<PAGE>
- --------------------------------------------------------------------------------
_______
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-QSB
Mark One:
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 1-11968
SAF T LOK INCORPORATED
(Exact name of small business issuer
as specified in its charter)
FLORIDA 65-0142837
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
1101 Northpoint Parkway
West Palm Beach, FL 33407
(Address of principal executive offices)
Telephone No. (561) 478-5625
_______________________
(Former name, former address and former fiscal year, if changed since last
report.)
_________________________
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days:
Yes X No __
-
As of May 7, 1999 there were 13,919,261 shares of the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format: Yes __ No X
-
----------------------------------------------------------------
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
This document includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of material fact included in this document, including, without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Liquidity and Sources of
Capital" regarding the Company's strategies, plans, objectives, expectations,
and future operating results are forward-looking statements. Although the
Company believes the expectations reflected in such forward-looking statements
are reasonable at this time, it can give no assurance that such expectations
will prove to have been correct. Actual results could differ materially based
upon a number of factors including, but not limited to, risks detailed in the
Company's Securities and Exchange Commission filings.
Part I. Financial Information
Item 1. Financial Statement.
The registrant's financial statements for the quarter ended March 31, 1999 are
attached hereto.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto, attached hereto, and in conjunction with
the audited financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-KSB filed with the SEC on April 15, 1999.
First quarter of 1999 versus the first quarter of 1998
- ------------------------------------------------------
Sales for the first quarter of 1999 were $49,416 as compared to sales for the
first quarter of 1998 of $248,910, such decrease is primarily due to the fact
that the distributor failed to make the required purchases under the
distribution agreement. Revenues, which consist of sales, interest and royalty
income, and other miscellaneous income, totaled $58,722 for the first quarter of
1999 as compared to of $277,436 for the first quarter of 1998. Sales for the
first quarter of 1999 were almost entirely from shipments to law enforcement
agencies. The magazine lock accounted for
1
<PAGE>
97% of the shipments while the grip lock was only 3%, reflecting the approximate
proportion of semi-automatic pistols to revolvers in use by the law enforcement.
A number of law enforcement agencies that purchased locks in the first quarter
of 1999 were the U. S. Nuclear Regulatory Commission; the U. S. Customs Service;
the Navajo Nation; the City of Miami Springs, Florida; the City of Macomb,
Illinois; Logan City, Utah; Cumberland County North Carolina; Key Biscayne,
Florida; and Harvard University. In addition, in April and May 1999 the Company
received purchase commitments from the Los Angeles, California Unified School
District and the City of Hollywood, Florida.
Substantially all sales in the first quarter of 1998 consisted of shipments of
grip locks through the Distribution and Pricing Agreement with United Safety
Action, Inc. ("Distribution Agreement"). The Company is currently seeking to
terminate the Distribution Agreement.
Gross profit for the first quarter of 1999 was $23,362 or 47% of sales, as a
high proportion of the sales were at list price levels. There were no sales in
the first quarter of 1999 through the Distribution Agreement.
Gross profit on sales for the first quarter of 1998 were 81%, reflecting a lower
costed, older inventory from which most of the goods were shipped. Viewing the
cost of goods sold as reported in the 10KSB for the entire year of 1998 allows
for a more proportionate comparison of the cost of goods sold and gross profits
between the two quarters.
SG&A expenses for the first quarter of 1999 totaled $466,924 as compared to SG&A
expenses for the first quarter of 1998 of $214,694. The major differences in
expense categories for first quarter of 1999 vs. first quarter of 1998 are:
- - Advertising of approximately $9000 in Law Enforcement publications in the
first quarter of 1999 as compared with $300 in the first quarter of 1998.
- - Marketing consultant expenses to prepare a business plan in the first
quarter of 1999 of approximately $36,000 (paid by issuance of common stock) as
compared with approximately $89,000 in the first quarter of 1998 consisting of
the first quarter amortized portion of a public relations agreement and a
consulting agreement as part of a financing package.
