**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549







**FORM
      10-KSB/A**


**(Amendment
      No. 1)**




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




**FOR
      FISCAL YEAR ENDED DECEMBER 31, 2005**




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




**FOR
      THE TRANSITION PERIOD FROM __ TO __**




001-16237


*Commission
      File Number*




**AIRTRAX,
      INC.**


(Name
      of
      small business issuer in its charter)




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




200
      Freeway Drive, Unit One, Blackwood, NJ 08012


(Address
      of principal executive offices)




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




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




Securities
      registered under Section 12(g) of the Exchange Act: Common




Stock,
      no
      par value.




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act, during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes [X ] No [
 ]




Check
      if
      disclosure of delinquent filers in response to Item 405 of Regulation S-B is
      not
      contained in this form, and no disclosure will be contained, to the best of
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. [  ].




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




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




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




**APPLICABLE
      ONLY TO CORPORATE REGISTRANTS**




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







**DOCUMENTS
      INCORPORATED BY REFERENCE**




NONE.




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








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, 2005 filed on Form 10-KSB, together with our quarterly reports on Form
      10-QSB for the periods ending June 30 and September 30, 2005 and March 31,
      June
      30, and September 30, 2006, respectively, was necessary due to the
      issuance of our preferred stock as payment of dividends in lieu of cash
      dividends on April 1, 2005 with respect to previously issued shares of preferred
      stock. Our Articles of Incorporation, as amended, 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.
      We determined that we should take this action to prevent future reliance on
      previously issued financial statements set forth in our Reports .




We
      also
      concluded, in light of a review of our 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”) [update for 00-19-2 update issued], that the warrants
      associated with our November 22, 2004 stock issued to certain accredited and/or
      qualified institutional purchasers pursuant to Purchase Agreement dated as
      of
      November 22, 2004 contained embedded derivatives due to the registration rights
      and liquidated damages provisions and conversion privileges contained in the
      Notes and Warrants. The embedded derivative provisions provide that we will
      pay
      liquidated damages in connection with the delay in filing an SB-2 registration
      statement. Accordingly,
      we determined that we should take this action to prevent future reliance on
      previously issued financial statements set forth in our Quarterly Reports on
      Form 10-QSB for
      the
      three months ended March 31, 2005 and the three and six months ended June 30,
      2005. In reporting periods subsequent to the issuance of June 30, 2005, the
      embedded derivative has been revalued with the change to fair value recorded
      as
      income/(expense). Such
      financial statements should no longer be relied upon.





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.




We
      also
      corrected typographical errors. 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 10-QSB/A as Exhibits 31.1, 31.2
      and
      32.1, respectively.







**TABLE
      OF CONTENTS**




**Page****PART
                  I**Item
                  1. Description of Business
              
              
              3Item
                  2. Description of Property
              
              
              13Item
                  3. Legal Proceedings
              
              
              13Item
                  4. Submission of Matter to Vote of Security
                  Holders
              
              
              13**PART
                  II**Item
                  5. Market for Common Equity and Related Stockholder Matters
              
              
              13Item
                  6. Management's Discussion and Analysis or
                  Plan of Operation
              
              
              18Item
                  7. Financial Statements
              
              
              F-1
                  to F-20Item
                  8. Changes in and Disagreements with Accountants on Accounting
and
                  Financial Disclosure
              
              
              29Item
                  8A. Controls and Procedures
              
              
              29Item
                  8B. Other Information
              
              
              29**PART
                  III**Item
                  9. Directors, Executive Officers, Promoters and Control Persons;
Compliance
                  with Section 16(a) of the Exchange Act
              
              
              30Item
                  10. Executive Compensation
              
              
              31Item
                  11. Security Ownership of Certain Beneficial Owners and Management
and
                  Related Stockholder Matters
              
              
              32Item
                  12. Certain Relationships and Related Transactions
              
              
              34Item
                  13. Exhibits
              
              
              37Item
                  14. Principal Accountant Fees and Services
              
              
              41Signatures
                  and Certifications
              
              
              42










**PART
      I**




**NOTE
      REGARDING FORWARD LOOKING INFORMATION**




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




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




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




**ITEM
      1. DESCRIPTION OF BUSINESS**




**Company
      History**




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




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




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




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




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




**INTRODUCTION**




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







3




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




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




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




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




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




**OMNI-DIRECTIONAL
      TECHNOLOGY**




**Prior
      History**




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




**Technology
      Description**




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




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




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




4





**EXISTING
      AND PROPOSED PRODUCTS**




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




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




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




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




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




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


5


Omni-directional
      Wheelchair. Over 43 million disabled and aging Americans are protected by the
      Americans with Disabilities Act of 1990 (ADA). This law became effective in
      1991, and now requires businesses with over 15 employees to comply with
      specifications which enable persons with disabilities access buildings. As
      a
      result of increased physical access, we believe that persons with disabilities
      will experience an increased
      number of employment and other opportunities. We have conducted a preliminary
      design of an omni-directional wheel for wheelchair applications. Based upon
      the
      preliminary design, we believe that we can retail an omni-directional wheelchair
      for under $6,000. Wheelchair pricing ranges from $3,500 for a standard unit
      to
      $30,000 for units with improved functionality such as stair climbing capability. We
      will
      require additional funds to complete a structural and ergonomic design of a
      proto-type wheelchair, and to construct the proto-type for further evaluation
      and testing. We cannot predict whether we will be able to successfully develop
      this product.




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




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




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




**CURRENT
      OPERATIONS**




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




6


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




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




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




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




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




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




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


7
  **Transaction
      with Filco GmbH**






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




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




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




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




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




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


8




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




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




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




**History
      of Filco GmbH and History of Our Relationship with Filco**




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




Since
      that time, Filco has operated with very limited operating capital, and had
      unresolved union issues. As a result, Filco has not operated profitably, or
      at
      all. It was not until 2005 that Filco has commenced manufacturing after
      receiving operating capital from us in the form of unsecured loans, then secured
      loans. In addition, in 2005 Filco resolved its worker's union issues (as further
      described in Management's Discussion and Analysis of Financial Condition and
      Results of Operations"). During 2005, Filco has manufactured and or
      reconditioned no more than 14 lift trucks. Filco has manufactured (assembled)
      several prototype tractors for a Russian company which has signed agreements
      with Filco to continue the assembly at its plant. Due to Filco's filing for
      receivership on January 20, 2006, this contract has been terminated and the
      prototype tractors were removed from the facility.




