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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 000-17746
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 22-2824492
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
249 Peruvian Avenue
Suite F2
Palm Beach, Florida 33480
--------------------------------------
(Address of principal executive offices, including zip code)
(561) 832-2700
-------------------------------
(Registrant's telephone number, including area code)
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) has been subject to such
requirements for the past 90 days.
YES [X] NO [ ]
The number of issued and outstanding shares of the Registrant's Common Stock,
$0.0001 par value, as of November 3, 2000 was 802,485,302.
<PAGE>
INDEX
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2000 (Unaudited) and December 31, 1999.............2
Consolidated Statements of Operations (Unaudited) -
Nine Months Ended September 30, 2000 and September 30, 1999......4
Consolidated Statements of Changes in
Stockholders Equity (Unaudited) -
Nine Months Ended September 30, 2000.............................5
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2000 and September 30, 1999......9
Notes to Unaudited Consolidated Financial Statements............11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................19
PART II OTHER INFORMATION
Item 1. Legal Proceedings...............................................24
Item 2. Changes in Securities...........................................24
Item 3. Defaults Upon Senior Securities.................................24
Item 4. Submission of Matters to a Vote of Security Holders.............24
Item 5. Other Information...............................................24
Item 6. Exhibits and Reports on Form 8-K................................24
Signature................................................................25
<PAGE>
PART 1 - FINANCIAL STATEMENT PRESENTATION
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 (Unaudited) AND DECEMBER 31, 1999 (Audited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(UNAUDITED) (AUDITED)
---------------- ------------
<S> <C> <C>
Current assets
Cash $ 496 $ 16,372
Accounts receivable (net of allowance for
doubtful accounts $ 53,175 and $ 2,755) 66,762 126,331
Other current assets 1,200 1,327
-------- --------
Total current assets 68,458 144,030
Fixed assets (net of accumulated depreciation
of $ 40,617 and $ 21,294) 158,698 174,705
Other assets
Deposits 12,889 15,974
Goodwill and trademarks (net of accumulated
amortization $ 80,259 and $ 48,483) 555,250 587,026
Other assets 15,625 25,000
-------- --------
583,764 628,000
-------- --------
$810,920 $946,735
======== ========
</TABLE>
-2-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 (Unaudited) AND DECEMBER 31, 1999 (Audited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(UNAUDITED) (AUDITED)
---------------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 53,518 $ 65,214
Accrued expenses 241,345 158,846
Notes payable 320,003 267,571
Deferred income 34,167 33,388
Lease payable, current portion 1,008 1,393
----------- -----------
Total current liabilities 650,041 526,412
Long term liabilities
Lease payable 244 1,014
Shareholders' equity
Common stock $.00001 par value, authorized 999,999,000
shares; issued andoutstanding:
766,624,417 and 746,200,414 shares respectively 7,666 7,462
Capital subscribed 40,000 40,000
Additional paid in capital 5,306,600 3,714,589
Retained deficit (5,193,631) (3,342,742)
----------- -----------
160,635 419,309
----------- -----------
$ 810,920 $ 946,735
=========== ===========
</TABLE>
-3-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED SEPTEMBER 30,
-----------------------------------------------------------------
THREE MONTHS NINE MONTHS
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income
Sales net of returns $ 61,602 $ 201,919 $ 350,725 $ 644,769
Cost of sales 24,715 11,768 71,867 32,708
----------- ----------- ----------- -----------
Gross profit 36,887 190,151 278,858 612,061
----------- ----------- ----------- -----------
Expenses
General and administrative expenses 48,259 84,448 494,707 242,995
Salaries 181,186 127,292 371,152 403,543
Consulting fees 18,746 1,006,715
Proxy and brokers services 885 3,150
Accounting and legal 36,701 25,352 123,795 89,563
Depreciation and amortization 17,111 51,099
Advertising & promotions 2,960 4,622 4,228 18,283
Bad debt 53,250 53,426
Management expenses 3,125 9,375
----------- ----------- ----------- -----------
362,223 241,714 2,117,647 754,384
