___________________________________________________________________________
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-QSB
Mark One:
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 1-11968
SAF T LOK INCORPORATED
(Exact name of small business issuer
as specified in its charter)
FLORIDA 65-0142837
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
18245 S. E. Federal Hwy.
Tequesta, FL 33469
(Address of principal executive offices)
Telephone No. (561) 743-5625
_______________________
(Former name, former address and former fiscal year, if changed since last
report.)
_________________________
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 May 1, 1997 there were 5,876,543 shares of the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format: Yes __ No X
________________________________________________________________
<PAGE>
Part I. Financial Information
Item 1. Financial Statement.
The required financial statements are attached hereto.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Sales for the first quarter of 1997 result entirely from the Saf T Lok
product while first quarter 1996 sales were entirely from the sale of
computer editing products. Any comparison between the two quarters would be
pointless.
Sales of the Saf T Lok product in 1996 consisted in large part of store
owners buying the deeply discounted introductory packages required of them
to become an approved Saf T Lok dealer. Conversely, the customer mix for
first quarter 1997 has shifted more to individual handgun owners, either
directly or through the dealer network. While sales overall have been
nominal this shift in customer mix is significant in that it reflects
improved margins of 51% this quarter versus 10% last year.
The Company exhibited at the SHOT show in January, the North American
Hunting show in February and the National Rifle Association annual meeting
and the Safe and Vault Technician meeting in May. The new magazine lock was
met with considerable enthusiasm at all these shows. Trade show costs were
the largest selling expense for the quarter at $30,314. Trade shows provide
the company with important public credibility along with the opportunity
for a one-on-one demonstration of the products to potential customers and
the media. Other major shows will be attended throughout the year.
The Company is continuing to take steps to reduce debt and keep expenses
and cash flow in line. Since November 1996 all management salaries have
been waived. A significant portion of S, G & A expenses for the first
quarter are related to preparation of the 1996 annual report and audit and
other non-recurring expenses.
After President Clinton's February directive for the mandatory use of
"child safety locks" on handguns the National Rifle Association came out
strongly against any government program to mandate the use of locks on
handguns. This has had an adverse effect on sales as a large percentage of
the dealers are loyal NRA supporters. However, on April 30, the Company
received an endorsement from the Fraternal Order of Police "approving the
Saf T Lok product as an optional means of keeping firearms safe from
accidental discharge or misuse". In addition, bills have been introduced in
both houses of Congress to make the sale of an attached, approved gunlock
mandatory with the sale of each handgun. The Clinton initiative and the FOP
endorsement are increasing public awareness of handgun safety.
The handgun owner no longer has to choose between home protection and child
safety; with Saf T Lok he gets both.
2
<PAGE>
Engineering and development of the magazine lock are essentially completed.
Tooling and production of the lock and special magazines will require
upwards of $1,000,000 to satisfy the most popular types of semi-automatic
pistols. The Company is seeking sources of additional capital, mainly
through sales of restricted stock. 115,385 common shares were sold on April
25, 1997, and an additional 163,846 shares were sold on May 8, 1997,
raising a total of $350,000. Discussions are continuing with other
potential investors. Funds will be directed towards product development and
marketing efforts.
Part II. Other Information
Item 1. Legal proceedings
In December 1996 Lisa Broderick Fogel and her husband Bruce Fogel sued the
Company and Franklin Brooks for defamation and loss of consortium arising
out of her brief tenure in November 1996 as president of the Company. The
complainants have since dropped their claims for monetary damages. Mr.
Brooks has made an offer to settle the remaining issues and awaits a reply.
The Company's insurance company, Reliance Insurance Company is defending
the Company and Mr. Brooks.
In April 1997 the Company settled a lawsuit filed by Engineering Analyses &
Solutions, Inc. for money damages arising out of an alleged breach of
contract for engineering services. The settlement included issuance of a
nominal number of options for shares of common stock.
