UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
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(Mark one)
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
- ------ Act of 1934
For the quarterly period ended September 30, 2002
Transition Report Under Section 13 or 15(d) of the Securities Exchange
- ------ Act of 1934
For the transition period from ______________ to _____________
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Commission File Number: 000-21627
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Safe Alternatives Corporation of America, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 06-1413994
- ------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
440 Main Street, Ridgefield, Connecticut 06877
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(Address of principal executive offices)
(203) 438-4918
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(Issuer's telephone number)
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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
--- ----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: November 21, 2002: 165,853,058
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
Safe Alternatives Corporation of America, Inc.
Form 10-QSB for the Quarter ended September 30, 2002
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 14
Item 3 Controls and Procedures 16
Part II - Other Information
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
Certifications pursuant to Sarbanes Oxley Act of 2002 20
2
Item 1 - Part 1 - Financial Statements
Safe Alternatives Corporation of America, Inc.
Balance Sheet
September 30, 2002
(Unaudited)
September 30,
2002
-------------
ASSETS
------
Current Assets
Cash on hand and in bank $ --
-------------
Total current assets --
-------------
TOTAL ASSETS $ --
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable - trade $ 14,106
Accrued interest payable 6,841
-------------
Total current liabilities 20,947
-------------
Commitments and contingencies
Convertible notes payable 25,000
-------------
Stockholders' Equity (Deficit)
Common stock - $0.0001 par value
175,000,000 shares authorized
165,853,058 shares issued and outstanding 8,113
Additional paid-in capital 22,786,941
Accumulated deficit (22,843,160)
-------------
(48,106)
Subscriptions issuable 2,160
Treasury stock - at cost (11,682 shares) (1)
-------------
Total stockholders' equity (deficit) (45,947)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ --
=============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
3
Safe Alternatives Corporation of America, Inc.
Statements of Operations and Comprehensive
Loss Nine and Three months ended September 30, 2002 and 2001
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenues - net $ -- $ -- $ -- $ --
Cost of Sales -- -- -- --
------------- ------------- ------------- -------------
Gross Profit -- -- -- --
------------- ------------- ------------- -------------
Operating Expenses
Selling, general and
administrative expenses (1,601) -- -- --
Interest expense 10,577 88,308 1,875 29,436
Compensation expense related to
common stock issuances at less
than "fair value" 4,920,923 -- 904,200 --
Cost of converting outstanding
warrant to common stock 80 -- 80 --
Depreciation and amortization -- -- -- --
------------- ------------- ------------- -------------
Total operating expenses 4,929,979 (88,308) 906,155 29,436
------------- ------------- ------------- -------------
Loss from continuing operations
before provision for income taxes (4,929,979) (88,308) (906,155) (29,436)
Income tax benefit (expense) -- -- -- --
------------- ------------- ------------- -------------
Loss before discontinued operations (4,929,979) (88,308) (906,155) (29,436)
Discontinued operations,
net of income taxes
Loss from discontinued operations,
net of income taxes of $-0- and
$-0-, respectively (14,430) (18,531) -- (4,255)
Forgiveness of trade accounts payable,
net of income taxes of $-0- and
$-0-, respectively 9,591 -- -- --
Loss on disposition, net of income taxes
of $-0- and $-0-, respectively (24,195) -- (24,195) --
------------- ------------- ------------- -------------
Loss from discontinued operations (29,034) (18,531) (24,195) (4,255)
------------- ------------- ------------- -------------
Net Loss (4,959,013) (106,839) (930,350) (33,691)
Other comprehensive income -- -- -- --
------------- ------------- ------------- -------------
Comprehensive Loss $ (4,959,013) $ (106,839) $ (930,350) $ (33,691)
============= ============= ============= =============
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
4
Safe Alternatives Corporation of America, Inc.
Statements of Operations and Comprehensive
Loss Nine and Three months ended September 30, 2002 and 2001
(Unaudited)
Nine months Nine months Three months Three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Loss before discontinued operations (4,929,979) (88,308) (906,155) (29,436)
Loss from discontinued operations (29,034) (18,531) (24,195) (4,255)
------------- ------------- ------------- -------------
Comprehensive Loss $ (4,959,013) $ (106,839) $ (930,350) $ (33,691)
============= ============= ============= =============
Netloss per weighted-average
share of common stock outstanding,
calculated on Net Loss -
basic and fully diluted
From continuing operations $ (0.05) nil $(0,01) nil
From discontinued operations 0.00 nil 0.00 nil
------------- ------------- ------------- -------------
Total $ (0.05) nil $ (0.01) nil
============= ============= ============= =============
Weighted-average number of
shares of common stock
outstanding 109,239,980 54,580,960 160,981,561 54,580,960
============= ============= ============= =============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
5
Safe Alternatives Corporation of America, Inc.
