UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission file number 33-36670
HIDENET SECURE ARCHITECTURES, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3061278
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
103 Medinat Hayehudim Street, POB 837, Herzliya Israel 46733
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(Address of principal executive offices) (Zip Code)
011-972-9-957-9795
------------------
(Registrant's telephone number, including area code)
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(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 the Securities Exchange Act of 1934 during
the preceding 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.025 par value, 5,205,725 shares outstanding as of September 15,
2000
Traditional Small Business Disclosure Format (check one): [X] Yes [_] No
<PAGE>
HIDENET SECURE ARCHITECTURES, INC.
(formerly known as Savin Electronics Inc.)
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Balance Sheets ............................. F-2
Consolidated Statements of Operations ................... F-3
Statements of Changes in Shareholders' Deficiency ....... F-4
Consolidated Statements of Cash Flows ................... F-6
Notes to Financial Statements ........................... F-7
Item 2. Management's Discussion and Analysis or Plan of Operation 3
Part II. Other Information
Item 1. Legal Proceedings ....................................... 4
Item 2. Changes in Securities ................................... 4
Item 3. Defaults upon Senior Securities ......................... 5
Item 4. Submission of Matters to a Vote of Security-Holders ..... 5
Item 5. Other information ....................................... 5
Item 6. Exhibits and Reports on Form 8-K ........................ 5
<PAGE>
HIDENET SECURE ARCHITECTURES INC.
(A company in the development stage)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000
IN U.S. DOLLARS
UNAUDITED
INDEX
Page
--------------
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Statements of Changes in Shareholders' Deficiency F-4 - F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-8
- - - - - - - -
<PAGE>
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
In U.S. dollars
<TABLE>
<CAPTION>
December 31, 1999 March 31,
2000
------------------ ------------------
-------------------
Unaudited
-------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 4,360 12,447
Accounts receivable and prepaid expenses 43,888 36,154
------------------ ------------------
Total current assets 48,248 48,601
-----
------------------ ------------------
PROPERTY AND EQUIPMENT, NET 38,846 50,728
------------------ ------------------
OTHER ASSETS, NET 100,000 90,000
------------------ ------------------
187,094 189,329
================== ==================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 116,178 149,211
Related parties 85,000 85,000
Loan received from officer 3,352 53,352
------------------ ------------------
Total current liabilities 204,530 287,563
-----
------------------ ------------------
SHAREHOLDERS' DEFICIENCY:
Common shares at $ 0.025 par value -
Authorized: 15,000,000 shares as of December 31, 1999;
Issued and outstanding: 4,139,000 shares as of December 31, 1999 103,490 103,490
Additional paid-in capital 1,278,166 1,278,166
Receipts on account of shares - 62,500
Deficit accumulated during the development stage (1,399,092) (1,542,390)
------------------ ------------------
Total shareholders' deficiency (17,436) (98,234)
-----
------------------ ------------------
187,094 189,329
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
In U.S. dollars
<TABLE>
<CAPTION>
Period from
August 23,
1990 (inception)
Year ended Three months ended through
December 31, March 31, March 31,
--------------------------------------
1999 1999 2000 2000
------------------ ------------------ --------------------
------------------
Unaudited
------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating costs and expenses:
Research and development 75,041 - 100,325 175,366
Marketing 25,000 - - 25,000
General and administrative 286,034 - 41,206 479,879
Write-down of investment in
subsidiary - - - 859,478
------------------ ------------------ ------------------ --------------------
Operating loss 386,075 - 141,531 1,539,723
Financial expenses, net 900 - 1,767 2,667
------------------ ------------------ ------------------ --------------------
Net loss 386,975 - 143,298 1,542,390
================== ================== ================== ====================
Basic and diluted net loss
per share 0.19 - 0.03 4.54
================== ================== ================== ====================
Weighted average number of
shares used in computing
basic and diluted net loss
per share 2,072,933 59,600 4,306,267 339,528
================== ================== ================== ====================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
--------------------------------------------------------------------------------
In U.S. dollars
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during the Total
Common shares paid-in development shareholders'
Stock Amount capital stage deficiency
--------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance as of August 23, 1990 .......................... -- -- -- -- --
Issuance of shares, net ................................ 1,820 1,820 14,857 -- 16,677
Net loss ............................................... -- -- -- (16,915) (16,915)
--------- -------- --------- ---------- --------
Balance as of April 1, 1992 ............................ 1,820 1,820 14,857 (16,915) (238)
Additional paid-in capital acquired through services
provided without costs ............................... -- -- 9,000 -- 9,000
Net loss ............................................... -- -- -- (11,227) (11,227)
--------- -------- --------- ---------- --------
Balance as of April 1, 1993 ............................ 1,820 1,820 23,857 (28,142) (2,465)
Additional paid-in capital acquired through services
provided without costs ............................... -- -- 9,000 -- 9,000
Net loss ............................................... -- -- -- (12,020) (12,020)
--------- -------- --------- ---------- --------
