**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**


__________________________________




**FORM
        10-KSB/A**


**(AMENDMENT
        NO. 1)**




ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)




OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




**For
      the fiscal year ended December 31, 2006**




**Commission
      file number:** **001-16237**




__________________________________




**AIRTRAX,
      INC.**


(Exact
      name of small business issuer as specified in
      its
      charter)




**New
                Jersey**
            **22-3506376**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)**200
                Freeway Drive, Unit One, Blackwood, NJ**
            **08012**(Address
                of principal
              executive
                offices)
            (Zip
                Code)


__________________________________




Issuer’s
      telephone number, including area code: (856) 232-3000




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




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




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  ̈




Check
      whether the issuer filed all reports required to be filed by Section 13 or
      15(d)
      of the Exchange Act during the preceding 12 months (or for such shorter period
      that the issuer was required to file such reports), and (2) has been subject
      to
      the filing requirements for the past 90 days. Yes  ̈ No **T**




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B and no disclosure will be contained, to the best of the issuer’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 **T**




The
      issuer’s revenues for the fiscal year ended December 31, 2006 were
      $1,346,000.




The
      aggregate market value of the Common Stock held by non-affiliates of the issuer
      as of April
      12 ,
      2007
      was $ 13,301,732 .




The
      number of shares outstanding of the issuer’s Common Stock as of April 12, 2007
      was 24,376,887 shares.




**DOCUMENTS
      INCORPORATED BY REFERENCE: NONE**





Transitional
      Small Business Disclosure Format (check one): Yes  ̈ No **T**

















**AIRTRAX,
      INC.**




**2006
      FORM 10-KSB ANNUAL REPORT**




**TABLE
      OF CONTENTS**




Page





PART
                  I
              
              4Item
                  1.Description
                  of Business
              5Item
                  2.Description
                  of Property
              13Item
                  3.Legal
                  Proceedings
              13Item
                  4.Submission
                  of Matters to a Vote of Security Holders.
              13PART
                  II
              
              14Item
                  5.Market
                  for Common Equity and Related Stockholder Matters.
              14Item
                  6.Management’s
                  Discussion and Analysis or Plan of Operation.
              27Item
                  7.Financial
                  Statements.
              29Item
                  8.Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure.
              23Item
                  8A.Controls
                  and Procedures.Item
                  8B.   Other Information
              46PART
                  III
              
              24Item
                  9.   Directors, Executive Officers, Promoters and Control
                  Persons: Compliance with Section 16(a) of the Exchange ActItem
                  10.   Executive CompensationItem
                  11.   Security Ownership of Certain Beneficial Owners and
                  Management and Related StockholdersItem
                  12.   Certain Relationships and Related Transactions, and
                  Director IndependenceItem
                  13.Exhibits
              24Item
                  14.Principal
                  Accountant Fees and Services.
              66






2





Explanatory
        Note





We
        have
        determined, after consultation with our independent registered public accounting
        firm, that a restatement of our financial statements for the year ended December
        31, 2006 filed on Form 10-KSB on April 16, 2007, together with our quarterly
        report on Form 10-QSB for the period ended September 30, 2006 was necessary
        due
        to the
        issuance of Modification Agreements, 2% Unsecured Convertible Debentures
        and
        Stock Purchase Warrants, which were not previously recorded in our financial
        statements, to the note holders of the October 2005 private placement of
        $1,548,000 in full settlement of liquidated damages resulting from our not
        filing a registration statement by a certain date registering for resale
        shares
        of common stock issuable upon conversion of their securities. In July 2006,
        we
        issued 2% Unsecured Convertible Debentures aggregating $359,549 and Stock
        Purchase Warrants to acquire 110,808 shares of our common stock at $1.65
        per
        share. The conversion price of the shares underlying the note was $1.56.
        Both
        the conversion price and the warrants purchase price have been adjusted to
        $.45
        due to the pricing of the February 20, 2007 private
        placement.





On
        April
        30, 2007, we also determined that a restatement of our December 31, 2006
        financial statements on Form 10-KSB, together with our quarterly reports
        on Form
        10-QSB for the quarters ended March 31, 2006, June 30, 2006 and September
        30,
        2006 was necessary to correct an error in accounting for derivatives associated
        with the private placement of 1,640,000 shares of common stock in November
        2004,
        which was accompanied by warrants to purchase common stock.





The
        foregoing description of the new financial statements is not a complete summary.
        The new financial statements, which should be relied upon, will contain
        amendments to the Reports to effect these restatements. You are urged to
        read
        the complete documents on amended Form 10-KSB and Form 10-QSBs after filing
        on
        the website of the U.S. Securities and Exchange Commission at
        www.sec.gov.





For
        the
        convenience of the reader, this Form 10-KSB/A sets forth the original Form
        10-KSB in its entirety. However, this Form 10-KSB/A only amends our financial
        statements and the footnotes to our financial statements, along with the
        corresponding changes to our Management’s Discussion and Analysis. We also
        corrected typographical errors and have revised our controls and procedures
        disclosure as a result of these restatements. No other information in the
        original Form 10-KSB is amended hereby. In addition, pursuant to the rules
        of
        the SEC, Item 13 of Part III to the Initial Filing has been amended to contain
        currently dated certifications from our Principal Executive Officer and
        Principal Financial Officer, as required by Sections 302 and 906 of the
        Sarbanes-Oxley Act of 2002. The certifications of our Principal Executive
        Officer and Principal Financial Officer are attached to this Form 10KSB/A
        as
        Exhibits 31.1, 31.2 and 32.1, respectively.







3


**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** ****




**Corporate
      Information and 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 could acquire, if we had finalized the acquisition,
      from 51% to 75.1%. Through December 31, 2005, we had loaned Filco GmbH an
      aggregate principal amount of $6,275,881 with no loans made by us in 2006,
      exclusive of interest at 8% per annum, pursuant to a series of secured
      promissory notes. Security for these loans consisted of Filco's plant machinery,
      equipment and other plant property, and intellectual property, including designs
      and drawings. We used proceeds from the private placement offerings that we
      completed during 2004 and 2005 to fund the Filco loans.





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.
      An
      auction sale of Filco’s assets occurred on May 10, 2006. Due to the uncertainty
      of our position under German bankruptcy law, $4,275,881 of the Filco advances
      was written off in 2005, and the remaining $2,000,000 was written off in 2006.
      Accordingly, any inventory, equipment or outstanding advances to Filco have
      been
      written off during 2006
      and
      there is no indication that the proceeds of any inventory or equipment at the
      Filco plant will be returned to us.





4




In
      connection with the Acquisition Agreement, Mr. Filipov was to receive options
      to
      purchase 900,000 shares of our common stock at an exercise price of $0.01.
      We
      did not issue such options because the Acquisition Agreement was terminated
      and
      we believe that the conditions for such issuance were never fulfilled. Mr.
      Filipov has indicated to us that he believes that the conditions were fulfilled
      and that we owe him the options. We and Mr. Filipov are endeavoring to reach
      a
      mutually acceptable settlement.





**Introduction**




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.




Since
      1995, substantially all of our resources and operations have been directed
      towards the development of the Omni-Directional wheel, related components,
      Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the
      components, including the unique shaped wheels, motors, and frames, have been
      designed by Airtrax and are specially manufactured for us.




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.




During
      the year ended December 31, 2006, we continued development of the COBRA and
      KING
      COBRA scissor lifts and the Omni-Directional power chair. We anticipate
      incurring more costs on these products and plan to begin production of the
      first
      COBRA model and the KING COBRA in 2007. The growth and development of our
      business will require a significant amount of additional working capital. We
      currently have limited financial resources and based on our current operating
      plan, we will need to raise additional capital in order to continue operations.
      However, we are in discussions with lenders to raise capital in order to
      continue operating, although we have no contracts or commitments for additional
      capital at this time. We currently do not have adequate cash to meet our short
      or long term objectives. In the event additional capital is raised, it may
      have
      a dilutive effect on our existing stockholders. However, there can be no
      assurance that additional financing will be available at terms that are suitable
      to us.




The
      assembly of our products is conducted at our executive offices. Currently 100%
      of our vehicle frames are being manufactured in the USA. These frames are
      shipped to the Blackwood plant for final assembly. Previously, partially
      assembled vehicles were shipped to the Blackwood facility from the Filco plant
      in Germany. Fourteen were shipped to the USA for final assembly. A total of
      approximately sixty frames were shipped from Bulgaria to the Filco plant for
      partial assembly. None of the frames shipped from Bulgaria were within
      specification. The twenty-seven frames shipped to the United States required
      re-machining in order to make them useable. The balance were rejected and
      abandoned with other parts inventory that was stored in the Filco plant.





5







**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 lift trucks
      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, scissor-lifts, and multi-purpose mobility
      platforms. Extensive demonstrations of prototype vehicles for commercial and
      military users in combination with market research have enabled us to direct
      our
      development efforts towards the products offering the best probability of
      success in the market.




Our
      engineers have 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 drive system which allows the vehicle free and
      unrestricted movement during operation. Each vehicle is powered with electric
      motors that eliminate brushes and commutators of conventional DC motors. The
      motors also are lubricated for life thereby eliminating the need for additional
      greasing and fittings. The ATX-3000 transmission uses a synthetic lubricant,
      and
      is sealed for life. The joysticks control all vehicle movement. Conventional
      drive trains, steering racks, hydraulic valve levers, and foot petals for
      braking and acceleration are all non-existent.




On
      vehicles employing our Omni-Directional Technology, each wheel powered 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 powered
      wheels through a microprocessor that receives input from an operator-controlled
      joystick(s). The joystick(s) control all vehicle movement (starting, steering,
      and stopping). The frame of our ATX-3000 Omni-Directional Lift Truck consists
      of
      a steel main frame and attached articulating axle, 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 specially shaped rollers
      that are offset 45 degrees. 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.




**EXISTING
      AND PROPOSED PRODUCTS**




**SIDEWINDER
      Omni-Directional Lift Trucks** .
      We
      anticipate that we will add additional models of lift trucks to the SIDEWINDER
      line, including a Reach truck and an Order Picker truck. .




**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 "PHOENIX(TM)",
      incorporated our Omni-Directional technology along with an MEC platform and
      lift
      mechanisms.





6







On
      March
      13, 2004, we entered into a draft Product Development, Sales and Representation
      Agreement with MEC. The draft agreement called for the joint development of
      a
      proto-type and production versions of an Omni-Directional aerial work platform
      called the "3068ODS". During the development stage, each party was to provide
      the parts, which apply to that party's area of responsibility. We would provide
      all of the parts required for the Omni-Directional traction system and related
      control systems, and MEC would 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 were to
      establish the cost of a commercial product, and if the cost of a commercial
      product was considered commercially viable, the parties would jointly develop
      a
      commercial version of the aerial work platform. If commercial production
      resulted, we would have been responsible for product manufacturing, and MEC
      or
      its affiliate would have been responsible to promote, market and sell the
      product to their network of approximately 200 distributors. Aerial work platform
      sales made by MEC would be subject to a royalty to us and, likewise sales made
      by us would be subject to a royalty to MEC. The amount of the respective
      royalties would be subject to agreement by the parties. Orders placed by MEC
      would be financed by MEC subject to agreed production schedules. We also planned
      to manufacture the COBRA(TM) AWP 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 PHOENIX(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 3068ODS aerial work platform project would be products of our company
      instead of an MEC designed or built 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
      would be our product. In addition, the agreement was revised to provide that
      we
      would build another vehicle product line, the COBRA, which will be marketed
      exclusively by our dealers. The parties mutually agreed to the dissolution
      of
      the agreement and Airtrax has decided to design, build and market the AWP’s
      under the COBRA brand exclusively. Discussions with MEC regarding ways that
      they
      can make Omni-Directional AWP’s available to their customers are on
      going.




**Omni-Directional
      Personal Mobility Devices** .
      We have
      begun the development of new technologies which will enable us in the future,
      to
      develop Omni-Directional Personal Mobility Devices such as Power Chairs,
      Scooters, and patient beds or lifts. We have had discussions with several
      equipment manufacturers who may be interested in developing and marketing such
      products using these technologies. No agreements have been made. We will require
      additional funds to complete structural and ergonomic designs and proto-type
      vehicles, for further evaluation and testing. We cannot predict whether we
      will
      be able to successfully develop these products.




**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 studied the
      feasibility of the MP2 for military purposes, and constructed two proto-type
      devices. This contract (with the option) was extended twice for 6 months each
      past the 42-month contract time period.. 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 design, an Omni-Directional Jet Engine
      Handler conversion
      kit was constructed, and demonstrated as proof of concept of the modularity
      of
      the design. 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 US military for products such as the MP2 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, through a GSA Multiple Awards Contract. We
      have
      begun the application process and hope it will be awarded by mid-2007. We cannot
      predict whether we will be successful in our application.





7









On
      September 7, 2006, we were awarded a $415,000 contract to design and build
      a
      customized MP2 Equipment Handling Unit for the Israeli Air Force. The contract
      includes an option to build 5 additional units at $95,000 each upon the
      acceptance of the first unit. It is estimated that the follow on orders that
      could result from this contract would be from 29 to 100 units over the next
      one
      to three years. The Critical Design Review was completed in November 2006,
      the
      design was approved and initial deliverables were provided. As a result, we
      received a first process payment of $170,000 on December 12, 2006. We expect
      to
      begin the Acceptance Test Procedure in mid-April 2007 and upon successful
      completion, will receive a second payment of $162,000. We cannot predict whether
      we will be able to successfully pass all of the acceptance tests and complete
      the contract, or that if we do so, that any subsequent orders will result.




**CURRENT
      OPERATIONS**




Since
      1995, substantially all of our resources and operations have been directed
      towards the development of the Omni-Directional wheel, related components,
      Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the
      components, including the unique shaped wheels, motors, and frames, have been
      designed by Airtrax and are specially manufactured for us. 29 ATX-3000
      Omni-Directional lift trucks, carrying ANSI certification and the UL Label,
      have
      been shipped to customers in 2006, and nine others are ready to ship pending
      receipt of orders in the beginning of 2007.




ANSI
      testing refers to a series of tests including tilt testing the vehicle with
      masts it will use to make certain that it will not tip over in normal use.
      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 on its side to prove that
      the battery door lock will retain the battery in the event the vehicle is
      overturned. ANSI testing was performed and documented by us and we have
      certified 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 to certify that is free of hazards with
      respect to fire and electrical shock. Completion of UL testing is generally
      considered the mark of companies who will take extra steps and precautions
      to
      protect their customers.




**MANUFACTURING
      AND SUPPLIERS**




There
        was
        limited production in the second through fourth quarters of 2006. All of
        the
        units shipped in 2006 and our current inventory were assembled in the last
        quarter of 2005 and the first quarter 2006. Our General Manager for plant
        production, a former plant manager for GM, has established the production
        assembly process and procedure for our vehicle assembly. His efforts have
        helped
        to develop procedures, and to incorporate inventory control and quality
        assurance programs so that we stand ready to rapidly scale production capacity
        at the Blackwood facility. Initially this plant was equipped for nominal
        monthly
        production but is capable of ramping up for anticipated demand before year's
        end. We also plan to manufacture the KING COBRA Omni-Directional AWP in the
        Blackwood plant beginning in the third quarter of 2007.





8









Components
      for our products 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 KING COBRA
      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. 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 who would want to compete directly with us in the
      omni-directional vehicle market. In addition, while we maintain single sources
      for some of the over the counter components, we are engaged in qualifying and
      securing agreements with second sources for all possible components




**DISTRIBUTION
      AND PRODUCT MARKETING**




We
      intend
      to establish a national and international network of distributors and dealers
      to
      sell our SIDEWINDER and COBRA lines to users, 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
      2004 and 2005, 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 nationwide and distributors in several foreign countries. Principal
      terms of the agreement reached is that these dealers will purchase our products
      which include the SIDEWINDER or the COBRA AWP (scissor lift), or both and sell
      these products to their clients. Certain of the distributors 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 was required to purchase a minimum number of SIDEWINDER units to maintain
      the "exclusivity" portion of the agreement between firms. Airtrax Canada lost
      their exclusivity in 2006, as they did not meet the minimum requirements of
      the
      agreement. Presently, we are unable to distribute quantities of vehicles in
      Europe due to our inability to be certified compliant (“CE”) with Europe. We
      expect to be CE compliant and able to distribute vehicles in 2007, although
      no
      assurances can be given. 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 distributors are
      only
      sold under the terms of letters of credit. All foreign sales are paid in
      advance, under terms of an irrevocable letter of credit or approved credit
      terms. Targeted dealers for the SIDEWINDER brand will consist of selected
      premier equipment dealers, currently selling other lift truck 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 lift trucks 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 lift truck. Our pricing structure will
      enable the dealer to receive much higher commissions from the sale of the
      SIDEWINDER products.





