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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1997.
or
[_] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Act of 1934 for the transition period
from _____ to _____
Commission File No. 000-21627
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
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(Exact name of registrant as specified in its charter)
Florida 06-1413994
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
27 Governor Street, Ridgefield, Connecticut 06877
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (203) 438-8144
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(Former name or former address, if changes since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) had been subject to
such filing requirements for the past 90 days.
Yes [x] No [_]
As of August 8, 1997, there were issued and outstanding 11,412,120 shares of the
Registrant's Common Stock.
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SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
FORM 10-Q
for the quarterly period ended June 30, 1997
INDEX
Page
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Part I. Financial Information
Item I. Financial Statements (Unaudited)
Balance Sheet, June 30, 1997 (Unaudited) 3
Statement of Operations (Unaudited):
Three Months Ended June 30, 1997 and June 30, 1996 4
Statement of Operations (Unaudited):
Six Months Ended June 30, 1997 and June 30, 1996 5
Statement of Cash Flow (Unaudited):
Six Months Ended June 30, 1997 and June 30, 1996 6
Notes to Financial Statements 7
Item II. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information 12
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SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
BALANCE SHEET
June 30, 1997 (Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 16,169
Accounts receivable 331,833
Advances to employees 32,422
Inventory 130,842
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TOTAL CURRENT ASSETS 511,266
FIXED ASSETS
Equipment 153,223
Leasehold improvements 66,162
Furniture and fixtures 118,614
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337,999
Less accumulated depreciation 194,131
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143,868
OTHER ASSETS
Organization costs, less amortization of $58,795 2,028
Deposits and other noncurrent assets 12,564
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14,592
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$ 669,726
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 196,752
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TOTAL CURRENT LIABILITIES 196,752
SHAREHOLDERS' LOANS 463,765
SHAREHOLDERS' EQUITY
Common stock, $.0001 par value, 200,000,000 shares
authorized, 11,412,120 shares issued and
outstanding 1,140
Additional paid-in capital 14,077,023
Accumulated deficit (13,576,521)
Subscriptions issuable 2,160
Deferred compensation ( 494,593)
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Total stockholders' deficit 9,209
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$ 669,726
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3
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Safe Alternatives Corporation of
America, Inc.
Statement of Operations (Unaudited)
Three months ended
June 30
1997 1996
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Sales $ 327,957 $ 24,917
Costs and expenses:
Cost of goods sold 107,385 17,502
Selling, general and administrative 955,060 565,941
Research and development 81,848 55,775
Depreciation and amortization 11,455 11,455
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(1,155,748) (650,673)
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Net loss $ (827,791) $ (625,756)
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Net loss per common share $ (.07) $ (.08)
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Average number of shares outstanding 11,083,094 8,035,251
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See accompanying notes.
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Safe Alternatives Corporation of America, Inc.
Statement of Operations (Unaudited)
Six months ended
June 30
1997 1996
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Sales $ 337,481 $ 37,661
Costs and expenses:
Cost of goods sold 112,212 23,868
Selling, general and administrative 1,908,347 1,174,355
Research and development 183,071 113,284
Depreciation and amortization 26,128 22,910
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2,229,758 1,334,417
Net loss $ (1,892,277) $ (1,296,756)
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Net loss per common share $ (.18) $ (.17)
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Average number of shares outstanding 10,589,367 7,839,099
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See accompanying notes.
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Safe Alternatives Corporation of America, Inc.
Statement of Cash Flows (Unaudited)
Six months ended
June 30
1997 1996
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Cash flows from operating activities
Net loss $ (1,892,277) $ (1,296,754)
Adjustments to reconcile net loss
used in operating activities:
Depreciation and amortization 26,126 22,910
Non-cash compensation and commissions 1,253,774 689,313
Changes in operating assets and liabilities:
Accounts receivable (319,671) (6,516)
Advances to employees (12,500) (19,992)
Inventories (117,655) (13,897)
Deposits and advances 0 (7,452)
Accounts payable and accrued expenses (64,220) 10,316
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Net cash (used in) operating activities (1,126,421) (622,074)
Cash flows from investing activities
Additions to fixed assets (31,697) (17,695)
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Net cash (used in) investing activities (31,697) (17,695)
Cash flows from financing activities
Net proceeds from stockholders' loans 42,700 0
Repayments of stockholders' loans (46,000) (155,000)
Proceeds from issuance of common stock and
subscriptions 1,173,593 875,200
Expenses for sale of common stock 0 (65,928)
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Net cash provided by financing activities 1,170,293 654,272
Net increases in cash 12,175 14,503
Cash at beginning of period 3,994 12,331
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Cash at end of period 16,169 26,834
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See accompanying notes.
