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SECURITIES AND EXCHANGE COMMISSION
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SAF T LOK INCORPORATED
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Florida 3429 65-0142837
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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18245 S.E. Federal Highway, Tequesta, Florida 33469 (561) 743-5625
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
John L. Gardner, 18245 S.E. Federal Highway, Tequesta, Florida 33469
(561) 743-5625
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
_____________________________
Copies to:
William A. Grimm, Esq., Gray, Harris & Robinson, P.A.,
201 East Pine Street, Suite 1200, Orlando, Florida 32801, (407) 843-8880
_____________________________
Approximate date of commencement of proposed sale to the public
_________________, 1998
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per unit aggregate offering registration fee
registered (1) price (1)
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<S> <C> <C> <C> <C>
common stock, par 2,938,844 $1.934 $5,683,725 $1,677
value $0.01 per share
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(c) and 457(h). The aggregate offering price and
registration fee are based upon the product that results from multiplying
2,938,844 shares by $1.934 per share, which is the weighted average price
of such shares at the time of sale or issuance.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
THE COMMON STOCK OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 3.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated February 13, 1998
PROSPECTUS
2,938,844 Shares
SAF T LOK INCORPORATED
This Prospectus relates to (i) the issuance, which is not being
underwritten, of 2,938,844 shares (the "Shares") of Common Stock, par value
$0.01 per share (the "Common Stock") of Saf T Lok Incorporated (the "Company")
to certain companies for services previously rendered and to be rendered to the
Company in the near future, (ii) the registration for resale by certain of the
Selling Shareholders of shares of Common Stock from time to time, (iii) the
registration for resale by certain of the Selling Shareholders of shares of
Common Stock underlying stock purchase warrants, and (iv) the registration for
resale by certain of the Selling Shareholders of shares of Common Stock
underlying a stock option. The shares of Common Stock being offered by the
Selling Shareholders and the stock purchase warrants and the stock option held
by the Selling Shareholders were sold or issued to the Selling Shareholders
pursuant to exemptions from registration found in Section 4(2) of the Securities
Act of 1933 (the "Securities Act") or Regulation S promulgated under the
Securities Act.
This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect to
the Company and the securities offered hereby. Copies of the Registration
Statement and the exhibits thereto are on file at the offices of the Commission
and may be obtained upon payment of the prescribed fee or may be examined
without charge at the public reference facilities of the Commission described
below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission electronically. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional office located at 1401 Brickel Avenue, Suite 200,
Miami, Florida 33131. The Commission maintains a web site that contains
reports, proxy statements and other information that has been filed
electronically with the Commission. The address of such web site is
http://www.sec.gov. Copies of such material can be obtained from the Public
Reference Section of the Commission, located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Common Stock, par
value $0.01 per share, is quoted on the Nasdaq SmallCap Market. Reports, proxy
statements, and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company's principal executive offices are located at 18245 S.E. Federal
Highway, Tequesta, Florida 33469. The Company's telephone number is (561) 743-
5625.
Until _____________ all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 3.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. This
Prospectus contains, in addition to historical information, forward looking
statements that involve risks and uncertainties. Investors should carefully
consider the information set forth under the heading "Risk Factors."
Saf T Lok Incorporated (the "Company") was incorporated in Florida in July 1989
under the name of RGB Sales and Marketing, Inc. ("RGB"). In September 1989, the
assets and certain of the liabilities of RGB Video Creations, Inc. ("RGB Video
Creations") were purchased and assumed, respectively, and the assets were
contributed to RGB as its initial capitalization. In October 1989, RGB
commenced the business of operating a retail store that sold Amiga computers and
produced a series of tutorial programs used with software written for the Amiga
platform.
On June 23, 1993, RGB completed an initial public offering of its Common Stock
and on February 13, 1996 RGB acquired Saf T Lok Corporation, a Florida
corporation, through a merger with a newly formed special purpose subsidiary.
The acquisition marked the end of RGB's involvement in the video editing
business. RGB changed its name to Saf T Lok Incorporated (the "Company") in
connection with the merger in February 1996, and commenced RGB's involvement in
the gun lock business.
The Company's subsidiary, STL Lock, Inc. ("STL") (the Company and STL are
jointly referred to herein as the "Company"), was organized to design, develop,
manufacture, and market proprietary combination locks to prevent unauthorized
use of fire arms, including unintentional discharge by children and assailants.
As a development stage entity, the Company has been engaged in product and
market research and development since February 1996. The Saf T Lok(TM), the
Company's initial product, is a mechanical combination lock that attaches to a
handgun. When unlocked, it does not hamper or interfere with the use of the
gun. When the Saf T Lok(TM) is engaged it locks the "safety" in the "no fire"
position, blocking the normal operation of the gun and preventing the gun from
being fired. (Guns without safeties are locked using the basic Saf T Lok(TM) to
block operation of other internal gun components.) There are no keys, batteries
or other gadgets to lose or fail. The lock's body is positioned under and
concealed by the gun grip. The lock's combination mechanism is located at the
top of the grip, where it is easily accessible. With three small levers, each
capable of 9 clicks, the Saf T Lok(TM) yields 1,000 combinations. There are
approximately two dozen variations of the Saf T Lok(TM) which together with the
magazine lock (discussed below) are designed to fit approximately 40% of the
handguns produced yearly in the U.S. According to the Bureau of Alcohol, Tobacco
and Firearms there were 2,581,961 handguns produced in the U.S. in 1994 and
1,722,930 handguns produced in 1995. The various models of the Saf T Lok(TM) and
the magazine lock are also designed to fit a significant portion of the handguns
existing in the U.S. retrofit market.
In 1996, the Company conceived, developed, and produced a prototype of its
second product (hereinafter, the "Magazine Lock") and is currently engaged in
the market acceptance process. The Magazine Lock, still in the prototype phase,
is a precision miniaturized all mechanical combination lock that functions the
same as the Saf T Lok(TM) in handguns with magazines. It has two buttons that
function in both directions, yielding 10,000 combinations. The Magazine Lock is
housed in the bottom of the magazine, occupying the space of two to four
cartridges, depending on the caliber. The Magazine Lock installs to the gun
merely by inserting the Saf T Lok(TM) magazine. A lever runs from the lock, up
the side of the magazine. When the lock is in the locked position the lever will
engage the trigger bar or another part of the firing mechanism, and either pull
it away from the sear mechanism or block the rearward movement, as necessary and
appropriate. The lever also locks over the trigger bar, preventing the magazine
from being removed.
The Company's market includes both new and previously manufactured handguns in
the United States (the "retrofit market"). The Company's initial markets are
handgun owners who bought or are planning to buy guns for home defense and self
protection as well as for law enforcement at all levels. Consumers purchasing
hand guns must do so from federally licensed dealers, thus the Company is
targeting consumers through the approximately 12,000 licensed firearms dealers
in the U.S. Of these dealers, approximately 8000 dealers have annual sales in
firearms and other products in excess of $200,000.
The Company intends to minimize overhead by subcontracting the component
manufacturing of the gun locks to specialists: die manufacturers cast the lock
components, a grip manufacturer injection molds gun grips to house the Saf T
Lok(TM) components. The Company assembles the gun locks in-house. After quality
assurance testing, packaging, and handling, the Saf T Lok(TM) is ready for
distribution. While the Magazine Lock is not yet in production, the
manufacturing function for it will replicate that of the Saf T Lok.(TM)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH HEREIN
IN THE SECTION CAPTIONED "RISK FACTORS" WHICH IMMEDIATELY FOLLOWS THIS SECTION
ON PAGE 3.
___________________________________
The Company's executive offices are located at 18245 S.E. Federal Highway,
Tequesta, Florida 33469. Its telephone number at that location is (561) 743-
5625.
___________________________________
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RISK FACTORS
In evaluating the Company's business, prospective investors should carefully
consider the following risk factors before purchasing the securities offered
hereby. This Prospectus contains certain forward-looking statements. Statements
of plans, intentions and objectives by the Company and statements of future
economic performance contained in this Prospectus should be deemed to be
forward-looking statements. Cautionary statements are made in certain sections
of this Prospectus. These cautionary statements should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus or the materials referred to in this Prospectus.
UNPROVEN MARKET; COMPETITION. The market for the Saf T Lok(TM) and the Magazine
Lock gun locking devices is unproven even though there are millions of handguns
in the United States. The Company's gun locking devices retail for
approximately $90 each while simple, key operated trigger locks retail for less
than $20. The Company has based its belief on the existence of a large market
for its gun locking devices on anecdotal evidence, without a broad based market
study. There can be no assurances that a market will develop so as to provide
sufficient revenues for the Company to make a profit.
POLITICAL CLIMATE OR EVENTS COULD HAVE AN ADVERSE EFFECT ON THE MARKET FOR GUN
LOCKING DEVICES. The issue of gun control is a highly political issue in the
United States. The Company believes that the National Rifle Association will
oppose any legislation that touches on gun control, including any gun lock
legislation. Other groups are promoting gun lock legislation at the federal and
state levels. However, the Company cannot rely on the passage of any type of
gun control or gun safety legislation to create a market for the Company's gun
locking devices.
NEED FOR ADDITIONAL CAPITAL. The Company may have a need for additional capital
if operating losses continue or if there is a rapid increase in orders for its
products causing a need for additional working capital. It is unlikely that the
Company will be in a position for at least one year to borrow money from
financial institutions for working capital or to support continuing losses.
Because of the large number of shares underlying stock purchase warrants and
stock options, the Company may not be able to raise equity capital in the future
on favorable terms.
VOLATILE AND THIN MARKET FOR THE COMPANY'S STOCK. The Company's Common Stock is
currently traded on the Nasdaq SmallCap Market. The price of the Company's
Common Stock has been highly volatile and may continue to be volatile based on
events outside of the Company's control. While trading volume has recently
averaged more than 100,000 shares per day, trading volume has historically been
substantially lower. Low trading volume can contribute to greater volatility on
the market price of the Company's Common Stock.
DILUTION IF STOCK PURCHASE WARRANTS AND STOCK OPTIONS ARE EXERCISED. The
Company has outstanding stock purchase warrants covering 2,000,000 shares of
Common Stock exercisable at $2.00 per share, outstanding stock purchase warrants
covering 500,000 shares of Common Stock exercisable at $3.00 per share,
outstanding stock purchase warrants covering 120,000 shares of Common Stock
exercisable at $11.20 per share, outstanding stock purchase warrants covering
214,725 shares of Common Stock exercisable at $0.396 per share, and outstanding
stock options covering 4,556,137 shares of Common Stock exercisable at prices
ranging from $0.10 to $7.00 per share. The exercise of all of these stock
purchase warrants and stock options would result in an increase in the
outstanding shares of Common Stock by approximately 74%. See "Outstanding Stock
Purchase Warrants and Stock Options."
LACK OF PROFITABLE OPERATING HISTORY. The Company has not earned a profit since
its inception and currently is operating at a loss. The Company believes it
must achieve revenues through the sale of its gun locking devices of more than
$400,000 per month in order to break even. The Company's monthly revenues since
January 1, 1997 have averaged $3,600. The Company is relying heavily on the
success of its Magazine Lock in order to achieve these revenues. There can be
no assurances that the Company will be able to achieve sufficient revenues to
enable it to operate at a profit.
STATE AND FEDERAL REGULATION. While gun locking devices are currently not
regulated under state or federal regulations, it is likely in the future that
such devices will be regulated. There can be no assurances that the
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Company's devices will meet the requirements of such future regulations. In
which case, sales of such devices by the Company would be adversely affected.
LOSS OF FOUNDERS OR OTHER KEY EMPLOYEES COULD INTERRUPT PROGRESS. The founder,
Frank W. Brooks, Chairman of the Board, started and developed Saf T Lok, Inc.,
which merged into the Company. Mr. Brooks continues to contribute to the
development of the Company. John L. Gardner, President and Chief Executive
Officer, is a key employee of the Company as well. Eugene V. Horanoff, Chief
Engineer, is responsible for product development. Jeffrey W. Brooks, Vice
President, Secretary and Treasurer, is responsible for manufacturing and
assembly. The loss of the services of one or more of these executives would
have a material adverse effect on the Company. The Company has no key-person
life insurance policy on any of these executives.
NO DIVIDENDS ARE PRESENTLY INTENDED. The Company presently intends to retain
any earnings and pay no dividends. Future dividends, if any, will depend on the
Company's profitability, financial condition, capital requirements and other
considerations determined by the Company's Board of Directors.
VOTING CONTROL BY THE DIRECTORS. Immediately prior to this offering, the
Company's Chairman of the Board of Directors, Mr. Brooks beneficially owns
approximately 1,533,012 shares or 15.35% of the outstanding shares (includes an
option to purchase 1,000,000 shares of Common Stock). As the largest
Shareholder in the Company, he may, as a practical matter, have the ability to
control the Company. See "Security Ownership."
SHARES ELIGIBLE FOR FUTURE RESALE. Sales of Common Stock outstanding prior to
this offering may adversely affect the market price of the shares after this
offering. There were 9,987,077 shares of Common Stock outstanding prior to this
offering, of which 1,453,287 were "restricted securities." All outstanding
restricted securities are eligible for sale without further registration are
eligible for sale or through Rule 144. The Company has issued and outstanding
stock purchase warrants for 2,834,725 shares, of which 2,620,000 are eligible
for sale into the market without further registration. Further, the Company has
issued and outstanding stock options for 4,556,137 shares, 2,901,137 of which
are currently exercisable into Common Stock. Of those shares underlying options
which are currently exercisable, 1,334,000 shares are eligible for sale without
further registration or through Rule 144 and and additional 300,000 shares will
be eligible for sale within any three month period.
PROTECTION OF PATENT RIGHTS. The Company holds seven patents that pertain to
the Saf T Lok(TM) combination gun lock. Three U.S. patents are pending relating
to the Magazine Lock. Patent applications have also been filed for protection in
Canada and other countries. The Company expects these applications to be
approved. However, there can be no assurances that any of these patents will
adequately protect the Company from competitors offering similar devices.
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THE COMPANY
GENERAL
The "Company," through its subsidiary STL Lock, Inc., designs, develops,
manufactures and distributes patented and proprietary safety locks for guns.
ORGANIZATION, INITIAL PUBLIC OFFERING, AND MERGER
The Company was incorporated in Florida in July 1989 under the name of RGB Sales
and Marketing, Inc. In October, 1989, the Company commenced business and
operated a retail store that sold Amiga computers and produced a series of
tutorial programs used with software written for the Amiga platform. The
Company completed an initial public offering of its Common Stock on June 23,
1993. In total, the Company sold 1,340,000 shares of its Common Stock at an
offering price to the public of $7.00 per share.
On February 13, 1996 the Company acquired Saf T Lok Corporation, a Florida
corporation ("STL"), through a merger, and changed its name to Saf T Lock
Incorporated. This acquisition marked the end of the Company's involvement in
the video editing business and the commencement of the Company's involvement in
the gun lock business.
STL had been organized in 1989 by Franklin W. Brooks to develop a proprietary
gun locking device. From 1989 until February 1996, STL, as a privately held
company, was a development stage company focused on developing the Saf T Lok and
did not have revenues.
