SFAD, news (Annual Report):
March 31, 2000
SAFE TECHNOLOGIES INTERNATIONAL INC
(SFAD.OB)
Annual Report (SEC form 10KSB)
Management's Discussion and Analysis or Plan of Operations.
RESULTS OF OPERATION
Comparison of the years ended December 31, 1999 ("fiscal 1999") and December 31, 1998 ("fiscal 1998").
Revenues were $829,825 for fiscal 1999 and were $427,552 for fiscal 1998, representing a increase of 94%.
Approximately, $6,200 of the 1999 revenues were derived from ICI and $800,032 were derived from IAI. The balance
of the 1999 revenues were from Connect.ad.
Connect.ad revenues in the amount of $20,393 are included in fourth quarter earnings pursuant to generally accepted
accounting principles since Connect.ad was acquired as of September 30, 1999.
Cost of Sales were $63,989 in fiscal 1999 compared to $281,263 in fiscal 1998. This decrease is attributable to
efficiencies gained in streamlining our direct cost structure. Cost of Sales in 1999 were $0 for ICI, $60,949 for IAI and
$3,040 for Connect.ad.
Selling, general, and administrative expenses were $1,674,187 for fiscal 1999 compared to $718,908 for fiscal 1998.
This is attributable to the ramping up of operations in terms of personnel, additional depreciation on equipment and
systems, and amounts paid to outside consultants in upgrading and placing online infrastructure for our continued
growth. Approximately $800,000 of consulting fees included in total selling, general and administrative expenses of
$1,674,187 for fiscal 1999 is attributable to the Company's issuance of approximately 18,245,000 SFAD shares in lieu
of cash compensation to various service providers.
RISK FACTORS
The Company is engaged in the pursuit of commerce on the Internet platform. This form of commerce involves many
opportunities, as well as significant threats, many of which are out of our control. Some of the risks which we face are
as follows:
Consumers, suppliers and advertisers may not accept our web site as a valuable commercial tool, which would impair
the growth of our business.
For us to achieve the level of growth that we have projected, consumers, suppliers, merchants and advertisers must
accept our web site model as a valuable commercial tool.
Consumers who have historically purchased the various product offering found on our web sites using traditional
commercial channels must change that paradigm and purchase instead through our site. Consumers frequently "surf"
sites like our sites in search of the various products offered therein and then ultimately revert to the traditional purchase
channel. If this paradigm is not shifted, we may never achieve our anticipated growth.
Similarly, suppliers, advertisers and merchants will also need to accept and use our web site. In order for this to occur,
suppliers, advertisers and merchants will need to perceive our site as efficient and profitable channels of distribution for
their products, for expenditure of their advertising budgets and for their merchandise.
In order to achieve the acceptance of consumers, suppliers, advertisers and merchants contemplated by our business
plan, we will need to make substantial investments in technology and brand. We can not, however, assure you that these
investments will be successful. Our failure to make succeed in these areas will hamper the opportunities to achieve our
business plan.
We expect there to be operating losses and negative cash flows.
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 enhance our existing sites on
continue to launch new sites and 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.
The success of our business will depend on continued growth of online commerce and the Internet.
Because we do not intend to provide our services through any commercial medium other than the Internet, our future
revenues and profits depend upon the widespread acceptance and use of the Internet and online services as a medium for
commerce. Rapid growth in the use of the Internet and online 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 involve 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 services . Major online 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 the
processing of transactions on our web sites. In addition, the Internet could lose its viability because of delays in the
development or adoption of new standards to handle increased levels of activity or 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 arrangement with any of these third party 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 may 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.
Our business is exposed to risks associated with online 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 online commerce. To transmit confidential information such as customer credit card numbers
securely, 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.
Our success depends in large part upon the efforts of a few individuals 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
Chief Executive Officer, Michael Bhethana, our Chief Information Officer and Bradford L. Tolley our Secretary,
Treasurer and Vice President of Investor Relations. These individuals may not be able to fulfill their responsibilities
adequately and may not remain with us. The loss of the services any executive officer or other key employees could hurt
our business.
Year 2000
During the first week of calendar 2000, we completed the transition from calendar 1999 to calendar 2000 with no
material adverse impact on our services, business systems and operations. During the first quarter of 2000, we
continued to monitor our services, business systems and infrastructure to ensure that latent defects do not manifest
themselves. We have not experienced a material adverse impact on our operations during this period.
FUTURE BUSINESS STRATEGY
Management believes that the Company's is now well positioned to exploit market opportunities in the e-commerce
economy. We are fortunate to have an active Board of Directors, functioning as our "think tank" in formulating and
developing innovative, yet realistic achievable business objectives as we grow our company as a cutting edge technology
and electronic commerce business. We believe that SFAD is poised for growth in 2000 and years beyond.
Management's focus will be upon further enhancing our market position and increasing shareholder value in the
e-commerce economy through the development of our existing competencies. We will also continue to consider pursuit
of any and all new opportunities which would create synergies and enhance brand recognition, including additional
strategic alliances with Internet companies whose core competencies complement our own, with particular emphasis in
the area of information technology infrastructure.
We have determined to abandon our nasal aspirin spray technology as of this time, as an area which does not currently
fit with our business plan of evolving into a premier Internet service company..
Item 7. Financial Statements.
INDEX
Page
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Independent Auditors' Report...........................................................................F-2
Consolidated Balance Sheets - December 31, 1999 and December 31,
1998................................................................F-3
Consolidated Statements of Operations - December 31, 1999 and December 31,
1998................................................................F-5
Statements of Changes in Stockholders' Equity..........................................................F-6
Consolidated Statements of Cash Flows - December 31, 1998 and December 31, 1997.
(Unaudited-Restated)..........................................F-10
Notes to Consolidated Financial Statements.............................................................F-12
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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