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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
Commission File No. 000-17746
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
(Formerly Safe Aid Products Incorporated)
----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 22-2824492
------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
249 Peruvian Avenue
Suite F2
Palm Beach, Florida 33480
------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (561) 832-2700
--------------
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 filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $0.00001 Par Value - 746,200,414 shares as of
May 1, 2000.
<PAGE>
INDEX
- -----
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000 (Unaudited) and December 31, 1999.............3
Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 2000 and March 31, 1999.........4
Consolidated Statements of Changes in
Stockholders Equity (Unaudited) -
Three Months Ended March 31, 2000............................5
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 2000 and March 31, 1999.........7
Notes to Unaudited Consolidated Financial Statements.........8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................16
PART II OTHER INFORMATION
Item 1. Legal Proceedings...........................................22
Item 2. Changes in Securities.......................................22
Item 3. Defaults Upon Senior Securities.............................22
Item 4. Submission of Matters to a Vote of Security Holders.........22
Item 5. Other Information...........................................22
Item 6. Exhibits and Reports on Form 8-K............................22
Signature............................................................23
<PAGE>
PART 1 - FINANCIAL STATEMENT PRESENTATION
<TABLE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
CONSOLIDATED BALANCE SHEETS
<CAPTION>
<S> <C> <C>
March 31, December 31,
2000 1999
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 19,371 $ 16,372
Accounts receivable (net of allowance for doubtful
Accounts $14,210 and $2,755) 128,753 126,331
Other current assets 2,337 1,327
-------------- -------------
TOTAL CURRENT ASSETS 150,461 144,030
Fixed assets (net of accumulated depreciation
of $27,696 and $21,294) 170,453 174,705
OTHER ASSETS
Deposits 19,791 15,974
Goodwill and trademarks (net of accumulated
amortization $59,075 and $48,483) 576,434 587,026
Other assets 21,875 25,000
-------------- -------------
TOTAL OTHER ASSETS 618,100 628,000
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TOTAL ASSETS $ 939,014 $ 946,735
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 64,790 $ 65,214
Accrued expenses 178,520 158,846
Notes payable 336,514 267,571
Deferred income 6,290 33,388
Lease payable, current portion 1,393 1,393
----------- -----------
TOTAL CURRENT LIABILITIES 587,507 526,412
LONG TERM LIABILITIES
Lease payable 629 1,014
SHAREHOLDERS' EQUITY
Common stock $.00001 par value, authorized
999,999,000 shares; issued and outstanding:
746,200,414 and 746,200,414 shares respectively 7,462 7,462
Capital subscribed 40,000 40,000
Additional paid in capital 3,714,589 3,714,589
Retained earnings (deficit) (3,411,173) (3,342,742)
----------- -----------
350,878 419,309
----------- -----------
$ 939,014 $ 946,735
=========== ===========
</TABLE>
<PAGE>
<TABLE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
<S> <C> <C>
For Three For Three
Months Ended Months Ended
March 31, March 31
2000 1999
Income
Sales net of returns $ 166,335 $ 226,337
Cost of sales 12,222 9,890
----------- ----------
Gross profit 154,113 216,447
Expenses
General and administrative expenses 54,329 71,895
Salaries 115,113 112,348
Consulting fees 9,813
Proxy and brokers services 1,315
Accounting and legal 17,068 42,811
Depreciation and amortization 16,994
Advertising & promotions 335 10,604
Management expenses 3,125
----------- ----------
218,092 237,658
----------- ----------
Other income (expenses)
Interest income 110
Interest expense 4,452
----------- ----------
Net loss $ (68,431) $ (21,101)
=========== ==========
Earning per share
Net loss per share $ (0.000092) $ (0.001)
=========== ==========
</TABLE>
<PAGE>
<TABLE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Capital Paid in Accumulated
Shares Amount Subscribed Capital Deficit TOTAL
----------------------------------------------------------------------------------
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 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 consultant services
valued at $ 0.045 per share 200,000 2 7,998 8,000
Issuance of shares of common stock on
May 3, 1999 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
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Capital Paid in Accumulated
Shares Amount Subscribed Capital Deficit TOTAL
----------------------------------------------------------------------------------
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 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>
<PAGE>
<TABLE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Capital Paid in Accumulated
Shares Amount Subscribed Capital Deficit TOTAL
----------------------------------------------------------------------------------
Sub-total 760,200,414 $ 7,602 $ 40,000 $3,714,449 $ (2,422,800) $1,339,251
Cancellation of shares of common stock of GMG
Acquisition GMG returned these shares after the
cancellation 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
Net loss March 31, 2000 (68,431) (68,431)
Balance March 31, 2000 (UnAudited) 746,200,414 $ 7,462 $ 40,000 $3,714,589 $ (3,411,173) $ 350,878
==================================================================================
</TABLE>
<PAGE>
<TABLE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
<S> <C> <C>
For Three For Three