- - Sales samples to Law Enforcement agencies of approximately $27,000 in the
first quarter of 1999 as compared with none in the first quarter of 1998. The
Company did not begin its marketing campaign to Law Enforcement agencies until
production of the magazine lock commenced after the first quarter of 1998.
Presenting prospective Law Enforcement customers with trial samples is an
integral part of the sales process to this market segment.
- - Trade show and sales activities resulted in expenses of approximately
$15,000 in the first quarter of 1999 as compared with approximately $1400 in the
first quarter of
2
<PAGE>
1998. More trade shows were attended in the first quarter of 1999 as the Company
prepared for its sales efforts into the Law Enforcement market.
- - Accounting expenses relating to the preparation and audit of the annual
report of approximately $37,500 in the first quarter of 1999 as compared with
approximately $6,000 in the first quarter of 1998. These differences are mainly
a result of timing of invoices as 1998 charges, in total, were more than 1999.
- - Legal costs of approximately $53,000 associated with the class action
securities suit and the lawsuit by the former Company President, John Gardner,
in the first quarter of 1999 as compared with lesser miscellaneous legal
expenses of approximately $4,500 in the first quarter of 1998.
- - Consulting fees for increased product promotional activity and the
engagement of a consulting firm, which was instrumental in the procurement of
the GSA contract, resulted in expenses of approximately $35,000 in the first
quarter of 1999 as compared with approximately $21,000 in the first quarter of
1998.
- - Fees related to filing required reports to regulatory agencies of
approximately $18,000 in the first quarter of 1999 as compared with
approximately $1400 in the first quarter of 1998 was due mainly to increased
volume of filings in the normal course of business.
- - Salary expenses were approximately $134,000 in the first quarter of 1999 as
compared with approximately $62,000 in the first quarter of 1998. In the first
quarter of 1999 there were more salaried employees than in the first quarter of
1998. Although manufacturing activities had been reduced in the first quarter of
1999, key employees were retained in order to keep the manufacturing capability
intact. Also, in the first quarter of 1999 executive salaries were being accrued
whereas in 1998 those salaries were not accrued in the first quarter.
- - Rent charges of approximately $29,000 in the first quarter of 1999 as
compared with approximately $13,000 in the first quarter of 1998. Higher costs
in the first quarter of 1999 reflect the move to consolidate all activities into
an adequate building and one month of rent overlap in the Tequesta building to
facilitate moving. Also, in the first quarter of 1998 the Company had just begun
to increase production to satisfy the Distribution Agreement and had not yet
incurred rent charges for warehousing and production facilities.
Depreciation and amortization reserves increased to $65,387 in the first quarter
of 1999 as compared with $51,942 in the first quarter of 1998 because of the
purchase of additional tooling for the magazine lock after the first quarter of
1998.
Including all SG&A, depreciation, amortization, and miscellaneous income the
first quarter of 1999 resulted in a loss of ($499,728), or $(.03) per share as
compared with a loss of ($76,715), or $(.01) per share for the first quarter of
1998.
Liquidity
3
<PAGE>
The Company ended the first quarter of 1999 with a cash balance of $44,430 and
accounts receivable of $82,106 against accounts payable of $243,951, leaving it
in a low cash position, similar to that which resulted in the going concern
qualification expressed by the independent auditors in the 1998 year end 10KSB
filing on April 15, 1999.
A large portion of the Company's current assets are in inventories of $2,322,708
which resulted from the build-up of parts and finished goods to meet the
requirements of the Distribution Agreement. When United Safety Action, Inc.
failed to make the required purchases and payments under the Distribution
Agreement, the Company was left with excessive inventory. Other current assets
of $160,778 consist mainly of prepaid legal fees, insurance, tooling deposits
and rent which will serve to reduce cash needs for the next quarter and beyond.