9









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 web based ads, 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 fewer 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
      the one year rule, such as the frame and significantly, the motors and
      controllers. These parts have an eighteen-month warranty, because the coverage
      begins when the product is shipped to us and not when the product is purchased.




**MARKETS**




**Lift
      Trucks**




Our
      initial market focus was directed to the lift truck market. We believe that
      commercial versions of Omni-Directional Lift Trucks will improve 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 3,000-pound
      rated vehicle to $75,000 or greater for specialty narrow aisle or side loader
      vehicles. We expect to continue to make inroads into this market with the
      introduction of additional SIDEWINDER brand material handling vehicles in the
      future.




**Aerial
      Work Platforms**




Aerial
      Work Platforms are used in the construction and warehousing industries, and
      are
      ideally suited for our 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. Great strides
      were made in our development of our AWP products during 2006, and we now plan
      to
      introduce two models under the COBRA brand in 2007, and additional units in
      2008.


10


**COMPETITION**


We
      expect
      to confront competition from existing products, such as standard and "Narrow
      Aisle or NA" lift trucks, and from competing technologies. Competition with
      standard lift trucks, which retail 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 lift truck for reliability, and that a purchase decision will
      be
      based upon weighing the operational advantages of our products against its
      higher purchase price. NA and sideloader lift trucks retail at $45,000 or
      greater. While our SIDEWINDER Omni-Directional Lift Truck cannot be classified
      as "narrow aisle", it can perform "narrow aisle" functions at a significantly
      less cost. We also are aware of multi-directional lift trucks 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 lift trucks 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 the first omni-directional wheels expired in 1990. Although we
      have received patent protection for certain aspects of our advanced technology,
      no assurances can be given that such patent protection will effectively thwart
      competition.




**PATENTS
      AND PROPRIETARY RIGHTS**




In
      December 1997, we were awarded a patent for an omni-directional helicopter
      ground-handling device. 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 lift truck, 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 hybrid power module concepts. At this time, no foreign patents have been
      issued for any of our technology.




On
      September 8, 2003, we entered an exclusive license agreement with Excalibur
      Design Services, Inc. and Nicholas Fenelli (Inventor), to secure and use certain
      proprietary intellectual properties known collectively as “Omni-Directional
      Vehicle Control Algorithms”. Mr. Fenelli is also our Chief Operating Officer.
      Due to severe cash flow restrictions in 2006, we were unable to fulfill our
      obligations under the terms of the agreement and Excalibur rescinded the
      exclusivity portion of the agreement. As of December 31, 2006, no other party
      was granted rights to use the property. On February 19,2007, we negotiated
      an
      amendment with Excalibur to reinstate our exclusive rights to the
“Omni-Directional Vehicle Control Algorithms”. We expect to resolve all issues
      to the mutual benefit of the two companies during 2007.




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




**PRODUCT
      LIABILITY**




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





11







Presently,
        we maintain product liability insurance in the amount of $1 million. We
        anticipate increasing this amount $10 million in the future, as we deem
        necessary to do so. We obtained our insurance commensurate with the initial
        shipment of our Omni-Directional Lift Trucks.




**EMPLOYEES**




As
      of
      March 31, 2007, we have 13 full time employees, and one contract employee,
      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.





**Item
      3.**  **Legal
      Proceedings**




We
      are
      not currently a party to any legal proceedings. There has been no bankruptcy,
      receivership or similar proceedings.





**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.
















12





**PART** **II**




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






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
              
              $Low2007
                  First Quarter
              
              
              0.97
              
              
              0.482006
                  First Quarter
              
              
              2.39
              
              
              1.08Second
                  Quarter
              
              
              2.17
              
              
              1.15Third
                  Quarter
              
              
              2.03
              
              
              0.92Fourth
                  Quarter
              
              
              1.01
              
              
              0.422005
                  First Quarter
              
              
              3.07
              
              
              1.83Second
                  Quarter
              
              
              2.95
              
              
              1.85Third
                  Quarter
              
              
              4.70
              
              
              2.07Fourth
                  Quarter
              
              
              3.40
              
              
              2.20




**Common
      Stock**





Our
      Amended Articles of Incorporation authorize the issuance of 100,000,000 shares
      of common stock, no par value per share. Holders of shares of common stock
      are
      entitled to one vote for each share on all matters to be voted on by the
      stockholders. Holders of common stock have cumulative voting rights. Holders
      of
      shares of common stock are entitled to share ratably in dividends, if any,
      as
      may be declared, from time to time by the Board of Directors in its discretion,
      from funds legally available therefore. In the event of a liquidation,
      dissolution, or winding up of our company, the holders of shares of common
      stock are entitled to share pro rata all assets remaining after payment in
      full
      of all liabilities. Holders of common stock have no preemptive or other
      subscription rights, and there are no conversion rights or redemption or sinking
      fund provisions with respect to such shares.




As
      of
      April 12, 2007, there were 24,379,887 shares of common stock
      outstanding.




As
      of
      April 12, 2007, there were approximately 878 stockholders of record of our
      common stock, respectively. This does not reflect those shares held beneficially
      or those shares held in "street" name.




**Dividend
      Policy**





We
      have
      never declared or paid any cash dividends on our common stock. We do not
      anticipate paying any cash dividends to stockholders in the foreseeable future.
      In addition, any future determination to pay cash dividends will be at the
      discretion of the board of directors and will be dependent upon our financial
      condition, results of operations, capital requirements, and such other factors
      as the Board of Directors deem relevant. There are no restrictions in our
      articles of incorporation or bylaws that restrict us from declaring dividends
      on
      our common stock.




**Preferred
      Stock**




As
      of
      April 12, 2007, there were 275,000 shares of Preferred stock outstanding. We
      held a special meeting of our shareholders on March 28, 2005 pursuant to which
      a
      majority of our shareholders approved an amendment to our certificate of
      incorporation to increase our authorized preferred stock from 500,000 to
      5,000,000 shares. Accordingly, we are authorized to issue up to 5,000,000 shares
      of preferred stock.
      In
      addition, pursuant to said meeting, a majority of our shareholders approved
      an
      amendment to our certificate of incorporation to provide that the shares of
      preferred stock may be issued in series, and shall have such voting powers,
      full
      or limited, or no voting powers, and such designations, preferences and relative
      participating, optional or other special rights, and qualifications, limitations
      or restrictions thereof, as shall be stated and expressed in the resolution
      or
      resolutions providing for the issuance of such stock adopted from time to time
      by the board of directors. Accordingly, our board of directors is expressly
      vested with the authority to determine and fix in the resolution or resolutions
      providing for the issuances of preferred stock the voting powers, designations,
      preferences and rights, and the qualifications, limitations or restrictions
      thereof, of each such series to the full extent now or hereafter permitted
      by
      the laws of the State of New Jersey.





13









The
      holders of the preferred stock are entitled to receive, when, as, and if
      declared by our board of directors, out of funds legally available therefore,
      cash dividends on each share of preferred stock at the rate of 5% per annum,
      or
      if cash is not legally available, in additional shares of common stock. The
      preferred stock, in respect of dividends and distributions upon our liquidation,
      winding-up, and dissolution, shall rank senior to all classes of our common
      stock and each other class of capital stock or series of preferred stock created
      that does not expressly provide that it ranks senior to, or on a parity with,
      the preferred stock. The holders of preferred stock are entitled to cast 10
      votes for each share held of the preferred Stock on all matters presented to
      our
      shareholders for shareholder vote.




On
      April
      1, 2005, we issued 100,000 shares of preferred stock to the sole holder of
      the
      preferred stock as payment of dividends in lieu of cash dividends with respect
      to previously issued shares of preferred stock. Our original Articles of
      Incorporation, as amended, including on April 30, 2000, do not support the
      issuance of additional shares of preferred stock as payment of dividends on
      shares of issued and outstanding preferred stock. Accordingly, the 100,000
      shares of preferred stock which were issued to the holder on April 1, 2005,
      were
      issued in error.




Our
      Articles of Incorporation, as amended, including on April 30, 2000, similarly
      do
      not support the calculation we used in determining the number of shares of
      common stock used to pay preferred stock dividends. The difference being the
      date used in determining the stock price at the end of each preferred dividend
      period, as opposed to the lowest common stock price during the preferred
      dividend period, subject to a 70% discount, for calculating the number of common
      shares issued as payment of the period’s preferred stock dividend. Accordingly,
      the number of shares was greater than the number of shares required,., and
      were
      issued in error.




Our
      financial statements at December 31, 2004 reflect 275,000 shares of preferred
      stock outstanding and disclosed that an additional 100,000 shares of preferred
      stock were deemed the equivalent of 221,892 shares of common stock that would
      have been required to settle an equivalent amount of preferred dividends. We
      have determined that the number of shares deemed the equivalent of the preferred
      stock dividend has been recalculated based on our Articles of Incorporation,
      as
      amended, including on April 30, 2000. Accordingly, we will issue 136,041 shares
      of common stock to the sole holder of the preferred stock as payment of $51,561
      of preferred stock dividends less other adjustments resulting from the
      recalculation of the number of common shares required to pay preferred stock
      dividends, subsequently approved. During the period January 1, 2003 through
      June
      30, 2006, 200,238 shares of common stock were issued in excess of the amount
      required.










14





**Equity
      Compensation Plan Information**


The
      following table shows information with respect to each equity compensation
      plan
      under which our common stock is authorized for issuance as of December 31,
      2006.




**EQUITY
      COMPENSATION PLAN INFORMATION**





**Plan
                category**
            
            **Number
                of securities**
              **to
                be issued upon**
              **exercise
                of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Weighted
                average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Number
                of securities**
              **remaining
                available for future issuance under equity compensation plans (excluding
                securities reflected in column (a)****(a)**
            
            **(b)**
            
            **(c)****Equity
                compensation plans approved by security holders**
            
            
            -0-
            
            
            -0-
            
            
            -0-**Equity
                compensation plans not approved by security
                holders**
            
            
            -0-
            
            
            -0-
            
            
            -0-**Total**
            
            
            -0-
            
            
            -0-
            
            
            -0-





Currently,
      we do not have **** a
      formalized equity compensation plan under which our common stock is authorized
      for issuance.





**Unregistered
      Sales of Equity Securities**




Following
      is a summary of unregistered securities issued during the fourth quarter of
      2006.





·
            194,000
                shares of common stock were issued for professional services valued
                at
                $141,919.





·
            184,000
                shares of common stock were issued in connection with a settlement
                of a
                default on a convertible promissory note. These shares were valued
                at
                $93,490.





·
            41,666shares
                of common stock were issued in exchange of a $65,000 of convertible
                note.





·
            5,000
                shares were issued as an Employee bonus valued at
                $3,570.





·
            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.





15








**Item****6.****MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS******




**Special
      Note on Forward-Looking Statements.** Certain
      statements in “Management’s Discussion and Analysis or Plan of Operation” below,
      and elsewhere in this annual report, are not related to historical results,
      and
      are forward-looking statements. Forward-looking statements present our
      expectations or forecasts of future events. You can identify these statements
      by
      the fact that they do not relate strictly to historical or current facts. These
      statements involve known and unknown risks, uncertainties and other factors
      that
      may cause our actual results, levels of activity, performance or achievements
      to
      be materially different from any future results, levels of activity, performance
      or achievements expressed or implied by such forward-looking statements.
      Forward-looking statements frequently are accompanied by such words such as
      “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative
      of such terms or other words and terms of similar meaning. Although we believe
      that the expectations reflected in the forward-looking statements are
      reasonable, we cannot guarantee future results, levels of activity, performance,
      achievements, or timeliness of such results. Moreover, neither we nor any other
      person assumes responsibility for the accuracy and completeness of such
      forward-looking statements. We are under no duty to update any of the
      forward-looking statements after the date of this annual report. Subsequent
      written and oral forward looking statements attributable to us or to persons
      acting in our behalf are expressly qualified in their entirety by the cautionary
      statements and risk factors set forth below and elsewhere in this annual report,
      and in other reports filed by us with the SEC.




You
      should read the following description of our financial condition and results
      of
      operations in conjunction with the financial statements and accompanying notes
      included in this report beginning on page F-1.




**Overview**






Since
      1995, substantially all of our resources and operations have been directed
      towards the development of the Omni-Directional wheel, related components,
      Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the
      components, including the unique shaped wheels, motors, and frames, have been
      designed by Airtrax and are specially manufactured for us.




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.




During
      the year ended December 31, 2006, we continued development of the COBRA and
      KING
      COBRA scissor lifts and the Omni-Directional power chair. We anticipate
      incurring more costs on these products and plan to begin production of the
      first
      COBRA and the KING COBRA models in 2007. The growth and development of our
      business will require a significant amount of additional working capital. We
      currently have limited financial resources and based on our current operating
      plan, we will need to raise additional capital in order to continue operations.
      However, we are in discussions with lenders to raise capital in order to
      continue operating. We currently do not have adequate cash to meet our short
      or
      long term objectives. In the event additional capital is raised, it may have
      a
      dilutive effect on our existing stockholders. There can be no assurance that
      additional financing will be available at terms that are suitable to
      us.





16







We
        have
        incurred losses and experienced negative operating cash flow since our
        inception. For the twelve month period ended December 31, 2006 and 2005,
        we had
        net losses attributable to common shareholders of approximately $4.4 million
        and
        $15.2 million, respectively. The net loss in both periods includes conversion
        expenses of $1 million and $6.6 million in 2006 and 2005, respectively, offset
        by revaluation income $3.5 million and $1 million in 2006 and 2005,
        respectively, in connection with the repricing of the conversion ratios of
        convertible debenture issues and of warrant conversion prices. We also wrote
        down the advances to Filco of $4.7 million and $2 million in 2006 and 2005,
        respectively (See Note 13 in the financial statements). We expect to continue
        to
        incur significant expenses. Our operating expenses have been and are expected
        to
        continue to outpace revenue and result in additional 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. While we are in discussions with several
        prospective lenders, w e
        do not
        currently have commitments for these funds and there can be no assurance
        that
        additional financing will be available, or if available, will be on acceptable
        terms.




**Restatement**




We
      have
      determined, after consultation with our independent registered public accounting
      firm, that a restatement of our financial statements for the year ended December
      31, 2006 filed on Form 10-KSB on April 16, 2007, together with our quarterly
      report on Form 10-QSB for the period ended September 30, 2006 was necessary
      due
      to the
      issuance of Modification Agreements, 2% Unsecured Convertible Debentures and
      Stock Purchase Warrants to the note holders of the October 2005 private
      placement of $1,548,000 in full settlement of liquidated damages resulting
      from
      our not filing a registration statement for the shares and warrants underlying
      the private placement, which were not recorded in our financial statements.
      In
      July 2006, we issued 2% Unsecured Convertible Debentures aggregating $359,549
      and Stock Purchase Warrants to acquire 110,808 shares of our common stock at
      $1.65 per share. The conversion price of the shares underlying the note was
      $1.56. Both the conversion price and the warrants purchase price have been
      adjusted to $.45 due to the pricing of the February 20, 2007 private
      placement.




On
        April
        30, 2007, the Company also determined that a restatement of its December
        31,
        2006 financial statements on Form 10-KSB, together with its quarterly reports
        on
        Form 10-QSB for the quarters ended March 31, 2006, June 30, 2006 and September
        30, 2006 was necessary to correct an error in accounting for derivatives
        associated with the private placement of 1,640,000 shares of common stock
        in
        November 2004, which was accompanied by warrants to purchase common
        stock.





**Results
      of Operations for the Year Ended December 31, 2006 Compared to the Year Ended
      December 31, 2005**





Liquidity
      constraints and limited access to additional capital for production in 2004
      and
      2005 and the unexpected death of our Chief Executive Officer and President,
      Peter Amico in August 2006 have limited production and sales of omni-directional
      technology. Consequently, management believes that the year-to-year comparisons
      described below are not indicative of future year-to-year comparative
      results.





In
      September 2006, Airtrax was awarded a $415,000 contract to design and build
      a
      customized MP2 Equipment Handling Unit for the Israeli Air Force. The contract
      includes an option to build five additional units at $95,000 each upon the
      acceptance of the first unit. It is estimated that the follow on orders that
      could result from this contract would be from 29 to 100 units over the next
      one
      to three years. The Critical Design Review was completed in November 2006,
      the
      design was approved and initial deliverables were provided. As a result, we
      received a first process payment of $170,000 on December 12
      2006.
      We expect to begin the Acceptance Test Procedure in mid April 2007 and upon
      successful completion, will receive a second payment of $162,000. We cannot
      predict whether we will be able to successfully pass all of the acceptance
      tests
      and complete the contract, or that if we do so, that any subsequent orders
      will
      result.





17








We
      believe that the joint cooperation between us and the United States Navy with
      the MP2 contract, including building the ETU-110 omni-directional engine handler
      and our contract to design and build a customized MP2 Equipment Handling Unit
      for the Israeli Air Force, 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 in connection with the
      Israeli contract.




