U.S.SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______ to _______.
Commission File Number 000-21627
Safe Alternatives Corporation of America, Inc.
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(Name of small business issuer in its charter)
Florida 06-1413994
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
440 Main Street, Ridgefield, Connecticut 06877
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(Current Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (203) 438-4918
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 report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X
--- ---
As of March 31, 2001, there were 54,580,960 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
TABLE OF CONTENTS
Balance Sheets,
March 31, 2001 and 2000 1
Statements of Operations,
For the Three Months Ended March 31, 2001 and 2000 2
Statements of Cash Flows, 3
For the Three Months Ended March 31, 2001 and 2000
Notes to Financial Statements 4 - 6
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
Balance Sheets
MARCH 31, 2001 AND 2000
2001 2000
------------ ------------
ASSETS
Current Assets:
Cash $ 6,423 $ 956
Accounts receivable - net of allowance
of $5,000 and $0 for 2001 and 2000 4,509 15,919
------------ ------------
Total current assets 10,932 16,875
------------ ------------
Property and Equipment, Net 29,800 37,383
------------ ------------
Loan Restructuring Costs 0 273,649
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$ 40,732 $ 327,907
============ ============
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable and other accrued expenses $ 446,748 $ 357,912
Current maturities of stockholders' loans 926,900 926,900
Convertible debentures 726,500 726,500
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Total current liabilities 2,100,148 2,011,312
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Other Liabilities:
Loss contingency 140,000 26,000
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Total other liabilities 140,000 26,000
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Stockholder's Deficit:
Common stock, $.0001 par value,
200,000,000 shares authorized;
issued(including shares in treasury)
54,580,960 shares in 2001 and 110,747 83,247
30,330,960 in 2000
Additional paid-in capital 15,528,674 15,528,674
Accumulated deficit (17,840,996) (17,323,485)
Subscriptions issuable 2,160 2,160
------------ ------------
(2,199,415) (1,709,404)
Treasury stock (1) (1)
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Total stockholders' deficit (2,199,416) (1,709,405)
------------ ------------
$ 40,732 $ 327,907
============ ============
1
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
Statements of Operations
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
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Sales $ 26,049 $ 15,024
Cost of Goods Sold 11,497 9,166
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Gross Profit 14,552 5,858
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Operating Costs:
Selling, general and administrative 22,556 28,553
Research and development -- --
Depreciation and amortization 1,896 1,896
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Total operating costs 24,452 30,449
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Loss from Operations (9,900) (24,591)
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Other Expenses:
Interest expense - stockholders' loan (18,538) (18,538)
Interest expense - convertible notes (10,898) (10,898)
Extraordinary item (273,649)
------------ ------------
Total other expenses (303,085) (29,436)
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Net Loss Before Extraordinary Item $ (312,985) $ (54,027)
============ ============
Net Loss per Common Share $ (.0057) $ (.0017)
============ ============
Average Number of Common Shares 54,580,960 30,330,960
============ ============
2
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
StatementS of Cash Flows
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
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Cash Flows from Operating Activities:
Net Loss $(312,985) $ (54,027)
Adjustments to reconcile net loss to
net cash provided (used) in operating
activities:
Depreciation and amortization 1,896 1,896
Extraordinary item 273,649
Changes in assets and liabilities:
Accounts receivable 7,486 17,706
Accounts payable and accrued expenses 29,139 23,915
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Net Cash Used in Operating Activities (815) (10,510)
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Net Cash Flows from Financing Activities:
Net proceeds from issuance of common
stock and subscriptions -- 10,000
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Net Cash Provided by Financing Activities -- 10,000
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Net Decrease in Cash (815) (510)
Cash, Beginning of Year 7,238 1,466
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Cash, End of Period $ 6,423 $ 956
========= =========
3
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
1. Basis of Presentation
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The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for the 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 of the management, all
adjustments of a normal recurring nature necessary for a fair statement have
been included.
The financial statements and notes are condensed as permitted by Form 10-QSB and
do not contain certain information included in the annual financial statements
and notes of the Company.
Method of Accounting
- --------------------
The financial statements are prepared using the accrual basis of accounting.
Generally accepted accounting principles requires management, under certain
circumstances, to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Earnings Per Share
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The following data show the amounts used in computing earnings per share as of
March 31, 2001 and 2000, respectively.
2001 2000
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Loss used in basic EPS $ (312,985) $ (54,027)
============ ============
Weighted average number of common
shares used in basic EPS 54,580,960 30,330,960
============ ============
Net loss per common share $ (.0057) $ (.0017)
============ ============
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation is provided on
a straight-line basis over estimated useful lives of the respective assets.
