE HIGH-RISK WITH A HIGH INCIDENCE
OF SERIES PERSONAL INJURY OR PROPERTY LOSS WHICH COULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR BUSINESS.

The manufacture, sale and use of omni-directional forklifts and other mobility
or material handling equipment is generally considered to be an industry of a
high risk with a high incidence of serious personal injury or property loss. In
addition, although we intend to provide on-site safety demonstrations, the
unique, sideways movement of the forklift may heighten potential safety risks.
Despite the fact that we intend to maintain sufficient liability insurance for
the manufacture and use of our products, one or more incidents of personal
injury or property loss resulting from the operation of our products could have
a material adverse impact on our business.

IF WE DO NOT SUCCESSFULLY DISTINGUISH AND COMMERCIALIZE OUR DEVELOPED
PROPRIETARY PRODUCTS AND SERVICES, WE WILL NOT ATTRACT A SUFFICIENT NUMBER OF
CUSTOMERS. ACCORDINGLY, WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH OUR
COMPETITORS OR TO GENERATE REVENUE SIGNIFICANT TO SUSTAIN OUR OPERATIONS.

Although management believes our product will have significant competitive
advantages to conventional forklifts, we are competing in an industry populated
by some of the foremost equipment and vehicle manufacturers in the world. All of
these companies have greater financial, engineering and other resources than us.
No assurances can be given that any advances or developments made by such
companies will not supersede the competitive advantages of our omni-directional
forklift. In addition, many of our competitors have long-standing arrangements
with equipment distributors and carry one or more of competitive products in
addition to forklifts. These distributors are prospective dealers for our
company. It therefore is conceivable that some distributors may be loath to
enter into any relationships with us for fear of jeopardizing existing
relationships with one or more competitors.

DUE TO THE RECENT INSOLVENCY OF FILCO GMBH, THERE CAN BE NO ASSURANCE THAT WE
WILL PURCHASE TH ASSETS OF FILCO OR RECOVER OUR LOANS IN THE AGGREGATE AMOUNT OF
$6,275,881.10 MADE TO FILCO AND THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE
TO DO SO.

In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide $1.3 million to be allocated in
the form of equity in Filco and Filipov would also capitalize 1.3 million Euros
that he had loaned Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. Further, once we complete the acquisition, we are responsible
to provide adequate operating capital to insure a successful business. A later
addendum to the tentative agreement stated that we would acquire 75.1%
controlling ownership interest in Filco.

On January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006. We
are currently in discussions with the receiver in Germany to determine the
status of our secured and unsecured loans to Filco, as well as to explore the
possibility of purchasing all or a portion of the assets of Filco. There can be
no assurance that we will be able to purchase the assets of Filco on terms which
are favorable to us, or at all. Due to the insolvency filing by Filco, we are
attempting to recover our loans in the aggregate amount of $6,275,881.10,
exclusive of principal and interest at 8% per annum in accord with the loan
agreements made to Filco and there can be no assurance that we will be able to
do so. If we are unable to recover our loans, we may have to curtail our
operations or seek additional financing.

                       RISKS RELATING TO OUR COMMON STOCK

WE HAVE ISSUED COMMON STOCK, WARRANTS, AND CONVERTIBLE NOTES TO INVESTORS AND IN
EXCHANGE FOR FEES AND SERVICES AT A DISCOUNT TO THE MARKET PRICE OF OUR COMMON
STOCK AT THE TIME OF SUCH ISSUANCE. THIS RESULTS IN A LARGE NUMBER OF SHARES
WHICH HAVE BEEN ISSUED AND A LARGE NUMBER OF SHARES UNDERLYING OUR WARRANTS AND
OTHER CONVERTIBLE SECURITIES THAT ARE OR MAY BE AVAILABLE FOR FUTURE SALE AND
THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

We had 22,283,624 shares of common stock outstanding as of April 11, 2006,
including an aggregate of 3,874,605 shares issued upon a conversion of our
convertible notes in March 2005 pursuant to our February 2005 private placement,
and we had convertible notes which require the issuance of 1,158,615 additional
shares of common stock pursuant to our May and October 2005 private placements,


                                       23
<PAGE>
and warrants which require the issuance of 4,864,230 additional shares of common
stock pursuant to our November 2004, and February, May, and October 2005 private
placements, each of which have been issued or which are to be issued upon
conversion or exercise to investors of our company at a discount to the market
price of our common stock at the time of such issuance. In addition, we have an
aggregate of 250,769 and 250,769 shares underlying our convertible debentures
and warrants, respectively, which we issued pursuant to our February 2006
private placement and an aggregate of 96,154 and 48,077 shares underlying our
convertible debentures and warrants, respectively, which we issued on March 1,
2006 in settlement of non-registration liquidated damages to two of our
investors in our November 2004 private placement. Further, we often issue common
stock and warrants in exchange for fees and services at a discount to the market
price of our common stock at the time of such issuance. This results in a large
number of shares which have been issued, a large number of shares underlying our
warrants and other convertible securities that are or may be available for
future sale, and may create an overhang of securities for sale. The sale of
these shares which were or will be issued upon exercise or conversion of our
securities at a discount to the market price of our common stock at the time of
issuance may depress the market price of our common stock and is dilutive to
shareholder value.

THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE BECAUSE THERE ARE SHARES OF
COMMON STOCK WARRANTS WHICH WE ARE OBLIGATED TO REGISTER THAT MAY BE AVAILABLE
FOR FUTURE SALE, AND WE ARE OBLIGATED TO REGISTER SHARES OF OUR COMMON STOCK
UNDERLYING CONVERTIBLE NOTES PURSUANT TO OUR PRIVATE PLACEMENTS, AND THE SALE OF
THESE SHARES MAY DEPRESS THE MARKET PRICE.

We had 22,283,624 shares of common stock outstanding as of April 11, 2006. The
market price of our common stock may decline because there are a large number of
shares of our common stock underlying warrants that may be available for future
sale, and we are obligated to register 1,158,615 shares underlying convertible
notes pursuant to our May and October 2005 private placements. In addition, we
are obligated to register, pursuant to our November 2004 and February, May and
October 2005 private placements, an aggregate of 4,864,230 additional shares of
common stock underlying warrants. Further, we have an aggregate of 250,769 and
250,769 shares underlying our convertible debentures and warrants, respectively,
which we issued pursuant to our February 2006 private placement and an aggregate
of 96,154 and 48,077 shares underlying our convertible debentures and warrants,
respectively, which we issued on March 1, 2006 in settlement of non-registration
liquidated damages to two of our investors in our November 2004 private
placement, all of which we are obligated to register for resale. The sale of
these shares by the investors may depress the market price. All of the shares we
are obligated to register, may or will be sold without restriction. The sale of
these shares may adversely affect the market price of our common stock.

OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:

o that a broker or dealer approve a person's account for transactions in penny
stocks; and

o the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased.

In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:

o obtain financial information and investment experience objectives of the
person; and

o make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:

o sets forth the basis on which the broker or dealer made the suitability
determination; and

o that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.


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<PAGE>



ITEM 7. FINANCIAL STATEMENTS

                                  AIRTRAX, INC.

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 2005









                                    CONTENTS


                                                                           Page

Accountant's Audit Report                                                   F-1

Balance Sheet                                                               F-2

Statements of Operations                                                    F-3

Statements of Changes in Stockholder's Equity                               F-4

Statements of Cash Flows                                                    F-5

Notes to Financial Statements                                               F-6



<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders of AirTrax, Inc.

I have audited the accompanying balance sheet of AirTrax, Inc. as of December
31, 2004, and the related statements of operations, changes in stockholders'
equity, and cash flows for the years ended December 31, 2005 and 2004. These
financial statements are the responsibility of the Company management. My
responsibility is to express an opinion on these financial statements based on
my audit.

I conducted the audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor was I engaged to perform, and audit of its internal control over
financial reporting. My audit included consideration of internal control over
financial reporting as a bais for designing audit procedures that are
appropriate under the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of AirTrax, Inc. as of December 31,
2005, and the results of its operations and its cash flows for the years ended
December 31, 2005 and 2004, in conformity with U.S. generally accepted
accounting principles.

/s/ Robert G. Jeffrey
--------------------
Robert G. Jeffrey
Certified Public Accountant

Wayne, New Jersey
April 13, 2006

                                      F-1
<PAGE>
                                  AIRTRAX, INC.
                                 BALANCE SHEETS



                                                             December 31, 2005
                                                                 (Audited)
                                     ASSETS
Current Assets
    Cash                                                      $        19,288
    Accounts receivable                                                94,357
    Accrued interest receivable                                             -
    Inventory                                                       2,005,139
    Prepaid expenses                                                        -
    Vendor advance                                                    163,517
    Deferred tax asset                                                977,302
                                                              ---------------
                            Total current assets                    3,259,603
Fixed Assets
    Office furniture and equipment                                    157,521
    Automotive equipment                                               21,221
    Shop equipment                                                     43,349
    Casts and tooling                                                 270,688
                                                              ---------------
                                                                      492,779
Less, accumulated depreciation                                        301,886
                                                              ---------------
                                Net fixed assets                      190,893
Other Assets
    Advances to Filco Gmbh                                          2,000,000
    Patents - net                                                     154,263
    Deferred Charges                                                  388,392
    Utility deposits                                                       65
                                                              ---------------
                            Total other assets                      2,542,720
                                                              ---------------
          TOTAL ASSETS                                        $     5,993,216
                                                              ===============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
    Accounts payable                                          $       885,463
    Accrued liabilities                                               266,556
    Obligation for outstanding options                              1,330,948
    Warrants and conversion option liability                        3,516,462
    Shareholder notes payable                                         186,961
                                                              ---------------
                       Total current liabilities                    6,186,390
Long Term Convertible Debt                                          2,048,000
                                                              ---------------
          TOTAL LIABILITIES                                         8,234,390
                                                              ---------------

Stockholders' Deficit
    Common stock - authorized, 100,000,000
   shares without par value; issued and
   outstanding - 21,939,360 and 15,089,342,
   respectively                                                    21,385,638
    Paid in capital - warrants                                      1,042,400
Preferred stock - authorized, 500,000,000
shares without par value; 375,000 issued and
outstanding                                                           545,491
Retained deficit                                                  (25,214,703)
                                                              ---------------
                     Total stockholders' deficit                   (2,241,174)
                                                              ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                   $     5,993,216
                                                              ===============
                 The accompanying notes are an integral part of
                          these financial statements.

