UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




þ  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
quarterly period ended: March 31, 2010


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: 000-17746


Safe
      Technologies International, Inc.(Exact
      name of registrant as specified in its
  charter)


Delaware
            
            22-2824492(State
      or other jurisdiction
            
            (I.R.S.
      Employerof
      incorporation or organization)
            
            Identification
      No.)




1200
North Federal Highway Suite 200, Boca Raton, FL 33432


(Address
of Principal Executive Office) (Zip Code)




866-297-5070


(Registrant’s
telephone number, including area code)







(Former
name, former address and former fiscal year, if changed since last
report)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of theSecurities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was
 þ o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post
such files). þYes   o  
No
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
  Large
      accelerated filer
              o
              Accelerated
      filer
              oNon-accelerated
      filer
              o (Do
      not check if a smaller reporting
      company)
              Smaller
      reporting company
              þ
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). oYes   
þNo


Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
 
 276,429,379
shares as of May 10, 2010





SAFE
TECHNOLOGIES INTERNATIONAL, INC.




TABLE
OF CONTENTS




PART
I – FINANCIAL INFORMATION




PageItem
      1.
            Financial
      Statements.
            
            2Condensed
      Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December
      31, 2009
            
            
            2Condensed
      Consolidated Statements of Operations for the Three Months Ended March 31,
      2010 and 2009 (Unaudited)
            
            
            3Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2010 and 2009 (Unaudited)
            
            
            4Notes to Condensed
      Consolidated Financial Statements
            
            
            5Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
            
            
            9Item
      3.
            Quantitative and
      Qualitative Disclosures About Market Risk.
            
            
            10Item
      4.
            Controls
      and Procedures.
            
            
            11PART
      II-OTHERINFORMATIONItem 1.
            Legal
      Proceedings.
            
            
            11Item
      1A.
            Risk
      Factors.
            
            
            11Not required for
      smaller reporting company.Item
      2.
            Unregistered Sales
      of Equity Securities and Use of Proceeds.
            
            
            11Item
      3.
            Defaults
      Upon Senior Securities.
            
            
            11Item
      4.
            Removed
      and Reserved
            
            
            11Item
      5.
            Other
      Information.
            
            
            11Item
      6.
            Exhibits.
            
            
            12Signatures
            
            
            13




1




PART
I – FINANCIAL INFORMATION





ITEM 1. FINANCIAL
STATEMENTS.





Safe Technologies International, Inc. Condensed
Consolidated Balance Sheets
 March
      31, 2010
                  
                  
                  December
      31, 2009(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                  
                  $
                  15,749
                  
                  
                  $
                  6,032Accounts
      receivable, net of allowance for doubtful accounts of$450
      at March 31, 2010 and $200 at December 31, 2009
                  
                  
                  7,119
                  
                  
                  
                  4,353Prepaid
      expenses
                  
                  
                  1,738
                  
                  
                  
                  5,692Total
      current assets
                  
                  
                  24,606
                  
                  
                  
                  16,077PROPERTY
      AND EQUIPMENT, NET:Computer
      equipment
                  
                  
                  14,158
                  
                  
                  
                  14,158Less:
      accumulated depreciation
                  
                  
                  (944
                  )
                  
                  
                  (236
                  )Total
      property and equipment, net
                  
                  
                  13,214
                  
                  
                  
                  13,922OTHER
      ASSETS
                  
                  
                  1,650
                  
                  
                  
                  1,650Total
      assets
                  
                  $
                  39,470
                  
                  
                  $
                  31,649LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
                  
                  $
                  19,540
                  
                  
                  $
                  37,571Notes
      and loans payable - related parties
                  
                  
                  192,764
                  
                  
                  
                  92,764Deferred
      revenue
                  
                  
                  10
                  
                  
                  
                  145Total
      current liabilites
                  
                  
                  212,314
                  
                  
                  
                  130,480COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      DEFICIT:Common
      stock, $.00001 par value, 400,000,000  shares
      authorized;276,429,379
      shares issued and outstanding at March 31, 2010and
      December 31, 2009
                  
                  
                  2,765
                  
                  
                  
                  2,765Additional
      paid-in capital
                  
                  
                  9,698,730
                  
                  
                  
                  9,689,562Accumulated
      deficit
                  
                  
                  (9,874,339
                  )
                  
                  
                  (9,791,158
                  )Total
      stockholders' deficit
                  
                  
                  (172,844
                  )
                  