Leasehold improvements are depreciated over the shorter of the lease term or
economic life of the related improvement. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized. When items
of property, plant and equipment are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in the results of operations.
4
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2. Property and Equipment
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As of March 31, 2001 and 2000 property and equipment consisted of the following:
2001 2000
--------- ---------
Equipment $ 29,288 $ 29,288
Furniture & Fixtures 10,008 10,008
Leasehold Improvements 11,468 11,468
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50,764 50,764
Less: Accumulated depreciation 20,964 13,381
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Property and Equipment - Net $ 29,800 $ 37,383
========= =========
Depreciation expense was $1,896 for the three months ended March 31, 2001 and
2000, respectively.
3. Stockholders' Deficit
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Shares Issued as Compensation and Commission
- --------------------------------------------
During the quarter ended March 31, 2001 and 2000, respectively, there were
250,000 and 0 fully vested shares of the Company's common stock issued to
outside consultants for services rendered. The fair value of shares awarded,
based upon the value of Common Stock sold during these periods, were $0 for 2001
and 2000, respectively.
In addition, during quarters ended March 31, 2001 and 2000, respectively, 0 and
18,500,000 fully vested shares of the Company's Common Stock were issued to an
officer of the Company. The fair value of shares awarded, based upon the value
of Common Stock sold during these periods, were $0 for 2001 and 2000,
respectively.
4. Extraordinary Item
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During the first quarter of 2001, there was a change in the treatment of the
debt restructuring that had occurred in 1998 that originally resulted the
capitalization of intangible costs. As per FAS 15 these intangible costs
associated with this debt restructuring will be classified as "Loss on Troubled
Debt Restructuring" and charged against income. As a result, to reflect this
change, the capitalized "Loan Restructuring Costs" of $273,649 have been charged
against income as of March 31, 2001.
5. Cash Flow Information
- ------------------------
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents.
Cash paid for interest and income taxes for the years ended March 31, 2001 and
2000 were zero.
Non Cash Transaction
- --------------------
In 2001 a loss due to "restructuring of troubled debt" of $273,649 was charged
against income, as referred to in Note 4.
5
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
6. Subsequent Events
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In 2001 the Company entered into a settlement agreement with the Trustee for the
Bankruptcy Estate of Samuel L. Beinstein, whereby the Company will receive a
Satisfaction of Judgement in exchange for $10,000 to be paid on behalf of the
Company. This settlement was approved by the Bankruptcy Court and is expected to
be completed in February 2002.
In October 2001 the Company issued 4,000,000 shares of restricted common stock
to the remaining shareholders in the Investor Group. These shares were issued in
consideration of a waiver by the members of the Investor Group of all money owed
to them and the waiver of all rights to or under any stock, options, warrants or
other rights to additional stock in the Company.
As of December 31, 2001, six (6) holders of the foregoing Convertible Notes
(totaling $450,000) agreed to release all obligations under or as a result of
the Convertible Notes in exchange for the issuance of a total of 16,624,236
shares of the Company's restricted Common Stock. In addition, two (2) holders of
the foregoing Convertible Notes (totaling $50,000) have informed the Company
that they have written off the obligations under the foregoing Convertible Notes
and are therefore not interested in any settlement. Therefore, as of January 10,
2002, the Company was in default in the amounts of $226,500 in principal and
$54,360 in interest for a total of $280,860 in arrearages.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Overview:
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The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and notes and the other financial information
elsewhere in this filing. This report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Sections 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this report. The Company's future
operating results may be affected by a number of factors, including general
economic conditions, cyclical factors affecting the Company's industry, lack of
growth in the Company's end-markets, and the Company's ability to settle its
debts and manufacture and sell its products at a profitable, yet competitive
price.
The industry in which the Company competes is highly competitive and the
Company expects such competition to continue in the future. Most of the
Company's competitors are larger than the Company and have substantially greater
financial, technical, marketing and manufacturing resources.
Our operations are concentrated in a single facility in Derby, Vermont with
one (1) employee and substantially reduced overhead. Our operations could be
interrupted by fire or other events beyond our control. We do not have a
detailed disaster plan. In addition, we do not carry business interruption
insurance to compensate us for losses that may occur and any losses or damages
incurred by us could have a material adverse effect on our business.
Results of Operations:
- ---------------------
Sales; Gross Margins; Net Losses:
For the three months ended March 31, 2001, sales increased to $26,049 from
$15,024 for the three months ended March 31, 2000, representing a 73% increase.
This was due to an increase in the number of sales representative, all of whom
are paid on a commission basis.
