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 June 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 June 30, 1997, 17,843,677 shares of the registrant's common stock were
outstanding
<PAGE>
SAFETECH INDUSTRIES, INC.
CONSOLIDA TED BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash $ 40,808
Trading Securities, at fair value 42,907
Accounts Receivable, less allowance for
doubtful accounts of $86,000 404,206
Notes Receivable 91,099
Inventories 737,708
Other Current Assets 37,563
1,354,291
PROPERTY & EQUIPMENT, at cost:
Manufacturing Equipment 999,225
Leasehold Improvements 190,321
Furniture, Fixtures & Office Equipment 96,162
Vehicles 29,989
1,315,697
Less accumulated depreciation and amortization (436,083)
879,614
OTHER ASSETS:
License Fee, net of accumulated amortization 309,167
Investments 45,000
Deferred Tax Asset, net of valuation allowance -
Due from Officer 299,313
Other 25,754
679,234
Total Assets $ 2,913,139
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SAFETECH INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
(Continued)
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and Deposits Payable $ 1,865,341
Accrued Expenses 275,445
Notes Payable 250,000
Subordinated Debentures Payable 400,000
Current Portion of Long-Term Debt 4,337
2,795,123
LONG-TERM DEBT 19,477
MINORITY INTEREST 467,304
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) (2,127,698)
(368,765)
Total Liabilities & Shareholders Equity $ 2,913,139
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SAFETECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
June 30
1997 1996
Net Sales $ 1,238,491 $ 2,129,002
Cost of Sales 1,031,521 1,781,603
206,970 347,399
Selling, General and Administrative Expenses 488,925 563,756
Loss from Operations 281,955 216,357
Other Expense (Income):
Interest Income (2,757) (23,341)
Interest Expense 8,988 3,748
Net Realized (Gain) Loss on
Trading Securities 1,114 (51,981))
Net Holding (Gain) Loss on
Trading Securities 29,693 42,389
Other, net (156) (5,895)
36,882 (35,080)
Net Loss Before Income Taxes and
Minority Interest 318,837 181,277
Benefit for Income Taxes - -
Minority Interest 44,048 99,975
Net Loss $ 274,789 $ 81,302
Net Loss per Share $ .02 $ .00
Weighted Average Common Shares Outstanding 17,585,404 17,391,700
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SAFETECH INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
June 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (274,789) $ (81,302)
Adjustments to reconcile net (loss) to
net cash provided by (used in)
operating activities:
Minority Interest (44,048) (99,975)
Depreciation and Amortization 58,983 47,430
Decrease (Increase) in Trading
Securities 30,754 (107,550)
(Increase) Decrease in
Accounts Receivable (244,712) (363,660)
Decrease (Increase) in Inventories (86,719) 111,393
(Increase) Decrease in Other Assets (10,058) 223
Increase (Decrease) in Accounts
and Deposits Payable (9,135) 79,935
(Decrease) Increase in Accrued Expenses 20,601 (55,605)
Net cash (used in) operating activities (559,123) (469,111)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (23,353) (143,645)
(Increase) in Notes Receivable - (72,315)
Repayments on Notes Receivable
and Investments - 873,750
Decrease (Increase) in Due from Officer (13,506) 31,536
Net cash (used in) investing activities (36,859) 689,326
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Subordinated Debentures 625,000 -
Increase in Notes Payable - 100,000
(Payments) on Long-Term Debt (1,005) -
Net cash provided by financing
activities 623,995 100,000
NET INCREASE (DECREASE) IN CASH 28,013 320,215
CASH, AT BEGINNING OF PERIOD 12,795 14,457
CASH, AT END OF PERIOD $ 40,808 $ 334,672
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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 quarter ended June 30, 1997, the Company received
subscriptions for an additional $400,000 of the debentures bringing the
total offering to date to $650,000. Additionally, during the quarter, a
holder of $250,000 of debentures exercised their conversion option
converting the debentures into 451,977 shares of the Company's common
stock.
<PAGE>
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. Demand
for the Clearshield product has exceeded the Company's production capacity
each of the past two years. 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 60,000 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. Additionally, the Company has expanding it's
product line to offer all forms of hurricane shutters, including steel and
aluminum panels, and accordion shutters. All of these products meet the
product approval requirements of the above mentioned counties. These
additional products compliment the existing line and will enable the Company
to better service the consumer and our dealer network.
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. 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.
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 June 30, 1997, the Company had received
subscriptions for $650,000 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 Securities Act of 1933, as amended. Each of the
debentures is convertible at the option of the holder at any time after 40
days following the issuance 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 has 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 is off to a
slow start with capacity exceeding demand. Net sales for the three months
ended June 30, 1997 were $1,238,491 compared with $2,129,002 for the three
months ended June 30, 1996, a decline of 41.8%. 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 offset a portion of that categories
decline.
Gross margins improved to 16.7% of sales for the quarter ended June 30,
1997 compared to 16.3% for the quarter ended June 30, 1996. The improvement
in gross margins was less than anticipated due to unfavorable manufacturing
variances caused by lower production levels. 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
June 30, 1997 were $488,925 compared with $563,756 for the three months ended
June 30, 1996, a decline of 13.3%. The decline is attributed to lower
variable selling costs as a result of lower sales.
Interest income was $2,757 for the three months ended June 30, 1997
compared to $23,341 for the three months ended June 30, 1997. The decline is
due to the repayment of notes receivable.
Interest expense increased to $8,988 for the three months ended June 30,
1997 compared with $3,748 for the three months ended June 30, 1996 due to an
increase in borrowing.
The Company continues to invest resources in trading securities. This
activity yielded a net loss for the three months ended June 30, 1997 of
$30,807, substantially all of which was unrealized holding losses, compared to
a net gain of $9,592 for the three months ended June 30, 1996.
<PAGE>
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 May 17, 1997 was filed concerning the resignation of
a director
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 , 1997
Darrell Peterson, Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 40,808
<SECURITIES> 42,907
<RECEIVABLES> 581,305
<ALLOWANCES> (86,000)
<INVENTORY> 737,708
<CURRENT-ASSETS> 1,354,291
<PP&E> 1,315,697
<DEPRECIATION> (436,083)
<TOTAL-ASSETS> 2,913,139
<CURRENT-LIABILITIES> 2,795,123
<BONDS> 0
0
0
<COMMON> 178,437
<OTHER-SE> (547,202)
<TOTAL-LIABILITY-AND-EQUITY> 2,913,139
<SALES> 1,238,491
<TOTAL-REVENUES> 1,238,491
<CGS> 1,031,521
<TOTAL-COSTS> 1,031,521
<OTHER-EXPENSES> 488,925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,988
<INCOME-PRETAX> (318,837)
<INCOME-TAX> 0
<INCOME-CONTINUING> (274,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274,789)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
