U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________to__________
Commission file number 333-16451
----------------------------
SAC TECHNOLOGIES, INC.
(Exact name of small business Issuer as specified in its charter)
MINNESOTA 41-1741861
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4444 West 76th Street, Suite 600, Edina, MN 55435
(Address of principal executive offices)
(612) 835-7080
(Issuer's telephone number)
----------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No___
Shares of the Registrant's Common Stock, par value $.01 per share, outstanding
as of November 14, 1997: 7,437,500.
<PAGE>
SAC TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance sheets as of December 31, 1996 and September 30, 1997 3
Statements of operations for the three and nine months ended September 30,
1996 and 1997, and January 7, 1993 (date of inception) through
September 30, 1997 4
Statements of cash flows for the three and nine months ended September 30,
1996 and 1997, and January 7, 1993 (date of inception) through
September 30, 1997 5
Notes to interim financial statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1 - Legal proceedings 15
Item 2 - Changes in securities and use of Proceeds 15
Item 3 - Defaults upon senior securities 15
Item 4 - Submission of matters to a vote of security holders 15
Item 5 - Other events 15
Item 6 - Exhibits and reports on Form 8-K 15
</TABLE>
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 89,133 $ 4,001,356
Accounts receivable, net -- 195,388
Inventories 106,229 388,649
Prepaid expenses 10,487 86,879
----------- -----------
Total current assets 205,849 4,672,272
EQUIPMENT AND FURNITURE AND FIXTURES - AT COST, less
accumulated depreciation 41,936 177,815
OTHER ASSETS 157,478 17,518
----------- -----------
$ 405,263 $ 4,867,605
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 330,000 $ --
Accounts payable 219,254 111,155
Accrued liabilities 12,180 289,353
----------- -----------
Total current liabilities 561,434 400,508
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - authorized, 20,000,000 shares of $.01 par value;
issued and outstanding, 5,017,500 and 7,437,500 shares 50,175 74,375
Additional contributed capital 874,918 7,150,718
Deficit accumulated during the development stage (969,264) (2,651,227)
Unearned compensation (112,000) (106,769)
----------- -----------
(156,171) 4,467,097
----------- -----------
$ 405,263 $ 4,867,605
=========== ===========
</TABLE>
See accompanying notes to interim financial statements.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
January 7,
1993 (date
Three months Nine months of inception)
ended September 30, ended September 30, through
---------------------------- ---------------------------- September 30,
1996 1997 1996 1997 1997
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Product sales $ -- $ 74,008 $ -- $ 118,318 $ 118,318
Reimbursed research and development -- -- -- 36,000 274,306
Technical support and other services -- 78,677 -- 195,467 342,218
----------- ----------- ----------- ----------- -----------
-- 152,685 -- 349,785 734,842
Costs and other expenses
Cost of product sales -- 60,137 -- 141,290 141,290
Cost of technical support and other services -- 54,244 -- 102,496 179,324
Selling, general and administrative 76,026 689,111 164,437 1,591,019 2,087,506
Research and development 176,005 119,995 326,051 344,662 1,076,840
----------- ----------- ----------- ----------- -----------
252,031 923,487 490,488 2,179,467 3,484,960
----------- ----------- ----------- ----------- -----------
Operating loss (252,031) (770,802) (490,488) (1,829,682) (2,750,118)
Other income (expense)
Interest and other income 3,486 62,608 3,680 151,616 155,904
Interest expense (13,536) -- (30,591) (3,897) (39,504)
----------- ----------- ----------- ----------- -----------
(10,050) 62,608 (26,911) 147,719 116,400
----------- ----------- ----------- ----------- -----------
NET LOSS $ (262,081) $ (708,194) $ (517,399) $(1,681,963) $(2,633,718)
=========== =========== =========== =========== ===========
Loss per common share $ (.05) $ (.10) $ (.10) $ (.24) $ (.05)
=========== =========== =========== =========== ===========
Weighted average number of shares outstanding 5,088,302 7,437,500 5,149,456 6,992,000 5,521,285
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
January 7,
1993 (date of
Three months Nine months inception)
