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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB/A
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1997.
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act for
the transition period from _____________ to _____________
Commission File No. 000-21627
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
(Exact name of small business issuer as specified in its charter)
Florida 06-1413994
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
27 Governor Street, Ridgefield, Connecticut 06877
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (203) 438-8144
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) has 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 [ ] No [X]
As of April 30, 1998, there were issued and outstanding 12,472,120 shares of the
issuer's Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
FORM 10-QSB/A
for the quarterly period ended June 30, 1997
INDEX
Page
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Restated Balance Sheet, June 30, 1997 (Unaudited) 3
Restated Statement of Operations (Unaudited):
Three Months Ended June 30, 1997 and June 30, 1996 4
Restated Statement of Operations (Unaudited):
Six Months Ended June 30, 1997 and June 30, 1996 5
Restated Statement of Cash Flow (Unaudited):
Six Months Ended June 30, 1997 and June 30, 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or
Plan of Operation 9
Part II. Other Information 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27. Financial Data Schedule 13
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
BALANCE SHEET
June 30, 1997 (Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 9,777
Accounts receivable 39,506
Advances to employees 32,422
Inventory 204,442
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TOTAL CURRENT ASSETS 286,147
FIXED ASSETS
Equipment 153,223
Leasehold improvements 66,162
Furniture and fixtures 118,614
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337,999
Less accumulated depreciation 194,131
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143,868
OTHER ASSETS
Organization costs, less amortization of $58,795 2,028
Deposits and other noncurrent assets 12,564
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14,592
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$ 444,607
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 188,815
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TOTAL CURRENT LIABILITIES 188,815
SHAREHOLDER' LOANS 463,765
SHAREHOLDERS' EQUITY
Common stock, $.0001 par value, 200,000,000 shares authorized,
11,412,120 shares issued and outstanding 1,140
Additional paid-in capital 14,077,023
Accumulated deficit (13,793,703)
Subscriptions issuable 2,160
Deferred compensation (494,593)
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Total stockholders' deficit (207,973)
------------
$ 444,607
============
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
Three months ended
June 30
1997 1996
------------ ------------
Sales $ 35,630 $ 24,917
Costs and expenses:
Cost of goods sold 19,979 17,502
Selling, general and administrative 967,321 565,941
Research and development 81,848 55,775
Depreciation and amortization 11,455 11,455
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(1,080,603) (650,673)
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Net loss $ (1,044,973) $ (625,756)
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Net loss per common share $ (.09) $ (.08)
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Average number of shares outstanding 11,083,094 8,035,021
See accompanying notes.
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
Six months ended
June 30
1997 1996
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Sales $ 45,154 $ 37,661
Costs and expenses:
Cost of goods sold 24,806 23,868
Selling, general and administrative 1,920,608 1,174,355
Research and development 183,071 113,284
Depreciation and amortization 26,128 22,910
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2,154,613 1,334,417
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Net loss $ (2,109,459) $ (1,296,756)
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Net loss per common share $ (.20) $ (.17)
============ ============
Average number of shares outstanding 10,589,367 7,839,099
See accompanying notes.
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
Six months ended
June 30
1997 1996
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Cash flows from operating activities
Net loss $(2,109,459) $(1,296,754)
Adjustments to reconcile net loss used in
operating activities:
Depreciation and amortization 26,126 22,910
Non-cash compensation and commissions 1,253,774 689,313
Changes in operating assets and liabilities:
Accounts receivable (21,344) (6,516)
Advances to employees (12,500) (19,992)
Inventories (191,255) (13,897)
Deposits and advances 0 (7,452)
Accounts payable and accrued expenses (72,156) 10,316
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Net cash (used in) operating activities (1,132,813) (662,074)
Cash flows from investing activities
Additions to fixed assets (31,697) (17,695)
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Net cash (used in) investing activities (31,697) (17,695)
Cash flows from financing activities
Net proceeds from stockholders' loans 42,700 0
Repayment of stockholders' loans (46,000) (155,000)
Proceeds from issuances of common stock and subscriptions 1,173,593 875,200
Expenses for sale of common stock 0 (65,928)
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Net cash provided by financing activities 1,170,293 654,272
Net increases in cash 5,783 14,503
Cash at beginning of period 3,994 12,331
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Cash at end of period 9,777 26,834
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See accompanying notes.
