UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 000-17746
---------
Safe Technologies International, Inc.
-----------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2824492
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2875 S. Ocean Boulevard, Palm Beach, FL 33480
----------------------------------------------------------
(Address of principal executive offices)
(561) 832-2700
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(Issuer's telephone number)
----------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: --------------
859,026,599
-----------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ ]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Accountant's Review Report 1
Consolidated Financial Statements:
Balance Sheet 2-3
Statements of Operations 4
Statement of Changes in Stockholders' Equity 5-7
Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9-15
Accountants' Review Report
- --------------------------
To the Board of Directors and Shareholders
Safe Technologies International, Inc.
And Subsidiaries
Palm Beach, Florida
We have reviewed the accompanying consolidated balance sheet of Safe
Technologies International, Inc., a Delaware corporation, and subsidiaries, as
of June 30, 2002 and the related consolidated statements of operations for the
quarters and six-month periods ended June 30, 2002 and 2001. We have also
reviewed the related statements of cash flows for the six-month periods ended
June 30, 2002 and 2001, as well as the related statements of changes in
stockholders' equity for the years ended December 31, 2001 and 2000, and for the
six-month period ended June 30, 2002. All information included in these
financial statements is the responsibility of the Company's management.
A review consists primarily of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
consolidated financial statements, the Company incurred significant losses
during the quarter ended June 30, 2002 and is primarily reliant on the Internet
industry for its operations. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 8. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
July 31, 2002
-1-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002
ASSETS
CURRENT ASSETS
- --------------
Cash $ 26,770
Accounts Receivable (net of allowance for doubtful accounts
of $19,000) 22,650
Prepaid Expenses 1,750
--------
TOTAL CURRENT ASSETS 51,170
PROPERTY & EQUIPMENT
- --------------------
Fixed assets (net of accumulated depreciation) 84,437
OTHER ASSETS
- ------------
Deposits 7,378
Investment in Internet Commerce, Inc. 13,394
Investment in All American Acquisitions Association, Inc. 192
Goodwill, copyrights and trademarks (net of accumulated
amortization) 302,893
--------
TOTAL OTHER ASSETS 323,857
--------
TOTAL ASSETS $459,464
========
See Accountants' Review Report and Accompanying Notes
-2-
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 63,972
Accrued Expenses 82,985
Notes Payable 400,742
Deferred Income 4,515
-----------
TOTAL CURRENT LIABILITIES 552,214
SHAREHOLDERS' EQUITY
- --------------------
Common Stock, par value $0.00001, 999,999,000 shares authorized,
859,026,599 shares issued and outstanding 8,590
Additional Paid-in Capital 7,109,367
Accumulated Deficit (7,210,707)
-----------
TOTAL SHAREHOLDERS' EQUITY (92,750)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 459,464
===========
See Accountants' Review Report and Accompanying Notes
-3-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001, AND
YEAR-TO-DATE THROUGH JUNE 30, 2002 AND 2001
FOR THE QUARTERS ENDED YEAR-TO-DATE THROUGH
JUNE 30 JUNE 30, JUNE 30, JUNE 30,
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUE
Sales, Net of Customer Returns $ 43,799 $ 65,136 $ 93,362 $ 139,316
EXPENSES
Cost of Goods Sold (3,217) 10,477 2,476 27,932
----------- ----------- ----------- -----------
GROSS PROFIT 47,016 54,659 90,886 111,384
----------- ----------- ----------- -----------
Selling, General and Administrative Expenses:
Advertising and Promotion 3,748 1,251 5,898 3,137
Consulting Fees 107,567 -- 116,550 84,093
Depreciation and Amortization 16,467 19,237 35,704 38,041
Salaries and Benefits -- 128,450 7,434 185,627
Legal and Professional Services 11,782 56,537 31,960 125,723
Proxy and Broker Services 750 808 1,580 1,715
General and Administrative 65,293 29,259 91,107 63,036
----------- ----------- ----------- -----------
TOTAL SELLING, GENERAL & ADMINISTRATIVE
EXPENSES 205,607 235,542 290,233 501,372
----------- ----------- ----------- -----------
OTHER INCOME & (EXPENSES)
Interest Expense (7,428) (7,382) (14,857) (15,972)
(Loss) on Sale of Subsidiary (52,192) -- (48,442) --
----------- ----------- ----------- -----------
TOTAL OTHER INCOME/(EXPENSES) (59,620) (7,382) (63,299) (15,972)
----------- ----------- ----------- -----------
NET (LOSS) $ (218,211) $ (188,265) $ (262,646) $ (405,960)
=========== =========== =========== ===========
NET (LOSS) PER SHARE $(0.000258) $(0.000232) $(0.000313) $(0.000500)
=========== =========== =========== ===========
See Accountants' Review Report and Accompanying Notes
-4-
