FORM 10KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Commission File No. 000-17746
SAFE TECHNOLOGIES INTERNATIONAL INCORPORATED
(Formerly Safe Aid Products Incorporated)
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(Exact name of Registrant as specified in its Charter)
Delaware 22-2824492
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(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
249 Peruvian Avenue
Suite F2
Palm Beach, Florida 33480
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (561) 832-2700
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Indicate by check mark whether the registrant(l) 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. X
Issuer's revenues for the most recent fiscal year were $829,825.
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The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $19,392,306 on December 31, 1999 based upon
the latest published average bid and ask price on such date.
The approximate number of shares outstanding of the Registrant's common
stock on December 31, 1999 was 746,200,414. The approximate number of "A"
Warrants outstanding as of December 31, 1999 was 7,227,280 convertible into
7,227,280 shares of common stock at $.20 per share. Each outstanding "A"
Warrant, upon exercise, will result in the issuance of one redeemable "B"
Warrant. As of December 31, 1999 there were approximately 272,720 "B" Warrants
outstanding exercisable into 272,720 shares of common stock at $.50 per share.
Transitional Small Business Disclosure Format (check one): Yes No: X
PART I
THE FOLLOWING INFORMATION HAS BEEN DERIVED FROM OUR FINANCIAL
STATEMENTS AND SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES THERETO INCLUDED IN PART 1- ITEM 1 OF THIS 10-KSB. THE DISCUSSION
FOLLOWING CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS FORM 10-KSB.
Item 1. Business
Overview
Safe Technologies International, Inc., a Delaware corporation (the
"Company") is a multi-faceted e-commerce company. As of March 31, 2000, the
Company has three active subsidiaries: Internet Commerce, Inc., a Florida
corporation ("Internet Commerce" or "ICI"), Internet Associates International,
Inc, a Nevada corporation ("Internet Associates" or "IAI") and Connect.Ad, Inc.
a Florida corporation ("Connect.ad"). Unless the context otherwise requires, the
term "Company" shall refer to the Company, ICI, IAI and Connect.ad.
The Internet is dramatically changing the way that consumers and
businesses communicate, share information and buy and sell goods and services.
The Internet reduces inefficiencies characteristic of traditional market models
through the disintermediation of functions between the provider of the good or
service and the ultimate consumer. Characteristic in our business to business
market model ("B2B") of providing value added functions to brick- and-mortar
retailers targeting upmarket consumers in a business to consumer ("B2C") market
model through utilization of our specialized electronic shopping mall, is the
presence of a large
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number of geographically dispersed buyers and sellers and purchase decisions
involving large amounts of information from multiple sources. We believe that
our market concept of microtargeting a demographically and psychographically
appealing affluent, well-educated consumer for the providers of goods and
services catering to those tastes, positions us well to benefit from the
evolution of the Internet platform and e-commerce model through the value- added
function our Company provides.
The Internet has also emerged as an attractive new medium for
advertisers due to the rapid growth in the number of web users, the amount of
time such users spend on the web, the increase in electronic commerce, the
interactive nature of the web, the web's global reach and a variety of other
factors. We believe that the number of U.S. online households will grow from
approximately 40 million in 1999 to over 60 million in 2004 and consumer
e-commerce will reach nearly 110 billion in 2003. Consequently, we believe that
U.S. online advertising spending will grow from approximately $3 billion in 1999
to over $20 billion in 2004. In addition, we believe that markets outside the
U.S. will become an increasingly important component of Internet advertising,
growing from approximately $500 million in 1999 to over $10 billion in 2004,
accounting for approximately 33% of worldwide Internet advertising. We believe
that this large market opportunity positions us well to capitalize upon our
recently added online advertising franchising model.
Our core competencies in the design, development and implementation of
business to business information technology solutions affords us a unique
advantage in executing our business to business marketing model through the
provision of value added functions to various business customers.
We now have put into place what we believe are three of the four most
critical value- added elements for success in the e-commerce economy. Those are:
(1) the capacity to provide Internet technology services, such as the design,
development and implementation of systems and sites, hosting and consultancy;
(2) the function as Internet intermediary for the provision of advertising to
our B2B customers and well as a franchisor of electronic advertising agencies
for others' B2B advertising applications; and (3) as a direct e-commerce
retailer and marketer operating under a B2C market model, to enhance brand
recognition. The forth element which we have identified as key in the e-commerce
paradigm is that of technology infrastructure provider, which management
recognizes is a key component of the Internet commerce platform. We will
continue to pursue all opportunities which would create synergies and enhance
brand recognition, including additional strategic alliances with those whose
core competencies complement our own, especially in the area of information
technology infrastructure.
ICI
Our Internet Commerce subsidiary specializes in developing, managing
and promoting Internet commerce web sites for small and medium sized businesses
wanting to launch or expand
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their Internet operations. More specifically, ICI helps design web sites for
small and medium sized businesses and provides hosting services for such web
sites.
Internet Commerce, Inc. also owns "INCyberMall.com", an Internet
commerce mall and marketer. With INCyberMall.com, we hope to fill the needs in
the e-retail marketplace, in specialized categories where no other Internet
malls have concentrated before, promoting and selling exclusively upmarket
products.
One of the most unique features of the mall, which we expect to attract
a great deal of worldwide interest is the section called 'Famous Shopping
Streets of the World'. Some of the Famous Shop Streets are Worth Avenue, Palm
Beach; Fifth Avenue, New York; Rodeo Drive, Beverly Hills and Bond Street,
London. We opened famous shopping street Worth Avenue in Palm Beach, Florida.
The Worth Avenue street is presented graphically with photography, maps and a
merchant directory. As of March 31, 1999, the Company had completed two other
streets: Fifth Avenue, New York and Rodeo Drive, Beverly Hills.
We are in the process of contacting stores on Worth Avenue and some of
the other famous shopping streets to ascertain their interest in being
graphically represented on their street in the mall with their own exterior
store front, product photography and option for virtual tours of these premises.
Stores with existing web sites will be offered the opportunity to have their
sites linked in for a monthly fee. We offer a flexible tenant package that
should accommodate important retailers' needs and be cohesive with their
marketing plans. Mall tenants will be able to select from a number of options
for participation in the mall, i.e. revenue sharing or partnering of revenue
sales, banner advertising, leasing space in the mall, hosting web sites, web
site construction, or comprehensive Internet commerce fulfillment services.
In addition to the specific shopping streets, shoppers are also be able
to browse and shop for upmarket products at the 'CyberMalls Castle Store'.
CyberMalls Castle Store contains upmarket products for the 'Rich and Famous',
and will offer, when completed, a complete line of luxury goods which will allow
the shopper to select from a worldwide range of unique, exclusive products. Each
product will be displayed in its appropriate environment. For example, the
finest wines of the world will be displayed in the Wine Cellar; prints, antiques
and statuary will be displayed in the Gallery and books, cd's and videos will be
displayed in the Library.
During our last fiscal year, we entered into agreements with five
companies to display their products in the Castle Store. These companies and
their respective products are Amazon.Com - books, cd's and all other product
lines carried by Amazon.Com; J.C. Harris & Co. - men's clothiers; Frozen Pelican
Gallery - art exhibits and Fran Murphy Interiors - interior decorating and fine
furnishings; and The Sharper Image - watches, cameras, clocks, fitness equipment
and interesting electronic gadgets.
On October 13, 1999 we announced our entry into the online food sales
business with the ICI's launching of the site TheGlobalDeli.com. Through this
site, we plan to forge partnerships
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with global food suppliers, national and regional Delivery Grocers and to pursue
other strategic alliances which are consistent with our plan to exploit this
market. We have initially established partnerships for this site with Great
Coffee, Liquour by Wire, Smoke Shop and Omaha Steaks, which provide browers the
opportunity to shop for and purchase quality food items, beverages and tobacco
products. We plan to pursue business partnerships with other recognizable food
industry providers such as Hickory Farms, Fulton Street and Giftpaks.
Food, beverage and tobacco items purchased from TheGlobalDeli.com are
drop-shipped within a few days of order with the food content of such orders
temperature controlled. We intend to develop a comprehensive line of specialty
food targeted to discriminating pallets.
Internet Associates
Internet Associates is an Internet marketing and web site development
firm involved in the development, marketing, and hosting of web sites, as well
as the training of web developers. IAI owns and maintains five Internet servers,
on location in Boca Raton, Florida, with direct redundant T-1 connections to the
Internet. The Internet servers are equipped with secure commerce, Ecommerce
applications, shopping cart facilities and database driven applications.
IAI specializes in designing and developing quality "market-driven" web
sites to allow business customers to tap into the e-commerce platform, combining
innovative web design and programming with traditional marketing and advertising
elements especially designed to promote interactivity and volume response to
each customer web site. IAI works with a variety of clients in providing web
design services. The web design work that we provide through IAI for each client
is customized; hence, the contract price varies depending upon the nature and
scope of the engagement. We also provide web marketing services through IAI.
IAI's web marketing services consist of search engine submissions, banner
advertising placement and promotion through alternative media.
IAI offers web hosting services to over 1,500 customers nationally. Web
hosting contracts are typically structured to provide an initial term of six
months, to be renewed quarterly thereafter. Web site hosting fees start at as
low as $50 per month depending upon content. Certain web hosting subscribers
under some arrangements can also build their own web sites and upload their web
pages to our servers directly.
IAI also offers a training program for Web Master Certificates, to Ft.
Lauderdale Art Institute graduates.
Connect.ad
We completed the acquisition of Connect.ad on September 30, 1999, an
Internet marketing franchisor. We will market Internet advertising franchises to
marketing oriented types who want to take advantage of the imminent advertising
bonanza that Internet commerce
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promises. The Connect.ad franchisee will own and operate an electronic
advertising agency, specializing in providing advertisers with full service
electronic advertising, web site development and hosting, customer affinity
functions and technical support. Having our core technological competencies in
place, allows us to provide such value added support services to such customers
which effectively cross markets our technical arm. In addition, franchisees will
cross market our ICI business customers from our CyberMallsCastles.com,
TheGlobalDeli.com and FamousShoppingStreets.com sites to viewers of their sites,
thereby propagating traffic flow and enhancing brand recognition.
Proprietary Rights
The Company regards its copyrights, trade names, web sites and domain
names as valuable intellectual property. The Company relies upon copyright law,
trade secret protection and confidentiality or license agreements with its
employees, customers, partners and others to protect its proprietary rights.
Effective copyright and trade secret protection may not be available in every
country in which its products and media properties are distributed or made
available through the Internet.
During 1999, Barbara Tolley, the Company's CEO, copyrighted the four
Internet domain names, CybermallsCastle.com, TheGlobalDeli.com, DejaVu.com and
FamousShoppingStreets.com. The Company will have the exclusive right to the
marketing use of such web sites without fee for so long as Ms. Tolley is the CEO
of the Company. At such time as Ms. Tolley is no longer the CEO, and if the
Company desires to retain the exclusive use of such sites, the Company will be
obligated to pay her royalties, quarterly, at the rate of 1% of revenues
generated through those sites, up to $10 million, and at total sales volumes
over $10 million, at the rate of one-half of 1%. If Ms. Tolley is no longer CEO
of the Company and if the Company does not exercise its exclusive rights to use
of such domain names, the rights to usage of those names will revert exclusively
to Ms. Tolley.