                  
                  (98,831
                  )Total
      liabilities and stockholders' deficit
                  
                  $
                  39,470
                  
                  
                  $
                  31,649
  See the
accompanying notes to condensd consolidated financial
statements
 2
 
  Safe
Technologies International, Inc.
 Condensed Consolidated Statements of Operations For the three months ended March 31, 2010
and  2009 (Unaudited)
 2010
                
                
                2009REVENUES
                
                $
                16,889
                
                
                $
                520COST
      OF OPERATIONS
                
                
                8,523
                
                
                
                3,300Gross
      profit (loss)
                
                
                8,366
                
                
                
                (2,780
                )OPERATING
      EXPENSES:Selling,
      general and adminstrative expenses
                
                
                88,549
                
                
                
                16,509Total
      operating expenses
                
                
                88,549
                
                
                
                16,509Operating
      loss
                
                
                (80,183
                )
                
                
                (19,289
                )OTHER
      EXPENSES:Interest
      expense - related parties
                
                
                (2,999
                )
                
                
                (57,697
                )Total
      other expense
                
                
                (2,999
                )
                
                
                (57,697
                )Loss
      before provision for income taxes
                
                
                (83,182
                )
                
                
                (76,986
                )INCOME
      TAXES
                
                
                -
                
                
                
                -Net
      loss
                
                $
                (83,182
                )
                
                $
                (76,986
                )Net
      loss per common share, basic and diluted
                
                $
                (0.00
                )
                
                $
                (0.00
                )Weighted
      average number of common shares outstanding, basic and
    diluted
                
                
                276,429,379
                
                
                
                93,263,160
 
   3
 
 Safe
Technologies International, Inc.
 Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2010
and  2009 Unaudited
 2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (83,182
                  )
                  
                  $
                  (76,986
                  )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Depreciation
                  
                  
                  708
                  
                  
                  
                  -Bad
      debt expense
                  
                  
                  250
                  
                  
                  
                  180Stock
      compensation expense
                  
                  
                  9,169
                  
                  
                  
                  -Changes
      in operating assets and liabilites:(Increase)
      decrease in accounts receivable
                  
                  
                  (3,016
                  )
                  
                  
                  253Decrease
      in prepaid expenses
                  
                  
                  3,954
                  
                  
                  
                  -Decrease
      in accounts payable and accrued expenses
                  
                  
                  (21,030
                  )
                  
                  
                  (16,407
                  )Increase
      in accrued interest
                  
                  
                  2,999
                  
                  
                  
                  57,697Increase
      (decrease) in deferred revenue
                  
                  
                  (135
                  )
                  
                  
                  694Net
      cash used in operating activities
                  
                  
                  (90,283
                  )
                  
                  
                  (34,569
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Borrowings
      from stockholder
                  
                  
                  100,000
                  
                  
                  
                  45,000Net
      cash provided by financing activities
                  
                  
                  100,000
                  
                  
                  
                  45,000Net
      increase in cash and cash equivalents
                  
                  
                  9,717
                  
                  
                  
                  10,431Cash  and
      cash equivalents beginning of period
                  
                  
                  6,032
                  
                  
                  
                  3,956Cash
      and cash equivalents end of period
                  
                  $
                  15,749
                  
                  
                  $
                  14,387SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                  
                  $
                  -
                  
                  
                  $
                  -Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  -
 
   4


Safe
Technologies International, Inc.


Notes
to Condensed Consolidated Financial Statements








NOTE
1. BASIS OF PRESENTATION





In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements of the Company contain all adjustments necessary to present
fairly the Company’s financial position as of March 31, 2010 and December 31,
2009 and its results of operations and cash flows for the three months ended
March 31, 2010 and 2009.  The significant accounting policies followed
by the Company are set forth in Note 1 to the Company’s consolidated financial
statements included in its Annual Report on Form 10-K for the year ended
December 31, 2009, which is incorporated herein by reference.  The
accompanying unaudited interim financial statements have been prepared in
accordance with instructions to Form 10-Q and therefore do not include all
information and footnotes required by accounting principles generally accepted
in the United States of America.  The results of operations for the
three months ended March 31, 2010 are not necessarily indicative of the results
to be expected for the full year.





NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Use
of estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results may differ from these
estimates.  Estimates are used when accounting for allowance for bad
debts, collectability of accounts receivable, amounts due to service providers,
depreciation, and litigation contingencies, among others.





