U.S. SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarter ended September 30, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission File Number: 33-22175
SAFETEK INTERNATIONAL, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75-2226896
------------------------- ------------------------
(State of incorporation) (IRS Employer ID Number)
c/o David Lubin & Associates, PLLC
26 East Hawthorne Avenue
Valley Stream, NY 11580
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(Address of principal executive offices)
(516) 887-8200
---------------------------
(Issuer's telephone number)
23 Aminadav St., Tel Aviv, Israel, 67898
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES |X| NO |_|
Number of shares of common stock outstanding as of November 17, 2006: 82,138,800
shares of common stock.
Transitional Small Business Format Yes |_| No |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES |X| NO |_|
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 24
Item 3 Controls and Procedures 27
PART II
Item 1. Legal Proceedings 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits 28
2
NOTE: THIS REPORT HAS NOT BEEN REVIEWED BY THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
FORM 10-QSB
QUARTERLY PERIOD ENDED JUNE 30, 2006
INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet (Unaudited/ Unreviewed) at
September 30, 2006. 4
Consolidated Statements of Operations (Unaudited/ Unreviewed)
for the nine and the three months ended September 30, 2006
and 2005 and for the Period from April 16, 2005 Through
September 30, 2006 (Development stage). 5
Consolidated Statements of Cash Flows (Unaudited/ Unreviewed)
for the nine months ended September 30, 2006 and 2005 and for
the Period from April 16, 2005 Through September 30, 2006
(Development stage). 6
Notes to Consolidated Financial Statements (Unaudited/
Unreviewed) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 24
Item 3. Controls and Procedures 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3. Defaults upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6: Exhibits 28
SIGNATURES
3
SAFETEK INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(UNAUDITED/ UNREVIEWED)
September
30, 2006
(Unaudited)
ASSETS
Current Assets
Cash & Cash Equivalents $ 54,596
5,233
Other Receivable
Prepaid Expenses 37,394
Biological Materials Supply Inventory 108,438
-----------
Total Current Assets 205,661
Available for Sale Securities 5,834
Property and Equipment, Net 11,256
Debt Financing Cost, Net of Amortization 74,228
-----------
TOTAL ASSETS $ 296,979
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable $ 128,390
Accrued Expenses 71,849
Accrued Payroll and Related Expenses 22,606
Loans Payable 69,647
Convertible Debentures, Net of Discount of $405,175 105,707
$201,248
8,741
Warrants, Net of Discount of $32,638
Derivative Liability - Convertible Debentures and 1,273,642
Warrants
Derivative Liability - Warrants, Current Portion 8,379
-----------
Total Current Liabilities 1,688,960
Other
Derivative Liability - Warrants 21,088
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
-----------
TOTAL LIABILITIES 1,942,448
-----------
Stockholders' Deficit:
Common Stock, $.0001 Par Value Authorized
500,000,000 Shares, Issued and Outstanding
76,138,923 7,614
Additional Paid in Capital 4,237,072
Accumulated Deficit Through April 15, 2005* (4,250,580)
Deficit Accumulated During the Development Stage (1,639,575)
-----------
Total Stockholders' Deficit (1,645,469)
-----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 296,979
===========
*Commencement of development stage
4
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED/ UNREVIEWED)
Nine Months Ended Three Months Ended
Cumulative
for the
Period from
April 16,
2005*
Through
September September September September September
30, 2006 30, 2005** 30, 2006 30, 2005** 30, 2006
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating Expenses
Payroll and Related Expenses $ 347,511 62,332 $ 111,324 45,229 $ 492,110
Office & General Expenses 86,858 41,178 16,548 25,536 158,141
Professional Fees 134,923 139,726 27,670 81,002 427,907
Business Development Costs 130,355 26,454 (138) 26,275 170,679
-------------- ------------- ----------- ----------- -----------
Total Operating Expenses 699,647 269,690 155,404 178,042 1,248,837
Loss from Operations 699,647 269,690 155,404 178,042 1,248,837
Other Income (Expenses)
Income from Cancellation of - Indebtedness -- 181,311 -- 212,432
Gain from Sale of Securities 2,274 -- 11 11,276
Interest Income 1,898 5,463 495 5,426 3,514
Exchange Rate Loss 4,827 4712 (6,735)
Interest Expenses Convertible Debentures (25,438) (12,481) (13,110) (9,530) (27,740)
Amortization of Convertible Debentures --
and Warrant Discount (137,541) -- (71,596) (147,358)
Derivative Liability Income (Expenses) 2,124,361 -- 581,111 (436,126)
-------------- ------------- ----------- ----------- -----------