SAFE TECHNOLOGIES INTERNATIONAL,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
AND FOR THE SIX MONTHS ENDED JUNE 30, 2002
Common Stock Capital Paid In
Shares Amount Subscribed Capital
----------------------------------------------------------
Balance, December 31, 2000 805,605,299 $8,056 $ -- $6,599,060
Issuance of shares of common stock for legal services, 1,000,000 10 -- 19,990
January 3, 2001 ($0.02 per share)
Issuance of additional shares of common stock based on 4,204,634 42 -- --
terms of "Connect.ad, Inc." acquisition agreement,
January 15, 2001
Issuance of shares of common stock in exchange for 1,666,667 17 -- 49,983
capital subscribed, February 15, 2001
Capital subscribed, per agreements dated May 31, 2001 -- -- 32,000 --
Issuance of shares of common stock for legal services, 1,000,000 10 -- 19,990
June 18, 2001 ($0.02 per share)
Issuance of shares of common stock to an officer as 5,000,000 50 -- 99,950
compensation for services, July 3, 2001 ($0.02 per share)
Issuance of shares of common stock to an officer
as reimbursement for expenses, July 3, 2001
($0.02 per share) 750,000 8 -- 14,992
------------ ------ ------- ----------
Sub-total 819,226,600 $8,193 $32,000 $6,803,965
[RESTUB]
Accumulated
Deficit TOTAL
-------------------------------
Balance, December 31, 2000 $(6,358,891) $248,225
Issuance of shares of common stock for legal services, -- 20,000
January 3, 2001 ($0.02 per share)
Issuance of additional shares of common stock based on -- 42
terms of "Connect.ad, Inc." acquisition agreement,
January 15, 2001
Issuance of shares of common stock in exchange for -- 50,000
capital subscribed, February 15, 2001
Capital subscribed, per agreements dated May 31, 2001 -- 32,000
Issuance of shares of common stock for legal services, -- 20,000
June 18, 2001 ($0.02 per share)
Issuance of shares of common stock to an officer as -- 100,000
compensation for services, July 3, 2001 ($0.02 per share)
Issuance of shares of common stock to an officer
as reimbursement for expenses, July 3, 2001
($0.02 per share) -- 15,000
------------ --------
Sub-total $(6,358,891) $485,267
See Accountants' Review Report and Accompanying Notes
-5-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
AND FOR THE QUARTER ENDED JUNE 30, 2002
Common Stock Capital Paid In
Shares Amount Subscribed Capital
----------------------------------------------------------
Sub-Total 819,226,600 $ 8,193 $ 32,000 $ 6,803,965
Issuance of shares of common stock to an officer as 350,000 3 -- 6,997
compensation for services, July 3, 2001 ($0.02 per share)
Capital subscribed, per agreements dated -- -- 68,000 --
September 5, 2001
Issuance of shares of common stock for legal 1,000,000 10 -- 19,990
services, November 6, 2001 ($0.02 per share)
Issuance of shares of common stock in exchange for 8,749,999 87 (100,000) 99,913
capital subscribed in 2001, November 10, 2001
Net loss, December 31, 2001 -- -- -- --
----------------------------------------------------------
Balance, December 31, 2001 829,326,599 8,293 -- 6,930,865
Issuance of shares of common stock to an officer as 200,000 2 -- 1,398
compensation for services, January 3, 2002 ($0.007
per share)
Issuance of shares of common stock to an officer as 2,000,000 20 -- 13,980
compensation for services, January 8, 2002 ($0.007
per share)
----------------------------------------------------------
Sub-Total 831,526,599 $ 8,315 $ -- $ 6,946,243
[RESTUB]
Accumulated
Deficit TOTAL
--------------------------------------
Sub-Total $(6,358,891) $ 485,267
Issuance of shares of common stock to an officer as -- 7,000
compensation for services, July 3, 2001 ($0.02 per share)
Capital subscribed, per agreements dated -- 68,000
September 5, 2001
Issuance of shares of common stock for legal -- 20,000
services, November 6, 2001 ($0.02 per share)
Issuance of shares of common stock in exchange for -- --
capital subscribed in 2001, November 10, 2001
Net loss, December 31, 2001 (589,169) (589,169)
---------------------------
Balance, December 31, 2001 (6,948,061) (8,904)
Issuance of shares of common stock to an officer as -- 1,400
compensation for services, January 3, 2002 ($0.007
per share)
Issuance of shares of common stock to an officer as -- 14,000
compensation for services, January 8, 2002 ($0.007
per share)
---------------------------
Sub-Total $ 6,946,243 $(6,948,061) $ 6,496
See Accountants' Review Report and Accompanying Notes
-6-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
AND FOR THE QUARTER ENDED JUNE 30, 2002
Common Stock Capital Paid In
Shares Amount Subscribed Capital
----------------------------------------------------------
Sub-Total 831,526,599 $ 8,315 $ -- $ 6,946,243
Capital subscribed, per agreement dated January 1, 2002 -- -- 50,000 --
Issuance of shares of common stock for reduction of
balance owed for legal services, February 2, 2002,
($0.007 per share) 1,000,000 10 -- 6,690
Issuance of shares of common stock for legal services,
February 2, 2002 ($0.007 per share)
($0.06 per share) 500,000 5 -- 3,495
Issuance of shares of common stock to an officer as
compensation for services, May 2, 2002 ($0.0049
per share) 20,000,000 200 -- 97,800
Issuance of shares of common stock in exchange for