Principles
of consolidation


The
condensed consolidated financial statements (“financial statements”) include the
accounts of Safe Technologies International, Inc. and its wholly-owned
subsidiaries, Total Micro Computers, Inc., Connect.ad, Inc., Connect.ad
Services, Inc. and Internet Associates International, Inc. and have been
prepared in accordance with U.S. generally accepted accounting principles, under
the rules and regulations of the U.S. Securities and Exchange Commission
(“SEC”). All inter-company transactions and balances have been eliminated in
consolidation.





Revenue
recognition


Revenue
is recognized when the related service has been provided, there is persuasive
evidence of an arrangement, the fee is fixed or determinable, and collection is
reasonably assured.  The Company derives the majority of its revenue
from recurring hosting services. The Company recognizes revenue for these
services as they are provided, beginning on the date that the customer commences
use of our services and continuing over the term of the customer contract.
Revenue from other professional services, including setup and direct
installation activities are recognized in the period the services are provided.
Amounts that have been invoiced are recorded in accounts receivable and either
deferred revenues or revenues, depending on whether the revenue recognition
criteria have been met. Therefore, deferred revenue consists of amounts that
have been prepaid and services have not yet been rendered.





Net
loss per common share


Basic net
loss per common share is computed using the weighted average number of common
shares outstanding during each period presented, excluding unvested restricted
stock awards subject to cancellation. Diluted net loss per common share is
computed by using the weighted average number of common shares and potential
common shares outstanding during the period. For the three months ended March
31, 2010, potential common shares arising from the Company’s outstanding stock
options amounting to 6,750,000 shares are not included in the computation of
diluted loss per share because their effect was antidilutive.





Cash
and cash equivalents


The
Company classifies cash on hand and deposits in the bank as cash and considers
all highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.




5





Concentrations
of risk


The
Company’s revenues are primarily derived from IT services and hosting, the
market for which is highly competitive and rapidly changing. Significant changes
in this industry or changes in customer buying behavior could adversely impact
our operating results. The Company’s concentrations of credit risk are
principally in accounts receivable. The Company periodically reviews the credit
quality of its customers and does not require collateral. The Company relies on
equipment and software purchased from third parties to provide its hosting
services.  This equipment and software may not continue to be
available on commercially reasonable terms to meet our business needs. Any
errors or defects in third party equipment and software could result in errors
or a failure of our service, which could harm our business. Indemnification from
equipment and software providers, if any, would likely be insufficient to cover
any damage to our business or our customers resulting from such
failures.





Property
and equipment


Property
and equipment is stated at cost. Depreciation is computed on the straight-line
method based on the estimated useful lives of the asset of five years.
Expenditures for maintenance and repairs are charged to operations as incurred.
Upon retirement or sale, the cost of assets disposed of and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
credited or charged to operations.





Share-based
compensation


The
Company records compensation expense for share-based compensation in accordance
with Accounting Standards Codification (“ASC”) Topic 718. For share options to
certain officers and others, the Company used the Black-Scholes pricing model to
determine the fair value of stock options on the grant dates for stock option
awards issued. The Black-Scholes valuation model requires the Company to make
assumptions and judgments about the variables used in the calculation. These
variables and assumptions include the fair value of our common stock, expected
term, the expected volatility, and certain present values.  The
Company recorded $9,169 and $0 in stock based compensation expense for the three
months ended March 31, 2010 and 2009, respectively.





Income
taxes


The
Company adopted the new accounting for uncertainty in income taxes guidance on
January 1, 2009. The adoption of that guidance did not result in the recognition
of any unrecognized tax benefits and the Company has no unrecognized tax
benefits at March 31, 2010. The Company’s U.S. Federal and state income tax
returns prior to fiscal year December 31, 2006 are closed and management
continually evaluates expiring statutes of limitations, audits, proposed
settlements, changes in tax law and new authoritative rulings.





The
Company recognizes interest and penalties associated with tax matters as part of
the income tax provision and includes accrued interest and penalties with the
related tax liability in the consolidated balance sheets.





Fair
value of financial instruments


The
carrying amounts of cash and cash equivalents, accounts receivable, prepaid
expenses, accounts payable and accrued expenses approximate fair value due to
the immediate or short-term maturity of these financial
instruments.  The fair value of notes and loan payables is
determined using current applicable rates which approximate market rates of such
debt.





