U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2005
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 33-22175
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Safetek International, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 75-2226896
---------------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No)
or incorporation or organization)
23 Aminadav St. Tel Aviv, Israel 67898
---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
972-3-561-3468
---------------------------
(Issuer's telephone number)
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 issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the Registrant's Common Stock, $0.0001 par
value, as of the close of business on December 20, 2005 was 55,138,923.
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
FORM 10-QSB
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
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INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet (Unaudited) at September 30, 2005 2
Consolidated Statements of Operations (Unaudited) for the nine
and three months ended September 30, 2005 and 2004 and the
period April 16,2005 to September 30,2005 3
Consolidated Statements of Cash Flows (Unaudited) for the nine
months ended September 30, 2005 and 2004 and April 16, 2005 to
September 30,2005 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Controls and Procedures 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6: Exhibits 14
SIGNATURES
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SAFETEK INTERNATIONAL INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30,
2005
--------------
(Unaudited)
--------------
A s s e t s
CURRENT ASSETS
Cash and Cash Equivalents $ 174,815
Marketable Securities 252,277
Refundable Taxes 6,232
Prepaid Expenses 37,544
Other Current Assets 35,442
--------------
T o t a l Current Assets $ 506,310
--------------
PROPERTY AND EQUIPMENT, NET 10,892
--------------
Total Assets $ 517,202
==============
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 177,918
Loans Payable 69,647
--------------
T o t a l Current Liabilities $ 247,565
--------------
OTHERS LIABILITIES:
Redeemable Convertible Preferred Shares (4,648 Shares, par value $.0001,
redeemable prior to February 21, 2002 at $50 per share; 50,000,000 shares
authorized) 232,400
--------------
T o t a l Liabilities $ 479,965
--------------
SHAREHOLDERS' EQUITY
Common Stock, par value $.0001 per share authorized
500,000,000 shares; issued and outstanding 55,138,923
shares 5,514
Additional Paid-in Capital 5,243,303*
Common Stock Subscribed 500,000
Deferred Compensation (1,384,111)
Accumulated Deficit (4,327,469)*
--------------
Total Share Holders' Equity 37,237
--------------
Total Liabilities and Shareholders' Equity 517,202
==============
*restated
See notes to consolidated financial statements
2
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
Nine Months Ended Three Months Ended April 16, 2005*
September 30 September 30 through
--------------------------------------------------------------------- September 30,
2005 2004 2005 2004 2005
----------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------------------------------------
ADMINISTRATIVE AND GENERAL EXPENSES $ $ $ $ $
Payroll and related expenses 62,332 45,229 62,332
Office & General Expenses 41,178 25,536 37,368
Professional Fees 139,726 20,400 81,002 2,700 127,726
Business Development Cost 26,454 26,275 26,454
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS $ (269,690) $ (20,400) $ (178,042) $ (2,700) $ (253,880)
FINANCIAL INCOME (EXPENSES)
Interest Expenses (12,481) (79,326) (9,530) (9,781)
Interest Income 5,463 5,426 5,463
OTHER INCOME (EXPENSES):
Income from Cancellation of 181,311** 181,311**
Indebtness
------------ ------------ ------------ ------------ ------------
NET LOSS FOR THE PERIOD $ (95,397) $ (99,726) $ (182,146) $ (2,700) $ (76,887)
============ ============ ============ ============ ============
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income (loss) per share
Basic & diluted per
Common Shares 0 (0.2) 0 0
------------ ------------ ------------ ------------ ------------
Weighted average number of
shares outstanding -
Basic and diluted 54,164,923 500,821** 44,347,756 659,518**
------------ ------------ ------------ ------------ ------------
*Date Company Entered the Development Stage
** restated
See notes to consolidated financial statements
3
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months Nine months Period from
ended ended April 16, 2005*
through
September 30 September 30 September 30,
2005 2004 2005
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period $ (95,397) $ (99,726) $ (76,887)
Adjustments required to reflect the cash
flows used in operating activities:
Depreciation 47 47
Income from Cancellation of indebtedness (181,311) (181,311)
Stocks Issued for Shares 179 20,400 179
Amortization of Prepaid D&O Insurance 16,956 16,956
Non Cash Interest Expenses 2,700 79,326 2,700
Changes in Assets and Liabilities
(Increase) in prepaid Expenses (54,500) (54,500)
(Increase) in Refundable Tax (6,232) (6,232)
Decrease in Account Payable & Accrued Expenses 99,222 90,522
----------- ----------- -----------
Net Cash used in Operating Activities $ (218,336) $ -- $ (208,526)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment $ (10,939) $ (10,939)
Advance Payment to Matrix (25,000) (25,000)
Loan to Cygnus (6,072) (6,072)
Investment in Other Current Assets (4,371) (4,371)
Acquisition of Marketable Securities (252,277) (252,277)
----------- ----------- -----------
Net Cash Used in Investing Activities $ (298,659) $ -- $ (298,659)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of shares and $ 222,370 $ 185,000
warrants, net of issuance expenses
Proceed from Common stocks & Warrant 500,000 500,000
Subscribed
Payment on Debentures (15,827)
Payment on Loans Payable (14,733) (3,000)
----------- -----------
Net cash provided by financing activities $ 691,810 $ 682,000
----------- -----------
INCREASE IN CASH $ 174,815 -- $ 174,815
AND CASH EQUIVALENTS
BALANCE OF CASH AND CASH EQUIVALENTS -- --
AT BEGINNING OF PERIOD
----------- ----------- -----------
BALANCE OF CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 174,815 -- $ 174,815
----------- ----------- -----------
4
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
Safetek International, Inc. (the "Company") was incorporated in April 1988 under
the name Theoretics, Inc. The Company reorganized in May 2001 for the purpose of
providing embryonic companies with good concepts and promising patented ideas.
