U.S. SECURITIES AND EXCHANGE COMMISSION,
Washington, D.C. 20549
FORM 10-KSB
|X| Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1997 Commission File number 333-16451
SAC TECHNOLOGIES, INC.
Minnesota 41-1741861
4444 West 76th Street, Suite 600, Edina, Minnesota 55435
(Address of principal executive offices) (Zip Code)
Issuers telephone number 612-835-7080
Securities registered under Section 12(b) of the Exchange Act:
3,170,000 Common Shares
Securities registered under Section 12(g) of the Exchange Act:
3,170,000 Common Shares
1 Warrant
Common Stock, $0.01 par value per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_ No__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this form 10-KSB. __X__
State issuer's revenues for its most recent fiscal year: $ 464,168 .
State the aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant based on the closing sale price as reported by
NASDAQ on March 26, 1998: $28,516,370.*
As of March 26, 1998, 7,472,367 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Form SB-2 (Commission File No. 333-16451) are
incorporated by reference into Item 13 of Part III.
Transitional Small Business Disclosure Formats (check one): Yes ___ No _X_
- --------
* Shares of Common Stock held beneficially by directors, executive officers and
persons known to own beneficially in excess of 5 percent of the Common Stock
have been excluded in calculating this value.
<PAGE>
PART I
This Form 10-KSB contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10- KSB 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 amendments
to this filing.
Unless the context indicates otherwise, all references to the "Company", "SAC"
"Registrant" or the "Issuer" in this Annual Report on Form 10-KSB relate to SAC
Technologies, Inc.
The SACMan, SACcat, SAC_Remote, Bio-Key, SACSecure, SACcipher and SACBook
unregistered trademarks appear in this Annual Report on Form 1O-KSB and are
owned by the Company.
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
In 1992 Jasper Consulting, Inc. ("Jasper") engaged North Country Business
Products, an office supply company located in Bemidji, Minnesota, in discussions
about the possibility of developing an automated fingerprint identification
device. North Country Business Products began a search for someone who could
engineer and develop such a product. Barry M. Wendt, the Company's CEO, was
contacted and determined that the automation of such a process was within his
abilities. Consequently, in 1995, a new company, BBG Engineering, Inc., ("BBG")
was formed by Jasper and Mr. Wendt, along with Benedict A. Wittig and Gary E.
Wendt for the purpose of developing an automated fingerprint identification
system (BBG subsequently changed its name to SAC Technologies, Inc "SAC").
Jasper agreed, in consideration of an assignment of the patent rights to certain
fingerprint identification technology ("FIDS Technology"), to fund the
development of a fingerprint identification system.
By mid-summer of 1993, SAC completed the development of the initial concepts for
electronic analysis of fingerprints. Pursuant to SAC's agreement with Jasper,
initial patent applications were filed by Jasper in the fall of 1993. Also, in
the fall of 1993 the Company acquired certain optic technology ("Optic
Technology") from Richard Fiskum to be used in conjunction with and as an
integral part of the fingerprint analysis system. Subsequently, the Company
redeemed all of the shares of the Company owned by Jasper. It was also at this
time that the Company finalized the original intention of its underlying
understandings with Jasper with respect to a licensing agreement (the "Jasper
Agreement"). From inception through most of 1996 the Company's development
efforts, which by agreement were to be funded by Jasper, but were principally
funded by the Company, focused on the development of its fingerprint
identification and analysis products. Since such time, and through the first
part of 1998, the Company has continued product development, including marketing
the SACMan(TM) developers tool kit (DTK) to potential integrators of the
Company's technology and the developemnt of the Company's SACcat(TM) product,
which incorporates screen saver and lockout functions and a SAC_Remote (TM)
product slated for the OEM biometric access control market.
During the fourth quarter of 1997, and into the first quarter of 1998, the
Company has entered into various strategic agreements which are designed to
allow the Company to integrate voice and facial recognition, encription, desktop
configuration, security and video conferencing capabilities for utilization with
its core product. No assurance can be given that these technologies will be
incorporated in a manner acceptable to potential customers, that it will be
timely implemented, that the cost of the end products will be acceptable to the
market place, or that the Company will have the resources to complete these
efforts.
(b) BUSINESS OF ISSUER
Incorporated in 1993, the Company develops and markets fingerprint
identification products for use in general commercial and consumer applications.
The Company's goal has been to develop automated fingerprint identification
products which are portable, easily integrated with existing applications, and
affordable for mass commercialization. The Company's more significant current
and anticipated product offerings incorporate FIDS Technology, a biometric
technology developed by the
<PAGE>
Company for Jasper, with other technologies developed by the Company, along with
the integration of technology developed by recently identified strategic
partners. The Company has a world-wide license agreement with Jasper for use of
the FIDS Technology in all access control markets. Jasper has the right to
exploit FIDS technology in all other markets including specifically financial
services, law enforcement, national identification systems and personal
identification systems for government and some medical patient identification
applications, which market rights belong to Jasper.
The Company's underlying technology consists of (i) the Optic Technology, which
captures the image of a fingerprint; (ii) hardware and software which translates
and standardizes the image of the fingerprint for computer analysis ("Biometric
Solution"); (iii) a license to the FIDS Technology, which is software which
classifies the fingerprint and (iv) SAC_App, an application generator and
database management development package which facilitates integration of the
Company's products for vertical market applications. Utilizing these
technologies, the Company has continued the development of its initial automated
fingerprint identification products. Its products, SACMan, SACcat, and
SAC_Remote are principally targeted to control access to information resources
and facilities, such that only individuals comprising an approved fingerprint
database are allowed access.