Months Ended Months Ended
March 31, March 31
2000 1999
Cash flows from operating activities:
Net loss $ (68,431) (22,124)
---------- --------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 16,994
Allowance for doubtful accounts
(Gain) loss on disposal of property
(Increase) decrease in accounts receivable (2,422) (67,295)
(Increase) decrease in inventories
(Increase) decrease in prepaid expense
(Increase) decrease in notes receivables 6,955
(Increase) decrease in other assets (1,702)
Increase (decrease) in accounts payable (424) 26,831
Increase (decrease) in accrued liabilities 19,674 30,000
Increase (decrease) in other payables 68,558
Increase (decrease) in deferred income (27,098)
Increase (decrease) in shareholders' loan
---------- ----------
Total adjustments 73,580 (3,509)
---------- ----------
Net cash used by operating activities 5,149 (25,633)
Cash flows from investing activities:
Cash payment for purchase of intangibles
Cash payments for the purchase of property (2,150) (176,327)
---------- ----------
Net cash used by investing activities (2,150) (176,327)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock $ 166,333
Proceeds form capital subscribed
--------- -----------
Net cash provided by financing activities 166,333
--------- -----------
Net increase in cash and cash equivalents 2,999 (35,627)
Cash and cash equivalents, beginning of the quarter 16,372 66,471
--------- -----------
Cash and cash equivalents, end of the quarter $ 19,371 $ 30,844
--------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense $ 4,452 $
- -
--------- -----------
</TABLE>
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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. The results of operations for the three-
month periods ended March 31, 2000 and 1999 are not necessarily indicative of
operating results to be expected 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 August
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.
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 $335 were incurred during the three months ended March 31, 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.
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.
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 March 31,
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 $19,371
at March 31, 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).
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.
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 746,200,414
Basic Loss per Share and Diluted Loss per Share
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.
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.
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 3 CAPITAL STOCK TRANSACTIONS (CONTINUED)
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 March 31, 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 March 31, 2000.
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 Mach 31,
2000, the Company had received payments amounting to $40,000. No stock has
been issued relating to this subscription.
NOTE 5 PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment at March 31, 2000 consist of the following:
Computer equipment $131,175
Computer software 24,175
Telephone equipment 4,559
Furniture and fixtures 38,240
-------
195,999
Less: Accumulated depreciation (27,696)
=======
$170,453
Depreciation expense for the three months ended March 31, 2000 was $6,402.
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 6 INTANGIBLE ASSETS
At March 31, 2000, intangible assets were summarized by major classification
as follows:
Copyrights and trademarks $199,455
Goodwill 436,054
-------
635,509
Less: Accumulated amortization (39,075)
=======
$576,434
Amortization expense for the three months ended March 31, 2000 was $10,592.
NOTE 7 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.
Rental expense for the three months ended March 31, 2000 was $12,058.
NOTE 8 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, 1998, 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 $68,431
for the three months ended March 31, 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.
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 9 SHORT-TERM DEBT
At March 31, 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. $185,436
Note payable to a shareholder, unsecured, due on demand,
no interest rate specified. 114,585
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 $336,514
Interest expense for the three months ended March 31, 2000 was $4,192.
NOTE 10 STOCK AWARDS
The Company has a Stock Incentive Plan that was established on April 1, 1998
and was registered in September, 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.
NOTE 11 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.
<PAGE>
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"), has concluded an interesting first quarter. Unless the
context otherwise requires, the term "Company" as used herein refers to the
Company and its subsidiaries.
Pursuant to the Company Business Plan and a critical path analysis, management
focused significant attention to controlling expenses. First quarter cost
saving efforts included the physical relocation of the Connect.Ad companies,
Connect.Ad, Inc., Connect.Ad of South Florida, Inc. and Connect.Ad Services,
Inc.(together referred to as the "Connect.Ad Companies"), as well as Internet
Commerce International, Inc.("ICI"), all wholly owned subsidiaries of the
Company, to the existing 123 NW 13th Street, Boca Raton, Florida address of
Internet Associates International, Inc. ("IAI"), also a wholly owned
subsidiary. We expect significant cost savings with the subsidiaries'
physical consolidation, primarily due to our planned re-engineering or
elimination of functional redundancies at certain staff positions.