During the years 2002-2004 the Company did not have any business activity.
As of April 15, 2005, Dr. Goldstein was appointed as the Company's Chairman,
Chief Executive Officer and Secretary, and since then the Company has been
focusing on screening new technologies in the life sciences and health care
fields. On May 17, 2005, the company established an Israeli wholly owned
subsidiary under the laws of the State of Israel, called "Oriens Life Sciences
Ltd. (the "Subsidiary") , to serve as a platform for the Company to screen the
Israeli life sciences and health care industry and identify, analyze, and
acquire or invest in technologies in this field.
In accordance with Financial Accounting Standards Board (FASB) No. 7, the
Company is considered a development stage company, beginning on April 16, 2005,
the date it commenced a new business activity.
During the period ended September 30, 2005, the Company signed 4 term sheets to
purchase technologies in the life science field, one of which the Company is
currently progressing toward completion of the contemplated transaction. The
Company currently invests its efforts in completing its due diligence
investigation of these companies and their technologies and negotiating
definitive agreements.
As of September 30, 2005, the Company has an accumulated deficit of $4,327,469.
Our prospects must therefore be evaluated in light of the problems, expenses,
delays and complications associated with the financial situation of the Company.
The Company is in the process of raising funds to finance its activities,
including without limitation, the completion of the above described prospective
transactions, and other potential technology purchases. The Company requires
funds in order to finance its current activities and in order to begin the
development of these technologies if and when any definitive agreement will be
executed.
NOTE 2: GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company has a history of losses with an accumulated deficit from
inception through September 30, 2005 of $4,327,469. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
ultimately attain profitable operations, generate sufficient cash flow to meet
its obligations, and obtain additional financing as may be required. The outcome
of these uncertainties cannot be assured.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of Safetek
International, Inc. and its subsidiary have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with instructions for Form 10-QSB and Item 310
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations for the nine months ended September
30, 2005 are not necessarily indicative of the results that may be expected for
the fiscal year ended December 31, 2005. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements in the Company's annual report on Form 10-KSB for the fiscal year
ended December 31, 2004 and notes thereto filed with the Securities and Exchange
Commission in April 2005.
5
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
USE OF ESTIMATES
The preparation of these financial statements requires our management to make
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. We continually evaluate the accounting
policies and estimates we use to prepare the consolidated financial statements.
We base our estimates on historical experiences and assumptions believed to be
reasonable under current facts and circumstances. Actual amounts and results
could differ from these estimates made by Management. We do not participate in,
nor have we created, any off-balance sheet special purpose entities or other
off-balance sheet financing. In addition, we have not and do not anticipate
entering into any derivative financial instruments for speculative purposes or
use derivative financial instruments primarily for managing our exposure to
changes in interest rates.
ADJUSTMENTS/ RESTATEMENT
The financial statements for the nine months and for the three months ended
September 30, 2005 have been adjusted as a result of the accounting treatment
accorded to the terms of subordinated convertible redeemable debentures that
were issued in the years 2001 and 2002 (the "debentures"), to record interest
expense of $2,700 during the three months ended March 31, 2005 for the
debentures which was not previously recorded, and to add to the accumulated
deficit the amount of $14,293, which was a result of interest expenses which
should have been recorded for the fiscal year ended December 31, 2003. The
interest amounts ($2,700 and $14,293) were waived by the debentures' holders
during the third quarter of 2005, As a result, the Company recognized gain from
cancellation of indebtedness. $323,282 was charged to paid in capital and
accumulated deficit in order to reflect a beneficial conversion feature charge
that should have been recorded when the debentures were initially issued in 2001
and 2002. During the three months ended March 31, 2005 and during the three
months ended June 30, 2005 the Company recorded gain of $104,300 to income from
cancellation of indebtedness as a result of the conversion of the debentures.