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




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




9


**Business
      Purposes of the Proposed Asset Purchase of Filco GmbH**






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




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




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




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




**MANUFACTURING
      AND SUPPLIERS**




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




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




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




10




**DISTRIBUTION
      AND PRODUCT MARKETING**




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




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




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




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




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




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




**Product
      Warranty Policies**




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




11




**FACILITIES**




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




**MARKETS**




**Forklifts**




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




**Aerial
      Work Platforms**




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




**COMPETITION**




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




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




**PATENTS
      AND PROPRIETARY RIGHTS**




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




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





12




**PRODUCT
      LIABILITY**




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




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




**EMPLOYEES**




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




**ITEM
      2. DESCRIPTION OF PROPERTY**




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




**ITEM
      3. LEGAL PROCEEDINGS.**




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




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




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




**PART
      II**




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




**MARKET
      FOR OUR COMMON SHARES**




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


$High
              
              $Low2006
                  First Quarter
              
              
              2.39
              
              
              1.082005
                  First Quarter
              
              
              3.07
              
              
              1.83Second
                  Quarter
              
              
              2.95
              
              
              1.85Third
                  Quarter
              
              
              4.70
              
              
              2.07Fourth
                  Quarter
              
              
              3.40
              
              
              2.202004
                  First Quarter
              
              
              1.60
              
              
              0.65Second
                  Quarter
              
              
              1.45
              
              
              0.75Third
                  Quarter
              
              
              1.15
              
              
              0.61Fourth
                  Quarter
              
              
              3.35
              
              
              0.81




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




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




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





13






EQUITY
                  COMPENSATION PLAN INFORMATIONNumber
                  of securities tobe
                  issued upon exercise
              
              Weighted-averageof
                  outstanding options,
              
              exercise
                    price ofwarrants
                  and rights
              
              outstanding
                    options,
              
              Number
                  of securities(excluding
                  securities
              
              warrants
                  and rights under equity
              
              remaining
                  availablereflected
                  in column (a))
              
              compensation
                  plans
              
              for
                  future issuancePlan
                    category
              
              (a)
              
              (b)
              
              (c)Equity
                  compensation
              
              
              -0-
              
              
              -0-
              
              
              -0-plans
                  approved bysecurity
                  holdersEquity
                  compensation
              
              
              -0-
              
              
              -0-
              
              
              -0-plans
                  not approvedby
                  security holdersTotal
              
              
              -0-
              
              
              -0-
              
              
              -0-




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




**RECENT
      SALES OF UNREGISTERED EQUITY SECURITIES**




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




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




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




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




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




On
      October 28, 2005, we held our second and final closing with certain accredited
      investors pursuant to a right of participation which was granted to such
      investors under that certain securities purchase agreement dated as of November
      23 and 24, 2004 and the subscription agreement dated as of February 11,2005.
      In
      connection with the second closing, we sold an aggregate of $548,000 principle
      amount of Debentures convertible into shares of our common stock, no par value,
      at a conversion price of $2.00 per share, and issued 275,000 warrants
      exercisable at $3.25 per share for an aggregate purchase price of $
      548,000.


14


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




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




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




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




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




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




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




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




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




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




15




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




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




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




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




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




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




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




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




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




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




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




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




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




In
      April
      and November of 2003, we issued an aggregate of 57,139 shares of common stock
      to
      a certain financial consultant as compensation for services performed on our
      behalf. The closing price of our common stock was $1.05 and $.85, resulting
      in
      an aggregate value of $54,282.05 for this compensation.  16




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




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




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




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




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




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




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




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


17


**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




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




o
      discuss
      our future expectations;




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




o
      state
      other "forward-looking" information.




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




**RESTATEMENT**




We
      determined, after consultation with our independent registered public accounting
      firm, that a restatement of our financial statements for the year ended December
      31, 2005 filed on Form 10-KSB, together with our quarterly reports on Form
      10-QSB for the periods ending June 30 and September 30, 2005, and March 31,
      June
      30, and September 30, 2006, respectively , was necessary due to the
      issuance of our preferred stock as payment of dividends in lieu of cash
      dividends on April 1, 2005 with respect to previously issued shares of preferred
      stock. Our Articles of Incorporation, as amended, 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.
      We determined that we should take this action to prevent future reliance on
      previously issued financial statements set forth in our Reports .




We
      also
      concluded, in light of a review of our 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”) [update for 00-19-2 update issued], that the warrants
      associated with our November 22, 2004 stock issued to certain accredited and/or
      qualified institutional purchasers pursuant to Purchase Agreement dated as
      of
      November 22, 2004 contained embedded derivatives due to the registration rights
      and liquidated damages provisions and conversion privileges contained in the
      Notes and Warrants. The embedded derivative provisions provide that we will
      pay
      liquidated damages in connection with the delay in filing an SB-2 registration
      statement. Accordingly,
      we determined that we should take this action to prevent future reliance on
      previously issued financial statements set forth in our Quarterly Reports on
      Form 10-QSB for
      the
      three and six months ended June 30, 2005 and the three months ended March 31,
      2005. In reporting periods subsequent to the issuance of June 30, 2005, the
      embedded derivative has been revalued with the change to fair value recorded
      as
      income/(expense). Such
      financial statements should no longer be relied upon.




In
      particular, we will
      restate our financial statements contained in the Reports to reflect
      the reduction in preferred stock outstanding, the preferred stock dividend
      expense and deemed dividend expenses recorded in the quarters ended June
      30,
      2005 and September 30, 2005 ,
      and a
      liability in connection with issuance of the warrants that contained an embedded
      derivative and conversion privileges, for the quarters ended March
      31,
      2005, June 30, 2005. ****




**OVERVIEW**




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




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





18







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




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




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




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




**COMPANY
      HISTORY**




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




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







19




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




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




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




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




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




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




**Loans
      to Filco GmbH**




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




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




20




purchase
      all of the assets of Filco from the receiver, it is has been negotiated that
      1.4
      million Euros would be needed for all machinery and equipment, intellectual
      property and inventory and another 3 million Euros for the purchase of the
      building and property. In addition, we have
      determined that an additional $3.5 million will be required for operating
      capital for Filco. Our analysis shows that additional estimated working capital
      needs during the 2nd year will be another $5,000,000 to achieve profitable
      and
      expanded operations. It should be noted that the operations we are describing
      are different than previously discussed by management. Significant differences
      exist in operations that could take place in the event of our proposed purchase
      of Filco assets from the German receiver. First, we could own all of the assets,
      have no debt (excepting that incurred to finance the asset purchase and would
      have no union employees). Should we complete the purchase of Filco assets,
      we
      will need to raise additional capital through equity or proper lines of credit
      in order to fund the working capital needs. We intend to provide additional
      funds, after year one, either in the form of guaranteed credit lines or through
      additional sales our securities. We have contacted several financial
      institutions attempting to secure credit lines necessary for successful
      operations.




