SAC TECHNOLOGIES INC
10QSB, 1998-11-16
COMPUTER COMMUNICATIONS EQUIPMENT
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                     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, 1998

[ ]    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 5, 1998: 7,510,867.


<PAGE>


                             SAC TECHNOLOGIES, INC.

                                      INDEX


                                                                            Page
                                                                            ----

PART I.  FINANCIAL INFORMATION

   Item 1 - Financial Statements

      Balance sheets as of December 31, 1997 and September 30, 1998           3

      Statements of operations for the three and nine months ended
         September 30, 1997 and 1998, and January 7, 1993 (date of
         inception) through September 30, 1998                                4

      Statements of cash flows for the three and nine months ended
         September 30, 1997 and 1998, and January 7, 1993 (date of
         inception) through September 30, 1998                                5

      Notes to interim financial statements                                   6

   Item 2 - Management's Discussion and Analysis of Financial Condition
      and Results of Operations                                              12

PART II.  OTHER INFORMATION

   Item 1 - Legal proceedings                                                18
   Item 2 - Changes in securities                                            18
   Item 3 - Defaults upon senior securities                                  19
   Item 4 - Submission of matters to a vote of security holders              19
   Item 5 - Other events                                                     19
   Item 6 - Exhibits and reports on Form 8-K                                 19


                                       2

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                     ASSETS
                                                                        December 31,     September 30,
                                                                            1997              1998
                                                                        -----------       -----------
                                                                                          (unaudited)
<S>                                                                     <C>               <C>        
CURRENT ASSETS
   Cash and cash equivalents                                            $ 3,351,753       $ 2,036,238
   Accounts receivable, net                                                  56,770           125,638
   Inventories                                                              464,927           413,035
   Prepaid expenses                                                         110,760           185,087
                                                                        -----------       -----------

      Total current assets                                                3,984,210         2,759,998

EQUIPMENT AND FURNITURE AND FIXTURES - AT COST, less
   accumulated depreciation                                                 163,966           151,251

OTHER ASSETS (note 4)                                                        17,518           274,118
                                                                        -----------       -----------

                                                                        $ 4,165,694       $ 3,185,367
                                                                        ===========       ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
   Accounts payable                                                     $   288,688       $   261,018
   Accrued liabilities and other (note 5)                                   235,323            95,274
   Convertible debentures, net of discount of $508,200 (note 6)                  --         1,991,800
                                                                        -----------       -----------

      Total current liabilities                                             524,011         2,348,092


COMMITMENTS AND CONTINGENCIES  (note 9)                                          --                --

STOCKHOLDERS' EQUITY (DEFICIT) (note 7)
   Common stock - authorized, 20,000,000 shares of $.01 par value;
      issued and outstanding, 7,461,367 and 7,510,867 shares                 74,614            75,108
   Additional contributed capital                                         7,241,690         8,960,136
   Deficit accumulated during the development stage                      (3,583,666)       (8,126,963)
   Unearned compensation                                                    (90,955)          (71,006)
                                                                        -----------       -----------
                                                                          3,641,683           837,275
                                                                        -----------       -----------

                                                                        $ 4,165,694       $ 3,185,367
                                                                        ===========       ===========
</TABLE>


            See accompanying notes to interim financial statements.


                                       3

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                            STATEMENT OF OPERATIONS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                                                         January 7,
                                                                                                                       1993 (date of
                                                         Three months ended                 Nine months ended            inception)
                                                            September 30,                     September 30,               through
                                                    ----------------------------      ----------------------------     September 30,
                                                        1997             1998             1997             1998             1998
                                                    -----------      -----------      -----------      -----------      ----------- 
<S>                                                 <C>              <C>              <C>              <C>              <C>        
Revenues
   Product sales                                    $    74,008      $    63,170      $   118,318      $   344,762      $   497,546
   Reimbursed research and development                       --               --           36,000           10,200          284,506
   Technical support and other services                  78,677               --          195,467            7,750          429,885
                                                    -----------      -----------      -----------      -----------      ----------- 
                                                        152,685           63,170          349,785          362,712        1,211,937
Costs and other expenses
   Cost of product sales                                 60,137          394,659          141,290          955,172        1,187,011
   Cost of technical support and other services          54,244               --          102,496            1,846          237,078
   Selling, general and administrative                  689,111          608,884        1,591,019        2,489,590        5,283,225
   Research and development                             119,995          329,666          344,662        1,324,285        2,619,508
                                                    -----------      -----------      -----------      -----------      ----------- 
                                                        923,487        1,333,209        2,179,467        4,770,893        9,326,822
                                                    -----------      -----------      -----------      -----------      ----------- 

      Operating loss                                   (770,802)      (1,270,039)      (1,829,682)      (4,408,181)      (8,114,885)

Other income (expense)
   Interest and other income                             62,608           36,836          151,616           81,684          282,323
   Interest expense                                          --         (216,800)          (3,897)        (216,800)        (256,304)
                                                    -----------      -----------      -----------      -----------      ----------- 
                                                         62,608         (179,964)         147,719         (135,116)          26,019
                                                    -----------      -----------      -----------      -----------      ----------- 

   NET LOSS                                         $  (708,194)     $(1,450,003)     $(1,681,963)     $(4,543,297)     $(8,088,866)
                                                    ===========      ===========      ===========      ===========      =========== 

Basic and diluted loss per common share             $      (.10)     $      (.19)     $      (.24)     $      (.61)     $     (1.51)
                                                    ===========      ===========      ===========      ===========      =========== 

Weighted average number of shares outstanding         7,437,500        7,510,106        6,992,000        7,488,998        5,343,499
                                                    ===========      ===========      ===========      ===========      =========== 
</TABLE>

             See accompanying notes to interim financial statements.