After reconsidering the accounting treatment, the Company reclassified this
amount to additional paid in capital.
The Company also considered restating its previous financial reports and the
interim reports for the six and three months periods ended June 30, 2005, to
reflect the beneficial conversion feature that was created when the debentures
were initially issued in 2001 and 2002. After consideration by management and
the reclassification of the financial statements for the nine month period ended
September 30, 2005 described in the above paragraph, the Company determined that
since there was no material effect on the results of operations and the balance
sheet on the annual report for the fiscal year ended December 31, 2004, such a
restatement was not necessary.
To reflect a correction in the number of shares issued and outstanding, the
Company restated the weighted average number of shares outstanding (basic and
diluted) as of the nine months and the three months ended September 30, 2004.
The restated average number of shares (from 557,249 to 659,518) for the three
months ended September 30, 2004 and from 498,749 to 500,821 for the nine month
ended September 30, 2004 does not have a material effect on the net income
(loss) per share.
The comparable numbers for the three and six months ended June 30, 2004 were
restated as a result of a typographical error that was occurred in those
periods.
DEVELOPMENT STAGE COMPANY
In accordance with Financial Accounting Standards Board (FASB) No. 7, the
Company is considered a development stage company, beginning on April 16, 2005,
the date it commenced with a new business activity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material inter-company balances and transactions have been
eliminated in consolidation.
6
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in accordance with FAS
No. 128 "Earning per share" ("FAS 128"), for all periods presented. Outstanding
warrants have been excluded from the calculation of the diluted loss per share
because such securities have an anti-dilutive effect for all periods presented.
The total number of shares of common stock outstanding excluded 9,218,893
warrants and option for the period ended September 30, 2005.
STOCK BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued the
revised Statement of Financial Accounting Standards ("FAS") No. 123,
"Share-Based Payment" (FAS 123R), which addresses the accounting for share-based
payment transactions in which the Company obtains employee services in exchange
for (a) equity instruments of the Company or (b) liabilities that are based on
the fair value of the Company's equity instruments or that may be settled by the
issuance of such equity instruments. The Statement will be effective as of the
beginning of the first interim or annual reporting period that begins after
December 15, 2005, for small business issuers.
The Company decided to adopt FAS 123R and to reflect the fair value of the
options granted to employees during the three months ended September 30, 2005.
NOTE 4: CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, which include short-term
bank deposits (up to three months from date of deposit) that are not restricted
as to withdrawal or use, to be cash equivalents.
NOTE 5: OTHER CURRENT ASSETS
Other current assets consist of $25,000 advance payment to Matrix Pharma Inc.
and Matrix Advanced Solutions Ltd.(Matrix) with whom the Company signed a term
sheet. Said advance enabled the Company to obtain an option to an exclusive
patent and know how license to Thrombin Inhibitor compounds (as described
below). In the event that a definitive agreement will not be signed, Matrix
shall return to the Company the advance.
NOTE 6: ACCOUNT PAYABLE
As of September 30, 2005 the accounts payable includes $68,696 that was incurred
in the years 2001 and 2002. To the Company's knowledge no claims have been made
against the Company with respect with those debts. Management is attempting to
find out whether those debts are still in force.
In July 2005, the Company was informed by one of its vendors that it does not
owe the vendor any monies. Accordingly, the Company wrote- off $100,000 of said
account payable balance.
During the quarter ended September 30, 2005, the Company received clarification
letters from the former debentures holders whereby each of the former debenture
holders acknowledged that they had no claims against the Company, including any
rights for accrued interest. Accordingly, the Company recorded $81,311 of Income
from Cancellation of Indebtedness. Also see note 3 and note 8.
NOTE 7: LOANS PAYABLE
The Company has a total of $69,647 of loan payable as of September 30, 2005
which is due on demand and is non-interest bearing. After the balance sheet
date, the Company offered the lender the right to convert its loan into units
according the terms the Company offered to investors under the current private
placement. (See note 10)
NOTE 8: SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURES
The subordinated convertible redeemable debentures were issued in the years 2001
and 2002, with a due date in May 2003. The original terms of the debentures
included; 8% annual interest payments and entitlement to convert the interest
and the principal amount to shares of common stock at a price equal to 70% of
the lowest closing bid price. The holders of the debentures agreed to extend the
due date until June 30, 2005.