Competition
The market for Internet products and services is highly competitive.
There are no substantial barriers to entry in these markets, and the Company
expects that competition will continue to intensify.
We believe that the principal competitive factors for companies seeking
to create shopping malls on the Internet are brand recognition, customer
affinity and loyalty, demographic focus and open access for visitors. Internet
Commerce competes for customers and advertisers with other content providers,
advertisers and traditional brick and mortar merchants, as well as with
thousands of web sites operated by individuals, the government and educational
institutions.
We believe that our ability to compete successfully in the Internet
services market depends on a number of factors, including market presence; the
adequacy of our design team and customer and technical support services; the
capacity, reliability and security of our network infrastructure; our pricing
policy for services, our competitors and suppliers; our ability to support
existing and emerging industry standards; and industry and general economic
trends.
Employees
As of March 15, 2000, the Company employed 15 persons full time. Of the
full-time employees, 3 are engaged in management position, 3 in administrative
positions, an 9 of which positions are in ICI's and IAI's operations.
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History and Summary of Activity during Fiscal 1999 and 1998
The Company was incorporated in Delaware on August 1, 1987 as Safe Aid
Products Incorporated. Our initial business purpose was to engage in research
and development regarding nasal and transdermal delivery of aspirin and other
drugs. However, due to insufficient capital and insufficient market acceptance,
we were unsuccessful at effectuating this original business plan and remained in
the development stage. From 1993-1998, our principal business objective was to
find and merge with an operating company that would increase shareholder value.
On February 9, 1998, we completed a reverse merger with Intelligence
Network International, Inc., a Florida corporation ("INI"). Pursuant to the
terms of the merger agreement, we changed our name to Safe Technologies
International, Inc. As a result of the merger, we moved from the development
stage status to being a fully operating business. Our business as it existed
then consisted of a broad range of Internet and technology based services and
products. We had two subsidiaries, Total Micro Computers, Inc. ("TMC") and GMG
Computers Consultants, Inc. d.b.a. Precision Imaging ("GMG"). TMC was a
wholesaler and retailer of custom designed and assembled computer systems and
related products and GMG was a digital pre-press company. In May 1998, we also
formed a new subsidiary, Internet Commerce, Inc., a Florida company to house our
various Internet related activities.
During fiscal 1998, management searched for companies to grow our core
operations. We entered into letters of intent to acquire two (2) companies:
Toddlers Learning Center, a child care and education Center in Stuart, Florida
and V-Prime Computers, Inc., a specialist in computer repairs, upgrades,
networking and installation of custom computer systems and service for small
business in Boca Raton, Florida. However, for reasons discussed herein, we did
not complete either of the proposed acquisitions.
In July 1998, the Board of Directors decided to move TMC's operations
from Tampa to South Florida. During fiscal 1998, TMC's financial performance had
deteriorated and management believed that it could better oversee TMC's
operations if they were located in South Florida. The former TMC shareholders
were not issued the 1,062,500 shares of the Company's common stock that they
were due to have received pursuant to their acquisition agreement with the
Company for their failure to have achieved targeted performance benchmarks.
On July 21, 1998, we entered into a letter of intent for the
acquisition of Toddler's Learning Center, Inc. ("TLC"), a child care and
education center in Stuart, Florida. The Company had planned to operate TLC as a
subsidiary of its Health and Wellness Division. However, in August after the
Company completed its due diligence of TLC, it decided that this acquisition was
not in our best interest.
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Shortly after entering into the letter of intent with TLC, we entered
into a letter of intent with V-Prime on July 26, 1998. Six months later in
January 1999, we planned on closing the acquisition of V-Prime and issued a
press release to that effect on January 6, 1999. However, we ultimately decided
not to close the deal because we discovered certain adverse information about
V-Prime prior to the closing.
On October 6, 1998, we entered into a license agreement with Hangzhou
Jiuyuan Gene Engineering Co., Ltd., for the field testing and production and
distribution of the Company's nasal aspirin patent. Hangzhou completed field
testing for the nasal aspirin patent. Although we have been in negotiations with
various biotechnology groups in the interest of acquiring additional nasal
delivery drug applications, do to the amount of time and required capital to
pursue this opportunity, we have determined to pursue our core Internet business
platform.
In December 1998, the Board of Directors decided that it would reverse
our acquisition of GMG. GMG's financial statements for the third quarter of 1998
were below expectations. On December 17, 1998, the Company, GMG and the former
GMG shareholders entered into a reversion agreement and mutual general release
agreements in order to effectuate the reversal of the GMG acquisition. As part
of the reversion agreement, the former GMG shareholders returned their
14,000,000 shares of the Company's common stock to the transfer agent to be
canceled.
February 5, 1999, we completed an acquisition of IAI, an Internet
marketing and web site development firm, involved in the development, marketing
and hosting of web sites, as well as the training of web developers. The
acquisition was structured as a stock for stock transaction, wherein the IAI
former shareholders entered into three year share lock-up agreements after the
closing. The acquisition price was based on a formula of IAI net profits for
fiscal 1999, which ultimately resulted in the exchange of all IAI shares for
25,000,000 of SFAD shares.
We closed on the acquisition of another Internet company, Connect.ad
and its affiliated group of companies, as of September 30, 1999. We issued
4,285,714 shares of SFAD in consideration for the purchase. Connect.ad is an
Internet marketing company franchisor.
Item 2. Property
The Company's principal executive office is located at 249 Peruvian
Avenue, Palm Beach, Florida where the Company leases office space comprising
approximately 1,000 square feet. The lease is on a month-to month basis and the
monthly rental is $914.
IAI leases 1,500 feet of office space in Boca Raton, Florida. The lease
is structure as a six month lease, with options to renew for six months terms
with a monthly rental is
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$2,200. Connect.ad currently leases of approximately 1,000 square feet of office
space in Pompano Beach, Florida, which lease expires as of the end of March
2000. This lease is an annual lease with a monthly rental of $1,200. We are
currently in the process of relocating all of the ICI personnel (currently
sharing 249 Peruvian Ave. Palm Beach with the Company) and most of the
Connect.ad personnel into the IAI space in Boca Raton, with an additional 700
square foot space for some of the Connect.ad personnel to be located in the same
building in Boca Raton. This new space shall be leased for annual periods, which
lease provides for a $600 monthly rental.
Item 3. Legal Proceedings
There are no legal proceedings pending to which the Company is subject,
nor to the knowledge of the Company are any such legal proceedings threatened.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matter submitted to vote of security holders during the
last quarter of the period covered by this report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock is traded in the over-the-counter market under the
symbol "SFAD". The following table sets forth the high and low bid and ask
prices, as reported by the National Quotation Bureau, Inc., for our common stock
for the calendar periods indicated.
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Common Stock
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Bid Asked
Period High/Low High/Low
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1998
lst Quarter .06/.0038 .07/.0039
2nd Quarter .202/.024 .205/.026
3rd Quarter .12/.0375 .125/.04
4th Quarter .21/.015 .24/.015
1999
lst Quarter .48/.039 .265/.029
2nd Quarter .182/.03 .087/.03125
3rd Quarter .06/.016 .05/.017
4th Quarter .07935/.013 .11/.0049
The average of the bid and ask price of our common stock in the
over-the-counter market as of the most recent available date, March 29, 2000 was
$.26 per share. The above quotations do not include retail mark-ups, mark-downs
or commissions and represents prices between dealers and not necessarily actual
transactions. The past performance of our securities is not necessarily
indicative of future performance.
Common Stock and Warrants
As of December 31, 1999, we had issued and outstanding 746,200,414
shares of our common stock, 7,227,280 Class A Warrants and 272,720 Class B
Warrants. Upon exercise, each Class A Warrant entitles the holder to purchase
one share of common stock for $.20 per share and to receive one redeemable Class
B Warrant. Upon exercise, each Class B Warrant entitles the holder to purchase
one share of common stock for $.50 per share. The exercise periods of the Class
A and Class B Warrants have been extended by the Board of Directors through
January 9, 2001. All of these numbers are adjusted to reflect the Company's
ten-for-one reverse stock split effected as of February 9, 1998.
Holders of Record
As of December 31, 1999, there were approximately 1,282 shareholders of
record of our common stock. Such number does not include beneficial owners
holding shares through nominee name.
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Dividend Policy
We have never paid cash dividends on our Common Stock. Payment of
dividends will be within the sole discretion of our Board of Directors and will
depend, among other factors, upon earnings, capital requirements and the
operating and financial condition of the Company. At the present time, our
anticipated financial capital requirements are such that we intend to continue
to follow a policy of retaining earnings in order to finance the development of
our business.
Item 6. Management's Discussion and Analysis or Plan of Operations.
RESULTS OF OPERATION
Comparison of the years ended December 31, 1999 ("fiscal 1999") and
December 31, 1998 ("fiscal 1998").
Revenues were $829,825 for fiscal 1999 and were $427,552 for fiscal
1998, representing a increase of 94%. Approximately, $6,200 of the 1999 revenues
were derived from ICI and $800,032 were derived from IAI. The balance of the
1999 revenues were from Connect.ad.
Connect.ad revenues in the amount of $20,393 are included in fourth
quarter earnings pursuant to generally accepted accounting principles since
Connect.ad was acquired as of September 30, 1999.
Cost of Sales were $63,989 in fiscal 1999 compared to $281,263 in
fiscal 1998. This decrease is attributable to efficiencies gained in
streamlining our direct cost structure. Cost of Sales in 1999 were $0 for ICI,
$60,949 for IAI and $3,040 for Connect.ad.
Selling, general, and administrative expenses were $1,674,187 for
fiscal 1999 compared to $718,908 for fiscal 1998. This is attributable to the
ramping up of operations in terms of personnel, additional depreciation on
equipment and systems, and amounts paid to outside consultants in upgrading and
placing online infrastructure for our continued growth. Approximately $800,000
of consulting fees included in total selling, general and administrative
expenses of $1,674,187 for fiscal 1999 is attributable to the Company's issuance
of approximately 18,245,000 SFAD shares in lieu of cash compensation to various
service providers.
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.
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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.
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
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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 Providers. 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.
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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.
Year 2000
During the first week of calendar 2000, we completed the transition
from calendar 1999 to calendar 2000 with no material adverse impact on our
services, business systems and operations. During the first quarter of 2000, we
continued to monitor our services, business systems and infrastructure to ensure
that latent defects do not manifest themselves. We have not experienced a
material adverse impact on our operations during this period.
FUTURE BUSINESS STRATEGY
Management believes that the Company's is now well positioned to
exploit market opportunities in the e-commerce economy. We are fortunate to have
an active Board of Directors, functioning as our "think tank" in formulating and
developing innovative, yet realistic achievable business objectives as we grow
our company as a cutting edge technology and electronic commerce business. We
believe that SFAD is poised for growth in 2000 and years beyond.
Management's focus will be upon further enhancing our market position
and increasing shareholder value in the e-commerce economy through the
development of our existing competencies. We will also continue to consider
pursuit of any and all new opportunities which would create synergies and
enhance brand recognition, including additional strategic alliances with
Internet companies whose core competencies complement our own, with particular
emphasis in the area of information technology infrastructure.