Total Other Income (Expenses) 1,970,381 174,293 501,623 (4104) (390,737)
------------- ----------- ----------- -----------
Net Income (Loss) $ 1,270,734 (95,397) $ 346,219 (182,146) $(1,639,574)
=============================== ============================ ===========
Net Income(Loss) Per Share
Basic Per Common Share $ 0.0204 0.0056 $ 0 0 $ -0.028
Diluted Per Common Share (0.0003) (0.00006)
Weighted Average Number of
Shares Outstanding Basic 62,219,805 62,291,719 54,164,923 44,347,756 58,558,884
Shares Outstanding Diluted 2,499,755,716 2,498,791,791
*Commencement of development stage
** restated
See notes to unaudited consolidated financial statements
5
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED/ UNREVIEWED)
For the Six Months Ended
Cumulative
for the
Period from
April 16,
2005* Through
September September September 30,
30, 2006 30, 2005** 2006
----------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) for the period $ 1,270,734 $ (95,397) $(1,639,574)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Cash Used in Operating Activities: 3,424 47 4,651
Depreciation --
Stock Issued for Services 179 178
Income from Cancellation of Indebtedness (181,311) (212,432)
Non Cash Interest Expenses 2,700 5,001
Derivative Liability Expenses (2,124,361) -- 435,955
Amortization of Debentures and Warrants Discount 137,541 -- 147,358
Other 4339 -- 83
Website Amortization 4410 4410
Changes in Assets and Liabilities --
Sale of Trading Securities 122,162 -- 4,256
(Increase) in Prepaid Expenses (13,139) (37,544) (37,393)
(Increase)in Other Receivable 10,861 (5,233)
Decrease in Other Current Assets 54,906 54,906
(Increase) in Supplies Inventory (108,438) (108,434)
Increase in Accounts Payable 38,469 93,123 74,811
(Decrease) Increase in Accrued Expenses (59,221) (28,605) 66,844
Increase in Accrued Payroll and Related Expenses (27,655) 28,472 22,605
----------- ----------- -----------
Net Cash Used in Operating Activities (685,967) (218,336) (1,182,005)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (3,843) (10,939) (20,318)
Advance payment to Matrix -- (25,000) (25,000)
Loan to Serapis -- (6072) (29,906)
Other Long Term Assets 59 (4371) (4,684)
Available-For-Sale Securities -- (252,277) (5,490)
----------- ----------- -----------
Net Cash Used in Investing Activities (3,784) (298,659) (85,398)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceed from Issuance of Shares
and Warrants, Net of Issuance Expenses -- 722,370 685,001
Proceeds from Issuance of Debentures, Net of
Issuance Expenses 450,000 -- 640,000
Payment on Debentures -- (15,828) --
Payments on Loan Payable -- (14,732) (3,001)
----------- ----------- -----------
Net Cash Provided by Financing Activities 450,000 691,810 1,322,000
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUVALENTS (239,752) 174,815 54,595
BALANCE OF CASH AND CASH EQVIVALENTS
AT THE BEGINNING OF PERIOD 294,348 -- --
----------- ----------- -----------
BALANCE OF CASH AND CASH EQVIVALENS
AT THE END OF PERIOD $ 54,596 $ 174,815 $ 54,596
$ (239,752) $ 4,902 $ 54,596
=========== =========== ===========
$ -- $ -- $ --
=========== =========== ===========
*Commencement of development stage
** restated
See notes to unuaudited consolidated financial statements
6
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
We were incorporated in April, 1988, in the state of Delaware under the name
Theoretics, Inc. In January, 1989, we changed our name to Safetek International,
Inc. Until May, 2001, we manufactured prototypes and distributed the final
product on behalf of technology developers. We reorganized in May 2001 for the
purpose of providing embryonic companies with concepts and patented ideas.
Since December 31, 2002, we have not had any products, services or business
operations. Commencing on April 15, 2005, we began focusing on screening new
technologies and other business opportunities in the life sciences and health
care fields. On May 17, 2005, we 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 us to screen the Israeli life
sciences and health care industry and identify, analyze, and acquire or invest
in technologies in this field. During the fiscal year ended December 31, 2005,
we signed four term sheets to purchase technologies in the life science field,
but we have since abandoned such term sheets.
We are no longer restricting our focus on business opportunities in the life
sciences and health care fields. Instead, we have determined to investigate, and
if warranted, acquire an interest in any promising business opportunity, and we
are not restricting our search to any particular industry or geographical area.
We may therefore engage in essentially any business in any industry. Our
management has unrestricted discretion in seeking and participating in a
business opportunity, subject to the availability of such opportunities,
economic conditions and other relevant factors.