                                       4

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                            STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                                                       January 7,
                                                                    Three months                 Nine months           1993 (date
                                                                 ended September 30,         ended September 30,      of inception)
                                                              -------------------------   -------------------------      through
                                                                  1997          1998          1997          1998          1998
                                                              -----------   -----------   -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>           <C>           <C>         
Increase (Decrease) in Cash and Cash Equivalents

Cash flows from operating activities
  Net loss                                                    $  (708,194)  $(1,450,003)  $(1,681,963)  $(4,543,297)  $(8,088,866)
  Adjustments to reconcile net loss to net cash used
   in operating activities:
    Depreciation                                                   13,171        12,000        30,789        40,500        85,605
    Amortization
      Warrants                                                         --        16,800            --        16,800        20,967
      Unearned compensation                                        18,940        23,052        46,440        78,468       153,722
      Deferred financing costs                                         --        23,400            --        23,400        23,400
      Convertible debentures discount                                  --       200,000            --       200,000       200,000
    Allowance for uncollectible receivables                            --            --            --            --        99,000
    Write-down of inventory                                            --       300,000            --       500,000       500,000
    Interest converted to common stock                                 --            --            --            --         1,841
    Revenues realized due to offset of billings
     against a stock repurchase                                        --            --            --            --      (170,174)
    Options issued for license rights                                  --            --            --       200,000       200,000
    Option issued in connection with distribution agreement            --            --            --       352,650       352,650
    Acquired research and development                                  --            --            --            --       117,000
    Warrants issued for services                                       --        37,500        27,500        37,500        65,000
    Warrants issued for underwriter termination of first
     right of refusal                                                  --      (172,000)           --       132,000       132,000
    Contribution of services                                           --            --            --            --        11,250
    Non-cash exercise of stock options                                 --            --            --            --        21,593
    Change in assets and liabilities:
      Accounts receivable                                        (108,448)      (67,433)     (195,388)      (68,868)     (224,638)
      Inventories                                                 (95,140)       (2,437)     (282,420)     (448,108)     (913,035)
      Prepaid expense                                               8,289       (20,826)      (76,392)      (74,327)     (185,087)
      Accounts payable                                            (91,152)     (176,771)     (108,099)      (27,670)      221,018
      Accrued liabilities                                         230,484        17,688       288,133      (140,049)      146,235
                                                              -----------   -----------   -----------   -----------   -----------
                                                                  (23,856)      190,973      (269,437)      822,296       858,347
                                                              -----------   -----------   -----------   -----------   -----------

        Net cash used in operating activities                    (732,050)   (1,259,030)   (1,951,400)   (3,721,001)   (7,230,519)

Cash flows from investing activities
    Capital expenditures                                          (45,365)       (3,632)     (166,668)      (27,785)     (236,856)
    Security deposits                                                (800)           --        (8,101)           --       (12,984)
    Patents and trademarks                                             --            --            --            --        (4,534)
                                                              -----------   -----------   -----------   -----------   -----------

        Net cash used for investing activities                    (46,165)       (3,632)     (174,769)      (27,785)     (254,374)

Cash flows from financing activities
    Restricted cash                                                    --     2,320,000            --            --            --
    Net payments under short-term borrowing agreements                 --            --      (330,000)           --      (117,000)
    Issuance of convertible bridge notes                               --            --            --            --       175,000
    Issuance of  convertible debentures                                --            --            --     1,775,000     1,775,000
    Issuance of warrants and convertible debentures discount           --            --            --       725,000       750,000
    Deferred financing costs                                           --            --            --      (180,000)     (180,000)
    Exercise of stock options                                          --         7,875            --       113,271       162,299
    Sales of common stock                                              --            --     6,368,392            --     7,093,832
    Redemption of common stock                                         --            --            --            --      (138,000)
                                                              -----------   -----------   -----------   -----------   -----------

        Net cash provided by financing activities                      --     2,327,875     6,038,392     2,433,271     9,521,131
                                                              -----------   -----------   -----------   -----------   -----------

        Net increase (decrease) in cash and cash equivalents     (778,215)    1,065,213     3,912,223    (1,315,515)    2,036,238

Cash and cash equivalents, at beginning of period               4,779,571       971,025        89,133     3,351,753            --
                                                              -----------   -----------   -----------   -----------   -----------

Cash and cash equivalents, at end of period                   $ 4,001,356   $ 2,036,238   $ 4,001,356   $ 2,036,238   $ 2,036,238
                                                              ===========   ===========   ===========   ===========   ===========
</TABLE>


             See accompanying notes to interim financial statements.


                                       5

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                      NOTES TO INTERIM FINANCIAL STATEMENTS
         December 31, 1997, and September 30, 1997 and 1998 (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, 1997.

2.    Liquidity Matters

      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, principally to affiliates
      of the Company, and has accumulated losses since inception of $8,088,866,
      of which $4,543,297 was incurred during the nine months ended September
      30, 1998. The Company believes operating losses will continue for the
      foreseeable future.

      As discussed at Item 2 "Management's Discussion and Analysis of
      Financial Condition and Results of Operations" the Company is not
      currently in technical compliance with certain listing requirements of the
      NASDAQ Small Cap Market. The Company has not been formally notified of
      such noncompliance by NASDAQ. Should the Company be unable to cure such
      events of technical noncompliance it could be delisted from NASDAQ. As a
      result, if the Company is delisted, in addition to the consequences and
      associated risks previously described in the Company's quarterly and
      annual reports filed under the Securities Exchange Act of 1934, it could
      put the Company in default under the terms of the Company's $2,500,000
      convertible debentures and could accelerate the repayment thereof. In
      addition, without considering the impact of a demand to repay the
      convertible debentures, the Company believes its existing cash will not be
      adequate to fund the expansion and distribution of its product offerings,
      and it anticipates it will need to raise additional funds to support
      operations.