THE GUN LOCK BUSINESS
GENERAL
The business of the Company is to design, develop, manufacture, and market
proprietary combination gun locks to prevent unauthorized use of fire arms,
including unintentional discharge by children and assailants. The Saf T Lok(TM)
and the Company's Magazine Lock, which is in the prototype stage of production,
are easily installed, removed and operated by consumers.
As a development stage entity, STL was engaged in product and market research
and development from its incorporation in 1989 until its merger with the
Company. STL dedicated six years to confirming the initial Saf T Lok(TM) concept
and then developing and refining a prototype product that it could use to
demonstrate the appearance and functionality of its product to consumers and
retailers. In 1996, the Company conceived, developed, and produced a prototype
of its Magazine Lock.
Product development of the Saf T Lok(TM) incorporated handgun dealer and
customer comments and suggestions concerning product design, appearance,
operation, and use. After intensive assessment of component composition,
manufacturing costs, and projected retail pricing, the Company believed that the
Saf T Lok would meet a serious need in the marketplace.
THE INITIAL PRODUCT - THE SAF T LOK(TM)
The Saf T Lok(TM) is a mechanical combination lock that attaches to a handgun.
When unlocked, it does not hamper or interfere with the use of the gun. When the
Saf T Lok(TM) is engaged, it locks the "safety" in the "no fire" position,
blocking the normal operation of the gun and preventing the gun from being
fired. Guns without safeties are locked using the basic Saf T Lok(TM) to block
operation of other internal gun components. There are no keys, batteries or
other gadgets to lose or fail. The body of the lock is positioned under and
concealed by the gun grip. The combination mechanism is located at the top of
the grip, where it is easily accessible. Approximately two dozen variations of
the Saf T Lok(TM) fit approximately 40% of the handguns produced yearly in the
U.S. According to the
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Bureau of Alcohol, Tobacco and Firearms there were 2,581,961 handguns produced
in the U.S. in 1994 and 1,722,930 handguns produced in 1995. These variations
also are designed to fit a significant portion of the handguns existing in the
U.S. retrofit market.
Installation of the Saf T Lok(TM) requires no modification to the gun for which
it is designed. It is mounted on a plate placed under the gun's grip. The lock
is installed by removal of the grip, insertion of the mounting plate and
replacement of the original grip with custom rubber grips supplied with the Saf
T Lok(TM). When locked, the Saf T Lok(TM) engages an interlock on the mounting
plate and cannot be removed without special tools or damage to the gun, even if
the grips are removed.
To lock the gun, the operator needs only move the safety slide backwards with
one finger while moving the reset slide forward with another finger. The need
for this simultaneous action eliminates the possibility of accidental locking.
The gun may be in a loaded condition when the operator locks the gun.
To unlock the gun, the operator depresses three individually programmed buttons
in any order without the need to look at the gun or the lock. The lock can be
released in about three seconds while holding the gun in firing position. For
rapid unlocking, the combination can be entered short of one keystroke,
permitting accelerated unlocking, for example, when a police officer is
concerned that his gun may be taken from him and yet wants it readily usable.
Although each lock comes with a preset combination, the combination is
changeable by the user. The Company markets combination changing kits separate
from the lock and mounting hardware.
The Saf T Lok(TM) is designed to ensure reliable operation and long lock life
under firing conditions. Gaps in the casing are designed to prevent sand and
dirt infiltration. The lock mechanism's nickel plated zinc alloy composition
makes it highly corrosion resistant. The design and layout of the mechanical
parts shunt forces from firing recoil and mishandling to the lock casing,
diminishing the potential for small parts breakage. The Saf T Lok(TM) has been
mechanically cycled through 36,525 openings and closings without failure or
indication of wear. This is the equivalent of one use per day for 100 years. It
was subjected to the firing of 5000 rounds while mounted on a .45 caliber semi
automatic pistol without problem. The Saf T Lok(TM) has also passed numerous
tests for impact resistance and immersion in corrosive liquids and dirt.
The Company owns seven U.S. patents assigned to it by Franklin W. Brooks, the
inventor. Three U.S. patents are pending. These patents cover locks for
revolvers, long arms and semi automatic pistols and extend coverage to
externally mounted locks which act on a gun's external safety mechanism to block
operation. Other patent claims cover incorporation of a lock into a gun's grip
assembly, into a magazine, and the use of an adapter plate to mount a lock.
THE SECOND PRODUCT - THE MAGAZINE LOCK
Historically, handguns have been made with a metal frame, which requires an
expensive multi-step machining process. In the late 1980's an Austrian gun
manufacturer revolutionized the field by introducing plastic frame semi
automatic pistols. The plastic frame guns are lighter and can accommodate
higher cartridge magazines. Law enforcement agencies worldwide embraced the new
design, which reportedly now accounts for over 60% of the police handgun market
in the U.S. Virtually all gun manufacturers soon thereafter entered the field
of polymer frame pistols, resulting in the redesign of traditional pistols to
accommodate high capacity magazines through enlargement of gun handles.
One piece molded plastic gun handles have no grips or screw holes to which the
Saf T Lok(TM) mounting plate can be attached. Mr. Brooks consequently proceeded
to invent a magazine mounted Saf T Lok(TM) as the Company's second product.
The Magazine Lock is a precision miniaturized, all mechanical, combination lock
that functions the same as the Saf T Lok(TM). It has two buttons that function
in both directions, yielding 10,000 combinations. The Magazine Lock is
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housed in the bottom of the magazine, occupying the space of two to four
cartridges depending on the caliber. Otherwise, the magazine functions the same
in feeding cartridges as a magazine without the lock. The Magazine Lock
installs to the gun merely by inserting the Saf T Lok(TM) magazine. A lever runs
from the lock, up the side of the magazine. When the lock is in the locked
position the lever will engage the trigger bar or another part of the firing
mechanism, and either pull it away from the sear mechanism or block the rearward
movement as necessary and appropriate. The lever also locks over the trigger bar
or another internal component, preventing the magazine from being removed.
When the four digit combination is entered with the lock buttons and the manual
safety is turned, the lock snaps open allowing the lever to be disengaged from
the trigger bar. The gun can then be fired or the magazine removed.
The Company is in the process of having tooling made for the manufacturing of
the Magazine Lock. The Company believes that it will be able to deliver
Magazine Locks beginning in late January, 1998.
THE MARKET
Many reported injuries and deaths from the accidental discharge of firearms
involve guns purchased for protection and stored loaded at home. Half of all
U.S. households have at least one gun. Two thirds of teen suicides involve
shootings. Furthermore, police officers and military personnel as well as
individual gun owners are at risk of being shot by their own weapons grabbed by
assailants.
The American Firearms Industry, a trade association, estimates that there are
60-65 million handguns in the United States and that there are 30-35 million
handgun owners in the United States. The American Firearms Industry further
estimates that in the 1990's, an average of 2,140,000 new handguns have been
produced annually in the United States.
The market for the Company's products includes both new and previously
manufactured guns (the "retrofit market"). The Company's initial market is the
gun owner who bought or is planning to buy a gun for home defense and self
protection as well as for law enforcement use at all levels.
MANUFACTURING
The Company intends to minimize overhead by subcontracting the component
manufacturing of the gun locks to specialists: die manufacturers cast the lock
components, a grip manufacturer injection molds gun grips to house the Saf T
Lok(TM) components. The Company assembles the gun locks in-house. After quality
assurance testing, packaging, and handling, the Saf T Lok(TM) is ready for
distribution. The Magazine Lock is currently being manufactured by a magazine
manufacturer.
The lock housing is cast with channels to hold the individual components.
Assembly requires the lock parts to be inserted in the housing in a particular
order. Assembly and testing is estimated to take less than 10 minutes.
Parts are die cast in zinc alloy, then nickel plated for additional strength and
lubricity. The Company believes that an ample supply of the raw materials used
in the manufacture of its products is available from numerous sources at
reasonable prices.
METHODS OF PRODUCT DISTRIBUTION
During 1996, the Company devoted its efforts to product development, including
the design and manufacture of tooling for the Saf T Lok(TM). The Company did not
have a finished product for marketing until early 1997. During the last six
months of 1996, the Company launched a campaign to appoint a large number of gun
dealers as authorized retailers of the Saf T Lok(TM) on the belief that gun
enthusiasts would seek out gun locks through gun dealers and that gun dealers
would promote the sale of gun locks. The Company also conducted an advertising
campaign in certain gun magazines in order to create demand from the end users
hoping that this demand would
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"pull" the Saf T Lok(TM) through the gun dealers. While the Company has signed
up more than 1,350 gun dealers in the United States, sales through gun dealers
have been very disappointing.
The Company is planning to launch a new sales distribution strategy for the
consumer market aimed directly at the consumer rather than at the gun dealers.
Among the elements of the strategy being considered by the Company are: offering
the gun locks to non-profit organizations at a discount for resale such as
parent teacher associations, producing and airing direct sales television
programs in selected markets, offering the Saf T Lok(TM) through appropriate
catalogs, creating non-exclusive distributorships with each distributor having
certain duties to advertise the Saf T Lok(TM), offering the gun locks at a
discount for resale to members of certain organizations such as the Fraternal
Order of Police and advertising in consumer magazines. As the Company develops
these elements further or elects not to pursue certain elements, the Company
will inform its shareholders in its quarterly reports to shareholders.
The Company has obtained an endorsement of its Saf T Lok(TM) from the Fraternal
Order of Police and the Associated Locksmiths of America, a trade association,
and intends to seek other endorsements in order to create credibility for the
Saf T Lok(TM) device. Under these endorsements, the Company is permitted to
state in its sales promotion materials and otherwise that these organizations
endorse the Sal T Lok(TM) as an effective gun safety device. The Company is also
conducting a lobbying effort at the federal level in order to stay abreast of
and have some input into gun control and safety legislation.
The Company has met with a number of the handgun manufacturers in the United
States seeking OEM (original equipment manufacturer) relationships with them.
To date these efforts have not produced any commitments from gun manufacturers
to offer the Saf T Lok(TM) as an option with their hand guns. The recent
announcement by the President of the United States that certain of the largest
gun manufacturers in the United States have voluntarily agreed to provide gun
locks with their handguns has created some interest among the gun manufacturers
in talking to the Company, but these discussions may not lead to any formal or
informal arrangements with these companies for the sale of the Saf T Lok(TM)
with their handguns. The Company believes that most of the handgun manufacturers
intend to offer simple, key trigger locks with their handguns. Nevertheless,
this effort by the handgun manufacturers may raise the general level of
awareness about the different types of handgun locks available which could have
a positive effect on the sales of the Saf T Lok(TM).
The initial marketing strategy for the Magazine Lock is to focus on law
enforcement agencies such as state and local police and sheriffs' organizations
for multi-unit sales. The Company believes, based on trade association meetings
it has attended, that the police and sheriffs' departments are interested in
purchasing relatively large quantities of the Magazine Lock for their officers.
However, the Company realizes that large purchases by such organizations often
have a long purchase cycle where the decision to purchase must first be made,
the budget for the purchase must then be approved and funds must be allocated
for this purpose. This purchasing process can take one year or more depending
on the budgeting cycle for these organizations.
The Company intends to utilize independent sales representatives to solicit the
law enforcement agencies and, in some cases, to use Company employees to
directly solicit these agencies. The Company intends to sign up several sales
representatives for this purpose in the next three months.
The Company has engaged West Marketing Industries, Inc., a marketing consulting
firm, as well as Marketing Direct Concepts, Inc., to assist it in developing the
new marketing strategy.
The average retail selling price of the Saf T Lok(TM) is $90 and the planned
retail price of the Magazine Lock is $95. The Company believes the average price
of a new handgun is approximately $400. Thus, the purchaser of a new handgun has
to be seriously motivated about gun safety in order to add about 30% to the
price of the handgun in order to have the Saf T Lok(TM) or the Magazine Lock.
Likewise, the person who has owned a handgun for several years must make a
serious economic decision to add a Saf T Lok(TM) to his handgun in order to
provide the type of safety protection offered by the Saf T Lok(TM). For these
reasons, consumer sales of the Saf T Lok(TM) and the Magazine Lock could develop
slower than expected by the Company.
8
<PAGE>
COMPETITION
The Company's products compete with other products which attempt to achieve
similar objectives, such as lock boxes, trigger locks, cable locks and ring
locks. A lock box has certain disadvantages: if it opens via a push button
mode it is difficult to operate in the dark; if it opens via a key, the key must
be hidden for security, thereby complicating access to the gun. Trigger locks
are difficult to operate in the dark, require separate key storage for reliable
security, and are recommended only for unloaded guns. When the gun must be
unlocked, then loaded, one of the main advantages of having the gun, protection
from intruders, is severely reduced. Cable locks are slow to operate and
difficult to use in the dark. Ring locks (a magnetic lock) are very expensive
(approximately $1000), require modification of a gun, require the owner to wear
a special ring, and give no positive indication of unlocking.
While the Company will aggressively protect its products from infringement, it
may be possible for others to copy the patented features of the Company's
products or the functions they serve. The Company expects that competitors will
attempt to develop comparable products, possibly reducing the Company's sales or
profit margins or both. The Company's business strategy emphasizes increasing
consumer awareness of its products as well as enhancing brand name recognition.
Competitors such as Master Lock Company, maker of a trigger lock, are larger,
better capitalized companies with existing distribution channels.
The Company's products will also compete at the retail store level for shelf
space, advertising space, and promotional displays.
GOVERNMENTAL REGULATION
The Company knows of no governmental regulation of gun safety devices.
The Company believes that the demand for its products will increase as media
attention continues to focus on firearm related accidents. This media attention
has kept firearm safety at the forefront of public awareness. To the extent
firearm safety legislation results from such publicity, demand for the Company's
products may increase.
EMPLOYEES
Including its executive officers, the Company had seven full time employees as
of December 31, 1996. None of the Company's employees are covered by a
collective bargaining agreement. Management believes that the Company's
relationship with its employees is good.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company owns seven U.S. patents. Three U.S. patents are pending as are 32
foreign patent applications filed in Canada and other countries. The issued
patents are dated January 29, 1991 through October 7, 1995. The Company's
patent numbers are permanently molded into adapter plates and lock housings in
order to give warning to potential infringers.
Patents were obtained or applied for sequentially during the development period
of the lock. The attributes and function of the whole locking system for a gun
utilize coverage from all patents. Together the issued and pending patents
cover a variety of ways of locking a variety of firearms.
The Company has applied for trademark protection of its logo which includes the
words "Saf T Lok(TM)" and "Lock for Life(TM)."
9
<PAGE>
DESCRIPTION OF PROPERTY
The Company leases approximately 3200 square feet of office space in Tequesta,
Florida, at an annual rental of $48,000. The lease term is through February
1999. The Company believes such facility is adequate to meet its foreseeable
requirements.
The Company leases approximately 1120 square feet of manufacturing, assembly and
storage space in Lake Park, Florida, at a monthly rental of $4,480. The lease
term is month to month. The Company believes such facility is adequate to meet
its foreseeable manufacturing and assembly requirements.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value of $0.01 per share. As of December 31, 1997 there were
9,987,077 shares of Common Stock outstanding. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of
shareholders and do not have cumulative voting. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled ratably to receive such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor.
Upon liquidation, dissolution or winding up of the Company, the assets legally
available for distribution to shareholders are to be distributable ratably among
the holders of the Common Stock subject to the payments of other claims of
creditors. Holders of Common Stock have no preemptive, subscription or
redemption rights.