**CRITICAL
      ACCOUNTING POLICIES**




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




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




**REVENUE
      RECOGNITION**




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




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




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




**RESULTS
      OF OPERATIONS**




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




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




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






21




**REVENUES**




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




**COST
      OF GOODS SOLD**




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




**OPERATING
      AND ADMINISTRATIVE EXPENSES**




Operating
      and administrative expenses which includes administrative salaries, depreciation
      and overhead for the 2005 period totaled $9,758,435 which represents an increase
      of $7,228,660 from $2,529,775 incurred in 2004. The increase is due primarily
      to
      (i) the impairment adjustment due to Filco in the amount of approximately
      $4,700,839; (ii) approximately $195,876 in Filco audit fees; (iii) increased
      options for services in the amount of approximately $861,550; (iv) liquidated
      damages in the amount of approximately $281,281, and




(v)
      approximately $153,911 in payroll. Interest expense payable to third party
      suppliers totaled $97,115 for the 2005 period, representing a $66,221 increase
      from $30,894 for the 2004 period. In 2005, we posted $15,247 in other income
      from interest payments due from Filco GmbH, which contrasts with $86,667 for
      the
      prior year-end. Net loss before taxes in 2005 was $15,802,891 which reflects
      an
      increase of $12,112,118 from $3,690,773 in net loss before taxes for the 2004
      period.




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




Loss
      attributable to shareholders for 2005 was $15,210,456, which represents a
      increase of $11,718,506 from $3,491,950 during the 2004 period. During 2005,
      we
      paid dividends on our preferred stock to a controlling shareholder of our
      company in the amount of $51,563. For the year ended December 31, 2004, we
      paid
      dividends on our preferred stock to a controlling shareholder of our company
      in
      the amount of $131,771. Deficit accumulated during development stage during
      2005
      was $15,262,019 (or a loss per share of $0.71 for common stockholders), which
      represents an increase of $11,638,298 from $3,623,721 (or a loss per share
      of
      $0.29 for common stockholders) for the 2004 period.




**RESEARCH
      AND DEVELOPMENT**




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




**LIQUIDITY
      AND CAPITAL RESOURCES**




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




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




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




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




22




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




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




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




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




**Liquidated
      Damages**




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




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




**SUBSEQUENT
      EVENTS**




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




**Liquidated
      Damages**




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


23


**RISK
      FACTORS**




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




**RISKS
      RELATED TO OUR FINANCIAL CONDITION AND BUSINESS**




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




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




**WE
      HAVE A LIMITED OPERATING HISTORY**




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




**OUR
      BUSINESS OPERATIONS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL
      FUNDING.**




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




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




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




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




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




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




24




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




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




25




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




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




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




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




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




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




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




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




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




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




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


26


**RISKS
      RELATING TO OUR COMMON STOCK**




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




We
      had
      22,283,624 shares of common stock outstanding as of April 11, 2006, including
      an
      aggregate of 3,874,605 shares issued upon a conversion of our convertible notes
      in March 2005 pursuant to our February 2005 private placement, and we had
      convertible notes which require the issuance of 1,158,615 additional shares
      of
      common stock pursuant to our May and October 2005 private placements, and
      warrants which require the issuance of 4,864,230 additional shares of common
      stock pursuant to our November 2004, and February, May, and October 2005 private
      placements, each of which have been issued or which are to be issued upon
      conversion or exercise to investors of our company at a discount to the market
      price of our common stock at the time of such issuance. In addition, we have
      an
      aggregate of 250,769 and 250,769 shares underlying our convertible debentures
      and warrants, respectively, which we issued pursuant to our February 2006
      private placement and an aggregate of 96,154 and 48,077 shares underlying our
      convertible debentures and warrants, respectively, which we issued on March
      1,
      2006 in settlement of non-registration liquidated damages to two of our
      investors in our November 2004 private placement. Further, we often issue common
      stock and warrants in exchange for fees and services at a discount to the market
      price of our common stock at the time of such issuance. This results in a large
      number of shares which have been issued, a large number of shares underlying
      our
      warrants and other convertible securities that are or may be available for
      future sale, and may create an overhang of securities for sale. The sale of
      these shares which were or will be issued upon exercise or conversion of our
      securities at a discount to the market price of our common stock at the time
      of
      issuance may depress the market price of our common stock and is dilutive to
      shareholder value.




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




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




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




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




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




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




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




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




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


27




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




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




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




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




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





28


**ITEM
      7. FINANCIAL STATEMENTS**




**AIRTRAX,
      INC.**




**FINANCIAL
      STATEMENTS**




DECEMBER
      31, 2005




**CONTENTS**




PageAccountant's
                  Audit Report
              
              
              F-1Balance
                  Sheet
              
              
              F-2Statements
                  of Operations
              
              
              F-3Statements
                  of Changes in Stockholder's Equity
              
              
              F-4Statements
                  of Cash Flows
              
              
              F-5Notes
                  to Financial Statements
              
              
              F-6


29


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




**The
      Board of Directors and Shareholders of AirTrax, Inc.**




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




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




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






By:
            /s/ Robert
              G.
              JeffreyRobert
                G. Jeffrey
              Certified
                Public AccountantWayne,
                New Jersey
              April
                23, 2007   F-1


**AIRTRAX,
      INC.**


**BALANCE
      SHEETS**


December
      31, 2005


(Audited)


**ASSETS**




Current
                  AssetsCash
              
              $
              19,288Accounts
                  receivable
              
              
              94,357Inventory
              
              
              2,005,139Vendor
                  advance
              
              
              163,517Deferred
                  tax asset
              
              
              977,302Total
                  current assets
              
              
              3,259,603Fixed
                  AssetsOffice
                  furniture and equipment
              
              
              157,521Automotive
                  equipment
              
              
              21,221Shop
                  equipment
              
              
              43,349Casts
                  and tooling
              
              
              270,688492,779Less,
                  accumulated depreciation
              
              
              301,886Net
                  fixed assets
              
              
              190,893Other
                  AssetsAdvances
                  to Filco Gmbh
              
              
              2,000,000Patents
                  - net
              
              
              154,263Deferred
                  Charges
              
              
              388,392Utility
                  deposits
              
              
              65Total
                  other assets
              
              
              2,542,720TOTAL
                  ASSETS
              
              $
              5,993,216LIABILITIES
                  AND STOCKHOLDERS' DEFICITCurrent
                  LiabilitiesAccounts
                  payable
              
              $
              885,463Accrued
                  liabilities
              
              
              266,556Obligation
                  for outstanding options
              
              
              1,330,948Warrants
                  and conversion option liability
              
              
              3,516,462Shareholder
                  notes payable
              
              
              186,961Total
                  current liabilities
              
              
              6,186,390Long
                  Term Convertible Debt
              
              
              2,048,000TOTAL
                  LIABILITIES
              
              
              8,234,390Stockholders'
                  DeficitCommon
                  stock - authorized, 100,000,000shares
                  without par value; issued andoutstanding
                  - 21,939,360 and 15,089,342,respectively
              
              
              21,712,179Paid
                  in capital - warrants
              
              
              1,042,400Preferred
                  stock - authorized, 5,000,000shares
                  without par value; 275,000 issued and outstanding
              
              
              12,950Retained
                  deficit
              
              
              (25,008,703
              )Total
                  stockholders' deficit
              
              
              (2,241,174
              )TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              5,993,216






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


F-2


AIRTRAX,
      INC.