                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                  AIRTRAX, INC.
                            STATEMENTS OF OPERATIONS
                                For the Year 2005

                                                                               2005                 2004
                                                                          --------------       -------------

<S>                                                                            <C>                  <C>
SALES                                                                     $      718,842                   -
COST OF GOODS SOLD                                                               729,080                   -
                                                                          --------------       -------------
                             Gross Profit                                        (10,238)                  -

OPERATING AND ADMINISTRATIVE EXPENSES                                          9,758,435           2,529,775
                                                                          --------------       -------------

OPERATING LOSS                                                                (9,768,673)         (2,529,775)

OTHER INCOME AND EXPENSE
          Conversion Expense                                                  (6,571,454)
          Interest expense and amortization expense                             (488,342)           (386,364)
          Revaluation income (expense)                                           993,837            (864,280)
          Interest income                                                         15,247              86,667
          Other income                                                            16,494               2,979
                                                                          --------------       -------------


NET LOSS BEFORE INCOME TAXES                                                 (15,802,891)         (3,690,773)

INCOME TAX BENEFIT (STATE):
          Current                                                                867,413             198,823
          Prior years                                                                  -                   -
                                                                          --------------       -------------
                             Total Benefit                                       867,413            (198,823)
                                                                          --------------       -------------

NET LOSS BEFORE DIVIDENDS                                                    (14,935,478)         (3,491,950)

DEEMED DIVIDENDS ON PREFERRED STOCK                                             (480,978)
                                                                          --------------       -------------
NET LOSS ATTRIBUTABLE TO COMMON   SHAREHOLDERS                               (15,416,456)         (3,491,950)

PREFERRED STOCK DIVIDEND                                                         (51,563)           (131,771)
                                                                          --------------       -------------

DEFICIT ACCUMULATED                                                       $  (15,468,019)      $  (3,623,721)
                                                                          ==============       =============

NET LOSS PER SHARE:
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                              $  (14,935,478)      $  (3,491,950)

ADJUSTMENT FOR PREFERRED SHARE DIVIDENDS ACCUMULATED BUT UNPAID
                                                                                  87,500              68,750
                                                                          --------------       -------------

LOSS ALLOCABLE TO COMMON SHAREHOLDERS                                     $  (15,022,978)      $  (3,560,700)
                                                                          ==============       =============

NET LOSS PER SHARE - Basic and Diluted                                    $         (.72)      $        (.29)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                                 20,951,187          12,075,448

</TABLE>
                 The accompanying notes are an integral part of
                          these financial statements.

                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                                  AIRTRAX, INC.
                         STATEMENT OF CHANGES IN EQUITY
                                    TWO YEARS

                                                       STOCK                PREFERRED
                                               SHARES        AMOUNT     SHARES      AMOUNT     WARRANTS     DEFICIT        TOTAL
<S>                                              <C>          <C>         <C>         <C>         <C>       <C>             <C>
                Balance, December 31, 2003    8,696,552   $ 6,209,996   275,000  $   12,950  $         -   (6,122,963) $     99,983
Issuance of shares sold in prior year           130,000       130,000                                                       130,000
Shares sold in private placement offerings    5,500,125     2,685,402                          1,042,400                  3,727,802
Warrants exercised                               75,000        93,750                                                        93,750
Shares issued for services                      687,665       661,306                                                       661,306
Dividends on preferred stock                                                                                 (131,771)     (131,771)
Net loss                                                                                                   (3,491,950)   (3,491,950)
                                             ----------   -----------   -------    --------  -----------  -----------  ------------
                Balance, December 31, 2004   15,089,342     9,780,454   275,000      12,950    1,042,400   (9,746,684)    1,089,120

Shares issued in private placements              68,750        55,000                                                        55,000
Warrants exercised                              593,000       718,486                                                       718,486
Options exercised                                45,000        19,619                                                        19,619
Shares issued for services                      291,695       735,387                                                       735,387
Employee stock awards                            20,000        48,000                                                        48,000
Shares issued in lieu of rent                    19,200        48,000                                                        48,000
Issuance of shares sold in prior year         1,749,827     1,401,172                                                     1,401,172
Shares issued in settlement of interest          28,453        66,295                                                        66,295
Transfer from liability on exercise
  of warrants                                                 181,000                                                       181,000
Conversion of convertible debt                3,846,154     4,277,500                                                     4,277,500
Conversion benefit capitalized                              3,596,154                                                     3,596,154
Shares issued for preferred dividend                                    100,000    532,541                                  532,541
Shares issued for Filco investment              187,939       458,571                                                       458,571
Dividends on preferred stock                                                                                  (51,563)      (51,563)
Net loss                                                                                                  (15,456,906)  (15,456,906)
                                             ----------   -----------   -------  ----------  ----------- ------------  ------------
                Balance, December 31, 2005   21,939,360   $21,385,638   375,000  $ 545,491   $ 1,042,400 $(25,214,703) $ (2,241,174)
                                             ==========   ===========   =======  ==========  =========== ============  ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                        F-4
<PAGE>
<TABLE>
<CAPTION>
                                  AIRTRAX, INC.
                             STATEMENT OF CASHFLOWS

CASH FLOWS FROM OPERATING ACTIVITIES                                     2005                2004
                                                                     -------------      -------------
<S>                                                                  <C>                   <C>
Net loss                                                             $ (15,416,456)     $ (3,491,950)
Charges not requiring the outlay of cash:
    Depreciation and amortization                                           59,500           100,507
    Cost of conversion                                                   7,068,174           355,470
    Value of equity securities issued for services                       1,918,750         1,033,343
    Interest accrued on shareholder advances                                 4,015             4,566
    Excess value of shares issued to settle liabilities                    149,589                 -
    Deemed dividend on preferred stock                                     480,978                 -
    Increase in accrual of deferred tax benefit                           (752,888)          (23,409)
    Revaluation of warrant liabilities                                    (992,757)          864,280
    Impairment of Filco investment                                       4,700,839                 -
Changes in assets (liabilities):
    Increase in receivables                                               (205,857)         (138,684)
    Increase in inventory                                               (1,295,858)         (324,527)
    Increase in accounts payable and accrued expenses                      580,096             5,717
                                                                     --------------     -------------
Net cash consumed by operating activities                               (3,701,875)       (1,614,687)
                                                                     --------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment                                                 (150,806)          (49,306)
Additions to patent cost                                                   (42,861)          (80,939)
Advances to FiLCO                                                       (3,605,881)       (2,670,000)
                                                                     --------------     -------------
Net cash consumed in investment activities                              (3,799,548)       (2,800,245)
                                                                     --------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of converted debt                                               4,277,500                 -
Proceeds of common stock sales                                              55,000         5,103,103
Proceeds of convertible loans                                            1,659,138
Proceeds of stockholder advances                                           151,493
Repayments of stockholder advances                                         (2,002)           (52,005)
Proceeds of exercises of warrants                                          718,486            93,750
Proceeds of exercises of options                                            19,619             5,944
Preferred stock dividends paid in cash                                                      (131,771)
                                                                     --------------     -------------

Net cash Provided By Financing Activities                                6,879,234         5,019,021
                                                                     ==============     =============

Net change in cash                                                        (622,189)          604,089
Cash balance beginning of period                                           641,477            37,388
                                                                     --------------     -------------

Cash balance end of period                                           $      19,288      $    641,477
                                                                     ==============     =============
</TABLE>

                 The accompanying notes are an integral part of
                          these financial statements.

                                        F-5
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005



1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business
The Company was formed April 17, 1997. It has designed a forklift vehicle using
omni-directional technology obtained under a contract with the United States
Navy Surface Warfare Center in Panama City, Florida. The right to exploit this
technology grew out of a Cooperative Research and Development Agreement with the
Navy. Significant resources have been devoted during prior years to the
construction of a prototype of this omni-directional forklift vehicle. The
Company recognized its first revenues from sales of this product during the year
2005.

Development Stage Accounting
In prior periods the Company was a development stage company, as defined in
Statement of Financial Accounting Standards (FASB) No. 7. The Company is no
longer considered a development stage company.

The Company has incurred losses from inception to December 31, 2005, of
$25,214,703. Until the end of 2004, these losses were financed by private
placements of equity securities. During 2005, the Company obtained financing
almost exclusively from the issuance of convertible debentures. The Company may
need to raise additional capital through the issuance of debt or equity
securities to fund operations.

Cash
For purposes of the statements of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.

Inventory
Inventory consists principally of component parts and supplies which will be
used to assemble forklift vehicles. Inventories are stated at the lower of cost
(determined on a first in-first out basis) or market.

Fixed Assets
Fixed assets are recorded at cost. Depreciation is computed by using accelerated
methods, with useful lives of seven years for furniture and shop equipment and
five years for computers and automobiles.

Income Taxes
Deferred income taxes are recorded to reflect the tax consequences or benefits
to future years of temporary differences between the tax bases of assets and
liabilities, and of net operating loss carryforwards.

                                        F-6
<PAGE>
                                  AIRTRAX, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               December 31, 2005




1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible Assets
         Patents
         The Company incurred costs to acquire certain patent rights. These
         costs were capitalized and are being amortized over a period of fifteen
         years on a straight-line basis.

         Prototype Equipment
         The cost of developing and constructing the prototype omni-directional
         helicopter handling vehicle and the omni-directional forklift vehicle
         is expensed as incurred.

Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimated.

Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate their fair values at December 31, 2005.

Research and Development Cost
The Company expenses all research and development cost unless the criteria
required by FASB No. 2 are met. To date there have been no research and
development costs capitalized. During the years 2005 and 2004 a total of
$544,933 and $519,804, respectively, was spent on development activity.

Advertising Costs
The Company expenses advertising costs when the advertisement occurs. There were
no advertising costs incurred during 2005 and 2004.

                                        F-7
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005




1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Options
Stock options are occasionally awarded to employees, directors and outside
parties as compensation for services. Such awards have been immediately
exercisable. The Company accounts for stock-based compensation under the
intrinsic method permitted by Accounting Principles Board Opinion No. 25. The
following represents information about net loss and loss per share as if the
Company had applied the provisions of Statement of Financial Accounting
Standards ("SFAS")123. Accounting for Stock Based Compensation, to all options
granted.

