Safe Technologies International (SFAZ) 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

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ü	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the quarterly period ended: September 30, 2008
Or
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the transition period from: _____________ to _____________

Commission File Number: 000-17746

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Safe Technologies International, Inc.

(Exact name of registrant as specified in its charter)

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Delaware	22-2824492
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

123 NW 13 Street, Suite 30408, Boca Raton, FL 33432

(Address of Principal Executive Office) (Zip Code)

(561) 400-3414

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

———————

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.			ü	Yes		No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer		Accelerated filer
Non-accelerated filer	(Do not check if a smaller	Smaller reporting company			ü
	reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
			ü	Yes		No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   932,631,602 shares as of November 1, 2008
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by
a court.				Yes		No

SAFE TECHNOLOGIES INTERNATIONAL, INC.

TABLE OF CONTENTS

PAGE

PART I FINANCIAL INFORMATION

PART II OTHER INFORMATION

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

SAFE TECHNOLOGIES INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2008 and December 31, 2007

	September 30, 2008			December 31, 2007
		(Unaudited)			(Audited)
ASSETS
CURRENT ASSETS
Cash	$	4,708		$	6,777
Accounts receivable, net of allowance for doubtful accounts of $569 and $2,500 at September  30, 2008 and December 31, 2007 respectively		360			870
Total current assets		5,068			7,647
PROPERTY AND EQUIPMENT
Furniture, fixtures, and equipment		5,644			5,644
Less: Accumulated depreciation		(5,644	)		(5,644	)
Total property and equipment		—			0
OTHER ASSETS
Deposits		939			939
Total other assets		939			939
Total Assets	$	6,007		$	8,586
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses		165,017			186,038
Notes and loans payable- related parties		1,703,900			1,468,309
Deferred revenue		649			1,200
Total current liabilities		1,869,566			1,655,547
Total liabilities		1,869,566			1,655,547
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.00001 par value, 999,999,000 shares authorized; 932,631,602 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively
Additional paid-in capital		7,441,803			7,441,803
Subscriptions received		12,000			12,000
Retained earnings (deficit)		(9,326,688	)		(9,110,090	)
Total stockholders' equity (deficit)		(1,863,559	)	$	(1,646,961	)
Total Liabilities and Stockholders' Equity (Deficit)	$	6,007		$	8,586

The accompanying notes are an intergral part of the financial statements

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SAFE TECHNOLOGIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended September 30, 2008 and 2007

	2008			2007
	(unaudited)			(unaudited)
Revenues	$	1,653		$	2,558
COST OF OPERATIONS
Cost of operations		3,300			3,300
Total cost of operations		3,300			3,300
Gross Profit (Loss)		(1,647	)		(742	)
OPERATING EXPENSES
Selling, general and administrative expenses		19,856			18,174
Total operating expenses		19,856			18,174
Operating income (loss)		(21,503	)		(18,916	)
OTHER INCOME (EXPENSE)
Interest expense		(50,840	)		(43,366	)
Total other income (expense)		(50,840	)		(43,366	)
Loss before provision for income taxes		(72,343	)		(62,282	)
Income taxes		—			—
Net income (loss)	$	(72,343	)	$	(62,282	)
Net income (loss) per common share, basic	$	(0	)	$	(0	)
Weighted average number of common shares outstanding		932,631,602			932,631,602

The accompanying notes are an intergral part of the financial statements

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SAFE TECHNOLOGIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Nine Months Ended September 30, 2008 and 2007

	2008			2007
	(unaudited)			(unaudited)
Revenues	$	7,217		$	9,515
COST OF OPERATIONS
Cost of operations		9,900			9,900
Total cost of operations		9,900			9,900
Gross Profit (Loss)		(2,683	)		(385	)
OPERATING EXPENSES
Selling, general and administrative expenses		62,722			60,936
Total operating expenses		62,722			60,936
Operating income (loss)		(65,405	)		(61,321	)
OTHER INCOME (EXPENSE)
Interest expense		(151,193	)		(126,340	)
Total other income (expense)		(151,193	)		(126,340	)
Loss before provision for income taxes		(216,598	)		(187,661	)
Income taxes		—			—
Net income (loss)	$	(216,598	)	$	(187,661	)
Net income (loss) per common share, basic	$	(0	)	$	(0	)
Weighted average number of common shares outstanding		932,631,602			932,631,602