Statements of Cash Flows
Nine months ended September 30, 2002 and 2001
(Unaudited)
Nine months Nine months
ended ended
September 30, September 30,
2002 2001
------------- -------------
Cash Flows from Operating Activities
Net loss for the period $ (4,959,013) $ (106,839)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 3,791 5,687
Compensation expense related to common
stock issuances at less than "fair value" 4,920,923 --
Cost of converting outstanding warrant to common stock 80 --
Loss on disposition of discontinued operations 24,195 --
Forgiveness of trade accounts payable (9,591) --
(Increase) Decrease in
Current assets of discontinued operations 638 7,486
Increase (Decrease) in
Current liabilities of discontinued operations 7,203 56,200
Accrued interest payable 10,577 30,443
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Net cash used in operating activities (1,197) (7,023)
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Cash Flows from Investing Activities -- --
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Cash Flows from Financing Activities -- --
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Increase (Decrease) in Cash (1,197) (7,023)
Cash at beginning of period 1,197 7,238
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Cash at end of period $ -- $ 215
============= =============
Supplemental Disclosure of
Interest and Income Taxes Paid
Interest paid for the period $ -- $ --
============= =============
Income taxes paid for the period $ -- $ --
============= =============
Supplemental Disclosure of Non-cash
investing and financing activities
Common stock issued for retirement of debt $ 651,500 $ --
============= =============
Common stock issued in payment of accrued interest $ 157,273 $ --
============= =============
Common stock issued in payment of accounts payable $ 46,501 $ --
============= =============
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
6
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements
Note A - Organization and Description of Business
Safe Alternatives Corporation of America, Inc. (Company) was organized in 1976,
under the name Knight Airlines, Inc., to engage in the commuter airline
business. In October 1978, the Company engaged in an initial public offering of
its Common Stock in Florida, pursuant to an exemption from registration under
Regulation A promulgated under the Securities Act of 1933, as amended. The
Company operated as a commuter airline from its inception through April 1983,
when it ceased operations and all of the assets of the Company were sold to
satisfy all outstanding indebtedness. From April 1983, through September 1995,
the Company was dormant. In May 1994, the name of the Company was changed to
Portsmouth Corporation.
On September 15, 1995, pursuant to the terms of an Asset Purchase Agreement and
Plan of Reorganization dated as of August 21, 1995 (the "Agreement") between
Safe Alternatives Corporation of America, Inc., a Delaware corporation
("SAC-Delaware") and the Company, the Company purchased the business (the
"Business"), including, without limitation, all of the assets of SAC-Delaware,
and assumed all of the liabilities of SAC- Delaware (the "Reorganization"), and
commenced operations. Prior to the Reorganization, the Company had no meaningful
operations. On March 4, 1996, the Company changed its name to Safe Alternatives
Corporation of America, Inc. (a Florida corporation).
Note B - Preparation of Financial Statements
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
a year-end of December 31.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements filed with the U. S. Securities and
Exchange Commission on its Annual Report on Form 10-KSB for the year ended
December 31, 2001. The information presented within these interim financial
statements may not include all disclosures required by generally accepted
accounting principles and the users of financial information provided for
interim periods should refer to the annual financial information and footnotes
when reviewing the interim financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the U. S. Securities and Exchange Commission's
instructions for Form 10-QSB, are unaudited and contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations and cash flows of
the Company for the respective interim periods presented. The current period
results of operations are not necessarily indicative of results which ultimately
will be reported for the full fiscal year ending December 31, 2002.