                                                Year Ended December 31,
                                                   2005          2004
                                                ----------    ---------
Net loss as reported                            $  (15,416)   $  (3,492)
Less: Stock-based employee compensation
 determined under the Intrinsic Method               1,082          223
Add:  Stock bases compensation determined
 under the Fair Value Method                        (1,105)        (260)
                                                ----------    ---------
Pro forma net loss                              $  (15,439)   $  (3,529)
                                                ----------    ---------
Loss per share:
Basic and diluted as reported                   $     (.72)   $    (.29)
                                                ==========    =========
Basic and diluted-pro forma                     $     (.72)   $    (.29)
                                                ==========    =========

Pursuant to the requirements of SFAS 123, the weighted average fair value of
options granted during 2004 and 2003 were $1.37 and $.49, respectively, on the
dates of grant. The fair values were determined using a Black Scholes
option-pricing model, using the following major assumptions:

                                         2005                    2004
                                         ----                    ----
Volatility                              90.10%                  91.45%
Risk-free interest rate                  3.71%                   3.63%
Expected Life - years                    4.52                    4.33


                                        F-8
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


In December 2004, the FAB issued SFAS 123 (revise 2004), Share-Based Payment
("SFAS 123R"), which revised SFAS 123, Accounting for Stock-Based Compensation.
SFAS 123R also supersedes APB 25, Accounting for Stock Issued to Employees, and
amends SFAS 95, Statements of Cash Flows. In general, the accounting required by
AFAS 123R is similar to that of SFAS 123. However, SFAS 123 gave companies a
choice to either recognize the fair value of stock options in their income
statements or to disclose the pro forma income statement effect of the fair
value stock options in the notes to the financial statements. SFAS 123R
eliminates that choice and requires the fair value of all share-based payment to
employees, including the fair value of grants of employee stock options, be
recognized in the income statement, generally over the option vesting period.
SFAS 123R must be adopted no later than the fiscal year commencing after July 1,
2005.

        SFAS 123R permits adoption of its requirements using one of two
transition methods:

1.      A modified prospective transition ("MPT") method in which compensation
        cost is recognized beginning with the effective date (a) for all
        share-based payments granted after the effective date and (b) for all
        awards granted to employees prior to the effective date that remain
        unvested on the effective date.

2.      A modified retrospective transition ("MRT") method which includes the
        requirements of the MPT method described above, but also permits
        restatement of financial statements based on the amounts previously
        disclosed under SFAS 123's pro forma disclosure requirements either for
        (a) all prior periods presented or (b) prior interim periods of the year
        of adoption.

        The Corporation plans to adopt SFAS #123R as of January 1, 2006.

        As permitted by SFAS 123, the Corporation currently accounts for
        share-based payments to employees using APB 25's intrinsic value method
        and, as such, has recognized no compensation cost for employee stock
        options. Accordingly, adoption of SFAS 123R's fair value method will
        have a slight effect on results of operations, although it will have no
        impact on overall financial position. The impact of adoption of SFAS
        123R cannot be predicted at this time because it will depend on levels
        of share-based payments granted in the future.

Segment Reporting
Management treats the operations of the Company as one segment.

                                        F-9
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


Revenue Recognition
Revenue will be realized from product sales. Recognition will occur upon
shipment to customers, and where the following criteria are met; persuasive
evidence of an arrangement exists; delivery has occurred; the sales price is
fixed or determinable; and collectability is reasonably assured. Some revenue
has been realized from performing services. Revenue from services is recognized
when the service is performed and where the following criteria are met:
persuasive evidence of an arrangement exists; the contract price is fixed or
determinable; and collectability is reasonably assured.

Common Stock
Common stock is often issued in return for product, services, and as dividends
on the preferred stock. These issuances are assigned values equal to the value
of the common stock on the dates of issuance.

2.       RESTATEMENTS

Certain adjustments affecting the 2005 financial statements have been discovered
during an internal review. Correcting these errors resulted in changes in the
loss attributable to common shareholders with a resultant increase in the
deficit accumulated , and certain changes in the statement of cash flows, as of
December 31, 2004 and for the year then ended. The 2004 financial statements
have, therefore, been restated to correct these errors. The restated amounts are
compared with the amounts previously reported, in the following table.


    STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE

                                As Originally
                                 Presented        Adjustments       As Restated
Pre-tax Loss                    $(2,272,200)     $(1,219,750)(A)    $(3,491,950)
Net Loss Accumulated            $(8,526,934)     $(1,219,750)       $(9,746,684)


                             STATEMENT OF CASH FLOWS
                                  As Originally
                                    Presented       Adjustments     As Restated
Operating Activities
Loss                               $(2,272,200)    $ (1,219,750)  $  (3,491,950)
Revaluation expense                                $    864,280   $     864,280
Conversion expense                                 $    355,470   $     355,470
Net Cash Consumed By Operating
Activities                         $(1,614,687)    $          -   $  (1,614,687)

     (A) Revaluation entry required because of reclassification of certain
warrants.

                                      F-10
<PAGE>

                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005

2.       RESTATEMENTS (Continued)


These corrections caused changes in the opening balances of the deficit
accumulated during development stage, as follows:

Retained Deficit At Beginning of Year:                      2004
As previously reported                                  $  (5,916,011)
Deficit prior to development stage                           (206,952)
Net loss, as restated                                      (3,491,950)
Dividends on preferred stock                                 (131,771)
Retained Deficit at End of Year                         $  (9,746,684)


3.       RELATED PARTY TRANSACTIONS

The Majority shareholder corporation and the Company president make loans to the
Company from time to time. The related notes accrue interest at 12% and are due
on demand. The combined unpaid balance of principal and interest on these notes
was $186,961 at December 31, 2005.

During 2004, each member of the Board of Directors received 10,000 shares for
services as directors; these were valued at $50,500, reflecting the stock price
at time of award.

In 2004, the president of the Company was granted 550,000 options, valued at
$187,500. In 2005 he was granted 750,000 options, valued at $975,000.

Three employees were previously entitled under their employment contracts to
25,000 options each for each year of their contracts. One of these employees
retired during 2004, exercising his remaining options. Another employee
exercised his prior options and his 2004 options, for a total cost of $5,943.
The last employee has outstanding options granted during 2002, 2003, and 2004.
These options have been assigned during 2005 to a third party.

                                      F-11
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


4.       STOCK OPTIONS

The Company awards options under employment contracts with three employees.
These options entitle the employees to purchase company stock at discounted
prices. These options were immediately exercisable; there are no expiration
dates to these options, and none was forfeited during either year. A summary of
option activity is presented below.
<TABLE>
<CAPTION>
                                                2005                    2004
                                                ----                    ----
                                                    Weighted                Weighted
                                                     Average                 Average
                                                    Exercised               Exercised
                                           Shares    Price       Shares      Price
Options outstanding at beginning of
<S>                                       <C>         <C>       <C>          <C>
   year                                   620,000     $ .73     115,000      $ .38
Options granted during year               800,000       .83     600,000        .74
Options exercised during year                                   (95,000)
                                                               --------
                                          (45,000)      .44                    .39
                                        ---------     -----                  -----
Options outstanding at end of year
                                        1,375,000     $ .80     620,000      $ .73
                                        =========     =====    ========      =====
Weighted average Fair Value of
options granted                                       $1.37                  $ .47
Weighted average remaining life of
outstanding options - years
                                                       4.52                   4.33
</TABLE>
5.   PRIVATE PLACEMENT OFFERINGS (Continued)

During 2005,  the Company  sold 68,750  shares in private  placements,  yielding
proceeds of $55,000. It also issued three convertible debt issues. Each of these
issues included detachable warrants.

One of these debt issues  ($5,000,000)  yielded  proceeds of $4,277,500  and has
already been  converted into  3,846,154  shares of common stock;  this issue was
sold with warrants to purchase  2,884,616  shares of common stock. The remaining
issues have not yet been  converted to stock;  they bear interest at 8% and have
two year conversion terms. They arc further described below:

  -----------------------------------------------------------------------------
                                                              5-Year Warrants
                                                      -------------------------
                                                                     Exercise
       Issuance     Proceeds    Debt Conversion Price   Number         Price
  -----------------------------------------------------------------------------
  $     500,000    $   409,913          $1.30          384,615        $2.11
  -----------------------------------------------------------------------------
      1,548,OO0      1,249,225          $2.00          774,000         3.25
  -----------------------------------------------------------------------------
  $   2,048,000    $ 1,659,138
  -----------------------------------------------------------------------------

The  options  not  yet  converted,  and  the  outstanding  warrants,  have  been
classified  as  liabilities,  as required by Emerging  Issues Task Force  (EITF)
00-19, having met the definitions of embedded derivatives.

Included in the funds  raised  during 2004  through  stock sales was  $1,312,000
raised  through the sale of 1,640,000  shares under a Purchase  Agreement  dated
November  22,  2004,  That  agreement  required,  among  other  things,  that  a
registration statement be filed with the SEC and that the registration statement
be declared  effective by the SEC within a prescribed  time. The Company did not
fulfill these  obligations.  As a result, it is subject to penalties equal to 2%
of the amount invested for each 30 day period following the default date. On May
31, 2005, the Company entered into a letter agreement with a  representative  of
this  shareholder  group under which  $120,429 was paid to settle the  penalties
which had accrued.  These  penalties were charged to expense during 2005.  Under
the May 31, 2005 agreement,  no further  penalties would accrue until after June
30, 2005. The obligation concerning  effectiveness of the registration statement
has not been  satisfied  and  penalties  have accrued since June 30, 2005 at the
rate of  approximately  $26,240  per month.  The  penalties  paid  thusfar,  and
penalties that accrued subsequently,  were charged to expense during the periods
in which they  accrued.  As of  December  31,  2005 an  additional  $160,851  of
liquidated damages had been accrued.

There  have been  three  private  placement  offerings  during  2005.  Under the
provisions  of the first of these  offerings,  penalties  will not accrue as the
registration requirements of that offering have been satisfied. Under the second
such  offering,  there is no  provision  for  penalties.  Under the  third  such
offering,  penalties will accrue beginning 150 days after October 18, 2005. Such
penalties  will accrue at the rate of 2% per month of the amount  raised in that
offering,  which was  $1,000,000.  These penalties will start to accrue on March
18, 2006 and will accrue for no more than nine months.

                                      F-12
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


6.       PREFERRED STOCK

The Company is authorized to issue 500,000 shares of preferred stock, without
par value. At December 31, 2005, 375,000 of these shares had been issued. Each
of these shares entitles the holder to a 5% cumulative dividend based on a $5
per share stated value. If sufficient cash is not available, or at the option of
the shareholder, these dividends may be paid in common stock. This issue of
preferred stock also provides the shareholder with 10 votes for each share of
preferred stock. The holder of this preferred stock is a corporation wholly
owned by the Company president and chairman.