The accounts payable of $243,951 consists mainly of normal trade debts that have
been extended through negotiations with the debtors. Accrued expenses of
$368,195 consist mainly of accrued executive salaries from 1998 and the first
quarter of 1999 and accrued commissions under the Distribution Agreement. The
accrued expenses do not constitute an immediate cash need. One vendor has agreed
to accept Company stock in satisfaction of his debt and for performance of
future services.
The Company is in the midst of several capital raising negotiations and expects
to raise sufficient operating capital within the second and third quarters of
1999 to meet its projected needs for the next year.
Capital Resources and Expenditures
The Company acquired miscellaneous tooling of approximately $13,000 in the first
quarter of 1999.
Year 2000 Compliance. The Company has analyzed Year 2000 issues with its
computer and software advisors and has assessed the impact of Year 2000 issues
on the Company's operations. The Company is in the process of obtaining and
reviewing critical vendor's documentation of Year 2000 compliance. The Company
believes that its existing computer programs are fully Year 2000 compliant and
that it will not be necessary to incur any material expenses with regard to Year
2000 issues in the future. The Company believes that all of its non-information
systems are Year 2000 compliant. The Company believes that there are currently
no other material Year 2000 issues to be disclosed.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Part II. Other Information
Item 1. Legal proceedings
4
<PAGE>
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. On April 30, 1999 the
parties agreed to an out of court settlement of the case. Ms. Broderick Fogel is
to receive $50,000 cash and stock options valid for one year for 110,000 shares
of Saf T Lok Incorporated common stock at a strike price of $0.10 per share.
On July 24, 1998, Joseph Yud filed, in the United States District Court,
Southern District of Florida, a class action civil complaint against the
Company, Franklin Brooks and John Gardner. On August 27, 1998, Marvin Slomovics
filed, in the United States District Court, Southern District of Florida, a
class action civil complaint against the Company, Franklin Brooks and John
Gardner. On October 20, 1998, Neal M. Peters filed, in the United States
District Court, Southern District of Florida, a class action civil complaint
against the Company, Franklin Brooks and John Gardner. The three suits, each
denominated as a class action, allege violations of the federal securities laws
and, more specifically, that the Company and its officers made
misrepresentations, or failed to disclose material information between May 26,
1998 and June 12, 1998 concerning a development agreement allegedly entered into
with Semiconductor Laser International Corporation and a highly favorable
research report issued by Woodward Trading Company. The Company has, consistent
with its Articles of Incorporation and Florida law, provided indemnification to
Messrs. Brooks and Gardner. Although insurance coverage exists for defense costs
and any eventual liability, the coverage is limited to $1,000,000 and is subject
to a retention of $250,000. The lawsuits have been consolidated and the
plaintiffs, who have applied to the Court to certify the matter as a class
action, have indicated they intend to file a new complaint shortly. The Company
is unable to say that any particular outcome is either probable or remote.
On October 13, 1998, John L. Gardner, the former President and Chief Executive
Officer of the Company filed, in the Circuit Court for Martin County, Florida, a
lawsuit against the Company and Franklin Brooks. The lawsuit challenges Mr.
Gardner's termination under the terms of his Employment Agreement and the
Company's decision to block Mr. Gardner's attempt to exercise stock options and
sell stock in the Company. The suit also alleges that Mr. Gardner is entitled to
salary and all of his vested and unvested options and also claims that Mr.
Gardner was libeled. The matter is still in the pleading stages and the Company
has asserted numerous counterclaims against Mr. Gardner in its Answer. The
Company has no insurance coverage in this matter for either the Company or Mr.
Brooks. At this preliminary stage in the litigation, the Company is unable to
say whether any particular outcome is either probable or remote.