We have issued convertible debentures and warrants to fund our ongoing
operations. On November 18, 2005, we signed an agreement with four investors
(together, the "Investors") to issue an aggregate of $750,000 as convertible
debentures (the "Notes") due three years after issuance. The issuance was to be
made in three installments: (i) the first, in the amount of $250,000, was
received upon signing the definitive investment agreements; (ii) the second, in
the amount of $250,000, was received on May 16, 2006, upon our filing of a
registration statement covering the shares underlying the Notes and the warrants
referred to below; and (iii) the third, in the amount of $250,000, was received
On July 10, 2006, upon our filing of a prospectus under Rule 424(b) (3) of the
Securities Act of 1933. The Notes bear interest at the rate of 8% per annum
payable quarterly in cash. Interest on delayed payments shall be 15% annually.
No interest shall be due and payable for any month in which the trading price is
greater than $0.1875 for each trading day of the month.
7
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
The Notes can be immediately convertible into shares of our 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, we issued to the Investors 1,000,000 warrants with an exercise
price of $0.30.
As of June 30, 2006, the Company has an accumulated deficit of $5,890,155. Our
prospects must therefore be evaluated in light of the problems, expenses, delays
and complications associated with the financial situation of the Company
NOTE 2: GOING CONCERN
As of September 30, 2006, we have cash on hand of $54,596 which we received from
the issuance of the Notes described below. 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.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's auditors on their Report
of independent registered public accounting firm for the financial statement for
the year ended December 31, 2005, raised substantial doubt about the Company's
ability to continue as a going concern.
Certain conditions raise substantial doubt about the Company's ability to
continue as a going concern beyond the next twelve (12) month period. As of
September 30, 2006, the Company had stockholders' deficit of $1,645,469 and an
accumulated deficit of $5,890,155. Our balance sheet as of June 30, 2006
reflects total liabilities of $1,942,448. The Company needs to obtain additional
financing to fund payment of its obligations and to provide working capital for
operations.
8
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
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 six months ended June 30, 2006
are not necessarily indicative of the results that may be expected for the
fiscal year ended December 31, 2006. 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, 2005 and notes thereto filed with the Securities and Exchange
Commission in April 2006.
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. Significant estimates include the useful life of
property and equipment and the fair value of derivative liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents, accounts
payable and accrued expenses and loans payable approximate their estimated fair
values due to the short-term maturities of those financial instruments. The
carrying amount of the derivative liability is based on its fair value.
9
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
The carrying amount of the convertible notes approximate the estimated fair
value for these financial instruments as management believes that such
convertible notes constitute substantially all of the Company's debt and the
interest payable on the convertible notes approximates the Company's incremental
borrowing rate.
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 its new business activity.
ADJUSTMENTS/RESTATEMENT
As part of the quarterly report for the nine months ended September 30, 2005,
the financial statements for the nine and the three months ended September 30,
2005, were adjusted to reflect the proper accounting treatment regarding
subordinated convertible redeemable debentures that were issued in the years
2001 and 2002. To reclassify amount of $104,300 that was recorded as income from
cancellation of indebtedness during the nine months ended September 30 2005 and
to additional paid in capital, to reflect the conversions of the debentures into
shares and to present $16,993 interest waived by the debentures holders and
$323,282 was charged to paid in capital and accumulated deficit in order to
reflect a beneficial conversion feature.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued FAS 155, accounting for certain Hybrid
Financial Instruments, an amendment of FASB statements No.133 and 140. This
statement permits fair value measurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation.
This statement is effective for all financial instruments acquired or issued
after the beginning of an entity's first fiscal year that begins after September
15, 2006. Earlier adoption is permitted as of the beginning of an entity's
fiscal year, provided that no interim period financial statements have been
issued for the financial year. In the Company's opinion, implementation of this
standard is not expected to have a material effect on its financial statements
in future periods.
10
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
In March 2006 the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Reporting No. 156 ("FAS 156"). This Statement amends FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities, and is
effective for financial periods beginning after September 15, 2006. Since the
Company does not currently engage in transfers of financial fixed assets , the
company does not anticipate that the adoption of this statement will have a
material impact on its financial statements.
In July 2006, the FASB issued FASB Interpretation (FIN) No. 48 Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement 109. FIN 48
prescribes a comprehensive model for recognizing, measuring, presenting and
disclosing in the financial statements tax positions taken or expected to be
taken on a tax return, including a decision whether to file or not to file in a
particular jurisdiction. FIN 48 is effective for fiscal years beginning after
December 15, 2006. If there are changes in net assets as a result of application
of FIN 48 these will be accounted for as an adjustment to retained earnings. In
the Company's opinion, implementation of this standard is not expected to have a
material effect on its financial statements in future periods.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its wholly owned subsidiary. All material inter-company balances and
transactions have been eliminated in consolidation.
FUNCTIONAL CURRENCY
The currency of the primary economic environment in which the operations of the
Company and its subsidiary are conducted is the US dollar. A significant part of
the Company's capital expenditures and most of its financing is in U.S. dollars.