Balance as of April 1, 1994 ............................ 1,820 1,820 32,857 (40,162) (5,485)
Additional paid-in capital acquired through services
provided without costs ............................... -- -- 9,000 -- 9,000
Net loss ............................................... -- -- -- (9,681) (9,681)
--------- -------- --------- ---------- --------
Balance as of April 1, 1995 ............................ 1,820 1,820 41,857 (49,843) (6,166)
Additional paid-in capital acquired through services
provided without costs ............................... -- -- 9,000 -- 9,000
Net loss ............................................... -- -- -- (8,434) (8,434)
--------- -------- --------- ---------- --------
Balance as of April 1, 1996 ............................ 1,820 1,820 50,857 (58,277) (5,600)
Adjustment from change of par value to $ 0.025 per share -- (1,775) 1,775 -- --
Shares issued to acquire foreign subsidiary ........... 24,600 615 -- -- 615
Net proceeds from private placement of shares .......... 6,180 155 871,959 -- 872,114
Net loss ............................................... -- -- -- (918,103) (918,103)
--------- -------- --------- ---------- --------
Balance as of December 31, 1996 ........................ 32,600 815 924,591 (976,380) (50,974)
Net loss ............................................... -- -- -- (12,487) (12,487)
--------- -------- --------- ---------- --------
Balance as of December 31, 1997 ........................ 32,600 815 924,591 (988,867) (63,461)
Issuance of shares, net ................................ 27,000 675 19,325 -- 20,000
Net loss ............................................... -- -- -- (23,250) (23,250)
--------- -------- --------- ---------- --------
Balance as of December 31, 1998 ........................ 59,600 1,490 943,916 (1,012,117) (66,711)
Issuance of Common shares in respect of services ...... 1,800,000 45,000 135,000 -- 180,000
Issuance of warrants in respect of consulting services . -- -- 15,000 -- 15,000
Issuance of Common shares in respect of purchasing
Know-how ............................................. 1,200,000 30,000 90,000 -- 120,000
Issuance of Common shares, net ......................... 1,080,000 27,000 94,250 -- 121,250
Net loss ............................................... -- -- -- (386,975) (386,975)
--------- -------- --------- ---------- --------
Balance as of Decembers 31, 1999 ....................... 4,139,600 103,490 1,278,166 (1,399,092) (17,436)
========= ======== ========= ========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
--------------------------------------------------------------------------------
In U.S. dollars
<TABLE>
Deficit
accumulated
Additional Receipts on during the Total
Common shares paid-in account of development shareholders'
Stock Amount capital shares stage Deficiency
--------- ------- --------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 2000 ........................ 4,139,600 103,490 1,278,166 -- (1,399,092) (17,436)
Receipts on accounts of shares resulting from exercise
of share options ................................... -- -- -- 62,500 -- 62,500
Net loss ............................................. -- -- -- -- (143,298) (143,298)
--------- ------- --------- ------ ---------- --------
Balance as of March 31, 2000 (unaudited) ............. 4,139,600 103,490 1,278,166 62,500 (1,542,390) (98,234)
========= ======= ========= ====== ========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
In U.S. dollars
<TABLE>
Period from
August 23,
1990 (inception)
Year ended Three months ended through
December 31, March 31, March 31,
--------------------------------------
1999 1999 2000 2000
Unaudited
------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss (386,975) - (143,298) (1,542,390)
Adjustments to reconcile net loss to
net cash used in operating activities:
Officer salary and rent without costs - - - 41,930
Write-down of investment in
subsidiary - - - 859,478
Consulting services expenses 195,000 - - 195,000
Depreciation and amortization 22,480 - 12,884 35,825
Decrease (increase) in accounts
receivable and prepaid expenses (43,888) - 7,734 (36,654)
Increase in accounts payable and
accrued liabilities 57,302 - 33,033 149,251
Increase in payables to related parties 85,000 - - 85,000
------------------- ------------------ ----------------- -------------------
Net cash used in operating activities (71,081) - (89,647) (212,560)
------------------- ------------------ ----------------- -------------------
Cash flows from investing activities:
Purchase of property and equipment (41,326) - (14,766) (56,092)
Advance payment to foreign subsidiary - - - (858,864)
------------------- ------------------ ----------------- -------------------
Net cash used in investing activities (41,326) - (14,766) (914,956)
------------------- ------------------ ----------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of Common
shares, net 121,250 - - 1,015,111
Receipts on account of shares - - 62,500 62,500
Loan received from officer 200 - 50,000 67,035
Payments of loan received from officer (4,683) - - (4,683)
------------------- ------------------ ----------------- -------------------
Net cash provided by financing
activities 116,767 - 112,500 1,139,963
------------------- ------------------ ----------------- -------------------
Increase in cash and cash equivalents 4,360 - 8,087 12,447
Cash and cash equivalents at the
beginning of the period - - 4,360 -
------------------- ------------------ ----------------- -------------------
Cash and cash equivalents at the
end of the period 4,360 - 12,447 12,447
=================== ================== ================= ===================
Non-cash investing and financing
activities:
Issuance of Common shares to acquire
know-how 120,000 - - 120,000
=================== ================== ================= ===================
Common shares issued to acquire
a foreign subsidiary - - - 615
=================== ================== ================= ===================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTE 1:- GENERAL
a. Hidenet Secure Architectures Inc. ("the Company"), formerly
known as Savin Electronics Inc., is engaged in developing
products in the field of network data security .