Recently
issued accounting standards


In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2010-06, “Improving Disclosures about Fair
Value Measurements,” which clarifies certain existing requirements in ASC 820
“Fair Value Measurements and Disclosures,” and requires disclosures related to
significant transfers between each level and additional information about Level
3 activity.  FASB ASU 2010-06 begins phasing in the first fiscal
period beginning after December 15, 2009.  The Company’s adoption of
this guidance did not have an impact on its financial statements and
disclosures.




6





In
October 2009, the FASB issued guidance on “Multiple Deliverable Revenue
Arrangements,” updating ASC 605 “Revenue Recognition.” This standard provides
application guidance on whether multiple deliverables exist, how the
deliverables should be separated and how the consideration should be allocated
to one or more units of accounting. This update establishes a selling price
hierarchy for determining the selling price of a deliverable. The selling price
used for each deliverable will be based on vendor-specific objective evidence,
if available, third-party evidence if vendor-specific objective evidence is not
available, or estimated selling price if neither vendor-specific or third-party
evidence is available. The guidance is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. The Company is currently evaluating the requirements of
this guidance and has not yet determined the impact, if any, of its adoption on
the Company’s consolidated financial statements.





In
October 2009, the FASB issued ASC 985-605, “Software Revenue Recognition.” This
guidance changes the accounting model for revenue arrangements that include both
tangible products and software elements that are “essential to the
functionality,” and scopes these products out of current software revenue
guidance. The new guidance will include factors to help companies determine what
software elements are considered “essential to the functionality.” The
amendments will now subject software-enabled products to other revenue guidance
and disclosure requirements, such as guidance surrounding revenue arrangements
with multiple deliverables. The amendments in this guidance are effective
prospectively for revenue arrangements entered into or materially modified in
the fiscal years beginning on or after June 15, 2010. Early application is
permitted. The Company is currently evaluating the requirements of this guidance
and has not yet determined the impact of its adoption on its financial
statements.





In
February 2010, the FASB issued FASB ASU 2010-09, “Subsequent Events, Amendments
to Certain Recognition and Disclosure Requirements,” which clarifies certain
existing evaluation and disclosure requirements in ASC 855 “Subsequent Events”
related to subsequent events. FASB ASU 2010-09 requires SEC filers to evaluate
subsequent events through the date in which the financial statements are issued
and is effective immediately.





Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying consolidated financial statements.





NOTE
3. GOING CONCERN





The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses, has a net capital deficiency and is currently unable
to generate sufficient cash flow to meet its obligations and sustain its
operations. A major stockholder of the Company has been funding, and continues
to fund at his discretion, the Company’s operations. These conditions raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern. Management has introduced
new commerce into the Company including a full suite of hosting services and
solutions aimed at small and mid-sized businesses that they believe will meet
their unique IT needs. The Company is also contemplating expanding operations
and market presence by entering into business combinations, investments or
alliances with third parties. There can be no assurance that they will be
successful in overcoming the risks or establishing such new commerce, business
combinations or expansion and that the Company would be able to continue its
operations without continued support from its major stockholder.





NOTE
4. NOTES AND LOANS PAYABLE - RELATED PARTIES





At March
31, 2010 and December 31, 2009, total notes and loans payable consisted of the
following:




March
      31,
              2010
            
            
            December
      31,
              2009Notes
      and loans payable to principal stockholders, unsecured and due upon
      demand, with interest at
      8%
            
            $
            192,764
            
            
            $
            92,764




7




NOTE
5. INCOME TAXES





Deferred
income taxes are provided for certain income and expenses which are recognized
in different periods for tax and financial reporting purposes.  The
Company had cumulative net operating loss carry-forwards for income tax purposes
at March 31, 2010 of approximately $7,900,000, expiring through December 31,
2023. The Company has established a 100% valuation allowance against this
deferred tax asset, as the Company has no history of profitable
operations.





NOTE
6. LEASES




The
Company rents office space in Boca Raton, Florida under a lease that commenced
on July 1, 2009. The lease continues through June 30, 2010 at a base rent of
$2,800 per month. Rent expense for the three months ended March 31, 2010 totaled
$8,980. Rent expense for the three months ended March 31, 2009 was $1,479 under
a month to month lease at its former location.