Most of the Company's expenses incurred are in U.S. dollars and all intercompany
balances are denominated in U.S. dollars. In addition, a substantial portion of
the subsidiary's expenses are incurred in U.S.dollars. Thus, the functional
currency of the Company and its subsidiary is the US dollar.
11
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
Transactions and balances originally denominated in dollars are presented at
their original amounts. Balances in foreign currencies are translated into
dollars using historical and current exchange rates for non-monetary and
monetary balances, respectively. For foreign transactions and other items
reflected in the statements of operations, the following exchange rates are
used: (1) for transactions - exchange rates at transaction dates or average
rates and (2) for other items (derived from non- monetary balance sheet items
such as depreciation) - historical exchange rates. The resulting transaction
gains or losses are carried to financial income or expenses, as appropriate.
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.
OTHER RECEIVABLE
Other receivable consist of refundable value added tax (VAT) payments that the
Company paid during the year.
INVESTMENTS IN SECURITIES
The Company and its subsidiary account for securities in accordance with
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" Securities that are bought and held
principally for the purpose of selling them in the near term shall be classified
as trading securities. Investments not classified as trading securities shall be
classified as available-for-sale securities. Unrealized holding gains and losses
for trading securities shall be included in earnings. Unrealized holding gains
and losses for available-for-sale securities shall be excluded from earnings and
reported in other comprehensive income until realized except in hedge
transactions.
PREPAID EXPENSES
Prepaid expenses consist of insurance payments that are amortized over the
service and contract period.
12
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
BIOLOGICAL MATERIALS SUPPLY INVENTORY
Disposal biological materials are expensed as used and the remaining balance is
stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated by the straight-line
method over the estimated useful lives of the assets (2-7 years).
OTHER LONG TERM ASSETS
Other long term assets include deposits on leased property that will be applied
toward the last three months of the three year leasing period.
DEBT FINANCING COSTS
Consist of costs that were incurred upon issuance of the convertible debentures
on November 18, 2005, and May 17, 2006, and on July 16. The balance is amortized
on a straight line basis over the three years debentures period.
DEBENTURES
The Company accounts for debentures that were issued in accordance with APB 14,
SFAS 133 and EITF 00-19. Per APB 14, when warrants are detachable from the debt
instrument, and the warrants are used as security for the debt instrument, the
proceeds from the sale of the debt instrument and the detachable warrants should
be allocated between the warrants and the debt instrument.
Paragraph 12 of Statement of Financial Accounting Standard No. 133 provides that
in the case of contracts that do not in their entirety meet the definition of a
derivative instrument such as bonds, insurance policies, and leases, any
embedded derivative instruments shall be separated from the host contract and
accounted for as a derivative instrument.
Paragraph 11(a) of Statement of Financial Accounting Standard No. 133 provides
that contracts issued or held by a reporting entity that are both (1) indexed to
its own stock and (2) classified in stockholders' equity in its statement of
financial position, shall not be considered derivative instruments for purposes
of this statement.
13
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock," provides guidance in
determining whether an embedded derivative which is indexed to its own stock
would be classified in stockholders' equity in accordance with paragraph 11(a)
of Statement of Financial Accounting Standard No. 133 or if it was freestanding.
EITF Issue No. 00-19 excludes from its classification requirements "conventional
instruments".
Such instruments are defined in EITF 05-2 as: instruments that provide the
holder with an option to convert into a fixed number of shares (or equivalent
amount of cash at the discretion of the issuer) for which the ability to
exercise the option is based on the passage of time or a contingent event should
be considered "conventional" for purposes of applying Issue 00-19. Instruments
that contain "standard" antidilution provisions would not preclude a conclusion
that the instrument is convertible into a fixed number of shares. Standard
antidilution provisions are those that result in adjustments to the conversion
ratio in the event of an equity restructuring transaction (as defined in the
glossary of Statement 123(R) (2) that are designed to maintain the value of the
conversion option.
WARRANTS
The warrants that the Company issued are presented at their fair value and
classified as liabilities, according to paragraphs 20 and 24 of EITF 00-19
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock".
As a result of the terms of the debentures that the Company issued and since
theoretically the debentures can be converted into a number of shares that will
exceed the company's authorized shares if the Company's market price falls below
0.000569, (as of August 10, 2006 as reported on http://quates.nasdaq.com, the
average bid and ask price was 0.01325), all convertible instruments of the
Company including warrants (but excluding employee stock options) are accounted
for as derivative liabilities.