b. Hidenet Secure Architectures Ltd. was incorporated in June
1999, as a wholly-owned subsidiary of the Company.
c. The Company has sustained operating losses and expects such
losses to continue in the foreseeable future. The Company
has not generated any significant revenues or product sales
and has not achieved profitable operations or positive cash
flow from operations. The Company's deficit accumulated
during the development stage aggregated to $ 1,542,390
through March 31, 2000. There is no assurance that
profitable operations, if ever achieved, could be sustained
on a continuing basis.
The Company plans to continue to finance its operations
with a combination of raising cash through an offering or
by financial support from its shareholders and, in the
longer term, by generating revenues from product sales (see
also Note 4). There is no assurance, however, that the
Company will be successful in obtaining an adequate level
of financing needed for the long-term development and
commercialization of its planned products.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the annual
financial statements of the Company as of December 31, 1999 are
applied consistently in these financial statements.
NOTE 3:- UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. 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 accruals) considered necessary for
a fair presentation have been included. Operating results for the
three-month period ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2000.
NOTE 4:- SUBSEQUENT EVENTS
a. In April 2000, Hidenet Secure Architectures Ltd. a wholly
owned subsidiary sold the intellectual property and
equipment to Network Privacy.Com Inc. ("NPI"). in exchange
for $ 325,000 and royalties equal to 1% of the sales
proceeds received by NPI within two years. NPI, a Delaware
corporation, was formed as a wholly-owned subsidiary of the
Company on January 7, 2000 to assume all of the business
currently transacted by Hidenet Secure Architectures Ltd.
<PAGE>
b. On April 13, 2000, an investor entered into a Stock and
Option Purchase agreement with the Company and NPI,
according to which the investor will purchase 122,000
Preferred shares of NPI or will be granted an option to
purchase an additional 665,919 Common shares of the
Company, in consideration of $ 1,525,000. The investor was
also granted demand registration rights.
c. In April 2000, 500,000 warrants were exercised into 500,000
shares of the Company, at an exercise price of $ 0.125 per
share.
d. In April 2000 the Board of the Company approved to add
members to the Board of Directors of the Company to a total
of five members. Each of the directors was subsequently
granted 62,053 shares.
Compensation expenses in the amount of $710,507 will be
recorded by the Company at the grant date.
e. Pursuant to the Employment Agreement between Hidenet Secure
Architectures, Ltd. and the Chief Executive Officer ("CEO")
of said company, the CEO is entitled to an aggregate amount
of 15% of the equity of the Company, or 818,753 restricted
shares of common stock during the term of his employment.
As of June 30, 2000, the CEO was granted 204,688 restricted
shares of the Company. The CEO is also the Chief Executive
Officer of NPI.
Compensation expenses in the amount of $468,735 will be
recorded by the Company over the period of 43 months,
starting on the grant date.