7
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
As of August, 2004, the rights in an aggregate amount of $119,200 of principal
were endorsed by the prior debenture holder to a group of 9 investors in
consideration for $30,000. None of the investors are affiliated with the
Company; although one of the new investors is a company under the control of the
prior debenture holder. When the debentures holders could convert the debentures
according to its original terms, they had the right to convert the debentures to
approximately 26% of the issued and outstanding shares of the Company.
According to the terms of the modification executed between the Company and each
of the 9 debenture holders in February and March 2005, the conversion price of
the outstanding principal and accrued interest due under the debentures was
modified to $0.008 per share. This modification was done in order to maintain
the debentures holders' rights in the Company's capital that were significantly
diluted as a result of a 1 for 1000 reverse stock split in August 2004 (and the
market price of the Company's stock was not proportionately adjusted) and the
issuances of shares in January 2005.
During the three month period ended March 31, 2005, $30,227 was paid on the
debentures in cash and the issuance of 1,800,000 shares of common stock. The
balance of $104,800 was paid on April 8, 2005 with the issuance of 13,100,000
shares of common stock. As of said date, the debentures were fully paid.
As detailed in note 2, the Company adjusted its financial reports in order to
present the modification of the debentures, according to generally accepted
accounting principles.
NOTE 9: REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stock were issued prior to 2001. The shares
may be converted to common shares at a rate of one-half common share for each
stock and are redeemable on February 21, 2002 at $50 per share. The shares are
presented at their obligation amount of $232,400 associated with the redemption
feature.
NOTE 10: COMMON STOCK
As part of the effort the Company invests in raising funds to finance its
business activity, the Company issued 1,850,000 units to investors through an
ongoing private placement of units (the "Units") for $0.10 per Unit. Each Unit
consists of one share of common stock, one Class A warrant giving the holder the
right to purchase one share of stock at $1.00, which is exercisable for one year
from the date of issuance, and one Class B warrant giving the holder the right
to purchase one share of stock for $1.50, which is exercisable for 2 years from
the date of issuance. The Company also issued 100,000 units as an issuance fee.
After the balance sheet date the Company completed the private placement of the
Units. Also see Note 12, common stock and warrant subscribed.
NOTE 11: COMMON STOCK AND WARRANT SUBSCRIBED
During the three months ended September 30, 2005, the Company received $500,000
for common stocks and warrants subscribed. Each Unit will be given to the holder
at the same conditions as the Units issued during the three months ended
September 30, 2005.
NOTE 12: STOCK OPTIONS TO EMPLOYEES
The Company follows fair value accounting and the related provisions of SFAS No.
123R for all share based payment awards. The fair value of each option or
warrant granted is estimated on the date of grant using the Black-Scholes
option-pricing model. The following is a summary of all stock options granted to
employees. All option grants have been recorded as deferred compensation in
8
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
stockholders equity due to the fact that they are not yet vested with an
offsetting credit to additional paid in capital:
On September 15, 2005, the board of directors resolved to adopt the 2005
Employees/Consultants/Directors Stock Compensation Plan (the "Plan"). In
connection with the adoption of the Plan, the Company reserved 10,600,000 shares
of common stock of the Company for the future exercise of options granted
pursuant to the Plan. The Company decided to grant an aggregate of 5,318,893
stock options to its directors for future services.
Pursuant to the provisions of the Plan, the Company granted options to purchase
an aggregate of 5,318,893 shares of common stock of the Company, exercisable at
a price of US$ $0.10 per share. These options vest over the three year period
commencing the first anniversary of the grant date as follows:
Shay Goldstein Chairman and the Chief Medical Officer - 2,659,446
Tamar Tzaban - Director and CFO - 2,127,557
Gilad Yoeli - Director - 265,945
Jean-Pierre Elisha Martinez - Director -265,945
The options grant was valued pursuant to SFAS 123R and totaled $1,384,111.
Weighted average assumptions used by management were as follows:
Dividend yield 0%
Expected volatility 111%
Risk free interest rate 3.5%
Expected life of option 7 years
Warrants
In August 2005, the Company issued 1,850,000 units to investors through an
ongoing private placement of units (the "Units") for $0.10 per Unit. Each Unit
consists of one share of common stock, one Class A warrant giving the holder the
right to purchase one share of stock at $1.00, which is exercisable for one year
from the date of issuance, and one Class B warrant giving the holder the right
to purchase one share of stock for $1.50, which is exercisable for 2 years from
the date of issuance. The Company also issued 100,000 units as an issuance fee.