14
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
INCOME TAX
The Company and its subsidiary account for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes". This Statement requires the use of the liability method of accounting
for income taxes, whereby deferred tax asset and liability account balances are
determined based on the differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The Company
and its subsidiary provide a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value
BASIC AND DILUTED NET EARNING (LOSS) PER SHARE
Basic and diluted net earnings and loss per common share are presented in
accordance with FAS No. 128 "Earning per share" ("FAS 128"), for all periods
presented. The computation of diluted EPS shall not assume conversion, exercise,
or contingent issuance of securities that would have an antidilutive effect on
earnings per share 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 14,566,664 warrants. The diluted net earning per share
includes 3,750,000, shares and 1,125,000 shares upon a default event (calculated
according the market price as of September 30 2006). Options which were
cancelled were taken into consideration during the period they were outstanding.
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 year 2005.
15
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
NOTE 4: BIOLOGICAL MATERIALS SUPPLY INVENTORY
On March 27, 2006 the Company exercised its right that was given to it in a
Letter Agreement dated December 1, 2005 to purchase certain biological materials
from Serapis Biotech Ltd ( "Serapis") for a purchase price of $100,000 plus
value added tax (VAT). The purchase price was paid by the forgiveness of $29,906
debt owed to the Company, and 12 equal monthly payments, with the first payment
on the signing date. With these biological materials, the Company intended to
develop a technology that will assist and accelerate the identification of new
generation of lead compounds stimulating the activity of muscarinic receptors
for the development of new therapies for variety of diseases such as Alzheimer's
disease, glaucoma, and over active bladder.
The Company intent to negotiate with Serapis on canceling the transaction.
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 2006:
Useful Life
Computer Equipment & Hardware 3 $ 6,679
Office Furniture and Equipment 7 4,715
Leasehold Improvement 2 2,854
Communication 6.7 1,660
--------------
Total 20,318
Accumulated depreciation (4,652)
--------------
Property and Equipment, Net $ 11,256
==============
Depreciation expense totaled $5,140 and $1,708 in the
nine and the three months ended June 30, 2006,
respectively.
The Company depreciates the website cost as a result of absence of use.
16
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
NOTE 6: ACCOUNTS PAYABLE
Consist of $37,397 of old debt from the Company's business activity from the
years 2001- 2003, $20,412 for legal advisory and $64,242 owed to Serapis for
biological materials that the Company purchased.
NOTE 7: ACCRUED EXPENSES
Consist of accrued interest,, payments to advisors, legal fees and office and
general expenses..
NOTE 8: LOANS PAYABLE
The Company has a total of $69,647 of loans payable as of June 30, 2006 which is
due on demand and is non-interest bearing.
NOTE 9: REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company's 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 preferred stock and were 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: DEBENTURES AND EMBEDDED DERIVATIVE INSTRUMENTS (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 was received upon
signing the definitive investment agreements, the second in the amount of
$250,000 was received upon the filing of a registration statement covering the
shares underlying the Notes and the warrants referred to below. On July 10,
2006, the Company filed a prospectus under Rule 424(b) (3) of the Securities Act
of 1933 and issued an additional $250,000 of such Notes.
17
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
The Notes bear interest at the rate of 8% per annum payable quarterly in cash.
Interest on delayed payments shall be 15% annually. No interest shall be due and
payable for any month in which the trading price is greater than $0.1875 for
each trading day of the month.
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 issued to the Investors 1,000,000 warrants with an
exercise price of $0.30.
According to 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
and to receive the effectiveness of the registration statement. 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. The penalties can be paid in cash or at the
Company's option, in shares of common stock priced at the conversion price (as
defined in the Notes) on such payment date. The Company notified the debentures
holders of the delay in filing.
At a default event the holders of a majority of the aggregate principal amount
of the outstanding Notes issued have the option to ask for immediate due and
payable and the Company shall pay to the holders, an amount equal to the greater
of (i) 130% times the sum of the outstanding principal amount, plus accrued and
unpaid interest on the unpaid principal amount, plus default interest, if any,
and/or any other amounts owed to the holders under the Registration Rights
Agreement or (ii) the highest number of shares of common stock issuable upon
conversion of or otherwise pursuant to such default sum in accordance with the
trading day immediately preceding the mandatory prepayment date as the
"Conversion Date" for purposes of determining the lowest applicable Conversion
Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date. Because of
the delay in filing the registration statement the Company is also in a delay in
declaration of effectiveness by the Securities and Exchange Commission. The
Company received effectiveness of the registration statement on July 10, 2006.
18
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
The Company applied the provisions of APB 14 and allocated the proceeds to the
detachable warrants and the convertible notes based on their respective fair
values. The Company further evaluated the convertible notes to determine if they
contain derivatives that warrant bifurcation. The Company concluded that in
accordance with EITF 05-2 the convertible debentures do not meet the definition
of conventional convertible debt instruments for purposes of evaluating the
existence of embedded derivatives under EITF 00-19. The Company further
concluded that as a freestanding derivative, the embedded feature would not be
classified as equity under EITF 00-19, and as such, determined that the embedded
feature needs to be bifurcated from the host contract.