Dividends of $68,750 accrued on the preferred stock during each of the years
2002, 2003, and 2004. Cash dividends of $131,771 were paid during 2004.
Additional dividends in the amount of $87,500 accrued during 2005. A stock
dividend of 100,000 preferred shares was paid in 2005, satisfying $51,563 of the
unpaid dividends. The balance of unpaid dividends at of December 31, 2005 was
$110,916.

The additional 100,000 shares of preferred stock were deemed the equivalent of
the 221,892 common shares that would have been required to settle an equivalent
amount of preferred dividends. A deemed dividend of $480,978, representing the
excess of the fair value of the stock over the dividends settled, was charged to
operations and added to paid in capital. This deemed dividend was added to paid
in capital.

The majority shareholder had the right at December 31, 2005 to acquire 453,262
shares of stock as accrued and unpaid dividends under the features of the
preferred stock issue.

                                      F-13
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005



7.   SHARES ISSUED FOR SERVICES


Stock  options were granted to two Company  employees  during 2005 and 2004.  In
addition,  there were shares  awarded as  compensation  for other services These
issuances arc detailed below by type of service performed.
<TABLE>
<CAPTION>
                                      2005

                                                        Number                 Price at
                                                          of                    Grant          Value at
         Services Rendered                              Shares        Date      Date          Grant Date
----------------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>       <C>                <C>
   Advertising                                         5,000        2/24      2.50               12,500
----------------------------------------------------------------------------------------------------------
   Lega1 services                                     11,000         5/2       2.78               30,580
----------------------------------------------------------------------------------------------------------
   Financial consulting                              100,000         5/6       2.60              260,000
----------------------------------------------------------------------------------------------------------
   Legal services                                     50,000         5/6       2.60              130,000
----------------------------------------------------------------------------------------------------------
   Investor relations                                 15,000         4/1       2.40               36,000
----------------------------------------------------------------------------------------------------------
   Public relations                                   20,000         5/1       2.55               51,000
----------------------------------------------------------------------------------------------------------
   Facility search                                     5,000         5/1       2.55               12,750
----------------------------------------------------------------------------------------------------------
   Marketing services                                  9,009        7/29       2.25               20,270
----------------------------------------------------------------------------------------------------------
   Investor relations                                 15,000         9/6       2.25               33,750
----------------------------------------------------------------------------------------------------------
   Financial services                                  2,500        12/1       2.60                6,500
----------------------------------------------------------------------------------------------------------
   Investor relations                                 21,186        12/9       2.35               49,787
----------------------------------------------------------------------------------------------------------
 Public relations                                     18,000        12/9       2.35               42,300
----------------------------------------------------------------------------------------------------------
 Investor relations                                   15,000        12/9       2.35               35,250
----------------------------------------------------------------------------------------------------------
 Total shares issued to consultants                  286,695                                     720 687
----------------------------------------------------------------------------------------------------------
 Other Issuances:
----------------------------------------------------------------------------------------------------------
 Employee awards                                      20,000                   2.40               48,000
----------------------------------------------------------------------------------------------------------
 Shares issued in lieu of rent                        19,200       various                        48,000
----------------------------------------------------------------------------------------------------------
 Shares issued as partial                              5,000       various                        14,700
 compensation of financing
----------------------------------------------------------------------------------------------------------
 Amortization of cost of grants made                                                               5,113
 in prior periods
----------------------------------------------------------------------------------------------------------
Total Value of stock issued for services             330,895                                     836,500
----------------------------------------------------------------------------------------------------------
Value of options granted for services                      -                                   1,082,250
----------------------------------------------------------------------------------------------------------
Value of equity items issued for services            330,895                                   1,918,750
                                                     =======                                   =========
----------------------------------------------------------------------------------------------------------
</TABLE>
                                      F-14
<PAGE>

                              AIRTRAX, INC.
                     NOTES TO FINANCIAL STATEMENTS
                           December 31, 2005


7.   SHARES ISSUED FOR SERVICES (continued) 2004


-------------------------------------------------------------------------------
                                        Number             Grant
    Services Rendered                    of       Date    Price  Share Value
                                        Shares
-------------------------------------------------------------------------------
  Consulting services                  10,000     1 /2     1.29       12,900
-------------------------------------------------------------------------------
  Marketing services                   15,000     6/14     1.12       16,800
                                                                      122,680(2)
-------------------------------------------------------------------------------
  Investor relations                   26,020     6/14     1.12       29,142
-------------------------------------------------------------------------------
  Consulting services                  24,075     6/14     1.12       26,964
-------------------------------------------------------------------------------
  Investor relations                    5,000     6/14     1.12        5,600
-------------------------------------------------------------------------------
  Consulting services                  40,000      9/8     0.89       34,000
                                                                      (5,113)(l)
-------------------------------------------------------------------------------
  Investor relations                   50,000      8/9    0.8/6       43,000
-------------------------------------------------------------------------------
  Marketing services                  165,500     3/15     1.05      173,250
-------------------------------------------------------------------------------
 Investor relations                    15,000      2/2     0.68       10,200
                                                                     145,110(2)
-------------------------------------------------------------------------------
 Industrial relations and              69,550      1/0     1.01       70,245
   marketing services
-------------------------------------------------------------------------------
 Consulting services                   23,775     10/1     0.82       19,258
-------------------------------------------------------------------------------
 Marketing Services                    24,000    10/30     0.90       21,600
-------------------------------------------------------------------------------
Industrial relations and               16,500    10/14     1.05       17,325
 marketing services
-------------------------------------------------------------------------------
 Total of shares issued to            483,920                        742,961
 consultants
-------------------------------------------------------------------------------
 Other:
-------------------------------------------------------------------------------
 Stock issued to settle                37,421                              -
  liabilities
-------------------------------------------------------------------------------
 Excess value of stock issued         104,324                         10,182(3)
   to settle liabilities
-------------------------------------------------------------------------------
 Stock issued in lieu of rent          12,000   various     .75        9,000
-------------------------------------------------------------------------------
 Director awards                       50,000    10/20     1.01       50,500
-------------------------------------------------------------------------------
 Total stock issued for services      687,665                        812,643
-------------------------------------------------------------------------------
 Options granted for services          .    -                        220,700
-------------------------------------------------------------------------------
 Value of equity items issued
   for services                       687,665                     $1,033,343
                                      =======                     ==========
-------------------------------------------------------------------------------


(1)  Grants were issued in return for commitments  for future  service;  this is
     the expense allocated to future periods.
(2)  Amortization of the cost of grants issued in prior period.
(3)  Some issuances were made to satisfy  liabilities  owed to the optionee;  if
     the value of the issuance exceeded the liability, the excess was charged to
     expense.


                                      F-15
<PAGE>

                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


8.        WARRANTS

The following is a schedule of changes in warrants  outstanding during the years
2005 and 2004.  Each of these  warrants are  exercisable  over five year periods
from dates of issuance at prices ranging from  $1.00-$3.25 per share.  They were
recorded at fair values determined by a Black Scholes valuation model.



--------------------------------------------------------------------------------
Balance December 31, 2003                                           845,000
--------------------------------------------------------------------------------
Issuances in 2004:
--------------------------------------------------------------------------------
In conjunction with stock placements
through investment banker:
--------------------------------------------------------------------------------
  March                                            1,800,063
--------------------------------------------------------------------------------
  September                                          171,875
--------------------------------------------------------------------------------
  November                                           820,000      2,791,938
--------------------------------------------------------------------------------
Awarded as partial fees to brokers:
  March                                              460,000
--------------------------------------------------------------------------------
  September                                           34,375
--------------------------------------------------------------------------------
  November                                           264,000        758,375
--------------------------------------------------------------------------------
 Warrants issued in private stock sales                             832,450
--------------------------------------------------------------------------------
 Warrants exercised during 2004                                     (75,000)
--------------------------------------------------------------------------------
 Warrants issued for services (partially                            385,000
   voided during 2005)
--------------------------------------------------------------------------------
 Balance December 31, 2004                                        5,537,763
--------------------------------------------------------------------------------
Warrants issued in conjunction
with issuances of convertible debt:
--------------------------------------------------------------------------------
  February issue                                   2,884,615
--------------------------------------------------------------------------------
  May issue                                          384,615
--------------------------------------------------------------------------------
  October issue                                      774,000      4,043,230
--------------------------------------------------------------------------------
Awarded as partial fees to brokers:
--------------------------------------------------------------------------------
  February issue                                     484,615
--------------------------------------------------------------------------------
   May issue                                          38,462
--------------------------------------------------------------------------------
   October issue                                     154,800        677,877
--------------------------------------------------------------------------------
 Warrants exercised during 2005                                    (593,000)
--------------------------------------------------------------------------------
 Warrants voided during 2005                                       (200,000)
--------------------------------------------------------------------------------
 Warrants issued for services                                        37,688
--------------------------------------------------------------------------------
 Balance December 31 2005                                         9,503,558
                                                                  =========
--------------------------------------------------------------------------------

                                      F-16
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005




9.   EXPENSES

Major items  included in  operating  and  administration  expenses  are detailed
below:


                                                 2005                  2004
                                              ----------             ---------
Insurance                                     $  179,739             $  69,883
Marketing                                        272,879               205,321
Payroll                                          556,454               402,543
Consulting                                       610,550               721,361
Officer options                                  975,000               187,500
Other compensation                               120,280                     -
Other options awarded                            107,250                39,600
Professional fees                                385,285                74,059
Office expenses                                  147,521                36,005
Filco Impairment                               4,700,839                     -
FILCO audit fees                                 195,676                     -
Penalties                                        281,281                     -
Rent                                              87,627                58,800
Travel and entertainment                          76,714                30,656
Depreciation and amortization                          -               100,507
Product development                              496,902               369,666
Director awards                                        -                50,500
Shipping                                         172,840                     -
Payroll taxes                                     69,996                40,959
Other expenses                                   331,652               140,411
                                              ----------            ----------
                                              $9,758,435            $2,529,775
                                              ==========            ==========


                                      F-17
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


10.      INCOME TAXES

The Company has experienced losses each year since its inception. As a result,
it has incurred no Federal income tax. The Internal Revenue Code allows net
operating losses (NOL's) to be carried forward and applied against future
profits for a period of twenty years. At December 31, 2005 the Company had NOL
carryforwards of $18,409,274 available for Federal taxes and $10,309,634 for New
Jersey taxes. The potential tax benefit of the state NOL's has been recognized
on the books of the Company; the potential benefit of the Federal NOL's has been
offset by a valuation allowance. If not used, these Federal carryforwards will
expire as follows:

2011           $      206,952
2012                  129,092
2018                  486,799
2019                  682,589
2020                  501,169
2021                  775,403
2022                  590,764
2023                2,233,386
2024                2,493,486
2025               10,309,634

During the year 2005, the Company realized $114,525 from the sale, as permitted
by New Jersey law, of its rights to use the New Jersey NOL's and research and
development credits that had accrued during 2004. These potential New Jersey
offsets for periods prior to 2004 are, thus, no longer available to the Company.