STATEMENTS
      OF OPERATIONS


For
      the
      Year 2005






2005
              
              2004SALES
              
              $
              718,842
              
              
              -COST
                  OF GOODS SOLD
              
              
              729,080
              
              
              -Gross
                  Profit
              
              
              (10,238
              )
              
              -OPERATING
                  AND ADMINISTRATIVE EXPENSES
              
              
              9,758,435
              
              
              2,529,775OPERATING
                  LOSS
              
              
              (9,768,673
              )
              
              (2,529,775
              )OTHER
                  INCOME AND EXPENSEConversion
                  Expense
              
              
              (6,571,454
              )Interest
                  expense and amortization expense
              
              
              (488,342
              )
              
              (386,364
              )Revaluation
                  income (expense)
              
              
              993,837
              
              
              (864,280
              )Interest
                  income
              
              
              15,247
              
              
              86,667Other
                  income
              
              
              16,494
              
              
              2,979NET
                  LOSS BEFORE INCOME TAXES
              
              
              (15,802,891
              )
              
              (3,690,773
              )INCOME
                  TAX BENEFIT (STATE):Current
              
              
              867,413
              
              
              198,823Prior
                  years
              
              
              -
              
              
              -Total
                  Benefit
              
              
              867,413
              
              
              (198,823
              )NET
                  LOSS BEFORE DIVIDENDS
              
              
              (14,935,478
              )
              
              (3,491,950
              )DEEMED
                  DIVIDENDS ON PREFERRED STOCK
              
              
              (274,978
              )NET
                  LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
              
              
              (15,210,456
              )
              
              (3,491,950
              )PREFERRED
                  STOCK DIVIDEND
              
              
              (51,563
              )
              
              (131,771
              )DEFICIT
                  ACCUMULATED
              
              $
              (15,262,019
              )
              $
              (3,623,721
              )NET
                  LOSS PER SHARE:NET
                  LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
              
              $
              (14,935,478
              )
              $
              (3,491,950
              )ADJUSTMENT
                  FOR PREFERRED SHARE DIVIDENDS ACCUMULATED BUT UNPAID
              
              
              68,750
              
              
              68,750LOSS
                  ALLOCABLE TO COMMON SHAREHOLDERS
              
              $
              (15,004,228
              )
              $
              (3,560,700
              )NET
                  LOSS PER SHARE - Basic and Diluted
              
              $
              (.71
              )
              $
              (.29
              )WEIGHTED
                  AVERAGE NUMBER OF SHARES OUTSTANDING
              
              
              20,951,187
              
              
              12,075,448






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





F-3


AIRTRAX,
      INC.


STATEMENT
      OF CHANGES IN EQUITY


TWO
      YEARS





STOCK
              
              PREFERREDSHARES
              
              AMOUNT
              
              SHARES
              
              AMOUNT
              
              WARRANTS
              
              DEFICIT
              
              TOTALBalance,
                  December 31, 2003
              
              
              8,696,552
              
              $
              6,209,996
              
              
              275,000
              
              $
              12,950
              
              $
              -
              
              
              (6,122,963
              )
              $
              99,983Issuance
                  of shares sold in prior year
              
              
              130,000
              
              
              130,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              130,000Shares
                  sold in private placement offerings
              
              
              5,500,125
              
              
              2,685,402
              
              
              
              
              
              
              
              
              1,042,400
              
              
              
              
              
              3,727,802Warrants
                  exercised
              
              
              75,000
              
              
              93,750
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              93,750Shares
                  issued for services
              
              
              687,665
              
              
              661,306
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              661,306Dividends
                  on preferred stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (131,771
              )
              
              (131,771
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,491,950
              )
              
              (3,491,950
              )Balance,
                  December 31, 2004
              
              
              15,089,342
              
              
              9,780,454
              
              
              275,000
              
              
              12,950
              
              
              1,042,400
              
              
              (9,746,684
              )
              
              1,089,120Shares
                  issued in private placements
              
              
              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 exerciseof
                  warrants
              
              
              181,000
              
              
              181,000Conversion
                  of convertible debt
              
              
              3,846,154
              
              
              4,277,500
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,277,500Conversion
                  benefit capitalized
              
              
              3,596,154
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,596,154-
                  1Shares
                  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,
                  December 31, 2005
              
              
              21,939,360
              
              $
              21,712,179
              
              
              275,000
              
              $
              12,950
              
              $
              1,042,400
              
              $
              (25,008,703
              )
              $
              (2,241,174
              )






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





F-4




AIRTRAX,
        INC.
 STATEMENT
        OF CASHFLOWS


CASH
                  FLOWS FROM OPERATING ACTIVITIES
              
              2005
              
              2004Net
                  loss
              
              $
              (15,210,456
              )
              $
              (3,491,950
              )Charges
                  not requiring the outlay of cash:Depreciation
                  and amortization
              
              
              59,500
              
              
              100,507Cost
                  of conversion
              
              
              7,068,174
              
              
              355,470Value
                  of equity securities issued for services
              
              
              1,918,750
              
              
              1,033,343Interest
                  accrued on shareholder advances
              
              
              4,015
              
              
              4,566Excess
                  value of shares issued to settle liabilities
              
              
              149,589
              
              
              -Deemed
                  dividend on preferred stock
              
              
              274,978
              
              
              -Increase
                  in accrual of deferred tax benefit
              
              
              (752,888
              )
              
              (23,409
              )Revaluation
                  of warrant liabilities
              
              
              (992,757
              )
              
              864,280Impairment
                  of Filco investment
              
              
              4,700,839
              
              
              -Changes
                  in assets (liabilities):Increase
                  in accounts receivable
              
              
              (205,858
              )
              
              (138,684
              )Increase
                  in inventory
              
              
              (1,295,858
              )
              
              (324,527
              )Increase
                  in accounts payable
              
              
              490,504
              
              
              5,717Increase
                  in accrued expenses
              
              
              89,592
              
              
              -Net
                  cash consumed by operating activities
              
              
              (3,701,875
              )
              
              (1,614,687
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESAcquisitions
                  of equipment
              
              
              (150,806
              )
              
              (49,306
              )Additions
                  to patent cost
              
              
              (42,861
              )
              
              (80,939
              )Advances
                  to FiLCO
              
              
              (3,605,881
              )
              
              (2,670,000
              )Net
                  cash consumed in investment activities
              