USE OF PROCEEDS AND PLAN OF DISTRIBUTION
The Company intends to issue approximately 9,570 shares of Common Stock to a
provider of investor relations services rendered to the Company between March,
1996 and June, 1997 as payment for such services. The Company intends to issue
approximately 50,880 shares of Common Stock as payment to its landlord as rent
for the period of February 1, 1997 to January 31, 1998.
The Company is registering 159,032 shares of Common Stock previously issued to a
Selling Shareholders such that the Selling Shareholders may resell those shares
of Common Stock. The Company is registering 2,714,725 shares of Common Stock
underlying stock purchase warrants issued or sold to the Selling Shareholders so
that the Selling Shareholders may resell those shares of Common Stock subsequent
to the issuance of those shares upon the exercise of the stock purchase
warrants. The Company is registering 4,637 shares of Common Stock underlying a
stock option issued to the Selling Shareholder so that the Selling Shareholder
may resell those shares of Common Stock subsequent to the issuance of those
shares upon the exercise of the stock option This registration statement will
be maintained in effect until the Selling Shareholders have disposed of their
shares or until they have the right to sell their shares without significant
restriction pursuant to Rule 144.
The Company will receive no proceeds from the resale of the Common Stock by the
Selling Shareholders. The Shares being registered hereby may be sold by the
Selling Shareholders from time to time in transactions in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices, or at negotiated prices.
The Selling Shareholders may effect such transactions by selling the Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which commission to a
particular broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states, the Shares may not
be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
10
<PAGE>
The Selling Shareholders and any broker-dealers or agents that participate with
the Selling Shareholders in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution, in
addition and without limiting the foregoing, each Selling Shareholder will be
subject to the applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of shares of the
Common Stock by the Selling Shareholder.
Any or all of the sales or other transactions involving the Shares described
above, whether effected by the Selling Shareholders, any broker-dealer or
others, may be made pursuant to this Prospectus. In addition, any Shares that
qualify for sale pursuant to Rule l44 under the Securities Act may be sold under
Rule 144 rather than pursuant to this Prospectus.
OUTSTANDING SHARES OF COMMON STOCK,
STOCK PURCHASE WARRANTS AND STOCK OPTIONS
As of December, 31, 1997, there were outstanding the following shares of Common
Stock, shares of Common Stock underlying stock purchase warrants, and shares of
Common Stock underlying stock options:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
Common Stock 9,728,077
- -------------------------------------------------------------------------------------------------------
Shares of Common Stock Underlying Stock Purchase Warrants:
warrants expiring on 10/13/99, exercisable at $2.00 per share 1,666,666
warrants expiring on 10/13/99, exercisable at $3.00 per share 416,667
warrants expiring on 6/23/98, exercisable at $11.20 per share 120,000
warrants expiring on 7/15/02, exercisable at $0.396 per share 214,725
---------
Total Shares Underlying Stock Purchase Warrants Outstanding 2,418,058
- -------------------------------------------------------------------------------------------------------
Shares of Common Stock Underlying Stock Options:
options exercisable between $0.10 and $0.50 per share 734,000
options exercisable between $2.00 and $2.50 per share (1)(2) 3,012,500
options exercisable between $3.00 and $5.00 per share 58,137
options exercisable at $7.00 10,000
options issued prior to the February 1996 merger for which an exercise price
is not indicated 141,500
Total Shares Underlying Options Outstanding ---------
3,956,137
- -------------------------------------------------------------------------------------------------------
Assuming all stock purchase warrants and stock options are exercised, the total
number of shares of Common Stock potentially outstanding 6,974,195
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include options granted to Mr. Franklin W. Brooks and Mr. Robert
L. Gilbert, III for an aggregate of 1,600,000 shares of Common Stock. The
Company does not believe these options will vest due to the performance
goals the Company must attain in order for these options to vest. Mr.
Brooks' option was cancelled in December 1997.
(2) Includes an option granted to Mr. Brooks for 1,000,000 shares of Common
Stock in December 1997, 250,000 shares of which is currently exercisable.
See "Year End Option Table" below.
COMMON EQUITY
The Company's Common Stock, par value of $0.01 per share, is traded on the
Nasdaq SmallCap Market. As of September 25, 1997 there were approximately 320
holders of record of the Company's Common Stock. The
11
<PAGE>
Company believes there are approximately 5,800 beneficial owners of its Common
Stock. Although there are no restrictions on the Company's ability to pay
dividends to date, the Company has not declared any cash dividends on any class
of security nor does it anticipate doing so in the foreseeable future. The
Company intends to retain its earnings, if any, to finance the expansion of its
business and for general corporate purposes.
The high and low closing sales prices per share for the Company's Common Stock
for each full quarter for the 1995, 1996, and 1997 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Period High Closing Sales Price Low Closing Sales Price
- ------------------------------------------------------------------------
<S> <C> <C>
First Quarter 1995 1.250 0.500
- ------------------------------------------------------------------------
Second Quarter 1995 0.563 0.375
- ------------------------------------------------------------------------
Third Quarter 1995 0.688 0.313
- ------------------------------------------------------------------------
Fourth Quarter 1995 0.719 0.375
- ------------------------------------------------------------------------
First Quarter 1996 8.250 0.500
- ------------------------------------------------------------------------
Second Quarter 1996 19.000 4.875
- ------------------------------------------------------------------------
Third Quarter 1996 12.625 5.000
- ------------------------------------------------------------------------
Fourth Quarter 1996 10.375 1.438
- ------------------------------------------------------------------------
First Quarter 1997 5.625 2.125
- ------------------------------------------------------------------------
Second Quarter 1997 4.625 2.031
- ------------------------------------------------------------------------
Third Quarter 1997 2.031 0.375
- ------------------------------------------------------------------------
Fourth Quarter 1997 4.563 0.406
- ------------------------------------------------------------------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company, organized in 1989, began in the business of assembling, marketing
and selling personal computer-based video editing systems. This business was
discontinued in 1995. The Company merged with Saf T Lok, Inc. in February,
1996, and changed its name to Saf T Lok Incorporated. Since the merger was
accounted for under the purchase method, the historical financial information
for Saf T Lok, Inc. does not appear for periods prior to February, 1996. Saf T
Lok, Inc. was a development stage company that had been engaged in the business
of developing the Saf T Lok(TM) with no revenues and profits.
A comparison of the operations of the Company in 1996 with its operations in
1995 would not be meaningful since the business it conducted in 1995 has been
discontinued. Therefore, this discussion will focus on the operations during
1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
1996 revenues of $57,349 were derived solely from the sale of gun lock products,
mostly to gun dealers as their initial stocking purchases. The Company invested
approximately $500,000 in tooling for the different versions of the Saf T
Lok(TM). The tooling is used by the Company's subcontractors who manufacture
components for the gun locks. It is anticipated that the Company will invest an
additional $500,000 in tooling during 1997, provided that the Company's cash
resources permit this level of investment. The tooling for 1997 will be for the
different versions of the Magazine Lock.
12
<PAGE>
The Company also invested in the creation of an inventory of assembled and
unassembled gun locks in anticipation of significant sales through gun dealers.
The sales through gun dealers did not materialize at the rate that the Company
had hoped for. At year-end, the Company had built up an inventory of
approximately $467,000 in gun lock products. The Company is encouraging its
dealers to maintain inventories in order to make sales on demand at the retail
level. However, the Company has learned that gun dealers do not maintain
significant inventories of any given product, relying on their suppliers to
maintain inventory for quick delivery. Therefore, the Company will be required
to maintain an inventory so that it can make overnight deliveries to gun dealers
as sales at the retail level begin to increase. The Company expects that it will
have to maintain an inventory of approximately one month's supply in order to
handle fluctuations in deliveries from its subcontractors and fluctuations in
orders received from gun dealers. As the Company develops direct selling
efforts, the Company may be required to increase its inventory from one month's
supply to two months' supply.
The Company's suggested retail price for its Saf T Lok is $90 and for its
Magazine Lock is $95. The Company's expected average selling price to retailers
or resellers for the Saf T Lock is approximately $30. Based on current prices
the Company is receiving from its subcontractors, this average selling price
should produce a gross margin of approximately 67%. The Company may enter into
distribution arrangements where the average selling price is less than $30 per
unit. At the end of 1996, the operating expenses of the Company, not including
costs of goods sold, were running at approximately $200,000 per month. Based on
these operating expenses, the Company must achieve revenues of approximately
$400,000 per month in order to break even, assuming a 50% gross margin is being
produced by the average selling price of the gun lock devices. The Company
intends to reduce its monthly operating expenses in 1997 until significant
revenues develop.
The largest categories of operating expenses for 1996 with the approximate
expenditures in each category are set forth below:
<TABLE>
<S> <C>
--------------------------------------------------------------------------
Advertising Expenses; Sales Promotion Materials; Trade Shows $768,000
--------------------------------------------------------------------------
Salaries and Wages 653,000
--------------------------------------------------------------------------
Legal and Accounting Fees 401,000
--------------------------------------------------------------------------
Investor Relations Expenses 156,000
--------------------------------------------------------------------------
Product Development 172,000
--------------------------------------------------------------------------
Rent and Insurance 82,000
--------------------------------------------------------------------------
Telephone; Office Supplies 47,000
--------------------------------------------------------------------------
</TABLE>
Legal fees includes fees for registered lobbyists in Washington, D.C. for
monitoring gun control legislation and communicating the capabilities of the
Company's Saf T Lok to legislators. Advertising, sales promotion materials,
trade shows and product promotion accounted for approximately $768,000. The
revenues resulting from this advertising and sales promotion were disappointing
and reflect the difficulty in motivating consumers to purchase gun locks through
gun dealers when the gun dealers do not actively encourage consumers to purchase
gun locks. The Company intends to explore other marketing channels during 1997
based on the disappointing results through gun dealers in 1996.
At the end of 1996, the Company is experiencing a severe cash shortage and has a
need to raise additional capital in order to continue as a going concern. The
Company is exploring a number of alternatives for raising equity capital. It is
unlikely that the Company will be able to borrow money from commercial lenders
until the Company achieves financial stability and is operating at a profit.
Unless the Company raises additional capital, it will not be able to make an
investment in tooling for its newly developed Magazine Lock, nor will the
Company be able to engage in developing new marketing channels for its product.
13
<PAGE>
The Company faces many risks going forward. There is a risk that the Company may
not be able to raise additional equity capital and continue as a going concern
or, if the Company is able to raise equity capital, that the terms upon which
the capital raised could be significantly dilutive to the Company's
shareholders. The Company has a need for additional management personnel in
order to raise capital and in order to turn the Company into a profitable
operation. There can be no assurances that the Company will be able to employ
qualified management personnel given the financial stress being experienced by
the Company. If the Company does not employ qualified management personnel, it
is unlikely that the Company will raise capital and continue as a going concern.
The acceptance of the Company's gun locks has not yet been proven. It may be
that the Company's gun locks are too expensive for large numbers of consumers to
be willing to purchase the gun locks for safety purposes. Further, it is
possible that the people who make the loudest pleas for gun safety are not the
people who actually purchase guns and that the actual purchasers of guns do not
have the same degree of concern for gun safety that is heralded by the press and
television media. There is active resistance by the National Rife Association
for gun control and gun locks being mandated legislatively. This resistance may
be very persuasive to gun owners that gun locking devices like the Saf T Lok
(TM) are not needed or that simple, inexpensive trigger locks may be
satisfactory.
The Company's experience in 1996 leads it to believe that the market for the
Magazine Lock may be substantially larger than the market for the Saf T Lok (TM)
initially because most new gun purchases today involve guns that have magazines.
If the Company is unable to invest in the tooling necessary for the Magazine
Lock, the Company will not be able to launch the Magazine Lock.
There were material changes in the financial condition of the Company during
1996 because of the operating loss of $3,275,342 and the investment in tooling
and inventory. The operating loss combined with the tooling and inventory
investment reduced the cash and securities held by the Company on December 31,
1995 from approximately $2,500,000 to less than $100,000 on December 31, 1996.
Current liabilities increased significantly in 1996 such that current
liabilities for December 31, 1996 were approximately $904,000 versus $168,000 on
December 31, 1995. Current assets declined substantially during 1996 largely as
a result of the use of cash to support the operating loss and make the
investment in tooling and inventory. Current assets declined from approximately
$2,800,000 on December 31, 1995 to approximately $588,000 on December 31, 1996.
Of the $588,000 in current assets on December 31, 1996, approximately $467,000
of this amount was represented by inventory.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
This comparison is provided for information purposes only, since the business
which was conducted by the Company in 1994 and 1995 has been discontinued and
thus does not provide investors and other users of this information with a
relevant assessment of the financial condition and results of operations of the
Company in the gun lock business which was commenced in 1996.
The Company's net sales for 1995 decreased by $1,526,814, or 81%, to $353,918
compared to $1,880,732 for 1994. This decrease primarily resulted from Commodore
Electronics Ltd., owner of the Commodore Amiga computer, claiming insolvency and
requesting the Supreme Court in the Commonwealth of the Bahamas to supervise the
winding up of that company on May 2, 1994. Commodore's insolvency claim had a
dramatic negative impact on the marketability and sales of the Company's Amiga
based products. Additionally, the Company did not realize significant sales in
non-Amiga based products during 1995.
Gross profit decreased $848,664, or 81%, to $199,930 in 1995 from $1,048,594 in
1994. As a percentage of net sales, gross profit remained constant at 56% in
1995 and 1994.
Operating expenses decreased 61%, to $1,252,043 in 1995 from $3,252,217 in 1994.
Operating expenses, as a percentage of net sales, increased to 354% for 1995
from 173% in 1994. This is mainly attributable to the greatly decreased sales
in 1995.
14
<PAGE>
Selling expenses decreased 84%, or $962,248, to $187,080 in 1995 from $1,149,328
in 1994. In general, selling expenses decreased because net sales decreased.
The Company's sales force was systematically downsized during 1995 as the
Commodore based products lost market stability during 1995.
General and administrative expenses decreased 54%, or $1,043,725, to $890,642 in
1995 from $1,934,367 in 1994. This decrease was primarily attributable to a
sales decrease and the systematic downsizing during 1995.
The decrease in research and development was primarily attributable to
finalizing the Company's development efforts on the Microsoft Windows, CIP and
PAL versions of its products in 1994. The net of non-operating income and
expense for 1995 totaled $208,127 compared to the net of non-operating income
and expense of $72,539 for 1994. Included in the net expense for 1995 was a
write off of inventory in the amount of $200,593. As a result, the net loss for
1995 was $1,260,240 compared with a net loss of $2,276,162 in 1994.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1996.
Revenues for the first nine months of 1997 were very disappointing at $58,531.
There were no revenues for the comparable period in 1996 (all of the revenues
reported for 1996 were realized in the last quarter of 1996). For this nine-
month period, the Company has not had the resources to develop and conduct a new
marketing strategy and the Company has continued to rely on sales through gun
dealers and minor direct sales.
