U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 0-17774
SAFETECH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New York 11-1996121
(State of Incorporation) (IRS Employer Identification Number)
2001-A Australian Avenue, Riviera Beach, Florida 33404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 844-2442
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. YES: X NO: .
As of September 30, 1997, 17,843,677 shares of the registrant's common
stock were outstanding.
SAFETECH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS:
Cash $ 22,276
Trading Securities, at fair value 50,816
Accounts Receivable, less allowance for
doubtful accounts of $98,000 127,557
Notes Receivable 91,099
Inventories 717,566
Other Current Assets 31,509
1,040,823
PROPERTY & EQUIPMENT, at cost:
Manufacturing Equipment 1,002,725
Leasehold Improvements 193,201
Furniture, Fixtures & Office Equipment 95,806
Vehicles 29,989
1,321,721
Less accumulated depreciation and amortization (490,011)
831,710
OTHER ASSETS:
License Fee, net of accumulated amortization 304,792
Investments 45,000
Deferred Tax Asset, net of valuation allowance -
Due from Officer 317,888
Other 25,049
692,729
Total Assets $ 2,565,262
See accompanying notes to condensed consolidated financial statements.
SAFETECH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
(Continued)
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and Deposits Payable $ 1,936,355
Accrued Expenses 252,691
Notes Payable 220,000
Subordinated Debentures Payable 500,000
Current Portion of Long-Term Debt 4,470
2,913,516
LONG-TERM DEBT 18,309
MINORITY INTEREST 369,102
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value; 20,000,000
shares authorized, 17,843,677 shares
issued and outstanding 178,437
Additional Paid-in Capital 1,580,496
Accumulated (Deficit) (2,494,598)
(735,665)
Total Liabilities & Shareholders Equity $ 2,565,262
See accompanying notes to condensed consolidated financial statements.
SAFETECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
September 30, September 30,
1997 1996 1997 1996
Net Sales $ 1,094,351 $ 2,877,503 $ 2,332,842 $ 5,006,505
Cost of Sales 922,699 2,112,104 1,954,220 3,893,707
171,652 765,399 378,622 1,112,798
Selling, General
and Administrative
Expenses 573,229 757,173 1,062,154 1,320,929
(Income) Loss from
Operations 401,577 (8,226) 683,532 208,131
Other Expense (Income):
Interest Income (2,697) (4,716) (5,454) (28,057)
Interest Expense 10,069 4,764 19,057 8,512
Net Realized (Gain)
Loss on Trading
Securities 13,207 3,915 14,321 (48,066)
Net Holding Loss
on Trading
Securities 42,979 116,180 72,672 158,569
Other, net (33) (202) (189) (6,097)
63,525 119,941 100,407 84,861
Net Loss Before
Income Taxes and
Minority Interest 465,102 111,715 783,939 292,992
Benefit for
Income Taxes - - - -
Minority Interest 98,202 (27,256) 142,250 72,719
Net Loss $ 366,900 $ 138,971 $ 641,689 $ 220,273
Net Loss per Share $ .02 $ .01 $ .04 $ .01
Weighted Average
Common Shares
Outstanding 17,843,677 17,391,700 17,715,247 17,391,700
See accompanying notes to condensed consolidated financial statements.
SAFETECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
September 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (641,689) $ (220,273)
Adjustments to reconcile net (loss) to
net cash provided by (used in)
operating activities:
Minority Interest (142,250) (72,719)
Depreciation and Amortization 117,476 100,208
Decrease (Increase) in Trading
Securities 22,845 (272,238)
(Increase) Decrease in
Accounts Receivable 31,937 (296,831)
Decrease (Increase) in Inventories (66,577) (133,986)
(Increase) Decrease in Other Assets (3,299) (54,070)
Increase (Decrease) in Accounts
and Deposits Payable 61,879 464,260
(Decrease) Increase in Accrued Expenses (2,153) (44,480)
Net cash (used in) operating activities (621,831) (530,129)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (29,567) (366,562)
(Increase) in Notes Receivable - (72,315)
Repayments on Notes Receivable
and Investments - 979,000
Decrease (Increase) in Due from Officer (32,081) (130,803)
Net cash (used in) investing activities (61,648) 409,320
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Subordinated Debentures 725,000 -
Increase in Notes Payable - 100,000
Proceeds from issuance of common stock
by majority owned subsidiary - 10,695
(Payments) on Long-Term Debt (32,040) -
Net cash provided by financing
activities 692,960 110,695
NET INCREASE (DECREASE) IN CASH 9,481 (10,114)
CASH, AT BEGINNING OF PERIOD 12,795 14,457
CASH, AT END OF PERIOD $ 22,276 $ 4,343
See accompanying notes to condensed consolidated financial statements.