Under Statement of Financial Accounting Standards No. 109, recognition of
deferred tax assets is permitted unless it is more likely than not that the
assets will not be realized. The Company has recorded deferred tax assets as
follows:

                                      Current       Non-current         Total
Deferred Tax Assets                $ 4,117,668     $  2,653,960     $ 6,771,628
Valuation Allowance                  3,189,801        2,653,960       5,843,761
                                   -----------     ------------     -----------
    Balance Recognized             $   927,867     $          -     $   927,867
                                   ===========     ============     ===========

The entire balance of the valuation allowance relates to Federal taxes. Since
state tax benefits for years prior to 2004 have been realized, no reserve is
deemed necessary for the benefit of state tax losses of 2005.


                                      F-18
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


11.      RENTALS UNDER OPERATING LEASES

At present, the Company is not obligated under any operating lease.

Rent expense amount to $74,500 in 2005 and $49,500 in 2004.


12.      SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION

Cash paid for interest and income taxes is presented below:

                                 2005                    2004
                                 ----                    ----

Interest                        $9,741                 $26,239
Income taxes                         0                     500


There were no noncash investing activities during either 2005 or 2004. The
following noncash financing activities occurred:

a. Shares of common stock were issued for services during 2005 and 2004; these
totaled 31,895 and 687,665 shares, respectively. b. During 2004, 130,000 shares
were issued in settlement of stock sales which took place during 2003. c. During
2005, the Company issued 1,749,827 shares in settlement of stock sales which
took place during 2004. d. During 2005, the Company issued 28,453 shares in
settlement of interest due to investors. e. During 2005, the Company issued
187,939 shares to purchase third party debt of FiLCO, a German corporation in
which the Company had an investment - see Note 12.

                                      F-19
<PAGE>
                                  AIRTRAX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2005


13.      PROPOSED ACQUISITION

On February 19, 2004, the Company reached a tentative agreement to purchase
capital stock of FiLCO GmgH., a German manufacturer of fork trucks (formerly
Clark Material Handling Company of Europe) with a manufacturing facility in
Mulheim, Germany (FiLCO). It was expected that the Company would acquire 75.1%
of FiLCO. While negotiations were continuing, the Company agreed to make
advances to FiLCO. Through December 31, 2005 advances totaling $6,255,462 had
thus been made.

On January 20, 2006, Filco filed for insolvency in Germany and a receiver was
appointed. As a result, on February 7, 2006 the Company terminated the tentative
agreement to acquired Filco stock and began negotiations with the receiver to
acquire some or all of the Filco assets. The $6,255,462 of advances to Filco
that were outstanding at December 31, 2005, are secured by the machinery and
equipment owned by Filco which in 2003 was appraised at $5,400,000, and by its
intellectual property, which has not been appraised. Due to the uncertainty of
the Company position under German bankruptcy law, the Filco advances have been
written down to $2,000,000.

During May 2002, the Company signed an agreement with a broker-dealer to provide
investment banking and financial advisory services, which included the raising
of funds. Under the agreement, the broker-dealer was entitled to receive stock
warrants which if exercised would produce 450,000 shares of common stock of the
Company during a four year term at an exercise price or approximately $1.75 per
share. A dispute arose between the parties regarding the agreement and its
performance. The Company has asserted that the broker-dealer induced the Company
to enter into the agreement through material misstatements and has not otherwise
performed its services under the agreement. The Company believes the
broker-dealer is not entitled to the stated compensation, and has not issued the
stock warrants.


14.      RECENT ACCOUNTING PRONOUNCEMENTS

Except for the impending change to adopt FASB 123R which is described in Note 1
under Stock Options, the Company does not expect adoption of recently issued
accounting pronouncements to have a significant effect on the Company's results
of operations, financial position or cash flows.


                                      F-20
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

ITEM 8A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our chief executive
officer/chief financial officer of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our chief executive officer/chief financial officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms. There was no
change in our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 8B. OTHER INFORMATION

None.



                                       25
<PAGE>
                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

Directors are elected at each meeting of stockholders and hold office until the
next annual meeting of stockholders and the election and qualifications of their
successors. Executive officers are elected by and serve at the discretion of the
board of directors.

Our executive officers and directors are as follows:


Name                     Age    Position
----                     ---    --------

Peter Amico              61     President and Chairman of the Board of Directors

D. Barney Harris         43     Executive Vice President and Director

Nicholas E. Fenelli*     51     Chief Operations Officer

James Hudson             61     Director

William Hungerville      68     Director

Fil Filipov              58     Director

Andrew G. Guzzetti*      58     Director

*Appointment effective April 1, 2006.

Peter Amico - Mr. Amico is the founder of the Company and has been President and
Chairman of the Company and its predecessor since their inception in April 1995.
Prior to 1995, Mr. Amico was president and majority shareholder of Titan
Aviation and Helicopter Services, Inc. ("Titan"). He has an extensive background
in sales and in structural steel design. His career in sales has spanned over
thirty years and he has held sales positions at Firestone Tire & Rubber and
Union Steel Products, Inc. As a consequence of separate helicopter and airplane
accidents involving Titan, Mr. Amico filed for bankruptcy protection in 1996.

D. Barney Harris** - Mr. Harris has been a Director of the Company since
December 1998 and a Vice President since July 1999. From 1997 to July 1999, Mr.
Harris was employed by UTD, Inc. Manassas, Virginia. Prior to 1997, Mr. Harris
was employed by EG&G WASC, Inc., Gaithersburg, Maryland, as a Senior Engineer
and Manager of the Ocean Systems Department where he was responsible for the
activities of 45 scientists, engineers and technicians. During this period while
performing contract services for the US Navy, he was principally responsible for
the design of the omni-directional wheel presently used by the Company. Mr.
Harris received his B.S.M.E. from the United States Merchants Marine Academy in
1982.

Nicholas E. Fenelli** - Nicholas E. Fenelli has been with our company since 2001
serving first as Project Engineer, and as Vice President of Concept Development.
From 1996 to 1998, Mr. Fenelli served as Project Engineer NACCO Materials
Handling Group, Inc, where his work included the ergonomic improvement project
for the Hyster/Yale order picker trucks, and work on the development of the
three wheeled sit down rider truck. From 1990 to 1995, Mr. Fenelli was Plant
Manager for Cammerzell Machinery Company, a manufacturer of powder compaction
and robotic conveying equipment for the Ceramic, Refractory, and Pharmaceutical
industries. Between 1988 and 2002, Mr. Fenelli served as Treasurer and as a
member of the Board of Directors of the Engineers Club of Trenton. He received a
BS in Mechanical Engineering from Lehigh University in 1978.

Fil Filipov - Mr. Filipov is the Chairman of Supervisory Board of Tatra, a Czech
Company, which is producing off highway trucks. He is the former President & CEO
of Terex Cranes, a Division of Terex Corp. From 1994 through 1996, Mr. Filipov
served as Executive Vice President of the Terex Corp., where he was responsible
for strategic acquisitions and was the Managing Director of Clark Material
Handling Company in Germany (Filco GmbH). If the acquisition of Filco GmbH is
completed Mr. Filipov will retain 24.9% of Filco GmbH.

James Hudson - Mr. Hudson has been a Director of the Company since May 1998.
From 1980 to present, he has been President of Grammer, Dempsey & Hudson, Inc.,
a steel distributor located in Newark, New Jersey.

William Hungerville - Mr. Hungerville has been a director since February 2002.
Since 1998, Mr. Hungerville has been retired from full time employment. From
1974 to 1998, he was the sole owner of a pension administrative service firm.
Mr. Hungerville is a graduate of Boston College, and attended an MBA program at
Harvard University for 2 years.

Andrew G. Guzzetti - From September 2004 to the present, Andrew G. Guzzetti has
served as Managing Director of the Private Client Group of McGinn Smith and Co.,
Inc., an investment banking and retail brokerage firm, where he is responsible


                                       26
<PAGE>
for building the wealth management private client group through recruitment and
training. From February 2004 through September 2004, Mr. Guzzetti served as
Managing Director of the Private Client Division of The Keystone Equities Group
in which he was responsible for building the retail brokerage arm of this
company. From February 2002 through February 2004, Mr. Guzzetti was a private
investor consultant in which he assisted start-up public and private companies
in raising funds. From November 1995 through February 2002, Mr. Guzzetti served
as Senior Vice President and Branch Manager of Salomon Smith Barney where he was
responsible for increasing the financial consultant population through
recruitment and training. Mr. Guzzetti received his BA in Economics from Utica
College in 1969.

**Our engineers including the team initially lead by D. Barney Harris, Nicholas
Fenelli and Robert Mullowney designed and tested the "Airtrax" wheel which
corrected the "bumpy" ride in the technology as received from the US Navy at
speeds of 11 m.p.h. or more and alleviated it to the point wherein it was
considered acceptable in the materials handling industry. This design and
methods to achieve the design were patented by us as follows: (i) 6,340,065 -
low vibration omni-directional wheel on January 22, 2002, (ii) 6,394,203 -
method for designing low-vibration omni-directional wheels on May 28, 2002, and
(iii) 6,547,340 - low vibration omni-directional wheel on April 15, 2003.

CODE OF ETHICS

We have not adopted a Code of Ethics that applies to all of our directors,
officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer.

Executive Officers of the Company

Officers are appointed to serve at the discretion of the Board of Directors.
None of our executive officers or directors has a family relationship with any
other of our executive officers or directors.

COMMITTEES OF THE BOARD OF DIRECTORS

As of December 31, 2005, we have an audit committee of our board of directors,
which was formed on November 30, 2004. The audit committee's charter was adopted
on April 13, 2005.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT, AS AMENDED.