              
              (3,799,548
              )
              
              (2,800,245
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  of converted debt
              
              
              4,277,500
              
              
              -Proceeds
                  of common stock sales
              
              
              55,000
              
              
              5,103,103Proceeds
                  of convertible loans
              
              
              1,659,138
              
              
              -Proceeds
                  of stockholder advances
              
              
              151,493
              
              
              -Repayments
                  of stockholder advances
              
              
              (2,002
              )
              
              (52,005
              )Proceeds
                  of exercises of warrants
              
              
              718,486
              
              
              93,750Proceeds
                  of exercises of options
              
              
              19,619
              
              
              5,944Preferred
                  stock dividends paid in cash
              
              
              
              
              
              (131,771
              )Net
                  cash Provided By Financing Activities
              
              
              6,879,234
              
              
              5,019,021Net
                  change in cash
              
              
              (622,189
              )
              
              604,089Cash
                  balance beginning of period
              
              
              641,477
              
              
              37,388Cash
                  balance end of period
              
              $
              19,288
              
              $
              641,477




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







F-5




**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




1.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Business




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




Development
      Stage Accounting




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




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




Cash




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




Inventory




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




Fixed
      Assets




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




Income
      Taxes




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







F-6




**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




1.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Intangible
      Assets




Patents




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




Prototype
      Equipment




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




Use
      of
      Estimates




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




Fair
      Value of Financial Instruments




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




Research
      and Development Cost




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




Advertising
      Costs




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







F-7




**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




1.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Stock
      Options




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







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




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





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


F-8


**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




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




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




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




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




(a)
      all
      prior periods presented or (b) prior interim periods of the year of
      adoption.




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




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




Segment
      Reporting




Management
      treats the operations of the Company as one segment.







F-9




**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




Revenue
      Recognition




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




persuasive
      evidence of an arrangement exists; the contract price is fixed or determinable;
      and collectability is reasonably assured.




Common
      Stock




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




2.
      RESTATEMENTS




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




**STATEMENT
      OF OPERATIONS**


As
                  OriginallyPresented
              
              Adjustments
              
              As
                  RestatedNet
                  loss before dividends
              
              $
              (14,935,478
              )
              $
              -
              
              $
              (14,935,478
              )Deemed
                    dividend onpreferred
                    stock
              
              
              (480,978
              )
              
              206,000(A
              )
              
              (274,978
              )Net
                  Loss Accumulated
              
              $
              (15,468,019
              )
              $
              206,000
              
              $
              (15,262,019
              )


**STATEMENT
        OF CASH FLOWS**
 As
                    OriginallyPresented
                
                Adjustments
                
                As
                    RestatedOperating
                    ActivitiesLoss
                
                $
                (15,416,456
                )
                $
                206,000
                    (A
                )
                $
                (15,210,456
                )Deemed
                    dividend expense
                
                
                480,978
                
                
                (206,000)(A
                )
                
                274,978Net
                      Cash Consumed By OperatingActivities
                
                $
                (3,701,875
                )
                $
                -
                
                $
                (3,701,875
                )
   (A) Decrease in Deemed Dividend Expense.
 
 **STATEMENT
          OF CASH FLOWS**
 
 As
                    OriginallyPresented
                
                Adjustments
                
                As
                    RestatedCash
                    Flow from Operating ActivitiesNet
                    Loss
                
                $
                (2,272,200
                )
                $
                (1,219,750
                )
                $
                (3,491,950
                )Revaluation
                    expense
                
                
                -
                
                $
                864,280
                
                $
                864,280Conversion
                    expense
                
                
                -
                
                $
                355,470
                
                $
                355,470Net
                      Cash Consumed By OperatingActivities
                
                $
                (1,614,687
                )
                $
                -
                
                $
                (1,614,687
                )
 
 (A)
          Revaluation entry required because of reclassification of certain
          warrants.




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









F-10




**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




2.
      RESTATEMENTS (Continued)




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





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




3.
      RELATED PARTY TRANSACTIONS




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




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




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




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







F-11


**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




4.
      STOCK
      OPTIONS




The
      Company awards options under employment contracts with three employees. These
      options entitle the employees to purchase company stock at discounted prices.
      These options were immediately exercisable; there are no expiration dates to
      these options, and none was forfeited during either year. A summary of option
      activity is presented below.





2005
              
              2004Weighted
              
              
              
              WeightedAverage
              
              
              
              AverageExercised
              
              
              
              ExercisedShares
              
              Price
              
              Shares
              
              PriceOptions
                  outstanding at beginning ofyear
              
              
              620,000
              
              $
              .73
              
              
              115,000
              
              $
              .38Options
                  granted during year
              
              
              800,000
              
              
              .83
              
              
              600,000
              
              
              .74Options
                  exercised during year
              
              
              
              
              
              
              
              
              (95,000
              )(45,000
              )
              
              .44
              
              
              
              
              
              .39Options
                  outstanding at end of year1,375,000
              
              $
              .80
              
              
              620,000
              
              $
              .73Weighted
                  average Fair Value ofoptions
                  granted
              
              
              
              
              $
              1.37
              
              
              
              
              $
              .47Weighted
                  average remaining life ofoutstanding
                  options - years4.52
              
              
              
              
              
              4.33




5.
      PRIVATE PLACEMENT OFFERINGS (Continued)




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




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





5-Year
                  WarrantsExerciseIssuance
              Proceeds
              Debt
                  Conversion Price
              Number
              Price$
                  500,000
              $
                  409,913
              $1.30
              384,615
              $2.111,548,000
              1,249,225
              $2.00
              774,000
              3.25$
                  2,048,000
              $
                  1,659,138




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




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


F-12
  **AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005






5.
      PRIVATE PLACEMENT OFFERINGS (Continued)




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




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 Company president and chairman.




Dividends
      of $68,750 accrued on the preferred stock during each of the years 2002 through
      2005. 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. The balance of unpaid dividends at of December 31, 2005 was
      $91,667.




At
      December 31, 2005, the majority shareholder had the right, if elected, to
      acquire 147,296 shares of common stock for accrued and unpaid dividends,
      amounting to $78, 125, under the features of the preferred stock issue. Under
      this election, preferred dividends in cash of $13,542 were unpaid in 2005.




See”
Note
      2” for a description of restatements affected by the preferred
      shares.