**Revenue**






Revenue
      for the twelve-month period ended December 31, 2006 was approximately $1.3
      million, representing an increase of approximately $600,000 from revenue of
      $719,000 for the comparable period in 2005. This increase in revenue, is
      primarily, attributed to sales of our SIDEWINDER ATX-3000.




**Cost
      of Goods Sold**




Our
      cost
      of goods sold for the twelve month period months ended December 31, 2006
      amounted to approximately $1.5 million, an increase of approximately $800,000
      from $729,000 for the twelve months ended December 31, 2005. This increase
      in
      cost of goods sold, is primarily, attributed to sales of our SIDEWINDER
      ATX-3000.




**Operating
      and Administrative Expenses.**




Operating
      and administrative expenses which include administrative salaries, depreciation
      and other expenses for the twelve month period ended December 31, 2006 totaled
      $4.7 million which represents an decrease of approximately $400,000 from $5.1
      million incurred in the twelve month period ended December 31, 2005. The
      decrease is primarily due to recording of stock option expenses of $1.1 million
      in 2005, compared to $76,000 in 2006, partially by additional expenses relating
      to the increase in production of our SIDEWINDER ATX-3000 and Cobra and King
      Cobra scissor lift and Omni-Directional Power Chair development
      costs.




**Loss
      Attributable to Common Shareholders.**




Loss
        attributable to common shareholders for the twelve months ended December
        31,
        2006 was approximately $(4.4) million compared with a loss of $(15.2) million
        for the same period in 2005. The decrease is due primarily to the recording
        of
        stock option expenses of approximately $1.1 million in 2005, compared with
        $76,000 in the current period, and conversion expense recorded in the twelve
        months ended December 31, 2005 of approximately $6.6 million compared with
        $1.0
        million in 2006. Additionally, we recorded revaluation income of $3.5 million
        in
        2006 compared with $1 million in 2005 in connection with the repricing of
        certain conversion ratios of convertible debenture issues and of warrant
        conversion prices. We also wrote down the remaining Filco advance of $2.
        million
        during 2006 compared with $4.7 million in 2005. We also recorded approximately
        $300,000 of deemed dividend expense in each year.





**Research
      and Development**





We
      incurred $519,134 and $544,933 in research and development expenses during
      the
      year ended December 31, 2006 and 2005, 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 Company
      and a
      vendor’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.







18









**Liquidity
      and Capital Resources**




Since
      our
      inception, we have financed our operations through the private placement of
      our
      common stock and sales of convertible debt. During the twelve months ended
      December 31, 2006 and 2005, we raised net of offering costs approximately $1.3
      million and $5.9 million, 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. In the years
      2006 and 2005, we recorded credits of $493,258 and $867,413, respectively,
      from
      the sale of our losses and credits.





We
      have
      consistently demonstrated our ability to meet our cash requirements through
      private placements of our common stock and convertible notes. We have continued
      to similarly satisfy those requirements during the twelve months ended December
      31, 2006. However, there can be no assurances that we will be successful in
      raising the required capital to continue our current operating
      plan.




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 with production of its
      Omni-Directional lift truck and the start of Cobra and King Cobra
      (Scissors-Lift) production.





We
      will
      require additional funds to continue our operations beyond the initial
      production run. We anticipate that operating capital in the amount of
      approximately $3 to 5 million will be required during the next 12 months to
      sufficiently fund operations. 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 rate to
      larger-scale production. While we are in discussions with several prospective
      lenders, w e
      do not
      currently have commitments for additional funds and there can be no assurance
      that additional financing will be available, or if available, will be on
      acceptable terms. If
      we are
      unable to obtain sufficient funds during the next six months we will further
      reduce the size of our organization and may be forced to reduce and/or curtail
      our production and operations, all of which could have a material adverse impact
      on our business prospects.





As
      a
      result of our liquidity issues, we have experienced delays in the repayment
      of
      certain promissory notes upon maturity and payments to vendors and others.
      If in
      the future, the holders of our promissory notes may demand repayment of
      principal and accrued interest instead of electing to extend the due date and
      if
      we are unable to repay our debt when due because of our liquidity issues, we
      may
      be forced to refinance these notes on terms less favorable to us than the
      existing notes, seek protection under the federal bankruptcy laws or be forced
      into an involuntary bankruptcy filing.





19





As
        of
        December 31, 2006, our working capital deficit was $3,037,686. Fixed assets,
        net
        of accumulated depreciation, and total assets, as of December 31, 2006 and
        2005,
        were $283,920 and $190,893, respectively. Current liabilities as of December
        31,
        2006 were $5,489,101 compared with $6,186,390 as of December 31,
        2005.








***February
      2007 Financing***





On
      February 20, 2007, we entered into a Securities Purchase Agreement with certain
      accredited and/or qualified institutional investors pursuant to which we sold
      an
      aggregate of $3,734,040 principal amount secured convertible debentures
      convertible into shares of our common stock at a conversion price equal to
      $0.45
      for an aggregate purchase price of $3,219,000. In addition, we issued to the
      investors (i) warrants to purchase 8,297,866 shares of our common stock at
      an
      exercise price equal to $0.54 per share, which represents 100% of the number
      of
      shares issuable upon conversion of the debentures; (ii) callable warrants to
      purchase 4,148,933 shares of our common stock at an exercise price equal to
      $0.75 per share, which represents 50% of the number of shares issuable upon
      conversion of the debentures; and (iii) callable warrants to purchase 4,148,933
      shares of our common stock at an exercise price equal to $1.25 per share, which
      represents 50% of the number of shares issuable upon conversion of the
      debentures.





The
      debentures mature on February 20, 2009. We may in our discretion redeem the
      debentures, subject to certain equity conditions being met by us as set forth
      in
      the debentures, at a price equal to 150% of the principal balance, accrued
      interest, and all liquidated damages, if any, thereon that are requested to
      be
      redeemed. Our obligations under the securities purchase agreement, the
      debentures and the additional definitive agreements with respect to this
      transaction are secured by all of our assets. In addition, our wholly owned
      subsidiaries, Airtrax Financial Services LLC and Airtrax Manufacturing Corp.,
      are guaranteeing the satisfaction of our obligations under the securities
      purchase agreement, the debentures and the additional definitive agreements
      with
      respect to this transaction.




**Off-Balance
      Sheet Arrangements.**




We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenue, results of
      operations, liquidity or capital expenditures.




**Liquidated
      Damages**




In
      connection with financings we entered into with various investors in November
      2004 and October 2005, we provided such investors registration rights. Pursuant
      to those registration rights, in the event that we did not file a registration
      statement by a certain date registering for resale shares of common stock
      issuable upon conversion of their securities or have such registration statement
      effective by another date, we agreed to pay to such investors liquidated
      damages. To date, we have not filed such registration statement, and as a
      result, we have accrued the required obligation for liquidated damages.




During
      2006, to the investors in the November 2004 financing, we issued an aggregate
      principal amount $198,248 of our 4% Unsecured Convertible Debentures and 5
      year
      warrants to purchase an aggregate of 72,201 shares of our common stock in
      exchange for the settlement of $244,632 in accrued liquidated damages through
      June 30, 2006. The debentures mature on March 1, 2008, and September 30, 2008,
      respectively, pay simple interest at a rate of 4% per annum and are convertible
      into shares of our common stock at a price equal to $0.45 per share. The
      warrants are exercisable into shares of our common stock at a price equal to
      $1.56 per share. In addition, the investors agreed to forego any future accrual
      and payment of such liquidated damages.





20







In
      July
      2006 we issued 2% Unsecured Convertible Debentures to the investors in the
      October 2005 financing, aggregating $359,549 and Stock Purchase Warrants to
      acquire 110,808 shares of our common stock at $1.65 per share, in full
      settlement of liquidated damages resulting from our not filing a registration
      statement by a certain date registering for resale shares of common stock
      issuable upon conversion of their securities. The conversion price of the shares
      underlying the note was $1.56. Both the conversion price and the warrants
      purchase price have been adjusted to $.45 due to the pricing of the February
      20,
      2007 private placement.





**Critical
      Accounting Policies and Estimates**




***Revenue***




Revenues ****** 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.





Revenue
      from research and development activities relating to firm fixed-price contracts
      are generally recognized as billing occurs. Revenue 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.





***Intangibles***





We
      continually evaluate whether events and changes in circumstances warrant revised
      estimates of useful lives or recognition of an impairment loss of our
      intangibles, which as of December 31, 2006, consist mainly patents and licensing
      agreements. The conditions that would trigger an impairment assessment of our
      intangible assets include a significant, sustained negative trend in our
      operating results or cash flows, a decrease in demand for our products, a change
      in the competitive environment and other industry and economic factors.





***Accounting
      for Income Taxes***





As
      part
      of the process of preparing our financial statements, we are required to
      estimate our income taxes. This process involves estimating our actual current
      tax exposure together with assessing temporary differences resulting from
      differing treatment of items for tax and accounting purposes. These differences
      result in deferred tax assets and liabilities, which are included within our
      consolidated balance sheet. We must then assess the likelihood that our deferred
      tax assets will be recovered from future taxable income. If there is not
      persuasive evidence that recovery will occur, we would establish a valuation
      allowance. To the extent we establish a valuation allowance or increase this
      allowance in a period, we must include an expense within the tax provision
      in
      the consolidated statement of operations.





21





Significant
      management judgment is required in determining our provision for income taxes,
      our deferred tax assets and liabilities and any valuation allowance recorded
      against our net deferred tax assets. We have recorded a valuation allowance
      of
      $8,257,629 as of December 31, 2006, due to uncertainties related to our ability
      to utilize some of our deferred tax assets, primarily consisting of certain
      net
      operating losses carried forward before they expire and certain accrued
      expenses, which are deferred for income tax purposes until paid. The valuation
      allowance is based on our estimates of taxable income and the period over which
      our deferred tax assets will be recoverable. The net deferred tax asset as
      of
      December 31, 2006 was $919,889, net of the valuation allowance.





***Issuances
      of Common Stock***





Because
      of the significant liquidity issues we have faced since our inception, we have
      been required to issue common stock to third party vendors and others in order
      to pay for services rendered. Such issuances are recorded as an expense in
      the
      period in which the services are performed. During 2006, we issued an aggregate
      of 651,257 shares of common stock to third parties in exchange for services
      performed. These services were valued at $$859,856 for year ended December
      31,
      2006.





***Recent
      Accounting Pronouncement***





The
      Financial Accounting Standards Board (FASB) has recently issued “FASB Staff
      Position EITF 00-19-2 which modifies the accounting treatment of derivatives
      that flow from financings involving embedded derivatives. This Staff Position
      is
      effective for financial statements for periods beginning January 1, 2007.
      Management believes that this will cause some change in the way we account
      for
      derivatives. Management is evaluating this position and has not made a
      determination as to the effective it will have on our financial
      statements.




The
        Company has reviewed other accounting pronouncements issued during 2006 and
        has
        concluded that they will have no effect on our financials
        statements.







22


**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 because we have incurred losses and experienced negative
        operating cash flow since our formation. For our fiscal years ended December
        31,
        2006 and 2005, we had a net loss attributable to common stockholders of
        approximately $(4.4 million) and $(15.2 million), 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 anticipate that our cash requirements to fund operating or
        investing cash requirements over the next 12 months will be greater than
        our
        current cash on hand. We may never be able to reduce these losses, which
        will
        require us to seek additional debt or equity financing. We do not currently
        have
        commitments for additional funds and there can be no assurance that additional
        financing will be available, or if available, will be on acceptable terms.
        If we
        are unable to obtain sufficient funds during the next 12 months we will further
        reduce the size of our organization and may be forced to reduce and/or curtail
        our production and operations, all of which could have a material adverse
        impact
        on our business prospects.




**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.




**THE
      PRICING POLICY FOR OUR LIFT TRUCKS 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 lift truck 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 lift trucks 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
      lift
      trucks 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 LIFT TRUCK. 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 lift truck. Accordingly, we cannot predict whether
      the
      Omni-Directional product can be marketed and sold in a commercial
      manner.





23









**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 a license
      agreements for the algorithms used to control vehicular movement, and a patent
      for this technology has been applied for. 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 lift truck. 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.




**WE
      CURRENTLY LACK ESTABLISHED DISTRIBUTION CHANNELS FOR OUR LIFT TRUCK PRODUCT
      LINE.**




We
      do not
      have an established channel of distribution for our lift truck 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.





24









**IF
      WE ARE UNABLE TO RETAIN THE SERVICES OF ROBERT WATSON, OUR CHIEF EXECUTIVE
      OFFICER, 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 Robert Watson,
      our President and Chief Executive Officer. We have entered into an employment
      agreement with Mr. Watson, however, we do not maintain key man life insurance
      with respect to Mr. Watson. 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 lift trucks 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 lift truck 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 lift trucks, 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 lift
      truck. In addition, many of our competitors have long-standing arrangements
      with
      equipment distributors and carry one or more of competitive products in addition
      to lift trucks. 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.





25







**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
      24,376,887 shares of common stock outstanding as of April 12, 2007, and we
      had
      convertible notes which require the issuance of 5,336,740 additional shares
      of
      common stock pursuant to our May and October 2005 private placements and 20740
      note issuances, in which the conversion price has been adjusted resulting from
      the February 20, 2007 issuance of $3,734,040 Secured Convertible Promissory
      Notes, convertible into 8,297,867 additional shares of common stock at $0.45
      per
      common share. Additionally, warrants which require the issuance of 10,494,131
      additional shares of common stock pursuant to our November 2004, and February,
      May, and October 2005 private placements and 2006 note issuances. Further,
      we
      issued 16,959,726 warrants in connection with the February 20, 2007 issuance
      of
      $3,734,040 Secured Convertible Promissory Notes. 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.




**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:





26







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.





27





**Item
      7.**  **Financial Statements** **.**





**Index
      to Consolidated Financial Statements**





PageReport
                of Independent Registered Public Accounting Firm
            F-1Consolidated
                Balance Sheets as of December 31, 2006 and 2005
            F-2Consolidated
                Statements of Operations for the years ended December 31, 2006 and
                2005
            F-3Consolidated
                Statement of Changes in Shareholders' Equity (Deficiency) for the
                years
                ended December 31, 2006 and 2005
            F-4Consolidated
                Statements of Cash Flows for the year ended December 31, 2006 and
                2005
            F-5Notes
                to Consolidated Financial Statements as of December 31, 2006 and
                2005
            F-6
















28





**Report
      of Independent Registered Public Accounting Firm**








The
      Board
      of Directors and shareholders


Airtrax,
      Inc.








We
      have
      audited the accompanying balance sheet of Airtrax, Inc. (the "Company") as
      of
      December 31, 2006 and the related statements of operations, changes in
      shareholders' deficit and cash flows for the years ended December 31, 2006
      and
      2005. These financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis 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, we 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. We believe that our audits provide
      a
      reasonable basis for our opinion.





In
      our
      opinion, based on our audits, the financial statements referred to above present
      fairly, in all material respects, the financial position of Airtrax, Inc. as
      of
      December 31, 2006, and the results of its operations and its cash flows for
      the
      years ended December 31, 2006 and 2005 in accordance with U.S. generally
      accepted accounting principles.





The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As shown in the accompanying
        consolidated financial statements, at December 31, 2006, the Company had
        a
        working capital deficiency of $3.0 million as well as an accumulated deficit
        of
        $29.5 million. In addition, the Company has had a continuing record of losses.
        These factors among other things, discussed in Notes 15 to the financial
        statements, raise substantial doubt about the ability of the Company to continue
        as a going concern. The financial statements do not include any adjustments
        relating to the recoverability and classification of recorded asset amounts
        or
        the amounts or classification of liabilities that might be necessary should
        the
        Company be unable to continue in operation.