SAFETECH INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and,
therefore, do not include all disclosures necessary for fair presentation
of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
The accompanying condensed consolidated financial statements
are not audited, but include all adjustments which management
considers necessary for fair presentation of financial position, results
of operations and cash flows for the interim periods presented. The
results for the interim periods are not necessarily indicative of the
results that may be expected for the entire fiscal year.
The accounting policies followed by the Company are set forth in
Note 1 of the Company's consolidated financial statements in the
Company's Annual Report on Form 10-KSB for the year ended March 31, 1997
which is incorporated herein by reference.
2. CONVERTIBLE SUBORDINATED DEBENTURES
In March 1997, the Company offered up to $750,000 principal amount
of 4% convertible subordinated debentures that mature March 31, 1998 in
an offshore transaction under Regulation S of the Securities Act of 1933,
as amended. During the six months ended September 30, 1997, the Company
received subscriptions for an additional $500,000 of the debentures
completing the offering. Additionally, during the quarter
ended June 30, 1997, a holder of $250,000 of debentures exercised
their conversion option converting the debentures into 451,977 shares of
the Company's common stock.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
On July 7, 1995, Bernstein/Leibstone Associates, Inc.(the "Company"),
Archway Capital, Inc. ("Archway") and William Leibstone Associates, Inc.
("WLAI"), an entity owned by the former majority stockholder of the Company,
entered into an agreement to exchange shares of the Company's common stock
for shares of Archway's common stock on a one-for-one basis. Effective
April 1, 1995, Archway acquired a majority interest in
Clearshield Manufacturing Corp., a Florida corporation in the business of
manufacturing clear polycarbonate hurricane protection panels, utilizing
a three-for-one share exchange. The Company currently owns approximately
57% of Clearshield.
The Company's primary operation is its Clearshield subsidiary. During the
years ended March 31, 1996 and 1995, demand for the Clearshield product
greatly exceeded the Company's production capacity. To address this
problem, the Company added a second production line in the fourth quarter
of the fiscal year ended March 31, 1996, a third line in the second quarter
of the fiscal year ended March 31, 1997 and a fourth line in the third
quarter of the fiscal year ended March 31, 1997. These additional lines
along with production efficiencies have increased production capacity from
approximately 50,000 linear feet per week to 205,000 feet per week, a 242%
increase. Additionally, the Company procured equipment for two additional
lines with a combined capacity of 100,000 linear feet per week.
The Company currently has approvals to sell its' products in Dade, Broward
and Palm Beach Counties and has applied for approval with the Southern
Building Code Congress. These are the only counties that currently have
a product approval program. For the 1997 hurricane season, the Company has
expanded it's customer base to three home improvement chains giving the
Company's products placement along the east coast and gulf coast, the
primary hurricane areas. Additionally, the Company expanding it's product
line to offer all forms of hurricane shutters, including steel, aluminum and
accordian shutters. These additional products compliment the existing line
and will enable the Company to better service the consumer and our dealer
network.
As a result of these efforts, the Company was poised to capitalize on a good
hurricane season. Unfortunately, the 1997 hurricane season will be
remembered as the season that wasn't. What was forecast to be a third
consecutive active Atlantic hurricane season with eleven named storms,
has had only five named storms. The month of August, traditionally
an active storm month, had no named storms for only the second time on
record, the first being in 1961. As a result, the Company's prime season
for profitability and strong cashflow has passed without either.
Liquidity and Capital Resources
The hurricane protection market is highly seasonal as consumers generally
don't think about these products until hurricane season is in full swing.
Hurricane season begins June 1 and ends November 30. The more active the
season, the greater the reminders to the public, the greater the sales
thrust. This past off season was very slow for the Company, and the
industry in general, causing the Company to take greater advantage of
credit terms granted to it by it's suppliers. This trend has continued
throghout the current quarter as there was no active hurricane season.