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Safe Alternatives Corporation of America, Inc.
Notes to Unaudited Financial Statements
June 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operation results for the six month period ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. Inventories are stated at lower of cost or market.
2. SHAREHOLDERS' EQUITY
In accordance with employment contracts for the Company's two executive
officers, the Company issued 93,040 shares of common stock to each of these
officers and recorded a pro rata portion of the annual compensation expense
which approximated $72,000 during the three month period and $143,000 for the
year to date. In addition to the aforementioned issuance, the Company issued
384,000 shares of common stock to various individuals and recognized $449,242 as
compensation for services based upon the value of common stock sold during the
three month period. This amount has been recorded in selling, general, and
administrative expenses in the statement of operations.
During the three month period the Company sold 493,000 shares of common stock
and received gross proceeds of $577,500.
3. CONSULTING AGREEMENT
In February 1997, the Company entered into a consulting agreement for the
introduction of the Company's chemical paint stripper into the European market.
As compensation for services, the Company issued 365,000 shares of its common
stock valued at $562,000. The Company is amortizing the costs of such services
over a twelve month period. The charge for the three months ended June 30,1997
was $140,525 and for the six months was $213,913.
4. EXCLUSIVE MARKETING LICENSE
In April 1997, the Company issued 250,000 shares of its common stock to an
individual in exchange for exclusive worldwide marketing and manufacturing
rights to a patented product known as Natural Cool Systems. The transaction
resulted in additional selling, general, and administrative expense of $292,500
during the quarter. The license agreement provides for payments of a two (2%)
percent royalty on gross sales of the Natural Cool product. The agreement
provides for an indefinite term as long as certain
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performance criteria are met and such performance criteria have been met to
date. The Company has accrued the royalty due on sales made during the second
quarter.
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Management's Discussion and Analysis of Financial Condition
and Plan of Operations
General
During the three month period ended June 30, 1997, management of the Company has
continued to concentrate a significant portion of its efforts on the marketing
and sale of the Company's paint stripping product. Additionally, the Company
has successfully completed its research with regard to determining the
appropriate mechanism for delivery of the foam product onto its intended
surface, and subject to the Company's ability to obtain additional financing,
management believes that the Company's foam products will be ready for marketing
during 1997, although no assurances thereof can be given. Also during the
period ended June 30, 1997, the Company successfully completed initial sales of
its Natural Cool Systems. In February 1997, the Company successfully negotiated
and signed a License Agreement for the exclusive worldwide marketing rights and
manufacturing rights to a patented product known as Natural Cool. The Natural
Cool product is a patented air circulation system by which relatively cold
ambient air can be used to cool walk-in coolers in lieu of using refrigeration
systems. The products are based on the concept of using nature's own resources
to reduce energy costs in commercial refrigeration. The Company believes,
subject to additional financing, that the sales of these units will continue to
grow through the remainder of 1997. Based upon the Company's current financial
status, the need to continue research and development and the Company's emphasis
on its paint stripping, foam, and Natural Cool products, management does not
believe that it will bring to market any of its sealants, coatings or solvents
in 1997.
The report of the Company's independent auditors contains a paragraph as to the
Company's ability to continue as a going concern. Among the factors cited by
the auditors as raising doubt as to the Company's ability to continue are (i)
the Company has incurred recurring losses and (ii) the Company has a working
capital deficiency. The Company has never generated sufficient revenues to
finance its operations and has been able to remain in business solely as a
result of raising capital through the sale of the Company's stock.