- - - - - - - - - -
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation:
Cautionary Statement for Forward-Looking Information
Certain statements contained in this report, including statements
regarding the anticipated development of the Company's business, the intent,
belief or current expectations of the Company, its directors or its officers,
primarily with respect to the performance of the Company and the products it
expects to offer and other statements contained herein regarding matters that
are not historical facts, are "forward-looking" statements within the meaning of
the Private Securities Litigation Reform Act (the "Reform Act"). Future filings
with the Securities and Exchange Commission, future press releases and future
oral or written statements made by or with the approval of the Company which are
not statements of historical fact, may contain forward-looking statements under
the Reform Act. Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, without limitation, the failure of the Company to obtain additional
financing, the failure of the Company to develop a product which is marketable,
rapid technological changes in the environment, frequent new product
introductions by others in the industry with greater resources than the Company,
competition in the marketplace in which the Company decided to operate and
evolving industry standards and customer preferences in that market which are
difficult to predict. Not only could the Company fail to produce a marketable
product, but the introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's product, if it is
even developed, as well as any potential new products, obsolete and
unmarketable. Such constant technological changes also make accurate market
predictions difficult. The Company's results depend in part upon its ability to
attract, train, retain and motivate qualified management, technical,
manufacturing, sales and support personnel for its operations. The Company has
filed for patent protection in the United States for its product which it is in
the process of developing and has filed for trademark protection for the phrase
"Be Confident."
All forward-looking statements speak only as of the date on which they
are made. The Company undertakes no obligation to update such statements to
reflect events that occur or circumstances that exist after the date on which
they are made.
<PAGE>
The Company has never had any revenues since its inception. The Company
intends to develop and market products in the field of network data security
through its majority-owned subsidiary, NetworkPrivacy.com, Inc., a Delaware
corporation ("NPI"). NPI is still in the development stage of a marketable
product in the field of network data security. Said subsidiary is working on a
compact, comprehensive and easy-to-use security software for personal and
corporate markets, specializing in privacy and anonymity among Internet and
Intranet users. The Company has no current operations, and even if the products
it is developing in the networks data security field are brought to market,
there is no likelihood that the sales of the Company's products will be
sufficient to cover the costs and expenses of the Company's operations. The
Company estimates that sales of its products will commence at the end of 2000,
but there is no assurance that its products will be ready for market at such
time. In addition, the failure by the Company to locate funding raises doubts
about its ability to continue as a going concern.
In April 2000, NP Partners, LLC, a New York limited liability company
("NP Partners"), entered into a Stock and Option Purchase Agreement with the
Company and NPI pursuant to which (i) NPI purchased 80,000 shares of Series A
Convertible Preferred Shares of NPI for $1,000,000 and had the right to purchase
additional preferred shares and (ii) the Company granted the investor an option
to exchange the preferred shares for shares of common stock of the Company. NP
Partners currently invested an aggregate of $1,525,000 in NPI and has an option
to exchange its 122,000 preferred shares in NPI for 665,921 shares in the
Company.
Year 2000 Compliance
The "Year 2000 problem" describes the world-wide concern that certain
computer applications, which use two digits rather than four to represent dates,
will interpret the year 2000 as the year 1900 and malfunction on January 1, 2000
or thereafter. Since the Company has no operations, the year 2000 problem does
not pertain to the Company. The Company will ensure that its products, and any
products of material significance to the Company, will function normally after
the year 2000.
Part II - Other Information
Item 1.Legal Proceedings.
The Company is not presently a party to any other litigation nor, to the
knowledge of management, is any litigation threatened.
Item 2.Changes in Securities.
On April 13, 2000, NPI issued to NP Partners 80,000 shares of Series A
Convertible Preferred Shares of NPI for $1,000,000. On May 19, 2000, NPI issued
to NP Partners an additional 32,000 shares of preferred stock for an additional
investment of $400,00, and on June 12, 2000 issued to NP Partners an additional
10,000 shares for another investment of $125,000. NP Partners currently has an
option to exchange its 122,000 preferred shares in NPI for 665,921 shares in the
Company. The offering was made pursuant to an exemption under Rule 506 of the
Securities Act of 1933, as amended (the "Securities Act").
On April 13, 2000, the Company issued 62,053 shares of its common stock
to each of the five directors in the Company. The Company did not use an
underwriter in connection with the issuance not did the Company receive any cash
consideration in connection therewith. The issuance was made pursuant to an
exemption from registration under Section 4(2) of the Securities Act.
On April 13, 2000, the Company issued to Robert Friedman, a director of
the Company and Chief Executive Officer and President of NPI, 204,688 shares of
common stock and is obligated to issue to Mr. Friedman 17,057 shares per month
for the 36-month period following April 2000. The issuance was made pursuant to
an exemption from registration under Section 4(2) of the Securities Act.
Item 3.Defaults upon Senior Securities.
None.
<PAGE>
Item 4.Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other information.
None.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HIDENET SECURE ARCHITECTURES, INC.
By /s/ Ron Fussman
--------------------------------
Ron Fussman, President
By /s/ Avrum Savran
--------------------------------
Avrum Savran, Treasurer
Date: September 20, 2000