Other income/expenses
Interest expense 3,879 12,100
Interest income 12 178
----------- ----------- ----------- -----------
Net loss $ (329,215) $ (51,551) $(1,850,889) $ (142,145)
=========== =========== =========== ===========
Earning per share
Net loss per share $ (0.00044) $ (0.00007) $ (0.00246) $ (0.00020)
----------- ----------- ----------- -----------
</TABLE>
-4-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL PAID IN RETAINED
SHARES AMOUNT SUBSCRIBED CAPITAL DEFICIT TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 712,489,700 $ 7,125 $ 39,000 $ 2,591,531 $ (2,422,800) $ 214,856
Less adjustments in 1999 1,000 (19,995) (18,995)
Internet Associates International acquisition
(January 29, 1999) 25,000,000 250 -- 24,750 25,000
Issuance of shares of common stock to unrelated
party in exchange for accounting services
valued at $6,890 on March 2, 1999. 125,000 1 6,889 6,890
Issuance of shares of common stock to unrelated
party in exchange for accounting services
valued at $ 15,000 on March 10, 1999. 300,000 3 14,997 15,000
Issuance of shares of common stock on
March 22, 1999 to a member of Board of
Directors for consulting services
valued at $ 0.045 per share 200,000 2 7,998 8,000
Issuance of shares of common stock on
May 3, 1999 to Ruth Deutsch
(Franklin L. Frank) in exchange for cash. 600,000 6 14,994 15,000
Issuance of shares of common stock to an
unrelated party in compensation for
accounting services valued at $ 0.04
per share on June 1, 1999. 100,000 1 3,999 4,000
------------------------------------------------------------------------------
Sub-total 738,814,700 $ 7,388 $ 40,000 $ 2,645,163 $ (2,422,800) $ 269,751
</TABLE>
-5-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL PAID IN RETAINED
SHARES AMOUNT SUBSCRIBED CAPITAL DEFICIT TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sub-total 738,814,700 $ 7,388 $ 40,000 $ 2,645,163 $ (2,422,800) $ 269,751
Connect.ad, Inc., Connect.ad Services, Inc.
and Connect.ad of South Florida, Inc -
acquisition (September 28, 1999) 4,285,714 43 299,957 300,000
Issuance of shares of common stock to the
members of Board of Directors valued at
$ 0.045 per share on December 8, 1999. 600,000 6 26,994 27,000
Issuance of shares of common stock to an
unrelated party in compensation for
accounting services valued at $ 0.045
per share on December 30, 1999. 50,000 1 2,249 2,250
Issuance of common stock for consulting
services for the year
ending December 31, 1999 550,000 5 24,745 24,750
Issuance of common stock for
Public Relations services for
the year ending December 31, 1999. 4,900,000 49 220,451 220,500
Issuance of common stock for employee
compensation in lieu
of cash payment 11,000,000 110 494,890 495,000
-----------------------------------------------------------------------------------
Sub-total 760,200,414 $ 7,602 $ 40,000 $ 3,714,449 $ (2,422,800) $ 1,339,251
</TABLE>
-6-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL PAID IN RETAINED
SHARES AMOUNT SUBSCRIBED CAPITAL DEFICIT TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sub-total 760,200,414 $ 7,602 $ 40,000 $ 3,714,449 $ (2,422,800) $ 1,339,251
Cancelation of shares of common stock of
GMG acquisition; GMG returned these
shares after the cancelation of the
acquisition agreement (14,000,000) (140) 140 --
Net loss December 31, 1999 (919,942) (919,942)
----------------------------------------------------------------------------------
Balance December 31, 1999 (Audited) 746,200,414 7,462 40,000 3,714,589 (3,342,742) 419,309
Issuance of shares of common stock
for technology services valued
at $ 20,000 for the 5 months
ended May 31,2000 324,003 3 19,997 20,000
Issuance of shares of common stock
for legal services valued at
$ 0.0781 per share on June 9, 2000 500,000 5 39,045 39,050
Issuance of shares of common stock
on June 9, 2000 in exchange for
cash to Ruth Deutsch (Franklin L. Frank) 500,000 5 74,995 75,000
Issuance of shares of common stock in
compensation for secretarial/administrative
services valued at $ 0.0781
per share on June 14, 2000. 4,500,000 45 351,405 351,450
----------------------------------------------------------------------------------
Sub-total 752,024,417 $ 7,520 $ 40,000 $ 4,200,031 $ (3,342,742) $ 904,809
</TABLE>
-7-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL PAID IN RETAINED
SHARES AMOUNT SUBSCRIBED CAPITAL DEFICIT TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sub-total 752,024,417 $ 7,520 $ 40,000 $ 4,200,031 $ (3,342,742) $ 904,809
Issuance of shares of common stock to
unrelated party for service bonus
valued at $ 0.0781 per share on