NOTE
7. PURCHASE COMMITMENTS





A
non-cancelable purchase commitment which commenced in April 2009 relates to
contracted services with our data center. The contract is for a period of 24
months with a commitment for 2010 of approximately $30,000. Charges in
connection with the contract during the first quarter of 2010 of $7,665 is
reflected in cost of operations.




NOTE
8. EQUITY BASED COMPENSATION





The
Company’s Compensatory Stock Plan, which became effective on July 20, 2009,
provides for the grant of stock options, restricted stock grants and stock
awards. The plan is designed for select employees, officers, directors and key
consultants to the Company and is intended to advance the best interests of the
Company by providing personnel who have substantial responsibility for the
management and growth of the Company with additional incentive by increasing
their proprietary interest in the success of the Company, thereby encouraging
them to remain in the employ of the Company. The plan is administered by the
Board of Directors of the Company, and authorizes the issuance of awards and
grants not to exceed a total of 10,000,000 shares. Stock options expire ten
years from the date the option is granted and the Board in its discretion may
provide that the option shall be exercisable throughout the ten year period or
during any lesser period of time commencing on the date of grant. The specific
terms of any awards under the plan are determined by the Board of Directors,
provided that no options may be granted at less than the fair market value of
the stock as of the date of the grant. The plan terminates on the tenthanniversary of the
effective date.





In August
2009, the Company issued to its President, options to purchase 4,000,000 shares
of common stock for an exercise price of $ 0.015 valued at $87,394 as calculated
using the Black-Scholes pricing model. The options vest 1,000,000 per year over
4 years. During the first quarter of 2010, $5,463 was charged to operations and
such allocations will continue throughout the vesting period.




In
December 2009, the Company issued to its Chief Financial Officer, options to
purchase 2,000,000 shares of common stock for an exercise price of $0.025 per
share, valued at $59,293, as calculated using the Black-Scholes pricing model.
The options vest 500,000 per year over 4 years. During the first quarter of
2010, $3,705 was charged to operations and such allocations will continue
throughout the vesting period.




There
were no stock options granted, exercised or forfeited during the three months
ended March 31, 2010 and 2009.







8




ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.







Throughout
this Quarterly Report on Form 10-Q, the terms “Company”, “we”, “us” and “Safe
Technologies International, Inc.” refers to Safe Technologies International,
Inc. and its subsidiaries.





The
following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company and notes thereto included in
this quarterly report. Historical operating results are not necessarily
indicative of trends in operating results for any future
period.





OVERVIEW




Safe Technologies International Inc. is
a technology solutions company that specializes in providing managed technology
solutions including online backup and disaster recovery for mission-critical
data, remote technical support and Total OfficeSMsolutions that are provided on an
outsourced, rapidly-deployed, fixed-cost basis to small and medium sized
businesses. Our Strategic Data Support (“SDS”) brand provides
customizable solutions that create significant cost efficiencies, dependable
network functionality and complete redundancy through our disaster recovery
facilities. The Company is driven to earn client trust by providing
superior service embodied in a total commitment to relentless support and
uncompromising standards, to differentiate us from our competitors and enable us
to gain market share in today’s constrained spending environment. Our goal
is to help organizations define and execute technology solutions to deliver a
simpler, more cost effective solution to meet their unique IT needs. We possess
a broad range of skills that equip us to deliver not just any solution, but the
right solution.





We
believe that the security, storage and systems management markets are converging
as businesses increasingly seek one solution to manage their most valuable asset
– their information. We help businesses ensure that their information and
infrastructures are protected, managed easily, and controlled
automatically.




Our
technology solutions consist primarily of  (a) workstation and server
remote support, (b) backup and disaster recovery services, (c) office monitoring
service plans  (d) local and remote general technical services and,
(e) website and email hosting services.




As
reported in 2009, the Company’s restructuring included the naming of a new Board
of Directors, appointment of a new President and a new Chief Financial Officer,
effecting a 10 to 1 reverse stock split, reducing our authorized shares to
400,000,000, converting $2,169,742 of loans and interest due to a shareholder
and his affiliates into equity of the Company, and securing a new trading symbol
of SFAZ. This restructuring of the Company facilitated the development and
introduction of the various technology solutions currently being marketed to
small and mid sized businesses on an outsource basis.




Current
new sales activity is a result of leads generated from the Company’s website,
which we continue to develop and invest resources into, and from the efforts of
several new independent contractor and commission based sales
agents.





