<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 September 30, 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 November 12, 1999 there were 13,983,615 shares of the issuer's common
stock outstanding.
Transitional Small Business Disclosure Format: Yes __ No __X__
________________________________________________________________
1
<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 strategies, plans, objectives, expectations, and future
operating results of Saf T Lok Incorporated (the "Company") 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,
unproven market, competition, accumulated deficit, need for additional capital,
going concern qualification, outstanding debt, lack of profitable operating
history, SEC investigation, class action lawsuits and other litigation,
political climate or events, state and federal regulation, dependence on key
personnel, protection of patent rights, volatile and thin market for stock,
dilution, no dividends, shares eligible for future resale, risk of low-priced
shares and other risks detailed in the Company's Securities and Exchange
Commission filings.
Part I. Financial Information
Item 1. Financial Statement.
- ----------------------------
The Company's financial statements for the three-month period and nine-month
period ended September 30, 1999 are attached hereto.
Item 2. Management's Discussion and Analysis or Plan 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.
Three Months Ended September 30, 1999 compared to Three Months Ended September
- ------------------------------------------------------------------------------
30, 1998.
- ----------
Sales for the third quarter of 1999 were $14,435 as compared to sales for the
third quarter of 1998 of $472,333. For the third quarter of 1999, the majority
of sales were made directly to law enforcement agencies while substantially all
sales in the third quarter of
1
<PAGE>
1998 consisted of shipments to United Safety Action, Inc. ("USA") to meet the
required purchases under the Distribution and Pricing Agreement between the
Company and USA dated February 11, 1998 (the "Distribution Agreement"), which
was subsequently terminated in May 1999.
During the third quarter of 1999, magazine lock sales dropped to 86% of total
sales as a result of a dip in law enforcement volume coupled with an increase in
grip lock sales to new distributors to stock their shelves.
Gross profit for the third quarter of 1999 was $5,959 or 41% of sales,
consistent with normal margin levels experienced with direct company sales to
the law enforcement agencies. There were no sales in the third quarter of 1999
through the Distribution Agreement.
Gross profit on sales for the third quarter of 1998 was a loss of $(164,492),
reflecting increased costs associated with additional start-up expenses of the
magazine lock and ramp up of the assembly lines coupled with lower selling
prices specified in the Distribution Agreement. There was no material quantity
of direct company sales to the law enforcement agencies in the third quarter of
1998.
SG&A expenses for the third quarter of 1999 totaled $450,629 as compared to SG&A
expenses for the third quarter of 1998 of $632,940 reflecting the relatively
higher level of manufacturing and engineering activities required to meet the
terms of the Distribution Agreement in the third quarter of 1998.
Other expenses, associated with raising working capital and payment of legal
services with Company stock, were $211,409 for the third quarter of 1999 as
compared to $537,181 for the third quarter of 1998.
Expenses related to the defense of various lawsuits (see "Legal Proceedings")
contributed to higher than normal legal costs for the third quarter of 1999 of
approximately $182,000 as compared to approximately $67,000 for the third
quarter of 1998. With the settlements of the Broderick lawsuit, Gardner lawsuit
and the three class action suits, legal expenses are expected to decline.
In total, the third quarter of 1999 resulted in a loss of ($720,655), or $(.05)
per share as compared with a loss of ($1,387,212), or $(.10) per share for the
third quarter of 1998.
Nine Months Ended September 30, 1999 compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1998.
- -----
Total sales for the first three-quarters of 1999 were $145,243 compared to total
sales for the first three-quarters of 1998 of $1,705,793. Higher revenues during
the 1998 period were due to sales to USA under the Distribution Agreement. Other
income from short
2
<PAGE>
term interest on cash invested and licensing royalties was $11,747 for the first
three quarters of 1999 as compared to $33,631 the first three quarters of 1998.
The additional $21,884 of other income for the 1998 period is because of more
cash on hand to earn interest on short-term investments during that period.