June 14, 2000. 150,000 2 11,713 11,715
Issuance of shares of common stock to
an officer as compensation for services
provided from February 9, 1998 through
June 30, 2000 ($0.0781 per share) 12,000,000 120 937,080 937,200
Issuance of shares of common stock to an
officer as compensation for services
on August 15, 2000 ($ 0.06 per share) 2,000,000 20 119,980 120,000
Issuance of shares of common stock for
consulting services on August 26, 2000
($0.084 per share) 450,000 4 37,796 37,800
Net loss September 30, 2000 (1,850,889) (1,850,889)
----------------------------------------------------------------------------------
Balance September 30, 2000 (Unaudited) 766,624,417 $ 7,666 $ 40,000 $ 5,306,600 $ (5,193,631) $ 160,635
==================================================================================
</TABLE>
-8-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,850,889) $ (142,145)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 51,099
Bad debt 53,426
(Increase) decrease in accounts receivable 6,124 (77,029)
(Increase) decrease in notes receivables 936
(Increase) decrease in other assets 12,618
Increase (decrease) in accounts payable (11,696) 41,711
Increase (decrease) in accrued liabilities 82,499 217,873
Increase (decrease) in other payables 51,275 7,959
Increase (decrease) in deferred income 779
----------- -----------
Total adjustments 246,124 191,450
----------- -----------
Net cash provided (used) by operating activities (1,604,765) 49,305
----------- -----------
Cash flows from investing activities:
Cash payment for purchase of intangibles --
Cash payments for the purchase of property (3,326) (185,339)
----------- -----------
Net cash used by investing activities (3,326) (185,339)
----------- -----------
</TABLE>
-9-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
----------- ------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ 1,592,215 $ 75,080
----------- -----------
Net cash provided by financing activities 1,592,215 75,080
----------- -----------
Net increase (decrease) in cash and cash equivalents (15,876) (60,954)
Cash and cash equivalents, beginning of period 16,372 70,995
----------- -----------
Cash and cash equivalents, end of period $ 496 $ 10,041
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense $ -- $ --
----------- -----------
</TABLE>
Shareholders' equity note:
Approximately 17,474,003 shares of the Company's common stock were awarded to
various service providers in lieu of cash consideration.
-10-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 1 UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 310(b) of Regulation SB.
Accordingly, they do not include all of the information and
footnote disclosures normally included in complete financial
statements prepared in accordance with generally accepted
accounting principles. For further information, such as
significant accounting policies followed by the Company, refer to
the notes to the Company's audited financial statements.
In the opinion of management, the unaudited financial statements
include all necessary adjustments (consisting of normal,
recurring accruals) for a fair presentation of the financial
position, results of operations and cash flow for the interim
periods presented. Preparing financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses.
Actual results may differ from these estimates. Interim results
are not necessarily indicative of results for a full year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description
Safe Technologies International, Inc. ("Safe Tech") and its
subsidiaries is a multi-faceted company specializing in Internet
services and products.
Organization
The Company was incorporated under the laws of the state of
Delaware on May 21, 1987 as Safe Aid Products, Incorporated. On
February 9, 1998, the Company changed its name to Safe
Technologies International, Inc.
Basis of Consolidation
The consolidated financial statements include the accounts of
Safe Technologies International, Inc. and its subsidiaries,
Internet Commerce, Inc., Total Microcomputers, Inc. (inactive),
Connect.Ad, Inc., Connect.Ad Services, Inc., Connect.Ad of South
Florida, Inc. and Internet Associates International, Inc. All
material intercompany transactions and balances have been
eliminated in the consolidated financial statements.
-11-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company treats all short-term investments with maturities of
three months or less at acquisition to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Advertising
Advertising costs are charged to operations when incurred.