On May 29, 1998 the Company received notice of an "informal inquiry" from the
Division of Enforcement of the Securities and Exchange Commission ("SEC")
concerning activities between January 1, 1996 and May 29, 1998. The Company
complied with the SEC's requests to produce documents. On February 18, 1999
Franklin
5
<PAGE>
W. Brooks, chairman of the Company's Board of Directors, testified before the
SEC pursuant to a subpoena. At that time the SEC made available to the Company
its formal Order Directing Private Investigation and Designating Officers to
Take Testimony dated September 22, 1998, file no. HO-3451 (the "Order"). The
Order revealed that members of the SEC's staff have reported information to the
Commission that, in the staff's view, tend to show that during the period from
at least January 1, 1996 and continuing thereafter, the Company, its present or
former officers, directors or employees or others may have violated Federal
Securities Laws. At this juncture, it is too early to speculate what the outcome
of this investigation or the potential impact on the Company will be. The
Company has not been requested to make a "Wells" submission and no action or
litigation has been instituted. The extent of any insurance coverage under the
Company's policies has not yet been determined.
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 other legal proceedings, pending or threatened, or judgments entered against
any director or officer of the Company in his capacity as such.
Item 2. Changes In Securities.
In February 1999 the Company sold 12,500 shares of unregistered Common Stock to
a marketing firm for services rendered in assisting with the creation of a
business plan and to seek additional funding. The Company believes that because
the transaction by the Company did not involve a public offering, such sale was
exempted from registration under (S)4(2) of the Exchange Act.
In February 1999 the Company sold 12,500 shares of unregistered Common Stock to
a consultant for services rendered in assisting with the creation of a business
plan and to seek additional funding. The Company believes because the
transaction by the Company did not involve a public offering, that this sale was
exempted from registration under (S)4(2) of the Exchange Act.
6
<PAGE>
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission Of Matters To A Vote Of Security Holders.
During the first quarter of 1999 no matters were submitted to a vote of security
holders through the solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K.
Form 8K/a filed on February 11, 1999 in conjunction with an earlier S-1 filing
and subsequent withdrawal providing exhibits of the MDC Marketing agreement and
the AB Consulting agreement.
Outlook
- -------
The Company ended the first quarter of 1999 facing a number of significant
problems including the need to obtain funding of its working capital
requirements, ongoing litigation (including litigation involving two of its past
presidents) and an ongoing SEC investigation. See "Legal Proceedings" and
"Liquidity". In addition, the Company's distributors have not met their
obligations under the Distribution Agreement with respect to the quantities of
the Company's products to be sold and the amount of advertising to be conducted.
However, by May 14, 1999 the company had made significant progress on these
problems. The lawsuit brought by its former President, Lisa Broderick Fogel has
been settled. (See "Legal Proceedings". Negotiations to terminate the
Distribution Agreement are progressing towards completion and the Company is
nearing conclusion of a portion of its funding needs.
With respect to the Company's marketing activities, in March 1999 the Company
entered into a five year contract with the U.S. General Services Administration
pursuant to which Federal agencies (and some State agencies) can purchase the
Company's products on the basis of previously negotiated terms and discount
prices. The Company has also commenced sales to certain law enforcement agencies
and has received endorsements from a number of organizations, including a recent
one from the institute For Police Research. To date, the cities of New Orleans,
Chicago, Miami, Atlanta, Cleveland, Detroit and Bridgeport have filed suit
against gun manufacturers for producing unsafe weapons or irresponsible sales
tactics. The Company has also received positive publicity on TV and in a number
of newspaper articles. The tragedy at Columbine High School, in Colorado, has
gelled the public's attention on the need to make handguns safer and less
available to juveniles, with the issue currently being debated in the U.S.
Congress and many State Legislatures. The NRA and the major gun manufacturers
have made public statements in the press and TV softening their resistance to
any substantive improvements in gun safety. A number of the cities that filed
the lawsuits have offered to settle the cases if the gun manufacturers will take
positive steps to produce safer guns.