We began meetings and negotiations with two different significant potential
business combination candidates during the first quarter, consistent with our
stated business objective of growing the Company through strategic alliances
which complement our core competencies. One such group has vertically
integrated Internet-based businesses, and the other group has a substantial
traditional platform business model. Once our due diligence is completed with
respect to establishing the value of such prospective acquisitions, a final
determination will be made as to which alternatives would offer the greatest
synergies, the ultimate objective of which is the enhancement of Company and
shareholder value. Both entities have submitted Letters of Intent to the
Company, which we have not executed pending the completion of our preliminary
due diligence. Both entities have indicated their interest in having key
management and board positions with the Company.
Our wholly owned subsidiary, IAI, concluded a productive quarter with several
notable web site development assignments: karlehmer.com - Karl Ehmer
Quality Meats (New York based); benchads.com - an Advertising company selling
space on bus benches (Miami, Florida based); gautierusa.com - Gaurier USA,
Inc., a furniture company specializing in contemporary lines of furniture
(Pompano Beach, Florida based). IAI also produced a considerable volume of
Banner Ads for companies, due to IAI's expertise in generating traffic for
clients.
ICI's focus during the quarter was planning for updates and re-vamping of its
two large web sites, cybermallscastle.com, with a view toward providing a more
user friendly shopping environment, and famousshoppingstreets.com, a portal
which mirrors the shopping experience of a virtual street with different shop
fronts which browsers can click in and out of at will.
Our wholly owned subsidiaries, the Connect.Ad Companies, involved in
franchising Internet marketing sites, are in the process of having their
Uniform Offering Circular ("UFOC"), or franchise offering document, modified
to include the Company's various other Internet subsidiaries' services as part
of the franchisee package offering. A newly engaged franchise firm, Katten
Muchin Davis, based in Washington, D.C. is finalizing the modification to the
UFOC documentation.
<PAGE>
Results of Operations
Revenues were $166,335 for the first quarter of 2000 and were $226,337 for
the first quarter of 1999, representing a decrease of 26%. We believe that
the difference in revenues for the first quarter of this year as compared to
last year's first quarter are timing differences only.
Approximately, $151,176 or 91% of these revenues were from IAI, $1,800 or 1%
of these revenues were from ICI, and $13,359 or 8% of these revenues were from
the Connect.Ad Companies.
Cost of revenues were $12,222 for the first quarter of 2000 and were $9,890
for the first quarter of 1999, representing an increase of 24%. This
difference is attributable to small classification variances and is immaterial
to the financial statements taken as a whole.
Selling, general and administrative expenses were $218,092 for the first
quarter of 2000 compared to $237,659 for the first quarter of 1999,
representing more than an 8% decrease.
As a result of the foregoing, the Company's operating loss for the first
quarter of 2000 was $68,431 compared to $21,101 for the first quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had a cash balance of $19,371 as compared
to a balance of $16,372 as of the fiscal year ended December 31, 1999. For
the period ended March 31, 2000, the Company had a working capital deficit
of $437,046 compared with a working capital deficit of $382,382 on
December 31, 1999.
Net cash provided by operating activities was $5,149 during the first
quarter of 2000 compared to ($25,633) for the first quarter of 1999. The
Company used $2,150 in investing activities in the first quarter of 2000
and $176,327 in the first quarter of 1999. Net cash provided in financing
activities was $0 during the first quarter of 2000 compared with $166,333
in the first quarter of 1999. As of March 31, 2000, the Company did not
have any material commitments for capital expenditures.
We are in a continual process of securing 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, withoutlimitation,
statements relating to the Company's 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: the
Company's ability to successfully (i) develop and profitable grow its
InCyberMall web site, including entering into agreements with merchants to
sell upmarket products in the CyberMall Caste Store, (ii) to develop IAI's
Internet web design, hosting and marketing business, (iii) to develop
connect.ad's 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 its 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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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 Bhathana, 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.
<PAGE>
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
Financial Data Schedule (filed herewith electronically)
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the three
months ended March 31, 2000.
(i) The Company filed a report on Form 8-K dated February
10, 2000 which reported information under Item 5 - Other
Information.
<PAGE>
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: May 15, 2000 By: /s/Barbara Tolley
- ------------------ ---------------------
Date President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10QSB - CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND
CONSOLIDATED STATEMENT OF EARNINGS (LOSS) FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 19,371
<SECURITIES> 0
<RECEIVABLES> 142,963
<ALLOWANCES> 14,210
<INVENTORY> 0
<CURRENT-ASSETS> 150,461
<PP&E> 198,149
<DEPRECIATION> 27,696
<TOTAL-ASSETS> 939,014
<CURRENT-LIABILITIES> 587,507
<BONDS> 0
<COMMON> 7,462
0
0
<OTHER-SE> 343,416
<TOTAL-LIABILITY-AND-EQUITY> 939,014
<SALES> 166,335
<TOTAL-REVENUES> 166,335
<CGS> 12,222
<TOTAL-COSTS> 218,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,452
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<NET-INCOME> (68,431)
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