Advertising costs of $4,228 were incurred during the nine months
ended September 30, 2000.
Revenue Recognition
Revenues of Safe Tech, Internet Commerce, Inc., Connect.Ad, Inc.,
Connect.Ad Services, Inc., Connect.Ad of South Florida, Inc. and
Internet Associates International, Inc. are recognized at the
time the services are rendered to customers. Services are
rendered when the Company's representatives receive the
customer's requests and complete the customer's orders.
Deferred Income
Deferred income arises in the normal course of business from the
development of new web site contracts. The Company recognizes
income when delivery has occurred or services have been rendered.
At September 30, 2000, the total amount of deferred income was
$34,167.
-12-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments
Cash and cash equivalents, accounts receivable and accounts
payable are short-term in nature and the net values at which they
are recorded are considered to be reasonable estimates at their
fair values. The carrying values of notes payable are deemed to
be reasonable estimates of their fair values.
Accounts Receivable
It is the policy of management to review the outstanding accounts
at year-end, as well as review bad debts, and establish an
allowance for doubtful accounts and uncollectible amounts.
Intangible Assets
The Company continually evaluates the carrying value of goodwill
and other intangible assets to determine whether there are any
impairment losses. If indicators of impairment are present in
intangible assets used in operations, and future cash flows are
not expected to be sufficient to recover the assets' carrying
amount, an impairment loss would be charged to expense in the
period identified.
No reduction for impairment of intangible assets was necessary at
September 30, 2000 or 1999.
Property and Equipment
Property and equipment are stated at cost. Depreciation of
depreciable assets is computed using the straight-line method of
depreciation over the estimated useful lives of the assets. The
estimated useful life is between 5 to 7 years.
Credit Risk
Financial instruments that potentially subject the Company to
credit risk include cash on deposit with five financial
institutions amounting to $496 at September 30, 2000, and $16,372
at December 31, 1999, which was insured for up to $500,000 by the
U.S. Federal Deposit Insurance Corporation (FDIC).
-13-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortization
Amortization of trademarks and copyrights, and goodwill is
determined utilizing the straight-line method based generally on
the estimated useful lives of the intangibles as follows:
Trademarks and copyrights 15 years
Goodwill 15 years
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 131, Disclosures About
Segments of an Enterprise and Related Information (SFAS No. 131)
which established presentation of financial date based on the
"management approach". SFAS No. 131 is applicable for fiscal
years beginning after December 15, 1997. For the current fiscal
year we are not going to present segment reporting because it is
immaterial.
Basic Loss per Share and Diluted Loss per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share (SFAS No. 128), which specifies the computation,
presentation and disclosure requirements for earnings per share.
SFAS No. 128 supercedes Accounting Principle Board Opinion No. 15
entitled Earnings Per Share. Basic earnings per share are
computed by dividing income available to common stockholders (the
numerator) by the weighted-average number of common shares (the
denominator) for the period. The computation of diluted earnings
per share is similar to basic earnings per share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
The numerator in calculating basic earnings per share is reported
net loss. The denominator is based on the following
weighted-average number of common shares:
Basic 753,037,331
The 14,727,280 shares of common stock, reserved in connection
with warrants, are not included in the diluted earnings per share
calculation since the exercise price is greater than the average
market price.
-14-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 3 CAPITAL STOCK TRANSACTIONS
The Articles of Incorporation provide for the authorization of
950,000,000 shares of common stock at $.00001 par value. On
January 30, 1999, the stockholders approved increasing the
authorized number of shares to 999,999,000.
In June of 1988, the Company completed a sale of 150,000 units to
the public at a price of $10 per unit. The Company received
proceeds in the amount of $1,213,841, net of commissions and
expenses to the underwriter, legal, accounting and other expenses
related to the public offering in the amount of $286,159. Each
unit consisted of 1,000 shares of common stock, $.00001 par
value, and 500 redeemable common stock warrants designated
redeemable Warrant "A". Each redeemable Warrant "A" would, upon
exercise, entitle the holder to purchase one share of common
stock for $.20 per share and to receive one redeemable Class "B"
Common stock purchase warrant. Each redeemable Class "B" Common
Stock purchase warrant would, upon exercise, entitle the holder
to purchase one share of common stock for $.50 per share. These
exercise periods of both Class "A" and Class "B" warrants have
been extended by the Board of Directors through January 9, 2000,
after giving effect to the ten for one reverse split on February
9, 1998. At June 30, 2000, 14,727,280 shares of common stock,
reserved in connection with such warrants remain outstanding.