      Should demand be made for repayment of the convertible debentures, the
      Company does not have the necessary capital to repay the $2,500,000
      convertible debentures. Should demand not be made, the Company's existing
      cash may only last until second quarter 1999 based on the Company's 
      current cash burn rate.

      Management is in discussions with a financial broker to raise additional
      capital to support its operations. No assurances can be given that any
      form of additional financing will be available on terms acceptable to the
      Company, that adequate financing will be obtained to meet its needs, or
      that such financing would not be dilutive to existing stockholders.

      If the Company does not obtain adequate financing by year end, the Company
      expects its accountants will include a going concern reference in their
      opinion on the December 31, 1998 financial statements.


                                       6

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                      NOTES TO INTERIM FINANCIAL STATEMENTS
         December 31, 1997, and September 30, 1997 and 1998 (unaudited)

3.    Loss Per Common Share

      Basic loss per share is calculated by dividing the net loss attributable
      to common stockholders by the number of weighted average common shares
      outstanding. Diluted earnings per share were calculated by dividing the
      net loss attributable to common stockholders by the weighted average
      common shares, and when dilutive, options, warrants and convertible
      securities outstanding using the treasury stock method. There was no
      difference between basic and dilutive loss per share for all periods
      presented as the impact would have been antidilutive.

4.    Other Assets
                                                   December 31,   September 30,
                                                       1997            1998
                                                     --------        --------
      Security deposits                              $ 12,984        $ 12,984
      Patents pending                                   4,534           4,534
      Deferred finance costs, less accumulated 
        amortization of $23,400 as of September 30,
        1998                                               --         256,600
                                                     --------        --------

                                                     $ 17,518        $274,118
                                                     ========        ========

      Of the above deferred finance costs, $100,000 was a non-cash transaction
      resulting from granting stock warrants for 50,000 shares of common stock
      in connection with a private convertible debenture offering (see note 7).

5.    Accrued Liabilities and Other
                                                   December 31,   September 30,
                                                       1997            1998
                                                     --------        --------

      Compensation                                   $232,105        $ 61,882
      Deferred revenues                                    --          27,222
      Other                                             3,218           6,170
                                                     --------        --------

                                                     $235,323        $ 95,274
                                                     ========        ========

      Included in accrued compensation as of December 31, 1997 and September 30,
      1998 is $218,438 and $46,215, respectively, which is the remaining amount
      payable from a severance agreement with the Company's former Chief
      Operating Officer.


                                       7

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                      NOTES TO INTERIM FINANCIAL STATEMENTS
         December 31, 1997, and September 30, 1997 and 1998 (unaudited)

6.    Convertible Debentures

      On June 30, 1998, the Company sold to Shaar Fund, Ltd., an international
      investment fund, $2,500,000 of 5% convertible debentures due June 30,
      2001. At the Company's option, an additional $1,000,000 of 5% convertible
      debentures may be sold to Shaar Fund, Ltd. if certain targets are met,
      including certain minimum share price and trading volume levels for the
      Company's common stock. No assurances can be given that the Company will
      meet the targets to be able to exercise the option on the $1,000,000 of
      additional convertible debentures discussed above.

      The debentures are convertible into shares of the Company's common stock
      in increments beginning 120 days from June 30, 1998 and are fully
      convertible after 181 days. The conversion price equals the lesser of (a)
      110% of the closing bid price of the common stock on June 29, 1998, or (b)
      the average closing bid price for a five-day period ending the day prior
      to the notice of conversion multiplied by a discount factor, which
      increases over time from 15% to 22%.

      The convertible debentures are redeemable at the option of the Company
      under certain circumstances. The Company was obligated to file, and has
      filed a registration statement (not yet effective) covering the resale of
      the shares of common stock underlying the debentures and the detachable
      warrants, among other securities.

      The $525,000 estimated fair value of the debenture conversion feature has
      been reflected as a discount to the 5% convertible debentures issued and
      will be amortized as additional interest expense principally through
      February 26, 1999, the date the debenture holder is able to convert their
      debenture at the maximum 22% discount discussed above.

      In connection with the convertible debentures, the Company granted a
      warrant to purchase 100,000 shares of common stock to Shaar Fund, Ltd. The
      $200,000 estimated fair market value of the warrant has been reflected as
      a discount to the 5% convertible debentures issued and will be amortized
      as additional interest expense over the term of the debentures. In
      connection with this transaction, a warrant to purchase 200,000 shares of
      common stock was also issued to Tuschner & Company, Inc. (TCI),
      underwriter for the Company's initial public offering, as part of an
      agreement in which TCI agreed to waive all future rights of first refusal
      to sell the Company's securities; the right to 66,000 of such shares vests
      immediately and the right to 134,000 of such shares vests upon the
      occurrence of certain events discussed at note 9. The $132,000 estimated
      fair market value of the portion of the warrant which vested immediately
      has been reflected as a component of selling, general and administrative
      expenses for the nine months ended September 30, 1998. The $268,000
      estimated fair market value of the remaining portion of the warrant which
      did not vest immediately may be offset against proceeds from a future
      public offering, if one occurs (see notes 7 and 9). See note 7 for
      discussion of revised estimates (for the second quarter June 30, 1998)
      regarding the valuation of the above warrants during the third quarter
      ended September 30, 1998.


                                       8

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                      NOTES TO INTERIM FINANCIAL STATEMENTS
         December 31, 1997, and September 30, 1997 and 1998 (unaudited)

6.    Convertible Debentures - Continued

      The convertible debentures agreement contains certain dilution and
      conversion price adjustment provisions under if certain events occur, as
      defined. In addition, the Company is required to meet certain covenants,
      including the maintenance of its listing in the NASDAQ Small Cap Market.
      As discussed at Note 2, the Company was not in technical compliance with
      the NASDAQ Small Cap Market listing requirements as of September 30, 1998,
      and if demand is made, the convertible debentures could become due and
      payable. Accordingly, the convertible debentures have been classified as a
      current liability in the accompanying financial statements because it
      could become immediately due and payable in full, if the Company is 
      delisted.