Based solely upon our review of copies of Forms 3, 4 and 5, and any subsequent
amendments thereto, furnished to the Company by our directors, officers and
beneficial owners of more than ten percent of our common stock, we are not aware
of any Forms 3, 4 and/or 5 which certain of our directors, officers or
beneficial owners of more than ten percent of our common stock that, during our
fiscal year ended December 31, 2005, failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act of 1934

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth for the fiscal year indicated the compensation
paid by our company to our Chief Executive Officer and other executive officers
with annual compensation exceeding $100,000:
<TABLE>
<CAPTION>
                           Summary Compensation Table:
                           SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION


                               Other
                         Annual Restricted Options LTIP
   Name & Principal           Salary   Bonus   Compen-      Stock        SARs   Payouts  All Other
       Position       Year       ($)    ($)    sation($)   Awards($)     (#)     ($)   Compensation
------------------- ------ ----------- ------ ----------- ------------ -------- ------ ------------
<S>                  <C>       <C>      <C>       <C>         <C>         <C>     <C>       <C>
Peter Amico          2005   303,751(1)    0        -           -          -        -          -
President and
Chairman             2004   185,000(1)    0    187,500(3)      -          -        -          -
of the Board
of Directors         2003   100,000(1)    0      1,000(2)      -          -        -          -
------------------- ------ ----------- ------ ----------- ------------ -------- ------ ------------
</TABLE>
(1) During 2004, Mr. Amico was entitled to receive a salary of $185,000, of
which $116,825.62 was paid and the balance was deferred for future payment.
During 2003, Mr. Amico was entitled to receive a salary of $100,000, of which
$88,461.68 was paid and the balance was deferred for future payment. In 2002,
Mr. Amico was entitled to receive a salary of $87,500, of which $84,135 was paid
as salary to Mr. Amico and the balance was deferred for future payment. In 2002
and 2003, Mr. Amico received the use of a company automobile which we valued at
$1,000. During 2005, Mr. Amico received payment of accrued salary which was
unpaid from 2003 of $29,038.32 and $50,674.48 from 2004.


                                       27
<PAGE>
(2) Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico had outstanding options to acquire a total of 500,000 shares at a total
price of $0.85 per share. The fair market value of the underlying common stock
was $1.14 per share (which was the closing price of our common stock on the date
of grant, July 1, 2004). Pursuant to his employment agreement for the year 2003
through 2004, Mr. Amico had outstanding options to acquire a total of 50,000
shares at a total price of $0.01. The fair market value of the underlying common
stock was $.85 per share (which was the closing price of our common stock on the
date of grant, June 30, 2004). The amount for 2002 represents the number of
options (50,000) multiplied by the fair market ($2.20) less his exercise costs
of $12,601. The fair market value of the underlying common stock was $2.20 per
share which was the closing price of our common stock on July 1, 2002, the date
of grant. The amount for 2003 represents the number of options (50,000)
multiplied by the fair market ($.85) less his exercise costs of $0.01. In
addition, for 2002 and 2003, the amounts include $1,000 for the value of an
automobile usage.

(3) The value for the year 2004 is based upon the intrinsic value of the options
granted in 2004 which were calculated in accordance with APB #25.

                        OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning options granted to executive
officers named in the Summary Compensation Table during the fiscal year ended
December 31, 2005:

Individual Grants
<TABLE>
<CAPTION>
                          Number of
                          Securities         % of Total Options
                          Underlying         Granted to
                          Options Granted    Employees in Fiscal    Exercise        Expiration Date
Name                      (#)                Year                   Price ($/sh)
---------------------------------------------------------------------------------------------------
<S>                        <C>                <C>                    <C>             <C>
Peter Amico                50,000             8%(1)                 $  -(1)         None(1)
President and Chairman    500,000            83%(1)                 $.85(1)         None(1)

(1) Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico has outstanding options to acquire a total of 500,000 shares at a total
price of $0.85 per share. Pursuant to his employment agreement for the year 2003
through 2004, Mr. Amico has outstanding options to acquire a total of 50,000
shares at a total price of $0.01.

     OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table contains information concerning the number and value, at
December 31, 2005, of unexercised options held by executive officers named in
the Summary Compensation Table:


                                      Underlying Unexercised      Value  of  Unexercised
                                      Options at                    Options    at           In-the-Money
Name                  FY-End (#)     (Exercisable/Unexercisable) (Exercisable/Unexercisable) FY-End ($)
-------------- ----------------------------------------------------------------------------------------
Peter Amico           50,000               50,000                         .85                 $42,500
President and
Chairman             500,000              500,000                         .39                $195,000
</TABLE>

Individual Grants

(1) Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico has outstanding options to acquire a total of 500,000 shares at a total
price of $0.85 per share. Pursuant to his employment agreement for the year 2003
through 2004, Mr. Amico has outstanding options to acquire a total of 50,000
shares at a total price of $0.01.

DIRECTORS' COMPENSATION

The Company's directors are compensated at the rate of $250 per meeting and are
reimbursed for expenses incurred by them in connection with the Company's
business. During 2003, each director received a stock grant of 10,000 shares of
the Company's common stock. During 2004, each director received a stock grant of
10,000 shares of the Company's common stock. The Company's board of directors
approved a stock grant in the amount of 20,000 shares of common stock for its
board of directors for 2005, conditional upon the Company having revenues.

Other than as described above, the Company does not have any other form of
compensation payable to its officers or directors, including any stock option
plans, stock appreciation rights, or long term incentive plan awards for the
periods indicated in the table. The Company will approve compensation to Board
members serving on the Audit Committee of the Company during the next scheduled
Board meeting.


                                       28
<PAGE>
                               STOCK OPTION PLANS

The Company provided a stock grant for its board of directors for 2004, as
described above under the heading entitled "Directors Compensation". For 2005
the Company provided a stock grant for its board of directors of 20,000 shares
per year scheduled to start after the Company began sales and deliveries of lift
trucks. Consequently, directors will be issued 15,000 shares each, with the
exception of Mr. Filipov, for the fiscal year ended December 31, 2005.

Other than as described above, the Company does not have any other form of
compensation payable to its officers or directors, including any stock option
plans, stock appreciation rights, or long term incentive plan awards for the
periods indicated in the table.

EMPLOYMENT AGREEMENTS

The Company and Peter Amico have entered into written employment agreements for
Mr. Amico's role as President of the Company. The parties entered into an
agreement covering the period from April 1997 to June 30, 2002 ("Original
Employment Agreement"). Effective July 1, 2002, the parties entered into a
second employment agreement for a one year term ("Second Employment Agreement").
Agreements for the year 2003 through 2004 and 2004 through 2006 were agreed to
on November 30, 2004.

Under the Original Employment Agreement, Mr. Amico received an annual salary of
$75,000 per year, and received stock options to acquire up to 50,000 shares per
annum. Of the options, 10,000 shares were exercisable for a total consideration
of a $1.00 beginning in April 2000, 25,000 shares were exercisable at 30% of the
lowest price paid for the stock in the 30 day period preceding such exercise for
each year of the contract, and 15,000 shares were exercisable at 15% of the
lowest price paid for the stock in the 30 day period preceding such exercise
beginning in April 2000.

Under the Second Employment Agreement, Mr. Amico was entitled to receive an
annual salary of $100,000, and receive an option to acquire 50,000 shares of
common stock of the Company for a total exercise price of $0.01. The Company may
terminate the agreement without cause upon 14 days' written notice to the
Employee. The Company and Mr. Amico entered into new employment agreements as
further described below.

Under a one year Employment Agreement, ratified by the Board of Directors on
November 30, 2004 for the period of July, 1 2003 through June 30, 2004, Mr.
Amico was entitled to receive an annual salary of $135,000, and receive an
option to acquire 50,000 shares of our common stock for a total exercise price
of $0.01. We may terminate the agreement without cause upon 14 days' written
notice to the Mr. Amico.

Under a two year employment agreement (covering July 1, 2004 through June 30,
2006) ratified by the Board of Directors on November 30, 2004 for the period of
July 1, 2004 through June 30, 2005, Mr. Amico is entitled to receive an annual
salary of $200,000, and receives options to purchase up to 500,000 shares of our
common stock at a rate equal to the "bid" price of the stock per share on the
beginning date of the employment agreement. accordingly, the bid price of our
common stock on July 1, 2004, the beginning date of the employment agreement,
was $0.80 per share and all options, if exercised, will be at an exercise price
$0.80 per share. All options have a cashless exercise. We may terminate the
agreement without cause upon 14 days' written notice to Mr. Amico. under the
second year of this employment agreement, for the period of July 1, 2005 through
June 30,2006, Mr. Amico is entitled to receive an annual salary of $250,000, and
options to purchase up to 750,000 shares of our common stock at the rate equal
to the "bid" price of the stock per share on the beginning date of the
employment agreement. Accordingly, the bid price of our common stock on July 1,
2004, the beginning date of the employment agreement, was $0.80 per share and
all options, if exercised, will be at an exercise price $0.80 per share. All
options have a cashless exercise. We may terminate the agreement without cause
upon 14 days' written notice to Mr. Amico.

Two of our employees maintain annual stock options for 25,000 shares for each
year of employment during the term of their respective employment agreements.
The employment agreements may be terminated by either party with 14 days prior
notice, and do not contain a fixed term. Accordingly, the amount of stock
options issuable to such employees is 77,500 shares as of September 30, 2005.

The stock options for the 25,000 shares of our common stock are exercisable as
follows; 2,500 shares are exercisable for a total consideration of $1.00, 10,000
shares are exercisable at 35% of the lowest price paid for the stock in the 30
day period preceding exercise, and 12,500 shares are exercisable at 17.5% of the
lowest price paid for the stock in the 30 day period preceding exercise.
Accordingly, the amount of stock options issuable to such employees is 112,500
as of December 31, 2004 and 97,500 as of June 30, 2005.The 112,500 options had
not been exercised as of December 31, 2004

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT.

The following table identifies as of April 14, 2006 information regarding the
current directors and executive officers of the Company and those persons or
entities who beneficially own more than 5% of its common stock and Preferred
Stock of the Company, the number of and percent of the Company's common stock
beneficially owned by:

o all directors and nominees, naming them,
o our executive officers,
o our directors and executive officers as a group, without naming them, and o
persons or groups known by us to own beneficially 5% or more of our common
stock:


                                       29
<PAGE>
The Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.