services, May 2, 2002 ($0.0049 per share) 1,000,000 10 -- 4,890
Issuance of shares of common stock in exchange for
capital subscribed in 2002, May 2, 2002 500,000 50 (50,000) 49,950
Net loss, June 30, 2002 -- -- -- --
------------------------------------------------------------
Balance, June 30, 2002 $859,026,599 $ 8,590 $ -- $(7,109,367)
[RESTUB]
Accumulated
Deficit TOTAL
---------------------------
Sub-Total $(6,948,061) $ 6,496
Capital subscribed, per agreement dated January 1, 2002
Issuance of shares of common stock for reduction of
balance owed for legal services, February 2, 2002,
($0.007 per share) -- 7,000
Issuance of shares of common stock for legal services,
February 2, 2002 ($0.007 per share)
($0.06 per share) -- 3,500
Issuance of shares of common stock to an officer as
compensation for services, May 2, 2002 ($0.0049
per share) 97,800 98,000
Issuance of shares of common stock in exchange for
services, May 2, 2002 ($0.0049 per share) 4,890 4,900
Issuance of shares of common stock in exchange for
capital subscribed in 2002, May 2, 2002 -- --
Net loss, June 30, 2002 (262,646) (262,646)
Balance, June 30, 2002 $(7,210,707) $ (92,750)
See Accountants' Review Report and Accompanying Notes
-7-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR-TO-DATE THROUGH JUNE 30, 2002 AND 2001
YTD THROUGH
JUNE 30, JUNE 30,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(262,646) $(405,960)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 35,704 38,041
Change in Assets and Liabilities
(Increase) decrease in Accounts Receivable (13,132) 2,743
(Increase) decrease in Deposits 1,823 3,689
(Increase) decrease in Prepaid Expenses (1,750) --
(Increase) decrease in Other Assets 77,220 120,000
Increase (decrease) in Accounts Payable (5,276) (1,784)
Increase (decrease) in Accrued Expenses 9,252 14,226
Increase (decrease) in Shareholders' Loan -- 14,500
--------- ---------
NET CASH (USED) BY OPERATING
ACTIVITIES (158,805) (214,545)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (2,032) (18,892)
Investment in Internet Commerce, Inc. (13,394) --
Investment in All American Acquisitions Assoc., Inc. (192) --
--------- ---------
NET CASH USED BY INVESTING
ACTIVITIES (15,618) (18,892)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) in Notes Payable (1,349) --
Increase in Common Stock 297 80
Increase (Decrease) in Capital Subscribed -- 50,000
Increase in Additional Paid-in Capital 178,503 174,014
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 177,451 224,094
--------- ---------
NET INCREASE (DECREASE) IN CASH 3,028 (9,343)
CASH, BEGINNING OF PERIOD 23,742 40,702
--------- ---------
CASH, END OF PERIOD $ 26,770 $ 31,359
========= =========
See Accountants' Review Report and Accompanying Notes
-8-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(See Accountants' Review Report)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
Safe Technologies International, Inc. ("Safe Tech") and its
subsidiaries is a multi-faceted company primarily specializing in
Internet services and products.
ORGANIZATION:
The Company was incorporated under the laws of the state of Delaware
on May 21, 1987 as Safe Aid Products, Inc. On February 9, 1998, the
Company changed its name to Safe Technologies International, Inc.
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Safe
Technologies International, Inc. and its subsidiaries Total Micro
Computers, Inc. (inactive), Connect.ad, Inc. (inactive), Connect.ad
Services, Inc., and Internet Associates International, Inc. All
material intercompany transactions and balances have been eliminated
in the consolidated financial statements.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
REVENUE RECOGNITION:
Revenues of Safe Technologies International, Inc. and its'
subsidiaries are recognized at the time the services are rendered to
customers. Services are rendered when the Company's representatives
receive the customers' requests and complete the customers' orders.
FINANCIAL INSTRUMENTS:
Cash and cash equivalents, accounts receivable and accounts payable
are short-term in nature and the net values at which they are
recorded are considered to be reasonable estimates of their fair
values. The carrying values of notes payable are deemed to be
reasonable estimates of their fair values.
INTERIM FINANCIAL STATEMENETS:
It is management's representation that all adjustments that are
necessary for the interim financial statements not to be misleading
have been included in the accompanying statements.
-9-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(See Accountants' Review Report)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------
(CONTINUED):
------------
ACCOUNTS RECEIVABLE:
It is the policy of management to review the outstanding accounts at
year-end, as well as review bad debts, and establish an allowance
for doubtful accounts and uncollectible amounts.
ADVERTISING:
Advertising costs, which are included in selling, general and
administrative expenses, are expensed as costs are incurred.
Advertising expense was $3,748 and $1,251 for the quarters ended
June 30, 2002 and 2001, respectively.