We have determined to abandon our nasal aspirin spray technology as of
this time, as an area which does not currently fit with our business plan of
evolving into a premier Internet service company..
14
<PAGE>
Item 7. Financial Statements.
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
Independent Auditors' Report...........................................................................F-2
Consolidated Balance Sheets -
December 31, 1999 and December 31, 1998................................................................F-3
Consolidated Statements of Operations -
December 31, 1999 and December 31, 1998................................................................F-5
Statements of Changes in Stockholders' Equity..........................................................F-6
Consolidated Statements of Cash Flows -
December 31, 1998 and December 31, 1997. (Unaudited-Restated)..........................................F-10
Notes to Consolidated Financial Statements.............................................................F-12
</TABLE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers and Significant Employees
The executive officers and directors of the Company during fiscal 1999
were as follows:
<TABLE>
<CAPTION>
Name Age Position Held with Registrant
---- --- -----------------------------
<S> <C> <C>
Barbara L. Tolley 62 CEO and Chairman of the Board
Charles N. Martus 76 Director
Jack W. Tolley 76 Director
Robert L. Alexander 56 Director
Bradford L. Tolley 35 Secretary and Treasurer
Michael Bhathena 32 Vice President and Chief Information Officer
</TABLE>
15
<PAGE>
Barbara L. Tolley has served as Chief Executive Officer and Chairman of
the Company since February 9, 1998. Ms. Tolley received her BA from Ohio State
University in 1959. In 1975, she founded Westchester Ltd., Inc., a privately
held company specializing in international marketing and advertising in which
she held the office of President until 1989. In 1990, Ms. Tolley founded one of
the Internet companies, Property Intelligence International, Inc. (PII), an
international consulting and online real estate business service currently on
the Internet. Since 1996, Ms. Tolley has been one of the majority stockholders
in Villas International Realty, Inc., an international holiday rental agency.
Ms. Tolley is the wife of Jack W. Tolley and the mother of Bradford L. Tolley.
Charles N. Martus has served as a Director of the Company since
February 9, 1998. Mr. Martus is a graduate of Dartmouth College, Hanover, New
Hampshire in 1944, and attended Amos Tuck School. Mr. Martus was a principal in
a gourmet food operation in Manhattan from 1946 until 1990. During the past five
years, Mr. Martus has been retired.
Jack W. Tolley has served as a Director of the Company since February
9, 1998. Mr. Tolley is a graduate of Dartmouth College, Hanover, New Hampshire
in 1947, and attended Cornell University in Ithaca, New York. Mr. Tolley founded
J.W. Tolley & Associates in 1953, a national marketing and advertising agency
and served as President until 1975. Mr. Tolley was a Director and consultant to
Westchester Ltd., Inc. until 1982. Mr. Tolley has been pursuing a career as an
artist and painter of Southwestern American art and as an author of several
books on Florida and immigration for foreign nationals. Mr. Tolley is the
husband of Barbara L. Tolley and the father of Bradford L. Tolley.
Robert L. Alexander has served as a Director of the Company since
February 9, 1998. Mr. Alexander has been in management with Fortune 500
companies, and has had start up responsibility with privately held corporations
during his career. Mr. Alexander was President of International Communications
Systems (ICS) from 1991 to 1993. He was President of United Communications
Systems (USC) from 1993-1994, a telephone reseller company in select markets.
Mr. Alexander founded his own company, Comstar International, Inc., master
distributor contracts with GE Capital Communications Services in 1994. He was
recruited by Systems Communications, Inc. as CEO, responsible for operations of
communications companies acquired and merged into the public company. Since
April 1997, Mr. Alexander has been President of International Teledata
Corporation, responsible for its transition from a privately held company to a
public company.
Bradford L. Tolley has been the Secretary and Treasurer of the Company
since February 9, 1998. Mr. Tolley is a graduate of Phillips Academy in Andover,
Massachusetts in 1982, and attended Rollins College in Winter Park, Florida. He
was employed by Westchester Ltd., Inc., as an account executive from 1984 to
1989. From 1990-1992, Mr. Tolley was employed by Bilfinger & Berger's American
subsidiary, Fru-Con Corporation, both subsidiaries of Dresdner Bank in Germany.
From 1992-1995, Mr. Tolley was Vice President of PII, one of
16
<PAGE>
the Internet Companies. Mr. Tolley is currently President of Tolley Investments,
Inc., a privately held company. Mr. Tolley is the son of Jack W. Tolley and
Barbara L. Tolley.
Michael Bhathena has served as the Chief Information Officer of the
Company since February 9, 1998. Mr. Bhathena holds a B.A. in Computing &
Statistics and a masters degree in computing science, from the University of
Kent in Great Britain. Mr. Bhathena served as an assistant trader and then in
the finance department at the Hong Kong & Shanghai Banking Corporation's (HSBC)
City of London Offices from 1986-1988. Mr. Bhathena served as a voice and data
communications executive for the Infocheck Group, Ltd. from 1992-93, a pioneer
in providing on-line credit information to British companies. Mr. Bhathena was
employed and served as President of PII Ltd., United Kingdom, which is an
affiliate of PII, one of the Internet Companies, from 1993-1995.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the aggregate compensation paid to
Barbara L. Tolley, the Company's Chief Executive Officer and Chairman (the
"Named Executive Officer") by the Company. None of the other executive officers
of the Company received compensation in excess of $100,000 during the fiscal
years ended December 31, 1999, 1998 or 1997. Except as set forth in the table
below, no bonuses or other compensation were paid during the fiscal year ended
December 31, 1999.
<TABLE>
<CAPTION>
Annual Compensation
Name of Principal Fiscal Salary Bonus Other Annual
Position Year Compensation
<S> <C> <C> <C> <C>
Barbara L. Tolley, Chief 1999 0(1) 0 $495,000(2)
Executive Officer and
Chairman
Barbara L. Tolley, Chief 1998 0(1) 0 $111,900(3)
1997 0(1) 0 --
</TABLE>
(1) Ms. Tolley joined the Company as its Chief Executive Officer on February 9,
1998. Under her employment agreement, Ms. Tolley was entitled to receive an
annual salary of $120,000 in both 1998 and 1999. However, due to the Company's
financial condition Ms. Tolley elected not to receive her salary in fiscal 1999
and 1998.
17
<PAGE>
(2) The Board of Directors granted Ms. Tolley an aggregate of 11,000,000 stock
awards pursuant to the Company's 1998 Incentive Stock Plan and the Year 2000
Stock Award Plan. The awards were granted as of December 31, 1999 at a value of
$.045.
(3) The Board of Directors granted Ms. Tolley an aggregate of 4,200,000 stock
awards pursuant to the Company's 1998 Incentive Stock Plan. The dates in 1998,
number of stock awards and market price on the date of grant were as follows:
September 15 - 200,000 stock awards at $.017; September 29 - 500,000 at $.017;
December 4 - 500,000 stock awards at $.02 and December 18 - 3,000,000 at $.03.
Options Granted to the Named Executive Officer During Fiscal 1999
The Company did not grant any options to the Named Executive Officer
during the fiscal year ended December 31, 1999. However, as noted in the Summary
Compensation Table, the Named Executive Officer has received stock awards, in
lieu of compensation.
Aggregated Option Exercises and Fiscal Year-End Option Value Tables
As of December 31, 1999, Ms. Tolley did not own any options to purchase
shares of the Company's common stock. However, as noted in the Summary
Compensation Table, the Named Executive Officer has received stock awards, in
lieu of compensation.
Employment Agreement
The Company entered into an employment agreement with Barbara Tolley,
its Chief Executive Officer and Chairman, effective as of February 9, 1998. The
term of the agreement is for two years, with an option exercisable by Ms. Tolley
to extend the employment agreement for an additional year. Ms. Tolley elected to
renew her contract through February 9, 2001. Ms. Tolley's compensation is
$120,000 per year under the base contract. At Ms. Tolley's option, this sum can
be paid with half cash and half stock, all cash or on an accrual basis. Ms.
Tolley is entitled to bonus compensation based on a percentage of the annual net
pre-tax profits of Safe Aid. As an officer of Safe Aid, she will be entitled to
participate in an overall group insurance plan providing health, life and
disability insurance benefits for employees of Safe Aid. The employment
agreement will also provide for the use of an automobile and/or a monthly
automobile allowance, payment of club dues and other fringe benefits
commensurate with her duties and responsibilities.
18
<PAGE>
As disclosed in the Summary Compensation Table, Ms. Tolley did not
receive her annual salary or any of the other benefits (1) to which she was
entitled to under the employment agreement in fiscal 1999 and 1998. However, Ms.
Tolley did receive stock awards.
1998 Incentive Stock Plan and Year 2000 Stock Award Plan
In April 1998, the Company adopted a stock option plan called the "Safe
Technologies International, Inc. -1998 Incentive Stock Plan". (the "Incentive
Stock Plan"). The Incentive Stock Plan is intended to provide incentives to, and
awards for, certain eligible employees, officers, directors and consultants who
have contributed and will continue to contribute to the success of the Company.
The Incentive Stock Plan provides for the granting of nonstatutory
stock options, restricted stock grants and stock awards. The Company has
reserved up to 30,000,000 shares of common stock under the Incentive Stock Plan,
consisting of a maximum of 15,000,000 restricted stock grants and 15,000,000
stock awards. The 1998 Stock Plan is administered by the Compensation Committee
of the Board of Directors.
In December 1999, we adopted a stock option plan called the "Safe
Technologies International, Inc. - Year 2000 Stock Award Plan " (the "Year 2000
Stock Award Plan"). The Year 2000 Stock Award Plan is intended to provide
incentives to, and awards for, certain eligible employees, officers, directors
and consultants who have contributed and will continue to contribute to the
success of the Company.
The Year 2000 Stock Plan provides for the granting of up to 30 million
stock awards. The Year 2000 Stock Award Plan is administered by the Compensation
Committee of the Board of Directors. The Company granted 18,770,764 stock awards
to its officers, directors and consultants under both plans in 1999 and had
granted 7,325,000 shares under the 1998 Stock Plan in fiscal 1998.
Director Compensation
Directors who are full-time employees of the Company received no
additional compensation for services rendered as members of the Company's Board
of Directors. Directors who are not full-time employees of the Company also do
not receive any compensation for
19
<PAGE>
services rendered as members of the Company's Board of Directors. However, three
directors who provided consulting services to the Company outside of the scope
of their duties as directors received stock awards. The Company awarded stock
awards to these directors on December 31, 1999 and the average of the high and
low bid price of the Company's common stock was $.077 on such date. The names of
the directors and the amount of stock awards received are as follows: Robert
Alexander 200,000 stock awards, Charles Martus 400,000 stock awards and
Jack Tolley 200,000 stock awards.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the number
of shares of the Company's Common Stock that will be beneficially owned by (i)
each executive officer of the Company, (ii) each director of the Company and
(iii) each shareholder of the Company who owns more than 5% of the Company's
Common Stock as of December 31, 1999. An asterisk indicates beneficial ownership
of less than 1% of the outstanding Safe Aid Common Stock after the Merger.