In March 1997, the Company offered up to $750,000 principal amount of 4%
convertible subordinated debentures that mature March 31, 1998 in an
offshore transaction under Regulation S of the Securities Act of 1933, as
amended ("Securities Act"). As of September 30, 1997, the Company had
received subscriptions for the full offering of the debentures. Proceeds
of the offering have been used for working capital purposes including
inventory purchases and trade payments. The debentures are unsecured
obligations of the Company and have not been registered under the Seccurities
Act of 1933, as ammended. Each of the debentures is convertible at the
option of the holder at any time after 40days following the issuence of such
debenture and prior to maturity into shares of the Company's common stock at
a conversion price of 75% of the five day average closing bid price per
share as reported by the principal exchange over which the Company's common
stock is traded. During the quarter ended June 30, 1997, $250,000 of the
debentures were converted into 451,977 shares of the Company's common stock.
Results of Operations
The 1996 hurricane season started out with a bang with a large roll out
program at one home improvement chain and demand outstripping supply.
For the 1997 hurricane season, the Company expanded it's customer base to
three home improvement chains and greatly expanded it's production capacity
to meet the anticipated demand. Unfortunately, the 1997 hurricane season
will be remembered as the season that wasn't. While the Company's initial
roll-out was a success, having the product placed along the full east coast
and gulf coasts, because of the inactive season, and the impulse buying nature
of the product, there was limitted turnover of the product at the retailers
and therefor limited replenishment orders.
Net sales for the three months ended September 30, 1997 were $1,094,351
compared with $2,877,503 for the three months ended September 30, 1996,
a decline of 62.0%. For the six months ended September 30, 1997, net sales
were $2,332,842 as compared to $5,006,505 for the six months ended September
30, 1996, a 53.4% decline. The decline in sales was felt in all of the
Company's distribution channels including sales to it's dealers, it's
installation business and sales to home improvement chains, which had the
largest sales decline. The introduction of other hurricane products helped
to soften the impact of the decline in dealer and installation sales while
the expansion to three home improvement chains ofset a portion of that
categories decline.
Gross margins declined to 15.7% of sales for the quarter ended
September 30, 1997 compared to 26.6% for the quarter ended
September 30, 1996. Gross margins were 16.2% for the six months ended
September 30, 1997 and compared to 22.2% for the six months ended
September 30, 1996. The decline in gross margins is due to unfavorable
manufacturing variances caused by expanded production capacity and low
production levels necessitated by the unusually slow hurricane season. The
Company has endeavored to match production volume to sales volume to avoid an
inventory build-up.
Selling, general and administrative expenses for the three months ended
September 30, 1997 were $573,229 compared with $757,173 for the three
months ended September 30, 1996, a decline of 24.3%. For the six months
ended September 30, 1997, selling, general and administrative expenses
were $1,062,154, as compared to $1,320,929 for the six months ended
September 30, 1996, a 19.6% decline. The decline is attributed to lower
variable selling costs as a result of lower sales. The decrease was
partially ofset by the initial cost of setting up two new national home
improvement chains with the Company's products.
Interest income was $2,697 and $5,454 for the three and six months
ended September 30, 1997, respectively, as compared to $4,716 and $28,057
for the three and six months ended September 30, 1996, respectively. The
decline is due to the repayment of notes receivable.
Interest expense increased to $10,069 for the three months ended
September 30, 1997 compared with $4,764 for the three months
ended September 30, 1996 due to an increase in borrowings, specifically
the convertible subordinated debentures. For the six months ended
September 30, 1997, interest expense was $19,057 as compared to $8,512
for the six months ended September 30, 1996.
The Company continues to invest resources in trading securities. This
activity yielded a net loss for the three and six months ended
September 30, 1997 of $56,186 and $86,993, respectively, compared to a
net loss for the three and six months ended September 30, 1996 of $120,095
and $110,503, respectively.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported on Form 10-KSB for the year ended March 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K dated July 21, 1997 was filed concerning a change in
registrant's certifying accountant
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SAFETECH INDUSTRIES, INC.
By: /s/ Darrell Peterson Date: November 15, 1997
Darrell Peterson, Chief Executive Officer
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