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 June 30, 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.
(A company in the development stage)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
IN U.S. DOLLARS
UNAUDITED
INDEX
Page
--------------
Consolidated Balance Sheets .............................. 2
Consolidated Statements of Operations .................... 3
Statements of Changes in Shareholders' Equity (Deficiency) 4 - 5
Consolidated Statements of Cash Flows .................... 6
Notes to Consolidated Financial Statements ............... 7 - 8
- - - - - - - -
<PAGE>
HIDENET SECURE ARCHITECTURES INC.
(A company in the development stage)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
In U.S. dollars
<TABLE>
December 31, June 30,
1999 2000
---------- ----------
Unaudited
----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. 4,360 1,095,904
Accounts receivable and prepaid expenses .................. 43,888 90,436
---------- ----------
Total current assets ...................................... 48,248 1,186,340
---------- ----------
PROPERTY AND EQUIPMENT, NET ............................... 38,846 69,936
---------- ----------
OTHER ASSETS, NET ......................................... 100,000 80,000
---------- ----------
187,094 1,336,276
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Credit from banks ......................................... -- 13,074
Accounts payable and accrued liabilities .................. 116,178 185,285
Related parties ........................................... 85,000 --
Loan received from officer ................................ 3,352 --
---------- ----------
Total current liabilities ................................. 204,530 198,359
---------- ----------
CONVERTIBLE PREFERRED SHARES OF A SUBSIDIARY .............. -- 1,460,000
---------- ----------
SHAREHOLDERS' DEFICIENCY
Common shares at $ 0.025 par value -
Authorized: 15,000,000 shares as of December 31, 1999;
Issued and outstanding: 4,139,600 as of December 31, 1999 103,490 128,864
Additional paid-in capital ................................ 1,278,166 2,494,534
Deferred compensation ..................................... -- (438,423)
Deficit accumulated during the development stage .......... (1,399,092) (2,507,058)
---------- ----------
Total shareholders' deficiency ............................ (17,436) (322,083)
---------- ----------
187,094 1,336,276
========== ==========
</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 Six months ended Three months ended through
December 31, June 30, June 30, June 30,
1999 1999 2000 1999 2000 2000
---------- ------ ---------- ------ ---------- ----------
Unaudited
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating costs and expenses:
Research and development ..... 75,041 -- 224,575 -- 124,250 299,616
Marketing .................... 25,000 -- -- -- -- 25,000
General and administrative ... 271,034 -- 143,979 -- 102,773 567,652
Compensation expenses ........ 15,000 -- 740,819 -- 740,819 755,819
Write-down of investment in
subsidiary ................. -- -- -- -- -- 859,478
---------- ------ ---------- ------ ---------- ----------
Operating loss ................. 386,075 -- 1,109,373 -- 967,842 2,507,565
Financial expenses (income), net 900 -- (1,407) -- (3,174) (507)
---------- ------ ---------- ------ ---------- ----------
Net loss ....................... 386,975 -- 1,107,966 -- 964,668 2,507,058
========== ====== ========== ====== ========== ==========
Basic and diluted net loss per
share ........................ 0.19 -- 0.24 -- 0.19 5.43
========== ====== ========== ====== ========== ==========
Weighted average number of
shares used in computing
basic and diluted net loss
per share .................... 2,072,933 59,600 4,639,349 59,600 5,139,098 461,551
========== ====== ========== ====== ========== ==========
</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'
Shares 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 - - 9,000 - 9,000
costs
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 - - 9,000 - 9,000
costs
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 - - 9,000 - 9,000
costs
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 December 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>
<CAPTION>
Deficit
accumulated
Additional during the Total
Common shares paid-in Deferred development shareholders'
Stock Amount capital compensation stage deficiency
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <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)
Exercise of share options ............. 500,000 12,500 50,000 -- -- 62,500
Deferred compensation from shares ..... 514,953 12,874 1,166,368 (1,179,242) -- --
Amortization of deferred compensation . -- -- -- 740,819 -- 740,819