F-13







**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




7.
      SHARES
      ISSUED FOR SERVICES




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




2005Services
                    Rendered
                
                
                Numberof Shares
                
                
                Price
                    atDate
                
                
                Grant Date
                
                
                Value
                    at Grant DateAdvertising
                
                
                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
                
                
                
                
                
                
                
                
                720
                    687Other
                    Issuances:Employee
                    awards
                
                
                20,000
                
                
                2.40
                
                
                
                
                
                48,000Shares
                    issued in lieu of rent
                
                
                19,200
                
                
                various
                
                
                
                
                
                48,000Shares
                    issued as partial
                
                
                5,000
                
                
                various
                
                
                
                
                
                14,700compensation
                    of financingAmortization
                    of cost of grants made
                
                
                
                
                
                
                
                
                
                
                
                5,113in
                    prior periodsTotal
                    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


F-14


**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




7.
      SHARES
      ISSUED FOR SERVICES (continued) 2004




Number
              
              
              
              GrantServices
                  Rendered
              
              of
                  Shares
              
              Date
              
              Price
              
              Share
                  ValueConsulting
                  services
              
              
              10,000
              
              
              1
                  /2
              
              
              1.29
              
              
              12,900Marketing
                  services
              
              
              15,000
              
              
              6/14
              
              
              1.12
              
              
              16,800122,680(2)Investor
                  relations
              
              
              26,020
              
              
              6/14
              
              
              1.12
              
              
              29,142Consulting
                  services
              
              
              24,075
              
              
              6/14
              
              
              1.12
              
              
              26,964Investor
                  relations
              
              
              5,000
              
              
              6/14
              
              
              1.12
              
              
              5,600Consulting
                  services
              
              
              40,000
              
              
              9/8
              
              
              0.89
              
              
              34,000(5,113)(l)Investor
                  relations
              
              
              50,000
              
              
              8/9
              
              
              0.8/6
              
              
              43,000Marketing
                  services
              
              
              165,500
              
              
              3/15
              
              
              1.05
              
              
              173,250Investor
                  relations
              
              
              15,000
              
              
              2/2
              
              
              0.68
              
              
              10,200145,110(2)Industrial
                  relations and
              
              
              69,550
              
              
              1/0
              
              
              1.01
              
              
              70,245marketing
                  servicesConsulting
                  services
              
              
              23,775
              
              
              10/1
              
              
              0.82
              
              
              19,258Marketing
                  Services
              
              
              24,000
              
              
              10/30
              
              
              0.90
              
              
              21,600Industrial
                  relations and
              
              
              16,500
              
              
              10/14
              
              
              1.05
              
              
              17,325marketing
                  servicesTotal
                  of shares issued to
              
              
              483,920
              
              
              
              
              
              
              
              
              742,961consultantsOther:Stock
                  issued to settle
              
              
              37,421
              
              
              
              
              
              
              
              
              -liabilitiesExcess
                  value of stock issued
              
              
              104,324
              
              
              
              
              
              
              
              
              10,182(3
              )to
                  settle liabilitiesStock
                  issued in lieu of rent
              
              
              12,000
              
              
              various
              
              
              .75
              
              
              9,000Director
                  awards
              
              
              50,000
              
              
              10/20
              
              
              1.01
              
              
              50,500Total
                stock issued
                for services
              
              
              687,665
              
              
              
              
              
              
              
              
              812,643Options
                  granted for services
              
              
              -
              
              
              
              
              
              
              
              
              220,700Value
                  of equity items issuedfor
                  services
              
              
              687,665
              
              
              
              
              
              
              
              $
              1,033,343





(1)
      Grants were issued in return for commitments for future service; this is the
      expense allocated to future periods.




(2)
      Amortization of the cost of grants issued in prior period.




(3)
      Some
      issuances were made to satisfy liabilities owed to the optionee; if the value
      of
      the issuance exceeded the liability, the excess was charged to
      expense.








F-15


**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




8.
      WARRANTS




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






Balance
                  December 31, 2003
              
              
              
              845,000Issuances
                  in 2004:In
                  conjunction with stock placementsthrough
                  investment banker:March
              
              
              1,800,063September
              
              
              171,875November
              
              
              820,000
              
              
              2,791,938Awarded
                  as partial fees to brokers:March
              
              
              460,000September
              
              
              34,375November
              
              
              264,000
              
              
              758,375Warrants
                  issued in private stock sales
              
              
              
              
              
              832,450Warrants
                  exercised during 2004
              
              
              
              
              
              (75,000
              )Warrants
                  issued for services (partially
              
              
              
              
              
              385,000voided
                  during 2005)Balance
                  December 31, 2004Warrants
                  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
              
              
              
              
              
              9,503,558


F-16


**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




9.
      EXPENSES




Major
      items included in operating and administration expenses are detailedbelow:


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





F-17


**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




10.
      INCOME TAXES




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





2011
              
              $
              206,9522012
              
              
              129,0922018
              
              
              486,7992019
              
              
              682,5892020
              
              
              501,1692021
              
              
              775,4032022
              
              
              590,7642023
              
              
              2,233,3862024
              
              
              2,493,4862025
              
              
              10,309,634




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




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




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






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







F-18




**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




11.
      RENTALS UNDER OPERATING LEASES




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




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




12.
      SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION




Cash
      paid
      for interest and income taxes is presented below:




2005
              
              2004Interest
              
              $
              9,741
              
              $
              26,239Income
                  taxes
              
              
              0
              
              
              500
  There
      were no noncash investing activities during either 2005 or 2004. The following
      noncash financing activities occurred:




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







F-19




**AIRTRAX,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


December
      31, 2005




13.
      PROPOSED ACQUISITION




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




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




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




14.
      RECENT ACCOUNTING PRONOUNCEMENTS




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





F-20


**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**




None.




**ITEM
      8A. CONTROLS AND PROCEDURES**




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




**ITEM
      8B. OTHER INFORMATION**




None.





30


**PART
      III**




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




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




Our
      executive officers and directors are as follows:




Name
              Age
              PositionPeter
                  Amico
              61
              President
                  and Chairman of the Board of DirectorsD.
                  Barney Harris
              43
              Executive
                  Vice President and DirectorNicholas
                  E. Fenelli*
              51
              Chief
                  Operations OfficerJames
                  Hudson
              61
              DirectorWilliam
                  Hungerville
              68
              DirectorFil
                  Filipov
              58
              DirectorAndrew
                  G. Guzzetti*
              58
              Director







*Appointment
      effective April 1, 2006.




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




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




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




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




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




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




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




31






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




(iii)
      6,547,340 - low vibration omni-directional wheel on April 15, 2003.