The warrants were valued as follows using the Black-Scholes model:
Warrant class A - $116,630
Warrant class B - $190,449
Weighted average assumptions used by management were as follows:
Dividend yield 0%
Expected volatility 111%
Risk free interest rate 3.5%
Expected life of option 1 year class A, 2 years class B
NOTE 13: SUBSEQUENT EVENT
On November 18, 2005 the Company signed an agreement with 4 investors (together,
the "Investors") to issue an aggregate of $750,000 as convertible debentures
(the "Notes") due three years after issuance. The issuance is to be made in
three installments, the first, in the amount of $250,000 upon signing the
definitive investment agreements, the second in the amount of $250,000 upon the
filing of a registration statement covering the shares underlying the Notes and
the warrants referred to below, and the third in the
9
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
amount of $250,000 upon the effectiveness of the registration statement. The
Notes bear interest at the rate of 8% per annum payable quarterly in cash.
The Notes can be immediately convertible into shares of the Company's common
stock. The conversion price will be equal to the lesser of: (i) $0.15 and (ii)
the average of the lowest 3 intra-day trading prices during the 20 trading days
immediately prior to the conversion date discounted by 50%. In addition, the
Company will issue to the Investors 333,334 warrants with an exercise price of
$0.3 per share.
According the agreement, the Company was obligated to file, on or prior to
thirty days from November 18, 2005, a registration statement, to register the
shares of common stock underlying the Notes and warrants issued to the
Investors. The Company has been delayed in its obligation and is currently in
default. As a result, the Company will have to pay penalties at a rate of 2% of
the outstanding amount of debentures for each month of delay.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
The following discussion should be read in conjunction with the financial
statements of Safetek International, Inc. (the "Company"), which are included
elsewhere in this Form 10-QSB. This Quarterly Report on Form 10-QSB contains
forward-looking information. Forward-looking information includes statements
relating to the ability of the Company to consummate the transactions
contemplated by the term sheets it has executed, the ability of the Company to
raise capital, to develop the products and technologies to which it may acquire
and market and distribute such products, future actions, future performance,
costs and expenses, interest rates, outcome of contingencies, financial
condition, results of operations, liquidity, business strategies, cost savings,
objectives of management, and other such matters of the Company. The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking information to encourage companies to provide prospective
information about themselves without fear of litigation so long as that
information is identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information.
Forward-looking information may be included in this Quarterly Report on Form
10-QSB or may be incorporated by reference from other documents filed with the
Securities and Exchange Commission (the "SEC") by the Company. You can find many
of these statements by looking for words including, for example, "believes,"
"expects," "anticipates," "estimates" or similar expressions in this Quarterly
Report on Form 10-QSB or in documents incorporated by reference in this
Quarterly Report on Form 10-QSB. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information or future events.
The Company has based the forward-looking statements relating to the Company's
operations on management's current expectations, estimates, and projections
about the Company and the industry in which it operates. These statements are
not guarantees of future performance and involve risks, uncertainties and
assumptions that the Company cannot predict. In particular, the Company has
based many of these forward-looking statements on assumptions about future
events that may prove to be inaccurate. Accordingly, the Company's actual
results may differ materially from those contemplated by these forward-looking
statements. Any differences could result from a variety of factors, including,
but not limited to general economic and business conditions, competition, and
other factors.
PLAN OF OPERATION
As of April 15, 2005, Dr. Goldstein was appointed as the Company's Chairman,
Chief Executive Officer and Secretary, and since then the Company has been
focusing on screening new technologies in the life sciences and health care
fields. On May 17, 2005, the company established an Israeli wholly owned
subsidiary under the laws of the State of Israel, called "Oriens Life Sciences
Ltd. (the "Subsidiary") , to serve as a platform for the Company to screen the
Israeli life sciences and health care industry and identify, analyze, and
acquire or invest in technologies in this field.
On July 5, 2005 the Company entered into a Term Sheet with NanoDiagnostics, Inc.
("NanoDiagnostics"), a Delaware company, and Judith Seligman ("Seligman"), who
is the principal of NanoDiagnostics. NanoDiagnostics is engaged in developing
the ability to extract certain cells known as Pluripotent Stem cells from blood
samples. The parties did not reach agreement and the contemplated transaction
has been terminated. Neither party has any further obligation to the other.
On August 9, 2005, the Company and Matrix Pharma, Inc., a Delaware Corporation
("Matrix"), entered into a term sheet pursuant to which Matrix would, at
closing, grant the Company an exclusive license in all of Matrix's intellectual
property rights in its Thrombin inhibition compounds. The Company and Matrix
agreed to jointly develop a research and development program for the development
of products based on the Thrombin inhibition compounds and to obtain approval
from the U.S. Food and Drug Administration. At the
10
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
closing, the Company shall pay to Matrix $60,000 as an advance towards the
funding of the first stage of the research and development program. In further
consideration for the license grant and services rendered to the Company in
connection with the research and development program, Matrix shall be paid
certain specified amounts if the Company successfully achieves each of certain
specified milestones with respect to the development of products based on the
license granted to the Company. Matrix agreed to an exclusivity period until
October 30, 2005.