In addition, the Company determined that the liquidated damages clause contained
in the registration rights agreement needs to be bifurcated as well. The clause
requires the Company to pay 2% per month of the outstanding principal amount of
the debentures, in cash, to the debenture holders in the event that a
registration statement covering the shares underlying the convertible debentures
is not declared effective within 120 days of the date the debentures were
issued. The probability that the holders will announce a default event is remote
due to the economic motivation to receive registered shares.
The Company also determined that a contingent interest payment feature exists
and needs to be bifurcated from the host instrument. That feature exempts the
Company from having to pay the stated interest on the debentures if the stock
price reaches a price of $0.1875. In order to evaluate the embedded derivatives,
the Company estimated the fair market values using the Binomial model and the
Black - Scholes model. Since the Company is in default and since the fair value
of the embedded feature exceeded the value of the debt, the Company presented
the excess derivative liability separate from the debentures.
Because there is a possibility that the Company will be required to issue more
shares then are authorized, the Company recorded the warrants as a derivative
liability.
During the three months ended September 30, 2006, the Company converted
debentures notes at amount of $74,610, and issued 16,000,000 shares.
19
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
The Company remeasured the embedded features in the debentures as of September
30, 2006 to reflect their updated fair value. The Company also updated the
allowance it made for possible penalties due to not filing on time the
registration statement on time as disclosed above, and remeasured the derivative
liability for the fair value of the detachable warrants.
The fair value of the derivative liability relating to the convertible
debentures at September 30, 2006 is $1,220,777. The Company recorded $587,214 as
the fair value of $250,000 debentures that were issued on July 16, 2006, and
charged $136,338 as derivative liability income to adjust the fair value as of
September 30, 2006. The fair value of the detachable warrants is $239. The
Company recorded $14,598 as the fair value of the detachable warrants to the
debentures that were issued in July 16, 2006 and charged $12,495 as a derivative
liability income to adjust the fair value as of September 30, 2006. The
Derivative Liability - convertible debentures and warrants detachable are
presented together in amount of $1,273,642.
The following assumptions were used for purposes of determining the fair value
of the features at June 30, 2006:
July 16, 2006 September 30, 2006
Exercise price The lower of $0.15 or 50% of the market price
Expected dividend yield 0% 0%
Expected volatility 312% 326%
Risk free interest rate 5% 5%
Expected life of Derivative 3 years 3 years
liability
The following weighted average assumptions were used for determining the fair
value of the freestanding warrants at June 30, 2006:
June 30, 2006
Exercise price $0.3
Expected dividend yield 0%
Expected volatility 326%
Risk free interest rate 5%
Expected life 5 years
20
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
The Company remeasured the class A and class B warrants that it issued during
2005. As a result of the remeasurment, the Company recorded the Class A warrants
at September 30, 2006 at $8,379 and the class B at $21,088. As a result, the
Company charged derivative liabilities income of $527,743.
NOTE 11: STOCKHOLDERS' EQUITY
A. Capital Stock
During the nine months ended September 30, 2006, the Company issued 16,000,000
shares as a result of conversion of $74,610 of the debentures notes.
B. Warrants
A summary of the warrant activity for the six months ended June30, 2006 is as
follows (there were no warrants outstanding in 2004):
Weighted
Shares Average
Underlying Exercise
Warrants Price
---------- ----------
$
Outstanding at January 1, 2006 14,233,332 1.23
Granted - -
Forfeited - -
Outstanding at March 31, 2006 14,233,332 1.23
Warrants exercisable at March 31, 2006 14,233,332 1.23
Outstanding at April 1, 2006 14,233,332 1.207
Granted 333,333 -
Forfeited - -
---------- ----------
Outstanding June 30, 2006 14,566,665 1.207
========== ==========
Warrants exercisable at June, 2006 14,566,665 1.207
========== ==========
21
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
The following table summarizes information concerning warrants outstanding at
June 30, 2006:
Number Out standing Weighted Average
Exercise Price
$
6,950,000 1
6,950,000 1.5
666,665 0.3
14,566,665 1.23
As described in note 10, the Company presented the warrants as derivative
liabilities according to EITF 00-19.
The following assumptions were used in calculating the fair value at September
30, 2006:
Dividend yield - 0%,
Expected volatility - 326%,
Risk free interest rate - 5%.
As a result of the remeasurment, the Company recorded the Class A warrants at
June 30, 2006 at $8,379 and the class B at $21,088. The Company charged
derivative liabilities income of $527,743.