ended September 30, ended September 30, through
-------------------------- -------------------------- September 30,
1996 1997 1996 1997 1997
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (262,081) $ (708,194) $ (517,399) $(1,681,963) $(2,633,718)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,104 13,171 2,584 30,789 34,524
Amortization
Warrants (4,167) -- -- -- 4,167
Unearned compensation -- 18,940 -- 46,440 59,440
Interest converted to common stock (1,841) -- -- -- 1,841
Revenues realized due to offset of billings
against a stock repurchase -- -- -- -- (170,174)
Warrants issued for services -- -- -- 27,500 27,500
Contribution of services -- -- -- -- 11,250
Change in assets and liabilities:
Accounts receivable -- (108,448) -- (195,388) (195,388)
Inventories (67,229) (95,140) (75,931) (282,420) (388,649)
Prepaid expenses (19,974) 8,289 (19,527) (76,392) (86,879)
Accounts payable 43,526 (91,152) 56,988 (108,099) 111,155
Accrued liabilities 518 230,484 7,344 288,133 300,313
----------- ----------- ----------- ----------- -----------
(48,063) (23,856) (28,542) (269,437) (290,900)
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities (310,144) (732,050) (545,941) (1,951,400) (2,924,618)
Cash flows from investing activities
Capital expenditures (16,505) (45,365) (19,093) (166,668) (212,339)
Security deposits (2,650) (800) (2,650) (8,101) (12,984)
Patents and trademarks (4,514) -- (4,514) -- (4,534)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities (23,669) (46,165) (26,257) (174,769) (229,857)
Cash flows from financing activities
Net payments under short-term
borrowing agreements (95,000) -- (25,000) (330,000) --
Issuance of convertible bridge notes -- -- 175,000 -- 175,000
Issuance of warrants -- -- 25,000 -- 25,000
Sales of common stock 170,687 -- 579,505 6,368,392 7,093,831
Redemption of common stock -- -- -- -- (138,000)
Offering costs (9,828) -- (14,228) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities 65,859 -- 740,277 6,038,392 7,155,831
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents (267,954) (778,215) 168,079 3,912,223 4,001,356
Cash and cash equivalents at beginning of period 441,254 4,779,571 5,221 89,133 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 173,300 $ 4,001,356 $ 173,300 $ 4,001,356 $ 4,001,356
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1996, and September 30, 1996 and 1997 (Unaudited)
1. Unaudited Statements
The accompanying unaudited interim financial statements have been
prepared by SAC Technologies, Inc. (the "Company") in accordance with
generally accepted accounting principles, pursuant to the rules and
regulations of the Securities and Exchange Commission. Pursuant to such
rules and regulations, certain financial information and footnote
disclosures normally included in the financial statements have been
condensed or omitted.
In the opinion of management, the accompanying unaudited interim
financial statements contain all necessary adjustments, consisting only
of those of a recurring nature, and disclosures to present fairly the
financial position and the results of its operations and cash flows for
the periods presented. It is suggested that these interim financial
statements be read in conjunction with the financial statements and the
related notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996.
2. Loss Per Share
Loss per common share is determined by dividing the net loss by the
weighted average number of shares of common stock and common stock
equivalents outstanding.
Under Securities and Exchange Commission rules for initial public
offerings, common stock equivalents for all periods presented include
shares sold or options or warrants granted within twelve months prior
to the effective date of the Company's initial public offering
(February 14, 1997) at per share prices less than that of the initial
public offering (assumed to be $3.00 per share - $6.00 pre stock
dividend) even if the impact is antidilutive.
During February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share." This pronouncement provides a
different method of calculating earnings per share than is currently
used in accordance with APB No. 15, "Earnings per Share." SFAS 128
provides for the calculation of basic and diluted earnings per share.
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted
earnings per share.
SFAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997 and early adoption is not
permitted. When adopted, the statement will require restatement of
prior years' earnings per share. The Company will adopt this statement
for its fourth quarter and year ending December 31, 1997. Assuming that
SFAS 128 had been implemented, basic and dilutive loss per share would
have been the same as that reported for all periods presented.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1996, and September 30, 1996 and 1997 (Unaudited)
3. Other Assets
December 31, September 30,
1996 1997
-------- --------
Deferred offering costs $148,061 $ --
Security deposits 4,883 12,984
Patents 4,534 4,534
-------- --------
$157,478 $ 17,518
======== ========
Deferred offering costs consist of legal fees and related expenses in
connection with the Company's initial public offering of common stock.
Such amounts were reflected as an offset to the gross proceeds received
from this offering (see note 5).
4. Accrued Liabilities
December 31, September 30,
1996 1997
-------- --------
Compensation $ 1,000 $264,923
Deferred revenue -- 10,000
Interest and other 11,180 14,430
-------- --------
$ 12,180 $289,353
======== ========
Included in accrued compensation is a third quarter charge of $250,000
(included in selling, general and administrative expenses) relating to
termination severance for the Company's Chief Operating Officer (COO).
5. Stockholders' Equity
During July 1997, the Company effected a two for one stock split in the
form of the issuance of a one for one stock dividend. The financial
statements and accompanying notes for the periods presented have been
restated for the stock split.
During February 1997, the Company completed an initial public offering
of 2,420,000 (1,210,000 pre stock dividend) shares of its common stock
at $3.00 ($6.00 pre stock dividend) per share resulting in net proceeds
of $6,220,331 after deduction of offering expenses. Outstanding notes
payable of $442,000, including $117,000 of notes payable to a
stockholder/director were repaid from the net proceeds of the offering.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1996, and September 30, 1996 and 1997 (Unaudited)
5. Stockholders' Equity - Continued
The following table summarizes stock option activity for the nine
months ended September 30, 1997:
<TABLE>
<CAPTION>
Grant Expiration Exercise Total
Recipient date date price shares
--------- ---- ---- ----- ------
<S> <C> <C> <C> <C>
Options outstanding as of
December 31, 1996 346,000
Options granted:
COO March 1997 March 2004 $ 3.21 260,000
V.P. Finance April 1998 April 2004 $ 4.43 40,000
Director of Product
Marketing April 1997 April 2004 $ 4.43 60,000
Options forfeited:
COO - - - (221,000)
Director of Product
Marketing - - - (57,000)
Other - - - (50,000)
--------
Options outstanding as of September 30, 1997 378,000
========
Options exercisable as of September 30, 1997 267,003
========
</TABLE>
The difference between the option exercise prices and estimated fair
value of common stock at the date of grant for the options granted is
$225,400 and has been reflected as unearned compensation in the
Company's financial statements to be recognized as expense over the
five year vesting term of the stock option agreements. In connection
with the involuntary terminations of the COO and the Director of
Product Marketing, options to purchase 278,000 shares of common stock
were forfeited and $168,389 of the $225,400 of unearned compensation
was reversed during the third quarter ended September 30, 1997 with no
resulting impact to the statement of operations.
Subsequent to September 30, 1997, the Company issued 6,500 options to
purchase shares of common stock at $ 10.75 per share to other employees
and 91,666 options at $10.75 per share to outside directors. These
options expire during October 2004 and vest ratably over five years.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1996, and September 30, 1996 and 1997 (Unaudited)
5. Stockholders' Equity - Continued
In connection with the Company's initial public offering, the Agent for
the offering received a five-year warrant to purchase 88,938 (44,469
pre stock dividend) shares of common stock at an exercise price of
$3.60 ($7.20 pre stock dividend) per share. The warrant is exercisable
from February 1998 through February 2002. Effective in March 1997, the
Company issued warrants to a consultant to purchase 25,000 (12,500 pre
stock dividend) shares of common stock at $3.00 ($6.00 pre stock
dividend) per share. The warrants are exercisable for seven years.
6. Related Party Transactions
Included in accounts receivable are $97,062 of amounts due from
Inter-Con/PC, Inc. During the nine months ended September 30, 1997,
$154,160 of revenues were recognized from transactions with
Inter-Con/PC, Inc. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further information
regarding the Company's relationship with Inter-Con/PC, Inc.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS FORM 10-QSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. FOR THIS PURPOSE,
ANY STATEMENTS CONTAINED IN THIS FORM 10-QSB THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATION THEREOF OR COMPARABLE
TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, AND
ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS
INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET FORTH IN THE "RISK FACTORS"
SECTION OF THE COMPANY'S REGISTRATION STATEMENT ON FORM SB-2 (FILE NO.