7
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements - Continued
Note C - Going Concern Uncertainty
On September 17, 2002, the Board of Directors of the Company agreed to sell, as
of June 30, 2002, of all of the Company's assets to Environmental Alternatives,
Inc. ("EAI"), a privately held Vermont corporation, in exchange for EAI's
assumption of and agreement to indemnify and hold the Company harmless from
paying any and all claims, causes of action, or other liabilities, including but
not limited to interest, costs, expenses, disbursements and attorneys' fees,
that could, may or does attach to the Company as of June 30, 2002 as a result
of, or is in any way related to any of the Company's obligations to its
creditors and all adverse judgments entered against the Company except any
obligations to the following: (A) Continental Stock Transfer and Trust Company,
the Company's independent stock transfer agent; (B) Green Holman, Frenia &
Company, L.L.P., the Company's former independent auditors; (C) Arab Commerce
Bank, a holder of a 6% Convertible Note; and (D) any settlement amounts due upon
the completion of a merger or other combination between the Company and another
company. Except as provided above, the agreement to assume the Company's
liabilities and to indemnify and hold the Company harmless from paying the same
is unlimited as to amount or as to time. A copy of the Agreement was filed by
the Company as an exhibit in a Current Report on Form 8-K as of September 17,
2002.
EAI is owned by Mr. Kenneth Hodgdon, an employee who was responsible for the
Company's daily operations. The Company was in the business of marketing
AmeriStripTM, a paint stripper, and assembling and marketing NaturalCoolTM, an
air circulation system. The assets purchased include the AmeriStripTM and
NaturalCoolTM patents, the formula for a water-based foam product, furniture and
fixtures, equipment, leasehold improvements, accounts receivable, works in
progress, and the Company's name. The liabilities assumed include but are not
limited to accounts payable and a judgment. Shareholders holding a majority of
the Company's common stock approved the Agreement by written action in lieu of a
shareholder's meeting.
Accordingly, as of July 1, 2002, the Company has no assets or operations and
intends to seek a suitable business combination transaction through either a
purchase or merger. The Company's continued existence is dependent upon its
ability to generate sufficient cash flows from operations to support its daily
operations as well as provide sufficient resources to retire existing
liabilities and obligations on a timely basis.
The Company anticipates issuing additional equity securities to facilitate a
business combination transaction with another entity. However, there is no
assurance that the Company will be able to consummate such a transaction or that
such transaction, if available, will be done on terms favorable to the existing
shareholders or affordable by the Company.
If no additional operating capital is received during the next twelve months,
the Company will be forced to rely on existing cash in the bank and upon
additional funds loaned by management and/or significant stockholders to
preserve the integrity of the corporate entity at this time. In the event, the
Company is unable to acquire advances from management and/or significant
stockholders, the Company's ongoing operations would be negatively impacted.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, no formal commitments or arrangements to advance
or loan funds to the Company or repay any such advances or loans exist. There is
no legal obligation for either management or significant stockholders to provide
additional future funding.
8
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements - Continued
Note C- Going Concern Uncertainty - Continued
The Company has no assets, several liabilities and no operations, our auditors
have issued a review report on the accompanying financial statements which
includes a statement describing our going concern status. This means, in our
auditor's opinion, substantial doubt about our ability to continue as a going
concern exists at the date of their opinion.
While the Company is of the opinion that good faith estimates of the Company's
ability to secure additional capital in the future to reach our goals have been
made, there is no guarantee that the Company will receive sufficient funding to
sustain operations or implement any future business plan steps.
Note D - Discontinued Operations
As discussed in Note C, the Company disposed of all operating activities,
effective of July 1, 2002, on September 17, 2002.
The results of the Company's operations for the respective periods presented are
reported as a component of discontinued operations in the statements of
operations. Additionally, the respective gain or loss incurred on the sale of
the Company's operations are also presented separately as a component of
discontinued operations.
Summarized results of operations for the disposed operations for the nine month
periods ended September 30, 2002 and 2001, are as follows:
Nine months Nine months
ended ended
September 30, September 30,
2002 2001
------------- -------------
Net sales $ 33,147 $ 57,002
============= =============
Operating income (loss) $ (14,430) $ (18,531)
============= =============
Loss from discontinued operations $ (14,430) $ (18,531)
============= =============
Note E - Summary of Significant Accounting Policies
1. Cash and cash equivalents
-------------------------
For Statement of Cash Flows purposes, the Company considers all cash on
hand and in banks, including accounts in book overdraft positions,
certificates of deposit and other highly-liquid investments with maturities
of three months or less, when purchased, to be cash and cash equivalents.
2. Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes. At September 30, 2002 and 2001, respectively, the deferred tax asset
and deferred tax liability accounts, as recorded when material to the
financial statements, are entirely the result of temporary differences.
Temporary differences represent differences in the recognition of assets
and liabilities for tax and financial reporting purposes, primarily
accumulated depreciation and amortization, allowance for doubtful accounts
and vacation accruals.
9
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements - Continued
Note E - Summary of Significant Accounting Policies - Continued
2. Income Taxes
------------
As of September 30, 2002 and 2001, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved. Due to the
provisions of Internal Revenue Code Section 338, the Company may have
limited net operating loss carryforwards available to offset financial
statement or tax return taxable income in future periods as a result of a
Fiscal 2000 change in control involving 50 percentage points or more of the
issued and outstanding securities of the Company.
3. Income (Loss) per share
-----------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock
outstanding. The calculation of fully diluted earnings (loss) per share
assumes the dilutive effect of the exercise of outstanding options and
warrants, using the treasury stock method, at either the beginning of the
respective period presented or the date of issuance, whichever is later.
[As of September 30, 2002 and 2001, respectively, the Company has no outstanding
stock warrants, options or convertible securities which could be considered as
dilutive for purposes of the loss per share calculation.]
Note F - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
Note G - Convertible Notes Payable
On March 10, 1998, the Company entered into an Agency Agreement with Alexander
Wescott & Co., Inc. (AWC) for the offer and sale of 6% Convertible Notes, with
maximum gross proceeds not to exceed $1,000,000. The notes bear interest at the
rate of six percent (6%) per annum, payable semi-annually in arrears, in cash
or, at the Company's option, in shares of Common Stock of the Company. The notes
mature on the earlier of (i) the first anniversary of the initial closing of the
proposed offer (April 10, 1999), and (ii) a sale of all or substantially all of
the Company's assets or a merger, acquisition or consolidation in which the
Company is not the surviving corporation. The notes rank senior to all other
indebtedness of the Company now or hereafter existing, other than indebtedness
to banks, in terms of priority and security, and may not be prepaid without the
holder's consent. The principal amount of each Note shall be converted into
shares of Common Stock, at the option of the holder, commencing on the earlier
of (a) ninety (90) days following the filing of the Registration Statement with
the Securities and Exchange Commission and (b) the date the Commission declares
the Registration Statement effective.
10
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements - Continued
Note G - Convertible Notes Payable - Continued
The conversion price per share shall equal the lower of (i) seventy percent
(70%) of the average closing bid price per share of Common Stock on the NASDAQ
for the five trading days immediately preceding the conversion date or (ii)
twenty-five cents ($.25).
AWC received a commission of 10% plus 3% non-accountable expense reimbursement
on the gross proceeds raised. In addition, AWC was issued warrants exercisable
for 400,000 shares of Common Stock at an exercise price of $0.30 per share,
expiring June 28, 2003. On September 30, 2002, the Company and AWC reached a
settlement agreement whereby AWC agreed to cancel the outstanding warrant in
exchange for 800,000 shares of restricted, unregistered shares of the Company's
common stock.
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. The principal amount of the Notes, together with
unpaid interest thereon, was initially due and payable, if not earlier
converted, on March 3, 1999.
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 two note holders with notes totaling $50,000 notified
the Company that they have written off the balances owed to them by the Company
and therefore have discharged the Company from any further liability. As a
result the Company recognized a $56,000 forgiveness of debt income as of
December 31, 2001, which includes $6,000 of accrued interest.
As of September 30, 2002, all but one (1) holder of the foregoing Convertible
Notes (totaling approximately $651,500) agreed to release all obligations under
or as a result of the Convertible Notes, including accrued interest of
approximately $157,273, in exchange for the issuance of a total of 21,303,264
shares of restricted, unregistered shares of the Company's common stock.
As of the date of this filing, the Company was in default on the outstanding
amounts of approximately $25,000 in principal and approximately $6,841 in
accrued interest.