The accompanying notes are an intergral part of the financial statements

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SAFE TECHNOLOGIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

September 30, 2008

	Number of Shares		Common Stock		Addition Paid In Capital		Subs. received		Accumulated Deficit
BALANCE, December 31, 2006		932,631,602	$	9,326	$	7,411,803	$	12,000	$	(8,852,306	)
Net loss year ending December 31, 2007										(257,784	)
BALANCE, December 31, 2007		932,631,602		9,326		7,441,803		12,000		(9,110,090	)
Net loss for nine months ending September 30, 2008									$	(216,598	)
BALANCE, September 30, 2008		932,631,602	$	9,326	$	7,441,803	$	12,000	$	(9,326,688	)

The accompanying notes are an intergral part of the financial statements

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SAFE TECHNOLOGIES INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2008 and 2007

(Unaudited)

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(216,598	)	$	(187,660	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Bad debt expense		2,607			1,200
Changes in operating assets and liabilites:
(Increase) decrease in accounts receivable		(2,097	)		1,936
(Increase) decrease in prepaid and other assets					41
Increase (decrease) in accounts payable and accrued expenses		151,070			131,971
Increase (decrease) in deferred revenue		(551	)		(330	)
Net cash provided (used) by operating activities		(65,569	)		(52,842	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided (used) by investing activities		—			0
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans from shareholders		63,500			63,500
Net cash provided (used) by financing activities		63,500			63,500
Net increase (decrease) in cash		(2,069	)		10,658
CASH and equivalents, beginning of period		6,777			9,948
CASH and equivalents, end of period	$	4,708		$	20,606
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Payment of taxes in cash	$	—		$	—
Expenses paid with common stock	$	—		$	—
Payment of interest in cash	$	—		$	—

The accompanying notes are an intergral part of the financial statements

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SAFE TECHNOLOGIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Summary of Significant Accounting Policies

The Company was incorporated under the laws of the State of Delaware on May 21, 1987 as Safe Aid Products, Inc. On February 9, 1998, the Company changed its name to Safe Technologies International, Inc. Safe Technologies International, Inc. (Safe Tech) is a multi-faceted company specializing in Internet services and products.

a)

Principles of consolidation.-

The consolidated financial statements include the accounts of Safe Technologies International, Inc. and its subsidiaries, Total Micro Computers, Inc., Connect.ad, Inc., Connect.ad Services, Inc. and Internet Associates International, Inc. All material inter-company transactions and balances have been eliminated in the consolidated financial statements.

b)

Use of estimates.-

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States. In preparing the financial statements, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and statements of operations for the years then ended. Actual results may differ from these estimates. Estimates are used when accounting for allowance for bad debts, collectibility of accounts receivable, amounts due to service providers, depreciation, litigation contingencies, among others.

c)

Revenue recognition.-

Revenues of Safe Technologies International, Inc. are recognized at the time the services are rendered to customers. Services are rendered when the Company’s representatives receive the customer’s requests and completes the customer’s orders. Quarterly hosting fees are charged in advance, and recognized as earned.

d)

Net loss per share, basic.-

Net income per share is computed by dividing the net income by the weighted average number of shares outstanding during the period. Net income per share, diluted, is not presented as no potentially dilutive securities are outstanding.

e)

Cash equivalents.-

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents, accounts receivable and accounts payable are short-term in nature and the net values at which they are recorded are considered to be reasonable estimates of their fair values. The carrying values of notes payable are deemed to be reasonable estimates of their fair values.

f)

Concentration risks.-

The Company’s sources of revenue and accounts receivable are comprised primarily of customers in the Internet industry. The Company requires no collateral from its customers.

g)

Advertising.-

Advertising costs, which are included in selling, general and administrative expenses, are expensed as costs are incurred.

h)

Deferred revenue.-

Deferred income arises in the normal course of business from advance payments for services.