/S/
      Robert G. Jeffrey, Certified Public Accountant


Robert G. Jeffrey, Certified Public Accountant


May
        2,
        2007


Wayne,
      New Jersey











F-1




**AIRTRAX,
      INC.**




**Balance
      Sheets**




**As
      of December 31, 2006 and 2005**







**Assets**
              
              **2006**
              
              **2005**Current
                Assets:
              
              **(Restated)**Cash
              
              $
              327,737
              
              $
              19,288Accounts
                  receivable
              
              
              50,704
              
              
              94,357Inventory
              
              
              1,049,457
              
              
              2,005,139Vendor
                  advance
              
              
              103,628
              
              
              163,517Deferred
                  tax asset
              
              
              919,889
              
              
              977,302Total
                  current assets
              
              
              2,451,415
              
              
              3,259,603Property
                and
                Equipment, net of accumulateddepreciation
                  of $339,216 and $301886, respectively
              
              
              283,920
              
              
              190,893Other
                  Assets
                Advances
                  to Filco Gmbh
              
              
              -
              
              
              2,000,000Patents,
                  net
              
              
              148,151
              
              
              154,263Deferred
                  charges
              
              
              -
              
              
              388,392Other
              
              
              65
              
              
              65Total
                  other assets
              
              
              148,216
              
              
              2,542,720Total
                  Assets
              
              $
              2,883,551
              
              $
              5,993,216**Liabilities
                and Shareholders’Deficiency**Current
                Liabilities:Accounts
                  payable
              
              $
              1,097,361
              
              $
              885,463Notes
                  payable, shareholder
              
              
              75,713
              
              
              186,961Convertible
                  notes payable
              
              
              2,129,797
              
              
              -Obligation
                  for outstanding options
              
              
              1,407,299
              
              
              1,330,948Warrant
                  and conversion option liability
              
              
              316,958
              
              
              3,516,462Accrued
                  liabilities
              
              
              461,973
              
              
              266,556Total
                  current liabilities
              
              
              5,489,101
              
              
              6,1
                  86,390Convertible
                  Notes Payable
              
              
              557,797
              
              
              2,048,000-
              
              
              -Total
                  Liabilities
              
              
              6,046,898
              
              
              8,234,390Shareholders’Deficiency;Preferred
                stock, no par value; 5,000,000 shares authorized,275,000
                  issued and outstanding
              
              
              12,950
              
              
              12,950Common
                stock,
                no par value; 100,000,000 shares authorized,
 24,260,352
                  and 21,939,360 shares issued and outstanding, respective
              
              
              25,133,164
              
              
              21,712,179Additional
                  paid-in capital, warrants
              
              
              1,194,725
              
              
              1,042,400Accumulated
                  Deficit
              
              
              (29,504,186
              )
              
              (25,008,703
              )Total
                  shareholders'(deficiency)
              
              
              (3,163,347
              )
              
              (2,241,1
                  74
              )Total
                  Liabilities and Shareholders'Deficiency
              
              $
              2,883,551
              
              $
              5,993,216-
              
              
              -






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





F-2





**AIRTRAX,
      INC.**


**Statements
      of Operations**


**For
      the Years Ended December 31, 2006** **and
      2005**


**(Audited)**




**2006**
              
              
              **2005****(Restated)**Revenues
              
              $
              1,346,913
              
              $
              718,842Cost
                  of sales and services performed
              
              
              1,470,542
              
              
              729,080Gross
                  profit
              
              
              (123,629
              )
              
              (10,238
              )Operating
                  Expenses
                General
                  and administrative costs
              
              
              4,686,763
              
              
              5,057,596Impairment
                  of Filco advances
              
              
              2,000,000
              
              
              4,700,839Total
                  operating expenses
              
              
              6,686,763
              
              
              9,758,435Operating
                  loss
              
              
              (6,810,392
              )
              
              (9,768,673
              )Other
                  Income and Expenses
                Conversion
                  expense
              
              
              (1,009,069
              )
              
              (6,571,454
              )Interest
                  expense
              
              
              (230,149
              )
              
              (488,342
              )Revaluation
                  income
              
              
              3,534,179
              
              
              993,837Other
                  income and expense
              
              
              (2,255
              )
              
              31,741Loss
                  before income taxes and preferred stock expenses
              
              
              (4,517,686
              )
              
              (15,802,891
              )IncomeTax
                  Benefit
              
              
              437,803
              
              
              867,413Loss
                  before dividends
              
              
              (4,079,883
              )
              
              (14,935,478
              )Deemed
                  dividends on preferred stock
              
              
              (303,100
              )
              
              (274,978
              )Net
                  loss attributable to common shareholders
              
              
              (4,382,983
              )
              
              (15,210,456
              )Preferred
                  stock dividend paid
              
              
              (112,500
              )
              
              (51,563
              )Deficit
                  accumulated
              
              $
              (4,495,483
              )
              $
              (15,262,019
              )Net
                  loss per share;Loss
                  attributable to common shareholders
              
              $
              (4,382,983
              )
              $
              (15,210,456
              )Preferred
                  stock dividends
              
              
              68,750
              
              
              68,750Loss
                  allocable to common shareholders
              
              $
              (4,451,733
              )
              $
              (15,279,206
              )Net
                  loss per share; basic and diluted
              
              $
              (0.19
              )
              $
              (0.73
              )Weighted
                  average common shares outstanding -
                Basic
                  and diluted
              
              
              23,068,165
              
              
              20,951,187






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





F-3





**AIRTRAX,
      INC.**


**Statement
      of Changes in Shareholders’ Deficiency**




**For
      the Years Ended December 31, 2006 and 2005**




**Restated**


**Common**
                **Shares**
              
              **Common**
                **Amount**
              
              **Preferred**
                **Shares**
              
              **Preferred**
                **Amount**
              
              **Warrants**
              
              **Accumulated**
                **Deficit**
              
              **Total**Balance
                  at December 31, 2004
              
              
              15,089,342
              
              $
              9,780,454
              
              
              275,000
              
              $
              12,950
              
              $
              1,042,400
              
              $
              (9,746,684
              )
              $
              1,089,120Shares
                  issued in private placement
              
              
              68,750
              
              
              55,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              55,000Warrants
                  exercised
              
              
              593,000
              
              
              718,486
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              718,486Options
                  exercised
              
              
              45,000
              
              
              19,619
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              19,619Shares
                  issued for services
              
              
              291,695
              
              
              735,387
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              735,387Employee
                  stock awards
              
              
              20,000
              
              
              48,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              48,000Shares
                  issued in lieu of rent
              
              
              19,200
              
              
              48,000
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              48,000Issuance
                  of shares sold in prior year
              
              
              1,749,827
              
              
              1,401,172
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,401,172Shares
                  issued in settlement of interest
              
              
              28,453
              
              
              66,295
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              66,295Transfer
                  from liability on exercise of warran
              
              
              -
              
              
              181,000
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              181,000Conversion
                  of convertible debt
              
              
              3,846,154
              
              
              4,277,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,277,500Conversion
                  benefit capitalized
              
              
              -
              
              
              3,596,154
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,596,154Shares
                  issued for Filco investment
              
              
              187,939
              
              
              458,571
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              458,571Dividends
                  on preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (51,563
              )
              
              (51,563
              )Preferred
                  stock dividend
              
              
              
              
              
              326,541
              
              
              
              
              
              -
              
              
              
              
              
              -
              
              
              326,541Net
                  Loss
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              
              
              
              (15,210,456
              )
              
              (15,210,456
              )Balance
                  at December 31, 2005
              
              
              21,939,360
              
              $
              21,712,179
              
              
              275,000
              
              
              12,950
              
              $
              1,042,400
              
              $
              (25,008,703
              )
              $
              (2,241,174
              )Warrants
                  issued in connection with
                convertible
                  debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              $
              152,325
              
              
              -
              
              $
              152,325Employee
                  stock awards
              
              
              75,000
              
              $
              115,470
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              115,470Shares
                  issued for services
              
              
              651,257
              
              
              859,856
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              859,856Shares
                  issued to directors
              
              
              145,000
              
              
              222,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              222,500Shares
                  issued in settlement of Note defaultt
              
              
              184,000
              
              
              93,490
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              93,490Conversion
                  of convertible debt
              
              
              811,033
              
              
              1,204,519
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,204,519Shares
                  issued for preferred dividend
              
              
              418,979
              
              
              415,610
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              415,610Shares
                  issued for cash
              
              
              35,723
              
              
              65,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              65,500Proceeds
                  from warrant extesions
              
              
              
              
              
              117,000
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              117,000Value
                  of debt conversion priviledge
              
              
              
              
              
              327,040
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              327,040Dividends
                  on preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (112,500
              )
              
              (112,500
              )Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,382,983
              )
              
              (4,382,983
              )Balance
                  at December 31, 2006
              
              
              24,260,352
              
              $
              25,133,164
              
              
              275,000
              
              $
              12,950
              
              $
              1,194,725
              
              $
              (29,504,186
              )
              $
              (3,163,347
              )






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







F-4








**AIRTRAX,
      INC.**


**Statements
      of Cash Flows**


**For
      the Years Ended December 31, 2006 and December 31, 2005**




**2006**
              
              **2005****Cash
                flows from operating activities:**
              
              
              **(Restated)**Net
                  loss
              
              $
              (4,382,983
              )
              $
              (15,210,456
              )Adjustments
                  to reconcile net loss to net cash
                used
                  in operating activities:
                Depreciation
                  and amortization
              
              
              69,019
              
              
              59,500Cost
                  of conversion
              
              
              961,569
              
              
              7,068,174Common
                  stock issued as payment for services
              
              
              1,197,826
              
              
              836,500Options
                  granted for services
              
              
              76,351
              
              
              1,082,250Cost
                  of settling liquidated damages
              
              
              424,426Value
                  of converted interest
              
              
              66,464Loss
                  on abandonment of vehicle
              
              
              2,443Accrued
                  interest on shareholder advances
              
              
              4,693
              
              
              4,015Value
                  of shares issued to settle liabilities
              
              
              93,490
              
              
              149,589Deemed
                  dividend on preferred stock
              
              
              303,100
              
              
              274,978Decrease
                  in accual of deferred tax benefit
              
              
              7,413
              
              
              (752,888
              )Revaluation
                  of warrant liabilities
              
              
              (3,534,179
              )
              
              (992,757
              )Impairment
                  of Filco investment
              
              
              2,000,000
              
              
              4,700,839Change
                  in assets and liabilties;
                Decrease
                  (increase) in accounts receivables
              
              
              43,653
              
              
              (205,857
              )Decrease
                  in advances
              
              
              59,889
              
              
              -Decrease(
                  increase) in inventory
              
              
              955,682
              
              
              (1,295,858
              )Increase
                  in accounts payable
              
              
              211,898
              
              
              490,504Increase
                  in accrued liabilities
              
              
              569,713
              
              
              89,592Net
                  cash used in operating activities
              
              
              (869,533
              )
              
              (3,701,875
              )**Cash
                  flows from investing activities:**
                Acquisitions
                  of equipment
              
              
              (151,577
              )
              
              (150,806
              )Additions
                  to patent cost
              
              
              (6,800
              )
              
              (42,861
              )Advances
                  to Filco
              
              
              -
              
              
              (3,605,881
              )**Net
                  cash used in investing activities**
              
              
              (158,377
              )
              
              (3,799,548
              )**Cash
                  flows from financing activities:**
                Proceeds
                  from converted debt
              
              
              1,219,800
              
              
              4,277,500Proceeds
                  from the sale of common stock
              
              
              65,500
              
              
              55,000Proceeds
                  from convertible debt
              
              
              -
              
              
              1,659,138Proceeds
                  from notes payable to related parties
              
              
              35,000
              
              
              151,493Payment
                  of notes payable to related parties
              
              
              (100,941
              )
              
              (2,002
              )Proceeds
                  from exercise of warrants
              
              
              117,000
              
              
              718,486Proceeds
                  from exercise of options
              
              
              -
              
              
              19,619Net
                  cash provided by financing activities
              
              
              1,336,359
              
              
              6,879,234Net
                  increase (decrease) in cash
              
              
              308,449
              
              
              (622,189
              )**Cash,
                  beginning of year**
              
              
              19,288
              
              
              641,477**Cash,
                  end of year**
              
              $
              327,737
              
              $
              19,288





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







F-5








**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2006





**1.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Business**





The
      Company was formed April 17, 1997. It has designed a lift truck 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 since its inception. Until the end of 2004, these
      losses were financed by private placements of equity securities. During 2005
      and
      2006, the Company obtained financing almost exclusively from the issuance of
      convertible debentures. The Company will need to raise additional capital
      through the issuance of debt or equity securities to continue 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 lift truck 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.





**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 lift truck vehicle is expensed as
      incurred.








F-6





**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, 2006.





**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 2006 and 2005 a total of $519,314 and $544,933,
      respectively, was spent on development activity.





**Advertising
      Costs**





The
      Company expenses advertising costs when the advertisement occurs. There were
      no
      advertising costs incurred during 2006 and 2005.





**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 adopted SFAS 123R, “Share Based Payment” and SFAS 148, “Accounting for
      Stock Based Compensation - Transition and Disclosure” on January 1, 2006. Prior
      to 2006, these awards were accounted for under the intrinsic method as permitted
      by Accounting Principles Board Opinion No. 25.





The
      following presents information ($000 omitted) about the net loss and loss per
      share of the year 2005 as if the Company had applied the provisions of SFAS
      123R
      and 148 to all options granted during the year 2005.




Net
                  loss as reported
              
              $
              (15,210
              )Less:
                  Stock-based employee compensationdetermined
                  under the Intrinsic Method
              
              
              1,082Add:
                  Stock bases compensation determinedunder
                  the Fair Value Method
              
              
              (1,105
              )Pro
                  forma net loss
              
              $
              (15,233
              )Loss
                  per share:Basic
                  and diluted as reported
              
              $
              (.73
              )Basic
                  and diluted-pro forma
              
              $
              (.73
              )




Pursuant
      to the requirements of SFAS 123R, the weighted average fair value of options
      granted during 2005, as determined on the dates of grant, was $1.37. The fair
      values were determined using a Black Scholes option-pricing model, using the
      following major assumptions:




Volatility
              91.10%Risk-free
                  interest rate
              3.71%Expected
                  Life - years
              4.52






**Segment
      Reporting**





Management
      treats the operations of the Company as one segment.





F-7








**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.





**Reclassifications**





Certain
      amounts from prior year have been reclassified to conform to current year
      presentation.





**2.**
            **RESTATEMENTS**




On
      April
      25, 2007 we have determined, after consultation with our independent registered
      public accounting firm, that a restatement of our financial statements for
      the
      year ended December 31, 2006 filed on Form 10-KSB on April 16, 2007, together
      with our quarterly report on Form 10-QSB for the period ended September 30,
      2006
      was necessary due to the
      issuance of Modification Agreements, 2% Unsecured Convertible Debentures and
      Stock Purchase Warrants to the note holders of the October 2005 private
      placement of $1,548,000 in full settlement of liquidated damages resulting
      from
      our not filing a registration statement for the shares and warrants underlying
      the private placement, which were not recorded in our financial statements.
      In
      July 2006, we issued 2% Unsecured Convertible Debentures aggregating $359,549
      and Stock Purchase Warrants to acquire 110,808 shares of our common stock at
      $1.65 per share. The conversion price of the shares underlying the note was
      $1.56. Both the conversion price and the warrants purchase price have been
      adjusted to $.45 due to the pricing of the February 20, 2007 private
      placement.





In
      addition, on March 15, 2007, management of the Company determined, after
      consultation with its independent registered public accounting firm, that a
      restatement of its Quarterly Reports on Form 10-QSB for the three and six months
      ended June 30, 2005 and the three months ended March 31, 2005 was necessary
      in
      light of the Company’s review of its accounting for derivatives and based on
      recent interpretations of the accounting for certain financial instruments
      under
      SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS
      133”) and the Emerging Issues Task Force No. 00-19 “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock” (“EITF No. 00-19”).





On
        April
        30, 2007, the Company also determined that a restatement of its December
        31,
        2006 financial statements on Form 10-KSB, together with its quarterly reports
        on
        Form 10-QSB for the quarters ended March 31, 2006, June 30, 2006 and September
        30, 2006 was necessary to correct an error in accounting for derivatives
        associated with the private placement of 1,640,000 shares of common stock
        in
        November 2004, which was accompanied by warrants to purchase common
        stock.


F-8




The
          Company concluded that its 8% Series A Convertible Promissory Notes (“Notes”)
          and the Class A and Class B Warrants (collectively, the “Warrants”) issued to
          certain accredited and/or qualified nstitutional purchasers pursuant to
          that
          certain Subscription Agreement (the “Subscription Agreement) dated as of
          February 11, 2005 contained embedded derivatives due to the registration
          rights
          and liquidated damages provisions contained in the Subscription Agreement.
          The
          embedded derivative provisions provided that the Company will pay liquidated
          damages in connection with the delay in filing of a registration statement
          on
          Form SB-2 in the event that the Company did not file such registration
          statement
          which registers the shares of the Company’s common stock underlying the Notes
          and the Warrants**,**or
          cause
          the Securities and Exchange Commission to declare such registration statement
          effective, each within specified time frames as set forth in the Subscription
          Agreement.Accordingly,
          the Company determined that it should take action to prevent future reliance
          on
          previously issued financial statements set forth in its Quarterly Reports
          on
          Form 10-QSBfor
          the
          three and six months ended June 30, 2005 and the three months ended March
          31,
          2005 (collectively the “Quarterly Reports”).Such
          financial statements should no longer be relied upon.