The Company is not a party in any other ongoing or pending legal
proceedings, nor are any of the Company's properties the subject of
litigation, and the Company is not aware of any pending or contemplated
proceeding against it by governmental authorities concerning environmental
matters. The Company knows of no legal proceedings, pending or threatened,
or judgments entered against any director or officer of the Company in his
capacity as such.
Item 2. Changes In Securities.
On April 9, 1997, DSE, Inc. d/b/a Dayron, the lock assembly contractor, was
issued 65,903 restricted common shares at $2.60 per share as payment for
assembly services and tooling charges for a total of $171,347. The Company
will issue 10,000 shares to DSE, Inc. to cover the cost of registration of
the stock if so requested by DSE.
On April 18, 1997, the Company issued 76,509 shares of restricted common
stock to Franklin W. Brooks, chairman of the Company, in exchange for the
cancellation of a $150,000 loan made to the Company in the first quarter
1997 by Mr. Brooks.
On April 18, 1997, the Company issued 25,503 shares of restricted common
stock to Franklin W. Brooks, chairman of the Company, in exchange for the
cancellation of a $50,000 loan made to the Company in April 1997 by Mr.
Brooks.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission Of Matters To A Vote Of Security Holders.
During the first quarter of 1997, no matters were submitted to a vote of
security holders through the solicitation of proxies or otherwise.
3
<PAGE>
Item 5. Other Information
On May 8, 1997 the registrant issued and sold a total of 163,846 restricted
shares of its common stock to a two offshore investors pursuant to
Regulation S. The offering was not underwritten; a financial consultant to
the registrant introduced the registrant to the investor. The aggregate sum
paid in cash for the shares was $200,000, or $1.22 per share. No discounts
or commissions were paid in connection with the sale.
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K
1. Form 8K filed April 18, 1997, reporting on John Gardner's employment.
2. Form 8K filed April 30, 1997, reporting the sale of common stock.
4
<PAGE>
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.
SAF T LOK INCORPORATED
By: //Franklin W. Brooks
----------------------
(Chairman of the Board)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the date indicated.
Signature Date
//Franklin W. Brooks// Chairman of the Board May 20, 1997
- ----------------------
Franklin W. Brooks
//John L. Gardner// Chief Executive Officer
- ---------------------- President and Director May 20, 1997
John L. Gardner
//Jeffrey W. Brooks// Secretary and Director May 20, 1997
- ----------------------
Jeffrey W. Brooks
//William M. Schmidt// Director May 20, 1997
- ----------------------
William M. Schmidt
//Robert L. Gilbert// Director May 20, 1997
- ----------------------
Robert L. Gilbert
//Eugene V. Horanoff// Director May 20, 1997
- ----------------------
Eugene V. Horanoff
================================================================================
Financial Statements
================================================================================
SAF T LOK, INCORPORATED
F/K/A RGB COMPUTER & VIDEO, INC.
REPORT
AS OF MARCH 31, 1997
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONTENTS
PAGE 1 - 2 INDEPENDENT AUDITORS' REPORT
PAGE 3 - 4 CONSOLIDATED BALANCE SHEETS AS OF MARCH 31,
1997 AND DECEMBER 31, 1996
PAGE 5 CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND THE YEAR ENDED DECEMBER 31,
1996
PAGE 6 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
PAGE 7 - 8 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
PAGE 9 - 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of :
Saf T Lok Incorporated
We have reviewed the accompanying consolidated balance sheet of Saf T
Lok Incorporated and Subsidiaries as of March 31, 1997 and the related
consolidated statements of operations, consolidated changes in
shareholders' equity and consolidated cash flows for the three months
ended March 31, 1997. All information included in these consolidated
financial statements is the representation of the management of Saf T
Lok Incorporated.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated financial
statements in order for them to be in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has suffered recurring losses from operations and currently
has a shortage of working capital. These factors indicate that the
Company may be unable to continue as a going concern. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
<PAGE>
Page Two
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31,
1996 and the related consolidated statements of operations,
consolidated statement of shareholders' equity and consolidated cash
flows for the year then ended (not presented herein), and in our
report dated April 10, 1997, we expressed an unqualified opinion on
those consolidated financial statements, but have not performed any
auditing procedures since that date. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of
December 31, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
WEINBERG, PERSHES & COMPANY, P.A.