There was no market activity for these warrants through June 30,
2000.
On May 31, 2000, 324,003 shares of common stock were issued for
technology services valued at $20,000, which were performed
during the five months ended May 31, 2000.
On June 9, 2000, 500,000 shares of common stock valued at $0.0781
per share were issued for legal services.
On June 9, 2000, 500,000 shares of common stock were issued in
exchange for cash.
On June 14, 2000, 4,500,000 shares of common stock valued at
$0.0781 per share were issued as compensation for
secretarial/administrative services.
-15-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 3 CAPITAL STOCK TRANSACTIONS (CONTINUED)
On June 14, 2000, 150,000 shares of common stock valued at
$0.0781 per share were issued to an unrelated party for a service
bonus.
On June 30, 2000, 12,000,000 shares of common stock valued at
$0.0781 per share were issued to an officer as compensation for
services.
On August 15, 2000, 2,000,000 shares of common stock valued at
$0.06 per share were issued to an officer as compensation for
services.
On August 26, 2000, 450,000 shares of common stock valued at
$0.084 per share were issued for consulting services.
NOTE 4 SUBSCRIPTIONS
The Company entered into a subscription agreement for the
purchase of 4,405,882 shares of common stock for $40,000 on
November 4, 1998. At September 30, 2000, the Company had received
payments amounting to $40,000. No stock has been issued relating
to this subscription.
NOTE 5 LEASES
The Company rents office space in Palm Beach and Boca Raton,
Florida on a month to month basis. There is no lease in force.
The monthly total rent is currently $3,514. The Company also
rents office furniture and equipment on a month to month basis
for $1,000 per month from the president. The Company leases
telephone equipment through a capital lease. The term of the
lease is for 36 months, commencing July 22, 1998, in the amount
of $119.48 plus sales tax per month. There is a $1.00 purchase
option at the end of the lease.
-16-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 6 INCOME TAXES
The Company and its subsidiaries file consolidated income tax
returns. No provision has been made in the accompanying financial
statements for income taxes payable because of the Company's
operating loss from operations. At December 31, 1999, the Company
had $3,342,743 of operating loss carry-forwards for financial
reporting and income tax purposes available to offset future
income taxes expiring through the year 2019. Net operating losses
of $1,850,889 for the nine months ended September 30, 2000 will
expire in 2020. Additionally, the Company has approximately
$44,000 of research and development credits available to offset
future income taxes through the year 2005. There can, however, be
no assurance that the Company will have future operating profits.
NOTE 7 NOTE PAYABLE
At September 30, 2000, short-term debt consisted of the
following:
8% note payable to an officer, unsecured, due on demand.
Upon any default, the note becomes due immediately
at an interest rate of 18% per annum. $193,925
Note payable to a shareholder, unsecured, due on
demand, no interest rate specified. 89,586
Note payable to an individual, unsecured,
due on demand, with an interest rate of 5.5%. 35,143
Note payable to an officer, unsecured, due on
demand, no interest rate specified. 1,350
--------
Total short-term debt $320,003
========
Interest expense for the nine months ended September 30, 2000 was
$12,100.
-17-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 8 STOCK AWARDS
The Company has a Stock Incentive Plan (the "Plan") that was
established on April 1, 1998 and was registered in August 1998.
The Plan contained 30,000,000 Option Shares, 15,000,000 Stock
Awards, and 15,000,000 shares of 144 Restricted Stock. In 1998,
7,325,000 shares were granted under the Plan.
During the fourth quarter of 1999, the Company established the
Safe-Technologies International, Inc. - Year 2000 Stock Award
Plan (the "Year 2000 Plan"). Pursuant to the Year 2000 Plan, the
Company registered 30,000,000 shares of its common stock, to be
awarded to eligible persons thereunder. During fiscal 1999, the
Company granted 18,770,764 shares of common stock to eligible
persons under both the Plan and the Year 2000 Plan. At September
30, 2000, 6,924,003 shares were granted under the Plan.