In
      particular, t he
      Company will restate its financial statements contained in the Quarterly Reports
      to reflect
      the reduction in preferred stock outstanding, preferred stock dividend expense
      and deemed dividend expenses recorded in 2005 and 2006. In addition,
      t he
      Company will restate its financial statements contained in the Reports to reflect
      a
      liability in connection with issuance of the Notes and the Warrants that
      contained an embedded derivative and conversion privileges, as of March
      31,
      2005 and June 30, 2005, and will restate its quarterly report for the period
      ended September 30, 2006 for the
      issuance of the Modification Agreements, 2% Unsecured Convertible Debentures
      and
      Stock Purchase Warrants to the note holders of the October 2005 private
      placement .





***The
      effect on the Company’s previously issued audited December 31, 2006 financial
      statements are summarized as follows:***




Previously
                
                Increase
                
                AsReported
                
                (decrease)
                
                RestatedGeneral
                    and Administrative expense
                
                $
                4,452,179
                
                $
                (234,584(A
                ))
                $
                4,686,793Operating
                    Loss
                
                
                (6,575,808
                )
                $
                (234,584
                )
                
                (6,810,392
                )Revaluation
                    Income
                
                
                3,054,716
                
                
                135,478
                    (A
                )
                
                3,534,179343,985
                    (D
                )Loss
                    before income taxes
                
                
                (4,762,565
                )
                
                244,879
                
                
                (4,517,686
                )Net
                    loss attributable to common shareholders
                
                $
                (4,627,862
                )
                $
                244,879
                
                $
                (4,382,983
                )Loss
                    per share-basic and diluted
                
                $
                (.18
                )
                $
                (.01)
                      (B
                )
                $
                (.19
                )


***Balance
      Sheet as of December 31, 2006*** **:**




***Previously***
                  ***Reported***
                
                
                ***Increase***
                  ***(Decrease)***
                
                
                ***Restated***Current
                    Assets
                
                $
                2,451,415
                
                $
                --
                
                $
                2,451,415All
                    Other Assets
                
                
                432,136
                
                
                --
                
                
                432,136Total
                    Assets
                
                $
                2,883,551
                
                
                --
                
                $
                2,883,55148,790(D)
  F-9
  
 Warrant
                    and Conversion Option Liability
                
                $
                249,971
                
                
                18,197(C
                )
                $
                316,958Accrued
                    Liabilities
                
                
                740,613
                
                
                (278,640(C
                ))
                
                461,973Total
                    Current Liabilities
                
                
                5,700,754
                
                
                (211,653
                )
                
                5,489,101Long
                    Term Debt
                
                
                198,248
                
                
                359,549(C
                )
                
                557,797Total
                    Liabilities
                
                
                5,899,002
                
                
                147,896
                
                
                6,046,898Stockholders’
                    Deficit:Common
                    Stock
                
                
                25,133,164
                
                
                --
                
                
                25,133,164Warrants
                
                
                1,587,500
                
                
                (392,775)(D
                )
                
                1,194,725Preferred
                    stock
                
                
                12,950
                
                
                --
                
                
                12,950Accumulated
                    deficit
                
                
                (29,749,065
                )
                
                244,879(A
                )
                
                (29,504,186
                )Total
                  Stockholders’ Deficiency
                
                
                (3,015,451
                )
                
                (147,896
                )
                
                (3,163,347
                )Total
                    Liabilities and Shareholders’ Deficiency
                
                $
                2,883,551
                
                $
                --
                
                $
                2,883,551




(A)
      Effect on the statement of Operations due to the settlement of liquidated
      damages.





(B)
      Deemed dividends on preferred stock were previously omitted from this
      calculation.





(C) Effect
      on
      the liabilities due to the settlement of liquidated damages .





(D)
        Correction of accounting for derivatives contained in the November 2004 issuance
        of common stock with accompanying warrants.








**3.
      RELATED PARTY TRANSACTIONS**





The
      Chairman of the Board of Directors made periodic loans to the Company during
      2006. The loans did not accrue interest and were due on demand. The combined
      loans amounted to $35,000. The unpaid balance of principal on these loans at
      December 31, 2006 was $0. The Majority shareholder of the corporation and the
      Company President has made loans to the Company from time to time. Certain
      related notes accrued interest at 12% and are due on demand. The combined unpaid
      balance of principal and interest on these notes at December 31, 2006 was
      $75,713.





During
      2006, the Board of Directors received 145,000 shares for services as directors;
      these were valued at $222,500, reflecting the fair market value of the stock
      at
      time of award.





On
      August
      25, 2006, the Company’s CEO, President and Chairman (“President”) died. The
      President’s employment contact expired on June 30, 2006 and was not renewed. The
      employment agreement did not provide for the exercise of the options upon death.
      The options granted in 2004 to the president were 550,000 options, valued at
      $187,500 and in 2005 he President was granted 750,000 options, valued at
      $975,000. Subsequent to his death, the Board of Directors extended for one
      year
      from the date of the termination of the employment contract, the time during
      which the options can be exercised.





In
      2006,
      the Company granted 300,000 options to its Chief Executive Officer





**4.
      STOCK OPTIONS**





The
      Company has periodically awarded stock 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.





F-10






2006
              
              2005Weighted
              
              WeightedAverage
              
              AverageExercised
              
              ExercisedShares
              
              Price
              
              Shares
              
              PriceOptions
                    outstanding at beginning ofyear
              
              
              1,375,000
              
              $
              .80
              
              
              620,000
              
              $
              .73Options
                  granted during year
              
              
              350,000
              
              
              .46
              
              
              800,000
              
              
              .83Options
                  exercised during year
              
              
              (7,500
              )
              
              
              
              
              (45,000
              )
              
              .44Options
                  outstanding at end of year1,715,500
              
              $
              .73
              
              
              1,375,000
              
              $
              .80Weighted
                    average Fair Value ofoptions granted
              
              
              
              
              $
              0.34
              
              
              
              
              $
              1.37Weighted
                    average remaining life ofoutstanding options -
                    years
              
              
              
              
              
              4.79
              
              
              
              
              
              4.33





**5.
      PRIVATE PLACEMENT OFFERINGS**





During
      2006, there have been five issuances of convertible debt. None contains a
      liquidated damages provision. The first, $819,800 of 8% convertible debt, has
      been converted into equity, along with associated interest, at $1.56 per share,
      resulting in the issuance of 534,352 additional shares of stock. This issue
      was
      accompanied by an equal number of warrants, exercisable at $1.75 for a period
      of
      five years.





A
      second
      2006 issue was $400,000 of 12% convertible debt due October 20, 2006. After
      commissions, the Company received net proceeds of $342,500. The debt is
      convertible to stock at $1.56 per share. The issue was accompanied by 282,052
      warrants exercisable at $1.56 for five years.





The
        third
        and fourth issues, of 4% convertible debt, which totaled $198,248, were made
        in
        settlement of liquidated damages associated with a November, 2004 issue,
        as
        described in Note 12.







In
      July
      2006, we issued 2% Unsecured Convertible Debentures aggregating $359,549 and
      Stock Purchase Warrants to acquire 110,808 shares of our common stock at $1.65
      per share. The conversion price of the shares underlying the note was $1.56.
      Both the conversion price and the warrants purchase price have been adjusted
      to
      $.45 due to the pricing of the February 20, 2007 private placement.





At
      December 31, 2006, the Company was in default on its 12% Series A Convertible
      Note in the principal amount of $400,000 which the Company issued to a qualified
      institutional buyer on July 26, 2006. All principal and accrued and unpaid
      interest was due on October 20, 2006. The Company did not repay the note in
      the
      amount of $412,000, inclusive of principal and accrued and unpaid interest,
      on
      or prior to October 20, 2006. The Company negotiated with the holder to extend
      the note through the payment of cash, and the issuance of shares of common
      stock. The Note is due and payable in full, including all unpaid Interest on
      November 29, 2007.





On
      March
      22, 2007, the Company made a $100,000 principal payment and paid interest of
      $30,233. The Note was reduced to $300,000 and interest on the Note was reduced
      to 10%. Additionally, the Company issued 184,000 shares of common stock as
      settlement of the default period and paid a fee of $15,000 to Source Capital
      Group, Inc., a registered representative of the Note-holder. The Company also
      agreed to make monthly interest payments. The conversion price was reset per
      the
      terms of the original Note.





F-11








On
      March
      1, 2006, the Company issued $150,000 of 4% Convertible Notes due March 1, 2008,
      accompanied by 48,077 warrants to purchase common stock at $1.65 over a five
      year period. On June 30, 2006, the Company issued an additional $48,248 in
      4%
      convertible notes due September 30, 2008, accompanied by 24,124 warrants
      exercisable at $1.65 per share over five years in settlement of the liquidated
      damages described above. These notes are also convertible at $1.56 over two
      years. As of June 30, 2006, all damages payable to all of the investors in
      the
      Company’s November 2004 private placement have been settled, and pursuant to a
      modification agreement which the Company entered into with such investors on
      March 1, 2006 and June 30, 2006, no liquidated damages will accrue for the
      non-effectiveness of the registration statement after the date of the
      modification agreements.





The
      Company’s private placements of convertible notes and common stock purchase
      warrants in 2005 contained liquidated damages provisions, one of which has
      been
      settled as discussed above. For the two other financings, February and May,
      no
      liquidated damages have accrued despite the fact that the shares underlying
      the
      notes and warrants issued in such private placements have not been registered,
      since the payment of damages is linked to the effectiveness of the registration
      statement which was initially filed in February 2005 and said registration
      statement has been withdrawn.





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 was converted
      in 2005 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 that have
      not
      yet been converted to stock, bear interest at 8% and have two year conversion
      terms. They are further described below:




Balance
                  of 2005 convertible notes and Warrants issuances;ExerciseRemaining
                  debt
              Conversion
                  Price
              Warrants
              Price$
                  246,797
              $.45
              384,615
              $.451,483,000
              $.45
              774,000
              .45$
                  1,729,797




Balance
                  of 2006 convertible notes and Warrants
                  issuances;
 ExerciseRemaining
                  debt
              Conversion
                  Price
              Warrants
              Price$
                  150,000
              $1.56
              48,077
              $1.5648,248
              $1.56
              24,124
              $1.56400,000
              $.45
              282,051
              $.45359,549
              $.45
              110,808
              .45$
                  957,797


F-12








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 funds raised during 2004 through stock sales was $1,312,000 raised 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 satisfy its obligation to cause the SEC to declare
      the
      registration statement effective within the timeframe specified in the November
      2004 Registration Rights Agreement. As a result, it was subject to, and accruing
      liquidated damages in an amount 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 liquidated damages, which had accrued. Under
      that agreement, no further liquidated damages would accrue until after June
      30,
      2005. The obligation concerning effectiveness of the registration statement
      has
      not been satisfied and liquidated damages accrued since June 30, 2005 at the
      rate of approximately $26,240 per month. The liquidated damages paid thus far,
      and liquidated damages that accrued subsequent to June 30, 2005, were charged
      to
      expense during the periods in which they accrued. For the year ended December
      31, 2005 an additional $160,851 had accrued; and $88,126 accrued during 2006.
      All liquidated damages for this issue were settled by the issuance on June
      30,
      2006 of convertible notes, which are described below.





There
        were 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 began to accrue on March 18, 2006, and would have accrued for a
        period
        of nine months. A settlement was reached with the investors of this issue
        on
        July 21, 2006, under which the penalties were cancelled in exchange for $359,549
        of convertible debt, which is described in Note 12.





On
      February 20, 2007, the Company entered into a Securities Purchase Agreement
      (the
      "Purchase Agreement") with certain accredited and/or qualified institutional
      investors pursuant to which we sold an aggregate of $3,734,040 principal amount
      secured convertible debentures (the "Debentures") convertible into shares of
      our
      common stock, no par value (the "Common Stock") at a conversion price equal
      to
      $0.45 (the "Conversion Price"), for an aggregate purchase price of $3,219,000.
      In addition, the Company issued to the investors (i) warrants to purchase
      8,297,866 shares of the Company’s Common Stock (the "Warrants") at an exercise
      price equal to $0.54 per share, which represents 100% of the number of shares
      issuable upon conversion of the Debentures; (ii) callable warrants to purchase
      4,148,933 shares of our Common Stock at an exercise price equal to $0.75 per
      share, which represents 50% of the number of shares issuable upon conversion
      of
      the Debentures; and (iii) callable warrants to purchase 4,148,933 shares of
      our
      Common Stock at an exercise price equal to $1.25 per share, which represents
      50%
      of the number of shares issuable upon conversion of the Debentures
      (collectively, the "Callable Warrants"). (see “Note 16 Subsequent
      Events”)





Previous
        Convertible Issues and the warrants accompanying the November 2004 private
        placement of common stock contain “Most Favored Nations” clauses that guaranteed
        the investors that subsequent issues of stock or notes would not be made
        on more
        favorable terms. If the Company subsequently issues any shares of common
        stock
        or securities convertible or exercisable into common stock at a per share
        purchase price which is less than the conversion or exercise prices of
        outstanding notes
        and
        warrants, such conversion or exercise prices would be adjusted downward in
        accordance with their respective terms. As a result of the issuance of the
        convertible notes on February 20, 2007, the following warrant and conversion
        prices were adjusted:





F-13





1.
            The
                exercise price of the warrants associated with the May 2005 convertible
                debenture offering and the conversion price of that offering, which
                were
                previously adjusted to $1.56 per share, are now set at
                $0.45.  2.
            The
                conversion price of the October 2005 issuance of the convertible
                debentures, which was previously adjusted from $2.00 per share to
                $1.56
                per share, is now set at $0.45.  3.
            The
                exercise price of the warrants issued pursuant to the October 2005
                debenture offering, which was previously adjusted from $3.25 per
                share to
                $1.56 per share, is now set at $0.45  4.
            The
                exercise price of the warrants associated with the November 2004
                stock
                offering was adjusted form $1.25 per share to $0.45 per
                share  5.
            The
                exercise price associated with the July 2006 convertible debentures
                was
                adjusted form $1.56 per share to $0.45 per
                share  6.
            The
                warrant exercise price associated with the warrants issued with the
                July
                2006 convertible debentures was adjusted from $1.65 per share to
                $0.45 per
                share. 
 The 
        affect of these changes will be included in the calculation of revaluation
        income during the first quarter of 2007.
  **6.
        PREFERRED STOCK**





The
      Company is authorized to issue 5,000,000 shares of preferred stock, without
      par
      value. At December 31, 2005, 275,000 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 estate of the Company’s former President and Chairman.





Dividends
      of $68,750 accrued on the preferred stock during each of the years 2002 through
      2006. Cash dividends of $131,771 were paid during 2004. A stock dividend of
      136,041 common shares will be paid in 2007, satisfying $51,563 of the unpaid
      dividends. In addition, common shares will be issued in 2007 to satisfy $112,500
      of unpaid dividends. The balance of unpaid dividends at of December 31, 2006
      was
      $47,916.





On
      March
      21, 2007,the Company determined, after consultation with its independent
      registered public accounting firm, that a restatement of its financial
      statements for the year ended December 31, 2005 filed on Form 10-KSB is
      necessary due to the
      issuance of the Company’s preferred stock as payment of dividends in lieu of
      cash dividends on April 1, 2005 with respect to previously issued shares of
      preferred stock. The Company’s original Articles of Incorporation, as amended,
      including on April 30, 2000, do not allow the issuance of additional shares
      of
      preferred stock as payment of dividends on shares of issued and outstanding
      preferred stock. Accordingly, the 100,000 shares of preferred stock which were
      issued to the holder on April 1, 2005 were issued in error





The
      Company’s Articles of Incorporation, as amended, including on April 30, 2000,
      similarly do not support the calculation used by the Company in determining
      the
      number of shares of common stock used to pay preferred stock dividends. The
      difference being the date used in determining the stock price at the end of
      each
      preferred dividend period, as opposed to the lowest common stock price during
      the preferred dividend period, subject to a 70% discount, for calculating the
      number of common shares issued as payment of the period’s preferred stock
      dividend. Accordingly, the number of shares were greater than the number of
      shares required, and were issued in error resulting in increased preferred
      dividend expenses and preferred stock equity. The Company has determined that
      the number of shares deemed the equivalent of the preferred stock dividend
      will
      be recalculated based on the Company’s Articles of Incorporation, as amended,
      including on April 30, 2000. (see “Note 2 Restatements”)





The
      Company has determined that the number of shares deemed the equivalent of the
      preferred stock dividend will be recalculated based on the Company’s Articles of
      Incorporation, as amended, including
      on April 30, 2000. Accordingly, the Company will issue 136,041 shares of common
      stock to the sole holder of the preferred stock as payment of $51,561 of
      preferred stock dividends less other adjustments resulting from the
      recalculation of the number of common shares required to pay preferred stock
      dividends, subsequently approved. During the period January 1, 2003 through
      June
      30, 2006, 200,238 shares of common stock were issued in excess of the amount
      required.