We
currently have no employees.  Our President, Christopher L. Kolb, and
our Chief Financial Officer, Richard P. Sawick, are currently retained on an
independent contractor basis.  In addition, two commission-only based
sales representatives were engaged in the first quarter of 2010.





CRITICAL
ACCOUNTING POLICIES





Revenue
recognition


Revenue
is recognized when the related service has been provided, there is persuasive
evidence of an arrangement, the fee is fixed or determinable, and collection is
reasonably assured.  The Company derives the majority of its revenue
from recurring hosting services. The Company recognizes revenue for these
services as they are provided, beginning on the date that the customer commences
our services and continuing over the term of the customer contract. Revenue from
other professional services, including setup and direct installation activities
are recognized in the period the services are provided. Amounts that have been
invoiced are recorded in accounts receivable and either deferred revenues or
revenues, depending on whether the revenue recognition criteria have been met.
Therefore, deferred revenue consists of amounts that have been prepaid and
services have not yet been rendered.





Share-based
compensation


The
Company records compensation expense for share-based compensation in accordance
with ASC Topic 718. For share options to certain officers and others, the
Company used the Black-Scholes pricing model to determine the fair value of
stock options on the grant dates for stock option awards issued. The
Black-Scholes valuation model requires the Company to make assumptions and
judgments about the variables used in the calculation. These variables and
assumptions include the fair value of our common stock, expected term, the
expected volatility, and certain present values.




9





RESULTS
OF OPERATIONS




Revenues
increased by $16,369 from $520 to $16,889 for the three months ended March 31,
2010 compared to the three months ended March 31, 2009, respectively. The
increase in revenues was primarily related to technical services fees charged to
new customers in 2010.




Cost of
operations increased by $5,223 from $3,300 to $8,523 for the three months ended
March 31, 2010 compared to the three months ended March 31, 2009. The increase
resulted primarily from the new contracts with a hosting partner (commencing mid
2009) and a software license and service provider (commencing in early 2010).
Cost of operations also includes approximately $300 in one-time hardware costs
incurred in connection with technical service jobs. The minimum monthly contract
hosting charges are being fully expensed until such time as revenues are
consistent and the nature of the costs are appropriate to amortize over fully
achieved base volumes. In so doing, the Company is poised for future growth
without a compromise to its service level commitment. An annual contract
prepayment of software license fees in February 2010 is being charged to cost of
operations uniformly over the term of the contract.





Selling,
general and administrative expenses increased by $72,040 from $16,509 to $88,549
for the three months ended March 31, 2010 compared to the three months end March
31, 2009. The increase is primarily attributable to payments to the Company’s
officers, which commenced in the fourth quarter of 2009. Legal and accounting
fees incurred in the first quarter of 2010 were $17,395 as compared to $10,950
in the same period of 2009.  Accordingly, the majority of the $88,549
of selling, general and administrative expenses incurred in the first quarter of
2010 consisted of  $40,400 in officer compensation, a $9,168 charge to
the first quarter as a result of the 2009 officer stock options being expensed
over the vesting periods, $17,395 in legal and accounting fees, $8,900 in rent
for the Company’s offices and $5,300 in software and development
costs.




As of
March 31, 2010, the principal amount of loans due to stockholder Franklin Frank
was $192,764 with accrued interest at an annual rate of 8% totaling
$4,148.  As of March 31, 2009, the principal amount of the stockholder
loans was $1,963,286 plus accrued interest at an annual rate of 12% in the
amount of  $57,697.  As reported in 2009, all existing
stockholder loans plus accrued interest were converted to equity. The loans
existing as of March 31, 2010 were received incrementally by the Company between
September 1, 2009 and March 31, 2010. Accordingly, our interest expense was
dramatically decreased beginning in September 2009. The reduction in interest
expense in 2010, as compared to 2009, will continue going forward, to the extent
that significant new borrowings are not required.




LIQUIDITY
AND CAPITAL RESOURCES




As of
March 31, 2010, the Company had cash and cash equivalents of $15,749 and a
working capital deficit of $187,707, compared to cash and cash equivalents of
$6,032 and a working capital deficit of $114,403 as of December 31, 2009. Our
condensed consolidated financial statements have been prepared assuming that we
will continue as a going concern, which contemplates the realization of assets
and the settlement of liabilities in the normal course of business. For the
three months ended March 31, 2010, our sources of cash were net revenues of
$16,889 and new stockholder loans of $100,000. Accordingly, the Company
continues to incur operating losses (loss before interest expense) as it
endeavors to continue to build upon the growth achieved to date. The operating
loss for the three months ended March 31, 2010 was $80,183 as compared to
$19,289 for the same period of 2009.