The Company's operating expenses were approximately $635,000 for the first nine
months of 1997 versus $1,676,000 in 1996 reflecting a substantial cutback in
monthly operating expenses. The categories of expenses for which there were
significant reductions from 1996 to 1997 are as follows:
<TABLE>
<CAPTION>
---------------------
1996 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Legal, Accounting, Consulting and Professional Fees $366,503 $375,095
- ------------------------------------------------------------------------------------
Salaries and Wages 407,739 60,539
- ------------------------------------------------------------------------------------
Rent and Insurance 67,190 70,659
- ------------------------------------------------------------------------------------
Advertising Expenses; Sales Promotion Materials; Trade Shows 525,886 121,074
- ------------------------------------------------------------------------------------
Investor Relations Expenses 133,471 37,494
- ------------------------------------------------------------------------------------
Telephone; Office Supplies 60,512 18,131
- ------------------------------------------------------------------------------------
Research and Development 141,260 28,143
- ------------------------------------------------------------------------------------
</TABLE>
The Company was successful in raising capital through the sale of Common Stock
and convertible debentures during the second and third quarters of 1997. The
Company sold a total of 433,077 shares of Common Stock for $550,000 and realized
net proceeds, after all expenses associated with the sale of the stock of
$450,472.48. These shares were sold in Regulation S offerings to offshore
investors. The Company explored other alternatives for raising equity capital
and found that the Regulation S offering alternative was the only viable
alternative for the Company at the time. The Company also sold convertible
debentures in a Regulation S offering to foreign investors for a total of
$705,000 before expenses pertaining to the sale of these debentures. After
these expenses, the net proceeds to the Company were $613,332.50. A portion of
these convertible debentures were converted during the third quarter of 1997 and
the balance of the convertible debentures ($430,000) was converted into Common
Stock in October, 1997, meaning that the Company has no further long-term debt.
The total number of shares into which all of the convertible debentures were
converted was 2,147,247 shares. The conversion formula called for the right to
convert at 70% of the average bid price for the five trading days prior to the
Company receiving notice of conversion. Based on the number of shares into
which the convertible debentures were
15
<PAGE>
converted, the average conversion price was $0.33 per share. On September 30,
1997, the closing price for the Company's stock was $0.406 per share on the
Nasdaq SmallCap Market.
The Company used the net proceeds from the sales of the Common Stock and the
convertible debentures to pay accounts payable and to purchase some of the
initial tooling for the Magazine Lock. The net proceeds were not adequate to
launch a new marketing program or to purchase the remaining tooling necessary
for the different versions of the Magazine Lock. Therefore, the Company
launched additional efforts to raise equity capital during August, September and
October of 1997.
In July 1997, the Nasdaq SmallCap Market notified the Company that the Company's
balance sheet as of March 31, 1997 indicated that the Company did not meet the
continuing listing requirements for the Nasdaq SmallCap Market in that the
Company's total assets were less than $2,000,000. The Nasdaq SmallCap Market
also advised the Company that, in its opinion, the Company would not be able to
maintain the capital and surplus requirement based on its operating losses and
would be delisted from the Nasdaq SmallCap Market. The Company received a
hearing on this matter and was granted an extension of time to raise additional
equity capital so that the Company's capital and surplus (stockholders' equity)
was at least $2,000,000 by October 15, 1997. The Company continued its efforts
to raise additional capital realizing that shareholder value could be adversely
affected if the Company's shares were not traded on the Nasdaq SmallCap Market.
As of September 30, 1997, the Company's current assets of $959,731 exceeded its
current liabilities of $639,015. However, a substantial portion of the Company's
current assets was made up of inventory which, based on revenues to date, was
slow moving. The Company's cash on hand as of September 30, 1997 was less than
the Company's accounts payable on the same date. Therefore, the Company
continued to have a severe liquidity and cash flow problem and could not
continue as a going concern unless it raised additional capital.
On October 9, 1997, the headline in the New York Times newspaper announced that
President Clinton had reached an agreement with the manufacturers of a majority
of the hand guns sold in the United States that hand guns would be sold with gun
locks. No reference was made to the Company in this article. However, the
Company's stock experienced extraordinary trading rising from a closing price on
the previous day of $0.438 per share to a closing price on October 9 of $3.00
per share on volume of 13,861,900 shares, as reported by the Nasdaq SmallCap
Market. The Company has no contracts to sell gun locks to any gun manufacturer.
Partially as a result of the sudden interest in the Company's stock, the Company
reached an agreement with three foreign investors whereby these investors would
purchase 1,250,000 shares of Common Stock from the Company at $2.00 per share
and receive two year stock purchase warrants, for a total of 1,666,666 shares,
exercisable at $2.00 per share and 416,667 shares exercisable at $3.00 per share
(see "Certain Transactions"). The Company sought and received an extension from
the Nasdaq SmallCap Market to extend the time period within which the Company
would raise additional equity capital to November 15, 1997. On November 12,
1997, the Company closed the transaction with the three foreign investors, and
shortly thereafter, the Nasdaq SmallCap Market advised the Company that it would
not be delisted.
The net proceeds of the sale of 1,250,000 shares to the Company, after deducting
contract payments for a public relations firm and a consulting firm and all fees
associated with the transaction, were $1,410,000. The Company used approximately
$175,000 to reduce its accounts payable.
Going forward, the Company has prepared a business plan for 1998 calling for a
new marketing strategy and program. The Company intends to invest approximately
$300,000 into additional tooling for the Magazine Lock to be able to offer eight
to ten additional versions of the Magazine Lock (for the different types of hand
guns involved). The Company has engaged West Marketing Industries, Inc. to
assist it in developing a number of different marketing channels, including a
channel through nonprofit organizations such as parent-teacher associations, the
Fraternal Order of Police, and other organizations that have an interest in
child gun safety as well as infomercials for direct selling and other direct
selling techniques. The Company will have to experiment with these marketing
channels to determine which channels will be successful. To date, the Company
has not
16
<PAGE>
made any sales through any of these organizations or through infomercials. The
Company expects to spend more than $500,000 during the next 12 months to develop
these new marketing channels. Based on the Company's business plan, the Company
will be required to raise additional capital in the second half of 1998 in order
to be able to carry out its marketing activities. There are no assurances that
the Company's new marketing strategy, as it evolves through experimentation,
will be successful or that the Company's revenues will develop rapidly enough to
bring the Company to a break-even point before the Company must raise additional
capital to stay in operation.
One of the elements of the Company's marketing strategy is to solicit orders
from law enforcement agencies such as state and local sheriff and police
departments for its Magazine Lock. Most law enforcement agencies utilize hand
guns that require a Magazine Lock.
The Company does not expect to ever develop a backlog of orders from its
consumer directed marketing activities. However, as the business develops with
law enforcement agencies, it is likely that the Company will develop some type
of back log of orders. However, selling to law enforcement agencies is fraught
with barriers and delays, and therefore, the Company cannot predict when or if
it will develop significant revenues from the sale of its products to law
enforcement agencies.
SELLING SHAREHOLDERS
A portion of the Shares registered for resale within a Registration Statement on
Form S-1, of which this Prospectus is a part, and thus covered by this
Prospectus were acquired from the Company pursuant to offshore securities
subscription agreements for an aggregate purchase price of $3,000,000 ($2.00 per
share) or will be acquired from the Company upon the exercise of stock purchase
warrants, such stock purchase warrants being previously sold to such Selling
Shareholders pursuant to the offshore securities subscription agreements. The
offers and sales by the Company of the Common Stock and the stock purchase
warrants to such Selling Shareholders pursuant to the offshore securities
subscription agreements were made pursuant to an exemption from the registration
requirements of the Securities Act provided by Regulation S thereof. The
offshore securities subscription agreements contain representations and
warranties as to each Selling Shareholder's status as a non-U.S. Person as
defined in Rule 902 promulgated under Regulation S of the Securities Act.
Another portion of the Shares registered for resale within a Registration
Statement on Form S-1, of which this Prospectus is a part, and thus covered by
this Prospectus, will be issued by the Company to an investment banking firm
upon the exercise of a stock purchase warrant issued in connection with the sale
of convertible debentures pursuant to Regulation S. The issuance by the Company
of the stock purchase warrant to such Selling Shareholder was made pursuant to
an exemption from the registration requirements of the Securities Act provided
by (S)4(2) thereof.
The remaining Shares registered for resale within the Registration Statement and
covered by this Prospectus were acquired or are underlying a stock option
acquired from the Company pursuant to an exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof.
Each Selling Shareholder has represented that it acquired the Shares for
investment and with no present intention of distributing the Shares. In
recognition of the fact that the Selling Shareholders, even though purchasing
the Shares without a view to distribution, may wish to be legally permitted to
sell the Shares when each deems appropriate, the Company filed with the
Commission a Registration Statement on Form S-1, of which this Prospectus forms
a part, with respect to, among other things, the resale of the Shares as
described above under "Use of Proceeds and Plan of Distribution."
None of the Selling Shareholders, except Mr. Robert L. Gilbert, III, has had a
material relationship with the Company within the past three years except as a
result of the ownership of the Shares or other securities of the Company. Mr.
Gilbert was an officer and director of the Company during the past three years,
holding the positions
17
<PAGE>
of President, Chief Executive Officer, and Vice Chairman of the Board of
Directors at various times during the past three years.
The following table sets forth the name of the Selling Shareholders, the number
of shares of Common Stock owned beneficially by the Selling Shareholders as of
January 21, 1998 and the number of shares which may be offered pursuant to this
Prospectus. This information is based upon information provided by the Selling
Shareholders. There are currently no agreements, arrangements or understandings
with respect to the sale of any of the Shares. The Shares are being registered
to permit public secondary trading of the Shares, and the Selling Shareholders
may offer the Shares for resale from time to time.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Number of Shares Owned Number Ownership
Prior to Offering of Shares After Offering
---------------------- --------------
Number Underlying
Shares of Shares Warrants
Name of Underlying Being Being Number
Selling Shareholders Shares Warrants Offered Offered of Shares Percent
-------------------- ------ ---------- --------- ---------- --------- -------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alexander, Wescott & Co., --- 214,725 --- 214,725 0 *
Inc.
- -------------------------------------------------------------------------------------------------------------------------
Firstimpex, Inc. 500,000 833,333(1) 500,000 833,333(1) 0 *
- -------------------------------------------------------------------------------------------------------------------------
Mercacorp, Inc. 500,000 833,332(2) 500,000 833,332(2) 0 *
- -------------------------------------------------------------------------------------------------------------------------
Dafico Investment Corp. 500,000 833,335(3) 500,000 833,335(3) 0 *
- -------------------------------------------------------------------------------------------------------------------------
Robert L. Gilbert, III 129,032 --- 129,032 --- 0 *
- -------------------------------------------------------------------------------------------------------------------------
R.M. and Jean J. Taylor 30,000 --- 30,000 --- 0 *
- -------------------------------------------------------------------------------------------------------------------------
Engineering Analyses & 4,637(4) --- 4,637(4) --- 0 *
Solutions
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Indicates ownership of less than 1%.
(1) These warrants expire on October 13, 1999 and are exercisable by paying
$2.00 per share for 666,666 shares and by paying $3.00 per share for
166,667 shares.
(2) These warrants expire on October 13, 1999 and are exercisable by paying
$2.00 per share for 666,666 shares and by paying $3.00 per share for
166,666 shares.
(3) These warrants expire on October 13, 1999 and are exercisable by paying
$2.00 per share for 666,668 shares and $3.00 per share for 166,667 shares.
(4) These shares are underlying a stock option which expired on December 31,
2002 and is exercisable by paying $3.9375 per share.
18
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Name Principal Occupation or Employment Age Director Since
During the Past Five Years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Franklin W. Brooks Chairman of the Board of Directors since 62 1996
1996; President of the Company from
November 1996 to April 1997; founded Saf T
Lok Corporation in 1989; operates Palm
Beach Business Services, Inc.; Mr. Brooks is
the father of Mr. Jeffrey W. Brooks
- ----------------------------------------------------------------------------------------------
John L. Gardner Director and President of the Company since 61 1997
April 1997; Vice President and General
Manager of Coleman Research, The Orlando
Group from 1994 to April 1997; Vice
President and General Manager of McDonnell
Douglas from 1986 to 1994; Chairman of the
Central Florida Innovation Corporation 1995
to 1997
- ----------------------------------------------------------------------------------------------
Jeffrey W. Brooks Director of the Company since 1996; Vice 36 1996
President, Secretary and Treasurer of the
Company since November 1996; Manager of
Research & Development since 1989; Mr.
Brooks is the son of Mr. Franklin W. Brooks
- ----------------------------------------------------------------------------------------------
William M. Schmidt Director since 1996; employee of the 54 1996
Company since 1995; Vice President and
General Manager of Ilco Unican Inc., Simplex
Safelock Division from 1993 to 1995; General
Manager of the Automobile Occupant
Restraint Systems Division of Takata from
1990 to 1993
- ----------------------------------------------------------------------------------------------
Eugene V. Horanoff Director since 1996; Chief Engineer of Saf T 65 1996
Lok Corporation from 1989 to 1996 (prior to
its merger with the Company) and of the
Company since 1996
- ----------------------------------------------------------------------------------------------
Dennis W. DeConcini Director since October 1997; Partner with 60 1997
Parry, Romani & DeConcini, Inc. since
1995; U.S. Senator for the State of Arizona
from 1977 to 1995
- ----------------------------------------------------------------------------------------------
James V. Stanton Director since October 1997; attorney and 65 1997
registered lobbyist with Stanton and
Associates (law firm) since 1988; Executive
Vice President of Delaware North Company,
a concession food distribution company, from
1981 to 1988; U.S. Congressman for the 20th
Congressional District of Ohio from 1971 to
1977
- ----------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table describes the compensation earned by the Named Officers
(where the Named Officers are all those individuals serving as the Company's
Chief Executive Officer or in a similar capacity, and all those executive
officers who were compensated $100,000 or more during the fiscal year) for the
fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
-------------------------------------
Annual Compensation
- ---------------------------------------------------------------------------------------------------
salary bonus other annual
Name and Principal Position year ($) ($) compensation ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Franklin W. Brooks 1996 $ 54,167 $ 0 $ 6,200(3)
President, Chairman of the Board of Directors (1) 1995 - - -
1994 - - -
- ---------------------------------------------------------------------------------------------------
Lisa A. Broderick 1996 $ 0 $ 0 $ 0
President (2) 1995 - - -
1994 - - -
- ---------------------------------------------------------------------------------------------------
Robert L, Gilbert, III 1996 $ 68,662 $ 0 $ 19,500 (5)
President, Chief Executive Officer (4) 1995 85,000 - 16,900 (5)
1994 85,000 - 8,000 (5)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. F.W. Brooks assumed the position of Chairman of the Board of Directors
in February, 1996 and assumed the position of President in November, 1996.
(2) Ms. Broderick served as the President of the Company from November 12 to
November 20, 1997.
(3) Represents non-cash compensation in the form of premiums for $1,000,000 in
life insurance on the life of Mr. F.W. Brooks for the benefit of his wife.
The life insurance policy has since been canceled.
(4) Mr. Gilbert served as the President of the Company from April, 1996 to
November, 1996 and served as Chief Executive Officer of the Company from
its inception (f/k/a/ RGB Computer and Video, Inc.) in July, 1989 to
November 1996.
(5) Includes non-cash compensation in the form of premiums paid on a life
insurance policy. This life insurance policy has since been canceled.
Also includes use of a car belonging to the Company during 1996.