On balance, the Company is optimistic that the combination of the publicity and
endorsements the Company and its products have received, the national focus on
handgun safety, the recent significant sales to law enforcement agencies and the
leading state-of-the-art position that its gunlocks hold over competitive
products will permit the Company to increase both its sales and revenues in the
coming quarters.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SAF T LOK INCORPORATED
By: /s/ Franklin W. Brooks Date: May 17, 1999
-----------------------
Franklin W. Brooks, Chairman, President, Chief Executive Officer
7
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
F/K/A RGB COMPUTER & VIDEO, INC,
INDEX
-----
Page
----
BALANCE SHEETS F2-F3
STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY F4-F5
STATEMENTS OF OPERATIONS F6
STATEMENTS OF CASH FLOWS F7-F8
NOTES TO FINANCIAL STATEMENTS F9-F11
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 1999 AND 1998
ASSETS
------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equilvalents $ 44,430 $2,358,999
Accounts Receivable (less allowance
for doubtful accounts of $502,656
and $14,510, respectively) 82,106 4,605
Note Receivable 13.863 16,794
Inventories 2,322,708 592,057
Prepaid Expenses 160,779 1,735,112
TOTAL CURRENT ASSETS 2,623,886 4,707,567
PROPERTY AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION 1,198,814 1,211,210
OTHER ASSETS
Patents, (less accumulated amortization
Of $111,847 and $78,264, respectively) 310,930 344,513
Note receivable, less current portion 148,285 162,545
Other assets 9,016 2,150
TOTAL OTHER ASSETS 468,231 509,208
TOTAL $4,290,931 $6,427,985
</TABLE>
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 31, 1999 AND 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Note Payable $ 35,441 $ 60,677
Accounts Payable 243,951 559,640
Accrued Expenses 371,061 316,233
Prepayments - 851,780
TOTAL CURRENT LIABILITIES 650,453 1,788,330
LONG-TERM LIABILITIES
Notes Payable, less current portion - 61,081
------------ ------------
TOTAL LIABILITIES 650,453 1,849,411
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value,
20,000,000 shares authorized, 13,749,957
and 11,479,077 shares issued and
outstanding, in 1999 and 1998, respectively 137,500 114,791
Paid-in-capital 27,680,603 22,758,587
Other equity reductions (4,254,829) (4,861,416)
Accumulated deficit (19,922,796) (13,433,388)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,640,477 4,578,574
------------ ------------
TOTAL $ 4,290,931 $ 6,427,985
</TABLE>
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
OTHER
COMMON STOCK PAID-IN EQUITY
---------------------
SHARES AMOUNT CAPITAL REDUCTIONS DEFICIT TOTAL
--------- ----------------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 5,655,255 $ 56,553 $ 9,167,898 $ $ (8,092,067) $ 1,132,384
Issuance of common stock in
connection with conversion
of debentures 2,147,247 21,472 985,671 1,007,143
Issuance of common stock in
connection with severance
agreement 30,000 300 78,450 78,750
Issuance of common stock in
connection with repayment
of loans to major shareholder 102,012 1,020 198,980 200,000
Issuance of common stock to
suppliers and service
providers 169,486 1,695 370,653 372,348
Issuance of common stock to
offshore investors 1,683,077 16,830 3,033,170 3,050,000
Issuance of common stock to
an officer upon exercise of
stock options 200,000 2,000 69,200 71,200
Deferred compensation 1,421,500 (1,421,500) -
Stock options granted to
officers, directors and
consultants 2,411,010 2,411,010
Amortization of deferred
compensation 341,084 341,084
Net loss (5,264,606) (5,264,606)
--------- ----------------------- ------------ ------------ -----------
BALANCE - DECEMBER 31, 1997 9,987,077 $ 99,870 $17,736,532 $ (1,080,416) $(13,356,673) $ 3,399,313
========= ======== =========== ============ ============ ===========
Issuance of common stock to
offshore investors 250,000 $ 2,500 $ 497,500 $ $ $ 500,000
Issuance of common stock to
2 consultants upon exercise
of stock options 160,000 1,600 398,400 400,000
Issuance of common stock to
a director/employee upon
exercise of stock options 108,000 1,080 9,720 10,800
Issuance of common stock to
an employee upon
exercise of stock options 29,000 290 2,610 2,900
</TABLE>
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS= EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