**CODE
      OF ETHICS**




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




**Executive
      Officers of the Company**




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




**COMMITTEES
      OF THE BOARD OF DIRECTORS**




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




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




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




**ITEM
      10. EXECUTIVE COMPENSATION.**




The
      following table sets forth for the fiscal year indicated the compensation paid
      by our company to our Chief Executive Officer and other executive officers
      with
      annual compensation exceeding $100,000:




Summary
        Compensation Table:
  SUMMARY
        COMPENSATION TABLE
  ANNUAL
        COMPENSATION





OtherAnnual
                  Restricted Options LTIPName
                  & Principal
              
              
              
              All
                  Other
              Stock
              SARs
              Payouts
              All
                  OtherPosition
              Year
              Salary
                    ($)
              Bonus($)
              Compensation($)
              Awards
                  ($)
              (#)
              ($)
              CompensationPeter
                  Amico
              2005
              303,751(1)
              0
              -
              -
              -
              -
              -President
                  andChairman
              2004
              185,000(1)
              0
              187,500(3)
              -
              -
              -
              -of
                  the Boardof
                  Directors
              2003
              100,000(1)
              0
              1,000(2)
              -
              -
              -
              -




(1)
      During 2004, Mr. Amico was entitled to receive a salary of $185,000, of which
      $116,825.62 was paid and the balance was deferred for future payment. During
      2003, Mr. Amico was entitled to receive a salary of $100,000, of which
      $88,461.68 was paid and the balance was deferred for future payment. In 2002,
      Mr. Amico was entitled to receive a salary of $87,500, of which $84,135 was
      paid
      as salary to Mr. Amico and the balance was deferred for future payment. In
      2002
      and 2003, Mr. Amico received the use of a company automobile which we valued
      at
      $1,000. During 2005, Mr. Amico received payment of accrued salary which was
      unpaid from 2003 of $29,038.32 and $50,674.48 from 2004.






32




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




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




**OPTION
      GRANTS IN LAST FISCAL YEAR**




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




Individual
      Grants




Number
                  ofSecurities
              %
                  of Total OptionsUnderlying
              Granted
                  toOptions
                  Granted
              Employees
                  in Fiscal
              ExerciseName
              (#)
              Year
              Price
                  ($/sh)
              Expiration
                DatePeter
                  Amico
              50,000
              8%(1)
              $
                  -(1)
              None(1)President
                  and Chairman
              500,000
              83%(1)
              $.85(1)
              None(1)
 
 
 (1)
        Pursuant to his employment agreement for the year 2004 through 2005, Mr. Amico
        has
        outstanding options to acquire a total of 500,000 shares at a total price
        of
        $0.85 per share. Pursuant to his employment agreement for the year 2003 through
        2004, Mr. Amico has outstanding options to acquire a total of 50,000 shares
        at
        a total price of $0.01.
 
 OPTION
        EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
 
 The
        following table contains information concerning the number and value, at December
        31, 2005, of unexercised options held by executive officers named in
        t he
        Summary Compensation Table:
  
 Underlying
                  Unexercised
                  Options
                    at
              Value
                  of Unexercised
                Options
                  at
              In-the-MoneyName
              FY-End
                  (#)
              (Exercisable/Unexercisable)
              (Exercisable/Unexercisable)
              FY-End
                  ($)Peter
                  Amico President
                  and
              50,000
              50,000
              .85
              $42,500Chairman
              500,000
              500,000
              .39
              $195,000






**Individual
      Grants**




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




**DIRECTORS'
      COMPENSATION**




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




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






33




**STOCK
      OPTION PLANS**




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




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




**EMPLOYMENT
      AGREEMENTS**




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




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




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




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




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




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




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






34




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




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




o
      all
      directors and nominees, naming them,




o
      our
      executive officers,




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




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




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







Peter
                  Amico(1)
              Common
                  Stock
              3,038,846
                  (6)
              13.64%
                  (2)200
                  Freeway Drive, Unit 1
              Preferred
                  Stock
              2,750,000
                  (3)(5)
              100%Blackwood,
                  NJ 08012Nicholas
                  Fenelli
              Common
                  Stock
              135,500
              *200
                  Freeway Drive, Unit 1 Preferred Stock
              
              0
              0%Blackwood,
                  NJ 08012D.
                  Barney Harris(1)
              Common
                  Stock
              151,301
                  (7)
              *
                  (2)200
                  Freeway Drive, Unit 1
              Preferred
                  Stock
              0
              0%Blackwood,
                  NJ 08012Frank
                  Basile(1)
              Common
                  Stock 137,046 (8)
              
              *200
                  Freeway Drive, Unit 1
              Preferred
                  Stock
              0
              0%Blackwood,
                  NJ 08012James
                  Hudson(1)
              Common
                  Stock
              75,800
                  (9)
              *200
                  Freeway Drive, Unit 1
              Preferred
                  Stock
              0
              0%Blackwood,
                  NJ 08012William
                  Hungerville(1)
              Common
                  Stock
              157,650
                  (10)
              *(2)200
                  Freeway Drive, Unit 1
              Preferred
                  Stock
              0
              0%Blackwood,
                  NJ 08012Andrew
                  Guzzetti
              Common
                  Stock
              0
              0%200
                  Freeway Drive, Unit 1
              Preferred
                  Stock
              0
              0%Blackwood,
                  NJ 08012All
                  Officers and Directors
              Common
                  Stock
              3,560,643
                  (11)
              15.98%
                  (2)As
                  a Group (7 persons) Preferred Stock
              
              2,750,000
              100%Arcon
                  Corp.
              Common
                  Stock
              1,916,702
                  (4)
              8.60%
                  (2)200
                  Freeway Drive, Unit 1
              Preferred
                  Stock
              2,750,000
                  (3)(5)
              100%Blackwood,
                  NJ 08012






*Less
      than 1%




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




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




(3)
      Based
      upon 275,000 outstanding shares of preferred stock after giving effect to the
      10
      for 1 voting rights (4) Represents 1,781,202 shares held by Arcon Corp., a
      corporation wholly owned by Mr. Amico ("Arcon"), and however, excludes common
      stock that may be issued to Arcon as a dividend on the preferred
      stock.




(5)
      Represents shares held by Arcon.




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




(7)
      Represents shares of common stock held individually.







35




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




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




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




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




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**




Arcon
      Corp., a corporation wholly owned by our chairman and president Peter Amico,
      owns 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. 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.




For
      fiscal year 2001, Arcon received 246,731 shares of our common stock in lieu
      of
      the cash dividend which was deemed to have a fair market value of $188.412.
      For
      explanatory purposes, in 2001 the $188,412 fair market value of the stock
      represents the $68,750 yearly dividend due for 275,000 shares owned in 2001,
      valued at $5.00 per share, which is used to purchase common stock at a 30%
      discount. This equates to $188,412 divided by 30% ($56,524) minus the difference
      of the actual stock price which varied during the purchase period. For fiscal
      year 2002, Arcon received a cash dividend of $17,187.50. and was due 136,041
      shares of our common stock in lieu of the cash payment for the balance of the
      dividend. The136,041 shares of common stock payable to Arcon were valued based
      upon date obligation was settled (deemed to be April 1, 2005). The value of
      those shares was $326,540, 136,041 multiplied by $2.40 per share and represents
      the value of the additional shares of common stock. This value ($326,540) was
      compared to dividends being settled in order to determine the deemed dividend
      ($274,978). For fiscal year 2003, Arcon expects to receive 19,097 shares of
      common stock in lieu of the cash payment of the dividend. In 2004, Arcon
      received payments of $17,187.50 for dividends due in 2002, $63,020.86 for
      dividends due in 2003 and $51,562.52 for dividends due in 2004, of which
      $17,187.50 remains payable in accrued dividends to Arcon.