The Company's gross margin on sales increased from (56%) for the first
three months of 2000 to (39 %) for the first three months of 2001.
For the three months ended March 31, 2001 and before the extraordinary item
described below, the Company had a net loss of $(39,336), or $(.0007) per share,
as compared with $(54,027) or $(.0017) per share in the same period in the
previous year. For the three months ended March 31, 2001 and including the
extraordinary item described below, the Company had a net loss of $(312,985) or
$(.0057) per share, as compared with $(54,027) or $(.0017) per share. The
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Company may continue to incur net losses. The increase in the net loss per share
in the three months ended March 31, 2001 from the same period in 2000 is due to
the increase in net loss due to the "extraordinary item" as mentioned below.
Selling, General and Administrative Expenses. For the three months ending
March 31, 2001, the Company incurred selling, general and administrative
expenses of $22,555, as compared to $28,553 in the same period in the previous
year. Calculations with respect to the percentage of selling, general and
administrative expenses to sales are not meaningful.
Research and Development. For the quarters ending March 31, 2001 and 2000,
the Company did not have any research and development expenses. The research and
development of the Company's product lines were terminated in 1998 due to the
Company's financial condition. The research facility in Brookfield, CT was also
closed in 1998. Calculations with respect to the percentage of research and
development expenses relative to sales are not meaningful.
Liquidity and Capital Resources. 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 and settling its debt. At March 31, 2001,
the Company had current assets of $10,932 and current liabilities of $2,100,149.
As of March 31, 2001, the Company was able to operate at a near breakeven level
based upon the reduction of costs associated with sales. The Company's ability
to continue as a going concern in the near term is dependent upon obtaining
additional financing and continuing to settle its debt.
Extraordinary Item. During the first quarter of 2001, there was a change in
the treatment of the debt restructuring that had occurred in 1998 that
originally resulted the capitalization of intangible costs. As per FAS 15 these
intangible costs associated with this debt restructuring will be classified as
"Loss on Troubled Debt Restructuring" and charged against income. As a result,
to reflect this change, the capitalized "Loan Restructuring Costs" of $273,649
have been charged against income as of March 31, 2001.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
(a) Pending Legal Proceedings: An adversary proceeding was brought against
the Company in July 1997, in U.S. Bankruptcy Court for the District of
Connecticut, by Richard Coan, Trustee for the Bankruptcy Estate of Samuel E.
Bernstein (U.S. Bankruptcy Court, Dist. Conn. Adversary Proceedings File No.
97-5078). The suit seeks a judgment to recover accrued but unpaid wages totaling
approximately $100,000 for 1995. Judgment against the Company and in favor of
the Trustee was entered in this matter on or about April 5, 2000 in the total
amount of $140,000. On or about October 23, 2001, the Bankruptcy court approved
a settlement agreement whereby a Satisfaction of Judgment will be entered in
this matter upon the Trustee's receipt of $10,000 to be paid on behalf of the
Company. This agreement terminates if not completed on or before February 15,
2002, unless extended in writing.
8
In October 2000, Seaco Insurance Company filed an action entitled Seaco
Insurance Company v. Safe Alternatives o f America, Inc. (Vermont Orleans County
Court Docket No. 274-10-000SCV) alleging non-payment of insurance premiums.
Default judgment was entered against the Company on November 21, 2000 in the
total amount of $10,792.36. Interest shall accrue on this judgment at a rate of
12% per annum and was in the amount of $324 as of March 31, 2001.
(b) Pending Governmental Proceedings: The Company is not party to any
pending action involving a governmental agency and is not aware of any
contemplated action by a governmental agency against the Company.
ITEM 2. CHANGES IN SECURITIES:
During the first three months of 2001, the Company issued 250,000 shares of
its common stock to Michael Mareneck for services rendered to the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
(a) Defaults In Debt Obligations: During 1997 and the first half of 1998,
Messrs. Sean McNamara, Nicky Hunt and Richard Hill (hereinafter "the Investor
Group"), who are current shareholders and who were Directors of the Company for
part of 1997 and 1998, advanced working capital loans and committed to make
loans to the Company in the aggregate amount of approximately $1.0 million.