Except as otherwise indicated, each of the shareholders listed below has voting
and investment power over the shares beneficial owned and the address of each
beneficial owner is c/o the Company, 249 Peruvian Avenue, Palm Beach, Florida
33480. As of December 31, 1999, there were issued and outstanding 746,200,414
shares of the Company's common stock.
<TABLE>
<CAPTION>
Name of Percent of Class
Beneficial Owner Amount and Nature of Beneficial Ownership
<S> <C> <C> <C>
Barbara L. Tolley (1) 241,370,536 32.3
Chairman and Chief
Executive Officer
Ruth Deutsch (2) 244,444,201 32.8
Shareholder
Franklin Frank (3) 244,444,201 32.8
Shareholder
Jack W. Tolley (4) 241,370,536 32.3
Director
Bradford L. Tolley(5) 7,937,552 1.1
Secretary, Treasurer
Charles N. Martus 400,000 *
Director
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Name of Percent of Class
Beneficial Owner Amount and Nature of Beneficial Ownership
<S> <C> <C> <C>
Robert L. Alexander 200,000 *
Director
All Officers and Directors 494,352,289 66.2
and 5% beneficial owners
as a group (6)
</TABLE>
(1) Includes 241,370,536 shares held by the Lang Family Trust. Ms.
Tolley is the settler and trustee of the trust.
(2) Includes 34,000,000 shares held by LVDB, Inc., a corporation
controlled by Franklin Frank, Ms. Deutsch's husband. Ms. Deutsch disclaims any
beneficial interest in the shares held by her husband.
(3) Includes 34,000,000 shares held by LVDB, Inc., a corporation
controlled by Mr. Frank. Includes 210,444,201 shares held by Ruth Deutsch, Mr.
Frank's wife. Mr. Frank disclaims any beneficial interest in the shares held by
his wife.
(4) Includes 241,370,536 shares beneficially owned by Barbara Tolley,
Mr. Tolley's wife, through the Lang Family Trust. Mr. Tolley disclaims any
beneficial interest in the shares owned by his wife.
(5) Includes 4,937,552 shares held by the Tolley Investments, Inc. Mr.
Tolley is the President of Tolley Investments, Inc.
(6) The 241,370,536 shares of common stock owned by Barbara L. Tolley
and Jack W. Tolley referred to in footnotes 1 and 4 and the 244,444,201 shares
of common stock owned by Ruth Deutsch and Franklin Frank referred to in
footnotes 2 and 3 are counted only once to avoid a misleading total.
Item 12. Certain Relationships and Related Party Transactions
During 1999, 25,000,000 shares of SFAD enured to the benefit of
Franklin Frank as a finders fee for his role in sourcing the origination of the
Company's acquisition of IAI.
Other than the foregoing during fiscal 1999 and 1998, there were not
any transactions.
During fiscal 1999 and 1998, there were not any transactions or series
of similar transactions to which the Company was or is a party in which the
amount involved exceeds $60,000 and in which any current director, executive
officer or holder of more than 5% of any class of the Company's voting
securities, or members of such persons' immediate family had or will have a
direct or indirect material interest.
21
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibit Index
2.1 Merger Agreement dated August 29, 1997 between Safe Aid Products
Incorporated, Inc. and Intelligence Network International, Inc. (filed as an
Exhibit to the Company's definitive proxy statement filed December 31, 1997 and
incorporated herein by this reference).
2.2 Extension Agreement dated between Safe Aid Products Incorporated,
Inc. and Intelligence Network International, Inc. (filed as an Exhibit to the
Company's Annual Report on Form 10-KSB for 1998 filed March 31, 1999 and
incorporated herein by this reference).
2.3 Acquisition Agreement dated February 5, 1998 by and between the
Company and Randi Swatt, John Reinbergs and David Fox, as the sole shareholders
of Internet Associates International, Inc (filed as an Exhibit to the Company's
Annual Report on Form 10-KSB for 1998 filed March 31, 1999 and incorporated
herein by this reference).
2.4 Reversion Agreement, dated as of December 17, 1998, by and among
the Company, GMG, Gary Bart, Gail Bart and Dean Constantine (filed as Exhibit
2.1 to the Company's Form 8-K dated December 31, 1998 and incorporated herein by
this reference).
3.1 Certificate of Incorporation and Amendment to the Company's
Certificate of Incorporation (filed as an Exhibit to the Company's Registration
Statement on Form S-18 filed February 18, 1988 and incorporated herein by this
reference).
3.2 Amendment to the Company's Certificate of Incorporation filed with
the Delaware Secretary of State on February 6, 1998 (filed as an Exhibit to the
Company's definitive proxy statement filed December 31, 1997 and incorporated
herein by this reference).
3.3 Bylaws (filed as an Exhibit to Company's registration statement on
Form S-18 filed February 18, 1988).
4.1 Amended Form of Underwriters' Unit Purchase Warrant (filed as an
Exhibit to the Amendment No. 2 to the Company's Registration Statement on Form
S-18 filed April 11, 1988 and incorporated herein by this reference).
4.2 Amended Form of Class A and Class B Common Stock Purchase Warrant
(filed as an Exhibit to Amendment No. 2 to the Company's Registration Statement
on Form S-18 filed April 11, 1988 and incorporated herein by this reference).
22
<PAGE>
4.3 Amended Form of Warrant Agreement (filed as an Exhibit to Amendment
No. 2 to the Company's Registration Statement on Form S-18 filed on April 11,
1988 and incorporated herein by this reference).
4.4 Specimen Stock Certificate (filed as an Exhibit to Amendment No. 2
to the Company's Registration Statement on Form S-18 filed on April 11, 1988 and
incorporated herein by this reference).
10.1 Employment Agreement dated February 9, 1997 between the Company
and Ms. Tolley (filed as an Exhibit to the Company's Annual Report on Form
10-KSB for 1997 and incorporated herein by this reference).
10.2 Employment Agreement dated February 5, 1998 between the Company
and Randi Swatt (filed as an Exhibit to the Company's Annual Report on Form
10-KSB for 1998 filed March 31, 1999 and incorporated herein by this reference).
10.3 Employment Agreement dated February 5, 1998 between the Company
and John Reinsberg (filed as an Exhibit to the Company's Annual Report on Form
10-KSB for 1998 filed March 31, 1999 and incorporated herein by this reference).
10.4 Mutual General Release Agreement dated December 17,1998 by and
among GMG, Gary Bart, Gail Bart, Dean Constantine and the Company (filed as
Exhibit 2.2 to the Company's Form 8-K dated December 31, 1998 and filed as an
Exhibit to the Company's Annual Report on Form 10-KSB for 1998 filed March 31,
1999 and incorporated herein by this reference).
10.5 Safe Technologies International, Inc. - 1998 Stock Incentive Plan
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1998 and filed as an Exhibit to the Company's Annual
Report on Form 10-KSB for 1998 filed March 31, 1999).
10.6 Acquisition Agreement dated September 30, 1999 by and between the
Company and John D. Colodny and Ruth Ann Saunders (filed electronically
herewith).
10.7 Year 2000 Stock Award Plan (filed as an Exhibit 10 to the
Company's Registration Statement of Form S-8 filed on December 7, 1999 and
incorporated herein by this reference).
16.1 Letter on Change in Certifying Accountant (filed as Exhibit 99.1
to the Company's Report on Form 8-K dated March 9, 1999 and filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for 1998 filed March 31, 1999).
21.1 Subsidiaries of the Company (filed herewith electronically).
23.1 Consent of Sewell and Company, P.A. (filed herewith
electronically).
23
<PAGE>
27.1 Financial Data Schedules (filed herewith electronically).
(b) Reports on Form 8-K.
The Company filed five reports on Form 8-K during the fourth quarter ended
December 31, 1999.
(i) The Company filed a report on Form 8-K dated October 5, 1999 which
reported information under Item 5 - Other Events.
(ii) The Company filed a report on Form 8-K dated October 13, 1999
which reported information under Item 5 - Other Events.
(iii) The Company filed a report on Form 8-K dated November 4, 1999
which reported information under Item 5 - Other Events.
(iv) The Company filed a report on Form 8-K dated December 2, 1999
which reported information under Item 5 - Other Events.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
24
<PAGE>
SAFE TECHNOLOGIES INTERNATIONALS, INC.
Date: March 30, 2000 By: /s/ Barbara L. Tolley
-----------------------------------------
Barbara L. Tolley
Chief Executive and Officer and Chairman
In accordance with the Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 30, 2000 By: /s/ Barbara L. Tolley
------------------------------------------
Barbara L. Tolley
Chief Executive and Officer and Chairman
Date: March 30, 2000 By: /s/ Bradford Tolley
------------------------------------------
Bradford Tolley
Chief Financial Officer
25
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
CONTENTS
Page
----
Independent Auditors' Report 2
Balance Sheets 3
Statements of Income and Expenses 5
Statements of Changes in Stockholders' Equity 6
Statements of Cash Flows 10
Notes to Financial Statements 12
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders
Safe Technologies International, Inc. and Subsidiaries
Palm Beach, Florida
We have audited the accompanying balance sheets of Safe Technologies
International, Inc. and Subsidiaries (a corporation) as of December 31, 1999 and
1998, and the related statements of income and expenses, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Safe Technologies
International, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of its operations, and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
SEWELL AND COMPANY, PA
Hollywood, Florida
March 22, 2000
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current assets
Cash $ 16,372 $ 66,473
Accounts receivable (net of allowance for
doubtful accounts $ 2,755 and $ 0) 126,331 500
Other current assets 1,327
--------- ---------
Total current assets 144,030 66,973
Fixed assets (net of accumulated depreciation
of $ 21,294 and $ 326) 174,705 4,233
Other assets
Deposits 15,974
Goodwill and trademarks (net of accumulated
amortization $ 48,483 and $ 20,575) 587,026 324,968
Other assets 25,000 37,500
--------- ---------
628,000 362,468
--------- ---------
$ 946,735 $ 433,674
========= =========
</TABLE>
See auditors' report and notes to financial statements.
-3-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current liabilities
Accounts payable $ 65,214 $ 57,776
Accrued expenses 158,846 37,452
Notes payable 267,571 123,590
Deferred income 33,388
Lease payable, current portion 1,393 -
----------- -----------
Total current liabilities 526,412 218,818
Long term liabilities
Lease payable 1,014
Shareholders' equity
Common stock $.00001 par value, authorized
999,999,000 shares; issued and outstanding:
760,200,414 and 712,489,700 shares respectively 7,602 7,125
Capital subscribed 40,000 40,000
Less: subscription receivables - (1,000)
Additional paid in capital 3,714,449 2,591,531
Retained earnings (deficit) (3,342,742) (2,422,800)
----------- -----------
419,309 214,856
----------- -----------
$ 946,735 $ 433,674
=========== ===========
</TABLE>
See auditors' report and notes to financial statements.