NOTE 9 EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement dated January
30, 1997 with Barbara Tolley, its president and CEO. The term of
the agreement is for a period of two (2) years, commencing on
February 9, 1998 and ending on February 9, 2000.
On February 9, 2000, the contract was renewed for one (1) year
with the same terms.
In consideration of the services performed, the Company will pay
a monthly salary of $10,000, payable in all cash, or half
cash/half stock, all stock, or partial accrual, at the option of
the employee.
In addition, the agreement calls for the Company to provide
additional employment benefits, which include automobile,
insurance, telephone, dues and vacation.
In March, 2000, the Company entered into an employment agreement
with Randy Swatt, President, and a member of the Board of
Directors of Internet Associates International, Inc. The term is
for a period of one (1) year with a monthly salary of $5,000,
payable semi-monthly.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Safe Technologies International, Inc., formerly known as Safe Aid Products, Inc.
(the "Company," "we" or "us"), has concluded a mixed third quarter. Unless the
context otherwise requires, the term "Company" as used herein refers to the
Company and its subsidiaries.
As previously reported, we entered into a letter of intent on July 1, 2000,
relating to our proposed acquisitions of two companies. During the course of
performing due diligence, certain concerns arose regarding the larger of the two
proposed acquisitions, an automobile superstore chain. As a result, we have
changed our intention of acquiring that company and have notified the other
party that we will not proceed with that acquisition at this time. Management
has not closed the door for acquisition of the bonding and strength proprietary
building products company, and negotiations on provisions of the letter of
intent with that potential acquisition target continue.
IAI, Inc. ended a poorer quarter than projected due in large part to market
pressures from many other competitors in the Web site development and hosting
sector. We have been analyzing various strategies to counter these market
pressures to position the Company to exploit Internet technology opportunities
which may exist or which may arise in the midst of a recently volatile Internet
marketplace. One such potential strategy would be to pursue potentially more
profitable, technology development opportunities, in lieu of larger numbers of
relatively lower margin engagements. Another potential modification to our
strategy will be to deploy more resources to the provision of Internet related
services to B2B (business to business) service providers versus the B2C
marketplace.
We continued to move forward with the repackaging of our electronic advertising
and marketing franchise concept, primarily through our connect.ad.com
subsidiary, in anticipation of opening with a European sales launch in early
2001. Certain franchise-related legal documentation has been in the process of
modification, certain collateral materials have needed and are undergoing
updating, and the identification of the character of Internet services to be
offered in U.S. franchise territories have been undergoing fine-tuning and
updating.
We will continue to seek out, examine and pursue, where practicable, acquisition
opportunities which would provide us with a traditional bricks and mortar market
presence. Some of the characteristics of prospective alliances we seek to
integrate include entities possessing an established market with a substantial
customer base, operations which produce recurring revenue streams and positive
cash flow, and entities whose core competencies would be congruent with and
complement our own. As always, our focus will remain on growing our existing
markets, with the possible modifications referred to above, and to capitalize on
business combination opportunities which will create business synergies to help
us achieve market stability, enhance brand awareness and to contribute,
ultimately, to the achievement of profitability. In all endeavors, our primary
objective will continue to be the enhancement of Company and shareholder value.
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Results of Operations
Revenues were $61,602 for the third quarter of 2000 as compared to $201,919 for
the corresponding quarter of 1999, a decrease of 69%. We believe this outcome
was the result of competition in the marketplace wherein certain competing
service providers (e.g. Web hosting) offer free hosting services to certain
subscribers. We anticipate that some of these lost revenue opportunities may
return once further market consolidations occur and such free competing services
disappear. We believe that our intention to focus more resources on higher
margin engagements in B2B technology services will enhance our revenue mix and
help to ease some of the volatility in this sector.
Direct costs associated with revenues were $24,715 during the third quarter of
2000 and were $11,768 for the third quarter of 1999, representing an increase
$12,947. This difference is immaterial to the financial statements taken as a
whole.