During the first quarter of 1998, in consideration for, among other things, not
demanding immediate repayment of the loans, the Company and the Investor Group
agreed to exchange all of such outstanding indebtedness for a convertible
promissory note (the "Investor Note"), 2,000,000 shares of the Company's Common
Stock with piggyback registrations rights (but which may not be traded until the
$1,300,000 note is converted) and stock options. The Investor Note is in the
aggregate principal amount of $1.3 million, and accrues interest at a rate of 8%
per annum beginning January 1, 1998. The Board authorized the issuance of
warrants in connection with the Investor Note that are exercisable for a period
of five years to acquire 1,500,000 shares of Common Stock at $.25 per share and
1,500,000 shares of Common Stock at $.50 per share. In connection with the
Investor Note, the Company also issued options to acquire Common Stock as
follows: options to purchase 2.6 million shares at an exercise price of $.01 per
share, 1.95 million shares at an exercise price of $.25 per share, and 1.95
million shares at an exercise price of $.50, all of which may be exercised at
any time between June 30, 1999 and June 30, 2003, the expiration date of the
options. The Investor Note is repayable as follows: $433,333 in principal
amount, plus interest, was due and payable on or before September 9, 1998; an
additional $433,333 in principal amount, plus interest, was due on or before
January 9, 1999; and any unpaid principal balance, plus interest, was due on or
before March 9, 1999. In addition to any other remedies they may have if the
Company fails to make the principal payment on the shareholder loans on
September 9, 1998, the Company will be obligated to issue to the lender options
9
to acquire an additional 75,000 shares of Common Stock, exercisable at a price
of $.01 per share, for each 30 days that the principal payments are in default.
The Company did not make any of the payments required under these Investor Notes
and was in default.
On May 29, 1999, in exchange for the issuance of 1,000,000 shares of the
Company's restricted Common Stock, Nicky Hunt released the Company from: (1)
paying any sums due to him, including amounts due to him under the foregoing
$1.3 million Note; (2) issuing any additional stock then due or becoming due to
him; and (3) any and all rights he had, including any right under any option or
warrant, to receive any additional Common Stock from the Company that arose as a
result of his association with the Company. Messrs. McNamara and Hill released
the same obligations in October 2001 in exchange for the issuance of 4,000,000
shares of the Company's restricted Common Stock. Therefore, as of the date of
the filing of this report, there were no arrearages outstanding.
In March and April, 1998, the Company issued its 6% Convertible Notes (the
"Notes") in the aggregate principal amount of $726,500 in a private placement
under Rule 505 of Regulation D. Interest on the Notes is payable semi-annually.
The principal amount of the Notes, together with unpaid interest thereon, is due
and payable, if not earlier converted, on March 3, 1999. The Notes are
convertible into shares of Common Stock at the option of the holder at any time
following the earlier of (i) 90 days after the filing of a registration
statement with the SEC covering the shares to be received upon conversion or
(ii) the date the SEC declares such registration statement effective. The
conversion price per share is the lesser of (i) 70% of the average closing bid
price per share of Common Stock for the five trading days prior to the
conversion date or (ii) $0.25. Upon conversion, any accrued and unpaid interest
is waived by the holder. The Company has the option to repurchase the Notes from
the holder prior to registration of the underlying shares at a premium of 10%
over the purchase price of the Notes. The Company agreed to file with the SEC
not later than June 3, 1998, and use its best efforts to have declared effective
not later than July 3, 1998, a registration statement registering for resale the
shares that would be issued upon conversion of the Notes. The Company has made
no payments on these notes; has not repurchased these Notes, and is in default
with regard to its registration obligation.
As of December 31, 2001, six (6) holders of the foregoing Convertible Notes
(totaling $450,000) agreed to release all obligations under or as a result of
the Convertible Notes in exchange for the issuance of a total of 16,624,236
shares of the Company's restricted Common Stock. In addition, two (2) holders of
the foregoing Convertible Notes (totaling $50,000) have informed the Company
that they have written off the obligations under the foregoing Convertible Notes
and are therefore not interested in any settlement. Therefore, as of January 10,
2002, the Company was in default in the amounts of $226,500 in principal and
$54,360 in interest for a total of $280,860 in arrearages.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of the shareholders.
Chester Greenwood declined to stand for re-election as a Director of the
Company due to a change in his residence. The remaining two (2) Directors
remained unchanged.
ITEM 5. OTHER INFORMATION:
Mr. Chester Greenwood declined to stand for re-election as a Director of
the Company due to a change of his residence. Mr. Greenwood did not express any
disagreement with the Company on any matter relating to the Company's
operations, policies or practices
and did not submit a formal letter of resignation.
During the first quarter of 2001, the Company reduced the square footage
that it was leasing in its Derby, Vermont facility to approximately 4,000 square
feet with rent being reduced to $1,000 per month.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
SIGNATURE
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.
Dated this 8th day of February, 2002
SAFE ALTERNATIVES CORPORATION OF AMERICA, INC.
By /s/ Richard J. Fricke
-----------------------
Richard J. Fricke
President, Chief Executive Officer
And Chief Financial Officer
11