-4-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF INCOME AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Income
Sales net of returns $ 829,825 $ 427,552
Cost of sales 63,989 281,263
----------- ----------
Gross profit 765,836 146,289
Expenses
General and administrative expenses 259,448 151,788
Salaries 427,559 206,870
Consulting fees 807,250 133,184
Proxy and brokers services 3,574 101,795
Accounting and legal 95,819 91,870
Depreciation and amortization 48,876 20,901
Advertising & promotions 19,161
Management expenses 12,500 12,500
----------- ----------
1,674,187 718,908
----------- ----------
Loss from operations (908,351) (572,619)
Other income (expenses)
Interest income 178 2,995
Interest expense (11,769) (12,140
Theft (loss) of inventory (114,640)
Forgiveness of debt 19,000
----------- ----------
Net loss $ (919,942) $ (677,404)
=========== ==========
Earning per share
Net loss per share $ (0.001) $ (0.003)
=========== ==========
</TABLE>
See auditors' report and notes to financial statements.
-5-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Capital Paid in Accumulated
Shares Amount Subscribed Capital Deficit TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 705,477,200 $ 7,055 $ - $1,781,327 $ (1,745,396) $ 42,986
Correction of error INI 11,086 11,086
Internet Commerce, Inc. 100 100
Ten for one reverse stock split
(reduction of shares as of closing
date with no change to par value
of the common stock), February 9, 1998 (634,929,480) (6,349) 6,349 -
Total Micro Computers, Inc. - Acquisition 196,088 196,088
Merge INI and Safe Aid 585,819,936 5,858 (5,858) -
Less: shares of INI not issued (1,062,500) (11) 11 -
Issuance of common stock for consultant
services after the merger (February 9, 1998) 49,109,544 491 (491) -
Issuance of common stock for stock sale
DLSK Trust August 3, 1998 500,000 5 19,995 20,000
Issuance of common stock for services
Ruth Deutsch (Franklin L Frank) August 3, 1998 250,000 3 289,997 290,000
----------------------------------------------------------------------------------
Sub-total 705,164,700 $ 7,052 $2,298,604 $ (1,745,396) $ 560,260
</TABLE>
See auditors' report and notes to financial statements.
-6-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Capital Paid in Accumulated
Shares Amount Subscribed Capital Deficit TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sub-total 705,164,700 $ 7,052 $2,298,604 $ (1,745,396) $ 560,260
Issuance of common stock for legal services
to English McCaughan & O'Brien November 1998 1,000,000 10 39,990 40,000
Capital subscribed - agreement November 1998 40,000 40,000
Less: subscription receivable (1,000)
Issuance of common stock for Public Relations
services for the year ending December 31, 1998 1,325,000 13 52,987 53,000
Issuance of common stock for consulting services
for the year ending December 31, 1998 800,000 8 31,992 32,000
Issuance of common stock for employee compensation
in lieu of cash payment 4,200,000 42 167,958 168,000
Net loss December 31, 1998 (677,404) (677,404)
---------------------------------------------------------------------------------
Balance December 31, 1998 712,489,700 $ 7,125 $ 39,000 $2,591,531 $ (2,422,800) $ 215,856
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
---------------------------------------------------------------------------------
Sub-total 737,489,700 $ 7,375 $ 40,000 $2,596,286 $ (2,422,800) $ 221,861
</TABLE>
See auditors' report and notes to financial statements.
-7-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Capital Paid in Accumulated
Shares Amount Subscribed Capital Deficit TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sub-total 737,489,700 $ 7,375 $ 40,000 $ 2,596,286 $ (2,422,800) $ 221,861
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
Connect.ad, Inc., Connect.ad Services, Inc.
and Connect.ad of South Florida,
Inc - acquisition 4,285,714 43 299,957 300,000
----------------------------------------------------------------------------------
Sub-total 743,100,414 $ 7,431 $ 40,000 $2,945,120 $ (2,422,800) $ 570,751
</TABLE>
See auditors' report and notes to financial statements.
-8-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Capital Paid in Accumulated
Shares Amount Subscribed Capital Deficit TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sub-total 743,100,414 $ 7,431 $ 40,000 $2,945,120 $ (2,422,800) $ 570,751
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
Net loss December 31, 1999 (919,942) (919,942)
----------------------------------------------------------------------------------
Balance December 31, 1999 760,200,414 $ 7,602 $ 40,000 $3,714,449 $ (3,342,742) $ 420,309
==================================================================================
</TABLE>
See auditors' report and notes to financial statements.
-9-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (919,942) (677,404)
---------- --------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 48,876 13,270
Allowance for doubtful accounts 2,755 (5,000)
(Gain) loss on disposal of property 58,605
(Increase) decrease in accounts receivable (125,831) 95,026
(Increase) decrease in inventories 14,151
(Increase) decrease in prepaid expense 2,494
(Increase) decrease in notes receivables 35,188
(Increase) decrease in other assets (4,801) 12,500
Increase (decrease) in accounts payable 7,438 (44,084)
Increase (decrease) in accrued liabilities 121,394 15,722
Increase (decrease) in other payables 57,550
Increase (decrease) in deferred income 33,388
Increase (decrease) in shareholders' loan 88,838 44,740
---------- ----------
Total adjustments 229,607 242,612
---------- ----------
Net cash used by operating activities (690,335) (434,792)
Cash flows from investing activities:
Cash payment for purchase of intangibles (199,455)
Cash payments for the purchase of property -- (4,559)
---------- ----------
Net cash used by investing activities -- (204,014)
---------- ----------
</TABLE>
See auditors' report and notes to financial statements.
-10-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock $ 639,234 $ 613,188
Proceeds form capital subscribed 1,000 40,000
--------- -----------
Net cash provided by financing activities 640,234 653,188
--------- -----------
Net increase in cash and cash equivalents (50,101) 14,382
Cash and cash equivalents, beginning of year 66,473 52,091
--------- -----------
Cash and cash equivalents, end of year $ 16,372 $ 66,473
--------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense $ 11,769 $ 12,140.00
--------- -----------
</TABLE>
Shareholders' equity note:
Approximately 18,240,000 shares have been awarded to various service providers
in lieu of cash consideration. On January 29, 1999 the Company issued 25,000,000
shares of its common stock in connection with the acquisitions of all the shares
of common stock of Internet Associates International, Inc. The company acquired
assets with a fair value of $ 291,700 and assumed liabilities for $ 266,700.
On September 28, 1999 the Company issued 4,285,714 shares of its common stock in
connection with the acquisitions of all the shares of common stock of
Connect.ad, Inc., Connect.ad Services, Inc. and Connect.ad of South Florida,
Inc., for $300,000. The company acquired assets with a fair value of $ 304,530
and assumed liabilities for $ 4,530.
See auditors' report and notes to financial statements.
-11-
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 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.
Cash and Cash Equivalents
-------------------------
For purposes of the 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 $19,161 and $0 were incurred during the years
ending December 31, 1999, and 1998, respectively.
- 12 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
completes 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.
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
December 31, 1999 or 1998.
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 $16,372 and $ 66,473 at December 31, 1999 and 1998,
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 FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 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:
1999 1998
----------- -----------
Basic 737,592,498 652,071,619
- 14 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 2 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 December 31, 1999, 14,727,280
shares of common stock, reserved in connection with such warrants
remain outstanding. There was no market activity for these warrants
through December 31, 1999.
On February 9, 1998, INI merged with and into Safe Aid Products, Inc.
The Board of Directors of the Company authorized a ten for one
reverse stock split pursuant to which its outstanding common stock
will be reduced to 70,547,720 shares with no change to the par value
of the common stock. At the same time, according to the merge,
585,819,936 shares of common stock were issued to INI stockholders. A
remaining 1,062,500 shares of TMC stock were not issued.
- 15 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 CAPITAL STOCK TRANSACTIONS (CONTINUED)
On February 9, 1998, per terms of the merger, 49,109,544 shares of
common stock were issued for consultant services to prior management
of Safe Tech.
On August 3, 1998, 500,000 shares of common stock were issued to an
unrelated party as part of a private placement, for an investment of
$20,000 (2 units).
On August 3, 1998, 250,000 shares of common stock were issued to a
stockholder in addition to previously issued shares (259,595,536) in
exchange for $290,000.
In November 1998, 1,000,000 shares of common stock were issued to an
unrelated company as compensation for legal services rendered to the
Company. These shares have been valued by the Company at $0.04 per
share.
On December 31, 1998, 800,000 shares of common stock were issued to
certain officers and consultants of the Company in exchange for their
services rendered to the Company. The Company has valued these shares
at $0.04 per share, and recorded them as consultant fees.
On December 31, 1998, 1,325,000 shares of common stock were issued as
compensation for public relation services to an officer of the
Company. The Company has valued these shares at $0.04 per share and
recorded them as consultant fees.
On December 31, 1998, 4,200,000 shares of common stock were issued to
an employee as compensation in lieu of cash payment. The Company has
valued these shares at $0.04 per share, and recorded them as
salaries.
On January 29, 1999, 25,000,000 shares of common stock were issued in
connection with the acquisition of Internet Associates International,
Inc. (see Note 11).
On March 2, 1999, 125,000 shares of common stock were issued in
exchange for accounting services in the amount of $6,890.
On March 10, 1999, 300,000 shares of common stock were issued in
exchange for accounting services in the amount of $15,000.
- 16 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 CAPITAL STOCK TRANSACTIONS (CONTINUED)
On March 22, 1999, 200,000 shares of common stock were issued to the
Board of Directors of Safe Tech as compensation for their services.
The Company has valued these shares at $0.045 per share, and recorded
them as consultant fees.
On May 3, 1999, 600,000 shares of common stock were issued to an
unrelated party for $15,000 in cash.
On June 1, 1999, 100,000 shares of common stock were issued in
exchange for accounting services. The Company has valued these shares
at $0.04 per share, and recorded them as accounting services.
On September 28, 1999, 4,285,714 shares of common stock were issued
in connection with the acquisition of Connect.Ad, Inc., Connect.Ad
Services, Inc., and Connect.Ad of South Florida, Inc. (see Note 11).
On December 8, 1999, 600,000 shares of common stock were issued to
the Board of Directors of Safe Tech as compensation for their
services. The Company has valued these shares at $0.045 per share,
and recorded them as consultant fees.
On December 30, 1999, 50,000 shares of common stock were issued in
exchange for accounting services. The Company has valued these shares
at $0.045 per share, and recorded them as accounting services.
On December 31, 1999, 4,900,000 shares of common stock were issued as
compensation for public relation services. The Company has valued
these shares at $0.045 per share, and recorded them as consultant
services.
On December 31, 1999, 550,000 shares of common stock were issued to
certain consultants of the Company in exchange for their services
rendered to the Company. The Company has valued these shares at
$0.045 per share, and recorded them as consultant fees.
On December 31, 1999, 11,000,000 shares of common stock were issued
to employees as compensation in lieu of cash payment. The Company has
valued these shares at $0.045per share, and recorded them as
salaries.
- 17 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 CAPITAL STOCK TRANSACTIONS (CONTINUED)
The Company's common stock as of December 31, 1999 and 1998 consisted
of the following:
1999 1998
---- ----
999,999,000 shares authorized;
746,200,414 shares in 1999 and
712,489,700 in 1998, issued and
outstanding $0.00001 par value. $7,602 $7,125
====== ======
NOTE 3 SUBSCRIPTIONS
The Company entered into a subscription agreement for the purchase of
4,405,882 shares common stock for $40,000 on November 4, 1998. At
December 31, 1999, the Company had received payments amounting to
$40,000. No stock has been issued relating to this subscription.