The Company has invested a lot of effort in due diligence procedures and
completion of the definitive agreement. It is anticipated that the closing of
such transaction will take place shortly
On August 10, 2005, the Company and Serapis Technologies Inc., a Delaware
corporation and Serapis Biotech Ltd., a subsidiary of Serpais ("Serapis"),
entered into a Term Sheet pursuant to which, the Company would, at closing,
purchase from Serapis its intellectual property relating to chemical compounds
designed to affect membrane receptor activity. The Company will also be granted
a one-year option to purchase from Serapis certain equipment. In consideration
for such assets, Serapis and certain of its principals will receive from the
Company a specified amount of cash and shares of the common stock of the
Company. Serapis agreed to an exclusivity period until September 30, 2005. ,
On December 1, 2005, the Company and Serapis entered into a letter agreement
(the "Letter Agreement") extending the date by which a definitive agreement must
be agreed to until May 31, 2006. The Letter Agreement also gives the Company a
right of first refusal. Pursuant to such right of first refusal, if a third
party makes an offer to Serapis prior to May 31, 2006 to invest in Serapis or
its subsidiary, Serapis must notify the Company and extend to the Company an
offer on the same terms and conditions as the third party's offer. Pursuant to
the Letter Agreement, the Company is also entitled to purchase from Serapis
certain biological materials at prices specified therein. Pursuant to the Letter
Agreement, the Company also agreed to loan to Serapis an additional $30,000. If
a definitive agreement is not signed by the Company and Serapis on or before May
31, 2006, then the amounts loaned shall be repaid to the Company upon its
request. As security for such loan, Serapis granted to the Company a security
interest in certain biological materials identified in the Letter Agreement. The
Company is continuing with its due diligence investigation of Serapis and
representatives from both the Company and Serapis are continuing to negotiate.
On August 10, 2005, the Company, Cygnus Biotechnology Inc., a Delaware
corporation ("Cygnus"), and Cygnus Biotech Israel Ltd., a subsidiary of Cygnus
(the "Cygnus Subsidiary", and together with the "Cygnus Companies") entered into
a term sheet pursuant to which the Cygnus Companies would, at closing, grant to
the Company exclusive licenses relating to their intellectual property in their
research regarding (1) stem cells, (2) specific clinical applications or
diseases in areas of cardiovascular diseases, and (3) all other areas of
cardiovascular diseases. Such licenses shall be perpetual, except that the
license in areas of cardiovascular diseases not related to specific clinical
applications or diseases shall expire upon the occurrence of either of the
following within 12 months after the closing: (1) the Company has not committed
to finance a budget of at least $1,500,000 for a joint research and development
project between the Company and Cygnus; or (2) the Company has not issued a
specified amount of shares of its common stock to certain of Cygnus's
principals. The Company and Cygnus also agreed to enter into an agreement for
the provision of research and development services with respect to the licensed
intellectual property, with all rights in the intellectual property developed
belonging to the Company. In consideration for such licenses, Cygnus and certain
of its principals will receive from the Company a specified amount of cash and
shares of the common stock of the Company. They agreed to an exclusivity period
until September 30, 2005. No extension has been agreed to. However, the Company
is continuing with conducting due diligence and its negotiations.
Each of the foregoing contemplated transactions is conditioned upon the
execution and delivery of definitive agreements between the Company and the
respective sellers or licensors, completion of due diligence to the satisfaction
of the parties, the receipt of any required approvals and the authorization by
the respective Board of Directors. The Company cannot give any assurances that
any of the contemplated transactions will close.
On December 7, 2005, the Company entered into an employment agreement with Amnon
Presler, pursuant to which Mr. Presler was engaged as the Chief Executive
Officer of each of the Company and its subsidiary. Dr. Goldstein shall be
employed as Chief Medical Officer of each of the Company and its sSubsidiary
instead of as their Chief Executive Officer
RESULTS OF OPERATIONS
Comparison of the Three Months and the Nine Months Ended September 30,2005 to
the Three Months and the Nine Months Ended September 30, 2004.
Revenues
For the three months and the nine months ended September, 2004 and 2005, there
were no revenues.
11
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
General and Administrative Expenses
For the nine months ended September 30, 2005, our general and administrative
expenses were $269,690 as compared to $20,400 for the nine months ended
September, 2004. Our expenses increased mainly as a result of our efforts of
screening technologies in the life sciences field and as a result of the due
diligence procedures and the efforts invested in executing the signed term
sheets and progressing to definitive agreements. The main expenses consisted of
professional fees such as legal advisory and auditing fees and payroll and
related expenses to the Company's management.