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operations results for the six month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. Inventories are stated at lower of cost or market.
2. SHAREHOLDERS' EQUITY
During the quarter ended June 30, 1997, the Company issued 384,000 shares of
common stock to various individuals in exchange for services and rights valued
at $449,242 based upon the value of the common stock. This amount has been
recorded in selling, general, and administrative expenses in the statement of
operations.
During this three month period the Company also sold 493,000 shares of common
stock and received gross proceeds of $577,500.
During the quarter ended March 31, 1997, the Company issued 93,040 shares of
common stock to each of its two executive officers as compensation pursuant to
their employment contracts. The pro rata portion of such expense approximated
$143,000 for the six months ended June 30, 1997, which amount was expensed by
the Company.
3. CONSULTING AGREEMENT
In February 1997, the Company entered into a consulting agreement for the
introduction of the Company's chemical paint stripper into the European market.
As compensation for services, the Company issued 365,000 shares of its common
stock valued at $562,000. The Company is amortizing the cost of such services
over a twelve month period. The charge for the three months ended June 30, 1997
was $140,525 and for the six months was $213,913.
4. EXCLUSIVE MARKETING LICENSE
In April 1997, the Company issued 250,000 shares of its common stock to an
individual in exchange for exclusive worldwide marketing and manufacturing
rights to a patented product known as Natural Cool. The transaction resulted in
additional selling, general, and administrative expenses of $292,500 during the
quarter. This transaction is included in the 384,000 shares described in Note 2
above. The license agreement provides for payment of a two (2%) percent royalty
on gross sales of the Natural Cool product. The agreement provides for an
indefinite term as long as certain performance criteria are met and such
performance criteria have been met to date. The Company has accrued the royalty
due on sales made during the second quarter.
Item 2. Management's Discussion and Analysis or
Plan of Operation
General
During the three month period ended June 30, 1997, management of the Company has
continued to concentrate a significant portion of its efforts on the marketing
and sale of the Company's paint stripping product. Additionally, the Company has
successfully completed its research with regard to determining the appropriate
mechanism for delivery of the foam product onto its intended surface, and
subject to the Company's ability to obtain additional financing, management
believes that the Company's foam products will be ready for marketing during
1997, although no assurances thereof can be given. Also during the period ended
June 30, 1997, the Company successfully completed initial sales of its Natural
Cool Systems. In February 1997, the Company successfully negotiated and signed a
License Agreement for the exclusive worldwide marketing rights and manufacturing
rights to a patented product known as Natural Cool. The Natural Cool product is
a patented air circulation system by which relatively cold ambient air can be
used to cool walk-in coolers in lieu of using refrigeration systems. The
products are based on the concept of using nature's own resources to reduce
energy costs in commercial refrigeration. The Company believes, subject to
additional financing, that the sales of these units will continue to grow
through the remainder of 1997. Based upon the Company's current financial
status, the need to continue research and development and the Company's emphasis
on its paint stripping, foam, and Natural Cool products, management does not
believe that it will bring to market any of its sealants, coatings or solvents
in 1997.
The report of the Company's independent auditors included in the Company's
Annual Report for the year ended December 31, 1996 contains a paragraph as to
the Company's ability to continue as a going concern. Among the factors cited by
the auditors as raising doubt as to the Company's ability to continue are (i)
the Company has incurred recurring losses and (ii) the Company has a working
capital deficiency. The Company has never generated sufficient revenues to
finance its operations and has been able to remain in business solely as a
result of raising capital through the sale of the Company's stock.