NOTE 4 PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment at December 31, 1999 and 1998 consisted of the
following:
1999 1998
---- ----
Computer equipment $129,025
Computer software 24,175
Telephone equipment 4,559 $4,559
Furniture and fixtures 38,240
-------- ------
195,999 4,559
Less: Accumulated depreciation (21,294) (326)
-------- ------
$174,705 $4,233
======== ======
Depreciation expense for the years ended December 31, 1999 and 1998
was $20,968 and $326, respectively.
- 18 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 INTANGIBLE ASSETS
At December 31, 1999 and 1998, intangible assets were summarized by
major classification as follows:
1999 1998
---- ----
Copyrights and trademarks $199,455 $199,455
Goodwill 436,054 146,088
-------- --------
635,509 345,543
Less: Accumulated amortization (48,483) (20,575)
-------- --------
$587,026 $324,968
======== ========
Amortization expense for the years ended December 31, 1999 and 1998
were $27,908 and $20,575, respectively.
NOTE 6 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 years ended December 31, 1999 and 1998 was
$36,448 and $22,471, respectively.
NOTE 7 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
$2,422,800 of operating loss carryforwards for financial reporting
and income tax purposes available to offset future income taxes
expiring through the year 2018. Net operating losses of $919,942 for
the year ended December 31, 1999 will expire in 2019. 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.
- 19 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 SHORT-TERM DEBT
At December 31, 1999 and 1998, short-term debt consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
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. $152,293 $ 97,240
Note payable to a shareholder, unsecured, due on
demand, no interest rate specified. 58,785 25,000
Note payable to an individual, unsecured, due on
demand, with an interest rate of 5.5%. 35,143 --
Note payable to DLSK Trust, unsecured, due on February 10,
2000, with a 12% interest rate specified. 20,000 --
Note payable to an officer, unsecured, due on
demand, no interest rate specified. 1,350 1,350
-------- --------
Total short-term debt $267,571 $123,590
======== ========
</TABLE>
Interest expense for the years ended December 31, 1999 and 1998 was
$11,769 and $12,140, respectively.
- 20 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 STOCK AWARDS
The Company has an Incentive Stock Award Plan 2000 for selected
employees, officers, directors and key consultants to the Company and
its subsidiaries. The number of shares and grant dates are determined
at the discretion of a committee, consisting of not less than two
members of the Board of Directors of the Company. A maximum of
30,000,000 shares of common stock may be issued under the plan. An
accumulation of 15,000,000 shares from the prior plan has been added
to the current plan for a total of 45,000,000 shares under the stock
award plan.
At December 31, 1999, there were 26,495,764 shares granted under the
stock award plan.
NOTE 10 EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement dated January 30,
1998 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.
- 21 -
<PAGE>
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 ACQUISITIONS
During 1999, the Company acquired the following businesses:
Internet Associates International, Inc.
---------------------------------------
On January 29, 1999, the Company acquired Internet Associates
International, Inc., a Nevada corporation. In March, 2000, an
amendment to the acquisition agreement was settled for 100% of
Internet Associates International, Inc. common stock in exchange for
25,000,000 shares of common stock of Safe Tech. The acquisition has
been accounted for by the purchase method of accounting and
accordingly, their results have been included in the consolidated
financial statements from their respective dates of acquisition. Had
the results of these businesses been included in operations
commencing with 1998, the reported results would not have been
materially affected.
As part of the transaction, Franklin L. Frank, a past director, will
receive 1,500,000 shares of common stock as a finder's fee. As of the
date of these financial statements, none of the shares have been
issued.
Connect.Ad., Inc.; Connect.Ad, Services, Inc.; Connect.Ad of South
Florida, Inc.
------------------------------------------------------------------
On September 30, 1999, the Company acquired three (3) Florida
corporations engaged in Internet services and products. The
acquisitions have been accounted for by the purchase method of
accounting and, accordingly, their results have been included in the
consolidated financial statements from their respective dates of
acquisition. Had the results of these businesses been included in
operations commencing with 1998, the reported results would not have
been materially affected.
The total purchase price of $300,000 was allocated as follows:
Cash - Banks $ 2,932
Accounts receivable 6,080
Fixed assets 4,784
Security deposit 768
Accounts payable (4,530)
Goodwill 289,966
--------
4,285,714 shares of common stock
at a fair value of $.0.07 $300,000
========
- 22 -
Exhibit 10.6
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "Agreement") is entered into on September 30,
1999, by and between SAFE TECHNOLOGIES INTERNATIONAL, INC., a Delaware
corporation ("SFAD") and JOHN D. COLODNY AND RUTH ANN SAUNDERS, (the
"Stockholders") as the shareholders of connect.ad, Inc., connect.ad of South
Florida, Inc., and connect.ad Services, Inc., each being a Florida corporation
(collectively, the "Companies").
RECITALS
It is the intention of the parties hereto that all of the issued and outstanding
stock of the Companies shall be acquired by SFAD, in exchange for the issuance
of SFAD Common Stock to the Stockholders, as set forth herein. The issuance of
stock to the Stockholders is intended to qualify as a transaction in securities
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), and under the applicable securities laws of the state or
jurisdiction where Stockholders reside, and the Acquisition is intended to
qualify as a tax-free reorganization under Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and intending to be legally bound, the parties hereto agree as
follows:
1. Purchase and Sale. The Stockholders agree to sell, and SFAD agrees to
purchase, all of the issued and outstanding shares of stock of the Companies
(the "Connect.ad Stock") for an aggregate purchase price of $300,000 US Dollars.
The parties agree that $225,000 of the purchase price shall be allocated to the
intangible assets of the Companies other than goodwill, $54,715 shall be
allocated to goodwill, and $20,285 shall be allocated to the tangible assets of
the Companies. The entire purchase price shall be paid by SFAD issuing to the
Stockholders 4,285,714 shares of SFAD common stock (the "SFAD Stock"). The SFAD
Stock shall be divided between the Stockholders in the same proportion as they
own the Connect.ad Stock. The exact number of shares of SFAD Stock to be issued
to the Stockholders will be based upon the appropriate number of shares, priced
at $.07 per share of SFAD Stock. The purchase price will be guaranteed for one
year from the date of closing. If, on the date that is one (1) year after the
closing (the "Anniversary Date"), the
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aggregate Fair Value (as defined below) of the SFAD Stock issued to the
Stockholders is less than $300,000, then SFAD shall, within 10 days after the
Anniversary Date, either (as determined by SFAD) (i) pay the Stockholders in
cash an amount equal to the difference between $300,000 and the actual aggregate
Fair Value as of the Anniversary Date of the SFAD Stock issued to the
Stockholders (which difference is referred to as the "Makeup Amount") or (ii)
issue to the Stockholders additional shares of SFAD common stock equal to the
Makeup Amount divided by the actual Fair Value per share of the SFAD Stock as of
the Anniversary Date.
The Fair Value of a share of SFAD Stock for purposes of this Agreement shall be
determined as follows:
(i) If the SFAD Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on The NASDAQ National Market, the current market value shall be the last
reported sale price of the SFAD Stock on such exchange or Market on the last
business day prior to the date in question or if no such sale is made on such
day, the average closing bid and asked prices for such day on such exchange or
Market; or
(ii) If the SFAD Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc., on the last
business day prior to the date in question; or
(iii) If the SFAD Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value per share shall be an amount determined in such reasonable manner
as may be prescribed in good faith by the Board of Directors of SFAD.
2. Consulting Agreement. At closing, SFAD and John D. Colodny will enter
into the Consulting Agreement attached hereto.
3. Securities Representations of the Stockholders. In connection with
the issuance of the SFAD Stock pursuant to this Agreement and the Consulting
Agreement, the Stockholders individually and not jointly, represent and
acknowledge to SFAD that:
(a) They have been advised and are aware that the issuance of the SFAD
Stock to them will not be registered under the Securities Act of 1933 or any
state securities laws and that, therefore, the SFAD Stock cannot be sold by them
unless the SFAD Stock is so registered or exemptions from registration, such as
SEC Rule 144, are available. Under Rule 144, no sales of the SFAD Stock can be
made for one year after closing. In addition, notwithstanding the volume of
sales which may be allowable under Rule 144 after one year from closing, the
Stockholders each agree that they will not sell not more than 1/24th of the SFAD
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Stock issued to them in connection with this transaction during any calendar
month.
(b) The Stockholders have received and read copies of SFAD's Form 10K
for the fiscal year ended December 31, 1998, SFAD's Form 10Q's for the periods
ended March 31, 1999 and June 30,1999, and any Form 8K's filed by SFAD since the
date of the foregoing Form 10Q, have had an opportunity to question the
principals of SFAD as to all matters which they deem material and relevant to
their decision to enter into this transaction, and have had the opportunity to
obtain any and all additional information necessary to verify the accuracy of
the information received or any other supplemental information which they deem
relevant to make an informed investment decision.
(c) The Stockholders have such knowledge and experience in business and
financial matters, or competent professional advice, that they are capable of
evaluating the merits and risks of acquiring the SFAD Stock. They understand the
risks inherent in this transaction and have consulted with an attorney and/or
accountant to the extent they deemed it necessary in reviewing this transaction.
(d) The Stockholders are entering into this transaction and acquiring
the SFAD Stock for their own accounts for investment only and not as a nominee
for others.
(e) The Stockholders are residents of the State of Florida.
(f) The representations and agreements made in this paragraph shall
survive closing of the transaction described in this Agreement.
4. Representations and Warranties of the Stockholders. The
Stockholders, individually and not jointly, as a material inducement to SFAD to
enter into this Agreement and consummate the transactions contemplated hereby,
make the following representations and warranties to SFAD. The representations
and warranties are true and correct in all material respects at this date, and
will be true and correct in all material respects on the Closing Date as though
made on and as of such date.
(a) Due Organization. The Companies are corporations duly organized and
validity existing; each company's status is active; is qualified to do business
and in good standing in each state where the properties owned, leased or
operated, or the business conducted by them, requires such qualification. Each
of the Companies has the power to own its properties and assets and to carry on
its business as now presently conducted. The Articles of Incorporation and By-
Laws of the Companies are attached hereto as Schedule 4(a) and are made a part
hereof.
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(b) Capitalization. The authorized capitalization of the Companies
consists of (i) as to connect.ad, Inc., 100 shares of $1.00 par value common
stock, of which 50 shares are currently issued and outstanding; (ii) as to
connect.ad of South Florida, Inc., 100 shares of $1.00 par value common stock,
of which 100 shares are currently issued and outstanding; and (iii) as to
connect.ad Services, Inc., 1,000 shares of $.01 par value common stock, of which
200 shares are currently issued and outstanding. Except for the foregoing, there
are no outstanding or presently authorized securities, warrants, preemptive
rights, subscription rights or options to issue any of the Companies'
securities.