Gross profit as a percentage of sales was approximately 43% for the first three
quarters of 1999. Gross profit was lower at approximately 19% of sales for the
first three quarters of 1998 because of the volume price reductions specified in
the Distribution Agreement and the high cost of sales associated with production
start-up of the magazine lock and rapid ramp up of production volume to satisfy
the terms of the Distribution Agreement.
SG&A expenses for the first three-quarters of 1999 totaled $1,329,623 compared
to $1,249,338 for the first three quarters of 1998.
Other expenses, associated with raising working capital and payment of services
with Company stock, were $1,001,913 for the first three-quarters of 1999 as
compared to $1,411,335 for the first three-quarters of 1998.
In total, the first three-quarters of 1999 resulted in a loss of ($2,462,817),
or $(.18) per share as compared with a loss of ($2,490,191), or $(.20) per share
for the first three-quarters of 1998.
Liquidity and Sources of Capital
- --------------------------------
The Company ended the third quarter of 1999 with a cash balance of $69,466 and
accounts receivable of $55,875 against accounts payable of $208,194, leaving it
in a low cash position.
In addition to sales and other normally occurring revenues netting a total of
approximately $26,000 in the third quarter of 1999 the Company received
additional funds of $265,000 as the net proceeds from the sale of convertible
debentures (See "Other Information") and reduction of accounts receivable of
approximately $65,000 for a total cash inflow of approximately $356,000. Cash
was used partially to fund operations, increase inventory and reduce payables.
Because of the low cash position all executive officers began accruing salaries
beginning the first week of September 1999.
In July 1999 the Company sold $400,000 of 6%, two-year debentures (See "Other
Information"). The Company has a liability to pay the interest, due each year on
the anniversary dates of the debentures in July 2000 and July 2001 in cash or in
Company stock. If the Company elects to pay in cash $24,000 would be due each
year on the anniversary date. If the debentures are not converted to shares of
the Company stock before the maturity date of July 15, 2001 the Company is
obligated to repay the debenture holders the principal amount of the debentures,
a total of $400,000 in cash. The agreement with Alexander, Wescott and Company,
Inc. (the "Placement Agent"), who brokered the
3
<PAGE>
debentures, specifies that, at the Company's discretion, the Company may direct
the Placement Agent to use his best efforts to obtain purchasers for an
additional $600,000 of debentures under the same terms as the completed sale of
the previous $400,000 of debentures. By November 12, 1999 all of the $400,000
tranche of the debentures had been converted into shares of Company stock.
The Company has directed Alexander, Wescott and Company, Inc. to seek purchasers
for the remaining $600,000 of debentures. These debentures are to be sold under
somewhat more favorable terms than the previous $400,000 tranche. (See "Other
Information"). By November 12, 1999 the Company sold $175,000 of the remaining
$600,000 of debentures.
A large portion of the Company's current assets are in inventories of $2,472,515
which is largely a holdover from the build-up of parts and finished goods in
1998 to meet the requirements of the Distribution Agreement. When USA failed to
make the required purchases and payments under the Distribution Agreement, the
Company was left with excessive inventory. Additionally, the inventory grew
approximately $112,000 through receipt of new parts and models of magazine
locks.
Other current assets of $159,029 consist mainly of prepaid insurance, legal
fees, tooling deposits and rent. The accounts payable of $208,194 consists
mainly of legal bills related to raising capital and defense of lawsuits (See
"Other Information") and normal trade debts, some of which had been extended
through negotiations with the creditors.
The Company is continuing with its efforts to raise additional capital and,
while there is no assurance of success, it expects to raise a sufficient amount
of funds within the fourth quarter of 1999 to meet its projected needs for the
next year.
Going Concern
- -------------
The Company's continued ability to operate as a going concern is dependent on
its ability to raise additional capital and achieve a successful level of sales.
The Company is attempting to obtain the necessary financing to fund operations.
