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SFIN.OB > SEC Filings for SFIN.OB > Form 10QSB on 22-Dec-2005All Recent SEC Filings

Show all filings for SAFETEK INTERNATIONAL INC

Form 10QSB for SAFETEK INTERNATIONAL INC


22-Dec-2005

Quarterly Report


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

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.

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

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.

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