(c) The Companies' Combined Financial Statements. Attached as Schedule
4(c) are the following combined Balance Sheets and Income Statements of the
Companies: audited Balance Sheets and Income Statements as of and for the
periods ended December 31, 1997, December 31, 1998, and June 30, 1999; and
unaudited Balance Sheet and Income Statement as of a date not more than 30 days
prior to the date of this Agreement (the AFinancial Statements@). The Financial
Statements fairly present the financial position of the Companies as of the
dates thereof. The books and records, financial and other, of the Companies are
in all material respects complete and correct. The parties agree that Current
Liabilities of the Companies will not exceed $5,000 as of the date of closing
and that Long Term Liabilities, Loans from Officers, will be cancelled as
obligations of the Companies. The Companies do not now own, and at the closing
date will not own, more than 5% percent of the issued and outstanding capital
stock of any other corporation or an equity interest in any other entity.
(d) Ownership of the Companies' Stock. The Stockholders are, and will
be on the closing date, the sole record and beneficial owners of all the issued
and outstanding shares of the Companies' capital stock. At closing, the
Companies' Stock will be transferred to SFAD by the Stockholders free and clear
of all liens and encumbrances of any kind or nature.
(e) Undisclosed Liabilities. The Companies do not have any liabilities
or obligations of any nature, fixed or contingent, mature or unmatured, that are
not shown or otherwise provided for in the Financial Statements, except for
liabilities and obligations arising subsequent to the date thereof in the
ordinary course of business, none of which individually or in the aggregate will
be materially adverse to the business or financial condition of the Companies.
There are no material loss contingencies of the Companies that are not
adequately provided for in the Financial Statements.
(f) Materially Adverse Change. From the date of the Financial
Statements to the date of this Agreement, the businesses of the Companies have
been and will be operated in the ordinary course and there has not been and or
will be:
(i) Any material adverse change in the business, condition (financial
or otherwise), results of operations, prospects, properties, assets,
liabilities,
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earnings or net worth of the Companies for such period or at any time during
such period.
(ii) Any material damage, destruction or loss (whether or not covered
by insurance) affecting the Companies or their respective assets, properties or
businesses.
(iii) Any declaration, setting aside or payment of any dividend or
other distribution in respect of any shares of the capital stock of the
Companies or any direct or indirect redemption, purchase or other acquisition of
any such stock or any agreement to do so.
(iv) Any issuance or sale by the Companies, or agreement by the
Companies or any of the the Companies' Stockholders, to sell or pledge any of
the Companies' securities, nor have any irrevocable proxies been given with
respect to the Companies' securities.
(v) Any statute, rule, regulation or order adopted by any governmental
body, agency or authority (including orders of regulatory authorities with
jurisdiction over the Companies) that materially and adversely affects the
Companies or their respective business or financial condition.
(vi) Any material increase in the rate of compensation or in bonus or
commission payments payable or to become payable to any of the salaried
employees of the Companies;
(vii) Any other events or conditions of any character that may
reasonably be expected to have a materially adverse effect on the Companies or
their respective businesses or financial condition.
(g) Litigation. There are no actions, suits, claims, investigations or
legal administrative or arbitration proceedings pending or, to the knowledge of
any of the Stockholders, threatened against any of the Companies, whether at law
or in equity, or before or by any federal, state, municipal, local, foreign or
other governmental department, commission, board, bureau, agency or
instrumentality, nor do the Stockholders know of any basis for any such action,
suit, claim, investigation or proceeding.
(h) Compliance: Governmental Authorizations. The Companies have
complied in all material respects with all federal, state, local or foreign
laws, ordinances, regulations and orders applicable to its business, including
without limitation, federal and state securities, banking collection and
consumer protection laws and regulations that, if not complied with, would
materially and adversely affect their respective businesses. The Companies have
all federal, state, local and foreign governmental licenses and permits
necessary for the conduct of their respective businesses. Such licenses and
permits are in full
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force and effect. The Stockholders know of no violations of any such licenses or
permits. To the knowledge of the Stockholders, no proceedings are pending or
threatened to revoke or limit the use of such licenses or permits.
(i) Tax Matters. The Companies have, or at the time of the Closing
hereunder will have, filed all federal, state and local tax or related returns
and reports due or required to be filed, which reports will accurately reflect
in all material respects the amount of taxes due. The Companies have paid all
amounts or taxes or assessments that would be delinquent if not paid as of the
date of this Agreement, and will have paid such required amounts as of the
Closing Date. There are no tax liens with respect to any properties owned by the
Companies.
(j) Agreements. Schedule 4(j) contains a true and complete list and
brief description of all the Companies' assets, material written or oral
contracts, agreements, mortgages, obligations, understandings, arrangements,
restrictions and other instruments to which any of the Companies is a party or
by which any of the Companies or their assets may be bound. True and correct
copies of all items set forth on Schedule 4(j) have been delivered to SFAD as
part of SFAD's due diligence. No event has occurred that (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a material default by any of the Companies under any of the
contracts or agreements set forth in Schedule 4(j). Neither of the Stockholders
have knowledge of any material violations have occurred pursuant to any loan
agreements to which any of the Companies is a party.
(k) Title to Property and Related Matters. The Companies have, and at
the time of the Closing will have, good and marketable title to all of their
properties, interests in properties and assets, real, personal and mixed, owned
by it at the date of this Agreement, of any kind or character, free and clear of
any liens or encumbrances, other than liens for taxes not yet due. Except for
matters that may arise in the ordinary course of business, the assets of the
Companies are in good operating condition and repair, reasonable wear and tear
excepted. To the best of the knowledge of the Stockholders, there does not exist
any condition that materially interferes with the use thereof in the ordinary
course of the business of the Companies.
(l) Licenses: Trademarks: Trade Names. Schedule 4(l) sets forth all
licenses, trademarks, trade names, service marks, copyrights, patents or any
applications for any of the foregoing that relate to the business of the
Companies, all of which are solely owned by the Companies, free and clear of any
claims, liens or encumbrances.
(m) Due Authorization. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance with any of provisions hereof, will violate in any material respect
any
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order, writ, injunction or decree of any court or governmental authority, or
violate or conflict with in any material respect or constitute a default under
(or give rise to any right of termination, cancellation or acceleration under)
any provisions of any note, bond, lease, mortgage, obligation, agreement,
understanding, arrangement or restriction of any note, bond, lease, mortgage,
obligation, agreement, understanding, arrangement or restriction of any kind to
which either Stockholder or any of the Companies is a party or by which he, she
or it may be bound. No approval, authorization, consent, order or other action
of, or filing with, any person, firm or corporation or any court, administrative
agency or other governmental authority is required in connection with the
execution and delivery by the Stockholders of this Agreement or the consummation
of the transactions described herein.
(n) Full Disclosure. The Stockholders have disclosed to SFAD in the
Schedules to this Agreement or independently, or made available to SFAD,
documents, books and records pertaining to, all events, conditions and facts
materially affecting the properties, business and prospects of the Companies. At
closing, the Stockholders will not have withheld disclosure of any events,
conditions and facts that may materially and adversely affect the properties,
businesses or prospects of the Companies.
(o) Brokerage Fees. The Stockholders represent to SFAD that they know
of no person or entity entitled to a commission, broker's fee, finder's fee or
other compensation in connection with this transaction other than Continental
Business Sales, Inc., whose fee is being paid by SFAD. SFAD agrees to assume
this Brokers Fee of $30,000 US Dollars which will be paid with SFAD 144
Restricted Stock based upon the appropriate number of shares, priced at $.07
cents. The Brokers Fee will be guaranteed for one year from the date of closing.
The Stockholders agree to indemnify and hold SFAD harmless from any and all loss
or damages, including a reasonable attorney's fee and court costs at all trial
and appellate levels, arising out of any claim against SFAD for brokerage or
other compensation by a party claiming such compensation by reason of its
relationship with the Stockholders other than Continental Business Sales, Inc.
5. Representations and Warranties of SFAD. SFAD, as a material
inducement to the Stockholders to enter into this Agreement and consummate the
transactions contemplated hereby, makes the following representations and
warranties to the Stockholders, which representations and warranties are true
and correct in all material respects at this date, and will be true and correct
in all material respects on the Closing Date as though made on and as of such
date.
(a) Due Organization. SFAD is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. SFAD has
the corporate power to own its property and to carry on its business as now
presently conducted.
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(b) SEC Reporting. From the first date that such reports were required
of SFAD, SFAD has accurately and completely filed with the SEC all of its
required Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and all
other filings required by federal or state securities laws (the ASEC Filings@).
As of their respective dates, none of the SEC Filings contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading.
(c) SFAD Financial Statements. The SFAD financial statements as
contained in the SEC Filings fairly present the financial position of SFAD as of
the respective dates thereof, and there has been no material change since the
date thereof.
(d) Undisclosed Liabilities. SFAD has no liabilities or obligations of any
nature, fixed or contingent, matured or unmatured, that are not shown or
otherwise provided for in SFAD's financial statements or otherwise disclosed to
the Stockholders.
(e) Due Authorization. Subject only to ratification of this Agreement
by SFAD's Board of Directors, this Agreement has been duly authorized, executed,
and delivered by SFAD, and constitutes a legal, valid, and binding obligation of
SFAD, enforceable in accordance with its terms except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium, and other similar laws
relating to, limiting or affecting the enforcement of creditors rights generally
or by the application of equitable principles. The execution, delivery and
performance of this Agreement by SFAD will not violate or conflict within any
material respect or constitute a default under any provisions of applicable law,
SFAD's Articles of Incorporation or Bylaws, or any agreement or instrument to
which SFAD is a party or by which it or its assets are bound. No consent of any
federal, state, municipal or other governmental authority is required by SFAD
for the execution, delivery or performance of this Agreement by SFAD. No consent
of any party to any contract or agreement to which SFAD is a party or by which
any of its property or assets are subject is required for the execution,
delivery or performance of this Agreement by SFAD that has not been obtained at
the date of this Agreement.
(f) Litigation. There are no actions, suits, claims, investigations or
legal, administrative or arbitration proceedings pending against SFAD, its
assets or business, whether at law or in equity, or before or by any federal,
state, municipal, local foreign or other governmental department, commission,
board, bureau, agency or instrumentality, nor does SFAD know or a threat of, or
any basis for, any such action, suit claim, investigation or proceeding.
(g) Tax Matters. SFAD has filed all federal, state and local, tax or
related returns and reports due or required to be filed, which reports
accurately reflects in all material respects the amount of taxes due. SFAD has
paid all taxes or
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assessments that have become due, other than taxes or charges being contested in
good faith or not yet finally determined. SFAD is not aware of any tax liens
with respect to any properties owned by SFAD.
(h) Full Disclosure. SFAD has not, at the Closing Date, and will not
have at the Closing Date, withheld disclosure of any events, conditions, and
facts of which it may have knowledge and that may materially and adversely
affect the business or prospects of SFAD.
(i) No Approvals Required. No approval, authorization, consent, order
of other action of, or filing with, any person, firm or corporation or any
court, administrative agency or other governmental authority is required in
connection with the execution and delivery by SFAD of this Agreement or the
consummation of the transactions described herein, except to the extent that
SFAD may be required to file reports in accordance with relevant regulations
under federal and state securities laws.