However there can be no assurance that the financing will be satisfactorily
concluded in time to provide the Company the working capital it needs to
continue operations. The aforementioned circumstances raise doubts as to the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these doubts.
Capital Resources and Expenditures
- ----------------------------------
The Company made no material capital expenditures in the third quarter of 1999.
4
<PAGE>
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 has obtained and reviewed critical
vendor's documentation of Year 2000 compliance. Due to the Company's current
inventory position there is no great reliance on its parts suppliers. The
Company's computer systems advisor has taken the necessary steps to insure that
its existing computer programs and all of its non-information systems 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 there are currently no other material Year 2000 issues to be disclosed.
Outlook:
- --------
The Company ended the third quarter of 1999 still facing a number of significant
problems including the continuing need to obtain funding of its working capital
requirements and an ongoing SEC investigation. See "Legal Proceedings" and
"Liquidity".
However, by October 1999 the Company had made significant progress on these
problems. On April 30, 1999, the lawsuit brought by its former President, Lisa
Broderick Fogel had been settled and on October 15, 1999 a settlement had also
been reached in the lawsuit filed by John Gardner. Both are subject to dismissal
by the court. (See "Legal Proceedings").
The Company also reached settlement, subject to court approval, of the class
action securities suits brought by shareholders in July 1998.
With respect to its Law Enforcement marketing activities, in the third quarter
the Company shipped locks to new Police Departments in Dothan, Alabama; Niles,
Illinois; and Garwood, New Jersey. The National Parks Service also purchased
locks for evaluation. In October 1999 orders were received from the U.S.
Marshall Service, Norwood, MA Police Department and the Grant County, WI
Sheriff's Department.
The Company continued to expand its sales efforts with the addition of the
Simpson Sales Manufacturers' Representative Agency serving 10 southeastern U.S.
states and the addition of the following distributors of Police Equipment: G T
Distributors, Lawman's and Shooters Supply, Mississippi Police Supply, Maryland
Small Arms, and Southern Pines Police Supply.
The Company continued to receive a great deal of favorable interest in the
following trade shows exhibited at in the third quarter and October 1999: The
Fraternal Order of Police Convention, The National Organization of Black Law
Enforcement Executives, The International Association of Chiefs of Police.
5
<PAGE>
On balance, the Company continues to be 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 continue with
increases in both its sales and revenues in the coming quarters. No assurances
can be provided, however, that such increases will occur or that the Company
will be profitable.
Part II. Other Information
Item 1. 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. On April 30, 1999 the
parties agreed to an out of court settlement of the case. Ms. Broderick Fogel
received $50,000 in cash from the insurance company and stock options from the
Company for 110,000 shares of Saf T Lok Incorporated common stock at an exercise
price of $0.10 per share which expire in one year from registration of the
underlying stock, which registration became effective September 24, 1999. The
Company is moving for dismissal of the case.
On July 24, 1998, Joseph Yud filed a class action civil complaint against the
Company, Franklin Brooks and John Gardner in the United States District Court,
Southern District of Florida. On August 27, 1998, Marvin Slomovics filed a class
action civil complaint against the Company, Franklin Brooks and John Gardner in
the United States District Court, Southern District of Florida. On October 20,
1998, Neal M. Peters filed a class action civil complaint against the Company,
Franklin Brooks and John Gardner in the United States District Court, Southern
District of Florida. 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. On August
3, 1999 the Company announced that it has reached agreement with plaintiff-
shareholders to settle all claims brought against the Company, its Chairman,
Frank Brooks, and its former President and CEO, John Gardner. The terms of the
settlement include payment of $850,000.00 to the plaintiffs. The settlement
payment will be fully funded by the Company's insurer, except that the Company
will pay the legal fees for itself and Mr. Gardner. Persons who acquired shares
of Saf T Lok Incorporated between May 26, 1998 and June 12, 1998 will have the
option to participate in the settlement or exclude themselves from the class.