(CONTINUED)
<TABLE>
<CAPTION>
OTHER
COMMON STOCK PAID-IN EQUITY
------------------------
SHARES AMOUNT CAPITAL REDUCTIONS DEFICIT TOTAL
---------- ---------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock in
connection with a marketing
agreement 25,000 250 68,500 68,750
Issuance of common stock in
connection with exercise
of warrants 2,000,000 20,000 3,365,998 3,385,998
Issuance of common stock in
connection with distributor
agreement 1,000,000 10,000 3,771,000 3,781,000
Unearned advertising
expense (3,781,000) (3,781,000)
Issuance to landlord for
payment of rent 50,880 509 50,371 50,880
Issuance of warrants in
connection with
distributor agreement 1,884,000 1,884,000
Forfeiture of deferred
compensation (265,500) 265,500 -
Amortization of deferred
compensation 341,087 341,087
Issuance of stock
options to
consultants 115,436 115,436
Net Loss (6,066,394) (6,066,394)
---------- ---------- ----------- -------------- ------------ ----------
BALANCE -DECEMBER 31, 1998 13,609,957 $ 136,099 $27,634,567 $ (4,254,829) $(19,423,067) $4,092,770
========== ========== =========== ============== ============ ==========
Issuance of common stock to
one employee and one
employee/director upon
exercise of stock options 115,000 1,150 10,350 11,500
Issuance of common stock in
connection with marketing
agreement 25,000 250 35,688 35,938
Net Loss (499,728) (499,728)
BALANCE - MARCH 31, 1999 13,749,957 $ 137,499 $27,680,605 $ (4,254,829) $(19,922,793) $3,640,482
</TABLE>
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Sales $ 49,416 $ 248,910
Cost of Sales 26,053 74,778
----------- -----------
Gross Profit 23,363 202,658
Selling, general and
administrative expenses 467,010 227,431
Depreciation 65,387 51,942
Other income 9,306 28,526
----------- -----------
NET LOSS $ (499,728) $ (76,715)
=========== ===========
LOSS PER COMMON SHARE $ (.03) $ (.01)
=========== ===========
Weighted average number of common
shares outstanding 13,749,957 10,651,036
=========== ===========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $(499,728) $ (76,715)
NET (LOSS) (499,728) (76,715)
--------- ---------
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 65,387 51,942
Change in assets and liabilities:
Decrease (increase) in accounts receivable (22,486) 281
(Decrease) increase in allowance for bad debts - -
Increase in prepaid expenses (18,451) (850,793)
Decrease in prepaid expenses - 96,875
Increase in inventories 49,292 244,375
(Decrease) increase in accounts payable (127,583) 60,893
Increase in accrued liabilities 124,806 746,373
Increase in Prepayments - (248,220)
Issuance of stock for advertising services 35,938 68,750
Issuance of warrants pursuant to distribution agreement - 473,525
NET CASH USED IN OPERATING ACTIVITIES (392,825) 567,286
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in current portion of note receivable 4,438 4,154
Payments for the purchase of equipment (13,315) (352,551)
Decrease in deposits 720 -
NET CASH PROVIDED BY INVESTING ACTIVITIES (8,157) (348,397)
--------- ---------
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
(CONTINUED)
<TABLE>
<CAPTION>
1999 1998
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 10,350 500,000
Issuance of stock upon exercise of options 1,400 213,700
--------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,750 713,700
--------------- -------------
Net increase (decrease) in cash and equivalents (389,232) 932,589
Cash and equivalents at beginning of year 433,661 1,426,410
--------------- -------------
Cash and equivalents at end of period $ 44,430 $ 2,359,999
=============== =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash payments for interest $ 196 $ 22,098
============== =============
</TABLE>
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 1998. 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, which would substantially
duplicate the disclosure contained in the Company's financial statements
for the year ended December 31, 1998, has been omitted. The results of
operations for the three-month period ended March 31, 1999 are not
necessarily indicative of results for the entire year ending December 31,
1999.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 financial statement presentation. Such
reclassifications had no effect on the 1998 net loss or shareholders
equity.