Boca Raton, Florida
May 10, 1997
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
MARCH 31, DECEMBER 31,
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 15,465 $ 88,956
Accounts receivable (net of allowance
for doubtful accounts of $24,500 and
$23,000, respectively) 8,706 10,419
Inventories 460,179 466,680
Prepaid expenses 19,709 21,111
Total Current Assets 504,059 587,166
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 864,406 932,028
OTHER ASSETS
Patents, (net of accumulated
amortization of $38,000 and
$28,000 respectively) 364,147 374,147
Loans receivable 194,923 199,842
Other assets 975 975
Total Other Assets 560,045 574,964
TOTAL ASSETS $ 1,928,510 $ 2,094,158
Read accountants' review report and
notes to consolidated financial statements.
3
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1997 1996
CURRENT LIABILITIES
Notes payable - current portion $ 71,785 $ 67,353
Accounts payable and accrued
expenses 777,754 836,402
Total Current Liabilities 849,539 903,755
LONG TERM LIABILITIES
Notes payable, net of current portion 42,428 58,061
TOTAL LIABILITIES 891,967 961,816
SHAREHOLDERS' EQUITY
Common Stock, $.01 par
value, 20,000,000 shares
authorized, 5,727,598 and
5,651,089 shares issued
and outstanding, respectively,
of which 1,500 shares were
held in treasury 57,276 56,511
Capital in excess of par 9,317,133 9,167,898
Deficit (8,337,866) (8,092,067)
TOTAL SHAREHOLDERS' EQUITY 1,036,543 1,132,342
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,928,510 $2,094,158
Read accountants' review report and
notes to consolidated financial statements.
4
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
Capital
Common Stock In Excess
Shares Amount of Par Deficit Total
Balance-
January 1,
1996 3,263,100 $ 32,631 $8,056,639 $(4,816,725) $3,272,545
Issuance of
common stock
for Saf T Lok
merger 2,238,957 22,390 504,149 - 526,539
Issuance of
stock for
settlement of
lawsuit 20,000 200 8,400 - 8,600
Capital
Contribution - - 200,000 - 200,000
Issuance of
common stock 129,032 1,290 398,710 - 400,000
Net loss - - - (3,275,342) (3,275,342)
Balance -
December 31,
1996 5,651,089 56,511 9,167,898 (8,092,067) 1,132,342
Issuance of
common stock 76,509 765 149,235 - 150,000
Net Loss - - - (245,799) (245,799)
BALANCE -
MARCH 31,
1997 5,727,598 $ 57,276 $9,317,133 $(8,337,866) $1,036,543
Read accountants' review report and
notes to consolidated financial statements.
5
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Revenue $ 27,415 $ -
Cost of Sales 13,397 -
Gross Profit 14,018 -
Selling, General and Administrative
Expenses 214,694 336,120
Depreciation and Amortization 45,123 13,875
Loss from continuing operations (245,799) (349,995)
Loss from discontinued operations - (181,387)
Net loss $ (245,799) $ (531,382)
Loss per common share
Loss from continuing operations $(.04) $(.08)
Loss from discontinued operations - (.04)
Net loss $(.04) $(.12)
Weighted average number of
common shares outstanding 5,651,089 4,614,444
Read accountants' review report and
notes to consolidated financial statements.