For the three months ended September 30, 2005 our general and administrative
expenses were $178,042 as compared to $2,700 for the three months ended
September, 2004.
Other Income
For the nine months ended September 30, 2005, we recognized Income from
Cancellation of Indebtedness as a result of the write- off of $100,000 accounts
payable to a single vendor who confirmed to the Company that the amount was not
owed and as a result of the waiver of accrued interest in the amount of $81,311.
ADJUSTMENTS/ RESTATEMENT
The financial statements for the nine months and for the three months ended
September 30, 2005 have been adjusted as a result of the accounting treatment
accorded to the terms of subordinated convertible redeemable debentures that
were issued in the years 2001 and 2002 (the "debentures"), to record interest
expense during the three months ended March 31, 2005 for the debentures at
amount of $2,700 that was not recorded, To add to the accumulated deficit
$14,293 as a result of interest expenses which should have been recorded for the
fiscal year ended December 31, 2003. The interest amounts ($2,700 and $14,293)
were waived by the debentures holders during the third quarter of 2005, As a
result, the Company recognized gain from cancellation of indebtedness. $323,282
was charge to paid in capital and accumulated deficit in order to reflect a
beneficial conversion feature charge that should have been recorded when the
debentures were initially issued. During the three months ended March 31, 2005
and during the three months ended June 30, 2005 the Company recorded gain of
$104,300 to income from cancellation of indebtedness as a result of the
conversion of the debentures. After reconsidering the accounting treatment, the
Company reclassified this amount to additional paid in capital.
The Company also considered restating its previous financial reports and the
interim reports for the six and three months periods ended June 30, 2005, to
reflect the beneficial conversion feature that was created when the debentures
were initially issued in 2001 and 2002. After consideration by management and
the reclassification of the financial statements for the nine month period ended
September 30, 2005 described in the above paragraph, the Company determined that
since there was no material effect on the results of operations and the balance
sheet on the annual report for the fiscal year ended December 31, 2004, such a
restatement was not necessary.
To reflect a correction in the number of shares issued and outstanding, the
Company restated the weighted average number of shares outstanding (basic and
diluted) as of the nine months and the three months ended September 30, 2004.
The restated average number of shares (from 557,249 to 659,518) for the three
months ended September 30, 2004 and from 498,749 to 500,821 for the nine month
ended September 30, 2004 does not have a material effect on the net income
(loss) per share.
The comparable numbers for the three and six months ended June 30, 2004 were
restated as a result of a typographical error that was occurred in those
periods.
Net Income (loss)
During the nine months period ended September 30, 2005, we reported a net loss
of $95,397 compared to a net loss of $99,726 for the nine months period ended
September 30, 2004. The difference is mainly attributable to Income from
Cancellation of Indebtedness and to general and administration expenses as a
result of our activity during this period.
Liquidity and Capital Resources
Our cash and cash equivalents as of September 30, 2005 were $174,815 and the
Company holds $252,277 in securities, compared to none as of December 31, 2004 .
The increase in the cash and cash equivalents is a result of receiving $500,000
in consideration for Units consisting of common stock and warrants subscribed,
$185,000 in consideration to units of stocks and warrant issuance and
12
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
$37,369 from shares issued in January 2005.
Net cash used in operating activities decreased mainly a result of increase in
the Company's business activity and an increase in our accounts payable and
accrued expenses.
We are in the process of attempting to raise funds in order to have the
capability of conducting research and development activity. The Company intends
to finance its operations by private placements, stocks and debt issuance and
financial arrangements. There are currently no plans or arrangements regarding
any of the foregoing.
We currently have no revenues. The Company is not sure whether the proceeds
received from the private placements and additional capital that the Company is
planning to raise in the future, will be sufficient to satisfy the Company's
cash requirements for the next twelve (12) months.
Recent Financing Subsequent to September 30, 2005
On November 18, 2005 the Company signed an agreement with 4 investors (together,
the "Investors") to issue an aggregate of $750,000 as convertible debentures
(the "Notes") due three years after issuance. The issuance is to be made in
three installments, the first, in the amount of $250,000 upon signing the
definitive investment agreements, the second in the amount of $250,000 upon the
filing of a registration statement covering the shares underlying the Notes and
the warrants referred to below, and the third in the amount of $250,000 upon the
effectiveness of the registration statement. The Notes bear interest at the rate
of 8% per annum payable quarterly in cash.
The Notes can be immediately convertible into shares of the Company's common
stock. The conversion price will be equal to the lesser of: (i) $0.15 and (ii)
the average of the lowest 3 intra-day trading prices during the 20 trading days
immediately prior to the conversion date discounted by 50%. In addition, the
Company will issue to the Investors 333,334 warrants with an exercise price of
$0.3 per share.