Comparison of the Three Month and Six Month
Periods Ended June 30, 1997 and June 30, 1996
Sales and Net Losses. For the three month period ended June 30, 1997, sales were
$35,630 from $24,917 in the same period of the prior year, an increase of
$10,713 or 43%. Initial sales of the Natural Cool product during the quarter
totalled $13,121. For the three month period ended June 30, 1997, the Company
reported net losses of $1,044,973 compared to $625,756 in the prior period, an
increased loss of $419,217 or 67%. For the six month period ended June 30, 1997,
the Company reported losses of $2,109,459 compared to $1,296,756 for the same
period of the prior year, an increase of $812,703 or 63%. The increase in losses
for the three month period and year-to-date is attributed entirely to an
increase in selling, general, and administrative costs as discussed below.
Selling, General and Administrative. For the three month period ended June 30,
1997, the Company incurred selling, general and administrative expenses of
$967,321 compared to $565,941 in the same period of the prior year, an increase
of $401,380 or 71% due entirely to approximately $449,000 in consulting and
compensation expense to various individuals for professional services performed.
The Company's Common Stock was issued for such services, and the value was based
upon the fair market value of the Common Stock sold during the period. For the
six month period ended June 30, 1997, the Company incurred selling, general, and
administrative expenses of $1,920,608 as compared to $1,174,355 in the same
period of the prior year, an increase of $746,253 or 64%. The increase is due
primarily to approximately $795,000 in consulting and compensation expense to
various individuals for professional services performed. The Company's common
stock was issued for such services and the value was based on the fair market
value of stock sold during the period. Calculations with respect to the
percentage of selling, general and administrative expenses relative to sales are
not meaningful.
Research and Development. For the three month period ended June 30, 1997,
research and development expenses increased to $81,848 from $55,775 in the same
period of the prior year, an increase of $26,073 or 47%. This increase is due to
the Company's activities associated with its foam product. For the six month
period ended June 30, 1997, research and development expense totalled $183,071,
up from $113,284 in the same period of the prior year, or an increase of $69,787
or 62% also due to activities with the Company's foam product. Calculations with
respect to the percentage of research and development expenses relative to sales
are not meaningful.
Natural Cool Division - Misstatement of Income
On February 19, 1997 a license agreement was entered into between Clement H.
Royer of Natural Cool, Inc. and Safe Alternatives Corporation of America, Inc.
wherein Safe Alternatives Corporation of America, Inc. received a license to
market an ambient air exchange product known as Natural Cool. Mr. Royer had
entered into a document entitled "Commercial Transaction" with Rudolph L. Chase
and Raymond C. Chase for rights to the product known as Natural Cool. Under the
terms of the license Mr. Royer was to become President of the Natural Cool
division of SAC. Mr. Royer retained the rights to manufacture the product known
as Natural Cool which he had received from Messrs. Chase. Mr. Royer established
a manufacturing facility in Newport, Vermont, for which he was responsible. Mr.
Royer's main duty as a SAC employee was to sell Natural Cool units, specifically
in the Vermont area.
Sales of the Natural Cool units commenced in the second quarter of 1997. During
the second quarter of 1997, Mr. Royer presented to SAC copies of purchase orders
and bills of lading totaling approximately $300,000 for the sales of Natural
Cool. SAC is on the accrual basis and therefore announced $327,957 in earnings
for the second quarter of 1997. The installation of these units were to commence
early in July 1997. Installations were inexplicably delayed until August 1997.
In August 1997 SAC learned that Mr. Royer had misappropriated the funds which
were to have paid for said units. SAC terminated Mr. Royer's employment on
August 25, 1997. Subsequent to Mr. Royer's termination a criminal complaint was
made for Mr. Royer's arrest. During its investigation of Mr. Royer's tenure as
President SAC learned that Mr. Royer had misrepresented the sales of Natural
Cool and that only $13,121 in sales had been made by Mr. Royer. At that time it
was also learned that the agreement between Messrs. Chase and Mr. Royer had been
breached. Upon this breach all rights, title and interest in Natural Cool, Inc.
and the Natural Cool units reverted to Messrs. Chase. SAC negotiated with
Messrs. Chase and acquired the marketing rights directly from Messrs. Chase as
well as the manufacturing rights. The final document was not executed by SAC
until October 1997.