333-16451) FILED PURSUANT TO RULE 424(b) DATED FEBRUARY 14, 1997 AND ANY FUTURE
SUPPLEMENTS OR AMENDMENTS TO THIS FILING.
OVERVIEW
The Company was incorporated in 1993 to develop real-time, stand-alone systems
capable of identifying individuals through automated fingerprint analysis for
use in controlling access to resources, information and facilities. From
inception through most of 1996 the Company's development efforts, which by
agreement were to be funded by Jasper Consulting, Inc. ("Jasper"), were
principally focused on the development of its fingerprint identification and
analysis products. In the second half of 1996, the Company shifted its principal
focus from development to marketing and sales of its products. The Company's
focus in the near term is to market its products through distributors, value
added resellers, independent sales organizations and system integrators
primarily in the following application areas: controlled access to appliances,
information, resources, computers and computer networks, as well as apartments,
offices and other facilities.
During March 1997, the Company hired a Chief Operating Officer with a marketing
background. During April 1997, the Company hired a Director of Product Marketing
and a Vice President of Finance. In July 1997 the Company involuntarily
terminated its Director of Product Marketing and in October 1997 the Company
involuntarily terminated its Chief Operating Officer (see notes 4 and 5 of notes
to interim financial statements for additional information). The Company intends
to augment its sales staff by adding a vice president of sales during the near
term. However there can be no assurance that the Company will be able to retain
a qualified individual for this position.
During the quarter ended March 31, 1997, the Company began shipping its
SACMan(TM) product to customers (see below). During September, 1997, the Company
completed development of SAC LOGON(TM) which is designed to provide for access
to a computer system through the use of a fingerprint in place of a computer
password to log on. The Company has since integrated SAC LOGON(TM) with
SACMan(TM), such that, SAC LOGON(TM) is a part of the SACMan(TM) product.
During July 1997 the Company previewed its first release of SAC Remote(TM) at
the Card Tech Secure Tech Trade Show. The Company expects to be ready to ship
SAC Remote systems for OEM applications during the fourth quarter of 1997. The
Company continues to develop SAC_Encrypt(TM) which is intended to provide for
the encryption/de-encryption of local applications programs by controlling all
access to data files and networks according to a user's unique fingerprint key,
thereby controlling all data movement and peripherals within a computer system.
The Company anticipates release of this product during the second quarter of
1998. However there can be no assurance that this product will be completed or
will be completed in this time frame.
<PAGE>
OVERVIEW - CONTINUED
The Company's more significant current product offerings incorporate the
technology developed by the Company for Jasper. The Company has a world-wide
license agreement with Jasper for use of such technology in all industrial,
commercial and consumer identification and access control applications,
including, access to buildings, apartments, offices and other facilities,
appliances, information, resources, computers and computer networks. Jasper has
the right to exploit such technology in all other markets including immigration
control, automobile, medical patient identification, national identification,
government, law enforcement and financial transaction processing markets such as
credit card transactions and check cashing.
The Company is considered a development stage enterprise for accounting
purposes. Results achieved to date are not indicative of future results
primarily because the Company has shifted its focus from solely the development
of its products to continued development, and marketing and selling of its
products. Broad commercial acceptance of the Company's products by customers and
end users is critical to the Company's success and ability to generate revenues.
The Company has limited sales to date and has a limited operating history upon
which an evaluation of the Company and its prospects can be based. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in the early stage of development. The
Company may continue to sustain operating losses for the foreseeable future.
The Company had previously completed development of a Set Top Box, which
provides for basic personal computer functions and Internet access via a
wireless keyboard and a conventional television set. However, the Company did
not believe that the promotion and marketing of the Set Top Box was within its
primary focus and, accordingly, conveyed the technology to Inter-Con/PC, Inc.