7.    Stockholders' Equity

      The following summarizes option activity since December 31, 1997:

<TABLE>
<CAPTION>
                                         Number
                        Date of    -------------------
                         Grant,              Non-plan
                        Exercise              options
                           or        1996       and      Exercise
                       Expiration    Plan     warrants     Price              Vesting            Expiration      Issued to
                       ----------  -------   ---------   --------   ---------------------------  ----------   ----------------
<S>                    <C>         <C>       <C>         <C>        <C>                          <C>          <C>
Balance December 31,
   1997                       --   451,166     297,216    $   --               --                       --           --

   Option grant           1/1/98     2,500          --     10.75    125 shares per quarter          1/1/05    Employee

   Option grant           2/2/98    10,000          --      8.56    500 shares per quarter          2/1/05    Employee

   Option grant          2/13/98        --      48,000      6.42    12,000 shares immediately;     2/13/08    An entity the
                                                                    3,000 per quarter                         Company entered
                                                                    Thereafter                                into a license
                                                                                                              agreement with

   Option grant           3/1/98    40,000          --      8.29    2,000 shares per quarter        3/1/05    Employee

   Option grant          4/13/98        --     100,000      8.46    75,000 upon payment for        4/13/05    ATM (see Item 2)
                                                                    1,000 SACcat units and
                                                                    25,000 if ATM purchases
                                                                    And pays for an additional
                                                                    1,000 units by July 1, 1998

   Option grant          6/20/98     8,000          --      6.56    400 shares per quarter         6/20/05    Employee

   Warrant grant         6/30/98        --     100,000      7.29    Immediately                    6/30/03    Shaar Fund, Ltd.

   Warrant grant         6/30/98        --      50,000      7.29    Immediately                    6/30/03    Company
                                                                                                              arranging Shaar
                                                                                                              financing

   Warrant grant         6/30/98        --     200,000      7.50    66,000 immediately;            6/30/03    Tuschner & Co.
                                                                    134,000 at closing of the
                                                                    Next "public offering"

   Option granted        9/15/98        --     375,000      3.00    Fully vested after 3 months    9/15/03    McCap, Inc.


   Options exercised     Various   (42,000)     (7,500)       --               --                       --           --

   Options cancelled     Various   (30,000)         --        --               --                       --           --
                                   -------   ---------

Balance, September 30,
   1998                            439,666   1,162,716
                                   =======   =========

Exercisable,
   September 30, 1998               86,447     651,816
                                   =======   =========
</TABLE>


* As of July 1, 1998, ATM did not meet its purchase requirements in order to
  vest in the remaining 25,000 shares under the option.


                                       9
<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                      NOTES TO INTERIM FINANCIAL STATEMENTS
         December 31, 1997, and September 30, 1997 and 1998 (unaudited)

7.    Stockholders' Equity - Continued

      The difference between the option exercise price and estimated fair value
      of common stock at the date of grant for the option to purchase 40,000
      shares of common stock is $58,520 and has been reflected as unearned
      compensation in the Company's financial statements to be recognized as a
      non-cash component of selling, general and administrative expense over the
      five-year vesting term of the stock option agreement. The estimated fair
      market value of the option to purchase 48,000 shares of common stock of
      $200,000 has been reflected as a non-cash component of research and
      development costs for the nine months ended September 30, 1998. The
      estimated fair market value of the option to purchase 75,000 shares of
      common stock of $352,600, has been reflected as a non-cash component of
      selling, general and administrative expenses for the nine months ended
      September 30, 1998. In September the Company issued the McCap, Inc. Agency
      an option to purchase 375,000 shares of common stock. The $37,500
      approximate fair market value of the option has been reflected as a
      non-cash component of selling, general and administrative expenses for the
      nine months ended September 30, 1998. See note 6 for additional
      information regarding the estimated fair market value of other warrants
      granted.

      Based upon additional outside valuation assistance, the Company lowered
      its previous estimate of the fair market value of certain warrant
      issuances due to the lack of marketability as follows:

                                           Number
                               Date          of          Original       Revised
                              issued      Warrants         Value         Value
                              ------      --------         -----         -----

      Shaar                   6/30/98     100,000         $470,000      $200,000
      CCM                     6/30/98      50,000          230,000       100,000
      Tuschner                6/30/98      66,000          304,000       132,000

      The majority of the impact of the above was to the balance sheet as of
      June 30, 1998. However, approximately $172,000 of the above would have
      resulted in a non-cash reduction of reported net loss for the second
      quarter ended June 30, 1998.

8.    Related Party Transactions

      Included in accounts receivable as of December 31, 1997 and September 30,
      1998 are $156,895 and $139,420, respectively of amounts due from Jasper
      Consulting, Inc. During the three and nine months ended September 30, 1997
      and 1998, $63,678 and $216,467, and $20,400 and $283,329, respectively of
      revenues were recognized from transactions with ATM, Inter-Con/PC, Inc.
      and Jasper Consulting, 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. and Jasper
      Consulting, Inc.


                                       10

<PAGE>


                             SAC Technologies, Inc.
                    (a Corporation in the Development Stage)

                      NOTES TO INTERIM FINANCIAL STATEMENTS
         December 31, 1997, and September 30, 1997 and 1998 (unaudited)

8.    Related Party Transactions

      In addition, the Company had transactions with IR & D (a major stockholder
      of the Company was previously a owner and a director of IR & D through
      August 12, 1998). Accounts receivable from IR & D as of September 30, 1998
      were $12,271. Accounts payable to IR & D as of September 30, 1997 and 1998
      were $1,392 and $16,294, respectively. Purchases during the three months
      and nine months ended September 30, 1997 and 1998 were $8,147 and
      $46,884 and $29,037 and $240,019, respectively. See "Management's
      Discussion and Analysis of Financial Condition and Results of Operations"
      for further information regarding Company's relationship with IR & D.