SAC has engaged local counsel in St. Johnsbury, Vermont who is in contact with
Mr. Royer and is prepared to commence an action against Mr. Royer for fraud and
misrepresentation as well as theft, embezzlement, and misappropriation of goods.
Upon discovering this misstatement of earnings for the second quarter, SAC
immediately contacted the OTC bulletin board compliance unit, issued a press
release stating that it would restate its second quarter earnings, and took all
actions necessary to advise the public and our shareholders of the misstatement
of earnings. SAC's Board of Directors appointed a special committee to fully
investigate the matter and establish proper controls to avoid future
occurrences.
Liquidity
The Company has never generated sufficient revenues to finance its operations
and has been able to remain in business solely as a result of raising capital.
The Company's ability to continue as a going concern in the near term is
dependent upon obtaining additional financing. The Company does not have the
financial resources to operate its business, continue research and development
or market its products. The Company has financed its operations through loans
from shareholders which aggregated approximately $464,000 as of June 30, 1997
and the private placement of equity securities amounting to $6,609,470 since
inception. The Company continues to seek additional capital from an array of
potential sources. The Company has provided information regarding its
technologies to venture capital firms and is currently in discussions with some
of them, although there can be no assurances that any such discussions will
result in the Company obtaining additional capital. Even if the Company is able
to obtain additional capital there can be no assurances that the structure or
terms of such proposed financing will be on acceptable terms.
The Company has entered into agreements with SSC Marketing Co. for sales and
marketing services and with licensors for the exclusive sales, marketing, and
manufacturing rights for the paint stripping, foam, and Natural Cool System
technologies. Under these agreements, the Company has undertaken substantial
ongoing financial commitments, and unless the Company is able to obtain
additional financing, the Company will be unable to meet its commitments under
such agreements.
As previously noted, the Company continues to seek additional capital with which
to finance ongoing operations. The Company estimates that it will require
approximately $3,000,000 in additional financing in order to continue current
operations for the next twelve months, and an additional $2,000,000 in order to
complete research with respect to all of the technologies, commercially exploit
the products derived therefrom, market each such product and finance initial
production thereof.
The company currently has one lawsuit pending against it. The lawsuit was
brought by Richard Coen as trustee for the bankruptcy estate of Samuel E.
Bernstein claiming back salary allegedly due to Mr. Bernstein. The Company is of
the opinion that the lawsuit will have no material effect on its ability to
operate.
A lawsuit has been threatened by Edwin Stephens claiming payments due under a
prior licensing agreement. The Company believes the claim is without merit and
will have no material effect on the operations of the Company.
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended June 30, 1997, the Registrant sold an aggregate of
493,000 shares of common stock for an aggregate purchase price of $577,500. The
shares were sold by the Registrant directly, without the services of an
underwriter and without sales commissions, to accredited investors in reliance
upon the limited offering exemptions accorded by Regulation D promulgated under
the Securities Act of 1933.
During such quarter, the Registrant also issued an aggregate of 384,000
shares of common stock in exchange for services and rights valued at an
aggregate of $449,242. Of such amount, 250,000 shares were issued in exchange
for exclusive worldwide marketing and manufacturing rights to Natural Cool, a
patented ambient air exchange product. The Registrant has relied upon the
private offering exemption under Section 4(2) of the Securities Act of 1933 with
respect to these issuances.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K: The Registrant did not file any reports on
Form 8-K during the second quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAFE ALTERNATIVES CORPORATION
OF AMERICA, INC.
By: /s/ Richard J. Fricke
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Richard J. Fricke
President
By: /s/ Sean McNamara
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Sean McNamara
Chief Financial Officer
Dated: May 11, 1998