7. Covenants of the Stockholders. Prior to Closing, the Stockholders
shall cause the Companies to:
(a) Not engage in any practice, take any action, embark on any course of
inaction, or enter into any transaction outside the ordinary course of business,
without the prior written consent of SFAD.
(b) Keep the Companies' businesses and properties substantially intact,
including their recent operations, physical facilities, working conditions, and
relationships with lessors, licensers, suppliers, customers and employees.
(c) Not authorize any salary or compensation increase, dividends or
loans to officers or directors without prior written consent of SFAD.
(d) Not contact any third party for the purpose of soliciting or
arranging for the solicitation of any proposals involving a business
combination, equity financing or sale of the Comapnies' outstanding capital
stock or assets, issuance of additional securities, merger, consolidation or
other capital transactions outside the ordinary course of the Companies'
businesses.
8. Closing. The Closing shall occur on or before September 30, 1999, at
SFAD's attorneys offices at such hour as mutually agreed to by the parties. SFAD
may extend the Closing Date for up to 30 days upon demonstrating that there are
reasonable circumstances delaying the Closing and evidence that SFAD is
diligently pursuing the performance of, and compliance with, all conditions
precedent to the obligations hereunder. At the Closing, the following
transactions shall occur, all of such transactions being deemed to occur
simultaneously:
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(a) The Stockholders will deliver, or cause to be delivered, to SFAD the
following:
(i) Stock certificates for all the shares of capital stock of the
Companies being transferred to SFAD hereunder, duly endorsed or with stock
powers attached in blank.
(ii) All corporate records of the Companies, including without
limitation corporate minute books (which shall contain copies of the Articles of
Incorporation and Bylaws, as amended to the Closing Date), stock books, stock
transfer books, corporate seals, shares of stock of the Subsidiaries; and such
other corporate books and records as may reasonably be requested by SFAD and its
counsel.
(iii) A certificate of good standing for each of the Companies from the
Secretary of State of their state of incorporation, dated at or about the
Closing Date, to the effect that such corporation is in good standing under the
laws of such state.
(iv) Names, addresses, and Social Security numbers of the
Stockholders.
(v) Such other instruments, documents and certificates, if any, as are
required to be delivered pursuant to the provisions of this Agreement or that
may be reasonably requested in furtherance of the provisions of this Agreement
(vi) Provide evidence that the Companies' 1998 Corporate Tax Returns
have been filed and that any and all tax due has been paid in full.
(b) SFAD will deliver or cause to be delivered to the Stockholders:
(i) Stock issuance instructions to SFAD's Transfer Agent for issuance
of the SFAD Stock to the Stockholders for the Purchase Price, as well as for
SFAD Freely Traded Stock shares to be issued pursuant to the Consulting
Agreement.
(ii) A Certificate from the Secretary of State of Delaware dated at or
about the Closing Date that SFAD is in good standing under the laws of said
state.
(iii) Such other instruments, documents and certificates, if any, as
are required to be delivered pursuant to the provisions of this Agreement, or
that may be reasonably requested in furtherance of the provisions of this
Agreement.
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9. Conditions Precedent to Obligations of the Stockholders. All
obligations of the Stockholders under this Agreement are subject to the
fulfillment, prior to or on the Closing Date (unless otherwise stated herein),
of each of the following conditions:
(a) The Board of Directors of SFAD shall have approved the execution
and delivery of this Agreement.
(b) The representations and warranties made by SFAD in this Agreement
or in any certificates or documents delivered to the Stockholders pursuant to
the provisions hereof shall be true in all respects at and as of the time of the
Closing as though such representations and warranties were made at and as of
such time.
(c) SFAD shall have performed and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
10. Conditions Precedent to Obligations of SFAD. All obligations of
SFAD under this Agreement are subject to the fulfillment, prior to or on the
Closing Date (unless otherwise stated herein), of each of the following
conditions:
(a) The representations and warranties made by the Stockholders in this
Agreement or in any certificates or documents delivered to SFAD pursuant to the
provisions hereof shall be true in all respects at and as of the time of the
Closing as though such representations and warranties were made at and as of
such time.
(b) The Consultant shall have performed and complied in all material
respects with all covenants, agreements and conditions required by the
Consulting Agreement to be performed or complied with by it prior to or at the
Closing, relating to the responsibility to factually update the UFOC and
complete the Applications and One Year State Registrations costs for the States
set forth in the Consulting Agreement. Consultant shall deliver to SFAD, at
closing, copies of the UFOC and the applications.
(c) The Stockholders shall have delivered to SFAD all of the Schedules
referenced herein, and such Schedules and documents shall have been reasonably
acceptable to SFAD.
(d) Any Due Diligence Examination by SFAD prior to the Closing Date
shall not have resulted in the discovery of any materially adverse information
concerning the business, condition (financial or otherwise), results of
operations, prospects, properties, assets, liabilities, earnings or net worth of
the Companies. The Financial Statements shall have been completed, at SFAD's
expense, and
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received by SFAD with a CPA's opinion letter which bears no qualifications or
exceptions.
(e) The Companies shall have (i) no liens or encumbrances of any nature
on their assets, other than capital lease obligations that exist at the date of
this Agreement; (ii) no violations in any material respect pursuant to any loan
agreements; and (iii) no debt or other obligations except as described in the
Schedules to this Agreement.
11. Nature of Representation and Warranties. All of the parties hereto
are executing and carrying out the provisions of this Agreement in reliance on
the representations, warranties, covenants and agreements contained in this
Agreement or at the Closing of the transactions herein provided for, and any
investigation that they might have made or any other representations,
warranties, covenants, agreements, promises or information, written or oral,
made by the other party or parties or any other person shall not be deemed a
waiver of any branch of any such representation, warranty, covenant or
agreement.
12. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person or sent by overnight courier delivery, confirmed facsimile
transmission or prepaid first class registered or certified mail, return receipt
requested, to the following addresses, or such other addresses as are given to
the other parties to this Agreement in the manner set forth herein.
If to SFAD, to: Barbara Tolley, President
Safe Technologies International, Inc.
249 Peruvian Avenue F-2
Palm Beach, Florida 33480
If to the Stockholders, to: c/o Edwards & Angell, LLP
Attn: Peter Sheptak, Esq.
250 Royal Palm Way
Palm Beach, FL 33480
Any such notices shall be effective when delivered in person or sent by
facsimile transmission, one business day after being sent by overnight courier
delivery or three business days after being sent by registered or certified
mail. Any of the foregoing addresses may be changed by giving notice of such
change in the foregoing manner, except that notices for changes of address shall
be effective only upon receipt.
13. Reversion In the event of a SFAD bankruptcy which occurs prior to the
end of the term of the Stockholders' Lock Up Agreements, as contained in
paragraph 3(a) of this Agreement, SFAD agrees to allow the rescission of this
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transaction by the Stockholders, subject to the orders of any applicable
Bankruptcy Court and/or the Securities Exchange Commission, and excluding any
and all Franchises sold subsequent to closing hereunder.
14. Miscellaneous.
(a) Further Assurances. At any time, and from time to time, after the
Closing, each party will execute such additional instruments and take such
further action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of this Agreement.
(b) Expenses of the Transaction. Each party will bear their own legal
expenses in connection with this transaction.
(c) Survival of Representations. All covenants, agreements,
representations and warranties made herein shall survive the Closing through all
applicable statutes of limitation. All covenants and agreements by or on behalf
of the parties hereto that are contained or incorporated in this Agreement shall
bind and inure to the benefit of the successors and assigns of all parties
hereto.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. It
supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
(e) Amendment. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party of parties against whom enforcement of any such amendment, supplement or
modification is sought.
(f) Assignment. This Agreement may not be assigned by any party hereto
without the prior written consent of the other parties.
(g) Choice of Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Florida.
(h) Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this agreement.
(i) Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the context may
require.
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(j) Number and Gender. Words used in this Agreement, regardless of the
number and gender specifically used, shall be deemed and construed to include
any other number, singular or plural, and any other gender, masculine, feminine
or neuter, as the context indicates is appropriate.
(k) Effect of Waiver. The failure of any party at any time or times to
required performance of any provisions of this Agreement will in no manner
affect the right to enforce the same. The waiver by any party of any breach of
any provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any provision.
(l) Enforcement. Should it become necessary for any party to institute
legal action to enforce the terms and conditions of this Agreement, the
successful party will be awarded reasonable attorney's fees at all trial
appellate levels, expenses and costs. Any suit , action or proceeding with
respect to this Agreement shall be brought in the courts of Palm Beach County in
the State of Florida or in the U.S. District Court for the Southern District of
Florida. The parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any such suit, action or proceeding. The parties
hereto hereby irrevocably waive, to the fullest extent permitted by law, any
objection that any of them may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any judgment entered by any court in respect thereof brought in Palm Beach
County, Florida, has been brought in an inconvenient forum.
(m) Specific Performance. The parties hereto acknowledge and agree that
any party's remedy at law for a breach or threatened breach of any of the
provisions of this Agreement would be inadequate and such breach or threatened
breach shall be per se deemed as causing irreparable harm to such party.
Therefore, in the event of such breach or threatened breech, the parties hereto
agree that, in addition to any available remedy at law, including but not
limited to monetary damages, an aggrieved party, without posting any bond, shall
be entitled to obtain, and the offending party agrees not to oppose the
aggrieved party's request for, equitable relief in the form of specific
enforcement, temporary restraining order, temporary or permanent injunction, or
any other equitable remedy that may then be available to the aggrieved party.
(n) Binding Nature. This Agreement will be binding upon and will inure to
the benefit of any successor or successors of the parties hereto.
(o) No Third-Party Beneficiaries. No person shall be deemed to possess any
third-party beneficiary right pursuant to this Agreement. It is the intent of
the parties hereto that no direct benefit to any third party is intended or
implied by the execution of this Agreement.
14
<PAGE>
(p) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
IN WITNESS THEREOF, the parties have executed this Agreement on the date first
above written.
SAFE TECHNOLOGIES INTERNATIONAL, INC.
BY: /s/ Barbara L. Tolley
-------------------------------
Barbara L. Tolley, President
/s/ John D. Colodny
----------------------------------
JOHN D. COLODNY
/s/ Ruth Ann Saunders
- - ------------------------------------
RUTH ANN SAUNDERS
List of Schedules:
Schedule 4(a) The Companies' Articles of Incorporation & By-Laws
Schedule 4(c) The Companies' Financial Statements
Schedule 4(j) The Companies' Assets, Inventory and Agreements
Schedule 4(l) The Companies' Licenses, Trademarks, Trade Names
15
Exhibit 23. 1
Independent Auditors' Consent
Safe Technologies International, Inc.:
We consent to the incorporation by reference in Registration Statement Numbers
333-63029 (Safe Technologies International, Inc. 1998 Stock Incentive Plan) and
333-92267 (Safe Technologies International, Inc. - Year 2000 Stock Award Plan)
of Safe Technologies International, Inc. on Form S-8 Registration Statements of
our report dated March 22, 2000 appearing in and incorporated by reference in
this Annual Report on Form 10-KSB of Safe Technologies International, Inc. for
the year ended December 31, 1999.
/s/ Sewell & Company, P.A.
Hollywood, Florida
March 30, 2000