9.    Commitments and Contingencies

      On June 30, 1998, the Company entered into an agreement with TCI whereby
      TCI agreed to waive all future rights of first refusal to sell the
      Company's securities. In exchange for this, the Company agreed to pay TCI
      $100,000, of which $34,000 was paid after closing on the sale of
      convertible debentures and $66,000 will be due if the Company closes on a
      future public offering. Payment of the $100,000 would be reduced by any
      amount TCI might receive as a non-accountable expense allowance if a
      future public offering occurs. In addition, TCI would have the right ,
      until June 30, 1999 to participate as a select dealer or co-selling agent
      or co-underwriter to the extent of ten percent (10%) of any future
      offering of securities, whether public or private, for a period of one
      year.

      During September, 1998 the Company entered into a one year agreement with
      MacCap, Inc. to help develop a strategic growth plan and to enhance
      shareholder value. The Company will pay the McCap, Inc. $10,000 a month
      for their services and, as discussed in note 7, granted McCap, Inc. an
      option to purchase 375,000 of its common stock.

      On or about August 11, 1998 a lawsuit was filed in Hennepin county
      District Court against the Company. Plaintiffs Johnson and Norenberg have
      alleged that they were wrongfully terminated or constructively discharged
      from their employment with the Company. Their complaint seeks relief in an
      amount in excess of $50,000 for each of the respective plaintiffs. The
      Company adamantly denies the validity of the plaintiff's claims or the
      extent of plaintiff's damages. It is the Company's intention to proceed
      with further discovery and move towards a motion to dismiss plaintiff's
      claims.


                                       11

<PAGE>


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

      THIS FORM 10-QSB CONTAINS 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 OF 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
      STATEMENTS ON FORM SB-2 (FILE NO. 333-16451) AND FORM S-3 AND THE
      COMPANY'S ANNUAL AND QUARTERLY REPORTS, ALONG WITH OTHER PERIODIC
      REPORTING ON FORMS 10-QSB, 10-KSB AND 8-K, AS FILED FROM TIME TO TIME WITH
      THE SEC.

      OVERVIEW

      The Company was incorporated in 1993. The Company develops and markets
      biometric technology products. To date, the Company has focused on
      developing products for use by others in specific applications and
      developing an end user product for computer security and access control
      applications. The Company's products are marketed to distributors, VAR's
      (Value Added Resellers), OEM's (Original Equipment Manufacturers) and
      system integrators in the information management and access control
      markets.

      The Company has two products currently available and it intends to devote
      significant effort in the near term to enhancing the performances and
      capabilities of these existing products. In this regard, the Company has
      licensed certain other biometric technologies that it intends to
      incorporate into its current product offerings. The Company is dependent
      upon others to incorporate such technologies with its existing and future
      products. No assurance can be given that these technologies will be
      incorporated in a manner acceptable to potential customers, that it will
      be timely implemented, or that the products' costs will be acceptable to
      the marketplace.

      The Company is considered a development stage enterprise for accounting
      purposes. 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, principally
      to affiliates of the Company, and has accumulated losses since inception
      of $8,088,866, of which $4,543,297 was incurred during the nine months
      ended September 30, 1998. The Company believes operating losses will
      continue for the foreseeable future.

      As discussed at Liquidity and Capital Resources - Other, the Company is
      not currently in technical compliance with certain listing requirements of
      the NASDAQ Small Cap Market. The Company has not been formally notified of
      such noncompliance by NASDAQ. Should the Company be unable to cure such
      events of technical noncompliance, it could be delisted from NASDAQ. As a
      result, if the Company is delisted in addition to the consequences and
      associated risks previously described in the Company's quarterly and
      annual reports filed under the Securities Exchange Act of 1934, it could
      put the Company in default under the terms of the Company's $2,500,000
      convertible debentures and could accelerate the repayment thereof. In
      addition, without considering the impact of a demand to repay the
      convertible debentures, the Company believes its existing cash will not be
      adequate to fund the expansion and distribution of its product offerings,
      and it anticipates it will need to raise additional funds to support
      operations.

      Should demand be made for repayment of the convertible debentures, the
      Company does not have the necessary capital to repay the $2,500,000
      convertible debentures. Should demand not be made, the Company's existing
      cash may only last until second quarter 1999 based on the Company's 
      current cash burn rate.

      Management is in discussions with a financial broker to raise additional
      capital to support its operations. No assurances can be given that any
      form of additional financing will be available on terms acceptable to the
      Company, that adequate financing will be obtained to meet its needs, or
      that such financing would not be dilutive to existing stockholders.

      If the Company does not obtain adequate financing by year end, the Company
      expects its accountants will include a going concern reference in their
      opinion on the December 31, 1998 financial statements.

                                       12
<PAGE>


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

      OVERVIEW (CONTINUED)

      During October 1996, the Company completed initial development of a
      product designed to provide for basic personal computer functions and
      Internet access via a wireless keyboard and a conventional television set
      (the "Set Top Box"). However, the Company did not believe that the
      promotion and marketing of the Set Top Box was within its focus and,
      accordingly, conveyed the technology in exchange for an initial 50% (35.8%
      as of December 31, 1997) ownership interest in Inter-Con/PC, Inc.
      ("Inter-Con"), a development stage Company. The Company had a technical
      support agreement with Inter-Con which provided for Inter-Con to pay
      technical support fees to the Company of up to $20,000 per month.
      Effective December 31, 1997, the technical support and development
      agreement between the Company and Inter-Con was terminated.