According the agreement, the Company was obligated to file, on or prior to
thirty days from November 18, 2005, a registration statement, to register the
shares of common stock underlying the Notes and warrants issued to the
Investors. The Company has been delayed in its obligation and is currently in
default. As a result, the Company will have to pay penalties at a rate of 2% of
the outstanding amount of debentures for each month of delay.
Going Concern
As of September 30, 2005, we have cash on hand of approximately $174,815 which
we received for securities issuance. This amount is inadequate for us to
effectuate our planned activities during the next 12 months. Accordingly, we may
be unable to continue operations in the future as a going concern. Our plans to
deal with this uncertainty include raising additional capital or entering into a
strategic arrangement with a third party. There can be no assurance that our
plans can be realized. There can be no assurance that we will be able to obtain
additional financing if and when needed or that, if available, financing will be
on acceptable terms. Additional equity financings may be dilutive to holders of
our common stock and debt financing, if available, and may involve significant
payment obligations and covenants that restrict how we operate our business
Certain conditions raise substantial doubt about the Company's ability to
continue as a going concern beyond the next twelve (12) month period. The
Company has an accumulated deficit as of September 30, 2005 of $4,327,469. The
Company needs to obtain additional financing to fund payment of its obligations
and to provide working capital for operations.
As of September 30, 2005 we had shareholders' equity of $37,237and an
accumulated deficit of $4,327,469. Our balance sheet as of September 30, 2005
reflects total liabilities of $479,965.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on its financial condition, revenues,
results of operations, liquidity or capital expenditures.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements and accompanying notes have been prepared in accordance
with generally accepted accounting principles in the United States of America.
The preparation of these financial statements requires our Management to make
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. We continually evaluate the accounting
policies and estimates we use to prepare the consolidated financial statements.
We base our estimates on historical experiences and assumptions believed to be
reasonable under current facts and circumstances. Actual amounts and results
could differ from these estimates made by Management. We do not participate in,
nor have we created, any off-balance sheet special purpose entities or other
off-balance sheet financing. In addition, we do not enter into any derivative
financial instruments for speculative purposes and use derivative financial
instruments primarily for managing our exposure to changes in interest rates.
ITEM 3 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods
13
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005 (Unaudited)
specified in the rules and forms of the United States Securities and Exchange
Commission. Our Chief Executive Officer has reviewed the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-14(c) and 15d-14(c)) as of the end of the period covered by
this report and has concluded that the disclosure controls and procedures are
effective to ensure that material information relating to the Company is
recorded, processed, summarized, and reported in a timely manner. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the last day they were
evaluated by our Chief Executive Officer.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company's internal control over financial
reporting during the last quarterly period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Part II OTHER INFORMATION
ITEM 1 - . LEGAL PROCEEDING
We are not a party to any legal proceeding.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months period ended September 30, 2005, the Company issued
1,950,000 units to investors through an ongoing private placement of units (the
"Units") for $0.10 per Unit. Each Unit consists of one share of common stock,
one Class A warrant giving the holder the right to purchase one share of stock
at $1.00, which is exercisable for one year from the date of issuance, and one
Class B warrant giving the holder the right to purchase one share of stock for
$1.50, which is exercisable for 2 years from the date of issuance. The Company
also issued 100,000 units as an issuance fee. The units are being offered and
issued pursuant to Regulation S promulgated by the Securities and Exchange
Commission.
As described above, on November 18, 2005 the Company issued $250,000 of
convertible debentures (the "Notes") due three years after issuance. The Notes
bear interest at the rate of 8% per annum payable quarterly in cash. The Notes
can be immediately convertible into shares of the Company's common stock. The
conversion price will be equal to the lesser of: (i) $0.15 and (ii) the average
of the lowest 3 intra-day trading prices during the 20 trading days immediately
prior to the conversion date discounted by 50%. In addition, the Company will
issue to the purchasers of the Notes 333,334 warrants with an exercise price of
$0.3 per share. The Notes and Warrants were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Pursuant to the Notes, the Company was obligated to file, on or prior to thirty
days from November 18, 2005, a registration statement, to register the shares of
common stock underlying the Notes and warrants issued to the purchasers of the
Notes. The Company has been delayed in its obligation and is currently in
default. As a result, the Company will have to pay penalties at a rate of 2% of
the outstanding amount of debentures for each month of delay.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS
31.1 Certification of Principal Executive Officer Pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer Pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
14
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.
Signature Capacity Date
/s/ Amnon Presler Chief Executive Officer (principal December 22, 2005
executive officer)
/s/ Tamar Tzaban-Nahomov Chief Financial Officer (principal December 22, 2005
financial officer)
15