CONCENTRATION RISKS:
The Company's sources of revenue and accounts receivable are
comprised primarily of customers in the Internet industry. The
Company requires no collateral from its customers, since in many
cases it has written contracts with them.
INTANGIBLE ASSETS:
The Company continually evaluates the carrying value of goodwill and
other intangible assets to determine whether there are any
impairment losses. If indicators of impairment are present in
intangible assets used in operations, and future cash flows are not
expected to be sufficient to recover the assets' carrying amount, an
impairment loss would be charged to expense in the period
identified.
Management has determined that the goodwill, copyrights and
trademarks reflected on the Company's balance sheet at June 30, 2002
represent viable assets that, in the foreseeable future, will
generate sufficient cash flows to recover their carrying amounts.
PROPERTY & EQUIPMENT:
Property and equipment is carried at cost. Depreciation of
depreciable assets is computed using the straight-line method of
depreciation over the estimated useful lives of the assets. The
estimated useful life is between 5 and 10 years.
AMORTIZATION:
Amortization of trademarks, copyrights and goodwill is determined
utilizing the straight-line method based generally on the estimated
useful lives of the intangibles, as follows:
Trademarks and copyrights 15 years
Goodwill 15 years
-10-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(See Accountants' Review Report)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------
(CONTINUED):
------------
CASH AND CASH EQUIVALENTS:
For purposes of the statements of cash flows, the Company considers
all unrestricted highly liquid investments with an initial maturity
of three months or less to be cash equivalents.
DEFERRED INCOME:
Deferred income arises in the normal course of business from the
development of new web site contracts. The Company recognizes income
when delivery has occurred or services have been rendered.
Deferred income at June 30, 2002 and 2001 was $4,515.
ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 131, Disclosures About
Segments of an Enterprise and Related Information (SFAS No. 131),
which established presentation of financial data based on the
"management approach." SFAS No. 131 is applicable for fiscal years
beginning after December 15, 1997. For the current fiscal year, the
presentation of segment reporting is deemed by management to be
immaterial.
NET LOSS PER SHARE:
Net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period.
INVESTMENT IN PRO CON SYSTEMS, INC.:
The Company owns 8,000,000 shares (8%) of the common stock of
Internet Commerce, Inc. (f/k/a Pro Con Systems, Inc.), pursuant to
the merger between Internet Commerce, Inc. (formerly a subsidiary of
the Company) and ProCon Systems ApS, Inc., a Danish corporation (see
Note 10). Internet Commerce, Inc. is a leading supplier of travel
industry management software. The recoverability of the Company's
investment in Internet Commerce, Inc. is dependent upon the future
profitability of that company or the underlying value of its assets.
No provision for the recoverability of the investment has been made
in the accompanying consolidated financial statements.
INVESTMENT IN ALL AMERICAN ACQUISITIONS ASSOCIATION ,INC.:
The Company owns 8,000,000 shares (8%) of the common stock of All
American Acquisitions, Inc. ("AAAA", f/k/a Connect.ad of South
Florida, Inc.), pursuant to the merger
-11-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(See Accountants' Review Report)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------
(CONTINUED):
------------
INVESTMENT IN ALL AMERICAN ACQUISITIONS ASSOCIATION ,INC. (CONTINUED).:
between Connect.ad of South Florida (formerly a subsidiary of the
Company) and AAAA, a Florida corporation (see Note 11). All American
Acquisitions Association, Inc. is a private company with headquarters
in Fort Lauderdale, Florida. The recoverability of the Company's
investment in AAAA is dependent upon the future profitability of that
company or the underlying value of its assets. No provision for the
recoverability of the investment has been made in the accompanying
consolidated financial statements.
2. CAPITAL STOCK TRANSACTIONS:
---------------------------
The Articles of Incorporation provide for the authorization of
950,000,000 shares of common stock at $0.00001 par value. On January
30, 1999, the stockholders approved increasing the authorized number of
shares to 999,999,000.
3. SUBSCRIPTIONS
-------------
In January 2002, the Company received $50,000 in deposit on a
subscription agreement for the purchase of 5,000,000 shares of common
stock. At June 30, 2002, the Company had received payment in full and
had issued the shares related to this subscription.
4. LEASES:
-------
The Company rents office space in Palm Beach and Boca Raton, Florida.
The total monthly rent is currently $3,514. The Company also rented
office furniture and equipment on a month-to-month basis for $1,000
from the president, an arrangement that was discontinued in March 2001
when furniture and equipment was purchased.
5. INCOME TAXES:
-------------
The Company and its subsidiaries file consolidated income tax returns.
No provision has been made in the accompanying financial statements for
income taxes payable because of the Company's operating loss from
operations. At December 31, 2001, the Company had $6,616,746 of
operating loss carry-forwards for financial reporting and income tax
purposes available to offset future income taxes expiring through the
year 2021. Net operating losses of $576,793 for the year ended December
31, 2001 will expire in 2021. The net operating loss
-12-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(See Accountants' Review Report)
5. INCOME TAXES (CONTINUED):
-------------------------
carryforwards will begin to expire in 2003. Additionally, the Company
has approximately $44,000 of research and development credits available
to offset future income taxes through the year 2005. There can,
however, be no assurance that the Company will have future operating
profits.