Note H - Income Taxes
The components of income tax (benefit) expense, on continuing operations, for
the nine months ended September 30, 2002 and 2001, respectively, are as follows:
September 30, September 30,
2002 2001
------------- -------------
Federal:
Current $ -- $ --
Deferred -- --
------------- -------------
-- --
------------- -------------
State:
Current -- --
Deferred -- --
------------- -------------
-- --
------------- -------------
Total $ -- $ --
============= =============
11
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements - Continued
Note H - Income Taxes - Continued
As of September 30, 2002, the Company has a net operating loss carryforward of
approximately $9,200,000 to offset future taxable income. Subject to current
regulations, this carryforward will begin to expire in 2007. The amount and
availability of the net operating loss carryforwards may be subject to
limitations set forth by Section 338 of the Internal Revenue Code. Factors such
as the number of shares ultimately issued within a three year look- back period;
whether there is a deemed more than 50 percent change in control; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation of
allowable annual utilization of the carryforwards.
The Company's income tax expense for the nine months ended September 30, 2002
and 2001, respectively, are as follows:
Nine months Nine months
ended ended
September 30, September 30,
2002 2001
------------- -------------
Statutory rate applied to
income before income taxes $ (1,686,000) $ (130,000)
Increase (decrease) in income
taxes resulting from:
State income taxes -- --
Other, including reserve for
deferred tax asset and
application of net operating
loss carryforward 1,686,000 130,000
------------- -------------
Income tax expense $ -- $ --
============= =============
Temporary differences, consisting primarily of statutory deferrals of expenses
for organizational costs and statutory differences in the depreciable lives for
property and equipment, between the financial statement carrying amounts and tax
bases of assets and liabilities give rise to deferred tax assets and liabilities
as of September 30, 2002 and 2001, respectively:
September 30, September 30,
2002 2001
------------- -------------
Deferred tax assets
Net operating loss carryforwards $ 3,100,000 $ 3,100,000
Less valuation allowance (3,100,000) (3,100,000)
------------- -------------
Net Deferred Tax Asset $ -- $ --
============= =============
During the nine months ended September 30, 2002 and 2001, respectively, the
reserve for the deferred current tax asset did not significantly change.
Note I - Common Stock Transactions
During the nine months ended September 30, 2002, the Company issued an aggregate
21,303,264 shares of restricted, unregistered shares of the Company's common
stock in settlement of approximately $651,000 in face amount of 6.0% Convertible
Notes and accrued interest of approximately $157,273.
12
Safe Alternatives Corporation of America, Inc.
Notes to Financial Statements - Continued
Note I - Common Stock Transactions - Continued
During the nine months ended September 30, 2002, the Company issued 448,101
shares of restricted, unregistered common stock to various unsecured creditors
in exchange for their release of any further claims related to trade accounts
payable. These transactions were valued at approximately $448,100, including a
"fair value" adjustment of approximately $410,597 for shares issued at less than
the "fair value" of the shares based on the valuation established by equivalent
transactions on equivalent dates.
Effective September 30, 2002, the Company issued 800,000 shares of restricted,
unregistered common stock in exchange for the retirement of an outstanding
warrant to purchase up to 400,000 shares of the Company's common stock at a
price of $0.30 per share, expiring June 28, 2003. This transaction was valued at
approximately $80, which approximates the "fair value" of the Company's common
stock on the date of the transaction.
During July 2002, in order to facilitate the Company's merger or other business
combination transaction with another company, the Company issued a total of
84,720,733 shares of the Company's unregistered, restricted common stock to be
held in escrow for the benefit of the Company's merger or combination partner.
No value has been assigned to this issuance pending the consummation of a
business combination transaction.
Note J - Treasury Stock
Treasury stock represents 11,682 shares (recorded at cost) being held in trust
to be used for future issuance to employees, investors, and other potential
funding sources. As the Company directly benefits from the sales of the shares
in the trust, these shares have been recorded as treasury stock.
(Remainder of this page left blank intentionally)
13
Part I - Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(3) Caution Regarding Forward-Looking Information
Certain statements contained in this quarterly filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions: demographic changes; the ability
of the Company to sustain, manage or forecast its growth; the ability of the
Company to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-QSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
(2) Results of Operations, Liquidity and Capital Resources
On September 17, 2002, the Board of Directors of the Company agreed to sell, as
of June 30, 2002, of all of SACA's assets to Environmental Alternatives, Inc.