NOTE 2 -- INVENTORIES
Inventories are comprised of the following as of March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Finished Goods $ 306,206 $ 24,475
Raw Materials 1,990,448 517,596
Supplies 26,000 59,986
---------- --------
TOTAL $2,322,708 $592,057
</TABLE>
NOTE 3 -- PREPAID EXPENSES
Prepaid expense is comprised of the following as of March 31, 1999 and
1998.
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
Deposit on patent costs $ 64,438 $ 24,438
Prepaid insurance 42,054 13,182
Deposits tooling 36,357 -
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Prepaid Marketing & Advertising - 60,156
Public Relations & Financial
Consulting Agreements - 1,618,376
Prepaid show expenses 925 14,448
Prepaid other 17,004 4,512
-------- ----------
TOTAL $160,778 $1,735,112
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of March 31, 1999
and 1998.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Equipment 436,932 386,899
Furniture and fixtures 52,625 59,532
Tools and die 1,513,807 1,289,819
Software 39,359 37,214
Leasehold improvements 11,436 11,436
---------- ----------
TOTAL 2,054,159 1,784,900
Less accumulated depreciation 855,345 573,690
---------- ----------
TOTAL $1,198,814 $1,211,210
</TABLE>
NOTE 5 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following as of
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
Accounts payable $243,951 $ 559,640
Accrued expenses 371,061 316,233
Prepayments - 851,780
-------- ----------
TOTAL $615,012 $1,727,653
</TABLE>
<PAGE>
NOTE 6 -- CONSULTING AGREEMENTS
On February 16, 1999, pursuant to an agreement ratified by the Board of
Directors on January 20, 1999, the Company issued 25,000 shares of its
common stock to two marketing consultants to create a business plan and to
commence a search to secure financing. An additional 25,000 shares will be
issued to the marketing consultants upon receipt by the Company of a
bonafide $2,000,000 equity financing agreement, secured by these
consultants and acceptable to the Company. Once funds are received, the
marketing consultants will receive 5% of the gross proceeds as a commission
and the Company will approve an expenditure to continue with a marketing
plan in the amount of $250,000 of which 20% will be paid in cash over a
twelve month period, and 80% in the form of the Company's common stock.
NOTE 7 -- SHAREHOLDERS' EQUITY
On January 5, 1999, one officer/employee and one employee exercised 115,000
ten cent stock options. The gross proceeds to the Company was $11,500.
On January 18, 1999 two officers/employees and one employee forfeited all
present and future claims to 30,000 options granted to them in 1996 at an
exercise price of $3.06 per share.
On February 16, 1999, 25,000 shares were issued to two consultants
pursuant to a consulting agreement. The shares were valued at $1.4375 per
share, which was fair market value at close of business on February 12,
1999. (See Consulting Agreements).
NOTE 8 -- SUBSEQUENT EVENTS
In April 1999, two consultants exercised stock options at an exercise price
of $1.09 per share for a total of 100,000 shares.
In April 1999, four employees exercised options at an exercise price of
$1.09 per share for a total of 69,304 shares.
On April 16, 1999, an agreement was reached regarding granting of stock in
exchange for legal services. The stock would cover legal services already
accounted for in Accounts Payable and future legal services.
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 1998. 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, which would substantially
duplicate the disclosure contained in the Company's financial statements
for the year ended December 31, 1998, has been omitted. The results of
operations for the three-month period ended March 31, 1999 are not
necessarily indicative of results for the entire year ending December 31,
1999.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 financial statement presentation. Such
reclassifications had no effect on the 1998 net loss or shareholders
equity.