F-14








**7.
      SHARES ISSUED FOR SERVICES**





Stock
      options were granted to two Company employees during 2006 and 2005. In addition,
      there were shares awarded as compensation for other services. These issuances
      for 2006 are detailed below by type of service performed.




The
      following shares were issued for services in
      2006






Numberof
              
              Grant
              
              Price
                  at
              
              Value
                  atServices
                  Rendered
              
              Shares
              
              Date
              
              Date
              
              Grant
                  DateEmployee
                  awards
              
              
              32,500
              
              
              1/26
              
              $
              1.64
              
              $
              53,250Investor
                  relations
              
              
              22,500
              
              
              1/26
              
              
              2.13
              
              
              47,925Professional
                  Services
              
              
              2,500
              
              
              1/26
              
              
              2.20
              
              
              5,500Professional
                  Services
              
              
              6,712
              
              
              2/1
              
              
              1.57
              
              
              10,534Legal
                  Services
              
              
              25,000
              
              
              2/5
              
              
              1.95
              
              
              48,750Professional
                  Services
              
              
              5,000
              
              
              2/9
              
              
              1.73
              
              
              8,650Product
                  Development services
              
              
              30,000
              
              
              2/28
              
              
              1.49
              
              
              44,700Marketing
                  services
              
              
              25,000
              
              
              3/27
              
              
              1.08
              
              
              27,000Software
                  Consulting services
              
              
              1,440
              
              
              3/22
              
              
              1.31
              
              
              1,886Legal
                  Services
              
              
              1,304
              
              
              3/22
              
              
              1.51
              
              
              1,969Investor
                  relations
              
              
              85,000
              
              
              4/12
              
              
              1.49
              
              
              126,650Professional
                  Services
              
              
              5,847
              
              
              4/12
              
              
              1.49
              
              
              8,712Employee
                  awards
              
              
              25,000
              
              
              4/12
              
              
              1.49
              
              
              37,253Professional
                  Services
              
              
              5,599
              
              
              5/1
              
              
              1.64
              
              
              9,182Director
                  awards
              
              
              145,000
              
              
              5/1
              
              
              1.53
              
              
              222,500Investor
                  relations
              
              
              26,000
              
              
              5/10
              
              
              1.27
              
              
              33,020Professional
                  Services
              
              
              6,142
              
              
              5/10
              
              
              1.27
              
              
              7,804Professional
                  Services
              
              
              26,000
              
              
              5/11
              
              
              1.30
              
              
              33,800Investor
                  relations
              
              
              15,000
              
              
              6/1
              
              
              1.64
              
              
              24,600Professional
                  Services
              
              
              22,900
              
              
              6/5
              
              
              1.80
              
              
              41,220Marketing
                  services
              
              
              10,000
              
              
              6/22
              
              
              1.85
              
              
              18,500Professional
                  Services
              
              
              6,750
              
              
              6/22
              
              
              1.85
              
              
              12,488Professional
                  Services
              
              
              25,000
              
              
              6/30
              
              
              1.90
              
              
              47,500Professional
                  Services
              
              
              15,000
              
              
              7/1
              
              
              1.27
              
              
              19,050Professional
                  Services
              
              
              13,560
              
              
              9/9
              
              
              1.31
              
              
              17,764Employee
                  awards
              
              
              12,500
              
              
              9/28
              
              
              1.71
              
              
              21,400Investor
                  relations s
              
              
              75,000
              
              
              9/28
              
              
              1.61
              
              
              120,736


F-15


Professional
                  Services
              
              
              100,000
              
              
              10/9
              
              
              .75
              
              
              74,800Marketing
                  services
              
              
              35,000
              
              
              10/20
              
              
              .71
              
              
              24,990Legal
                  Services
              
              
              10,000
              
              
              10/20
              
              
              .71
              
              
              7,140Professional
                  Services
              
              
              49,000
              
              
              10/20
              
              
              .84
              
              
              34,986Employee
                  awards
              
              
              5,000
              
              
              10/20
              
              
              .84
              
              
              3,570Total
                shares issued for services
              
              
              871,257
              
              
              
              
              
              
              
              
              1,197,826
   The
        following shares were issued for services in
        2005
 Numberof
                
                Grant
                
                Price
                    at
                
                Value
                    atServices
                    Rendered
                
                Shares
                
                Date
                
                Date
                
                Grant
                    Date


Advertising
              
              
              5,000
              
              
              2/24
              
              
              2.50
              
              
              12,500Lega1
                  services
              
              
              11,000
              
              
              5/2
              
              
              2.78
              
              
              30,580Financial
                  consulting
              
              
              100,000
              
              
              5/6
              
              
              2.60
              
              
              260,000Legal
                  services
              
              
              50,000
              
              
              5/6
              
              
              2.60
              
              
              130,000Investor
                  relations
              
              
              15,000
              
              
              4/1
              
              
              2.40
              
              
              36,000Public
                  relations
              
              
              20,000
              
              
              5/1
              
              
              2.55
              
              
              51,000Facility
                  search
              
              
              5,000
              
              
              5/1
              
              
              2.55
              
              
              12,750Marketing
                  services
              
              
              9,009
              
              
              7/29
              
              
              2.25
              
              
              20,270Investor
                  relations
              
              
              15,000
              
              
              9/6
              
              
              2.25
              
              
              33,750Financial
                  services
              
              
              2,500
              
              
              12/1
              
              
              2.60
              
              
              6,500Investor
                  relations
              
              
              21,186
              
              
              12/9
              
              
              2.35
              
              
              49,787Public
                  relations
              
              
              18,000
              
              
              12/9
              
              
              2.35
              
              
              42,300Investor
                  relations
              
              
              15,000
              
              
              12/9
              
              
              2.35
              
              
              35,250Total
                  shares issued to consultants
              
              
              286,695
              
              
              
              
              
              
              
              
              728,657Other
                  Issuances:Employee
                  awards
              
              
              20,000
              
              
              various
              
              
              2.40
              
              
              48,000Shares
                  issued in lieu of rent
              
              
              19,200
              
              
              various
              
              
              
              
              
              48,000Shares
                  issued as partialcompensation
                  of financing
              
              
              5,000
              
              
              various
              
              
              
              
              
              14,700Amortization
                  of cost of grants madein
                  prior periods
              
              
              
              
              
              
              
              
              
              
              
              5,113Total
                  Value of stock issued for services
              
              
              330,895
              
              
              
              
              
              
              
              
              836,500Value
                  of options granted for services
              
              
              -
              
              
              
              
              
              
              
              
              1,082,250Value
                  of equity items issued for services
              
              
              330,895
              
              
              
              
              
              
              
              
              1,918,750




**8.
      WARRANTS**





The
        Company has issued warrants both as part of “stock units” and as an integral
        part of convertible note issues. The value of the warrants and conversion
        options which are classified as liabilities are revalued each reporting period.
        These values are determined by a Black Scholes valuation model, consistent
        with
        the requirements of SFAS No.133. The following is a schedule of changes in
        warrants outstanding during the years 2006 and 2005. Each of these warrants
        is
        exercisable over five year periods from dates of issuance at prices ranging
        from
        $0.45-$1.56 per share. They were recorded at fair values determined by a
        Black
        Scholes valuation model.








F-16







Balance
                  December 31, 2004
              
              
              
              5,537,763Warrants
                    issued in conjunctionwith issuances of convertible
                    debt:February
                  issue
              
              
              2,884,615May
                  issue
              
              
              384,615October
                  issue
              
              
              774,000
              
              
              4,043,230Awarded
                  as partial fees to brokers:February
                  issue
              
              
              484,615May
                  issue
              
              
              38,462October
                  issue
              
              
              154,800
              
              
              677,877Warrants
                  exercised during 2005
              
              
              
              
              
              (593,000
              )Warrants
                  voided during 2005
              
              
              
              
              
              (200,000
              )Warrants
                  issued for services
              
              
              
              
              
              37,688Balance
                  December 31 2005
              
              
              
              
              
              9,503,558Warrants
                  issued in conjunction  with
                  issuances of 2006 convertible debt:Warrants
                  issued with $819,800 convertible debt through May, subsequently
                  converted
                  to equity
              
              
              
              
              
              525,513Warrants
                  issued with $150,000 convertible debt, March
              
              
              
              
              
              48,077Warrants
                  issued with $48,248 convertible debt, June
              
              
              
              
              
              24,124Warrants
                  issued with $400,000 convertible debt, July
              
              
              
              
              
              282,051Warrants
                  issued with $359,549 convertible debt, July
              
              
              
              
              
              110,808Total
                  warrants issued during 2006
              
              
              
              
              
              990,573Balance
                  December 31, 2006
              
              
              
              
              
              10,494,131








F-17





**9.****OPERATING
      AND ADMINISTRATIVE
      EXPENSES**





Details
      of operating and administrative expenses are presented below:


Twelve
                  Months ended December 31, 2006
              
              Twelve
                  Months ended December 31, 2005Salaries
                  and payroll taxes
              
              $
              1,123,791
              
              $
              626,450Options
                  expense
              
              
              93,000
              
              
              1,082,250Investor
                  relations
              
              
              11,629
              
              
              0Marketing
                  expense
              
              
              228,501
              
              
              272,879Development
                  costs
              
              
              519,134
              
              
              544,933Professional
                  fees
              
              
              665,945
              
              
              580,961Consulting
                  - administrative
              
              
              411,433
              
              
              610,550Settlement
                  expense
              
              
              531,655
              
              
              281,281Liquidated
                  damages
              
              
              214,247
              
              
              0Depreciation
                  & Amortizations
              
              
              69,019
              
              
              59,500Rent
              
              
              160,571
              
              
              87,627Insurance
              
              
              145,379
              
              
              179,739Director
                  awards
              
              
              222,500
              
              
              0Office
                  expense
              
              
              59,617
              
              
              224,235Other
                  expenses
              
              
              230,342
              
              
              507,191Totals
              
              $
              4,686,763
              
              $
              5,057,596






**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, 2006 the Company had
      NOL
      carryforwards of $25,257,084 available for Federal taxes and $17,091,769 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
                
                $
                206,9522012
                
                
                129,0922018
                
                
                486,7992019
                
                
                682,5892020
                
                
                501,1692021
                
                
                775,4032022
                
                
                590,7642023
                
                
                2,233,3862024
                
                
                2,493,4862025
                
                
                10,309,6342026
                
                
                6,847,810


During
      the year 2006, the Company realized $445,216 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 2005. These potential New Jersey
      offsets for periods prior to 2006 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:





F-18





Current
              
              Non-current
              
              TotalDeferred
                  Tax Assets
              
              $
              919,889
              
              $
              8,257,629
              
              $
              9,177,518Valuation
                  Allowance
              
              
              --
              
              
              8,257,629
              
              
              8,257,629Balance
                  Recognized
              
              $
              919,889
              
              $
              --
              
              $
              919,889





The
      entire balance of the valuation allowance relates to Federal taxes. Since state
      tax benefits for years prior to 2005 have been realized, no reserve is deemed
      necessary for the benefit of state tax losses of 2006. The valuation reserve
      increased by $2,413,868 during the year.





**11.
      RENTALS UNDER OPERATING LEASES**





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





Rent
      expense amount to $160,571 in 2006 and $87,627 in 2005.





**12.
      SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION**





Cash
      paid
      for interest and income taxes is presented below:


2006
              
              2005Interest
              
              $
              1,971
              
              $
              9,741Income
                  taxes
              
              
              500
              
              
              500




There
      were no non-cash investing activities during either 2006 or 2005. The following
      non-cash financing activities occurred:





a)
            Shares
                of common stock were issued for services during 2006 and 2005; these
                totaled 687,665 and 330,895 shares,
                respectively.





b)
            During
                2006, the following amounts were converted from debt to
                equity:





·  $819,800
      of convertible debt was converted into 525,513 shares of common
      stock.


·  $253,203
      of the May 2005 convertible debt issue was converted into 180,925 shares of
      stock.


·  $65,000
      of the October, 2005 convertible debt issue was converted into 41,666 shares
      of
      common stock.




c)
      During
      2005, $5,000,000 of convertible debt was converted into 3,846,154 shares of
      common stock.





d)
      During
      2006, the holder of the preferred stock issue elected to receive common stock
      in
      lieu of $112,500 of cash dividends. A total of 218,742 shares of common stock
      will be issued to satisfy this dividend.





During
                2005, the holder of the preferred stock issue also elected to receive
                common stock in lieu of a $51,563 cash dividend. A total of 136,041
                shares
                will be issued to satisfy this
                dividend.





e)
            During
                2006, $66,464 of interest that had accrued on the May, 2005 convertible
                debt issue and the $819,800 2006 convertible issue were settled by
                the
                issuance of 54,373 shares of common
                stock.





F-19





f)  During
      2006, the Company issued $198,248 of 4% debentures as part of a Modification
      Agreement with investors, whereby the investors yielded their rights to
      liquidated damages on the November, 2004 stock issue.





g)
            During
                2005, the Company issued 1,749,827 shares in settlement of stock
                sales
                that took place during 2004.





h)
            During
                2005, the Company issued 28,453 shares in settlement of interest
                due to
                investors.





i)
            During
                2005, the Company issued 187,939 shares in settlement of third party
                debt
                of a German company that the Company planned to acquire - see Note
                on
                FiLCO acquisition.





j)
              During
                  2006, the Company issued 2% Unsecured Convertible Debentures aggregating
                  $359,549 and Stock Purchase Warrants to acquire 110,808 shares
                  of our
                  common stock at $1.65 per share. The issuance satisfies an obligation
                  for
                  liquidated damages which would have totaled $278,647 by December
                  31,
                  2006.








**13.
      PROPOSED ACQUISITION OF FILCO**





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 $6,275,881 of advances to Filco
      that were outstanding at December 31, 2005, were secured by liens filed against
      the machinery and equipment owned by Filco which in 2003 was appraised at
      $5,400,000, and by liens filed against its intellectual property, which had
      not
      been appraised. Due to the uncertainty of the Company’s position under German
      bankruptcy law, $4,275,881 of the Filco advances were written off in 2005,
      and
      the remaining $2,000,000 was written off in 2006. In addition, $413,000 of
      Company inventory stored at the Filco plant was abandoned and written off during
      2006. During 2006, an auction of Filco assets was conducted by the receiver
      who
      did not acknowledge the Airtrax liens against property and
      equipment.





**14.
      RECENT ACCOUNTING PRONOUNCEMENTS**





The
      Financial Accounting Standards Board (FASB) has recently issued “FASB Staff
      Position EITF 00-19-2 which modifies the accounting treatment of derivatives
      that flow from financings involving embedded derivatives. This Staff Position
      is
      effective for financial statements for periods beginning January 1, 2007.
      Management believes that this will cause some change in the way the Company
      accounts for derivatives. Management is evaluating this position and has not
      made a determination as to the effective it will have on its financial
      statements.





The
        Company has reviewed other accounting pronouncements issued during 2006 and
        has
        concluded that they will have no effect on the Company's financials
        statements.








F-20


**15.**
                **GOING
                  CONCERN**
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As shown in the financial statements, the
        Company had a material working capital
        deficiency and an accumulated deficit as of December 31, 2006 and has
        experienced continuing losses. These factors raise substantial doubt about
        the
        ability of the Company to continue as a going concern. The financial statements
        do not include adjustments relating to the recoverability of assets and
        classification of liabilities that might be necessary should the Company
        be
        unable to continue in operation. The Company’s present plans, the realization of
        which cannot be assured, to overcome these difficulties include but are not
        limited to the continuing effort to raise capital in the public and private
        markets.





**16.**
            **COMMITMENTS
                AND CONTINGENCIES**





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.





In
      connection with the Acquisition Agreement, Mr. Filipov was to receive options
      to
      purchase 900,000 shares of the Company’s common stock at an exercise price of
      $0.01. The Company did not issue such options because the Acquisition Agreement
      was terminated and the conditions for such issuance were never fulfilled. Mr.
      Filipov has indicated that he believes that the conditions were fulfilled and
      that the Company owe’s him the options. The Company and Mr. Filipov are
      endeavoring to reach a mutually acceptable settlement.


**17.**
              **SUBSEQUENT
                EVENTS**





On
      February 20, 2007, the Company entered into a Securities Purchase Agreement
      (the
      "Purchase Agreement") with certain accredited and/or qualified institutional
      investors pursuant to which we sold an aggregate of $3,734,040 principal amount
      secured convertible debentures (the "Debentures") convertible into shares of
      our
      common stock, no par value (the "Common Stock") at a conversion price equal
      to
      $0.45 (the "Conversion Price"), for an aggregate purchase price of $3,219,000.
      In addition, the Company issued to the investors (i) warrants to purchase
      8,297,866 shares of the Company’s Common Stock (the "Warrants") at an exercise
      price equal to $0.54 per share, which represents 100% of the number of shares
      issuable upon conversion of the Debentures; (ii) callable warrants to purchase
      4,148,933 shares of our Common Stock at an exercise price equal to $0.75 per
      share, which represents 50% of the number of shares issuable upon conversion
      of
      the Debentures; and (iii) callable warrants to purchase 4,148,933 shares of
      our
      Common Stock at an exercise price equal to $1.25 per share, which represents
      50%
      of the number of shares issuable upon conversion of the Debentures
      (collectively, the "Callable Warrants").