The
6
<PAGE>
settlement is subject to court approval.
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 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.
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 Company has asserted numerous counterclaims against Mr.
Gardner in its Answer. Through mediation on October 15, 1999 a settlement was
reached and the civil action is to be dismissed with prejudice with all parties
bearing their own attorney's fees. Mr. Gardner will receive vested options for
250,000 shares of his remaining original 472,000 shares which he received while
he was employed by the Company and waives all other options that he had been
awarded or entitled to in the past.
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. See the
Company's Quarterly Report on form 10-QSB for the quarter ended March 31, 1999.
7
<PAGE>
Item 2. Changes In Securities.
- ------------------------------
In August 1999 the Company issued 40,000 shares of unregistered Common Stock to
Alexander, Wescott & Co., as commission for the sale of two-year convertible
debentures pursuant to Section 4 (2) of the Securities Act of 1933 as amended.
Pursuant to the agreement entered into between the parties, the Company must
file for registration of the stock within 90 days following the closing of the
debenture sale.
In September 1999 the Company issued 57,858 shares of Common Stock to two
debenture holders upon conversion of a portion of the two-year convertible
debentures sold July 14, 1999 pursuant to Section 4 (2) of the Securities Act of
1933 as amended.
In October 1999 the Company issued 285,123 shares of Common Stock to seven
debenture holders upon conversion of a portion of the two-year convertible
debentures sold July 14, 1999 pursuant to Section 4 (2) of the Securities Act of
1933 as amended.
In November 1999 the Company issued 54,280 shares of Common Stock to two
debenture holders upon conversion of a portion of the two-year convertible
debentures sold July 14, 1999 pursuant to Section 4 (2) of the Securities Act of
1933 as amended.
Item 3. Defaults upon Senior Securities.
- ----------------------------------------
None.
Item 4. Submission of Matters To A Vote Of Security Holders.
- ------------------------------------------------------------
During the third quarter of 1999 no matters were submitted to a vote of security
holders through the solicitation of proxies or otherwise.
Item 5. Other Information
- -------------------------
The Company announced on July 15, 1999 that it had completed a private sale, to
nine accredited investors, of two-year convertible debentures in the principal
amount of $400,000.00 pursuant to Regulation D promulgated under the Securities
Act of 1933 as amended. Alexander, Wescott & Co, Inc. served as placement
agent. Interest on the principal amount is 6% per year simple interest and is
payable in cash or shares of the Company's common stock. The debentures may be
converted at any time after the earlier of the effective date of the
Registration Statement to be filed by the Company registering the shares
underlying the debentures, or 90 days after such Registration Statement is filed
with the SEC. The conversion price of the debentures will be equal to 75% of
the market
8
<PAGE>
price of the Company's Common Stock upon conversion, with a floor of
$0.50 and a ceiling of $2.00 per share, subject to certain adjustment provisions
included in the debentures. The Company has the right to prepay the debentures
prior to maturity, provided that if it does so within 90 days of issuance, it
will pay a premium of 10% of the face value of the debentures, and if it prepays
within 180 days, it will pay a premium of 20% of such value. The agreement also
specifies that, at the Company's discretion, the Company may direct the
Placement Agent, by October 15, 1999, to use his best efforts to obtain
purchasers for an additional $600,000 of debentures.
Net proceeds to the Company from the sale of the $400,000 of debentures were
$265,000 after a cash commission of 10%, a 3% non-accountable expense allowance,
escrow fees of $5000, and a $78,000 non-refundable prepayment of commissions and
expenses for the sale of additional debentures in the amount of $600,000, should
the Company elect to direct the Placement Agent to sell such additional
debentures on or prior to October 15, 1999.
Prior to October 15, 1999 the Company directed Alexander, Wescott and Company,
Inc. to purchasers for the additional $600,000 of debentures. These debentures
are to be sold under the same terms as the previous $400,000 tranche except that
the floor conversion price has been raised to $0.70 per share and the Company
has the discretionary right to pay the principal, at maturity, in cash or shares
of the Company's common stock.