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




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




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




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






36




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




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




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




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




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




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




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






37




**ITEM
      13. EXHIBITS.**




(a)
      Exhibits.




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




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




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




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




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




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




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




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




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








38




4.5
              Form
                  of Class B Common Stock Purchase Warrant dated as of February 11,
                  2005
                  (Filed as an exhibit to the Company's Form 8-K filed on February11,
                  2005).
  4.6
              Form
                  of Broker's Common Stock Purchase Warrant dated as of February
                  11,2005
                  (Filed as an exhibit to the Company's Form 8-K filed on February11,
                  2005).
  10.1
              Agreement
                  and Plan of Merger by and between MAS Acquisition IX Corp. andAirTrax
                  , Inc. dated November 5, 1999. (Filed as an exhibit to theCompany's
                  Form 8-K filed with the Securities and Exchange Commission on January
                  13,
                  2000).
  10.2
              Employment
                  agreement dated April 1, 1997 by and between the Company andPeter
                  Amico. (Filed as an exhibit to the Company's Form 8-K/A filed withthe
                  Securities and Exchange Commission on January 13,
                  2000).
  10.3
              Employment
                  agreement dated July 12, 1999, by and between the Company andD.
                  Barney Harris. (Filed as an exhibit to the Company's Form 8-K/A
                  filedwith
                  the Securities and Exchange Commission on January 13,
                  2000).
  10.4
              Consulting
                  Agreement by and between MAS Financial Corp. and AirTrax,Inc.
                  dated October 26, 1999. (Filed as exhibit to the Company's Form
                  8-Kfiled
                  with the Securities and Exchange Commission on November 19,
                  1999).
  10.5
              Employment
                  Agreement effective July 1, 2002 by and between the Companyand
                  Peter Amico (filed as an exhibit to the Company's Form 10-KSB forthe
                  period ended December 31, 2002)
  10.6
              Agreement
                  dated July 15, 2002 by and between the Company and SwingbridgeCapital
                  LLC and Brian Klanica. (Filed as an exhibit to the Company'sForm
                  8-K filed on August 7, 2002).
  10.7
              Product
                  Development, Sales and Manufacturing Representation Agreementdated
                  March 13, 2004 by and between AirTrax, Inc., and MEC AerialPlatform
                  Sales Corporation. (Filed as an exhibit to the Company's Form 8-K
                  filed on March 15, 2004).
  10.8
              General
                  Sales Contract and Amendment dated March 10, 2004 by and betweenAirTrax
                  , Inc with Incomex Saigon. (Filed as an exhibit to the Company'sForm
                  8-K filed on March 22, 2004).
  10.9
              Purchase
                  Agreement, dated November 22, 2004, by and among AirTrax, Inc.and
                  Excalibur Limited Partnership, Stonestreet Limited Partnership,Whalehaven
                  Capital Fund. (Filed as an exhibit to the Company's Form 8-K filed
                  on November 30, 2004).
  10.10
              Joinder
                  to the Purchase Agreement, dated November 23, 2004, by and amongAirTrax,
                  Inc. and Excalibur Limited Partnership, Stonestreet LimitedPartnership
                  and Linda Hechter. (Filed as an exhibit to the Company's Form
                  8-K filed on November 30,
                  2004).
  10.11
              Registration
                  Rights Agreement, dated November 22, 2004, by and amongAirTrax,
                  Inc. and Excalibur Limited Partnership, Stonestreet LimitedPartnership,
                  Whalehaven Capital Fund and First Montauk Securities Corp.  (Filed as
                  an exhibit to the Company's Form 8-K filed on November 30, 2004).
  10.12
              Joinder
                  to the Registration Rights Agreement, dated November 23, 2004,by
                  and among AirTrax, Inc. and Excalibur Limited Partnership,Stonestreet
                  Limited Partnership, Linda Hechter and First MontaukSecurities
                  Corp. (Filed as an exhibit to the Company's Form 8-K filed onNovember
                  30, 2004).


39




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




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




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




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




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




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




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




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




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




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




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




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




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




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




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




10.28
            Form
                of Subscription Agreement of AirTrax, Inc. dated as of February 13,2006.
                (Filed as an exhibit to the Company's Form 8-K filed on February27,
                2006).




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


40
  10.30
              Form
                  of Stock Purchase Warrant of AirTrax, Inc. (Filed as an exhibit
                  tothe
                  Company's Form 8-K filed on February 27,
                  2006).
  31.1
              Certification
                  by Chief Executive Officer and Chief Financial Officerpursuant
                  to Sarbanes-Oxley Section 302 (filed
                  herewith).
  32.1
              Certification
                  by Chief Executive Officer and Chief Financial Officerpursuant
                  to 18 U.S.C. Section 1350 (filed
                  herewith).




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




**AUDIT
      FEES**




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




**AUDIT-RELATED
      FEES**




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




**TAX
      FEES**




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




**ALL
      OTHER FEES**




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










41


**SIGNATURES**




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






**AIRTRAX, INC., A NEW JERSEY
                CORPORATION**Date: 
April
                25, 2007
              By:
              /s/ Robert
                M.
                WatsonRobert
                  M. Watson, President,
                Chief
                  Executive Officer,
                Director,
                  and Acting
                Chief
                  Financial Officer




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






SIGNATURE
              
              
              TITLE
              
              
              DATEBy: /s/ Robert M. Watson
                Robert
                  M. Watson
              
              
              President,
                  Chief Executive
                  Officer,
                ActingChief
                  Financial Officerand
                  Director
              
              
              April
                  25, 2007By:
                  /s/ D. Barney Harris
                
                D.
                  Barney Harris
              
              
              Director
              
              
              April
                  25, 2007By:
                  /s/ James Hudson
                James
                  Hudson
              
              
              Director
              
              
              April
                  25, 2007By:
                  /s/ William Hungerville
                William
                  Hungerville
              
              
              Director
              
              
              April
                  25, 2007By:
                Fil Filipov
              
              
              Director
              
              
              April
                  25, 2007By: /s/Andrew Guzzetti
                Andrew
                Guzzetti
              
              
              Director
              
              
              April
                  25, 2007By: /s/ Peter Amico
                  Peter
                  Amico, Jr.
              
              
              Director
              
              
              April
                  25, 2007By: /s/ Robert BorskiRobert Borski, Jr.
              
              
              Director
              
              
              April
                  25, 2007





42