Internally
generated cash flows continue to be insufficient to support business operations
or capital expenditures. Our ability to generate cash depends on our financial
performance, general economic conditions, technology trends and developments,
and other factors. Until we generate significant new revenues, we will continue
to operate at a loss and be dependent on stockholder Franklin Frank to fund all
operating shortfalls, including our continuing investment in e-commerce, program
development, and officer compensation.





There can
be no assurance that our cash flow will increase in the near future from
anticipated new business activities, or that revenues generated from our
existing operations will be sufficient to allow us to continue to pursue new
customer programs or profitable ventures.




ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.


Not
required.




10




ITEM
      4.
              CONTROLS
      AND PROCEDURES.


We
carried out an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
March 31, 2010 (the “Evaluation Date”).  This evaluation included
review of the documentation of controls, evaluation of the design effectiveness
of controls, and a conclusion on this evaluation. This evaluation was carried
out under the supervision and with the participation of our President, as chief
executive officer, and our Chief Financial Officer. Based upon that evaluation,
management concluded that, as of the end of such period, our disclosure controls
and procedures were not effective because of the material weaknesses in internal
control over financial reporting described below.





Disclosure
controls and procedures are those controls and procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our President and our Chief Financial Officer, to allow
timely decisions regarding required disclosure.





Management
recognizes that there are inherent limitations in the effectiveness of any
system of internal control, and accordingly, even effective internal control can
provide only reasonable assurance with respect to financial statement
preparation and may not prevent or detect material misstatements. In addition,
effective internal control at a point in time may become ineffective in future
periods because of changes in conditions or due to deterioration in the degree
of compliance with our established policies and procedures.





Based on
its evaluation, management concluded that our disclosure controls and procedures
were not effective as of the Evaluation Date because we have an inadequate
number of personnel to properly implement control procedures by segregating
duties.  This material weakness exists because we are currently a
small company, with limited business operations to support multiple accounting
personnel.  As our business grows, we expect to add additional
accounting personnel which will allow us to implement appropriate segregation of
financial reporting duties.  Regardless of the material weakness
noted, we believe the accompanying financial statements present fairly our
financial condition and results of operations in all material
respects.





There
were no changes in our internal control over financial reporting for the quarter
ended March 31, 2010 that have materially affected, or that are reasonably
likely to materially affect, our internal control over financial
reporting.







PART
II – OTHER INFORMATION




Item 1.
            Legal
      Proceedings.None.Item
      1A.
            Risk
      Factors.Not
      required for smaller reporting company.Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds.NoneItem
      3.
            Defaults
      Upon Senior Securities.NoneItem
      4.
            ReservedItem
      5.
            Other
      Information.None




11


Item
      6.
            Exhibits.




3.1
            Certificate
      of Incorporation and Amendment to the Company's Certificate of
      Incorporation (filed as an Exhibit to the Company's Registration Statement
      on Form S-18 filed February 18, 1988 and incorporated herein by this
      reference).3.2
            Amendment to the
      Company's Certificate of Incorporation filed with the Delaware Secretary
      of State on February 6, 1998 (filed as an Exhibit to the Company's
      definitive proxy statement filed December 31, 1997 and incorporated herein
      by this reference).3.3
            Amendment to the
      Company's Certificate of Incorporation filed with the Delaware Secretary
      of State on July 21, 2009 (filed herewith).3.4
            Bylaws (filed as an
      Exhibit to Company's registration statement on Form S-18 filed February
      18, 1988).10
            2009 Compensatory
      Stock Plan (filed herewith)21
            Subsidiaries of the
      Company (filed as Exhibit 21.1 to the Company’s annual report on Form
      10KSB/A for the year ended December 31, 1999).31.1
            Certification of
      principal executive officer31.2
            Certification of
      principal financial officer32
            Section 1350
      Certification




12


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




Safe
      Technologies International, Inc.Date:
      May 10, 2010
              By:
              /s/
      Christopher L. KolbChristopher
      L. Kolb,President
      (principal executive
      officer)By:
              /s/
      Richard P. SawickRichard
      P. Sawick,Chief
      Financial
      Officer




13