("EAI"), a privately held Vermont corporation, in exchange for EAI's assumption
of and agreement to indemnify and hold SACA harmless from paying any and all
claims, causes of action, or other liabilities, including but not limited to
interest, costs, expenses, disbursements and attorneys' fees, that could, may or
does attach to SACA as of June 30, 2002 as a result of, or is in any way related
to any of SACA's obligations to its creditors and all adverse judgments entered
against SACA except any obligations to the following: (A) Continental Stock
Transfer and Trust Company, SACA's transfer agent; (B) Green Holman, Frenia &
Company, L.L.P., SACA's former auditors; (C) Arab Commerce Bank, a holder of a
SACA 6% Convertible Note; and (D) Settlement amounts due upon the completion of
a merger or other combination between SACA and another company. Except as
provided above, the agreement to assume SACA's liabilities and to indemnify and
hold SACA harmless from paying the same is unlimited as to amount or as to time.
A copy of the Agreement was filed by the Company as an exhibit in a Current
Report on Form 8-K as of September 17, 2002.
EAI is owned by Mr. Kenneth Hodgdon, an employee who was responsible for the
Company's daily operations. The Company was in the business of marketing
AmeriStripTM, a paint stripper, and assembling and marketing NaturalCoolTM, an
air circulation system. The assets purchased include the AmeriStripTM and
NaturalCoolTM patents, the formula for a water-based foam product, furniture and
fixtures, equipment, leasehold improvements, accounts receivable, works in
progress, and the Company's name. The liabilities assumed include but are not
limited to accounts payable and a judgment. Shareholders holding a majority of
the Company's common stock approved the Agreement by written action in lieu of a
shareholder's meeting.
Accordingly, as of July 1, 2002, the Company has no assets or operations and
intends to seek a suitable business combination transaction through either a
purchase or merger.
14
The Company does not expect to generate any meaningful revenue or incur
operating expenses for purposes other than fulfilling the obligations of a
reporting company under the Securities Exchange Act of 1934 unless and until
such time that the Company begins meaningful operations.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
Should this pledge fail to provide financing, the Company has not identified any
alternative sources. Consequently, there is substantial doubt about the
Company's ability to continue as a going concern.
The Company's need for capital may change dramatically as a result of any
business acquisition or combination transaction. There can be no assurance that
the Company will identify any such business, product, technology or company
suitable for acquisition in the future. Further, there can be no assurance that
the Company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
Plan of Business
- ----------------
General
- -------
The Company intends to locate and combine with an existing, privately-held
company which is profitable or, in management's view, has growth potential,
irrespective of the industry in which it is engaged. However, the Company does
not intend to combine with a private company which may be deemed to be an
investment company subject to the Investment Company Act of 1940. A combination
may be structured as a merger, consolidation, exchange of the Company's common
stock for stock or assets or any other form which will result in the combined
enterprise's becoming a publicly-held corporation.
Pending negotiation and consummation of a combination, the Company anticipates
that it will have, aside from carrying on its search for a combination partner,
no business activities, and, thus, will have no source of revenue. Should the
Company incur any significant liabilities prior to a combination with a private
company, it may not be able to satisfy such liabilities as are incurred.
If the Company's management pursues one or more combination opportunities beyond
the preliminary negotiations stage and those negotiations are subsequently
terminated, it is foreseeable that such efforts will exhaust the Company's
ability to continue to seek such combination opportunities before any successful
combination can be consummated. In that event, the Company's common stock will
become worthless and holders of the Company's common stock will receive a
nominal distribution, if any, upon the Company's liquidation and dissolution.
Combination Suitability Standards
In its pursuit for a combination partner, the Company's management intends to
consider only combination candidates which are profitable or, in management's
view, have growth potential. The Company's management does not intend to pursue
any combination proposal beyond the preliminary negotiation stage with any
combination candidate which does not furnish the Company with audited financial
statements for at least its most recent fiscal year and unaudited financial
statements for interim periods subsequent to the date of such audited financial
statements, or is in a position to provide such financial statements in a timely
manner. The Company will, if necessary funds are available, engage attorneys
and/or accountants in its efforts to investigate a combination candidate and to
consummate a business combination. The Company may require payment of fees by
such combination candidate to fund the investigation of such candidate. In the
event such a combination candidate is engaged in a high technology business, the
Company may also obtain reports from independent organizations of recognized
standing covering the technology being developed and/or used by the candidate.