6
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Cash flows from operating activities:
Loss from continuing operations $ (245,799) $ (349,995)
Loss from discontinued operations - (181,387)
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation and amortization 45,123 24,322
Bad debt expense 1,500 15
Loss on sale and disposal of
fixed assets - (932)
Exchange of fixed asset in payment
of consulting fees 22,734 -
Change in assets and liabilities:
(Increase)decrease in:
Accounts receivable 213 (21,006)
Inventories 6,501 (110,783)
Prepaid and other current assets 1,402 (54,275)
Increase (decrease)in:
Accounts payable and accrued
expenses (58,648) 630
NET CASH (USED IN)
OPERATING ACTIVITIES (226,974) (693,411)
Cash flows from investing activities:
Purchase of property and equipment - (473,019)
Proceeds from sale of fixed assets - 7,775
Proceeds from loans receivable 4,919 1,107
(Increase) decrease in loans
receivable-officers - (7,203)
(Increase) decrease in other assets - 676
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 4,919 (470,664)
Read accountants' review report and
notes to consolidated financial statements.
7
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
Cash flows from financing activities:
Principal payments on borrowings,
including capital lease obligations (1,436) (4,114)
Proceeds from sale of common stock 150,000 -
Equity changes due to acquisition - 434,623
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 148,564 430,509
NET DECREASE IN CASH (73,491) (733,566)
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF YEAR 88,956 2,499,579
CASH AND CASH EQUIVALENTS, AT
END OF YEAR $ 15,465 $ 1,766,013
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash payments for:
Interest $ 212 $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
In February 1996, the Company merged with Saf T Lok, Incorporated by
issuing 2,238,957 shares of the Company's common stock in exchange for
100% of the outstanding stock of Saf T Lok Corporation. The
transaction was recorded under the purchase method and the common
stock was valued at $527,000.
Read accountants' review report and
notes to consolidated financial statements.
8
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
The Company has discontinued its previous core business and acquired a
new business and has minimal cash to operate at March 31, 1997. The
Company's continuation as a going-concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to obtain financing as may be required, and ultimately
attain profitable operations. The consolidated financial statements
do not include any adjustments relating to the recoverability and
classification of asset amounts that might be necessary should the
Company be unable to continue as a going concern.
NOTE 2 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
A. Nature of business
Saf T Lok Incorporated F/K/A RGB Computer & Video, Inc. (the
"Company") was incorporated in Florida in July 1989 under the name RGB
Sales and Marketing, Inc. In 1993, the Company completed an initial
public offering of common stock. The Company was principally engaged
in the development, sale, marketing and assembling of computer based
editing systems until the merger with Saf T Lok Corporation in
February 1996 (See Note 14).
Saf T Lok Corporation was organized to design, develop, manufacture
and market a patented and proprietary combination lock for firearms
known as the Saf T Lok. The initial production of the Saf T Lok
products is designed to prevent the unauthorized use of firearms,
including unintentional discharge by children or intentional discharge
by assailants. The management of the Company intends to focus the
Company's resources on marketing and developing
9
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
the Saf T Lok products due to management's positive expectation of the
performance and future profitability of these products. Furthermore,
as a direct result of the Company's historical operating losses and
lack of competitiveness, management has discontinued its old business.
B. Principles of consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its 100% wholly owned subsidiaries, RGB
Video, Inc. and Saf T Lok, Inc. All material intercompany
transactions, accounts and profits have been eliminated.
C. Revenue recognition
The Company recognizes revenue when products are sold and shipped.
D. Statement of cash flows
For purposes of this statement, the Company considers all liquid
investments purchased an original maturity of three months or less to
be cash equivalents.
E. Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market, whichever is less.
F. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
on accelerated and straight-line methods over the estimated useful
lives of the respective assets. Maintenance and repairs are charged
to expense as incurred;
10
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
major renewals and betterments are capitalized. When items of
property or equipment are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or
loss is included in the results of operations.
Years
Furniture and fixtures 7 - 10
Automobile 5
Equipment 3 - 10
Leasehold improvements 1 - 2
Software 3 - 5
G. Income Taxes
Deferred income taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
H. Loss Per Common Share
Loss per common share is calculated by dividing net loss by the
weighted average number of common shares outstanding. Warrants, stock
options, and underwriter's options are antidilutive.