OPTION/SAR GRANTS TABLE
The following table provides information regarding those options granted to the
Named Officers as of December 31, 1996.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
% of Total
Number of Options
Shares Granted to Exercise Grant Date Present
Underlying Employees or Base Value
Options in Fiscal Price Expiration ($)
Name Granted Year ($/sh) Date 5% 10%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Franklin W. Brooks, President, 1,000,000(1) 59.7% $ 2.00 12/31/99 34,900 131,800
Chairman of the Board of Directors
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Gilbert, III, 600,000(2) 35.8% $2.00 12/31/99 20,940 79,080
President, Chief Executive Officer
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This option was cancelled in December 1997. Mr. Brooks was granted a new
option for 1,000,000 shares in December 1997. See the "Year End Option
Table" which follows.
(2) Vesting is subject to the Company achieving certain earnings targets for
the fiscal years 1996, 1997, and 1998. The earnings targets for 1996 and
1997 were not achieved and the Company believes the earnings targets for
1998 will not be achieved, in which case these options will not vest.
OPTIONS EXERCISED IN THE LAST YEAR AND YEAR END OPTION TABLE
No options were exercised by the Named Officers during 1996. The following
table provides information regarding unexercised stock options held by the Named
Officers as of December 31, 1996, unless otherwise indicated.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Number of Shares Underlying Value of Unexercised In-the-Money
Unexercised Options at Year-End Options at Year-End
- ---------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Franklin W. Brooks (1) 250,000 750,000 $0.00 $0.00 (2)
- ---------------------------------------------------------------------------------------------------------
Robert L. Gilbert, III 0 (4) 600,000 $0.00 $0.00 (3)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Granted to Mr. Brooks in December 1997 and is exercisable for $2.00 per
share. Does not include Mr. Brooks' option for 1,000,000 shares of Common
Stock, exercisable for $2.00 per share, the vesting of which was subject to
the Company achieving certain earnings targets, which was cancelled in
December 1997.
(2) Value based on the difference between the last reported sale of the
Company's Common Stock on the Nasdaq SmallCap Market of $1.688 per share on
December 31, 1997, and the exercise price of the options.
(3) Value based on the difference between the last reported sale of the
Company's Common Stock on the Nasdaq SmallCap Market of $2.00 per share on
December 31, 1996, and the exercise price of the options.
(4) Vesting of this option is subject to the Company achieving certain earnings
targets for the fiscal years 1996, 1997, and 1998.
COMPENSATION OF DIRECTORS
The Company granted stock options in the amount of 250,000 shares of Common
Stock, exercisable at $2.50 per share, on October 23, 1997, to each of Mr.
Dennis W. DeConcini and Mr. James W. Stanton in connection with their
appointment as directors of the Company.
The Company's 1993 Stock Option Plan (the "Plan") provides for the grant of an
option for 5,000 shares of Common Stock to each Director who is not otherwise
employed (i) upon the adoption of the Plan, (ii) upon that Director's election
to the Board of Directors, and (iii) upon election to the Board of Directors
after all previously granted options have vested. These options are to be
granted at fair market value, vest at a rate of 2,500 on June 1 and December 1
after the date of the grant, and are exercisable for 10 years from the date of
grant. Accordingly, the following Directors of the Company were granted the
following stock options pursuant to the Plan as of December 31, 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Name of Director Shares Underlying Options Granted
- ----------------------------------------------------------------------------------
<S> <C>
Dennis W. DeConcini 5,000 at $2.031 per share, of which 2,500 vested on
December 1, 1997
- ----------------------------------------------------------------------------------
James V. Stanton 5,000 at $2.031 per share, of which 2,500 vested on
December 1, 1997
- ----------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
Robert L. Gilbert 5,000 @ $4.563 per share, of which 2,500 vested on
December 1, 1997. The remaining 2,500 shares will
not vest as Mr. Gilbert is no longer a director of the
Company.
- ------------------------------------------------------------------------------
</TABLE>
The Company has not paid any other compensation to any person for serving as a
director of the Company. The Company does not intend to compensate non-employee
directors for serving as directors, except pursuant to the 1993 Stock Option
Plan as set forth above, and except to reimburse them for expenses incurred in
connection with their service as directors. Directors who are employees of the
Company receive no compensation for serving as directors.
EMPLOYMENT AND CONSULTING AGREEMENTS
On February 13, 1996 the Company entered into a five-year Employment Agreement
with Mr. Franklin W. Brooks at an initial annual base salary of $100,000 per
year. Mr. Brooks waived his right to receive or accrue any salary during 1997,
canceled an option to purchase 1,000,000 shares of common stock at $2.00 per
share, and was granted an option to purchase 1,000,000 shares of common stock at
$2.00 per share in December, 1997.
On April 16, 1997 the Company entered into a two-year Employment Agreement with
Mr. John L. Gardner at an initial annual base salary of $100,000 per year. In
connection with entering into the Employment Agreement, Mr. Gardner was granted
a stock option for 600,000 shares at an exercise price of $2.50 per share, which
was repriced to $0.50 per share (See "Report of Repricing of Options"
immediately below). During 1997, Mr. Gardner waived 50% of his annual base
salary for the months of July to November, was granted a stock option for 72,000
shares at an exercise price of $0.10 per share in August, 1997, and was granted
a stock option for 500,000 shares at an exercise price of $2.00 per share in
December, 1997..
On February 12, 1996, the Company entered into a Modification of Employment
Agreement with Mr. Robert L. Gilbert, III. The Modification extended the term
of the original Employment Agreement, entered into on April 22, 1993, from a
five-year term to one expiring on February 15, 2001, and increased his annual
base salary from $85,000 to $92,500 to reflect cost of living adjustments. Mr.
Gilbert resigned as President in November 1996 and the Employment Agreement was
terminated. In November 1996, the Company entered into a Consulting Agreement
with Mr. Gilbert. Under the Consulting Agreement, Mr. Gilbert will perform
consulting services to the Company on an as requested basis at $100 per hour.
REPORT ON REPRICING OF OPTIONS
On September 19, 1997, the Board of Directors determined that the outstanding
stock options held by John L. Gardner were no longer serving as an adequate
incentive because of declines in the Company's stock price. Believing that it
was important to encourage employee stock ownership and to provide incentives to
increase shareholder value from the then current stock price, the Board of
Directors offered Mr. Gardner the opportunity to exchange certain existing stock
options for the same number of options at the then current market price.
Franklin W. Brooks, John L. Gardner, Jeffrey W. Brooks,
Robert L. Gilbert, III, William M. Schmidt, Eugene V. Horanoff
Members of the Compensation Committee: John L. Gardner, William M. Schmidt,
Eugene V. Horanoff (4/15/97)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Ten-Year Option Repricings
- -------------------------------------------------------------------------------------------------------------
Number of Market Length of
Shares Price of Exercise Original Option
Underlying Stock at Price at New Term Remaining
Options Time of Time of Exercise at Date of
Name Date Repriced Repricing Repricing Price Repricing
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
22
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John L. Gardner, President, 9/19/97 600,000 $0.48 $2.50 $0.50 4 1/2 years
Chief Executive Officer (approximately)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of Mr. Franklin W. Brooks and Mr. Robert L.
Gilbert, III during 1996. Mr. Brooks held the positions of employee, President,
and Chairman of the Board of Directors during various periods of time in 1996.
Mr. Gilbert held the positions of President, Chief Executive Officer, Vice
Chairman and Chairman of the Board during various periods of time in 1996.
The Compensation Committee consisted of Mr. John L. Gardner, Mr. William M.
Schmidt and Mr. Eugene V. Horanoff from April 1997 to December 1997. In
December 1997, the Board of Directors reappointed the members of the
Compensation Committee so that the Compensation Committee currently consists of
Mr. John L. Gardner, Mr. Dennis W. DeConcini and Mr. James V. Stanton. Mr.
Gardner has held the position of President and Chief Executive officer of the
Company since April 1997. Mr. Horanoff has held the position of Chief Engineer
of the Company since 1996. Mr. Schmidt has been an employee of the Company
since 1995. Mr. DeConcini and Mr. Stanton have been directors of the Company
since October 1997.
SECURITY OWNERSHIP
The following table sets forth certain information known to the Company
regarding the beneficial ownership of shares of Common Stock as of December 31,
997, unless otherwise noted below, by (i) each person known by the Company to be
the owner of more than 5% of the outstanding shares of Common Stock, (ii) each
of the Company's Directors, (iii) each of the Named Officers, and (iv) all
executive officers and directors as a group. Unless otherwise indicated, each
person has sole investment and voting power with respect to all shares shown as
beneficially owned.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class (9)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin W. Brooks (1) 1,533,012 15.35%
18245 S.E. Federal Highway
Tequesta, Florida 33469
- --------------------------------------------------------------------------------------------------
John L. Gardner (3) 972,000 9.73
18245 S.E. Federal Highway
Tequesta, Florida 33469
- --------------------------------------------------------------------------------------------------
William M. Schmidt (4) 277,596 2.78
18245 S.E. Federal Highway
Tequesta, Florida 33469
- --------------------------------------------------------------------------------------------------
Dennis W. DeConcini (5) 255,000 2.55
233 Constitution Avenue, N.E.
Washington, D.C. 20002
- --------------------------------------------------------------------------------------------------
James V. Stanton (5) 255,000 2.55
1310 19th Street, N.W., Suite LL
Washington, D.C. 20036
- --------------------------------------------------------------------------------------------------
Eugene V. Horanoff (6) 219,508 2.20
18245 S.E. Federal Highway
Tequesta, Florida 33469
- --------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey W. Brooks (7) 191,400 1.92
18245 S.E. Federal Highway
Tequesta, Florida 33469
- -----------------------------------------------------------------------------------------------
Robert L. Gilbert, III (8) 129,032 1.29
18245 S.E. Federal Highway
Tequesta, Florida 33469
- -----------------------------------------------------------------------------------------------
All Directors and Executive Officers as a Group 3,832,548 38.38
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Of these shares, 507,994 are held by Mr. Brooks and his wife as tenants in
common. Includes option to purchase 1,000,000 shares of Common Stock for
$2.00 per share granted in December 1997, of which 250,000 are vested.
Does not include option to purchase 1,000,000 shares of Common Stock for
$2.00 per share which was cancelled in December 1997.
(3) Includes options to purchase 472,000 shares of Common Stock for $0.50 per
share and 500,000 shares of Common Stock for $2.00 per share, of which
200,000 shares are vested.
(4) Includes option to purchase 108,000 shares of Common Stock for $0.10 per
share.
(5) Includes option to purchase 250,000 shares of Common Stock for $2.00 per
share and option to purchase 5,000 shares of Common Stock for $2.031 per
share pursuant to the 1993 Stock Option Plan, of which 2,500 shares have
vested.
(6) Includes option to purchase 58,000 shares of Common Stock for $0.10 per
share.
(7) Includes option to purchase 86,000 shares of Common Stock for $0.10 per
share.
(8) Does not include option to purchase 600,000 shares of Common Stock for
$2.00 per share. Vesting is subject to the Company achieving certain
earnings targets for the fiscal years 1996, 1997, and 1998. The earnings
targets for 1996 and 1997 were not achieved and the Company believes the
earnings targets for 1998 will not be achieved, in which case these options
will not vest.
(9) Based on approximately 9,987,077 shares of Common Stock outstanding as of
December 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company employs Mr. Franklin W. Brooks as its Chairman of the Board of
Directors and his son, Mr. Jeffrey W. Brooks, as its Vice President, Secretary
and Treasurer. The Company believes that the compensation paid to these
individuals is no greater and no more beneficial than unrelated persons would
receive and is fair to the Company.
Mr. Brooks loaned a total of $125,000 to Saf T Lok Corporation during the time
between 1989 and the merger with RGB Computer & Video, Inc. in January of 1996.
On January 29, 1997, the Board of Directors approved the granting of a security
interest in the Company's intellectual property to Mr. Brooks as security for
the repayment of the $125,000. As of June 30, 1997, the Company owed Mr. Brooks
a total of $114,213, plus accrued interest.
CERTAIN TRANSACTIONS
The Company was successful in raising capital through the sale of Common Stock
and convertible debentures during the second and third quarters of 1997. The
Company sold a total of 433,077 shares of Common Stock for $550,000 and realized
net proceeds, after all expenses associated with the sale of the stock of
$450,472.48. These shares were sold in Regulation S offerings to foreign
investors. The Company explored other alternatives for raising equity capital
and found that the Regulation S offering alternative was the only viable
alternative for the Company at the time.
The Company also sold convertible debentures in a Regulation S offering to
foreign investors for a total of $705,000 before expenses pertaining to the sale
of these debentures. After these expenses, the net proceeds to the Company were
$613,332.50. A portion of these convertible debentures were converted during
the third quarter of
24
<PAGE>
1997 and the balance of the convertible debentures ($430,000) was converted into
Common Stock in October, 1997, meaning that the Company has no further long-term
debt. The total number of shares into which all of the convertible debentures
were converted was 2,147,247 shares. The conversion formula called for the
right to convert at 70% of the average bid price for the five trading days prior
to the Company receiving notice of conversion. Based on the number of shares
into which the convertible debentures were converted, the average conversion
price was $0.33 per share. On September 30, 1997, the closing bid price for the
Company's stock was $0.406 per share on the Nasdaq SmallCap Market.
The Company was successful in raising capital through the sale of Common Stock
and stock purchase warrants during the fourth quarter of 1997. The Company sold
1,250,000 shares of Common Stock and stock purchase warrants for 2,083,333
shares in a Regulation S offering to foreign investors for a total of $2,500,000
before expenses pertaining to the sale of these Common Stock and stock purchase
warrants. After expenses, the net proceeds to the Company were $1,410,000. None
of the stock purchase warrants were exercised during 1997. The stock purchase
warrants have a term of two years and are exercisable for $2.00 and $3.00 per
share.
LEGAL PROCEEDINGS
In December 1996 Lisa Broderick Fogel and her husband Bruce Fogel sued the
Company and Mr. Franklin W. Brooks in the Circuit Court for Martin County,
Florida for defamation and loss of consortium arising out of Mrs. Fogel's brief
tenure in November 1996 as President of the Company. The Company's insurance
company, is providing for the defense of the Company and Mr. Brooks. The
Company does not believe this lawsuit will have a materially adverse effect on
the Company.
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.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Gray, Harris & Robinson,
P.A., Orlando, Florida.
EXPERTS
The Financial Statements of the Company as of and for the years ended December
31, 1995 and December 31, 1996 included herein and in the Registration Statement
have been audited by Weinberg & Co., P.A. (f/k/a Weinberg, Pershes & Co.,
P.A.), independent certified public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in auditing and accounting in giving said report.
CHANGES IN ACCOUNTANTS
The Company engaged Goldberg, Pershes & Company, P.A. as the Company's
independent public accountant on May 30, 1997 for the 1997 fiscal year.
Representatives are expected to be present at the Annual Meeting.
The Company's independent public accountant for the 1996 fiscal year was
Weinberg, Pershes & Company, P.A. (n/k/a Weinberg & Company, P.A.). The Company
terminated the appointment of Weinberg, Pershes & Company, P.A. as the Company's
independent public accountant on May 30,
25
<PAGE>
1997 with the approval of the board of directors, due to the withdrawal of the
Company's primary contact within Weinberg, Pershes & Company P.A.