6. NOTES PAYABLE:
--------------
At June 30, 2002, short-term debt consisted of the following:
12% note payable to an officer, $231,513
unsecured, due on demand. Upon
any default, the note becomes due
immediately at an interest rate of
18% per annum.
Note payable to a shareholder, 134,086
unsecured, due on demand, no
interest rate specified.
Note payable to CGI Marketing, 35,142
unsecured, due on demand, with
an interest rate of 5.5%
Note payable to an officer, unsecured
due on demand, no interest rate specified. -0-
--------
Total short-term debt $400,742
========
7. STOCK AWARDS:
In April 1998, the Company adopted a stock option plan (the
"Incentive Stock Plan") that was intended to provide incentives to, and awards
for, certain eligible employees, officers, directors and consultants. The
Company reserved 30,000,000 shares of common stock under this Plan, consisting
of a maximum of 15,000,000 restricted stock grants and 15,000,000 stock awards.
-13-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(See Accountants' Review Report)
7. STOCK AWARDS (CONTINUED):
-------------------------
In December 1999, the Company adopted a stock option plan called the
Safe Technologies International, Inc. - Year 2000 Stock Award Plan (the
"Year 2000 Stock Award Plan"). Pursuant to this plan, the Company
registered 30,000,000 shares of its common stock, to be awarded to
eligible persons thereunder.
Under both plans, the Company awarded 3,000,000 shares of common stock
in 2001, 14,450,000 shares in 2000, 18,770,764 in 1999 and 7,325,000 in
1998 to its officers, directors and consultants.
8. GOING CONCERN
-------------
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business.
As shown in the accompanying consolidated financial statements, the
Company incurred a net loss of $262,646 during the quarter ended June
30, 2002 and, as of that date, intangible assets represent 66% of total
assets. The Company's sales volume decreased substantially from the
quarter ended June 30, 2001 to 2002. Those factors, as well as the
Company's reliance on the Internet industry, create an uncertainty
about the Company's ability to continue as a going concern. Management
has developed a plan to acquire businesses outside of the Internet
industry, and is actively searching for acquisition targets (see Notes
10 and 11) in order to reduce the Company's reliance on any one
business or industry. The ability of the Company to continue as a going
concern is dependent on the success of this plan. The consolidated
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
9. PENDING LITIGATION
------------------
An individual, who was a shareholder of INI (prior to its merger with
Safe Tech), filed a lawsuit in June 2000 against Safe Tech, its
chairman and chief executive officer. He is claiming that he is
entitled to more shares in the Company than he received pursuant to the
merger of INI with Safe Tech. Management denies the claims asserted by
the shareholder and is defending the lawsuit vigorously.
-14-
SAFE TECHNOLOGIES INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(See Accountants' Review Report)
10. INVESTMENT IN INTERNET COMMERCE, INC.
-------------------------------------
On March 27, 2002, the Company completed a merger agreement between one
of its wholly-owned subsidiaries (Internet Commerce, Inc.) and ProCon
Systems ApS, Inc., a Danish corporation that is a leading supplier of
travel industry management software. Pursuant to the merger agreement,
Internet Commerce, Inc. (the surviving corporation) changed its name to
Pro Con Systems, Inc., effected a 1:80,000 split of its common stock,
issued 92,000,000 new shares to the former shareholders of ProCon
Systems ApS, Inc. which represented a 92% ownership interest in the
merged company, and subsequently changed its name to Internet Commerce,
Inc. As a result, the Company's balance sheet reflects an 8% minority
interest in the surviving corporation.
11. INVESTMENT IN ALL AMERICAN ACQUISITIONS ASSOCIATION, INC.
---------------------------------------------------------
On May 24, 2002, the Company completed a merger agreement between one
of its wholly-owned subsidiaries (Connect.ad of South Florida, Inc.)
and All American Acquisitions Association, Inc., a Florida corporation
headquartered in Fort Lauderdale, Florida.. Pursuant to the merger
agreement, Connect.ad of South Florida, Inc. (the surviving
corporation) changed its name to All American Acquisitions Association,
Inc., effected a 1:400,000 split of its common stock and issued
92,000,000 new shares to the former shareholders of All American
Acquisitions Association, Inc. which represented a 92% ownership
interest in the merged company. As a result, the Company's balance
sheet reflects an 8% minority interest in the surviving corporation.
12. RELATED PARTY TRANSACTIONS
--------------------------
During the quarter ended June 30, 2002, the Company purchased services
from and made reimbursements to a related party company owned by an
officer and major shareholder. The services purchased were primarily
secretarial, and reimbursements included telephone expenses, courier
charges and postage. Total payments made to this company during the
quarters ended June 30, 2002 and 2001 were $4,315 and $0, respectively.