NOTE 2 - INVENTORIES
Inventories are comprised of the following as of March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Finished Goods $ 306,206 $ 24,475
Raw Materials 1,990,448 517,596
Supplies 26,000 59.986
---------- ----------
TOTAL $2,322,708 $592,057
</TABLE>
NOTE 3 - PREPAID EXPENSES
Prepaid expense is comprised of the following as of March 31, 1999 and
1998.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deposit on patent costs $ 64,438 $ 24,438
Prepaid insurance 42,054 13,182
Deposits - tooling 36,357 -
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Prepaid Marketing & Advertising - 60,156
Public Relations & Financial
Consulting Agreements - 1,618,376
Prepaid show expenses 925 14,448
Prepaid other 17,004 4,512
-------- ----------
TOTAL $160,778 $1,735,112
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of March 31, 1999
and 1998.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Equipment 436,932 386,899
Furniture and fixtures 52,625 59,532
Tools and die 1,513,807 1,289,819
Software 39,359 37,214
Leasehold improvements 11,436 11,436
---------- ----------
TOTAL 2,054,159 1,784,900
Less accumulated depreciation 855,345 573,690
---------- ----------
TOTAL $1,198,814 $1,211,210
</TABLE>
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following as of
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
Accounts payable $243,951 $ 559,640
Accrued expenses 371,061 316,233
Prepayments - 851,780
-------- ----------
TOTAL $615,012 $1,727,653
</TABLE>
<PAGE>
NOTE 6 - CONSULTING AGREEMENTS
On February 16, 1999, pursuant to an agreement ratified by the Board of
Directors on January 20, 1999, the Company issued 25,000 shares of its
common stock to two marketing consultants to create a business plan and to
commence a search to secure financing. An additional 25,000 shares will be
issued to the marketing consultants upon receipt by the Company of a
bonafide $2,000,000 equity financing agreement, secured by these
consultants and acceptable to the Company. Once funds are received, the
marketing consultants will receive 5% of the gross proceeds as a commission
and the Company will approve an expenditure to continue with a marketing
plan in the amount of $250,000 of which 20% will be paid in cash over a
twelve month period, and 80% in the form of the Company's common stock.
NOTE 7 - SHAREHOLDERS' EQUITY
On January 5, 1999, one officer/employee and one employee exercised 115,000
ten cent stock options. The gross proceeds to the Company was $11,500.
On January 18, 1999 two officers/employees and one employee forfeited all
present and future claims to 30,000 options granted to them in 1996 at an
exercise price of $3.06 per share.
One February 16, 1999, 25,000 shares were issued to two consultants
pursuant to a consulting agreement. The shares were valued at $1.4375 per
share, which was fair market value at close of business on February 12,
1999. (See Consulting Agreements).
NOTE 8 - SUBSEQUENT EVENTS
In April 1999, two consultants exercised stock options at an exercise price
of $1.09 per share for a total of 100,000 shares.
In April 1999, four employees exercised options at an exercise price of
$1.09 per share for a total of 69,304 shares.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000902056
<NAME> SAF T LOK INCORPORATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 44,430
<SECURITIES> 0
<RECEIVABLES> 584,762
<ALLOWANCES> 502,656
<INVENTORY> 2,322,708
<CURRENT-ASSETS> 2,623,866
<PP&E> 2,054,159
<DEPRECIATION> 855,345
<TOTAL-ASSETS> 4,290,931
<CURRENT-LIABILITIES> 650,453
<BONDS> 0
0
0
<COMMON> 137,500
<OTHER-SE> 23,425,774
<TOTAL-LIABILITY-AND-EQUITY> 3,640,477
<SALES> 49,416
<TOTAL-REVENUES> 58,722
<CGS> 26,053
<TOTAL-COSTS> 26,053
<OTHER-EXPENSES> 467,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> (499,728)
<INCOME-TAX> 0
<INCOME-CONTINUING> (499,728)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499,728)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