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SAFE TECHNOLOGIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

i)

Fixed assets.-

Fixed assets are recorded at cost. Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets of generally five or ten years. Expenditures for maintenance and repairs are charged to operations as incurred. Fixed assets were fully depreciated for the year ended December 31, 2007

j)

Intangible assets.-

The Company continually evaluates the carrying value of goodwill and other intangible assets to determine whether there are any impairment losses. If indicators of impairment are present in intangible assets used in operations and future cash flows are not expected to be sufficient to recover the assets’ carrying amount, an impairment loss would be charged to expense in the period identified.

(2)

Going Concern.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company’s financial position and operating results raise substantial doubt about the Company’s ability to continue as a going concern, as reflected by: the net loss of $ 216,598 for the nine months ended September 30, 2008, $ 257,784 for the year December 31, 2007, and the total cumulative loss of approximately $9,326,000. The ability of the Company to continue as a going concern is dependent upon developing sales and obtaining additional capital and financing. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

(3)

Income Taxes.

Deferred income taxes (benefits) are provided for certain income and expenses which are recognized in different periods for tax and financial reporting purposes. The Company had net operating loss carry-forwards for income tax purposes at December 31 2007 of approximately $ 7,117800 with the latest expiring $ 295,000, $ 272,000, $ 236,000, $ 418,000, and $368,000 at December 31, 2022, 2021, 2020, 2019 and 2017, respectively. The Company has established a 100% valuation allowance against this deferred tax asset, as the Company has no history of profitable operations.

The differences between Federal income tax rates and the effective income tax rates are:

	December 31, 2007		December 31, 2006
Statutory federal income tax rate	34	%	34	%
Valuation allowance	(34	)	(34	)
Effective tax rate	—		—

(4)

Stockholders’ Equity.

The Company has authorized 999,999,000 shares of $.00001 par value common stock, with 932,631,602 shares issued and outstanding. Rights and privileges of the preferred stock are to be determined by the Board of Directors prior to issuance.

(5)

Commitments and Contingencies.-

The Company rents office space in Boca Raton, Florida under a lease that commenced in October 2005. Currently the leases is month to month. The total rent for as of September 30, 2008 was $4,227. Future lease expenses are approximately $ 1,500 in 2008.

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SAFE TECHNOLOGIES INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6)

Short-Term Debt.

At September 30, 2008 and December 31, 2007, total short-term debt consisted of the following:

	September 30, 2008		December 31, 2007
12% Notes and Loans payable to a shareholder and related affiliates, unsecured, and due upon demand. Upon default, the notes become due immediately at an interest rate of 18%.	$	1,703,900	$	1,468,309
Total short-term notes	$	1,703,900	$	1,468,309

Interest expense was $ 126,340 and $151,193 for the nine months ended September 30, 2007 and 2008. All the balances were unpaid and accrued. The 2007 accrued interest balance has been added to the principle balance as of January 1, 2008.

(7)

Recent Accounting Pronouncements 

In February 2007, the FASB issued SFAS No., 159,The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment to FASB Statements No. 115(“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments, and certain other items, at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007; however early adoption is permitted. The Company does not expect the adoption of SFAS No. 159 to have a material effect on its consolidated financial position and results of operations.

In May 2007, the FASB issued FIN 48-1,Definition of Settlement in FASB Interpretation No. 48 (“the FSP”), which provides guidance for determining whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under the FSP, a tax position could be effectively settled on completion of examination by a taxing authority is the entity does not intend to appeal or litigate the result and it is remote that the taxing authority would examine or re-examine the tax position. The Company does not expect that this interpretation will have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which replaces SFAS No. 141, “Business Combinations,” which establishes how an acquiring company recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed (including intangibles) and any non-controlling interests in the acquired entity. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect that this interpretation will have a material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is effective for fiscal years beginning December 15, 2008. The Company does not expect that this interpretation will have a material impact on its financial statements.

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Item 2.

Management's Discussion and Analysis of Financial Condition and Results  of Operation

Our business activities currently consist of the operations of Internet Associates International, Inc., (IAI) our sole active wholly owned subsidiary. IAI is a website hosting company.