The
      Debentures mature on February 20, 2009. The Company may in our discretion redeem
      the Debentures, subject to certain equity conditions being met by us as set
      forth in the Debentures, at a price equal to 150% of the principal balance,
      accrued interest, and all liquidated damages, if any, thereon that are requested
      to be redeemed. The Company’s obligations under the Purchase Agreement, the
      Debentures and the additional definitive agreements with respect to this
      transaction are secured by all of our assets. The Conversion Price of the
      Debentures is subject to adjustments for any failure by the Company to cause the
      Securities and Exchange Commission (the "SEC") to declare the initial
      registration statement covering the shares underlying the Debentures, the
      Warrants and the Callable Warrants effective.





The
      Conversion Price of the Debentures and the respective exercise prices of the
      Warrants and the Callable Warrants are subject to adjustment in certain events,
      including, without limitation, upon the Company’s consolidation, merger or sale
      of all of substantially all of the Company’s assets, a reclassification of our
      Common Stock, or any stock splits, combinations or dividends with respect to
      the
      Company’s Common Stock.





F-21










In
      addition, after such time as the SEC declares the registration statement
      effective, if (i) the volume weighted average price for each of the 10
      consecutive trading days (the "Measurement Period") exceeds $1.50 per share
      with
      respect to the $0.75 Callable Warrants and $2.50 with respect to the $1.25
      Callable Warrants, (ii) the daily volume for each trading day in such
      Measurement Period exceeds 250,000 shares of Common Stock per trading day,
      and
      (iii) the holder is not in possession of any information that constitutes,
      or
      might constitute, material non-public information, then we may, within one
      trading day of the end of such Measurement Period, call for cancellation of
      all
      or any portion of the Callable Warrants which have not yet been exercised at
      a
      price equal to $.001 per share.





Under
      the
      Registration Rights Agreement we entered into with the investors on February
      20,
      2007, we are obligated to file a registration statement on Form SB-2 to effect
      the registration of 130% the Common Stock issuable upon conversion of the
      Debentures and exercise of the Warrants, the Callable Warrants and the selling
      agent warrants (as described below) on the earlier of (i) 15 calendar days
      from
      the filing of our annual report on Form 10-KSB for the fiscal year ended
      December 31, 2006, or (ii) April 15, 2007 (the "Filing Date"). We are obligated
      to use our best efforts to cause the registration statement to be declared
      effective no later than 90 days after the Filing Date. If we do not file the
      registration statement by the Filing Date, or if the registration statement
      is
      not declared effective by the SEC within the deadline specified in the preceding
      sentence, we shall pay to the investors, as liquidated damages, an amount equal
      to 1.25% of the principal amount of the Debentures on a pro rata basis for
      each
      30-day period of such registration default.





On
      March
      22, 2007, the Company made a $100,000 principal payment and paid interest of
      $30,213. The Note was reduced to $300,000 and interest on the Note was reduced
      to 10%. Additionally, the Company issued 184,000 shares of common stock as
      settlement of the default period and paid a f ee
      of
      $12,000 to
      Source Capital Group, Inc., a registered representative of the Note-holder.
      The
      Company also agreed to make monthly interest payments. The conversion price
      was
      reset per the terms of the original Note.





On
      August
      25, 2006, the Company’s CEO, President and Chairman (“President”) died. The
      President’s employment contact expired on June 30, 2006 and was not renewed. The
      employment agreement did not provide for the exercise of the options upon death.
      The options granted in 2004 to the president were 550,000 options, valued at
      $187,500 and in 2005 he President was granted 750,000 options, valued at
      $975,000. On April 11, 2007, the Board of Directors extended the option for
      an
      18 month period commencing on the date Mr. Amico’s contract
      expired.








F-22





**Ite** **m
      8.**  **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None





**Item
      8A. Controls and Procedures**




*(a)
      Evaluation of disclosure controls and procedures.*





The
        Company, under the supervision and with the participation of its management,
        including the recently appointed principal executive officer and acting
        principal financial officer, have evaluated the effectiveness of the design
        and
        operation of its disclosure controls and procedures as defined in Rule 13a-15(e)
        of the Securities Exchange Act of 1934, as amended (the “Act”) as of the end of
        the period covered by this report (the “Disclosure Controls”). Based upon the
        Disclosure Controls evaluation, the recently appointed principal executive
        officer and acting principal financial officer have concluded that the Company’s
        disclosure controls and procedures were not effective in connection with
        preparing this Annual Report on Form 10-KSB due to a material weakness in
        the
        Company’s internal control over financial reporting, mainly its financial
        closing, review and analysis process and its ability to maintain adequate
        records. The
        Company determined that a restatement of its financial statements was
        necessary due to the issuance of convertible debentures and warrants
        (collectively, the “Securities”) in July 2006 for the settlement of liquidated
        damages from its October 2005 private placement. The Securities were not
        previously recorded on the Company’s books and records. Additionally, the
        Company determined that a correction of the accounting for the settlement
        of
        liquidated damages in July 2006, in connection with its November 2004 private
        placement, was also required.





The
          Company believes that the issues surrounding the restatement of this report,
          mainly the internal controls related to the financial closing, review,
          and
          analysis process and its ability to maintain adequate records has been
          addressed
          and the Company has taken steps to avoid the reoccurrence of this condition
          by
          adding additional qualified staff with SEC experience in the financial
          reporting
          and analysis area. The Company has instituted a policy requiring the controller,
          at the end of each quarter, to reconcile the accounting records to the
          securities issuance report prepared and maintained by the corporate secretary
          to
          ensure that all issuances have been properly recorded and that appropriate
          adjustments to previously issued securities are recorded, if necessary.
          The
          Company believes that the efforts taken by new management since the end
          of 2006
          to strengthen the Company’s internal controls will be effective in future
          periods.


A
          control
          system, no matter how well conceived and operated, can provide only reasonable,
          not absolute, assurance that the objectives of the control system are met.
          Further, the design of a control system must reflect the fact that there
          are
          resource constraints, and the benefits of controls must be considered relative
          to their costs. Because of the inherent limitations in all control systems,
          no
          evaluation of controls can provide absolute assurance that all control
          issues
          and instances of fraud, if any, within the Company have been detected.
          Because
          of the inherent limitations in a cost-effective control system, misstatements
          due to error or fraud may occur and not be detected.


The
        Company’s internal control over financial reporting has been modified during the
        Company’s most recent fiscal quarter to add additional staff to address
        deficiencies in the financial closing, review and analysis process, and improve
        the Company’s record keeping, which has materially affected the Company’s
        internal control over financial reporting.





**Item
      8B - Other Information**





None.








F-23





**PART** **III**


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





**Directors
      and Executive Officers**





**Name**
            **Age**
            **Position**Robert
                M. Watson
            59
            Chief
                Executive Officer, Acting Chief Financial Officer and
                DirectorD.
                Barney Harris
            46
            DirectorJames
                Hudson
            64
            DirectorWilliam
                Hungerville
            71
            DirectorFil
                Filipov
            60
            DirectorAndrew
                Guzzetti
            59
            Chairman
                of the Board of DirectorsPeter
                Amico, Jr.
            42
            DirectorRobert
                Borski, Jr.
            58
            DirectorNicholas
                Fenelli
            52
            Chief
                Operations Officer





Directors
      serve until the next annual meeting and until their successors are elected
      and
      qualified. The Directors of our company are elected by the vote of a
      majority in interest of the holders of the voting stock of our company and
      hold
      office until the expiration of the term for which he or she was elected and
      until a successor has been elected and qualified.





A
      majority of the authorized number of directors constitutes a quorum of the
      Board
      for the transaction of business. The directors must be present at the meeting
      to
      constitute a quorum. However, any action required or permitted to be taken
      by
      the Board may be taken without a meeting if all members of the Board
      individually or collectively consent in writing to the action.




Officers
      are appointed to serve for one year until the meeting of the board of directors
      following the annual meeting of stockholders and until their successors have
      been elected and qualified.




The
      principal occupations for the past five years (and, in some instances, for
      prior
      years) of each of our executive officers and directors, followed by our key
      employees, are as follows:




**Robert
      Watson -** Mr.
      Watson has been our Chief Executive Officer and a Director since November 1,
      2006. From 2001 until October 2006, Mr. Watson was President and CEO of Hartz
      & Company, a manufacturer of tailored clothing, with two production
      facilities in the United States with sales and marketing offices in New York
      City. From 1996 to 2001, Mr. Watson served as the Vice President, CFO and COO
      of
      America's Best Contacts and Eyeglasses, a retail chain with 118 locations,
      a
      full service laboratory and distribution center. His experience in the public
      arena was with Continental Can Company, from 1967 through 1986, where he served
      as Controller for the food packaging company with 29 manufacturing facilities
      and sales in excess of $1 billion. Mr. Watson received a BS in accounting from
      Fairleigh Dickinson University and an EMBA from the University of New
      Haven.





**D.
      Barney Harris -** Mr.
      Harris has been a Director 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.





**James
      Hudson** - Mr.
      Hudson has been a Director 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.





29








**Fil
      Filipov** - Mr.
      Filipov has been a Director since December 2004. Mr. Filipov has served as
      the
      Chairman of Supervisory Board of Tatra, a Czech Company, which is producing
      off
      highway trucks. . Mr. Filipov was President & CEO of Terex Cranes, a $1
      billion dollar business segment of Terex Corporation. He was responsible for
      strategic acquisitions and served as President and CEO from March 1995 through
      December 2003. From 1994 through 1996, Mr. Filipov was the Managing Director
      of
      Clark Material Handling Company in Germany (Filco GmbH).





**Andrew
      Guzzetti -** Mr.
      Guzzetti **** has
      been **** a
      director since April 1, 2006 and Chairman since August 31, 2006. 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 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.





**Peter
      Amico, Jr. -** From
      1988
      to the present, Mr. Amico has served as a police officer in the State of New
      Jersey where he has managed and trained personnel and directed police
      operations. Mr. Amico served as a Police Investigator from 1994 to 1995 and
      was
      promoted to Supervisor in 1996. From 1983 to 1987, he served in the United
      States Marine Corps. where his service included police duties and training
      coordination. In addition, Mr. Amico received an Associates Degree in Law
      Enforcement from Gloucester County College in 2003.





**Robert
      Borski, Jr. -** From
      1982
      to 2003, Mr. Borski represented the Third Congressional District of Pennsylvania
      for ten terms in the United States House of Representatives, where he was a
      senior member of the House Transportation and Infrastructure Committee and
      a
      vocal advocate for an improved national transportation system. He was awarded
      the American Public Transportation Association’s National Distinguished Service
      Award in 2002 and the Silver Order of the de Fleury Medal from the Army
      Engineering Association. In 2003, Mr. Borski formed Borski Associates, a
      government relations firm specializing in transportation and economic
      development issues. He is a driving force behind efforts to revitalize the
      North
      Delaware riverfront, an area of abandoned industrial sites, into a center of
      residential and commercial activity. Currently, Mr. Borski serves on the Board
      of Directors of the Northeast-Midwest Institute, an organization promoting
      economic vitality for Northeastern and Midwestern states, and on the Board
      of
      Directors of Pennoni Associates, a civil engineering firm. Mr. Borski received
      a Bachelor of Arts degree from the University of Baltimore in 19 71.





**Nicholas
      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.





**COMMITTEES
      OF THE BOARD**




We
      currently have no audit committee, compensation committee, nominations and
      governance committee of our board of directors.




**INDEBTEDNESS
      OF EXECUTIVE OFFICERS AND DIRECTORS**




No
      executive officer, director or any member of these individuals' immediate
      families or any corporation or organization with whom any of these individuals
      is an affiliate is or has been indebted to us since the beginning of our last
      fiscal year.





30








**FAMILY
      RELATIONSHIPS**




There
      are
      no family relationships among our executive officers and directors.




**LEGAL
      PROCEEDINGS**




As
      of the
      date of this prospectus, there are no material proceedings to which any of
      our
      directors, executive officers, affiliates or stockholders is a party adverse
      to
      us.




**CODE
      OF ETHICS**




We
      have
      not adopted a Code of Ethics within the meaning of Item 406(b) of Regulation
      S-B
      of the Securities Exchange Act of 1934.





**Section
      16(a) Beneficial Ownership Compliance**





Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      executive officers and persons who beneficially own more than ten percent of
      a
      registered class of our equity securities to file with the SEC initial reports
      of ownership and reports of change in ownership of common stock and other equity
      securities of our company. Officers, directors and greater than ten percent
      stockholders are required by SEC regulations to furnish us with copies of all
      Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4
      and
      amendments thereto furnished to us under Rule 16a-3(e) during the fiscal year
      ended December 31, 2006, and Forms 5 and amendments thereto furnished to us
      with
      respect to the fiscal year ended December 31, 2006, we believe that during
      the
      year ended December 31, 2006, our executive officers, directors and all persons
      who own more than ten percent of a registered class of our equity securities
      complied with all Section 16(a) filing requirements.







31








**Item** **10.**  **Executive
      Compensation**




The
      following table sets forth the cash compensation (including cash bonuses) paid
      or accrued by us to our Chief Executive Officer and our four most highly
      compensated officers other than the Chief Executive Officer as of December
      31,
      2006 and December 31, 2005.




Name
                & Principal Position
            
            Year
            
            Salary
              ($)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
                Awards
              ($)
            
            Non-Equity
                Incentive Plan Compensation ($)
            
            Change
                in Pension Value and Non-Qualified Deferred Compensation
                Earnings
              ($)
            
            All
                Other Compensation ($)
            
            Total
              ($)Peter
                Amico,
              CEO,
                President & Director
            
            
            2006
              2005
            
            
            $168,269
              $303,751
            
            
            $0
              $0
            
            
            0
              0
            
            
            0
              $975,000
            
            
            0
              0
            
            
            0
              0
            
            
            0
              0
            
            
            $168,269
              $303,751Nicholas
                Fenelli, Vice President & COO
            
            
            2006
              2005
            
            
            $96,798
              $78,202
            
            
            $0
              $0
            
            
            0
              0
            
            
            $24,000
              $53,500
            
            
            0
              0
            
            
            0
              0
            
            
            0
              0
            
            
            $96,798
              $78,202Robert
                M. Watson. CEO, President & Director
            
            
            2006
              2005
            
            
            $11,538
              $0
            
            
            $50,000
              0
            
            
            
            
            
            $45,000
              0
            
            
            0
              0
            
            
            0
              0
            
            
            0
              0
            
            
            $61,538
              0





**Outstanding
      Equity Awards at Fiscal Year-End Table.**





The
      following table sets forth information with respect to grants of options to
      purchase our common stock to the named executive officers at December 31,
      2006.








32


Option
                  Awards
              Stock
                  Awards





Name
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Securities
                Underlying
              Unexercised
              Unearned
              Options
              (#)
            Option
              Exercise
              Price
              ($)
            Option
              Expiration
              Date
            Number
              of
                Shares
              or
                Units
              of
                Stock
              That
                Have
              Not
              Vested
              (#)
            Market
              Value
                of
              Shares
                or
              Units
                of
              Stock
              That
                Have
              Not
              Vested
              ($)
            Equity
              Incentive
              Plan
                Awards:
              Number
              of
              Unearned
              Shares,
              Units
                or
              Other
                Rights
              That
                Have
              Not
              Vested
              (#)
            Equity
                Incentive
              Plan
                Awards:
              Market
                or Payout
              Value
              of
              Unearned
              Shares,
              Units
                or
              Other
              Rights
              That
                Have
              Not
              Vested
              ($)-Robert
                M. Watson
            -300,000
            -0
            -400,000
            -$0.46
            -Nov.
                30, 2008
            -0
            -0
            -0
            -0





**Director
      Compensation**





The
      following table sets forth with respect to the named directors, compensation
      information inclusive of equity awards and payments made at December 31,
      2006.