      By current agreement, Jasper (a former stockholder) 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 has been engaged an
      ongoing efforts redefine the parties obligations and is not relying on
      these potential sources of revenue from Jasper or its interest in
      Inter-Con to significantly impact its results of operations.

      In April 1998 the Company received certification in the first round of
      biometric testing from the International Computer Security Association, a
      leading independent certification organization. Of the six participating
      vendors, SAC was the only vendor who participated and received
      certification in the identification ("one to many") category.

      In June 1998, the Company integrated Pinnacle Technology's "Trusted
      Desktop Commander(TM)" security software with its SACcat biometric
      "identification" technology which includes workstation log-on and screen
      saver lockout to provide for convenient point and click configuration
      access and control of Windows 95 and 98, tied to a user's actual identity.
      The product is currently available for installation by MIS and system
      administrators. The Company is currently working on the development of a
      simplified end user point and click product. No assurances can be given
      that this will be developed timely or in a cost effective manner, or that
      it will be accepted in the marketplace.


                                       13

<PAGE>


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

      OVERVIEW (CONTINUED)

      The Company has integrated Key Ware Technologies "voice verification
      technology" with its SACMan Developer Toolkit. This product offers a
      fingerprint identification and voice verification solution to security
      needs. This product is not yet available in the Company's SACcat product
      line. No assurances can be given that the Company will be able to
      successfully introduce the Key Ware Technology into its SACcat product or
      that significant revenues will ever develop from products into which the
      Company incorporates the Key Ware Technology.

      In June 1998, the Company completed its evaluation of Imedge Technology's
      holographic fingerprint imaging technology and currently intends to
      exercise an option to acquire the exclusive use of Imedge's holographic
      fingerprint technology, subject to negotiation of terms and the signing of
      a definitive agreement. The Company believes the benefits to be derived
      from this technology include a potential cost reduction from its current
      optics componentry and a significant reduction in the size of certain of
      its optics components. No assurances can be given that an agreement will
      be entered into on acceptable terms to the Company, or that such an
      agreement would not result in any significant dilution to stockholders or
      that the technology will achieve the Company's intended objectives.

      During September 1998, the Company's two outside directors resigned. In
      November of 1998, the Company's two outside director positions were
      filled.

      Also, during September 1998, the Company entered into a one year agreement
      with McCap, Inc. to help develop a strategic growth plan and to enhance
      shareholder value. As part of its compensation the Company granted the
      agency an option to purchase 375,000 shares of the Company's stock at
      $3.00 a share. The options are fully vested after three months. The
      Company will pay McCap, Inc. $10,000 a month for their services.

      The Company does not anticipate adding any additional employees during
      1998. The Company anticipates ongoing research and development expenses
      during 1998 at a level greater than that experienced for the year ended
      December 31, 1997. The Company anticipates accounts receivable and
      inventory levels, and selling, general and administrative expenses will
      increase significantly in connection with its continuing transition to
      marketing and selling its products.

      RESULTS OF OPERATIONS

      THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO 
      SEPTEMBER 30, 1998:

      Revenues

      Total revenues decreased $89,515 during the three months ended September
      30, 1998 to $63,170 as compared to $152,685 for the same period in 1997.
      Total revenue increased $12,927 during the nine months ended September 30,
      1998 to $362,712 as compared to $349,785 for the same period in 1997.

      Revenues from product sales decreased $10,838 during the three months
      ended September 30, 1998 to $63,170 as compared to $74,008 for the same
      period in 1997. Revenue from product sales increased $226,444 during the
      nine months ended September 30, 1998 to $344,762 as compared to $118,318
      for the same period in 1997; these revenues were primarily from sales to
      ATM, a related party and a distributor of the Company (see below), and, to
      a lesser extent, include sales of SACMan Developer Tool Kit Systems to
      entities developing or investigating the development of applications which
      may utilize the Company's products.


                                       14

<PAGE>


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

      RESULTS OF OPERATIONS (CONTINUED)

      Revenues - Continued

      Revenues from reimbursed research and development decreased $25,800 to
      $10,200 during the nine months ended September 30, 1998. These revenues
      related to collection of previously unrecognized research and development
      billings to Jasper, which are being recognized on the cash basis of
      accounting. No assurances can be given that any additional amounts will be
      collected in the future.

      Revenues from technical support and other services, which were primarily
      from Jasper and Inter-Con, decreased $78,677 to $0 for the three months
      ended September 30, 1998 and decreased $187,717 to $7,750 for the nine
      months ended September 30, 1998. As previously discussed, the technical
      support agreement with Inter-Con was mutually terminated effective
      December 31, 1997. No assurance can be given that any additional technical
      support or other revenues will be realized from Jasper in the future, nor
      is this a primary focus of the Company.

      Effective April 13, 1998, the Company signed a Distribution Agreement with
      Aultimate Technology Marketing (ATM). Terms of the agreement include the
      following: ATM was to purchase 1,000 SACcat units or SACMan Developer Tool
      Kits or a mixture thereof, of which 760 units had been purchased and paid
      for as of September 30, 1998; ATM was to receive preferential pricing on
      additional product purchases; ATM became a distributor of the Company's
      products; ATM issued the Company an option to acquire up to 400,000 shares
      of its common stock at $.25 per share, exercisable for seven years; and
      the Company granted ATM an option to purchase 100,000 shares of its common
      stock (see note 7 to the interim financial statements). Due to the
      interrelationships of the parties involved, revenues from this transaction
      will only be recognized by the Company when ATM resells or otherwise uses
      the product and can recognize revenue pursuant to generally accepted
      accounting principles. As of September 30, 1998, there was $27,222 of
      deferred revenue related to sales made to ATM. Sales made to ATM are 
      covered under the Company's standard return policy.