Expenses were $362,223 for the third quarter of 2000 as compared to $241,714 for
the third quarter of 1999, representing a 50% increase. The significant
percentage increase represents in large part, timing differences in the
recognition of certain expenses attributable to comparative prior periods which
were paid by stock in lieu of cash yet not recognized until near the end of the
prior fiscal year and not as of the end of the fiscal quarter. Further timing
differences resulted from the interim calculation of amortization and
depreciation expense in the current fiscal quarter which had been lacking in the
comparative prior third quarter. Finally, we analyzed our accounts receivable
with a relatively conservative perspective to currently recognize potential bad
debt expense of $53,250 which we had not done in the corresponding 1999 third
quarter.
As a result of the foregoing, the Company's operating loss for the third quarter
of 2000 was $329,215 compared to a net loss for the third quarter of 1999 in the
amount of $51,551.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had a cash balance of $496 as compared to a balance
of $16,372 as of the fiscal year ended December 31, 1999. For the period ended
September 30, 2000, the Company had a working capital deficit of $581,583
compared with a working capital deficit of $382,382 on December 31, 1999.
Net cash used in operating activities was $1,604,765 for the nine months ended
September 30, 2000 compared to cash provided by operating activities of $49,305
for the comparable nine month period of 1999. The Company used $3,326 in
investing activities for the nine months ended September 30, 2000 and $185,339
for the comparative nine month period in 1999. Net cash provided by financing
activities was $1,592,215 for the nine months ended September 30, 2000 as
compared with $75,080 provided for the comparable 1999 period. The apparent
large swings in comparative variances of cash used in operating activities and
cash provided by financing activities result primarily from our newly instated
policy of currently recognizing expenses resulting from the issuance of shares
of common stock in lieu of cash to various vendors and
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consultants during the interim period versus solely as of the end of the fiscal
year.
We continue to secure additional small lots of capital. We believe that we have
adequate resources for the next six months of operations.
CAUTIONARY STATEMENTS
Forward-looking statements in this Form 10-QSB including, without limitation,
statements relating to our plans, strategies, objectives, expectations,
intentions, and adequacy of resources, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward- looking statements. The following factors,
among others, could cause actual results to differ materially from those set
forth in the forward-looking statements: our ability to successfully (i) develop
and profitable grow its B2C e- commerce sites, including entering into
agreements with merchants to sell consumer products, (ii) to develop and refocus
IAI's Internet web design, hosting and marketing business, (iii) to develop the
connect.ad companies' Internet marketing business, (iv) identify and finalize
acquisition agreements with select Internet companies and/or enter into
partnership agreements with established companies in high technology deals, and
(v) raise additional capital to finance our operations in the next fiscal year.
Additional factors, include, but are not limited to the following: the size and
growth of the market for the Company's products, competition, pricing pressures,
market acceptance of the Company's products and services, the effect of economic
conditions, the availability of management, risks in product development and
other risks identified in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999 and the Company's other SEC filings.
RISK FACTORS
The Company is engaged in the pursuit of commerce on the Internet platform. This
form of commerce involves many opportunities, as well as significant threats,
many of which are out of our control. Some of the risks which we face are as
follows:
Consumers, suppliers and advertisers may not accept our web site as a valuable
commercial tool, which would impair the growth of our business.
For us to achieve the level of growth that we have projected, consumers,
suppliers, merchants and advertisers must accept our web site model as a
valuable commercial tool. Consumers who have historically purchased the various
product offering found on our web sites using traditional commercial channels
must change that paradigm and purchase instead through our site. Consumers
frequently "surf" sites like our sites in search of the various products offered
therein and then ultimately revert to the traditional purchase channel. If this
paradigm is not shifted, we may never achieve our anticipated growth.
Similarly, suppliers, advertisers and merchants will also need to accept and use
our web site. In order for this to occur, suppliers, advertisers and merchants
will need to perceive our site as efficient and
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profitable channels of distribution for their products, for expenditure of their
advertising budgets and for their merchandise.
In order to achieve the acceptance of consumers, suppliers, advertisers and
merchants contemplated by our business plan, we will need to make substantial
investments in technology and brand. We can not, however, assure you that these
investments will be successful. Our failure to make succeed in these areas will
hamper the opportunities to achieve our business plan.
We expect there to be operating losses and negative cash flows.