Weinberg, Pershes & Company, P.A. had previously reported on the financial
statements of the Company for 1996. None of those reports contained an adverse
opinion or disclaimer of opinion or was qualified or modified as to uncertainty,
audit scope, or accounting principles. The Company and Weinberg, Pershes &
Company, P.A. have not had any disagreements on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to Weinberg, Pershes & Company, P.A.'s
satisfaction, would have caused it to make reference to the subject matter of
the disagreements in connection with its reports.
SELECTED FINANCIAL DATA
The Selected Financial Data presented below should be read in
conjunction with the Financial Statements and notes thereto included elsewhere
in this Prospectus, and in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Financial
Statements included elsewhere in this Prospectus. The Selected Financial Data
for the fiscal years ended December 31, 1994 and 1995 were audited by Michelson
& Co., P.A.. The Selected Financial Data for the fiscal year ended December 31,
1996 was audited by Weinberg, Pershes & Co., P.A. The Selected Financial Data
for the nine months ended September 30, 1997 has been derived from the unaudited
financial statement of the Company appearing elsewhere herein and are not
necessarily indicative of results for a full fiscal year.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 9 Months
Ended Dec. Ended Dec. Ended Dec. Ended Dec. Ended Dec. Ended Sept.
31, 1992 (1) 31, 1993 (1) 31, 1994 (1) 31, 1995 (1) 31, 1996 (2) 30, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales or
Operating $1,386,558 $ 2,104,784 $ 1,048,594 $ 199,930 $ 5,734 $ 17,321
Revenues
- ----------------------------------------------------------------------------------------------------------------
Income
(Loss) from 259,114 (1,326,250) (2,276,162) (1,260,240) (2,841,716) (733,790)
Continuing
Operations
- ----------------------------------------------------------------------------------------------------------------
Income
(Loss) from
Continuing
Operations 0.10 (0.47) (0.70) (0.36) (0.54) (0.12)
Per Share of
Common
Stock
- ----------------------------------------------------------------------------------------------------------------
Total Assets 848,470 7,336,792 4,766,571 3,440,870 2,094,158 2,585,612
- ----------------------------------------------------------------------------------------------------------------
Long Term
Obligations
and 158,237 102,207 66,204 14,515 125,414 114,213
Redeemable
Preferred
Stock
- ----------------------------------------------------------------------------------------------------------------
Cash
Dividends
Declared Per 0.00 0.00 0.00 0.00 0.00 0.00
Share of
Common
Stock
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company conducted the business of operating a retail store that sold
Amiga computers and produced a series of tutorial programs used with
software written for the Amiga platform during the fiscal years ended
December 31, 1992, 1993, 1994, and 1995. Thus, the information provided
for those years does not provide investors and other users of this
information with a relevant assessment of the financial condition and
results of operations of the Company in the gun lock business which was
commenced during the fiscal year ended December 31, 1996.
(2) During the fiscal year ended December 31, 1996, the discontinued operations
accounted for a loss of $33,626 and a loss per share of common stock of
$0.08.
26
<PAGE>
FINANCIAL STATEMENTS
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
- --------------------------------------------------------------------------------
Cash and cash equivalents $ 88,956 $1,981,217
- --------------------------------------------------------------------------------
Securities - 518,362
- --------------------------------------------------------------------------------
Accounts receivable (net of allowance for doubtful 10,419 7,331
accounts of $23,000 and -0-, respectively)
- --------------------------------------------------------------------------------
Inventories 466,680 282,471
- --------------------------------------------------------------------------------
Loans receivable - 8,516
- --------------------------------------------------------------------------------
Prepaid expenses 21,111 -
- --------------------------------------------------------------------------------
Total Current Assets 587,166 2,797,897
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET OF 932,028 408,827
ACCUMULATED DEPRECIATION
- --------------------------------------------------------------------------------
OTHER ASSETS
- --------------------------------------------------------------------------------
Patents, (net of accumulated amortization of $28,000) 374,147 -
- --------------------------------------------------------------------------------
Loans receivable 199,842 213,976
- --------------------------------------------------------------------------------
Loans receivable (officers) - 18,100
- --------------------------------------------------------------------------------
Other assets 975 2,070
- --------------------------------------------------------------------------------
Total Other Assets 574,964 234,146
- --------------------------------------------------------------------------------
TOTAL ASSETS $2,094,158 $3,440,870
- --------------------------------------------------------------------------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
27
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
- -----------------------------------------------------------------------------------------------------
Notes payable - current portion $ 67,353 $ -
- -----------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 836,402 153,810
- -----------------------------------------------------------------------------------------------------
Current maturities of capital lease obligations - 14,515
- -----------------------------------------------------------------------------------------------------
Total Current Liabilities 903,755 168,325
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
LONG TERM LIABILITIES
- -----------------------------------------------------------------------------------------------------
Notes payable, net of current portion 58,061 -
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 961,816 168,325
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------
Common Stock, $.01 par value, 20,000,000 and 10,000,000 shares 56,511 32,631
authorized, 5,651,089 and 3,263,100 shares issued and outstanding,
in 1996 and 1995 respectively, of which 1,500 shares were held in
treasury
- -----------------------------------------------------------------------------------------------------
Capital in excess of par 9,167,898 8,056,639
- -----------------------------------------------------------------------------------------------------
Deficit (8,092,067) (4,816,725)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,132,342 3,272,545
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,094,158 $ 3,440,870
- -----------------------------------------------------------------------------------------------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
28
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Common Stock Capital in Deficit Total
Excess of Par
Shares Amount
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1995 3,268,032 $32,680 $8,060,043 $(3,556,485) $ 4,536,238
- ----------------------------------------------------------------------------------------------------------
Purchase of treasury stock (4,932) (49) (3,404) - (3,453)
- ----------------------------------------------------------------------------------------------------------
Net loss - - - (1,260,240) (1,260,240)
- ----------------------------------------------------------------------------------------------------------
Balance-December 31, 1995 3,263,100 32,631 8,056,639 (4,816,725) 3,272,545
- ----------------------------------------------------------------------------------------------------------
Issuance of common stock for Saf 2,238,957 22,390 504,149 - 526,539
T Lok merger
- ----------------------------------------------------------------------------------------------------------
Issuance of stock for settlement 20,000 200 8,400 - 8,600
of lawsuit
- ----------------------------------------------------------------------------------------------------------
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 - 5,651,089 $56,511 $9,167,898 $(8,092,067) $ 1,132,342
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
29
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 57,349 $ -
- ----------------------------------------------------------------------------------
Cost of Sales 51,615 -
- ----------------------------------------------------------------------------------
Gross Profit 5,734 -
- ----------------------------------------------------------------------------------
Selling, General and Administrative Expenses 2,751,306 -
- ----------------------------------------------------------------------------------
Depreciation 96,144 -
- ----------------------------------------------------------------------------------
Loss from continuing operations (2,841,716) -
- ----------------------------------------------------------------------------------
Loss from discontinued operations (433,626) (1,260,240)
- ----------------------------------------------------------------------------------
Net (loss) $(3,275,342) $(1,260,240)
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Loss per common share
Loss from continuing operations $ (.54) $ -
- ----------------------------------------------------------------------------------
Loss from discontinued operations (.08) (.36)
- ----------------------------------------------------------------------------------
Net (loss) $ (.62) $ (.36)
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Weighted average number of common shares outstanding 5,243,936 3,508,799
- ----------------------------------------------------------------------------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements
30
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
- ------------------------------------------------------------------------------------------------
Loss from continuing operations $(2,841,716) $ -
- ------------------------------------------------------------------------------------------------
Loss from discontinued operations (433,626) (1,260,240)
- ------------------------------------------------------------------------------------------------
Adjustments to reconcile net (loss) to net cash (used in) operating
activities:
- ------------------------------------------------------------------------------------------------
Depreciation and amortization 232,938 150,481
- ------------------------------------------------------------------------------------------------
Amortization of research and development costs - 23,840
- ------------------------------------------------------------------------------------------------
Common stock issued in settlement of lawsuit 8,600 -
- ------------------------------------------------------------------------------------------------
Bad debt expense 23,000 235,000
- ------------------------------------------------------------------------------------------------
Loss on sale and disposal of fixed assets 159,125 35,142
- ------------------------------------------------------------------------------------------------
Gain on sale of home - (25,863)
- ------------------------------------------------------------------------------------------------
Impairment loss on fixed assets - 25,666
- ------------------------------------------------------------------------------------------------
Impairment loss on research and development cost - 49,483
- ------------------------------------------------------------------------------------------------
Change in assets and liabilities:
- ------------------------------------------------------------------------------------------------
(Increase)decrease in:
- ------------------------------------------------------------------------------------------------
Accounts receivable (26,088) 134,844
- ------------------------------------------------------------------------------------------------
Inventories (173,029) 222,698
- ------------------------------------------------------------------------------------------------
Prepaid and other current assets (16,235) 22,229
- ------------------------------------------------------------------------------------------------
Increase (decrease)in:
- ------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 468,809 (10,319)
- ------------------------------------------------------------------------------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (2,598,222) (397,039)
- ------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- ------------------------------------------------------------------------------------------------
Capitalization of patent costs (20,814) -
- ------------------------------------------------------------------------------------------------
Purchase of property and equipment (524,150) (28,914)
- ------------------------------------------------------------------------------------------------
Purchase of securities - (518,362)
- ------------------------------------------------------------------------------------------------
Proceeds from sale of securities 518,362 -
- ------------------------------------------------------------------------------------------------
Proceeds from sale of fixed - 52,890
- ------------------------------------------------------------------------------------------------
(Increase) in loans receivable 22,650 (213,976)
- ------------------------------------------------------------------------------------------------
Proceeds from sale of home - 225,473
- ------------------------------------------------------------------------------------------------
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
31
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
(Increase) decrease in loans receivable-officers 18,100 (7,100)
- -----------------------------------------------------------------------------
(Increase) decrease in other assets 1,345 (200)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 15,493 (490,189)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on borrowings,
including capital lease obligations (21,218) (51,689)
- -----------------------------------------------------------------------------
Repurchase of common stock - (3,453)
- -----------------------------------------------------------------------------
Capital contribution 200,000 -
- -----------------------------------------------------------------------------
Proceeds from sale of common stock 511,686 -
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 690,468 (55,142)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
NET DECREASE IN CASH (1,892,261) (942,370)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF YEAR 1,981,217 2,923,587
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT
END OF YEAR $ 88,956 $1,981,217
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
- -----------------------------------------------------------------------------
Cash payments for:
Interest $ 6,982 $ 22,911
- -----------------------------------------------------------------------------
</TABLE>
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.
See independent auditors' report and notes to consolidated financial statements.
32
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
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 December 31, 1996. 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 17).
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
(TM). The initial production of the Saf T Lok (TM) 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 the Saf T
Lok (TM) 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. Securities, available for sale
Securities consisted of long term corporate bonds which management ad classified
as available for sale in accordance with FASB Statement No. 115 as of December
31, 1995. These securities were stated at market value which approximated cost.
33
<PAGE>
F. Inventories
Inventories are stated at the lower of cost, determined on a first-in, first-out
basis, or market, whichever is less.
G. 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;
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.
<TABLE>
<CAPTION>
Years
<S> <C>
Furniture and fixtures 7 - 10
Automobile 5
Equipment 3 - 10
Leasehold improvements 1 - 2
Software 3 - 5
</TABLE>
H. 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.
I. 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.
J. 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 totaled $5,000 and $52,923 as of December 31, 1996 and
1995 for the excess of the deposit liabilities reported by the banks over the
amounts that would have been covered by federal insurance.
K. 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 17. As of December 31, 1996, all remaining inventory from the
discontinued operations and related fixed assets have been written off and
included in discontinued operations.
L. Reclassification of Financial Statement Presentation
34
<PAGE>
Certain reclassifications have been made to the 1995 financial statement
presentation to conform to 1996. Such reclassifications had no effect on net
loss as previously reported.
NOTE 3 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprised the following as of December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash in Banks $88,956 $ 119,638
Treasury Bills - 1,844,907
Money Market Funds - 16,672
$88,956 $1,981,217
</TABLE>
NOTE 4 - SECURITIES AVAILABLE FOR SALE
Securities available for sale consisted of long-term corporate bonds maturing in
April 2022. Since fair value approximated the amortized cost of these debt
securities, no unrealized gains or losses are reflected as a component of
shareholders' equity as required by the Financial Accounting Standards Board
Statement No. 115.
NOTE 5 - INVENTORIES
Inventories are comprised of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 1995
Raw Materials and Furnished goods $466,680 $282,471
</TABLE>
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Equipment $373,344 $640,522
Furniture and fixtures 52,997 109,210
Automobile 34,000 28,914
Tools and dies 762,560 -
Software 37,214 48,340
Leasehold improvements 11,436 -
1,271,551 826,986
Less accumulated depreciation 339,523 418,159
$932,028 $408,827
</TABLE>
Due to the scaling back of operations and the obsolescence of certain equipment,
an impairment loss derived by measuring the excess of the carrying amount of the
assets over the fair value of the assets, $25,666 was recognized in 1995, as
required by Financial Accounting Standards Board Statement No. 121.
On May 1, 1995, the Company sold the former president's home for $262,000
whereby the Company realized a gain of $25,863.
35
<PAGE>
NOTE 7 - SOFTWARE DEVELOPMENT COSTS
During 1995, $23,840 of software development costs were amortized. The
remaining balance of $49,483 was expensed as an impairment loss in accordance
with FASB Statement No. 121. These software development costs were not expected
to produce positive cash flows in the future.
NOTE 8 - LICENSE ARRANGEMENT
During 1993 and 1992, the Company entered into agreements for the use of certain
technology in assembling computer circuit boards for its systems. These
agreements required one time fixed payments and royalties to be paid for each
circuit board assembled. Royalty expense relating to these agreements was $0
and $103,607 in 1996 and 1995, respectively.
NOTE 9 - 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.
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 $199,842 and $213,976, as of December 31, 1996 and 1995,
respectively.
NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accounts payable $714,215 $51,252
Royalties payable - 101,547
Accrued payroll and payroll taxes 122,187 -
Other - 1,011
$836,402 $153,810
</TABLE>
36
<PAGE>
NOTE 11 - NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note Payable - Bank
collateralized by an automobile, payable in monthly installments
of $549 including interest at 8% due October 25, 1998
$ 11,201 $ -
Note Payable - shareholder,
collateralized by patents, payable in monthly installments of
$3,738 including interest at 7%, due March 1999
114,213 -
Total Long-Term Debt 125,414 -
Current Portion 67,353 -
Total Long-Term Debt, net of Current Portion $ 58,061 $ -
</TABLE>
The aggregate amount of long-term debt maturing in each of the next three years
subsequent to December 31, 1996 is as follows:
<TABLE>
<S> <C>
1996 $ 67,353
1997 47,752
1998 10,309
$125,414
</TABLE>
NOTE 12 - INCOME TAXES
The components of the provision (benefit) for income taxes for the years ended
December 31, 1996 and 1995 are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current:
Federal $ - $ -
State - -
Deferred:
Federal $ - $ -
State - -
</TABLE>
The components of the net deferred tax assets and liabilities and the related
tax effects as of December 31, 1996 and 1995 are comprised of the following:
37
<PAGE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Inventories $ - $ 34,748
Loss carryforwards 2,640,000 1,520,899
2,640,000 1,555,647
Less valuation allowance:
allowance 2,640,000 1,530,647
- 25,000
Deferred tax liabilities:
Property and equipment - 25,000
Net deferred tax liability $ - $ -
</TABLE>
The following table summarizes the differences between the Company's statutory
federal income tax provisions and the reported income tax provision for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------------
<S> <C> <C>
Provision (benefit) at statutory rate $(1,100,000) $(405,624)
-----------------------------------------------------------------------------
Effect of income taxes at lower rate 12,000 11,589
-----------------------------------------------------------------------------
State income taxes, net of federal benefit - -
-----------------------------------------------------------------------------
Utilization of net operating loss carry- forwards - -
-----------------------------------------------------------------------------
Valuation allowance 1,088,000 388,734
-----------------------------------------------------------------------------
Other 5,301
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
$ - $ -
-----------------------------------------------------------------------------
</TABLE>
As of December 31, 1996 and 1995, 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 13 - 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 1995 financial statements for the change in par value.