The Company's limited financial resources may make the acquisition of such
reports difficult or even impossible to obtain and, thus, there can be no
assurance that the Company will have sufficient funds to obtain such reports
when considering combination proposals or candidates. To the extent the Company
is unable to obtain the advice or reports from experts, the risks of any
combined enterprise's being unsuccessful will be enhanced. Furthermore, to the
15
knowledge of the Company's officers and directors, neither the candidate nor any
of its directors, executive officers, principal shareholders or general
partners:
1) will not have been convicted of securities fraud, mail fraud, tax
fraud, embezzlement, bribery, or a similar criminal offense involving
misappropriation or theft of funds, or be the subject of a pending
investigation or indictment involving any of those offenses;
2) will not have been subject to a temporary or permanent injunction or
restraining order arising from unlawful transactions in securities,
whether as issuer, underwriter, broker, dealer, or investment advisor,
may be the subject of any pending investigation or a defendant in a
pending lawsuit arising from or based upon allegations of unlawful
transactions in securities; or
3) will not have been a defendant in a civil action which resulted in a
final judgement against it or him awarding damages or rescission based
upon unlawful practices or sales of securities.
The Company's officers and directors will make these determinations by asking
pertinent questions of the management of prospective combination candidates.
Such persons will also ask pertinent questions of others who may be involved in
the combination proceedings. However, the officers and directors of the Company
will not generally take other steps to verify independently information obtained
in this manner which is favorable. Unless something comes to their attention
which puts them on notice of a possible disqualification which is being
concealed from them, such persons will rely on information received from the
management of the prospective combination candidate and from others who may be
involved in the combination proceedings.
Item 3. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's President
and Chief Executive Officer along with the Company's Chief Financial Officer.
Based upon that evaluation, the Company's President and Chief Executive Officer
along with the Company's Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective. There have been no significant
changes in the Company's internal controls or in other factors, which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
Part II - Other Information
Item 1 - Legal Proceedings
See Item 5 below. As of September 30, 2002, the Company has no open legal
proceedings.
Item 2 - Changes in Securities
During the nine months ended September 30, 2002, the Company issued an
aggregate 21,303,264 shares of restricted, unregistered shares of the
Company's common stock in settlement of approximately $651,000 in face
amount of 6.0% Convertible Notes and accrued interest of approximately
$157,273.
16
During the nine months ended September 30, 2002, the Company issued 448,101
shares of restricted, unregistered common stock to various unsecured
creditors in exchange for their release of any further claims related to
trade accounts payable. These transactions were valued at approximately
$448,100, including a "fair value" adjustment of approximately $410,597 for
shares issued at less than the "fair value" of the shares based on the
valuation established by equivalent transactions on equivalent dates.
Effective September 30, 2002, the Company issued 800,000 shares of
restricted, unregistered common stock in exchange for the retirement of an
outstanding warrant to purchase up to 400,000 shares of the Company's
common stock at a price of $0.30 per share, expiring June 28, 2003. This
transaction was valued at approximately $80, which approximates the "fair
value" of the Company's common stock on the date of the transaction.
During July 2002, in order to facilitate the Company's merger or other
business combination transaction with another company, the Company issued a
total of 84,720,733 shares of the Company's unregistered, restricted common
stock to be held in escrow for the benefit of the Company's merger or
combination partner. No value has been assigned to this issuance pending
the consummation of a business combination transaction.
During the third quarter of 2002, the Company's Chief Executive Officer and
a director of the Company, each have agreed to waive all rights to all of
their stock options, effective upon the Company's completion of a merger or
other business combination transaction.
Item 3 - Defaults upon Senior Securities
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 U. S. Securities and Exchange
Commission (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 a Registration Statement with the SEC not later than June 3, 1998
and use its best efforts to have declared effective, not later than July 3,
1998, 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 September 30, 2002, ten (10) holders of the foregoing Convertible
Notes agreed to release all obligations under or as a result of the
Convertible Notes for the issuance of a total of 21,303,264 shares of
restricted, unregistered shares of the Company's common stock in settlement
of approximately $651,000 in face amount of 6.0% Convertible Notes and
accrued interest of approximately $157,273.
In addition, two (2) holders of the foregoing Convertible Notes (totaling
$50,000) informed the Company, during the fourth quarter of 2001, that they
have written off the obligations under the foregoing Convertible Notes and
are therefore have discharged the Company from any further liability.
As of the date of this filing, the Company was in default on the
outstanding amounts of approximately $25,000 in principal and approximately
$6,841 in accrued interest.