Name
              (a)
            Fees
                Earned or Paid in Cash
              ($)
              (b)
            Stock
                Awards
              ($)
              (c)
            Option
              Awards
                ($)
              (d)
            Non-Equity
                Incentive Plan Compensation ($)
              (e)
            Change
                in Pension Value and Nonqualified Deferred Compensation Earnings
              (f)
            All
                Other Compensation
              ($)
              (g)
            Total
              ($)
              (h)-Andrew
                Guzzetti
            -
            20,000
              -
            $32,800
            0
              -
            0
              -
            0
              -
            $32,800
              --Robert
                M. Watson
            -
            -0
            -
            0-
            0-
            0-
            -James
                Hudson (1)-
            -
            35,000-
            -$52,300
            0-
            0-
            0-
            --$52,300William
                Hungerville (1)-
            -
            35,000-
            -$52,300-
            0-
            0-
            0-
            -$52,300-D.
                Barney Harris-(1)
            -
            35,000
            -$52,300-
            0-
            0-
            0-
            -$52,300-Fil
                Filipov-
            -
            0
            -
            0-
            0-
            0-
            -Robert
                Borski-
            -
            20,000-
            $32,800-
            0-
            0-
            0-
            $32,800-Peter
                Amico, Jr,-
            -
            0
              -
            -
            0-
            0-
            0-
            -







33





(1.)
      Includes 15,000 shares issued for director fees earned in 2005.





**EMPLOYMENT
      AGREEMENTS**




On
      December 26, 2006, we entered into an Employment Agreement dated as of December
      1, 2006 with Robert M. Watson, our President and Chief Executive Officer.





Pursuant
      to the Employment Agreement, we will employ Mr. Watson for a period of 2 years
      commencing December 1, 2006 unless terminated upon 30 days prior written notice
      by either party pursuant to the terms set forth therein. From December 1, 2006
      through November 30, 2007, Mr. Watson will be paid an annual base salary of
      $150,000 (“Base Salary”). In addition, Mr. Watson was paid a start-up bonus in
      the amount of $50,000 for services rendered by him to our company prior to
      the
      execution of the Employment Agreement and Mr. Watson will be issued options
      to
      purchase 300,000 shares of our common stock at a price equal to $0.46 per share.
      From December 1, 2007 through November 30, 2008, Mr. Watson’s Base Salary will
      increase to $200,000 per year. On December 1, 2007 and June 1, 2008, Mr. Watson
      shall be issued options to purchase 200,000 and 200,000 shares of our common
      stock, respectively, each at a price equal to $0.46 per share. Further, Mr.
      Watson will be eligible to earn an annual cash bonus at the discretion of our
      Board of Directors based on meeting performance objectives and bonus criteria.





During
      the term of his employment and for a period thereafter, Mr. Watson will be
      subject to confidentiality and non-competition provisions, subject to standard
      exceptions.




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




The
      following table sets forth certain information regarding beneficial ownership
      of
      our common stock as of April 12, 2007.





·  by
      each
      person who is known by us to beneficially own more than 5% of our common stock;


·  by
      each
      of our officers and directors; and


·  by
      all of
      our officers and directors as a group.


NAME
                AND ADDRESS
              OF
                OWNER
            TITLE
                OF
              CLASS
            NUMBER
                OF
              SHARES
                OWNED (1)
            PERCENTAGE
                OF CLASS (2)Robert
                M. Watson
            Common
                Stock
            320,000
                (4)
            1.30%200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012D.
                Barney Harris
            Common
                Stock
            221,562
            *200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012James
                Hudson
            Common
                Stock
            140,800
                (3)
            *200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012William
                Hungerville
            Common
                Stock
            221,000
            *200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012Fil
                Filipov
            Common
                Stock
            60,000
            *200
                Freeway Drive, Unit 1
                Blackwood,
                  NJ 08012


Andrew
                Guzzetti
            Common
                Stock
            190,000
            *200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012Peter
                Amico, Jr.
            Common
                Stock
            52,500
            *200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012





34




Robert
                Borski, Jr.
            Common
                Stock
            78,504
            *200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012Nicholas
                Fenelli
            Common
                Stock
            138,500
            *200
                Freeway Drive, Unit 1Blackwood,
                NJ 08012All
                Officers and Directors
            Common
                Stock
            1,442,866
            5.9%As
                a Group (9 persons)




*
      Less
      than 1%.





(1)
      Beneficial Ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or investment
      power with respect to securities. Shares of common stock subject to options
      or
      warrants currently exercisable or convertible, or exercisable or convertible
      within 60 days of April 12, 2007 are deemed outstanding for computing the
      percentage of the person holding such option or warrant but are not deemed
      outstanding for computing the percentage of any other person.





(2)
      Based
      upon 24,376,887  shares
      issued and outstanding on April 12, 2007.





(3)
      Includes 44,500 shares owned by a corporation owned by Mr. Hudson.





(4)
      Includes 300,000 options for common stock issued in connection with Mr. Watson’s
      employment contract dated December 1, 2006.





**Item** **12.**  **Certain
      Relationships and Related Transactions, and Director Independence**






Arcon
      Corp., a corporation wholly owned by the estate of our former chairman and
      president Peter Amico, owns 275,000 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 275,000
      shares of preferred stock with 10 votes per share, or a total of 2,750,000
      voting shares. The aforementioned equals a total of 4,620,623 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 trading price of the common stock on the last day
      of
      the dividend period. 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.





35







Since
      the
      preferred shares are not convertible and thus held no exit method it was
      determined to provide a dividend. The $5.00 per share was the price used to
      satisfy the issue.







Arcon
      is
      entitled to a 5% dividend on the 275,000 shares of preferred stock which it
      owns. This dividend is based on preferred stock value of $5 per share. The
      holder of the preferred stock has the right to elect to receive its dividends
      in
      common stock in lieu of cash. The dividends accrued through 2001 have been
      satisfied. Dividends accrued subsequent to 2001 have been paid partly in cash
      and partly by the issuance of common stock, as follows:




Dividends
                  accrued during 2002 - 2005
              
              
              
              
              $
              275,000Cash
                  payment during 2004
              
              $
              131,771Dividend
                  to be paid in common stock
              
              
              51,562
              
              
              183,333Balance
                  unpaid at 12/31/05
              
              
              
              
              
              91,667Dividends
                  accrued during 2006
              
              
              
              
              
              68,750Dividends
                  paid in 2006 in common stock
              
              
              
              
              
              112,500Balance
                  unpaid at 12/31/06
              
              
              
              
              $
              47,917






The
      51.562 amount was originally satisfied by the issuance of 100,000 shares of
      preferred stock. Early in 2007 it was determined that the issuance of preferred
      stock to satisfy preferred dividends is not permitted by the certificate of
      incorporation. The 100,000 preferred shares were, therefore, retrieved and
      will
      be replaced in 2007 by 136,041 shares of common stock. The $112,500 dividend
      payment will be made in 2007 by the issuance of 218,742 shares of common
      stock.




The
      financial statements at December 31, 2004 reflect 275,000 shares of preferred
      stock outstanding and disclosed that an additional 100,000 shares of preferred
      stock were deemed the equivalent of 221,892 shares of common stock that would
      have been required to settle an equivalent amount of preferred dividends. We
      have determined that the number of shares deemed the equivalent of the preferred
      stock dividend and has been recalculated based on our Articles of Incorporation,
      as amended, including on April 30, 2000. Accordingly, we will issue 136,041
      shares of common stock to the sole holder of the preferred stock as payment
      of
      $51,562 of preferred stock dividends less other adjustments resulting from
      the
      recalculation of the number of common shares required to pay preferred stock
      dividends, subsequently approved. During the period January 1, 2003 through
      June
      30, 2006, 200,238 shares of common stock were issued in excess of the amount
      required.





**Item** **13.**  **Exhibits.**




Exhibit No.
            Description  3.1
            Certificate
                of Incorporation of Airtrax, Inc. dated April 11, 1997, filed as
                an
                exhibit to the Current Report on Form 8-K filed with the Securities
                and
                Exchange Commission on November 19, 1999 and incorporated herein
                by
                reference.





3.2
            Certificate
                of Correction of the Certificate of Incorporation dated April 30,
                2000,
                filed as an exhibit to the Current Report on Form 8-K filed with
                the
                Securities and Exchange Commission on November 17, 1999 and incorporated
                herein by reference.





3.3
            Certificate
                of Amendment of Certificate of Incorporation dated March 19, 2001,
                filed
                as an exhibit to the Current Report on Form 8-K filed with the Securities
                and Exchange Commission on November 17, 1999 and incorporated herein
                by
                reference.





3.4
            Amended
                and Restated By-Laws , filed as an exhibit to the Current Report
                on Form
                8-K filed with the Securities and Exchange Commission on November
                19, 1999
                and incorporated herein by
                reference.





36










4.1
            Form
                of Common Stock Purchase Warrant issued to investors pursuant to
                the May
                2004 private placement. (To be filed at a later
                date)








4.2
            Form
                of Common Stock Purchase Warrant dated as of November 22, 2004 and
                November 23, 2004, filed as an exhibit to the Current Report on Form
                8-K
                filed with the Securities and Exchange Commission on November 30,
                2004 and
                incorporated herein by reference.





4.3
            Form
                of Series A Convertible Note dated as of February 11, 2005, filed
                as an
                exhibit to the Current Report on Form 8-K filed on February 11, 2005
                and
                incorporated herein by reference.





4.4
            Form
                of Class A Common Stock Purchase Warrant dated as of February 11,
                2005,
                filed as an exhibit to the Current Report on Form 8-K filed on February
                11, 2005 and incorporated herein by
                reference.





4.5
            Form
                of Class B Common Stock Purchase Warrant dated as of February 11,
                2005,
                filed as an exhibit to the Current Report on Form 8-K filed on February
                11, 2005 and incorporated herein by
                reference.





4.6
            Form
                of Broker's Common Stock Purchase Warrant dated as of February 11,
                2005,
                filed as an exhibit to the Current Report on Form 8-K filed on February
                11, 2005 and incorporated herein by
                reference.





10.1
            Employment
                agreement dated July 12, 1999, by and between Airtrax, Inc. and D.
                Barney
                Harris, filed as an exhibit to the Current Report on Form 8-K/A filed
                with
                the Securities and Exchange Commission on January 13, 2000 and
                incorporated herein by reference.





10.2
            Consulting
                Agreement by and between MAS Financial Corp. and Airtrax, Inc. dated
                October 26, 1999, filed as exhibit to the Current Report on Form
                8-K filed
                with the Securities and Exchange Commission on November 19, 1999
                and
                incorporated herein by reference.





10.3
            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 Current Report on Form 8-K
                filed
                on March 15, 2004 and incorporated herein by
                reference.





10.4
            Joinder
                to the Purchase Agreement, dated November 23, 2004, by and among
                Airtrax,
                Inc., Excalibur Limited Partnership, Stonestreet Limited Partnership
                and
                Linda Hechter, filed as an exhibit to the Current Report on Form
                8-K filed
                on November 30, 2004 and incorporated herein by
                reference.





10.5
            Registration
                Rights Agreement, dated November 22, 2004, by and among Airtrax,
                Inc.,
                Excalibur Limited Partnership, Stonestreet Limited Partnership, Whalehaven
                Capital Fund and First Montauk Securities Corp, filed as an exhibit
                to the
                Current Report on Form 8-K filed on November 30, 2004 and incorporated
                herein by reference.





10.6
            Joinder
                to the Registration Rights Agreement, dated November 23, 2004, by
                and
                among Airtrax, Inc., Excalibur Limited Partnership, Stonestreet Limited
                Partnership, Linda Hechter and First Montauk Securities Corp., filed
                as an
                exhibit to the Current Report on Form 8-K filed on November 30, 2004
                and
                incorporated herein by reference.





10.8
            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
                Current Report on Form 8-K filed on February 11, 2005 and incorporated
                herein by reference.





10.9
            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 Current Report
                on Form
                8-K filed on June 6, 2005 and incorporated herein by
                reference.








37







10.10
            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
                Current Report on Form 8-K filed on June 6, 2005 and incorporated
                herein
                by reference.





10.11
            Series
                B Unsecured Convertible Debenture of Airtrax, Inc., filed as an exhibit
                to
                the Current Report on Form 8-K filed on June 6, 2005 and incorporated
                herein by reference.





10.12
            Form
                of Stock Purchase Warrant of Airtrax, Inc., filed as an exhibit to
                the
                Current Report on Form 8-K filed on June 6, 2005 and incorporated
                herein
                by reference.





10.13
            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 Current
                Report on Form 8-K filed on June 6, 2005 and incorporated herein
                by
                reference.





10.14
            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 Current Report
                on
                Form 8-K filed on October 24, 2005 and incorporated herein by
                reference.





10.15
            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 Current Report on Form 8-K filed on October 24, 2005 and incorporated
                herein by reference.





10.16
            Series
                C Unsecured Convertible Debenture of Airtrax, Inc., filed as an exhibit
                to
                the Current Report on Form 8-K filed on October 24, 2005 and incorporated
                herein by reference.





10.17
            Form
                of Stock Purchase Warrant of Airtrax, Inc., filed as an exhibit to
                the
                Current Report on Form 8-K filed on October 24, 2005 and incorporated
                herein by reference.





10.18
            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 Registration Statement on Form SB-2 filed on January 11, 2006
                and
                incorporated herein by reference.





10.19
            Promissory
                Note of Filco GmbH dated as of January 15, 2005 issued to Airtrax,
                Inc.,
                filed as an exhibit to the Registration Statement on Form SB-2 filed
                on
                January 11, 2006 and incorporated herein by
                reference.





10.20
            Promissory
                Note of Filco GmbH dated as of June 5, 2005 issued to Airtrax, Inc.,
                filed
                as an exhibit to the Registration Statement on Form SB-2 filed on
                January
                11, 2006 and incorporated herein by
                reference.





10.21
            Assignment
                and Purchase Agreement dated as of August 25, 2005 by and between
                Werner
                Faenger and Airtrax, Inc., filed as an exhibit to the Registration
                Statement on Form SB-2 filed on January 11, 2006 and incorporated
                herein
                by reference.





10.22
            Promissory
                Note of Filco GmbH with Guarantees dated as of November 25, 2005
                issued to
                Airtrax, Inc., filed as an exhibit to the Registration Statement
                on Form
                SB-2 filed on January 11, 2006 and incorporated herein by
                reference.





10.23
            Form
                of Subscription Agreement of Airtrax, Inc. dated as of February 13,
                2006,
                filed as an exhibit to the Current Report on Form 8-K filed on February
                27, 2006 and incorporated herein by
                reference.





10.24
            Series
                D Unsecured Convertible Debenture of Airtrax, Inc., filed as an exhibit
                to
                the Current Report on Form 8-K filed on February 27, 2006 and incorporated
                herein by reference.





38





10.25
            Form
                of Stock Purchase Warrant of Airtrax, Inc., filed as an exhibit to
                the
                Current Report on Form 8-K filed on February 27, 2006 and incorporated
                herein by reference.





31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
                promulgated under the Securities and Exchange Act of 1934, as
                amended.


31.2
              Certification
                  of the acting Chief Financial Officer pursuant to Rule 13a-14 and
                  Rule 15d
                  14(a), promulgated under the Securities and Exchange Act of 1934,
                  as
                  amended.





32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Executive
                Officer).





32.2
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 (Chief Financial
                Officer).





**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 $76,803 and $23,000, respectively, for the years ended
      December 31, 2006 and December 31, 2005.




**AUDIT-RELATED
      FEES**




We
      incurred fees of $47,947 and $15,000, respectively, for the years ended December
      31, 2006 and December 31, 2005 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." In
      addition, we incurred 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 $1,045
      and
      $750 respectively, for the fiscal years ended December 31, 2006 and December
      31,
      2005.




**ALL
      OTHER FEES**




We
      did
      not incur any fees for other professional services rendered by our independent
      auditors during the years ended December 31, 2006 and December 31,
      2005.





The
      Board
      of Directors has considered whether the provision of non-audit services is
      compatible with maintaining the principal accountant's
      independence.








39





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.







**AIRTRAX, INC.**Date:
                  May 3, 2007
              By:**/s/
                  ROBERT M. WATSON
                
                Robert
                  M. WatsonChief
                  Executive Officer (Principal Executive Officer) and Acting Chief
                  Financial
                  Officer (Principal Financial and Accounting
                  Officer)





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





Name
              Position
              Date/s/
                  ROBERT M. WATSON
                
                Robert
                  M. Watson
              Chief
                  Executive Officer (Principal Executive Officer), Acting Chief Financial
                  Officer (Principal Financial and Accounting Officer) and
                  Director
              May
                  3, 2007/s/
                  ANDREW GUZZETTI
                Andrew
                  Guzzetti
              Chairman
                  of the Board and Director
              May
                  3, 2007/s/
                  D. BARNEY HARRIS
                
                D.
                  Barney Harris
              Director
              May
                  3, 2007James
                  Hudson
              Director
              May
                  3, 2007/s/
                  WILLIAM HUNGERVILLE
                
                William
                  Hungerville
              Director
              May
                  3, 2007/s/
                    Fil
                    FilipovFILFILIPOV
              Director
              May
                  3, 2007Peter
                  Amico, Jr.
              Director
              May
                  3, 2007/s/
                  ROBERT BORSKI, JR.
                
                Robert
                  Borski, Jr.
              Director
              May
                  3, 2007











40