("Inter-Con"), in exchange for an initial 50% ownership interest (35.6% as of
September 30, 1997) in Inter-Con, a development stage Company. The Company has a
technical support agreement with Inter-Con which provides for Inter-Con to pay
technical support fees to the Company of up to $20,000 per month. The agreement
expires in October 1999 and is subject to three successive one-year renewals at
the option of Inter-Con.
By agreement, Jasper is obligated to pay a royalty to the Company for sales of
certain products and the Company has the exclusive right to manufacture products
sold by Jasper, subject to a predetermined pricing structure. However, the
Company is not relying on these potential sources of revenue from Jasper or its
interest in Inter-Con to significantly impact its results of operation.
The Company anticipates adding fewer than five additional employees through
December 31, 1998. The Company believes that research and development is
critical to maintaining a strong technological position in the industry and,
therefore expects research and development expenses to continue to increase in
absolute dollars in future periods. The Company anticipates accounts receivable
and inventory levels, and selling, general and administrative expenses will
increase significantly in connection with its transition to marketing and
selling its products.
RESULTS OF OPERATIONS
Total revenues for the three months ended September 30, 1997 were $152,685 and
$349,785 for the nine months ended September 30, 1997. See below for further
discussion.
<PAGE>
RESULTS OF OPERATIONS - CONTINUED
Revenues from product sales were $74,008 for the three months ended September
30, 1997 and $118,318 for the nine months ended September 30, 1997. For the
three months ended September 30, 1997, these revenues were principally from the
sale of SACMan(TM) units to one customer and to a lesser extent include sales of
SACMan(TM) Developer Tool Kit systems. Revenues for the nine months ended
September 30, 1997 include sales of SACMan(TM) Developer Tool Kit systems to
entities developing or investigating the development of applications which may
utilize the Company's products.
During August 1997, the Company signed a development agreement with Anonymous
Data Corporation (ADC) calling for a minimum purchase of five hundred SAC Remote
units over a twenty-four month period. The agreement requires the Company to
provide certain defined product development and support services in exchange for
$7,000 a month for a period of forty-eight months. The Company received $15,000
upon signing the agreement. The agreement states that ADC is to pay an
additional $35,000 upon ADC obtaining financing, as defined and $100,000 upon
delivery and acceptance of the products being developed. The Company also
received a warrant to purchase three percent of ADC for $50,000.
Revenues from reimbursed research and development were $0 during the three
months ended September 30, 1997 and $36,000 for the nine months ended September
30, 1997 and relate to collection of previously unrecognized research and
development billings to Jasper, as discussed below.
Revenues from technical support and other services were $78,677 for the three
months ended September 30, 1997 and $195,467 during the nine months ended
September 30, 1997. These revenues relate primarily to billings under the
technical service agreement with Inter-Con discussed above, other development
services provided to Inter-Con, and $26,306 of revenues in the third quarter
from development activities.
As more fully discussed in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, the Company has recognized revenue from
Jasper (primarily related to reimbursed research and development and technical
support services through April 1996) on the cash method, as collection of
amounts billed is not assured. As of September 30, 1997 there were approximately
$319,100 of billings outstanding from Jasper which have not yet been collected
or recognized for financial reporting purposes. Jasper has agreed to allow the
Company to offset future product royalties due to Jasper, if any, against these
unrecognized receivables. In addition, the Company is entitled to collect an
additional $800 for each product manufactured by the Company for Jasper in order
to accelerate payment of the outstanding balance. No assurance can be given that
future sales subject to payment of royalties to Jasper or orders to manufacture
products on behalf of Jasper will occur in amounts sufficient to offset the
uncollected billings above, if at all.
Gross profit on product sales for the three month period ended September 30,
1997 was $13,871. Cost of product sales exceeded revenues from products sales
for the nine month period ended September 30, 1997 by $22,972. This principally
resulted from first quarter costs associated with establishing a prototype
pre-production line and hiring and training personnel on the operation of the
prototype pre-production equipment.