COMPARISON OF THE THREE MONTH AND SIX MONTH PERIODS
ENDED JUNE 30, 1997 AND JUNE 30, 1996
Sales and Net Losses. For the three month period ended June 30, 1997, sales
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increased to $327,957 from $24,917 in the same period of the prior year, an
increase of $303,040. For the six month period ended June 30, 1997, sales
increased to $337,480 from $37,661 for the same period in the prior year, an
increase of $299,819. Sales increases during the
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quarter were realized in both the Company's paint stripping and Natural Cool
products. Sales of the paint stripper totaled $22,509 in the quarter compared to
$12,744 for the prior period, an increase of $9,765 or 77%. Initial sales of the
Natural Cool product during the quarter totaled $305,448. For the three month
period ended June 30, 1997, the Company reported net losses of $827,791 compared
to $625,756 in the prior period, an increased loss of $202,035 or 32%. For the
six month period ended June 30, 1997, the Company reported losses of $1,892,277
compared to $1,296,756 for the same period of the prior year, an increase of
$595,521 or 46%. The increase in losses for the three month period and year-to-
date is attributed entirely to an increase in selling, general, and
administrative costs as discussed below.
Selling, General and Administrative. For the three month period ended June 30,
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1997, the Company incurred selling, general and administrative expenses of
$955,060 compared to $565,941 in the same period of the prior year, an increase
of $389,119 or 69% due entirely to approximately $449,000 in consulting and
compensation expense to various individuals for professional services performed.
The Company's Common Stock was issued for such services, and the value was based
upon the fair market value of Common Stock sold during the period. For the six
month period ended June 30, 1997, the Company incurred selling, general, and
administrative expenses of $1,908,347 as compared to $1,174,355 in the same
period of the prior year, an increase of $733,922 or 63%. The increase is due
primarily to approximately $795,000 in consulting and compensation expense to
various individuals for professional services performed. The Company's common
stock was issued for such services and the value was based on the fair market
value of stock sold during the period. Calculations with respect to the
percentage of selling, general and administrative expenses relative to sales are
not meaningful.
Research and Development. For the three month period ended June 30, 1997,
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research and development expenses increased to $81,848 from $55,775 in the same
period of the prior year, an increase of $26,073 or 47%. This increase is due
to the Company's activities associated with its foam product. For the six month
period ended June 30, 1997, research and development expense totaled $183,071,
up from $113,284 in the same period of the prior year, or an increase of $69,787
or 62% also due to activities with the Company's foam product. Calculations with
respect to the percentage of research and development expenses relative to sales
are not meaningful.
LIQUIDITY
The Company has never generated sufficient revenues to finance its operations
and has been able to remain in business solely as a result of raising capital.
The Company's ability to continue as a going concern in the near term is
dependent upon obtaining additional financing. The Company does not have the
financial resources to operate its business, continue research and development
or market its products. The Company has financed its operations through loans
from shareholders which aggregated approximately $464,000 as
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of this date and the private placement of equity securities amounting to
$6,609,470 since inception. The Company continues to seek additional capital
from an array of potential sources. The Company has provided information
regarding its technologies to venture capital firms and is currently in
discussions with some of them, although there can be no assurances that any such
discussions will result in the Company obtaining additional capital. Even if the
Company is able to obtain additional capital there can be no assurances that the
structure or terms of such proposed financing will be on acceptable terms.
The Company has entered into agreements with SSC Marketing Co., for sales and
marketing services and with the respective licensors under licenses for the
exclusive sales, marketing, and manufacturing rights for the paint stripping,
foam, and Natural Cool System technologies. Under these agreements, the Company
has undertaken substantial ongoing financial commitments, and unless the Company
is able to obtain additional financing, the Company will be unable to meet its
commitments under such agreements.
As previously noted, the Company continues to seek additional capital with which
to finance ongoing operations. The Company estimates that it will require
approximately $3,000,000 in additional financing in order to continue current
operations for the next twelve months, and an additional $2,000,000 in order to
complete research with respect to all of the technologies, commercially exploit
the products derived therefrom, market each such product and finance initial
production thereof.
The company currently has one lawsuit pending against it. The lawsuit was
brought by Richard Coen as trustee for the bankruptcy estate of Samuel E.
Bernstein claiming back salary allegedly due to Mr. Bernstein. The Company is
of the opinion that the lawsuit will have no material effect on its ability to
operate.
A lawsuit has been threatened by Edwin Stephens claiming payments due under a
prior licensing agreement. The Company believes the claim is without merit and
will have no material effect on the operations of the Company.
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Part II. Other Information
(a) Exhibits: none
(b) Reports on Form 8-K: The Registrant did not file any
reports on Form 8-K during the first quarter.
12
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAFE ALTERNATIVES CORPORATION
OF AMERICA, INC.
By: /s/
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Stephen J. Thompson
President
By: /s/
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Robert Thompson
Chief Financial Officer
Dated: August ___, 1997
13
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