We continue to be receptive to possible acquisition candidates, but have not yet been presented with an opportunity worthy of presenting for Board of Director and/or shareholder approval.

For the past approximately three years, we were not actively searching out business opportunities, because Universal Equity Holdings LLC, which purchased approximately 24% of our outstanding stock in 2004, had been unable to transfer of record the shares that it purchased. Since this could have had a material effect on any shareholder vote which might have been required in connection with a business opportunity, we were waiting until this situation was rectified before resuming an active search for business opportunities.

In July 2007, our largest shareholder, Franklin Frank, and certain companies controlled by Mr. Frank, obtained a judgment against Universal Equity Holdings and its principal. Among other things, the judgment gives to Mr. Frank or his designee title to the shares purchased by Universal Equity Holdings. We expect title to those shares to be transferred of record in the near future, which will then allow those shares to be voted. Once the shares have been transferred of record, we expect to resume our search for business opportunities.

RESULTS OF OPERATIONS

Revenues were $1,653 and $2,558, respectively, for the three months ended September 30, 2008 and 2007, and $7,217 and $9,515, respectively, for the nine months ended September 30, 2008 and 2007. The decreases in revenue reflect the diminished demand for IAI’s website hosting services.

Costs of Operations were $3,300 for each of the three month periods ended September 30, 2008 and 2007, and $9,900 for each of the nine month periods ended September 30, 2008 and 2007, reflecting our elimination of variable costs in connection with the activities of IAI.

General and administrative expenses were $19,856 and $18,174, respectively, for the three months ended September 30, 2008 and 2007, and $62,722 and $60,936, respectively, for the nine months ended September 30, 2008 and 2007. These amounts reflect our limited operations and our elimination of variable costs.

Our largest expense is the interest accrued on amounts lent to us from time to time by our largest shareholder in order to fund our operation. As of September 30, 2008, these loans totaled $1,703,900. Interest expense is accrued during the year and, to date, has been capitalized as of the beginning of the following year. Accrued interest expense was $50,840 for the three months ended September 30, 2008, and $151,193 for the nine months ended September 30, 2008, compared to $43,366 and $126,340 for the same periods in 2007. The increase reflects additional loans made to us by our largest shareholder and his affiliates.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2008, we had a working capital deficit of $1,864,498, compared to a $1,647,900 working capital deficit as of December 31, 2007. The increase reflects the fact that we are operating at a loss while we await a suitable acquisition transaction. We will continue to have limited revenues, and are essentially dependant on our primary shareholder to fund operating shortfalls. There can be no assurance that our cash flow will increase in the near future, or that revenues generated from our existing subsidiary operations will be sufficient to allow us to pursue new profitable ventures.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Not Required

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Item 4.

Controls and Procedures

We carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2008 (the “Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our acting Chief Executive Officer, who is also our acting Chief Financial Officer (“our acting CEO/CFO”). Based upon that evaluation, management concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our acting CEO/CFO, to allow timely decisions regarding required disclosure.

Item 4T.

Controls and Procedures.

There has been no change in the Company’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II -- OTHER INFORMATION

Item 6.

Exhibits.

Exhibit No.	Description
3.1	Certificate of Incorporation and Amendment to the Company's Certificate of Incorporation (filed as an Exhibit to the Company's Registration Statement on Form S-18 filed February 18, 1988 and incorporated herein by this reference).
3.2	Amendment to the Company's Certificate of Incorporation filed with the Delaware Secretary of State on February 6, 1998 (filed as an Exhibit to the Company's definitive proxy statement filed December 31, 1997 and incorporated herein by this reference).
3.3	Bylaws (filed as an Exhibit to Company's registration statement on Form S-18 filed February 18, 1988).
21	Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s annual report on Form 10KSB/A for the year ended December 31, 1999).
31.1	Certification of principal executive officer
31.2	Certification of principal financial officer
32	Section 1350 Certification

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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.

	SAFE TECHNOLOGIES INTERNATIONAL, INC.
	(Registrant)
Date: November 13, 2008	By:	/s/ RANDI SWATT
		Randi Swatt,
		acting Chief Executive Officer

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