The Company intends to use the proceeds from the sale of the debentures for
general corporate purposes, including, but not limited to, its marketing
activity.
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Reports on Form 8-K.
- --- --------------------
The Company filed no reports on form 8K during the quarter covered by this
report.
(b) Exhibits.
- --- ---------
27.1 Financial Data Schedule
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
9
<PAGE>
By: /s/ Franklin W. Brooks Date: November 12, 1999
-----------------------
Franklin W. Brooks, Chairman, President, Chief Executive Officer
10
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
INDEX
-----
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 & 1998 F-2
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1999 F-3 - F-4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-8
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND 1998
---------------------------------
<TABLE>
<CAPTION>
ASSETS
------
CURRENT ASSETS 1999 1998
- -------------- ----------- ------------
<S> <C> <C>
Cash and Cash Equivalents $ 69,466 $ 1,320,800
Accounts Receivable (less allowance for doubtful accounts
of $14,510 in 1998) 55,875 487,023
Notes Receivable, current portion 21,262 6,440
Inventories 2,472,515 2,117,921
Prepaid Expenses 159,029 5,540,090
------------ ------------
Total Current Assets 2,778,147 9,472,274
------------ ------------
PROPERTY AND EQUIPMENT, LESS
- ----------------------------
ACCUMULATED DEPRECIATION 1,108,115 1,433,327
- ------------------------
OTHER ASSETS
- ------------
Patents (less accumulated amortization) 279,372 326,513
Notes Receivable, less current portion 130,177 162,545
Deferred Interest, less current portion 70,754
Deposits 9,016 9,261
------------ ------------
Total Other Assets 489,319 498,319
------------ ------------
TOTAL ASSETS $ 4,375,581 $ 11,403,920
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 208,194 $ 577,330
Accrued Expenses 26,213
------------ ------------
Total Current Liabilities 234,407 577,330
------------ ------------
LONG TERM LIABILITIES
- ---------------------
Debentures Payable 325,000
SHAREHOLDERS' EQUITY
- --------------------
Common Stock 136,442 136,099
Paid In Capital 25,783,629 27,282,328
Other Equity Reductions (218,013) (744,953)
Accumulated Deficit (21,885,884) (15,846,884)
------------ ------------
Total Shareholders' Equity 3,816,174 10,826,590
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,375,581 $ 11,403,920
============ ============
</TABLE>
F-2
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK Equity Accumulated
----------------------
Shares Amount Paid In Capital Reductions Deficit Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
2 director/employees upon
exercise of stock options 137,000 1,370 12,330 13,700
Issuance of common stock in
connection with 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
Issuance to landlord for payment
of rent 50,880 509 50,371 50,880
Issuance of warrants in
connection with distribution
agreement 1,884,000 1,884,000
Unearned advertising expense (3,781,000) (3,781,000)
Forfeit 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 employee/
directors upon exercise of stock option 115,000 1,150 10,350 11,500
Issuance of common stock in
payment of marketing agreement fees 25,000 250 35,688 35,938
Issuance of common stock to consultants
upon exercise of stock option 100,000 1,000 108,000 109,000
Return of common stock upon cancellation
of distribution agreement (1,000,000) (10,000) (3,771,000) (3,781,000)
</TABLE>
F-3
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK Equity Accumulated
----------------------
Shares Amount Paid In Capital Reductions Deficit Total
Cancellation of unearned advertising expense --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3,781,000 3,781,000
Issuance of common stock to an employee/
director, a director and three employees upon
exercise of stock options 109,304 1,093 295,482 296,575
Amortization of deferred compensation 170,544 170,544
Stock options granted to former officer/employee 410,775 410,775
Issuance of common stock in connection
with exercise of warrants 500,000 5,000 1,300,000 1,305,000
Purchase of outstanding warrants (500,000) (500,000)
----------------------------------------------------------------------------------
Balance - June 30, 1999 13,459,261 $ 134,592 $ 25,523,862 $ (303,285) $(19,423,067) 5,932,102