      Costs and Other Expenses

      Cost of product sales exceeded revenues from product sales by $331,489
      during the three months ended September 30, 1998, and $610,410 for the
      nine month period ended September 30, 1998 as compared to $22,972 for the
      nine-month period ended September 30, 1997. This principally was due to
      the $300,000 and $500,000 (cumulative) write down of inventory to its net
      realizable value during the three and nine months ended September 30,
      1998, respectively. The remaining variances were primarily from salaries
      associated with the production of a limited amount of units.

      The principal supplier of the Company's optical components to date has
      been Industrial Research and Development, Inc. ("IR&D"), a company
      formerly owned by Rick Fiskum, an officer and director of the Company. Mr.
      Fiskum retained a directorship with IR&D through August 12, 1998 at which
      time he resigned. Mr. Fiskum retains a consulting relationship with IR&D
      and as a result of this and the previous buyout of his ownership interest
      in IR&D, will continue to receive ongoing payments from IR&D.


                                       15

<PAGE>


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

      RESULTS OF OPERATIONS (CONTINUED)

      Costs and Other Expenses - Continued

      As discussed above, in an effort to reduce its product costs, the Company
      is considering to exercise an option to purchase certain imaging
      technology to replace some of its current optics componentry.
      Additionally, the Company intends to explore offshore manufacturing
      opportunities and is trying to redefine its relationship with Jasper. No
      assurances may be given that the above objectives will be achieved or that
      it would result in a reduction of product costs that will lead to the
      Company becoming profitable.

      Selling, general and administrative expenses decreased $80,227 to $608,884
      during the three months ended September 30, 1998 and increased $898,571 to
      $2,489,590 for the nine month period ended September 30, 1998, as compared
      to the three and nine month period ended September 30, 1997. Of the
      increase for the three and nine months ended September 30, 1998, $10,865
      and $128,756 related to additional salaries and wages for sales and
      administrative personnel, $133,685 and $155,643 was related to
      professional fees, and $37,500 and $522,150 was principally due to
      non-cash charges related to the approximate value of a warrant granted to
      ATM as part of a sales distribution arrangement (see above), a warrant
      granted to TCI in order to terminate its right of first refusal of future
      public offerings (see note 6 to the interim financial statements) and a
      non-cash charge related to the approximate fair market value of a option
      granted to McCap, Inc. to help develop a strategic growth plan and to
      enhance shareholder value, $7,413 and $44,005 was due to completion of the
      installation of the Company's internal computer network, $30,391 and
      $48,511 related to promotional equipment given to potential customers for
      marketing purposes. The above were offset by a decrease of $250,000 and
      $334,456, respectively for costs associated with employee recruiting and
      moving, and a one time charge for the severance package for the COO who
      was terminated in October, 1997. Also, $172,000 reduction of expense was
      recorded in the three month period ended September 30, 1998. This was due
      to the Company lowering the estimated fair market value of one of the
      warrants it issued during the second quarter ended June 30, 1998. See
      footnote 7 for more information.

      Research and development expenses increased $209,671 to $329,666 during
      the three months ended September 30, 1998 and increased $979,623 to
      $1,324,285 for the nine months ended September 30, 1998 as compared to the
      three and nine months ended September 30, 1997. Of the increase for the
      three and nine months ended September 30, 1998, $130,000 and $490,750 was
      related to licensing and integration costs associated with technologies
      the Company plans to incorporate into its SACcat product, and $0 and
      $200,000 respectively was related to a non-cash charge for the estimated
      fair market value of an option granted to an entity with which the Company
      entered into a license agreement. The above costs were expensed because
      the realizability of cash flows from the licenses was no longer being
      projected. The remaining increase is attributable to increased development
      activity for the Company to commercialize and evolve certain of its
      products.

      Interest expense increased $216,800 to $216,800 during the three months
      ended September 30, 1998 and increased $212,903 to $216,800 for the nine
      months ended September 30, 1998 as compared to the three and nine months
      ended September 30, 1997, the increase is due to the recent issuance of
      the convertible debenture. The Company expects interest expense will
      increase in the future in connection with the convertible debentures
      financing.


                                       16

<PAGE>


      LIQUIDITY AND CAPITAL RESOURCES

      Since January 7, 1993 (date of inception), the Company's capital needs
      have been principally met as follows: (i) by a February 1997 initial
      public offering of 2,420,000 shares of common stock at $3.00 per share
      which resulted in net proceeds of $6,220,331, after deduction of offering
      expenses; (ii) a July 1996 $700,000 private placement of common stock;
      (iii) a May 1996 sale of $200,000 of convertible bridge notes (converted
      to common stock in 1996) and warrants to purchase 50,000 shares of common
      stock; and (iv) a $2,500,000 1998 private offering of convertible
      debentures (see note 6 to the interim financial statements for the terms
      of the debentures).

      Net cash used in operating activities during the nine months ended
      September 30, 1998 was $3,721,001 and was principally due to operating
      losses. Net cash used for investing activities during the same period was
      $27,785. Net cash provided by financing activities during the same period
      was $2,433,271 and was principally from cash received from the issuance of
      the convertible debenture.

      See "Overview" above regarding a discussion of the Company's capital
      needs.

      Working capital decreased $3,048,293 during the nine months ended
      September 30, 1998 to $411,906 as compared to $3,460,199 as of December
      31, 1997. This decrease is principally due to cash used in operating
      activities. Additionally, during the nine months ended September 30, 1998,
      there was a $448,108 increase in inventories which was attributable to
      purchasing component parts for its products for future production.

      See notes 6 and 7 to the interim financial statements for information
      regarding stock option and warrant transactions.