38
<PAGE>
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
39
<PAGE>
SAF T LOK INCORPORATED
F/K/A RGB COMPUTER & VIDEO, INC.
REPORT AS OF SEPTEMBER 30, 1997
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30,1997(UNAUDITED) AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 452,308 $ 88,956
Accounts Receivable
(net of allowance for doubtful
accounts of $13,310 and
$23,000, respectively.) 5,889 10,419
Inventories 457,950 466,680
Prepaid expenses 43,584 21,111
Total Current Assets 959,731 587,166
PROPERTY AND EQUIPMENT,
NET OF ACCUMULATED
DEPRECIATION 1,092,730 932,028
OTHER ASSETS
Patents, (net of accumulated amortization
of $53,000 and $28,000, respectively) 349,147 374,147
Loans Receivable 183,029 199,842
Other Assets 975 975
Total Other Assets 533,151 574,964
TOTAL ASSETS $ 2,585,612 $ 2,094,158
</TABLE>
Please read notes to consolidated financial statement
40
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Notes Payable - current portion $ 80,649 $ 67,353
Accounts Payable and accrued expenses 558,366 836,402
Total Current Liabilities 639,015 903,755
LONG TERM LIABILITIES
Notes Payable, net of current portion 33,564 58,061
Notes Payable-Debentures 430,000 0
Total Long Term Liabilities 463,564 58,061
TOTAL LIABILITIES 1,102,579 961,816
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value,
20,000,000 shares authorized,
6,972,647 and 5,651,089 shares
issued and outstanding, respectively. 69,726 56,511
Capital in excess of par 10,239,164 9,167,898
Deficit (8,825,857) (8,092,067)
TOTAL SHAREHOLDERS' EQUITY 1,483,033 1,132,342
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 2,585,612 $ 2,094,158
</TABLE>
Please read notes to consolidated financial statements
41
<PAGE>
SAF T LOK INCORPORATED
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 1997(UNAUDITED)
<TABLE>
<CAPTION>
Capital
Common Stock in Excess
Shares Amount of Par Deficit Total
<S> <C> <C> <C> <C> <C>
Balance-
December 31,
1996 5,651,089 56,511 9,167,898 (8,092,067) 1,132,342
Conversion of
Debentures 586,983 5,870 264,130 - 270,000
Issuance of Common
Stock 734,575 7,346 807,135 - 814,481
Net Loss - - - (733,790) (733,790)
Balance-
September 30
1997 6,972,647 69,726 10,239,163 (8,825,857) 1,483,033
</TABLE>
Please read notes to consolidated financial statements
42
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD NINE MONTH PERIOD
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue $ 5,010 - 38,531 -
Cost of Sales 2,005 - 21,210 -
Gross Profit 3,005 - 17,321 -
Selling, General and
Administrative Expenses 273,645 565,737 634,476 1,675,180
Depreciation and
Amortization 29,962 45,105 116,635 144,881
Loss from continuing
operations (300,602) (557,807) (733,790) (1,434,594)
Loss from discontinued
operations - (137,334) - (474,706)
Net Loss (300,602) (695,141) (733,790) (1,909,300)
LOSS PER COMMON SHARE
Loss from continuing
operations (.04) (.10) (.12) (.28)
Loss from discontinued
operations - (.03) - (.09)
Net Loss (.04) (.13) (.12) (.37)
Weighted average number
of common shares
outstanding 6,972,647 5,522,057 6,136,393 5,137,711
</TABLE>
Please read notes to consolidated financial statements
43
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997(UNAUDITED)
AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $(574,617) (1,434,594)
Loss from discontinued operations - (474,706)
ADJUSTMENTS TO RECONCILE NET(LOSS)
TO NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation and Amortization 116,635 144,881
Bad Debt Expense 2,504 146
Loss on sale and disposal of fixed assets - 1,412
Exchange of fixed asset in payment of
consulting fees 22,734 -
CHANGE IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
Accounts Receivable 4,530 (196,193)
Inventories 8,730 (501,211)
Prepaid and other current assets (22,473) (30,412)
INCREASE(DECREASE) IN:
Accounts Payable and Accrued Expenses (278,036) 196,768
Other Assets - (725)
NET CASH (USED IN) OPERATING
ACTIVITIES (719,993) (2,325,298)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (177,859) (360,248)
Proceeds from sale of fixed assets - 12,392
Proceeds from investments - 518,362
Proceeds from loans receivable 16,813 18,100
(Increase) decrease in loans receivable-officers - 3,017
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (161,046) 191,623
</TABLE>
44
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997(UNAUDITED)
AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM FINANCING:
Principal payments on borrowings,
including capital lease obligations $ (1,436) (28,378)
Increase in Loan Payable-Shareholder - 120,000
Proceeds from sale of common stock
and debentures 1,405,000 -
Expenses from sale of common stock
and debentures (159,173) -
Equity Changes due to acquisition - 111,686
NET CASH PROVIDED (USED IN) FINANCING
ACTIVITIES 1,244,391 203,308
NET INCREASE (DECREASE)
IN CASH 363,352 (1,930,659)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 88,956 1,981,217
CASH AND CASH EQUIVALENTS
AT END OF PERIOD 452,308 50,558
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash payments for interest $ 212 -
</TABLE>
Please read notes to consolidated financial statements
45
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The unaudited financial information furnished herein reflects all
adjustments which in the opinion of management are necessary to fairly state the
company's financial position, the changes in its financial position and the
results of its operations for the periods presented. This report on Form 10-QSB
should be read in conjunction with the Company's financial statements and notes
thereto included on Form 10-KSB for the year ended December 31, 1996. The
Company presumes that users of the interim financial information herein have
read or have access to the audited financial statements for the preceding fiscal
year and that the adequacy of additional disclosure needed for a fair
presentation may be determined in that context. Accordingly, footnote
disclosure that would substantially duplicate the disclosure contained in the
Company's financial statements for the year ended December 31, 1996 has been
omitted. The results of operations for the nine month period ended September
30, 1997 are not necessarily indicative of results for the entire year ending
December 31, 1997.
NOTE 2
Inventories are composed of the following as of September 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw Materials and
Finished Goods $457,950 $466,680
</TABLE>
46
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of September 30, 1997
and December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Equipment $ 374,260 373,344
Furniture and Fixtures 52,997 52,997
Automobile -- 34,000
Tools and Dies 1,046,481 762.560
Software 37,214 37,214
Leasehold Improvements 11,436 11,436
Total 1,522,388 1,271,551
Less accumulated depreciation 429,658 339,523
$ 1,092,730 932,028
</TABLE>
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following as of
September 30, 1997 and December 31, 1996. The accrued amount is for rent for the
year starting February 1997. An agreement has been reached to repay this amount
in common stock. An agreement has also been reached to repay one of the
Company's creditors, "The Investor Relations Company" with stock. Salaries
accrued as of December 30, 1996 have all been forgiven.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accounts Payable $ 529,170 714,215
Accrued payroll and taxes - 122,187
Accrued rent 29,196 -
Total $ 558,366 836,402
</TABLE>
47
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHAREHOLDERS' EQUITY
During the three month period of July 1, 1997 through September 30, 1997,
$705,000 of convertible debentures were sold. Of this total, $245,00 was
converted into 586.983 shares of common stock.
In September, 93,583 shares of commons stock were issued to West Marketing
Industries in exchange for ongoing marketing services.
NOTE 7 - SUBSEQUENT EVENTS
During the month of October, the balance of $430,000 in convertible
debentures was converted into 1,560,264 shares of common stock.
On November 12, 1997, the Company reached an agreement to close a Regulation
S offering with a group of offshore investors that will net approximately $2
million.
During the month of October, John Gardner, President & CEO exercised a
portion of his stock options and purchased 200,000 shares.
48
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS SUMMARY............................................. 1
RISK FACTORS................................................... 3
THE COMPANY.................................................... 5
DESCRIPTION OF PROPERTY........................................ 10
DESCRIPTION OF COMMON STOCK.................................... 10
USE OF PROCEEDS AND PLAN OF DISTRIBUTION....................... 10
OUTSTANDING SHARES OF COMMON STOCK,
STOCK PURCHASE WARRANTS AND STOCK OPTIONS................. 11
COMMON EQUITY.................................................. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS........................... 12
SELLING SHAREHOLDERS........................................... 17
DIRECTORS AND EXECUTIVE OFFICERS............................... 19
EXECUTIVE COMPENSATION......................................... 20
SECURITY OWNERSHIP............................................. 23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 24
CERTAIN TRANSACTIONS........................................... 24
LEGAL PROCEEDINGS.............................................. 25
LEGAL MATTERS.................................................. 25
EXPERTS........................................................ 25
CHANGES IN ACCOUNTANTS......................................... 25
SELECTED FINANCIAL DATA........................................ 26
FINANCIAL STATEMENTS........................................... 28
</TABLE>
Until _____________ all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
49
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
- ---------------------------------------------------
<S> <C>
Legal Fees and Expenses.............. $ 30,000.00
Accounting Fees and Expenses......... 1,000.00
Printing and Distribution............
Filing Fees.......................... 1,677
Transfer Agent and Registrar Fees....
Miscellaneous........................
- ---------------------------------------------------
Total................................ $
- ---------------------------------------------------
</TABLE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 607.0850 of the Florida Business Corporation Act, provides that a
corporation may indemnify any person who was or is a party (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against liability incurred in connection with such proceeding, including any
appeal thereof, if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation, and with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. Section 607.0850 further provides that a corporation
similarly may indemnify any such person serving in any such capacity who was or
is a party in the right of the corporation to procure a judgment in its favor,
against the estimated expense of litigating the proceeding to conclusion
actually and reasonably incurred in connection with the defense or settlement of
such proceeding if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable unless, and only
to the extent that the court in which such proceeding was brought, or any other
court of competent jurisdiction, shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such other court shall deem proper.
Section 607.0831 of the Florida Business Corporation Act provides that a
director is not personally liable for monetary damages to the corporation or any
other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless (i) the director breached
or failed to perform his duties as a director, (ii) the director's breach or
failure to perform constitutes a violation of criminal law unless the director
had no reasonable cause to believe his conduct was unlawful, the director
derived an improper personal benefit directly or indirectly, (iii) the directors
conduct triggers the liability provisions of Section 607.0834 (relating to
unlawful distributions), (iv) the director's conduct constitutes a conscious
disregard for the best interest of the corporation, or willful misconduct in a
proceeding by or in the right of the corporation or a shareholder, or (v) the
director's conduct constitutes recklessness or an act or omission committed in
bad faith or with malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety, or property in a proceeding by or in the
right of someone other than the corporation or a shareholder.
The Company's Articles of Incorporation provide that no director shall be
personally liable for monetary damages for any statement, vote, decision, or
failure to act regarding corporate management or policy, unless the director
breached or failed to perform his duties as a director, and the director's
breach of, or failure to perform, those duties constitutes a violation of the
criminal law (unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful), was
a transaction from which the director derived an improper personal benefit, was
a circumstance under which the liability provisions of Section 607.0834 of the
Florida Business Corporation Act are applicable, was in a proceeding by or in
the right of the Company to procure a judgment in its favor or by or in the
right of a shareholder, was in conscious disregard for the best interest of the
50
<PAGE>
Company, or willful misconduct, or in a proceeding by or in the right of someone
other than the Company or a shareholder, was recklessness, in bad faith, with
malicious purpose, or in a manner exhibiting wanton and willful disregard of
human rights, safety or property.
The Company's Articles of Incorporation further provide for the nonexclusive
indemnification for each person who is or was a director, officer, agent, or
employee of the Company or who is or was serving at the request of the Company
as its representative in the position of a director, officer, agent or employee
of another corporation, partnership, joint venture, trust or other enterprise
and as to whom the Company has agreed to grant such indemnity, to the fullest
extent permitted or authorized by current or future legislation, judicial, or
administrative decision, against any fine, liability, cost or expense, including
attorneys' fees, asserted against him or incurred by him in his capacity as such
director, officer, agent, employee or representative, or arising out of his
status as such director. The Company may maintain insurance, to protect itself
and any such person against any such fine, liability, cost or expense. Costs,
charges and expenses incurred by officers or directors in defending a civil or
criminal suit, action, or proceeding shall be paid by the Company in advance of
the final disposition upon receipt of an undertaking to repay all amounts so
advanced in the event it shall ultimately be determined that such person is not
entitled to be indemnified by the Company, and upon satisfaction of any other
conditions as are required by law. Such costs, charges and expenses incurred by
employees and agents may be so paid as the Board of Directors may deem
appropriate.
RECENT SALES OF UNREGISTERED SECURITIES
The Company has sold the following unregistered securities pursuant to various
exceptions from registration under the Securities Exchange Act of 1934 (the
"Exchange Act"):
On December 31, 1996, the Company issued 129,032 shares of unregistered Common
Stock to Robert and Cynthia Gilbert in exchange for the cancellation of a
$200,000 promissory note issued by the Company in April 1997 to the Gilberts.
This sale was exempted from registration under (S)4(2) of the Exchange Act.
On April 9, 1997, DSE, Inc. (d/b/a Dayron), the lock assembly contractor, was
issued 75,903 shares of unregistered Common Stock at $2.60 per share as payment
for assembly services and tooling charges totaling $171,347 plus registration
costs. This sale was exempted from registration under (S)4(2) of the Exchange
Act.
On April 18, 1997, the Company issued 25,503 shares of unregistered 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. This sale was
exempted from registration under (S)4(2) of the Exchange Act.
On April 25, 1997, the Company sold 115,385 shares of unregistered Common Stock
to a single offshore investor pursuant to the exemption from registration found
in Regulation S of the Exchange Act ("Regulation S"). The aggregate sum paid in
cash for the shares was $150,000. There was no underwriter in connection with
this sale and no discounts or commissions were paid in connection with the sale.
On May 1, 1997, the Company issued 30,000 shares of unregistered Common Stock to
Richard M. and Jean Taylor as part of a release and severance agreement. This
sale was exempted from registration under (S)4(2) of the Exchange Act.
On May 9, 1997, the Company sold 163,846 shares of unregistered Common Stock to
two offshore investors pursuant to Regulation S. The aggregate sum paid in cash
for the shares was $200,000. There was no underwriter in connection with this
sale and no discounts or commissions were paid in connection with the sale.