C. 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.
22
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(UNAUDITED/ UNREVIEWED)
Weighted
Shares Average
Underlying Exercise
Options Price
$
Outstanding at July 1, 2006 4,787,003 0.154
Granted - -
Forfeited 4,787,003 0.154
------------------------
Outstanding at September 30, 2006 - -
========================
Options exercisable at September 30, 2006 - -
========================
On August 23, 2006, the Board accepted the resignation of Amnon Presler from his
positions as a director, President and Chief Executive. On October 28, 2006, the
Board of Directors accepted the resignation of Tamar Tzaban Nahomov from her
positions as a director and Chief Financial officer of the Registrant and its
wholly owned subsidiary, Oriens Life Sciences (Israel) Ltd., effective as of
October 30, 2006.Subsequently options that were granted to them forfeited in a
value of $1,134,925 pursuant to SFAS 123R were forfeited.
NOTE 12: BUSINESS DEVELOPMENT COSTS
Business development costs primarily consist of $75,000 payment to Matrix as a
consideration for an option to an Exclusive Patent and Know How License to
Thrombin Inhibitor compounds. The Company decided not to exercise the option,
because the technologies are in pre-development stage and will require a
significant amount of capital to bring them to market.
Upon termination of the agreement the company is entitled to receive from Matrix
partial reimbursement of its investment if Matrix will commercialize the
compounds.
NOTE 13: SUBSEQUENT EVENTS
On October 28, 2006, the Board of Directors accepted the resignation of Tamar
Tzaban Nahomov from her positions as a director and Chief Financial officer of
the Registrant and its wholly owned subsidiary, Oriens Life Sciences (Israel)
Ltd., effective as of October 30, 2006, and appointed Shmuel Shneibalg as Chief
Executive Officer and as a director of the Registrant and its wholly owned
subsidiary. From May 2001 until April 2005, Mr. Shniebalg served as Chairman,
Chief Executive Officer, Secretary and Director of the Company.
23
Item 2. Management's Discussion and Analysis or Plan of Operations.
As used in this Form 10-QSB, references to "Safetek", the "Company," "we," "our"
or "us" refer to Safetek International, Inc. unless the context otherwise
indicates.
Forward-Looking Statements
The following discussion should be read in conjunction with our financial
statements, which are included elsewhere in this Form 10-QSB. We and our
representatives may, from time to time, make written or verbal forward-looking
statements, including statements contained in our filings with the United States
Securities and Exchange Commission and in our reports to shareholders.
Generally, the inclusion of the words "believe", "expect", "intend", "estimate",
"anticipate", "will", and similar expressions or the converse thereof, identify
statements that constitute "forward-looking statements". These forward-looking
statements are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements as a result of a number
of risks and uncertainties, including the following: risks and uncertainties
related to general economic conditions; the inability to raise sufficient
funding; changes in business strategy or development plans; the inability to
retain management; the availability of qualified personnel; the availability,
terms and deployment of capital; and the business abilities and judgment of
personnel.
Our History
We were incorporated in April, 1988, in the state of Delaware under the name
Theoretics, Inc. In January, 1989, we changed our name to Safetek International,
Inc. Until May, 2001, we manufactured prototypes and distributed the final
product on behalf of technology developers. We reorganized in May 2001 for the
purpose of providing embryonic companies with concepts and patented ideas.
Since December 31, 2002, we have not had any products, services or business
operations. Commencing on April 15, 2005, we began focusing on screening new
technologies and other business opportunities in the life sciences and health
care fields. On May 17, 2005, we 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 us to screen the Israeli life
sciences and health care industry and identify, analyze, and acquire or invest
in technologies in this field. During the fiscal year ended December 31, 2005,
we signed four term sheets to purchase technologies in the life science field,
but we have since abandoned such term sheets.
24
We are no longer restricting our focus on business opportunities in the life
sciences and health care fields. Instead, we have determined to investigate, and
if warranted, acquire an interest in any promising business opportunity, and we
are not restricting our search to any particular industry or geographical area.
We may therefore engage in essentially any business in any industry. Our
management has unrestricted discretion in seeking and participating in a
business opportunity, subject to the availability of such opportunities,
economic conditions and other relevant factors.
We have issued convertible debentures and warrants to fund our ongoing
operations. On November 18, 2005, we signed an agreement with four investors
(together, the "Investors") to issue an aggregate of $750,000 as convertible
debentures (the "Notes") due three years after issuance. The issuance was to be
made in three installments: (i) the first, in the amount of $250,000, was
received upon signing the definitive investment agreements; (ii) the second, in
the amount of $250,000, was received on May 16, 2006, upon our filing of a
registration statement covering the shares underlying the Notes and the warrants
referred to below; and (iii) the third, in the amount of $250,000, was received
On July 10, 2006, upon our filing of a prospectus under Rule 424(b) (3) of the
Securities Act of 1933. The Notes bear interest at the rate of 8% per annum
payable quarterly in cash. Interest on delayed payments shall be 15% annually.