<PAGE>
RESULTS OF OPERATIONS - CONTINUED
Selling , general and administrative expense increased $613,085 to $689,111
during the three months ended September 30, 1997, and increased $1,426,582 to
$1,591,019 for the nine months ended September 30, 1997 as compared to the three
and nine months ended September 30, 1996. The increase for the three months and
nine months ended September 30, 1997 was primarily due to $184,189 and $509,680,
respectively of additional salaries and wages and incentive compensation for
marketing and administrative personnel;$0 and $84,456, respectively of
recruiting and relocation costs for the new Chief Operating Officer and Vice
President of Finance; $250,000 during each period, of cost associated with a
severance agreement for the COO who was terminated in October 1997; $40,838 and
$171,681, respectively of increased professional fees and the remainder of the
increase was principally due to certain marketing and travel activities.
Research and development expense decreased $56,010 to $119,995 during the three
months ended September 30, 1997 and increased $18,611 to $344,662 for the nine
months ended September 30, 1997 as compared to the three and nine months ended
September 30, 1996. During the three month period ending September 30, 1996 the
Company had not fully completed development of SACMan and therefore more
resources were allocated for development during this period than the same period
in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since January 7, 1993 (date of inception), the Company's capital needs have been
principally met by a February 1997 initial public offering of 2,420,000
(1,210,000 pre stock dividend) shares of common stock at $3.00 ($6.00 pre stock
dividend) per share which resulted in net proceeds of $6,220,331, after
deduction of offering expenses; a July 1996 $700,000 private placement of common
stock; and a May 1996 sale of $200,000 of convertible bridge notes and warrants
to purchase 50,000 shares of common stock. The bridge notes were converted to
common stock during mid 1996 concurrent with the completion of the
aforementioned private placement.
Net cash used in operating activities during the nine months ended September 30,
1997 was $1,951,400 and was principally due to operating losses. Net cash used
for investing activities during the nine months ended September 30, 1997 was
$174,769 and was primarily due to the purchase of equipment and furniture. Net
cash provided by financing activities during the nine months ended September 30,
1997 was $6,038,392 and was principally from proceeds received from the initial
public offering discussed above.
The Company believes the funds raised from its recent initial public offering
will be adequate to last through early 1999. No assurance can be given that
events and circumstances won't change and require additional capital at an
earlier date. No assurance can be given that any additional financing, when
needed, will be available on acceptable terms, if at all, and such financing may
only be available on terms dilutive to existing stockholders.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
Working capital increased $4,627,349 during the nine months ended September 30,
1997 to $4,271,764, as compared to a deficit of $355,585 as of December 31,
1996. This increase is principally due to the proceeds received from the initial
public offering offset by $1,681,963 of operating losses through September 30,
1997. Additionally, during the nine months ended September 30, 1997, there was a
$282,420 increase in inventories, a $195,388 increase in accounts receivable,
and a $277,173 increase in accrued expenses, a $108,099 decrease in accounts
payable, a $213,000 reduction in borrowings under a revolving note payable to a
bank and the Company repaid a $117,000 note payable to an officer/director. The
inventory increase is attributable to purchasing component parts for its SACMan
and related products for future production. The accounts receivable increase is
attributable to sales of increased revenue from the Company's products and
technical support to one customer and to Inter-Con.
See note 5 of the notes to interim financial statements for information
regarding 1997 stock option and warrant activity.
RECENTLY ISSUED ACCOUNTING STANDARD
See note 2 of notes to interim financial statements for information regarding
SFAS 128 "Earnings per Share."
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
Use Of Proceeds from Registered Securities
1. (a) State the name of the issuer or successor issuer filing the report.
SAC Technologies, Inc.
(b) If a successor issuer is filing the report with respect to the
registration statement of its predecessor, state the name of such
predecessor issuer.
N/A
<PAGE>
2. (a) Indicate the effective date of the registration statement for which
this information is reported.
MO DAY YEAR
[0 2] [1 4] [9 7]
Regional
(b) Provide the SEC file number assigned to the registration Office
statement. Code
If Any
[ 2 ] [ - ] [ 1 ] [ 6 ] [ 4 ] [ 5 ] [ 1 ] [ - ]
(c) If the issuer has been assigned a CUSIP number, specify the first (6)
digits.