Net loss .............................. -- -- -- -- (1,107,966) (1,107,966)
---------- ---------- ---------- ---------- ---------- ----------
Balance as of June 30, 2000 (unaudited) 5,154,553 128,864 2,494,534 (438,423) (2,507,058) (322,083)
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
In U.S. dollars
<TABLE>
<CAPTION>
Period from
August 23,
1990 (inception)
Year ended Six months ended Three months ended through
December 31, June 30, June 30, June 30,
-------------------------- -------------------------
1999 1999 2000 1999 2000 2000
---------------- ------------ ------------ ----------- ----------- --------------
Unaudited
---------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C> <C>
Net loss (386,975) - (1,107,966) - (964,668) (2,507,058)
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 - 26,650 - 13,766 49,591
Increase in accounts receivable and
prepaid expenses (43,888) - (46,548) - (54,282) (90,936)
Increase in accounts payable and
accrued liabilities 57,302 - 69,107 - 36,074 185,325
Increase (decrease) in payables to
related 85,000 - (85,000) - (85,000) -
parties
Amortization of deferred compensation - - 740,819 - 740,819 740,819
---------------- ------------ ------------ ----------- ----------- --------------
Net cash used in operating activities (71,081) - (402,938) - (313,291) (525,851)
---------------- ------------ ------------ ----------- ----------- --------------
Cash flows from investing activities:
Purchase of property and equipment (41,326) - (37,740) - (22,974) (79,066)
Advance payment to foreign subsidiary - - - - - (858,864)
---------------- ------------ ------------ ----------- ----------- --------------
Net cash used in investing activities (41,326) - (37,740) - (22,974) (937,930)
---------------- ------------ ------------ ----------- ----------- --------------
Cash flows from financing activities:
-------------------------------------
Proceeds from issuance of Common shares,
net 121,250 - - - - 1,015,111
Exercise of share options - - 62,500 - - 62,500
Issuance of capital to a minority in a
subsidiary, net - - 1,460,000 - 1,460,000 1,460,000
Loan received from officer 200 - - - - 67,035
Payments of loan received from officer (4,683) - (3,352) - (53,352) (58,035)
Changes in short-term credit, net - - 13,074 - 13,074 13,074
---------------- ------------ ------------ ----------- ----------- --------------
Net cash provided by financing activities 116,767 - 1,532,222 - 1,419,722 2,559,685
---------------- ------------ ------------ ----------- ----------- --------------
Increase in cash and cash equivalents 4,360 - 1,091,544 - 1,083,457 1,095,904
Cash and cash equivalents at the
beginning of the period - - 4,360 - 12,447 -
---------------- ------------ ------------ ----------- ----------- --------------
Cash and cash equivalents at the
end of the period 4,360 - 1,095,904 - 1,095,904 1,095,904
================ ============ ============ =========== =========== ==============
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>
8
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 $ 308,702
through June 30, 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
as fair presentation have been included. Operating results for the
six-month period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 2000.
NOTE 4:- INVESTMENT AGREEMENT
On April 13, 2000, an investor entered into a Stock and Option
Purchase agreement with the Company and Network Privacy.Com Inc.
("NPI"), according to which the investor will purchase 122,000
Preferred shares of NPI convertible to 665,921 Common shares of
the Company, in consideration of $ 1,525,000. The investor was
also granted demand registration rights.
<PAGE>
In April 2000, Hidenet Secure Architectures Ltd. a wholly-owned
subsidiary, sold the intellectual property and equipment to 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.
NOTE 5:- EXERCISE OF SHARE OPTIONS
In April 2000, 500,000 warrants were exercised into 500,000 shares
of the Company, at an exercise price of $ 0.125 per share.
NOTE 6:- ISSUANCE OF SHARES
a. In April 2000 the Board of Directors 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 were
recorded during the six months ended June 30, 2000.
b. Pursuant to the Employment Agreement between Hidenet Secure
Architectures Ltd. and its Chief Executive Officer ("CEO")
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 $ 30,312 were
recorded during the six month ended June 30, 2000. An
additional $ 438,423 will be recorded by the Company over
an additional period of 40 months.
- - - - - - - - - - -
<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
On April 20, 2000, a Current Report on Form 8-K was filed by the
Registrant containing information about the investment made in
Network Privacy.
<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