Total amounts owed to this company as of June 30, 2002 and 2001 were $0
and $0, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Safe Technologies International Inc., a Delaware corporation (the
Company), is continuing its efforts to build a multi-faceted company serving the
developing e-commerce industry. As of June 30, 2002, the Company has one active
subsidiary: Internet Associates International, Inc. ("IAI"). Unless the context
otherwise requires, the term "Company" refers to the Company and IAI.
The Company has confidence that our existing internet and e-commerce
subsidiary will provide an important niche service for small to medium-sized
businesses and that our subsidiary's management is entrepreneurial and flexible
enough to accommodate what is sure to be additional market shifts in this
burgeoning industry.
Second Quarter operations reflect the critical paths and philosophies
that the Company's Management had adopted and followed in order to structure
operations to accommodate growth. We achieved a number of fundamental objectives
that we believe should posture the Company for future growth, and are planning
the next phase of our evolution.
During 2002, we have allowed key management personnel to devote more
time to seeking and evaluating potential mergers and acquisitions within the
qualification parameters previously established by our Board of Directors. In
seeking new mergers and acquisitions, less time has been devoted to the
evaluation of Internet companies because of the operating hazards many Internet
companies operations have faced. While continuing to be involved in the
migration of commerce to the Internet arena, through the Company's wholly-owned
subsidiary, IAI, the Company's focus and emphasis will be to use its other
subsidiaries to merge with or acquire "brick and mortar" operations with good
revenue potential, and within industries of above-average growth potential.
Management has long believed that for the right company, in a business related
vertically or horizontally to that of the Company, a merger would be of great
benefit to the Company and its Shareholders.
-16-
On March 27, 2002, the Company closed its first merger of an inactive
subsidiary by merging ProCon Systems, Inc. (ProCon) into our previously inactive
subsidiary, Internet Commerce, Inc. The subsidiary changed its name to ProCon
Systems, Inc., at the time of the merger. ProCon's Management however, has
recently decided to return to the name of Internet Commerce, Inc., which better
reflects the global industry reach of their target markets. As a result of this
merger, the Company owns an 8% equity position in Internet Commerce, Inc.
Internet Commerce is a supplier of travel industry management software
and, among other things, has developed a new and upgraded product suite built on
Microsoft's .NET technology. Its management team has over 20 years of experience
in the industry, and is working rapidly to build its global distribution
network. To date, Internet Commerce has acquired a subsidiary in Singapore and
finalized negotiations concerning distribution agreements covering Southeast
Asia, including China. Internet Commerce is also in the final stages of
establishing distribution agreements covering the Pacific Region, has begun
negotiations concerning the takeover of two entites in Europe, is in the process
of establishing a subsidiary in Denmark, and is pursuing the establishment of a
presence in the United States. Internet Commerce intends to establish a public
market for its stock in the United States. In connection with establishing such
a market, the Company intends to distribute a portion of its Internet Commerce
equity ownership position to the Company's shareholders.
In April, 2002, the Company closed a merger pursuant to which All
American Acquisitions Association, Inc. (AAAA), a privately held company, into
Connect.ad of South Florida, Inc., another previously inactive subsidiary of the
Company. Pursuant to the merger, the Company owns 8% of the merged entity. As
with ProCon, AAAA intends to establish a public market for its stock and, in
connection with establishing such a market, the Company intends to distribute a
portion of its AAAA ownership to the Company's shareholders.
During the Second Quarter, the Company entered into a Letter of Intent
to acquire a minority ownership interest in Real Logic, Inc. (RELO), a Delaware
Corporation. Currently, RELO is a publicly reporting company with two principal
shareholders, Brad Tolley and Michael Posner, both of whom are affiliates of the
Company. RELO is focused on growth through acquisitions of advanced
technologies, and is based in Palm Beach, Florida. The Company intends to
purchase a minority equity position in RELO, based on what the Company considers
very favorable terms. At such time as RELO becomes a publicly traded company, a
portion of the Company's equity position would be distributed to the Company's
shareholders.
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Comparison of the quarter ended June 30, 2002 ("Quarter 2002") and June
30, 2001 ("Quarter 2001").
Revenues were $43,799 for the second quarter of 2002 and were $65,136
for the second quarter of 2001, representing a decrease of 35%. The continued
reduction in revenues is a result of the continued economic downturn and the
overall slowing of the Company's business units. The Company believes, however,
that its retooling of its business focus may allow the Company to expand its
revenues in the future.
Cost of Sales were $(3,217) in the second quarter of 2002, compared to
$10,477 in the second quarter of 2001. The decrease in Cost of Sales is a result
in part to reduced sales and in part to the Company's reversal of an entry of a
previously booked expense that the Company neither paid, nor expects to pay in
the future.
Selling, general, and administrative expenses were $205,607 for the
second quarter of 2002 compared to $235,542 for the second quarter of 2001. The
decrease in selling, general, and administrative expenses is a result of lower
sales as well as significant cost savings from a strategic refocus of
organizational resources.