We expect to continue to incur net losses and negative cash flows for the
foreseeable future and there can be no assurance that we will ever achieve
profitability or generate positive cash flows. As we enhance our existing sites
on continue to launch new sites and deploy our business plan, we expect to incur
significant operating expenses particularly in the sales, marketing and
operations areas. These types of expenses will grow as we expand the scope and
reach of our operations. If our revenues do not grow as expected, or if our
actual expenses exceed our budgeted expenses, there could be a material adverse
effect on our business, operating results and financial condition. We will need
to raise additional funds through the issuance of equity, equity-related or debt
securities. If we are unable to obtain additional financing on reasonable terms
to enable the development of our business plan, we may never be able to
completely implement our on-line strategy.
The success of our business will depend on continued growth of online commerce
and the Internet.
Because we do not intend to provide our services through any commercial medium
other than the Internet, our future revenues and profits depend upon the
widespread acceptance and use of the Internet and online services as a medium
for commerce. Rapid growth in the use of the Internet and online services is a
recent phenomenon. This growth may not continue. A sufficiently broad base of
consumers may not accept, or continue to use, the Internet as a medium of
commerce. Demand for and market acceptance of recently introduced products and
services over the Internet involve a high level of uncertainty.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security and the
timely development of complementary products for providing reliable Internet
access and services . Major online service providers and the Internet itself
have experienced outages and other delays as a result of software and hardware
failures and could face such outages and delays in the future. Outages and
delays are likely to affect the level of Internet usage and the processing of
transactions on our web sites. In addition, the Internet could lose its
viability because of delays in the development or adoption of new standards to
handle increased levels of activity or of increased government regulation. The
adoption of new standards or government regulation may require us to incur
substantial compliance costs.
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Interruptions in service from third parties could impair the quality of our
service.
We will rely upon third-party computer systems and third party service
providers, including Internet Bandwidth Supplier. Any interruption in these
third-party services or a deterioration in their performance could impair the
quality of our service. If our arrangement with any of these third party were to
be terminated, we may not be able to find an alternative source of systems
support on a timely basis or on commercially reasonable terms.
Our success depends upon the development and maintenance of superior technology
systems and infrastructure.
In order to be successful, we must provide reliable, real-time access to our
systems for our customers and suppliers. As our operations grow in both size and
scope, domestically and internationally, we will need to continually upgrade our
systems and infrastructure to offer our customers and suppliers enhanced
products, services, features, and functionality. The expansion of our systems
will require additional financial, operational and technical resource
expenditures before business volume may reach levels sufficient to yield
profitability, with no assurance that the volume of business will increase or
that profitability will be achieved. Consumers and suppliers will not tolerate a
service hampered by slow delivery times, unreliable service levels or
insufficient capacity, any of which could have a material adverse effect on our
business, operating results and financial condition.
Our business is exposed to risks associated with online commerce security and
credit card fraud.
Consumer concerns over the security of transactions conducted on the Internet or
the privacy of users may inhibit the growth of the Internet and online commerce.
To transmit confidential information such as customer credit card numbers
securely, we will rely upon encryption and authentication technology.
Unanticipated events or developments could result in a compromise or breach of
integrity of our consumer transaction data. Our servers could also be vulnerable
to viruses transmitted over the Internet, which if not detected, could create a
service interruption.
Our success depends in large part upon the efforts of a few individuals and our
ability to attract, retain and motivate highly skilled employees.
We depend substantially on the services and performance of our senior
management, particularly Barbara L. Tolley our Chief Executive Officer, Michael
Bhethana, our Chief Information Officer and Bradford L. Tolley our Secretary,
Treasurer and Vice President of Investor Relations. These individuals may not be
able to fulfill their responsibilities adequately and may not remain with us.
The loss of the services any executive officer or other key employees could hurt
our business.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1
Financial Data Schedule (filed herewith electronically)
(b) Reports on Form 8-K
The Company filed three reports on Form 8-K during the three
months ended September 30, 2000.
(i) The Company filed a report on Form 8-K dated September 12,
2000 which reported information under Item 5 - Other
Information.
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Safe Technologies International, Inc.
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Safe Technologies
International, Inc., Registrant
Date: November 14, 2000 By: /s/ Barbara Tolley
----------------- ---------------------
Barbara Tolley
President
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