Item 4 - Submission of Matters to a Vote of Security Holders
On September 25, 2002, shareholders holding over 70% of the issued and
outstanding shares of the Company"s Common Stock approved, by Written
Action In Lieu of a Special Meeting, the Agreement to sell its assets in
exchange for an agreement for the assumption of its liabilities (with
17
certain exceptions), together with an agreement to indemnify and hold the
Company harmless from paying the same. The Company did not solicit proxies
and the Board of Directors remains unchanged.
Item 5 - Other Information
On September 17, 2002, the Board of Directors of the Company agreed to
sell, as of June 30, 2002, of all of the Company's assets to Environmental
Alternatives, Inc. ("EAI"), a privately held Vermont corporation, in
exchange for EAI's assumption of and agreement to indemnify and hold the
Company harmless from paying any and all claims, causes of action, or other
liabilities, including but not limited to interest, costs, expenses,
disbursements and attorneys' fees, that could, may or does attach to the
Company as of June 30, 2002 as a result of, or is in any way related to any
of the Company's obligations to its creditors and all adverse judgments
entered against the Company except any obligations to the following: (A)
Continental Stock Transfer and Trust Company, the Company's independent
stock transfer agent; (B) Green Holman, Frenia & Company, L.L.P., the
Company's former independent auditors; (C) Arab Commerce Bank, a holder of
a 6% Convertible Note; and (D) any settlement amounts due upon the
completion of a merger or other combination between the Company and another
company. Except as provided above, the agreement to assume SACA's
liabilities and to indemnify and hold the Company harmless from paying the
same is unlimited as to amount or as to time. A copy of the Agreement was
filed by the Company as an exhibit in a Current Report on Form 8-K as of
September 17, 2002.
EAI is owned by Mr. Kenneth Hodgdon, an employee who was responsible for
the Company's daily operations. The Company was in the business of
marketing AmeriStripTM, a paint stripper, and assembling and marketing
NaturalCoolTM, an air circulation system. The assets purchased include the
AmeriStripTM and NaturalCoolTM patents, the formula for a water-based foam
product, furniture and fixtures, equipment, leasehold improvements,
accounts receivable, works in progress, and the Company's name. The
liabilities assumed include but are not limited to accounts payable and a
judgment. Shareholders holding a majority of the Company's common stock
approved the Agreement by written action in lieu of a shareholder's
meeting.
During July 2002, in order to facilitate the Company's merger or other
business combination transaction with another company, the Company issued a
total of 84,720,733 shares of the Company's unregistered, restricted common
stock to be held in escrow for the benefit of the Company's merger or
combination partner. No value has been assigned to this issuance pending
the consummation of a business combination transaction.
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
--------
None
Reports on Form 8-K
-------------------
August 15, 2002 Announcing the resignation of Green Holman, Frenia &
Company, L.L.P., the Company's former independent
certified public accountants.
September 17, 2002 Announcing the sale of substantially all of the
Company's assets and operations and the appointment
of S. W. Hatfield, CPA as the Company's independent
certified public accountants.
(Remainder of this page left blank intentionally)
18
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 Alternatives Corporation of America, Inc.
Dated: November 22, 2002 /s/ Richard J. Fricke
----------------- ------------------------------------
Richard J. Fricke
President, Chief Executive Officer
Chief Financial Officer and Director
19
Certification Pursuant to 18 USC, Section 1350,
as Adopted Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Safe Alternatives Corporation of
America, Inc. (Registrant) on Form 10-QSB for the quarter ended September 30,
2002, as filed with the Securities and Exchange Commission, on the date hereof,
I, Richard J. Fricke, Chief Executive Officer and Chief Financial Officer of the
Company, certify to the best of my knowledge, pursuant to 18 USC 1350, as
adopted pursuant to ss.302 and promulgated as 18 USC 1350 pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this Quarterly Report on Form 10-QSB of Safe Alternatives
Corporation of America, Inc. for the quarter ended September 30, 2002.
(2) Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
Quarterly Report;
(4) The registrant's other certifying officers, if any, and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
have:
(1) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;
(2) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
(3) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officers, if any, and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
(1) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(2) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officers, if any, and I have indicated in
this Quarterly Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Richard J. Fricke Dated: November 22, 2002
- --------------------- -----------------
Richard J. Fricke
Chief Executive Officer and
Chief Financial Officer
20