11
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
I. Significant Concentration of Credit Risk
The Company had concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The
maximum loss that would have resulted from risk totalled $-0- and
$5,000 as of March 31, 1997 and December 31, 1996 for the excess of
the deposit liabilities reported by the banks over the amounts that
would have been covered by federal insurance.
J. Discontinued Operations
The Company experienced a substantial drop in sales in 1996 and 1995.
This is largely the result of the discontinuation of production of the
Amiga Computer by Commodore Electronics Ltd. after claiming insolvency
in May 1994 and the decision
by the Company's management to discontinue these operations and
acquire a company in another line of business that would provide
better long term prospects. In February 1996, the Company acquired
Saf T Lok Corporation as described in Note 14.
NOTE 3 - INVENTORIES
Inventories are comprised of the following as of March 31, 1997 and
December 31, 1996:
1997 1996
Raw Materials and
Furnished goods $460,179 $466,680
12
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of March 31,
1997 and December 31, 1996:
1997 1996
Equipment $ 373,344 $ 373,344
Furniture and fixtures 52,997 52,997
Automobile - 34,000
Tools and dies 762,560 762,560
Software 37,214 37,214
Leasehold improvements 11,436 11,436
1,237,551 1,271,551
Less accumulated
depreciation 373,145 339,523
$ 864,406 $ 932,028
NOTE 5 - LOANS RECEIVABLE
Loans receivable consisted of a promissory note due from Opal
Technologies ("Opal"). The note had an original interest rate of
eight percent and an annual interest rate of eighteen percent after
the note becomes due. However, no interest had been accrued due to
the fact that it seemed doubtful that the interest would be received.
Although the Company continued to aggressively try to collect on the
note receivable from Opal, the ability to collect seemed doubtful.
Therefore, the note has been written off to bad debt expense as of
December 31, 1995. In 1996, the Company located the principals of
Opal and renegotiated the note receivable calling for total payments
of $248,000 including interest over a five year period. The Company
will recognize income as payments are received.
13
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LOANS RECEIVABLE (CONTINUED)
Pursuant to a settlement agreement dated September 27, 1995, Pride
Integrated Services, Inc. agreed to pay the Company $310,000,
including interest over a ten year period with the payments beginning
in October 1995. The settlement resulted from a suit filed by the
Company against Pride Integrated Services, Inc. in October, 1993,
alleging copyright infringement and misappropriation of trade secrets.
The note receivable was discounted as required by Accounting Principle
Bulletin No. 21 using an 8% imputed interest rate. The discount on
the note equaled $93,024 as of December 31, 1995. The balance of the
note receivable net of discount is $194,923 and $199,842, as of March
31, 1997 and December 31, 1996, respectively.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the
following as of March 31, 1997 and December 31, 1996:
1997 1996
Accounts payable $655,567 $714,215
Accrued payroll and
payroll taxes 122,187 122,187
$777,754 $836,402
The officers have waived $64,167 in salaries for the quarter ended
March 31, 1997.
NOTE 7 - NOTES PAYABLE
March 31, December 31,
1997 1996
Note Payable - Bank
collateralized by
an automobile, payable
in monthly installments
of $549 including interest
at 8% due October 25, 1998.