A person is deemed to be the beneficial owner of securities that can be acquired
by him within 60 days from April 14, 2006 upon the exercise of options, warrants
or convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of April 14, 2006 have been exercised and converted.

Peter Amico(1)                     Common Stock     3,038,846 (6)     13.64% (2)
200 Freeway Drive, Unit 1       Preferred Stock     3,750,000 (3)(5)   100%
Blackwood, NJ 08012

Nicholas Fenelli                   Common Stock       135,500            *
200 Freeway Drive, Unit 1       Preferred Stock             0            0%
Blackwood, NJ 08012

D. Barney Harris(1)                Common Stock       151,301 (7)     * (2)
200 Freeway Drive, Unit 1       Preferred Stock             0            0%
Blackwood, NJ 08012

Frank Basile(1)                    Common Stock       137,046 (8)         *
200 Freeway Drive, Unit 1       Preferred Stock             0            0%
Blackwood, NJ 08012

James Hudson(1)                    Common Stock        75,800 (9)         *
200 Freeway Drive, Unit 1       Preferred Stock             0            0%
Blackwood, NJ 08012

William Hungerville(1)             Common Stock       157,650 (10)     *(2)
200 Freeway Drive, Unit 1       Preferred Stock             0            0%
Blackwood, NJ 08012

Andrew Guzzetti                    Common Stock             0            0%
200 Freeway Drive, Unit 1       Preferred Stock             0            0%
Blackwood, NJ 08012
All Officers and Directors         Common Stock     3,560,643 (11)   15.98% (2)
As a Group (7 persons)          Preferred Stock     3,750,000          100%

Arcon Corp.                        Common Stock     1,916,702 (4)     8.60% (2)
200 Freeway Drive, Unit 1       Preferred Stock     3,750,000 (3)(5)   100%
Blackwood, NJ 08012

*Less than 1%

(1) The address of each beneficial owner is the address of the Company.

(2) Based on 22,283,624 shares of common stock outstanding as of April 11, 2006,
except that shares of common stock underlying options or warrants exercisable
within 60 days of the date hereof are deemed to be outstanding for purposes of
calculating the beneficial ownership of securities of the holder of such options
or warrants.

(3) Based upon 375,000 outstanding shares of preferred stock after giving effect
to the 10 for 1 voting rights. Arcon was authorized to receive an additional
100,000 shares of preferred stock in lieu of 221,892 shares of common stock of
the Company in lieu of the cash payment for the balance of the dividend.

(4) Represents 1,781,202 shares held by Arcon Corp., a corporation wholly owned
by Mr. Amico ("Arcon"), and however, excludes common stock that may be issued to
Arcon as a dividend on the preferred stock.

(5) Represents shares held by Arcon.

(6) Represents 1,781,202 shares of common stock held by Arcon as stated in
footnote (4) above, and 1,257,644 shares of common stock held individually by
Mr. Amico.

(7) Represents shares of common stock held individually.


                                       30
<PAGE>
(8) Represents 115,000 shares held individually, 12,046 shares held by an
affiliate, and 10,000 shares held by his spouse. The amount excludes shares of
common stock to the Company's that may be granted to directors during 2005.

(9) Represents 44,500 shares of common stock held by an affiliate. The amount
excludes shares of common stock to the Company's that may be granted to
directors during 2005.

(10) Represents 107,650 shares of common stock held individually, 40,000 shares
held by an affiliate and 10,000 shares held by a family trust. The amount
excludes shares of common stock to the Company's that may be granted to
directors during 2005.

(11) Includes (4), (6), (7), (8), (9), and (10).

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Arcon Corp., a corporation wholly owned by our chairman and president Peter
Amico, owns 375,000 shares of our preferred stock. Each share of Preferred Stock
is entitled to 10 votes per share on all matters on which shareholders are
entitled to vote. The holders of our common stock and preferred stock vote as
one single class. Mr. Amico and Arcon Corp. together have 1,870,623 shares of
common stock, representing 1,870,623 votes, plus 375,000 shares of preferred
stock with 10 votes per share, or a total of 3,750,000 voting shares. The
aforementioned equals a total of 5,620,623 voting shares of capital stock by Mr.
Amico and Arcon. The preferred stock has a stated value per share of $5.00 and
an annual dividend per share equal to 5% of the stated value. The annual cash
dividend as of December 31, 2004 was $68,750. Dividends are cumulative and the
holder has a right during any quarter to waive any cash dividend and receive the
dividend in the form of common stock at a price per share equal to 30% of the
lowest private offering or trading price of the common stock. The preferred
stock is not convertible into common stock, however, has a preference over
common stockholders upon liquidation equal to the stated value per share.

The consideration paid by Mr. Amico and Arcon for the initial issuance of
275,000 shares of our preferred stock is as follows: Air Tracks, Inc. was
incorporated in May 1995. Peter Amico, our President and the largest shareholder
of Air Tracks, Inc., capitalized Air Tracks, Inc. with $20,000. In exchange, Mr.
Amico was issued 3.5 million shares of common stock of Air Tracks, Inc. We were
formed in April 1997 by Louis Perosi and Albert Walla. In April 1997, it was
agreed to merge our company with Air Tracks, Inc. Pursuant to the merger, Mr.
Amico exchanged 3.5 million shares of Air Tracks, Inc. stock for 1 million
shares of our common stock, plus 275,000 shares of preferred stock. It was
determined by the parties that the voting shares that would be held by Mr.
Amico/Arcon would be essentially the same. Since the preferred shares are not
convertible and thus held no exit metthod it was determined to provide a
dividend. The $5.00 per share was the price used to satisfy the issue.

For fiscal year 2001, Arcon received 246,731 shares of our common stock in lieu
of the cash dividend which was deemed to have a fair market value of $188.412.
For explanatory purposes, in 2001 the $188,412 fair market value of the stock
represents the $68,750 yearly dividend due for 275,000 shares owned in 2001,
valued at $5.00 per share, which is used to purchase common stock at a 30%
discount. This equates to $188,412 divided by 30% ($56,524) minus the difference
of the actual stock price which varied during the purchase period. For fiscal
year 2002, Arcon received a cash dividend of $17,187.50, and received 100,000
preferred shares in lieu of 221,892 shares of our common stock in lieu of the
cash payment for the balance of the dividend. The 100,000 shares of preferred
stock were issued in 2004 in satisfaction of 2002 preferred dividends. The
221,892 shares of common stock payable to Arcon were valued based upon date
obligation was settled (deemed to be April 1, 2005). The value of those shares
was $532,541, 221,892 multiplied by $2.40 per share and represents the value of
the additional shares of preferred stock. This value ($532,541) was compared to
dividends being settled in order to determine the deemed dividend ($480,978).
For fiscal year 2003, Arcon expects to receive 19,097 shares of common stock in
lieu of the cash payment of the dividend. In 2004, Arcon received payments of
$17,187.50 for dividends due in 2002, $63,020.86 for dividends due in 2003 and
$51,562.52 for dividends due in 2004, of which $17,187.50 remains payable in
accrued dividends to Arcon.

From time to time, we issue options to purchase shares of our common stock to
our President, Peter Amico, as compensation for services performed on behalf of
our company under Mr. Amico's employment agreements. For a further description
of such options, and the terms and valuations related thereto, see the section
of this annual report entitled "Executive Compensation".

Arcon Corp. and our President have made loans from time to time to us in varying
amounts. The loan is due on demand and bears interest at 12%. As of December 31,
2004, the loan balance was $33,455.

Mrs. Patricia Amico, the wife of our President, performed services to us during
2004, 2003, 2002, and 2001 for which she received $13,030, $11,579, $9,930, and
$9,126, respectively.

Mr. Frank Basile, a former director of our company, was a partner of a law firm
that performed legal services to us during fiscal 2004, 2003 and 2002. The
billing amount for such services for each year was less than $10,000.

During 2002 and 2001, each director of our company, other than Mr. Amico,
received a stock option to acquire 5,000 shares of common stock at a price per
share of $0.50, and in 2003, each director, other than Mr. Amico, received a
grant from us of 10,000 shares of common stock, and in 2004, each director
received a grant from us in the amount of 10,000 shares of common stock.

From May 5, 2003 through September 2, 2003, we loaned Filco GmbH $365,435 to
acquire our initial interest in Filco. Such funds were provided in the form of a
loan because we were not able to come up with sufficient funding to acquire our
initial interest. Filco repaid principal and interest under this loan to us.


                                       31
<PAGE>
In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide sufficient funding, which the
parties estimated would be approximately $1.3 million to be allocated in the
form of equity in Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. A later addendum to the tentative agreement stated that we
would acquire 75.1% controlling ownership interest in Filco.

The amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is our
primary goal. During the second quarter of 2005, we realized limited revenues f
from the first sales of the Sidewinder Omni-Directional Lift Truck.

We believe that our unsecured loans to Filco are recoverable if the proposed
acquisition is not completed. Should Filco default with loan repayment, if such
payment were due and requested, it would be much easier to put Filco into
bankruptcy in Germany than it would be in the United States. Should Filco be put
into bankruptcy, we, as the largest creditor, would be in position to do a legal
takeover through bankruptcy administrators.

We loaned Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005. We intend to provide
another $5 million to Filco, either in the form of guaranteed credit lines or
through additional sales our securities.

Fil Filipov is to be issued options to purchase 100,000 shares of our common
stock at an exercise price of $.0001 as compensation for services performed as
our director. If the proposed acquisition of Filco GmbH is completed, the
tentative agreement provides that Mr. Filipov will receive options to purchase
an additional 900,000 shares of our common stock at an exercise price of $.0001.
Accordingly, Mr. Filipov cannot exercise the options to receive more than an
aggregate of 112,500 shares of our common stock per year. Any increase on this
exercise limit is subject to the approval of our board of directors.

ITEM 13. EXHIBITS.

(a) Exhibits.

The following exhibits are included as part of this Form 10-KSB. References to
"the Company" in this Exhibit List mean Airtrax, Inc., a New Jersey corporation.


3.1     Certificate of Incorporation of Airtrax, Inc. dated April 11, 1997.
        (Filed as an exhibit to the Company's Form 8-K filed with the Securities
        and Exchange Commission on November 19, 1999).

3.2     Certificate of Correction of the Company dated April 30, 2000 (Filed as
        an exhibit to Company's Form 8-K filed with the Securities and Exchange
        Commission on November 17, 1999).