No interest shall be due and payable for any month in which the trading price is
greater than $0.1875 for each trading day of the month.
The Notes can be immediately convertible into shares of our 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, we issued to the Investors 1,000,000 warrants with an exercise
price of $0.30.
Plan of Operation
Over the next twelve months, we will continue to seek to investigate business
opportunities. We anticipate that business opportunities may arise from various
sources, including officers and directors, professional advisers, securities
broker-dealers, venture capitalists, members of the financial community, and
others who may present unsolicited proposals. We will seek potential business
opportunities from all known sources, but will rely principally on the personal
contacts of our officers and directors as well as indirect associations between
them and other business and professional people. Although we do not anticipate
engaging professional firms specializing in business acquisitions or
reorganizations, we may retain such firms if management deems it in our best
interests. In some instances, we may publish notices or advertisements seeking a
potential business opportunity in financial or trade publications.
25
We will not restrict our search to any particular business, industry or
geographical location. We may acquire a business opportunity in any stage of
development. This includes opportunities involving "start up" or new companies.
In analyzing prospective business opportunities, we will consider the following
factors: available technical, financial and managerial resources; working
capital and other financial requirements; the history of operations, if any;
prospects for the future; the nature of present and expected competition; the
quality and experience of management services which may be available and the
depth of the management; the potential for further research, development or
exploration; the potential for growth and expansion; the potential for profit;
the perceived public recognition or acceptance of products, services, trade or
service marks, name identification; and other relevant factors. Generally, our
management will analyze all available factors and make a determination based
upon a composite of available facts, without relying on any single factor.
We will review specific business opportunities and then select the most suitable
opportunities based on legal structure or method of participation. Such
structures and methods may include, but are not limited to, leases, purchase and
sale agreements, licenses, joint ventures, other contractual arrangements, and
may involve a reorganization, merger or consolidation transaction. We may act
directly or indirectly through an interest in a partnership, corporation, or
other form of organization.
As part of our investigation of business opportunities, officers and directors
may meet personally with management and key personnel of the firm sponsoring the
business opportunity. We may visit and inspect material facilities, obtain
independent analysis or verification of certain information provided, check
references of management and key personnel, and conduct other reasonable
measures.
We will generally ask to be provided with written materials regarding the
business opportunity. These materials may include the following: descriptions of
product, service and company history; management resumes; financial information;
available projections with related assumptions upon which they are based; an
explanation of proprietary products and services; evidence of existing patents,
trademarks or service marks or rights thereto; present and proposed forms of
compensation to management; a description of transactions between the
prospective entity and its affiliates; relevant analysis of risks and
competitive conditions; a financial plan of operation and estimated capital
requirements; and other information deemed relevant.
As of September 30, 2006, we had $54,596 in cash and an accumulated deficit of
$5,890,155. We expect that we will need to raise funds in order to effectuate
our business plans. There can be no assurance that additional capital will be
available to us. Although we generally intend to raise additional funds, we have
no specific plans, understandings or agreements with respect to the raising of
such funds. We currently have no agreements, arrangements or understandings with
any person to obtain funds through bank loans, lines of credit or any other
sources. We may have to issue debt or equity or enter into a strategic
arrangement with a third party.
26
Going Concern Consideration
The financial statements contained in this Report have been prepared on a `going
concern' basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. For the reasons
discussed in this Report, there is a significant risk that we will be unable to
continue as a going concern, in which case, our shareholders would suffer a
total loss on their investment in our Company.
Off-Balance Sheet Arrangements
None.
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 specified in the rules and forms of the United States Securities
and Exchange Commission. Our Chief Executive Officer and Chief Financial Officer
have 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))
within the end of the period covered by this Quarterly Report on Form 10-QSB and
have 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 and Chief Financial 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.
27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending legal proceedings to which the Company is a party or in
which any director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of any class of voting securities of the Company,
or security holder is a party adverse to the Company or has a material interest
adverse to the Company. The Company's property is not the subject of any pending
legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Purchases of equity securities by the issuer and affiliated purchasers
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
There was no matter submitted to a vote of security holders during the fiscal
quarter ended September 30, 2006.
Item 5. Other Information.
None.
Item 6. Exhibits
Exhibit No. Description Where Found
----------- ----------- ---------------
31.1 Rule 13a-14(a)/15d14(a) Certifications Attached Hereto
32.1 Section 1350 Certifications Attached Hereto
28
SIGNATURES
In accordance with to requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 17, 2006
SAFETEK INTERNATIONAL, INC.
By: /s/ Shmuel Shneibalg
----------------------------------
Name: Shmuel Shneibalg
Title: Chief Executive Officer and
Director (Principal Executive,
Financial, and Accounting Officer)
29