This note was assumed by
one of the former Chief
Executive Officers. $ - $ 11,201
14
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE (CONTINUED)
Note Payable - shareholder,
collateralized by patents,
payable in monthly
installments of $3,738
including interest at 7%, due
March 1999 114,213 114,213
Total Long-Term Debt 114,213 125,414
Current Portion 71,785 67,353
Total Long-Term Debt, net
of Current Portion $ 42,428 $ 58,061
The aggregate amount of long-term debt maturing in each of the next
two years subsequent to March 31, 1997 is as follows:
1996 $ 71,785
1997 42,428
$114,213
NOTE 8 - INCOME TAXES
The components of the provision (benefit) for income taxes for the
three months ended March 31, 1997 and the year ended December 31, 1996
are comprised of the following:
1997 1996
Current:
Federal $ - $ -
State - -
- -
Deferred:
Federal - -
State - -
- -
$ - $ -
15
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (CONTINUED)
The components of the net deferred tax assets and liabilities and the
related tax effects as of March 31, 1997 and December 31, 1996 are
comprised of the following:
1997 1996
Deferred tax assets:
Loss carryforwards $2,700,000 $2,640,000
2,700,000 2,640,000
Less valuation
allowance 2,700,000 2,640,000
- -
Deferred tax
liabilities:
Property and
equipment - -
Net deferred tax
liability $ - $ -
The following table summarizes the differences between the Company's
statutory federal income tax provisions and the reported income tax
provision for the three months ended March 31, 1997 and the year ended
December 31, 1996:
1997 1996
Provision (benefit) at
statutory rate $ (83,000) $(1,100,000)
Effect of income taxes
at lower rate 11,500 12,000
Valuation allowance 71,500 1,088,000
$ - $ -
16
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SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (CONTINUED)
As of December 31, 1996, the Company had net operating loss
carryforwards subject to Code Section 382 limitations of $4,345,426 to
offset future taxable income. These carryforwards expire in 2009.
NOTE 9 - SHAREHOLDERS' EQUITY
Increase in Authorized Shares and Change in Par Value
On July 18, 1996, the shareholders of the Company approved the
increase of the number of shares authorized from 10,000,000 to
20,000,000 and changed the par value from no par value to $.01 per
share. The Company has retroactively adjusted the March 31, 1996
financial statements for the change in par value.
NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Options, Issuances and Contributions
In March 1993, the Company established a stock option plan for
employees, consultants and directors for 150,000 shares of common
stock. The plan provides for an automatic grant of options for 5,000
shares vesting semiannually for one year to each nonemployee director
provided that the director is still serving as a director on the
vesting date.
The exercise price of all options granted under the plan must be at
least equal to the fair market value of the shares of common stock on
the date of the grant. The exercise price for any participant
possessing more than 10% of the voting power of the Company's
outstanding common stock must equal at least 110% of the fair market
value on the grant date. As of March 31, 1997, no shares have been
issued under this plan.
17
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SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SHAREHOLDERS' EQUITY (CONTINUED)
Prior to 1996, the Company issued warrants to Barington Capital Group,
L.P., the Company's underwriter in its initial public offering, to
purchase 120,000 shares of the Company's common stock at an exercise
price of $2.00. These warrants are outstanding as of March 31, 1997.
In October 1996, the Company issued warrants to a major
shareholder/officer at an exercise price of $7.50 per share.
In October 1996, one of the major shareholders/officer of the Company
contributed $200,000.
In February 1997, the Company issued options to purchase 812,500
shares of the Company's common stock at an exercise price of $2.50 per
share to various individuals and a law firm for consulting and other
services.
Effective December 31, 1996, the Company sold 129,032 shares of the
Company's common stock to the major shareholder/officer of the Company
for $400,000 or $3.10 per share.
In April 1997, effective March 31, 1997, the Company sold 76,509
shares of the Company's common stock for $150,000 to a former officer.
See Note 14 for additional stock options.
NOTE 11 - LEASING ARRANGEMENTS
Operating Leases
In February 1996, the Company entered into a three year lease for its
operating facility. The Company is required to pay $144,000 over the
three year period. The Agreement also provided for a renewal option
for three years at a base
18
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SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - LEASING ARRANGEMENTS (CONTINUED)
rent totalling $166,830. The following are the net future minimum
rental payments required under this operating lease as of December 31,
1996:
1997 $ 48,000
1998 50,400
$ 98,400
The total rent expense charged to operations was $13,505 and $15,233
for the three months ended March 31, 1997 and 1996, respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
A relative of certain shareholders and officers is paid $200 a month
for janitorial services and was also paid for various repair and
maintenance work that did not exceed $10,000 during 1997 and 1996.