RISK FACTORS
The company is engaged in providing support to those involved in
commerce on the Internet platform. This business involves many opportunities, as
well as significant risks, many of which are out of our control. Some of the
risks that we face are as follows:
THE VIABILITY OF OUR INTERNET SUBSIDIARIES' CUSTOMERS IS DEPENDENT UPON
THEIR SUCCESS IN E-COMMERCE. The nature of e-commerce is continually developing.
Customers who are unable to evolve with the development of e-commerce may fail,
and as a result, we would lose a customer.
WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND NEGATIVE CASH FLOWS FOR
THE FORESEEABLE FUTURE, and there can be no assurance that we will ever achieve
profitability or generate positive cash flows. As we continue to deploy our
business plan, we expect to incur significant operating expenses particularly in
the sales, marketing and operations areas. These types of expenses will grow as
we expand the scope and reach of our operations. If our revenues do not grow as
expected, or if our actual expenses exceed our budgeted expenses, there could be
a material adverse effect on our business, operating results and financial
condition. We will need to raise additional funds through the issuance of
equity, equity-related or debt securities. If we are unable to obtain additional
financing on reasonable terms to enable the development of our business plan, we
may never be able to completely implement our on-line strategy.
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THE SUCCESS OF OUR BUSINESS WILL DEPEND ON CONTINUED GROWTH OF ON-LINE
COMMERCE AND THE INTERNET. Our future revenues and profits depend upon the
widespread acceptance and use of the Internet and on-line services as a medium
for commerce. Rapid growth in the use of the Internet and on-line services is a
recent phenomenon. This growth may not continue. A sufficiently broad base of
consumers may not accept, or continue to use, the Internet as a medium of
commerce. Demand for and market acceptance of recently introduced products and
services over the Internet involves a high level of uncertainty.
The internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
success will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security, and the
timely development of complementary products for providing reliable Internet
access and service. Major on-line service providers and the Internet itself have
experienced outages and other delays as a result of software and hardware
failures and could face such outages and delays in the future. Outages and
delays are likely to affect the level of Internet usage and processing of
transactions on our web sites. In addition, the Internet could lose its
viability because of delays in the development of adoption of new standards to
handle increased levels of activity or because of increased government
regulation. The adoption of new standards or government regulation may require
us to incur substantial compliance costs.
INTERRUPTIONS IN SERVICE FROM THIRD-PARTIES COULD IMPAIR THE QUALITY OF
OUR SERVICE. We will rely upon third-party computer systems and third-party
service providers, including Internet bandwidth providers. Any interruption in
these third-party services or a deterioration in their performance could impair
the quality of our service. If our arrangements with any of these third-parties
were to be terminated, we may not be able to find an alternative source of
systems support on a timely basis or on commercially reasonable terms.
OUR SUCCESS DEPENDS UPON THE DEVELOPMENT AND MAINTENANCE OF SUPERIOR
TECHNOLOGY SYSTEMS AND INFRASTRUCTURE. In order to be successful, we must
provide reliable, real-time access to our systems for our customers and
suppliers. As our operations grow in both size and scope, domestically and
internationally, we will need to continually upgrade our systems and
infrastructure to offer our customers and suppliers enhanced products, services,
features and functionality. The expansion of our systems will require additional
financial, operational and technical resource expenditures before business
volume might reach levels sufficient to yield profitability, with no assurance
that the volume of business will increase or that profitability will be
achieved. Consumers and suppliers will not tolerate a service hampered by slow
delivery times, unreliable service levels or insufficient capacity, any of which
could have a material adverse effect on our business, operating results and
financial condition.
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OUR BUSINESS IS EXPOSED TO RISKS ASSOCIATED WITH ON-LINE COMMERCE
SECURITY AND CREDIT CARD FRAUD. Consumer concerns over the security of
transactions conducted on the internet or the privacy of users may inhibit the
growth of the Internet and on-line commerce. To transmit securely confidential
information such as customer credit card numbers, we will rely upon encryption
and authentication technology. Unanticipated events or developments could result
in a compromise or breach of integrity of our consumer transaction data. Our
servers could also be vulnerable to viruses transmitted over the Internet, which
if not detected, could create a service interruption.
WE MAY BE SUBJECT TO DELAYS BECAUSE OF INTENTIONAL, CRIMINAL THIRD
PARTY INTERVENTION. The events of September 11, 2001, demonstrated that no firm
can be completely secure from terrorist acts. Though we have taken several
precautions to prevent any disruptions from terrorist attacks, we cannot
guarantee that our operations are completely invulnerable. A disruption can
occur from numerous sources, including damage to the company property, damage to
one of our vendors, suppliers or customers, or damages to third parties such
that it restricts the flow of commerce. In addition, a disruption could be the
result of an intentional attack on our computer systems. Disruptions could
materially adversely affect our revenues.