      OTHER

      As of September 30, 1998, the Company was not in technical compliance with
      certain provisions of the NASDAQ Small Cap Market, listing maintenance
      requirements, namely minimum capitalization or net worth provisions, and
      maintenance of two independent directors. The Company has since recruited
      and named two independent directors. The Company has not been notified by
      NASDAQ of the minimum capitalization or net worth noncompliance. If they
      are given formal notice they will have 10 days to cure such event of
      noncompliance or loose their NASDAQ listing. The loss of such listing
      would have a material adverse effect on the Company since the $2,500,000
      convertible debenture will be in default and payable; and the Company does
      not have cash on hand to repay this debenture. It would also likely
      negatively impact its ability to raise additional capital. Even if the
      Company cures any formal notification of noncompliance, given their past
      net losses, they would likely need to raise additional capital to maintain
      compliance with the net worth requirements in the future, which is not
      assured, nor is compliance with the minimum market capitalization 
      provision. (see "Overview" for discussion of liquidity).

      NEW ACCOUNTING PRONOUNCEMENTS

      In June 1997, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
      Income," applicable to entities with other comprehensive income. This
      pronouncement is effective for the year beginning January 1, 1998. The
      Company had no items of other comprehensive income, as defined, for the
      three and nine months ended September 30, 1998 and 1997.

      In June 1997, the financial Accounting Standards Board issued SFAS No.
      131, "Disclosures about Segments of an Enterprise and Related
      Information," which requires that the Company report certain information
      about operating segments. This pronouncement is effective for the year
      beginning January 1, 1998. The Company currently operates in one
      reportable segment.


                                       17

<PAGE>


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

      On or about August 11, 1998 a lawsuit was filed in Hennepin County
      District Court against the Company. Plaintiffs Johnson and Norenberg have
      alleged that they were wrongfully terminated or constructively discharged
      from their employment with the Company. Their complaint seeks relief in an
      amount in excess of $50,000 for each of the respective plaintiffs. The
      company adamantly denies the validity of plaintiff's claims or the extent
      of plaintiff's damages. It is the Company's intention to proceed with
      further discovery and move towards a motion to dismiss plaintiff's claims.

Item 2. Changes in Securities and Use of Proceeds

        Use of Proceeds from Registered Securities

        1.  The effective date of the registration statement for which this
            information is reported was February 14, 1997.

        2.  The following is a reasonable estimate of, the amount of net
            offering proceeds to the issuer used for each of the purposes listed
            below. An "X" has been placed in the box to the left of any amount
            that is an estimate.

<TABLE>
<CAPTION>
            DIRECT OR INDIRECT PAYMENT OF DIRECTORS, OFFICERS
            GENERAL PARTNERS OF THE ISSUER OR THEIR                             DIRECT OR
            ASSOCIATES; TO PERSONS OWNING TEN PERCENT OR                        INDIRECT
            MORE OF ANY CLASS OF EQUITY SECURITIES OF THE                       PAYMENTS 
            ISSUER, AND TO AFFILIATES OF THE ISSUER                             TO OTHERS
            ---------------------------------------------------                 ----------
                                                                 (A)            (B)
                                                                 -----------    ----------
<S>                                                              <C>            <C>       
            (01) Construction of Plant, Building and Facilities  $        --    $       --

            (02) Purchase and Installation of Machinery and 
                 Equipment                                                --       187,553

            (03) Purchase of Real Estate                                  --            --

            (04) Acquisition of Other Business(s)                         --            --

            (05) Repayment of Indebtedness                           117,020       325,000

            (06) Working Capital                                          --            --

            Other purposes (specify)

                                                                     Officer
                                                                    Salaries

            (07) X Professional Fees                                      --       318,422

            (08) X Administrative Salaries and Expenses                   --     1,575,610

            (09) X Inventory and Components                               --     1,000,219

            (10) X Research and Development                          402,081       393,619

            (11) X Product Marketing                                      --       632,152

            (12) X Sales Promotion                                        --       260,519

            (13) X Acquired Technology                                    --       388,517

            (14) X Feasibility Test                                       --       154,750

            (15) X Contract Assembly                                      --        97,997
</TABLE>


                                       18

<PAGE>


PART II - OTHER INFORMATION - Continued


Item 3. Defaults Upon Senior Securities

        None.

Item 4. Submission of Matters to a Vote of Security Holders

        None.

Item 5. Other Events

        None.

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 years
                    ended December 31, 1996 and 1997 as filed on March 31, 1997
                    and 1998, and

                (C) The Company's quarterly report on Form 10-QSB for the
                    quarters ended June 30, 1997 through June 30, 1998.

                    (ii)  Exhibit 10 - Material Contracts

                          None.

                    (iii) Exhibit 27 - Financial Data Schedule


        (b) Reports on Form 8-K

            The Company's current report on Form 8-K filed on July 7, 1998.


                                       19
<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 16, 1998                 /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-31-1998
<PERIOD-END>                               SEP-30-1998
<CASH>                                       2,036,238
<SECURITIES>                                         0
<RECEIVABLES>                                  224,635
<ALLOWANCES>                                    99,000
<INVENTORY>                                    413,035
<CURRENT-ASSETS>                             2,759,998
<PP&E>                                         236,856
<DEPRECIATION>                                  85,605
<TOTAL-ASSETS>                               3,185,367
<CURRENT-LIABILITIES>                        2,348,092
<BONDS>                                              0
                                0
                                          0
<COMMON>                                        75,108
<OTHER-SE>                                     762,167
<TOTAL-LIABILITY-AND-EQUITY>                 2,348,092
<SALES>                                        344,762
<TOTAL-REVENUES>                               362,712
<CGS>                                          955,172
<TOTAL-COSTS>                                  457,108
<OTHER-EXPENSES>                             3,813,875
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             216,800
<INCOME-PRETAX>                                      0
<INCOME-TAX>                                (4,543,297)
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                (4,543,297)
<EPS-PRIMARY>                                     (.61)
<EPS-DILUTED>                                     (.61)
        


</TABLE>


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