NOTE 13 - LITIGATION
On April 3, 1996, the Company settled a lawsuit filed in October 1995
against the Company and two of its directors and largest individual
shareholders, Robert and Cynthia Gilbert, by Barington Capital Group,
L.P.("Barington") by and through its general partner, LNA Capital
Corp. Barington was the Company's underwriter in its initial public
offering. In 1996, Barington settled the lawsuit for 20,000 shares of
the Company's restricted common stock.
19
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SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - LITIGATION (CONTINUED)
The Company and the former Chief Executive Officer, Franklin Brooks,
are being sued by the former Chief Executive Officer for liable and
slander arising from the appointment and termination of the former
Chief Executive Officer. The Company is being represented by an
Insurance Company. The case is in its initial stages and the Company
does not anticipate a material effect on the financial statements.
The Company was sued for alleged breach of contract for engineering
service. The case was settled for $18,258 with the Company issuing
stock options to purchase 4,637 shares of the Company's common stock
at a purchase price of $3.9375 per share.
NOTE 14 - BUSINESS COMBINATION
As of February 13, 1996, a newly formed 100% wholly owned subsidiary
of the Company, Sphere Enterprises, Inc., was merged with Saf T Lok
Corporation, a Florida corporation, with the subsidiary continuing
under the name of Saf T Lok Corporation. The merger was achieved by
converting all of the outstanding shares of Saf T Lok Corporation into
2,238,957 shares of the Company, thereby allowing the original
shareholders of RGB to own approximately 60% of the combined entity
after the merger with a total number of shares outstanding after the
merger of approximately 5.6 million shares. Also, in connection with
the merger, the Company issued performance stock options for 1,000,000
shares to Frank Brooks and 600,000 shares to Robert Gilbert at an
exercise price of $2 per share. The options will vest if the
performance standards are reached at a rate of 1/3 annually beginning
January 1, 1997 with the last third vesting January 1, 1999. In order
to calculate the amount of shares that will vest each year, the annual
maximum as stated above is multiplied by a fraction, the numerator of
20
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - BUSINESS COMBINATION (CONTINUED)
which is STL's net income as determined in accordance with generally
accepted accounting principles consistently applied before interest,
taxes, depreciation and amortization less the low earnings target for
each year and the denominator of which is the difference obtained by
subtracting the low earnings target for any year from the high
earnings target for such year as set forth in the schedule below:
Year Low Earnings Target High Earnings Target
1996 $ 2,500,000 $ 4,500,000
1997 4,000,000 7,500,000
1998 8,000,000 15,000,000
In the event that options with respect to the full one million shares
awarded Frank Brooks and 600,000 shares awarded Robert Gilbert have
not vested by January 1, 1999, the remaining options will vest based
on a fraction derived from the amount by which Saf T Lok's aggregate
earnings from 1996 through 1998 exceed $14,500,000 which is the total
of the low earnings target.
NOTE 15 - SUBSEQUENT EVENTS
On April 9, 1997, the Company issued to two former employees 30,000
shares of the Company's common stock for services rendered.
On April 22, 1997, the Company offered to sell, under a regulation S
subscription agreement, 115,385 shares of the Company's common stock
at a price of $1.30 per share.
On May 8, 1997, the Company offered to sell, under a regulation S
subscription agreement, 163,846 shares of the Company's common stock
at a price of $1.22 per share.
21
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
On April 16, 1997, the Company entered into a two year Employment
Agreement with a new President and Chief Executive Officer with a base
salary of $100,000 plus various incentives. In addition, the Company
entered into a stock option agreement with this individual to grant
the individual to purchase up to 600,000 shares of the Company's
common stock at an exercise price of $2.50 per share. The options
expire on April 30, 2002.
On April 7, 1997, the Company entered into a subscription agreement to
issue 65,903 shares of the Company's common stock at $2.60 per share
in exchange for payment for costs incurred for assembly of inventory
which was included in Accounts Payable at March 31, 1997.
22