[ 0 ] [ 7 ] [ 8 ] [ 3 ] [ 8 ] [ 6 ]
3. (a) Has the offering commenced? Yes No
|X| |_|
(b) If yes, indicate the date the offering commenced. MO DAY YEAR
[0 2] [1 4] [9 7]
If no, explain briefly
----------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
4. Did the offering terminate before any securities were sold? Yes No
|_| |X|
If yes, explain briefly
---------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Instruction: If the answer to Item 4 is "yes", do not answer 5-12.
5. Did the offering terminate prior to the sale of all securities Yes No
registered? |_| |X|
If yes, explain briefly
---------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
<PAGE>
6. Furnish the name(s) of the managing underwriter(s), if any.
(01) Tuschner & Company, Inc.
--------------------------------------------------------------------------
(02)
--------------------------------------------------------------------------
(03)
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(04)
--------------------------------------------------------------------------
7. (a) Indicate the title and code of each class of securities registered
and, where a class of convertible securities is being registered, indicate
the title and code of any class of securities into which such securities
may be converted
Title of security Code
--------------------------------------------------------------------------
(01) Equity EQ
--------------------------------------------------------------------------
(02)
--------------------------------------------------------------------------
(03)
--------------------------------------------------------------------------
(04)
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(b) Describe briefly any class of securities categorized as "other."
N/A
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--------------------------------------------------------------------------
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8. Indicate on the following table the amount and aggregate offering price of
securities registered and sold to date for the account of the issuer and
for the account(s) of any selling security holder(s).
<PAGE>
<TABLE>
<CAPTION>
For the account of the issuer For the account(s) of any
selling security holder(s)
- -----------------------------------------------------------------------------------------------------------------------------
Title of Amount Aggregate Amount sold Aggregate Amount Aggregate Amount sold Aggregate
security registered price of offering registered offering offering
offering price of price of price of
amount amount sold amount amount sold
registered registered
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(01) 1,210,000 $7,260,000 1,210,000 $7,260,000
Shares Shares
Common
Stock
- -----------------------------------------------------------------------------------------------------------------------------
(02)
- -----------------------------------------------------------------------------------------------------------------------------
(03)
- -----------------------------------------------------------------------------------------------------------------------------
(04)
- -----------------------------------------------------------------------------------------------------------------------------
(05)
1,210,000 $7,260,000 1,210,000 $7,260,000
Total Shares Shares
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
9. State, if known, or furnish a reasonable estimate of, the amount of
expenses incurred for the issuer's account in connection with the issuance
and distribution of the securities registered for each category listed
below. Place an "X" in the box to the left of any amount given that is an
estimate.
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENTS TO
DIRECTORS, OFFICERS, GENERAL PARTNERS OF
THE ISSUER OR THEIR ASSOCIATES; TO
PERSONS OWNING TEN PERCENT OR MORE OF
ANY CLASS OF EQUITY SECURITIES OF THE
ISSUER; AND TO AFFILIATES OF THE DIRECT OR INDIRECT
ISSUER PAYMENTS TO OTHERS
(A) (B)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(01) Underwriting discounts $ $726,000
and commissions
- --------------------------------------------------------------------------------------------------------
(02) Finders' Fees
- --------------------------------------------------------------------------------------------------------
(03) Expenses paid to or for 15,800
underwriters
- --------------------------------------------------------------------------------------------------------
(04) Other expenses 182,259
- --------------------------------------------------------------------------------------------------------
(05) Total Expenses $ $924,059
- --------------------------------------------------------------------------------------------------------
</TABLE>
10. Indicate the net offering proceeds to the issuer after the [$ 6,335,941]
total expenses in Item 9 above.
11. State, if known, or furnish a reasonable estimate of, the amount of net
offering proceeds to the issuer used for each of the purposes listed
below. Do not include any amount in "working capital" to which a more
specific category is applicable. Place an "X" in the box to the left of
any amount given that is an estimate.