OUR BUSINESS STRATEGY OF GROWTH THROUGH BUSINESS COMBINATIONS LEADS TO
UNKNOWN AND UNQUANTIFIABLE risks. The company is attempting to expand it
operations and market presence by entering into business combinations,
investments, joint ventures or other strategic alliances with third parties. Any
such transaction would be accompanied by risks commonly encountered in such
transactions, which could include, among others, the difficulty of assimilating
the operations, technology and personnel of the combined companies, the
potential disruption the Company's ongoing business, the inability to retain key
technical and managerial personnel, the inability of management to maximize the
financial and strategic position of the Company through the successful
integration of acquired businesses, addition expenses associated with
amortization of acquired intangible assets, the maintenance of uniform
standards, control and policies and the impairment of relationships with
existing employees and customers. There can be no assurance that the Company
would be successful in overcoming these risks or any other problems encountered
in connection with such business combinations, investments, joint ventures or
other strategic alliances, or that such transactions would not have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
WE DEPEND UPON THE EFFORTS OF A FEW INDIVIDUALS AND EMPLOYEES, AND OUR
ABILITY TO ATTRACT, RETAIN AND MOTIVATE HIGHLY SKILLED EMPLOYEES. We depend
substantially on the services and performance of our senior management,
particularly Barbara L. Tolley, our Chairman; Michael Posner, our President;
Michael Bhethana, our Chief Information Officer; and Brad L. Tolley, our
Secretary and Treasurer. These individuals may not be able to fulfill their
responsibilities adequately and may not remain with us. The loss of the services
of any executive officers or other key employees could hurt our business.
-20-
WE PLAN TO GROWTH INTO INTERNATIONAL MARKETS. An element of the
Company's future growth strategy is to increase the distribution and sale of the
Company's products into international markets. The Company's existing and
planned international operations are subject to political and economic
uncertainties, including, among other things, inflation , risk of modification
of existing arrangements with governmental authorities, transportation, tariffs,
export controls, government regulation, currency exchange rate fluctuations,
foreign exchange restrictions that limit the repatriation of investments and
earnings therefrom, changes in taxation, hostilities or confiscation of
property. Changes related to these matters could have a material adverse effect
on the Company.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In June, 2000, a former shareholder of Intelligence Network
International, Inc. (INI) prior to its merger into the Company, brought a
lawsuit in Palm Beach County, Florida, against the Company and Barbara L.
Tolley, Chairman of the Company, and formerly the President of INI, claiming
that he is entitled to more shares in the Company than he received pursuant to
the merger of INI into the Company. The Company and Ms. Tolley deny the facts as
asserted by the shareholder and are vigorously defending the lawsuit. There have
been no material developments in the First Quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
2.1 Merger Agreement by and between ProCon Systems ApS and Internet
Commerce, Inc., including related Addenda, Exhibits and Schedules (filed as an
Exhibit to the Company's Periodic Report on Form 10-QSB filed May 15,2002, and
incorporated herein by this reference).
2.2 Merger Agreement by and between All American Acquisition
Associates, Inc. and Connect.ad of South Florida, Inc., including related
Addenda, Exhibits and Schedules (filed as an Exhibit to the Company's Periodic
Report on Form 10-QSB filed May 15, 2002, and incorporated herein by this
reference).
3.1 Certificate of Incorporation and Amendment to the Company's
Certificate of Incorporation (filed as an Exhibit to the Company's Registration
Statement on Form S-18 filed February 18, 1988, and incorporated herein by this
reference).
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3.2 Amendment to the Company's Certificate of Incorporation filed with
the Delaware Secretary of State on February 6, 1998 (filed as an Exhibit to the
Company's Definitive Proxy Statement filed December 31, 1997, and incorporated
herein by this reference).
3.3 Bylaws (filed as an Exhibit to the Company's Registration Statement
on Form S-18 filed February 18, 1988, and incorporated herein by this
reference).
4.1 Amended Form of Underwriters' Unit Purchase Warrant (filed as an
Exhibit to the Amendment No. 2 to the Company's Registration Statement on Form
S-18 filed April 11, 1988, and incorporated herein by this reference).
4.2 Amended Form of Class A and Class B Common Stock Purchase Warrant
(filed as an Exhibit to Amendment No. 2 to the Company's Registration Statement
on Form S-18 filed April 11, 1988, and incorporated herein by this reference).
4.3 Amended Form of Warrant Agreement (filed as an Exhibit to Amendment
No. 2 to the Company's Registration Statement on Form S-18 filed April 11, 1988,
and incorporated herein by this reference).
21.1 Subsidiaries of the Company (filed originally as Exhibit 21.1 to
the Company's Annual Report on Form 10-KSB/A for the year ended December 31,
1999, and incorporated herein by this reference.
(b) Reports on Form 8-K.
The Company filed three reports on Form 8-K during the quarter
ended June 30, 2002.
(i) The Company filed a report on Form 8-K on April 10, 2002
(ii) The Company filed a report on Form 8-K on April 22, 2002
(iii) The Company filed a report on Form 8-K on May 3, 2002
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 Technologies International, Inc.
(Registrant)
Date: August , 2002 By: /s/ Michael Posner
------------------
(Signature)
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