3.3     Certificate of Amendment of Certificate of Incorporation dated March 19,
        2001 (Filed as an exhibit to Company's Form 8-K filed with the
        Securities and Exchange Commission on November 17, 1999).

3.4     Amended and Restated By-Laws of the Company. (Filed as an exhibit to the
        Company's Form 8-K filed with the Securities and Exchange Commission on
        November 19, 1999).

4.1     Form of Common Stock Purchase Warrant issued to investors pursuant to
        the May 2004 private placement.

4.2     Form of Common Stock Purchase Warrant dated as of November 22, 2004 and
        November 23, 2004. (Filed as an exhibit to the Company's Form 8-K filed
        with the Securities and Exchange Commission on November 30, 2004).

4.3     Form of Series A Convertible Note dated as of February 11, 2005 (Filed
        as an exhibit to the Company's Form 8-K filed on February 11, 2005).

4.4     Form of Class A Common Stock Purchase Warrant dated as of February 11,
        2005 (Filed as an exhibit to the Company's Form 8-K filed on February
        11, 2005).


                                       32
<PAGE>
4.5     Form of Class B Common Stock Purchase Warrant dated as of February 11,
        2005 (Filed as an exhibit to the Company's Form 8-K filed on February
        11, 2005).

4.6     Form of Broker's Common Stock Purchase Warrant dated as of February 11,
        2005 (Filed as an exhibit to the Company's Form 8-K filed on February
        11, 2005).

10.1    Agreement and Plan of Merger by and between MAS Acquisition IX Corp. and
        Airtrax , Inc. dated November 5, 1999. (Filed as an exhibit to the
        Company's Form 8-K filed with the Securities and Exchange Commission on
        January 13, 2000).

10.2    Employment agreement dated April 1, 1997 by and between the Company and
        Peter Amico. (Filed as an exhibit to the Company's Form 8-K/A filed with
        the Securities and Exchange Commission on January 13, 2000).

10.3    Employment agreement dated July 12, 1999, by and between the Company and
        D. Barney Harris. (Filed as an exhibit to the Company's Form 8-K/A filed
        with the Securities and Exchange Commission on January 13, 2000).

10.4    Consulting Agreement by and between MAS Financial Corp. and Airtrax,
        Inc. dated October 26, 1999. (Filed as exhibit to the Company's Form 8-K
        filed with the Securities and Exchange Commission on November 19, 1999).

10.5    Employment Agreement effective July 1, 2002 by and between the Company
        and Peter Amico (filed as an exhibit to the Company's Form 10-KSB for
        the period ended December 31, 2002)

10.6    Agreement dated July 15, 2002 by and between the Company and Swingbridge
        Capital LLC and Brian Klanica. (Filed as an exhibit to the Company's
        Form 8-K filed on August 7, 2002).

10.7    Product Development, Sales and Manufacturing Representation Agreement
        dated March 13, 2004 by and between Airtrax, Inc., and MEC Aerial
        Platform Sales Corporation. (Filed as an exhibit to the Company's Form
        8-K filed on March 15, 2004).

10.8    General Sales Contract and Amendment dated March 10, 2004 by and between
        Airtrax , Inc with Incomex Saigon. (Filed as an exhibit to the Company's
        Form 8-K filed on March 22, 2004).

10.9    Purchase Agreement, dated November 22, 2004, by and among Airtrax, Inc.
        and Excalibur Limited Partnership, Stonestreet Limited Partnership,
        Whalehaven Capital Fund. (Filed as an exhibit to the Company's Form 8-K
        filed on November 30, 2004).

10.10   Joinder to the Purchase Agreement, dated November 23, 2004, by and among
        Airtrax, Inc. and Excalibur Limited Partnership, Stonestreet Limited
        Partnership and Linda Hechter. (Filed as an exhibit to the Company's
        Form 8-K filed on November 30, 2004).

10.11   Registration Rights Agreement, dated November 22, 2004, by and among
        Airtrax, Inc. and Excalibur Limited Partnership, Stonestreet Limited
        Partnership, Whalehaven Capital Fund and First Montauk Securities Corp.
        (Filed as an exhibit to the Company's Form 8-K filed on November 30,
        2004).

10.12   Joinder to the Registration Rights Agreement, dated November 23, 2004,
        by and among Airtrax, Inc. and Excalibur Limited Partnership,
        Stonestreet Limited Partnership, Linda Hechter and First Montauk
        Securities Corp. (Filed as an exhibit to the Company's Form 8-K filed on
        November 30, 2004).


                                       33
<PAGE>

10.13   Subscription Agreement dated February 11, 2005 by and among Airtrax,
        Inc. and the investors named in the signature pages thereto (Filed as an
        exhibit to the Company's Form 8-K filed on February 11, 2005).

10.14   Series B Unsecured Convertible Debenture and Warrants Purchase
        Agreement, dated May 31, 2005, by and between Airtrax, Inc. and the
        investor named on the signature page thereto (Filed as an exhibit to the
        Company's Form 8-K filed on June 6, 2005).

10.15   Registration Rights Agreement dated May 31, 2005, by and between
        Airtrax, Inc. and the investor named on the signature page thereto
        (Filed as an exhibit to the Company's Form 8-K filed on June 6, 2005).

10.16   Series B Unsecured Convertible Debenture of Airtrax, Inc. (Filed as an
        exhibit to the Company's Form 8-K filed on June 6, 2005).

10.17   Form of Stock Purchase Warrant of Airtrax, Inc. (Filed as an exhibit to
        the Company's Form 8-K filed on June 6, 2005).

10.18   Letter Agreement dated May 31, 2005 by and among Airtrax, Inc. and the
        investors named on the signature page thereto (Filed as an exhibit to
        the Company's Form 8-K filed on June 6, 2005).

10.19   Series C Unsecured Convertible Debenture and Warrants Purchase
        Agreement, dated October 18, 2005 by and between Airtrax, Inc. and the
        investor named on the signature page thereto (Filed as an exhibit to the
        Company's Form 8-K filed on October 24, 2005).

10.20   Registration Rights Agreement dated October 18, 2005, by and between
        Airtrax, Inc. and the investor named on the signature page thereto
        (Filed as an exhibit to the Company's Form 8-K filed on October 24,
        2005).

10.21   Series C Unsecured Convertible Debenture of Airtrax, Inc. (Filed as an
        exhibit to the Company's Form 8-K filed on October 24, 2005).

10.22   Form of Stock Purchase Warrant of Airtrax, Inc. (Filed as an exhibit to
        the Company's Form 8-K filed on October 24, 2005).

10.23   Amended and Restated Stock Acquisition Agreement effective as of as of
        February 19, 2004 by and between Airtrax, Inc. and Fil Filipov (Filed as
             an exhibit to the Company's Form SB-2 filed on January 11, 2006).

10.24   Promissory Note of Filco GmbH dated as of January 15, 2005 issued to
        Airtrax, Inc. (Filed as an exhibit to the Company's Form SB-2 filed on
        January 11, 2006).

10.25   Promissory Note of Filco GmbH dated as of June 5, 2005 issued to
        Airtrax, Inc. (Filed as an exhibit to the Company's Form SB-2 filed on
        January 11, 2006).

10.26   Assignment and Purchase Agreement dated as of August 25, 2005 by and
        between Werner Faenger and Airtrax, Inc. (Filed as an exhibit to the
        Company's Form SB-2 filed on January 11, 2006).

10.27   Promissory Note of Filco GmbH with Guarantees dated as of November 25,
        2005 issued to Airtrax, Inc. (Filed as an exhibit to the Company's Form
        SB-2 filed on January 11, 2006).

10.28   Form of Subscription Agreement of Airtrax, Inc. dated as of February 13,
        2006. (Filed as an exhibit to the Company's Form 8-K filed on February
        27, 2006).

10.29   Series D Unsecured Convertible Debenture of Airtrax, Inc. (Filed as an
        exhibit to the Company's Form 8-K filed on February 27, 2006).


                                       34
<PAGE>
10.30   Form of Stock Purchase Warrant of Airtrax, Inc. (Filed as an exhibit to
        the Company's Form 8-K filed on February 27, 2006).

31.1    Certification by Chief Executive Officer and Chief Financial Officer
        pursuant to Sarbanes-Oxley Section 302 (filed herewith).

32.1    Certification by Chief Executive Officer and Chief Financial Officer
        pursuant to 18 U.S.C. Section 1350 (filed herewith).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

The aggregate fees billed for professional services rendered by our principal
accountants for the audit of our financial statements and for the reviews of the
financial statements included in our annual report on Form 10-KSB and 10-QSBs
respectively, and for other services normally provided in connection with
statutory filings were $23,000 and $21,012, respectively, for the years ended
December 31, 2005 and December 31, 2004.

AUDIT-RELATED FEES

We incurred fees of $15,000 and $12,000, respectively, for the years ended
December 31, 2005 and December 31, 2004 for professional services rendered by
our independent auditors that are reasonably related to the performance of the
audit or review of our financial statements and not included in "Audit Fees." We
did incur accounting (audit) fees of $75,000 for accounting fees to audit Filco
GmbH.

TAX FEES

The aggregate fees billed by our auditors for tax compliance matters were $750
and $780 respectively, for the fiscal years ended December 31, 2005 and December
31, 2004.

ALL OTHER FEES

We did not incur any fees for other professional services rendered by our
independent auditors during the years ended December 31, 2005 and December 31,
2004.

                                       35
<PAGE>
                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                     AIRTRAX, INC., A NEW JERSEY CORPORATION


                     By: /s/ Peter Amico
                     ----------------------------------
                     Peter Amico, President,
                     Chief Executive Officer, Chairman ofthe Board of
                     Directors, and Acting
                     Chief Financial Officer

                     April 20, 2006


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.



         SIGNATURE                        TITLE                    DATE
----------------------------  -----------------------------  -------------------

By: /s/ Peter Amico                President, Chief
    ----------------             Executive Officer, Acting    April 20, 2006
    Peter Amico                  Chief Financial Officer
                                     and Director


By: /s/ D. Barney Harris
    -----------------------
    D. Barney Harris                  Director                April 20, 2006


By: /s/James Hudson
    ----------------------
    James Hudson                      Director                April 20, 2006


By: /s/William Hungerville
    ----------------------
    William Hungerville               Director                April 20, 2006


By: /s/Fil Filipov
    ------------------------
    Fil Filipov                       Director                April 20, 2006


By: /s/Andrew Guzzetti
    ----------------------
    Andrew Guzzetti                   Director                April 20, 2006



                                       36