<PAGE>
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENTS DIRECT OR INDIRECT
TO DIRECTORS, OFFICERS, GENERAL PAYMENTS TO OTHERS
PARTNERS OF THE ISSUER OR THEIR
ASSOCIATES; TO PERSONS OWNING
TEN PERCENT OR MORE OF ANY
CLASS OF EQUITY SECURITIES OF
THE ISSUER; AND TO AFFILIATES
OF THE ISSUER
(A) (B)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(01) Construction of plant, building and
facilities $ $
- --------------------------------------------------------------------------------------------------------
(02) Purchase and installation of
machinery and equipment 163,225
- --------------------------------------------------------------------------------------------------------
(03) Purchase of real estate
- --------------------------------------------------------------------------------------------------------
(04) Acquisition of other business(es)
- --------------------------------------------------------------------------------------------------------
(05) Repayment of indebtedness 117,000 325,000
- --------------------------------------------------------------------------------------------------------
(06) Working capital
- --------------------------------------------------------------------------------------------------------
Temporary investment (specify)
- --------------------------------------------------------------------------------------------------------
(07) Certificates of Deposits $ X $ 2,154,000
- --------------------------------------------------------------------------------------------------------
(08) Money Market X 1,467,277
- --------------------------------------------------------------------------------------------------------
(09)
- --------------------------------------------------------------------------------------------------------
(10)
- --------------------------------------------------------------------------------------------------------
Other purposes (specify)
- --------------------------------------------------------------------------------------------------------
(11) Administrative and Professionals X $ 124,524 $ 474,569
- --------------------------------------------------------------------------------------------------------
(12)
- --------------------------------------------------------------------------------------------------------
(13) Inventory and Components 59,204 413,374
- --------------------------------------------------------------------------------------------------------
(14) Research and Development 205,811 183,510
- --------------------------------------------------------------------------------------------------------
(15) Product Marketing 110,131 179,154
- --------------------------------------------------------------------------------------------------------
(16) Sales and Promotion 0 355,104
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
12. Do the uses(s) of proceeds in item 11 represent a material change in the
use(s) of proceeds described in the prospectus?
YES NO
|_| |X|
If yes, explain briefly
---------------------------------------------------
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--------------------------------------------------------------------------
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<PAGE>
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
<PAGE>
PART II - OTHER INFORMATION - CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(i) Those exhibits required to be furnished in response
to this item, other than parts of Exhibit 10 and all
of Exhibit 27, were furnished in connection with the
Company's:
(A) Registration Statement on Form SB-2, File
No. 33-16451 as filed with the Securities
Exchange Commission on November 20, 1996,
and as amended by Amendment No. 1 thereto
filed on January 10, 1997, Amendment No. 2
thereto filed February 7, 1997 and Amendment
No. 3 thereto filed February 14, 1997 and as
supplemented by supplement dated April 9,
1997, all of which are incorporated herein
by reference.
(B) The Company's annual report on Form 10-KSB
for the year ended December 31, 1996 as
filed on March 31, 1997 and,
(C) The Company's quarterly reports on Form
10-QSB for the quarters ended March 31, 1997
and June 30, 1997 as filed on May 15, 1997
and as amended on May 20, 1997, and
August 14, 1997.
(ii) Exhibit 10 - Material Contracts
None
(iii) Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SAC Technologies, Inc.
(the "Registrant")
Date: November 14, 1997 /s/ Barry Wendt
----------------------------------------
Barry Wendt, Chief Executive Officer
/s/ Gary Wendt
----------------------------------------
Gary Wendt, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,001,356
<SECURITIES> 0
<RECEIVABLES> 101,325
<ALLOWANCES> 3,000
<INVENTORY> 388,649
<CURRENT-ASSETS> 4,672,272
<PP&E> 212,339
<DEPRECIATION> 34,524
<TOTAL-ASSETS> 4,867,605
<CURRENT-LIABILITIES> 400,508
<BONDS> 0
0
0
<COMMON> 74,375
<OTHER-SE> 4,392,722
<TOTAL-LIABILITY-AND-EQUITY> 4,867,605
<SALES> 118,318
<TOTAL-REVENUES> 349,785
<CGS> 141,290
<TOTAL-COSTS> 243,786
<OTHER-EXPENSES> 1,935,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,897
<INCOME-PRETAX> (1,681,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,681,963)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
</TABLE>
