- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1997
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Act of 1934 for the transition period from _____ to _________
Commission File No.
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant 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)
Registrant's telephone number, including area code (203) 438-8144
--------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changes 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 Securitieis 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.
Yes [ x ] No [ ]
As of March 31, 1997, there were issued and outstanding 10,535,120 shares of the
Registrant's Common Stock.
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
FORM 10-Q
for the quarterly period ended March 31, 1997
INDEX
Page
----
Part I. Financial Information
Item I. Financial Statements
Balance Sheets,
March 31, 1997 and March 31, 1996 3
Statement of Operations (Unaudited):
Three Months Ended March 31, 1997 and March 31, 1996 4
Statement of Cash Flow (Unaudited):
Three Months Ended March 31, 1997 and March 31, 1996 5
Notes to Financial Statements 6
Item II. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. Other Information 9
Item VI. Exhibits and Reports on Form 8-K 9
2
Safe Alternatives Corporation of America, Inc.
Balance Sheet (Unaudited)
March 31, 1997
ASSETS
Current assets
Cash $ 21,977
Accounts receivable 15,140
Advances to employees 29,922
Inventories 61,267
----------------
Total current assets 128,306
Fixed assets
Equipment 141,354
Leasehold improvements 64,722
Furniture and fixtures 118,614
----------------
324,690
Less accumulated depreciation 185,717
----------------
138,973
Other assets
Organization costs, less accumulated amortization of $55,754 5,069
Deposits and other noncurrent assets 12,564
----------------
17,633
----------------
$ 284,912
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and other accrued expenses $ 215,793
Stockholders' loans 471,065
----------------
Total liabilities 686,858
Stockholders' deficit
Common stock, $.0001 par value, 200,000,000 shares authorized: issued (including
shares in treasury) 10,535,120 shares at March 31, 1997 1,054
Additional paid-in capital 13,050,331
Accumulated deficit (12,748,731)
Subscriptions issuable 2,160
Deferred Compensation (706,759)
----------------
(401,945)
Common stock in treasury at par value-11,682 shares at March 31, 1997 (1)
----------------
Total stockholders' deficit (401,946)
----------------
$ 284,912
================
See accompanying notes.
3
Safe Alternatives Corporation of America, Inc.
Statement of Operations (Unaudited)
Three months ended
March 31
1997 1996
--------------------------------
Sales $ 9,523 $ 12,744
Costs and expenses:
Cost of goods sold 4,827 6,366
Selling, general and administrative 953,287 608,414
Research and development 101,222 57,509
Depreciation and amortization 14,673 11,455
--------------------------------
1,074,009 683,744
--------------------------------
Net loss $ (1,064,486) $ (671,000)
================================
Net loss per common share $ (.11) $ (.09)
================================
Average number of common shares outstanding 10,090,154 7,720,914
================================
See accompanying notes.
4
Safe Alternatives Corporation of America, Inc.
Statement of Cash Flows (Unaudited)
Three months ended
March 31
1997 1996
---------------------------------
Cash flows from operating activities
Net loss $(1,064,486) $ (671,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 14,673 11,455
Non-cash compensation and commissions 592,829 400,058
Changes in operating assets and liabilities:
Accounts receivable (2,978) (1,898)
Advances to employees (10,000) (26,994)
Inventories (48,080) (16,014)
Deposits and advances - (5,500)
Accounts payable and accrued expenses (45,179) 3,639
---------------------------------
Net cash (used in) operating activities (563,221) (306,254)
Cash flows from investing activities
Additions to fixed assets (18,389) (7,300)
---------------------------------
Net cash (used in) investing activities (18,389) (7,300)
Cash flows from financing activities
Net proceeds from stockholders' loans 15,000 -
Repayments of stockholder's loans (11,000) (50,000)
Proceeds from issuance of common stock and subscriptions 595,593 403,950
Expenses for sale of common stock - (24,000)
---------------------------------
Net cash provided by financing activities 599,593 329,950
Net increase in cash 17,983 16,396
Cash at beginning of period 3,994 12,331
=================================
Cash at end of period $ 21,977 $ 28,727
=================================
See accompanying notes.
5
Safe Alternatives Corporation of America, Inc.
Notes to Unaudited Financial Statements
March 31, 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.
Operating results for the three-month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
2. STOCKHOLDER'S EQUITY
In accordance with employment contracts for the Company's two executive
officers, the Company issued 93,040 shares of common stock to each of these
officers and recorded a pro rata portion of the annual compensation expense
which approximated $72,000 during the three month period. In addition to the
aforementioned issuance, the Company issued 658,200 shares of common stock to
various individuals and recognized $521,791 as compensation for services based
upon the value of Common Stock sold during those periods. This amount has been
recorded in selling, general, and administrative expenses in the statement of
operations.
During the period the Company sold 386,840 shares of common stock and received
gross proceeds of $595,593.
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 $1.54 per share. The Company has deferred the value of such
services and is amortizing such over a twelve month period.
6
Management's Discussion and Analysis of Financial Condition
and Plan of Operations
GENERAL
During the three month period ended March 31, 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,
subject to the Company's successful completion of its research with regard to
evaluating 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 could be ready
for marketing during 1997, although no assurances thereof can be given. Based
upon the Company's current financial status, the need to continue research and
development and the Company's emphasis on its paint stripping and foam products,
management does not believe that it will market any of its sealants, coatings or
solvents in 1997.
The report of the Company's independent auditors, contains a paragraph as to the
Company's ability to continue as a going concern. Among the factors cited by the
auditors (See note 1 to the financial statements) as raising substantial doubt
as to the Company's ability to continue as a going concern are (i) the Company
has incurred recurring operating losses and (ii) the Company has a working
capital deficiency.
COMPARISON OF THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND MARCH 31, 1996
Sales and Net Losses. For the three month period ended March 31, 1997, sales
- ---------------------
decreased to $9,523 from $12,744 in the same period of the prior year, a
decrease of 25%. The Company's marketing and sales efforts are still in the
formative stages and therefore comparisons to the prior period are not
meaningful. For the three month period ended March 31, 1997, the Company
reported net losses of $1,064,486 compared to $671,000 in the prior period, an
increased loss of 59%, due primarily to an increase in selling, general, and
administrative expenses as discussed below.
Selling, General and Administrative. For the three month period ended March 31,
- ------------------------------------
1997, the Company incurred selling, general and administrative expenses of
$953,287 compared to $608,414 in the same period of the prior year, an increase
of 57% due primarily to an increase of approximately $346,000 in consulting and
compensation expense to various individuals for professional services performed.
The value of such services was based upon the fair market value of Common 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 March 31, 1997,
- -------------------------
research and development expenses increased to $101,222 from $57,509 in the same
period of the prior year, an increase of 76%. The increase relates to activities
associated with the Company's foam product. Calculations with respect to the
percentage of research and development expenses relative to sales are not
meaningful.
7
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 $486,000 as of this date and
the private placement of equity securities amounting to $6,031,470 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 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 the respective licensors under the licenses with
respect to the various technologies under which the Company has undertaken
substantial ongoing financial commitments. Unless the Company is able to obtain
additional financing, the Company will be unable to meet its commitments under
such agreements.
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.
8
Part II. Other Information
(a) Exhibits: None
(b) Reports on Form 8-K: The Registrant did not file any reports on Form
8-K during the first quarter.
9
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/ Stephen J. Thompson
-------------------------------------------
Stephen J. Thompson
President
By: /s/ Robert Thompson
-------------------------------------------
Robert Thompson
Chief Financial Officer
Dated: May 16, 1997
10