On June 11, 1997, the Company sold 153,846 shares of unregistered Common Stock
to a single offshore investor pursuant to Regulation S. The aggregate sum paid
in cash for the shares was $200,000. There was no underwriter in connection with
this sale and no discounts or commissions were paid in connection with the sale.
51
<PAGE>
During July, August and September, 1997, the Company completed sales of
convertible debentures in the aggregate principal amount of $705,000 pursuant to
Regulation S. The convertible debentures have a term of 5 years with 8% interest
per year with the interest payable in shares of the Company's Common Stock. The
holders of the convertible debentures have the right to convert the principle
amount and accrued interest on the debentures at any time from the 41st day
after the issuance of the debenture at the conversion price equal to 70% of the
average closing bid price of the Company's stock during the last five trading
days prior to the effective date of the conversion. In connection with the
placement of this sale, a cash commission consisting of a non-accountable
expense allowance and a stock purchase warrant were paid and issued to an
investment banking firm.
On November 13, 1997, the Company sold 1,250,000 shares of Common Stock and
2,083,334 stock purchase warrants for unregistered Common Stock to three
offshore investors pursuant to Regulation S. The aggregate sum paid in cash for
the shares and stock purchase warrants was $2,500,000. In connection with the
placement of this sale of Common Stock and stock purchase warrants, State Street
Securities received a fee of 13.5% of the sales price of the Common Stock sold
to the investors and $60,000 for legal fees. State Street Securities will
receive a 13.5% fee of the sales price of the stock underlying the warrants if
the warrants are exercised.
EXHIBITS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Exhibit Number Exhibit Description
- -------------- -------------------
- ---------------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation
- ---------------------------------------------------------------------------------------------------------------
3.2 Bylaws
- ---------------------------------------------------------------------------------------------------------------
4.1 Instrument Defining the Rights of Security Holders (contained in Article IV of Exhibit 3.1)
- ---------------------------------------------------------------------------------------------------------------
5.1 Opinion of Gray, Harris & Robinson, P.A.
- ---------------------------------------------------------------------------------------------------------------
16.1 Letter re: change in accountants
- ---------------------------------------------------------------------------------------------------------------
23.1 Consent of Weinberg & Co., P.A.
- ---------------------------------------------------------------------------------------------------------------
23.2 Consent of Gray, Harris & Robinson, P.A. (contained in Exhibit 5.1)
- ---------------------------------------------------------------------------------------------------------------
24.1 Power of Attorney (see p. 26)
- ---------------------------------------------------------------------------------------------------------------
27.1 Financial Data Schedule
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
52
<PAGE>
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tequesta, State of
Florida, on February 12, 1998
SAF T LOK INCORPORATED
By: /s/ John L. Gardner
______________________________
John L. Gardner, President,
Chief Executive Officer,
Chief Financial Officer and
Chief Accounting Officer
54
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Saf T Lok Incorporated, a
Florida corporation, do hereby constitute and appoint John L. Gardner the lawful
attorney and agent, with power and authority to do any and all acts and things
and to execute any and all instruments which said attorney and agent determine
may be necessary or advisable or required to enable said corporation to comply
with the Securities Act, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
this Registration Statement, to any and all amendments, both pre-effective and
post-effective, and supplements to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereof, and each of the
undersigned hereby ratifies and confirms all that said attorney and agent shall
do or cause to be done by virtue hereof. This Power of Attorney may be signed
in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ John L. Gardner President and Chief Executive Officer February 12, 1998
- -------------------------
John L. Gardner
/s/ Jeffrey W. Brooks Director, Vice President, Secretary and Treasurer February 12, 1998
- -------------------------
Jeffrey W. Brooks
/s/ Franklin W. Brooks Chairman of the Board of Directors February 12, 1998
- -------------------------
Franklin W. Brooks
/s/ Eugene V. Horanoff Director, Chief Engineer February 12, 1998
- -------------------------
Eugene V. Horanoff
/s/ William M. Schmidt Director February 12, 1998
- -------------------------
William M. Schmidt
/s/ Dennis W. DeConcini Director February 11, 1998
- -------------------------
Dennis W. DeConcini
/s/ James V. Stanton Director February 11, 1998
- -------------------------
James V. Stanton
</TABLE>
55
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------ -------------------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Instrument Defining the Rights of Security Holders (contained in Article IV of Exhibit 3.1)
5.1 Opinion of Gray, Harris & Robinson, P.A.
16.1 Letter re: change in accountants
23.1 Consent of Weinberg & Co., P.A.
23.2 Consent of Gray, Harris & Robinson, P.A. (contained in Exhibit 5.1)
24.1 Power of Attorney (see p. 26)
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
RGB COMPUTER & VIDEO, INC.
Pursuant to Section 607.1007 of the Florida Business Corporation Act, RGB
Computer & Video, Inc., a Florida corporation (the "Corporation"), certifies
that:
1. The original Articles of Incorporation of the Corporation were filed with
the Florida Department of State on July 10, 1989, were amended by Articles of
Amendment to the Articles of Incorporation filed on April 26, 1990, were further
amended by Articles of Amendment to the Articles of Incorporation filed on
January 8, 1991, were again amended by Amended and Restated Articles of
Incorporation filed on April 13, 1993 and were then amended by Articles of
Amendment to the Amended and Restated Articles of Incorporation filed on May 17,
1995;
2. In accordance with the provisions of Sections 607.0821 and 607.0701 of the
Florida Business Corporation Act, these Amended and Restated Articles of
Incorporation were duly adopted by the Board of Directors of the Corporation
pursuant to a unanimous written consent dated as of May 31, 1996 and by the
holders of more than 75 percent of the outstanding stock of the Corporation, the
requisite amount under the current Amended and Restated Articles of
Incorporation;
3. The current Amended and Restated Articles of Incorporation of the
Corporation are amended as follows:
a. Article I is amended to change the name of the Corporation to Saf T Lok
Incorporated;
b. Article II is amended to change the principal address of the
Corporation to 18245 S.E. Federal Highway, Tequesta, Florida 33469;
c. Article III is deleted;
d. Article IV is restated and renumbered as Article III;
e. Article V is amended to change the authorized capital of the
Corporation to 20,000,000 shares of common stock, $0.01 par value, and
renumbered as Article IV;
f. Article VI is amended to reflect revised provisions applicable to
directors of the Corporation, and renumbered as Article V;
g. Article VII is deleted;
<PAGE>
h. Article VIII is expanded and divided into new Articles VI and VII;
i. Article IX is deleted; and
j. Article X is deleted.
4. The foregoing amendments to the current Amended and Restated Articles of
Incorporation were duly adopted by the shareholders of the Corporation; and
5. There are no discrepancies between the provisions of the current Amended and
Restated Articles of Incorporation, as amended, and the provisions of these
Amended and Restated Articles of Incorporation other than the inclusion of the
foregoing amendments which were adopted pursuant to Section 607.1003 of the
Florida Business Corporation Act, and the omission of matters of historical
interest.
The text of the current Amended and Restated Articles of Incorporation of the
Corporation is restated with the amendments described above, effective as of the
date of filing hereof with the Florida Department of State, to read as follows:
ARTICLE I NAME
---------------
The name of the Corporation is Saf T Lok Incorporated.
ARTICLE II PRINCIPAL OFFICE AND MAILING ADDRESS
------------------------------------------------
The address of the principal office and mailing address of the Corporation is
18245 S.E. Federal Highway, Tequesta, Florida 33469.
ARTICLE III PURPOSE
--------------------
The Corporation is organized for the purpose of transacting any and all lawful
businesses for which corporations may be incorporated under the Florida Business
Corporation Act.
ARTICLE IV CAPITAL STOCK
-------------------------
The total number of shares of capital stock which the Corporation shall be
authorized to have outstanding at any time is 20,000,000 shares of Common Stock
with a par value of $0.01 per share, all of which shares shall be issued fully
paid and nonassessable.
ARTICLE V DIRECTORS
--------------------
The number of directors of the Corporation constituting the entire Board of
Directors shall be not less than three (3) nor more than thirteen (13). The
Board of Directors shall determine from time to time the number of directors who
shall constitute the entire Board of Directors. Any such determination made by
2
<PAGE>
the Board of Directors shall continue in effect unless and until changed by the
Board of Directors, but no such changes shall affect the term of any directors
then in office.
The term of office of each of the directors shall expire at each Annual Meeting
of Shareholders. The successors to directors whose terms shall then expire
shall be elected to serve from the time of election and qualification until the
next Annual Meeting of Shareholders following election and until a successor
shall have been duly elected and shall have qualified.
ARTICLE VI LIMITATION OF DIRECTOR LIABILITY
--------------------------------------------
1. No director shall be personally liable for monetary damages to the
Corporation or any other person for any statement, vote, decision or failure to
act, regarding corporate management or policy, by a director, unless: (a) the
director breached or failed to perform his duties as a director; and (b) the
director's breach of, or failure to perform, those duties constitutes (i) a
violation of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his conduct
was unlawful, (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly, (iii) a circumstance under
which the liability provisions of Section 607.0834 of the Florida Business
Corporation Act are applicable, (iv) in a proceeding by or in the right of the
Corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the Corporation, or
willful misconduct, or (v) in a proceeding by or in the right of someone other
than the Corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or property.
2. For purposes of this Article VI, the term "recklessness" means the action,
or omission to act, in conscious disregard of a risk: (a) known, or so obvious
that it should have been known, to the director; and (b) known to the director,
or so obvious that it should have been known, to be so great as to make it
highly probable that harm would follow from such action or omission.
ARTICLE VII INDEMNIFICATION
----------------------------
1. Each person (including here and hereinafter, the heirs, executors,
administrators or estate of such person) (a) who is or was a director or officer
of the Corporation, (b) who is or was an agent or employee of the Corporation
other than an officer and as to whom the Corporation has agreed to grant such
indemnity, or (c) who is or was serving at the request of the Corporation as its
representative in the position of a director, officer, agent or employee of
another corporation, partnership, joint venture, trust or other enterprise and
as to whom the Corporation has agreed to grant such indemnity, shall be
indemnified by the Corporation as of right to the fullest extent permitted or
authorized by current or future legislation or by current or future judicial or
administrative decision (but, in the case of any such future legislation or
3
<PAGE>
decision, only to the extent that it permits the Corporation to provide broader
indemnification rights than permitted prior to such legislation or decision),
against any fine, liability, cost or expense, including attorneys' fees,
asserted against him or incurred by him in his capacity as such director,
officer, agent, employee or representative, or arising out of his status as such
director, which indemnification shall not be exclusive of other rights to which
those seeking indemnification may be entitled. The Corporation may maintain
insurance, at its expense, to protect itself and any such person against any
such fine, liability, cost or expense, whether or not the Corporation would have
the legal power directly to indemnify him against such liability.
2. Costs, charges and expenses (including attorneys' fees) incurred by a person
referred to in Section 1 of this Article VII in defending a civil or criminal
suit, action or proceeding shall be paid by the Corporation in advance of the
final disposition thereof upon receipt, in the case of an officer or director,
of an undertaking to repay all amounts so advanced in the event it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized by this Article VII, and upon satisfaction of such
other conditions as are required by current or future legislation (but with
respect to future legislation, only to the extent that it provides conditions
less burdensome than those previously provided). Such costs, charges and
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the Board of Directors may deem appropriate.
3. If this Article VII or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each person described in Section 1 of this Article VII to the fullest
extent permitted by any applicable portion and to the fullest extent permitted
by law.
IN WITNESS WHEREOF, the undersigned have made, subscribed and acknowledged these
Amended and Restated Articles of Incorporation this 8th day of July, 1996.
/s/ ROBERT L. GILBERT, III
___________________________________
Robert L. Gilbert, III,
President
/s/ CYNTHIA T. GILBERT
____________________________________
Cynthia T. Gilbert,
Secretary
4
<PAGE>
EXHIBIT 5.1
[GRAY, HARRIS & ROBINSON, P.A. LETTERHEAD APPEARS HERE]
February 13, 1998
Saf T Lok Incorporated
18245 S.E. Federal Highway
Tequesta, Florida 33469
Re: Registration Statement on Form S-1 for Saf T Lok Incorporated
Dear Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by you
with the Securities and Exchange Commission on February 13, 1998 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of 2,938,844 shares of Common Stock of Saf T
Lok Incorporated (the "Shares") to be issued upon the exercise of certain stock
purchase warrants and stock options, to be issued in the future by the Company
in connection with services performed for the Company, or currently held by
Selling Shareholders. As your counsel in connection with this registration
process, we have examined the proceedings proposed to be taken in connection
with said sale and issuance of the Shares.
It is our opinion that, upon completion of any proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states, where required, the Shares, when issued and sold in the
manner referred to in the Registration Statement, will be legally issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting part thereof, and
any amendment thereto and any registration statement for the same offering
covered by the Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) and all post-effective amendments thereto.
Sincerely,
Gray, Harris & Robinson, P.A.
By: /s/ William A. Grimm, Esq.
----------------------------
William A. Grimm, Esq.
<PAGE>
Exhibit 16.1
[LETTERHEAD OF WEINBERG & COMPANY, P.A. APPEARS HERE]
February 13, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: SAF T LOK INCORPORATED
FILE REF. NO. 1-11968
----------------------
We were previously the principal accountant for Saf T Lok Incorporated and under
the date of April 10, 1997, we reported on the consolidated financial statements
of Saf T Lok Incorporated and Subsidiaries as of and for the years ended
December 31, 1996 and 1995. On May 30, 1997, our appointment as principal
accountant was terminated. We have read Saf T Lok Incorporated's statements
included on pages 25 and 26 under the section labeled Changes in Accountants of
its Form S-1 to be filed on February 13, 1998, and we agree with such
statements.
Very truly yours,
/s/ Weinberg & Company, P.A.
-------------------------------
WEINBERG & COMPANY, P.A.
F/K/A WEINBERG, PERSHES & COMPANY, P.A.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Form S-1 of our
report for the year ended December 31, 1996 dated April 10, 1997 relating to the
audit of Saf T Lok, Incorporated and to the reference to our Firm under the
caption "Experts", to be filed with the Washington, D.C. Office of the U.S.
Securities and Exchange Commission on February 13, 1998 or as soon thereafter as
is reasonably practicable.
/s/ Weinberg & Company, P.A.
----------------------------
WEINBERG & COMPANY, P.A.
F/K/A WEINBERG, PERSHES & COMPANY, P.A.
Boca Raton, Florida
February 13, 1998
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<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 452,308
<SECURITIES> 0
<RECEIVABLES> 19,199
<ALLOWANCES> 13,310
<INVENTORY> 457,950
<CURRENT-ASSETS> 959,731
<PP&E> 1,522,388
<DEPRECIATION> 429,658
<TOTAL-ASSETS> 2,585,612
<CURRENT-LIABILITIES> 639,015
<BONDS> 0
0
0
<COMMON> 69,726
<OTHER-SE> 10,239,164
<TOTAL-LIABILITY-AND-EQUITY> 2,585,612
<SALES> 38,531
<TOTAL-REVENUES> 38,531
<CGS> 21,210
<TOTAL-COSTS> 136,494
<OTHER-EXPENSES> 497,982
<LOSS-PROVISION> 13,310
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (733,790)
<INCOME-TAX> 0
<INCOME-CONTINUING> (733,790)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (733,790)
<EPS-PRIMARY> (.12)
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