Issuance of common stock for legal services 87,093 871 99,809 100,680
Stock issued for commissions and fees in
connection with convertible debentures 40,000 400 84,600 85,000
Issuance of common stock on conversion
of debentures 57,858 579 75,358 75,937
Amortization of deferred compensation 85,272 85,272
Net loss (2,462,817) (2,462,817)
----------------------------------------------------------------------------------
Balance - September 30, 1999 13,644,212 $ 136,442 $ 25,783,629 $ (218,013) $(21,885,884) 3,816,174
==================================================================================
</TABLE>
F-4
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, 1999 AND 1998
---------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------------ -------------------------------------
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 14,435 $ 472,333 $ 145,243 $ 1,705,793
Cost of Sales 8,476 636,825 83,233 1,378,828
----------- ------------ ------------ ------------
Gross Profit 5,959 (164,492) 62,010 326,965
Selling, General &
Administrative expenses 450,629 632,940 1,329,623 1,249,338
Depreciation 76,323 52,599 226,922 156,483
Other Income 11,747 33,631
Stock Options, Warrants
& Stock Issued for
Compensation & Services 211,409 537,181 1,001,913 1,411,335
----------- ------------ ------------ ------------
NET LOSS $ (720,655) $(1,387,212) $(2,462,817) $(2,490,191)
=========== ============ ============ ============
(LOSS) PER COMMON SHARE $ (0.05) $ (0.10) $ (0.18) $ (0.20)
=========== ============ ============ ============
Weighted Average Number of
Outstanding Common Shares
13,532,451 13,609,957 13,680,391 12,429,394
=========== ============ ============ ============
</TABLE>
F-5
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $ (2,462,817) $ (1,387,212)
------------ ------------
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 226,922 156,483
Non cash compensation to directors and officers 747,991 335,460
Issuance of stock for services 221,618 68,750
Issuance of stock for compensation 91,575
Issuance of stock to reduce debt 75,000
Issuance of stock for interest paid upon conversion of
debentures 937
Issuance of warrants pursuant to distribution agreement 1,888,400
Issuance of Stock pursuant to distribution agreement 3,000,000
Issuance of stock for settlement of Accounts Payable 46,640
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 3,722 (482,137)
Decrease (increase) in prepaid expenses (2,162) (6,618,891)
Increase in inventories (114,533) (1,770,239)
(Decrease) increase in accounts payable (163,339) 78,583
(Decrease) increase in accrued liabilities (255,731) 199,898
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,630,817) (4,484,265)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in current portion of note receivable (2,960) 14,508
Payments for purchase of equipment (52,593) (420,681)
Increase in other assets (51,925) (7,111)
Decrease in notes payable (121,760)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (107,478) (535,044)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock upon exercise of warrants 805,000 3,999,999
Issuance of stock upon exercise of options 244,100 413,700
Increase in debentures payable 325,000
Proceeds from issuance of common stock 500,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,374,100 4,913,699
------------ ------------
NET (DECREASE) IN CASH AND EQUIVALENTS (364,195) (105,610)
Cash and equivalents at beginning of year 433,661 1,426,410
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 69,466 $ 1,320,800
============ ============
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash payments for interest $ 61,344 $ 4,420
============ ============
</TABLE>
F-6
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF 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 10QSB should be read
in conjunction with the Company's financial statements and notes thereto
included on Form 10KSB 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 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 nine month period ended September 30, 1999 are not
necessarily indicative of results for the entire year ending December 31, 1999.
Certain items in the September 30, 1998 financial statements have been
reclassified for comparative purposes. These reclassifications have no effect on
the net loss for the period.
NOTE 2 - CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Cash and cash equivalents are comprised of the following 1999 1998
as of September 30, 1999 and 1998. ------------------------------------------
<S> <C> <C>
Cash in banks $ 69,466 $ 1,320,800
==========================================
<CAPTION>
NOTE 3 - INVENTORIES
1999 1998
Inventories are comprised of the following as of ------------------------------------------
September 30, 1999 and 1998.
<S> <C> <C>
Finished Goods $ 430,064 $ 317,637
Raw Materials 1,992,451 1,750,284
Supplies 50,000 50,000
------------------------------------------
TOTAL $ 2,472,515 $ 2,117,921
==========================================
<CAPTION>
NOTE 4 - PREPAID EXPENSES
1999 1998
Prepaid expense is comprised of the following as of ------------------------------------------
September 30, 1999 and 1998
<S> <C> <C>
Deposits on Tooling $ 36,357 $ 1,000
Deferred Interest, current portion 89,376
Prepaid Rent 16,916
Prepaid Insurance 6,380 32,796
Prepaid Legal 5,000
Prepaid Consulting 5,000
Agreement and Warrant expenses 2,076,705
Prepaid Marketing and Advertising 3,336,589
Deposit on Patent cost 93,000
------------------------------------------
TOTAL $ 159,029 $ 5,540,090
==========================================
</TABLE>
F-7
<PAGE>
SAF T LOK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment is comprised of the following as of 1999 1998
---------------------------
September 30, 1999 and 1998.
<S> <C> <C>
Equipment $ 364,303 $ 439,407
Furniture and Fixtures 55,713 51,578
Tools and die 1,530,764 1,551,778
Software 40,393 39,359
Leasehold Improvements 24,762 11,436
---------------------------
TOTAL 2,015,935 2,093,558
Less accumulated depreciation (907,821) (660,231)
---------------------------
TOTAL $ 1,108,115 $1,433,327
===========================
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following 1999 1998
---------------------------
as of September 30,1999 and 1998.
Accounts payable $ 208,194 $ 577,330
Accrued expenses 26,213
---------------------------
TOTAL $ 234,407 $ 577,330
===========================
</TABLE>
NOTE 7 - SHAREHOLDERS' EQUITY
In July 1999, 800,000 shares of common stock were reserved for issuance upon
conversion of the 6% Convertible Debentures sold in a Private Placement
offering.
In July 1999, 100,000 shares of common stock were reserved for payment of
commissions and fees related to the 6% Debentures.
In August 1999, a legal consulting firm was issued 87,093 shares of common stock
as payment for $100,680 in professional fees.
In August 1999, a registered broker was issued 40,000 shares of common stock as
a commission for services rendered in connection with the sale of the 6%
Convertible Debentures.
In September 1999, 57,858 shares of common stock were issued upon conversion of
6% Convertible Debentures.
NOTE 8 - SUBSEQUENT EVENTS
In October 1999, 312,254 shares of common stock were issued upon conversion of
6% Convertible Debentures.
In October 1999, a settlement was reached in a lawsuit brought by the former CEO
of the company. In connection with the settlement the company has agreed to
honor options issued to the former CEO for 250,000 shares of the Company's stock
at an exercise price of $.50 a share.
F-8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 69466
<SECURITIES> 0
<RECEIVABLES> 70295
<ALLOWANCES> 14510
<INVENTORY> 2472515
<CURRENT-ASSETS> 2778147
<PP&E> 159029
<DEPRECIATION> 1108115
<TOTAL-ASSETS> 4375581
<CURRENT-LIABILITIES> 234407
<BONDS> 0
0
0
<COMMON> 136442
<OTHER-SE> 25565616
<TOTAL-LIABILITY-AND-EQUITY> 4375581
<SALES> 145243
<TOTAL-REVENUES> 178874
<CGS> 83223
<TOTAL-COSTS> 1269415
<OTHER-EXPENSES> 1289043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2462817)
<EPS-BASIC> (.18)
<EPS-DILUTED> 0
</TABLE>