1. PRODUCTS AND MARKETS
The Company's current plan is to develop and market products which address
industry-specific security applications. The Company has developed some limited
manufacturing and product assembly capability and is contracting for outside
manufacturing and assembly of its products, as needed. The Company's SACMan is a
developer toolkit (DTK) for use in creating a biometrics application. The DTK
includes all required hardware and software components to evaluate the
integration of the Company's biometric technology into an original equipment
manufacture ("OEM") or system integrator application.
The Company's SACcat product is a biometrics information access control solution
that provides for workstation log-on, screen saver, and security at one single
location or across several networked workstations. SACcat creates a computer
model code (Bio-Key (TM)) of a fingerprint to identify a live scan of a
fingerprint without the use of a key, password card or token. The SACcat product
is intended for the information security marketplace and currently supports a
Windows N/T environment. During the third quarter of 1998, the Company expects
that the product will be available to secure Windows 95, Unix and Novell
environments.
The Company's SAC_Remote product is a personal computer ("PC") programmable
finger print identification product packaged in a stand-alone central processing
unit. The SAC_Remote is designed to interface with a wide range of OEM product
applications such as: facility access, gate control, time and attendance,
vending/kiosk applications, ATM/credit card transactions, and point-of-sale
terminals. The Company expects SAC-Remote to be available by late-1998.
Although the Company does not expect to derive any significant short-term
revenue from the markets serviced by Jasper, the Company plans to package its
products for sale by Jasper to the consumer credit verification and validation,
law enforcement and national identification systems markets.
The Company's products use a camera to take a visual image of an approximately
one-half inch by one-half inch area of a fingerprint. The image is produced at
an effective resolution of approximately 1,000 dots per inch (DPI). The products
then make several passes on the image to optimize and clarify it. Subsequently
the products identify distinguishing characteristics of a fingerprint. These
distinguishing characteristics are mapped by the Company's technology such that
the product can verify whether the characteristics match those of a previously
mapped fingerprint.
Each of the Company's products scans and analyzes a fingerprint in approximately
three seconds and generates an identification code which can be used to identify
the owner of the print from an online database located on an attached personal
computer. The Company's current products can verify the identity of a computer
user desiring access and can be used to allow or disallow the user from
accessing a computer, computer network, or specific application. The Company
currently plans to make this product available in desk-top and wall-mount
enclosures created for cost-effective uses in existing mass marketplaces.
The Company believes that its products will have a broad range of possible
applications relating to high technology security solutions. The potential
applications for secure access control include the following:
<PAGE>
i. General access control - Every doorway presently utilizing any form of
controlled access represents a possible sale opportunity for the
Company. A 1995 Access Control Report by J.P. Freeman & Company
forecasted the secure access control market to be $2.02 billion in
1998.
ii Information resource and network access control - Every existing
computer network and stand-alone computer system represents an
opportunity for use of the Company's technology, which the Company
believes could provide a cost-effective method for securing
information resources.
In addition, the Company may derive revenue from the efforts of Jasper in those
longer-term markets reserved for Jasper under the Jasper Agreement. However, the
Company is not relying on these potential sources of revenue to significantly
impact its results of operations.
2. DISTRIBUTION METHODS OF THE PRODUCTS
The Company currently plans to market its products through various distributors,
OEMs, dealers and value added resellers. Current marketing plans include direct
OEM sales telemarketing, trade show presentations, advertising in trade
publications, and catalog sales. The Company will continue to develop it's
strategy for identifying the major purchasing entities in each of its target
markets and determine the appropriate medium for reaching such entities. The
Company has developed marketing literature for its SAC products and has
displayed its SAC products at various product conferences and conventions.
A majority of the Company's sales are anticipated to be made though qualified
volume resellers, consisting primarily of distributors, OEMs, and system
integrators. Sales to end users would likely be made through existing retail
electronics distribution channels so that the Company could attempt to optimally
allocate its technical support resources to volume users. The Company will
continue to evolve it's sales and marketing team, which will require the hiring
of new individuals and technical support staff.
3. STATUS OF NEW PRODUCTS
The Company has entered into certain agreements and strategic alliances designed
to allow for layered biometrics, encryption, and video conferencing
technologies, along with the Company's current Windows NT log-on and screen
saver products. These technologies are designed to provide for a full range of
applications. While the Company hopes to create such a layered biometric
solution, the success of the integrated products and applications will not only
depend on the Company's efforts and technologies but also the efforts and
technologies of others. No assurance can be given that the technologies will
effectively compete with new or existing technologies in all of these markets or
that superior technologies will not be developed which would obsolete an
integrated component or components of the Company's anticipated layered
biometric solution. The actual timing of the integration of these will be
subject to a variety of factors including without limitation, technology and
development issues as well as developing an effective marketing approach.
The Company and Keyware Technologies, Inc. ("Keyware") have entered into a
strategic alliance to integrate Keyware's Voice Guardian verification technology
into SACMan products. Keyware's Layered Biometric Verification (LBVtm) is
designed to enable users to mix and match those biometric technologies that work
best for their application and meet their unique security requirements. The
integrated VoiceGuardian-tm technology is anticipated to be available on the
Company's products in late-1998.
The Company and Miros Inc., ("Miros") located in Wellesly, MA, developer of face
recognition software for security and time and attendance have signed a
non-exclusive agreement that calls for integration of Miros' TrueFace software
into the Company's fingerprint identification products. Miros' TrueFace software
is based on neural network technology and is designed to overcome the
variability of peoples' faces in determining whether a face is the same as the
image that was previously stored on a database. TrueFace PC is stated to be
compatible with PC client/server standards and also to be used alone or in
conjunction with other computer security methods. The TrueFace PC client runs on
Microsoft Windows 95 and NT. The server software runs on Windows NT, Netware
4.x, and Unix. It is expected to be available on the Company's products by
late-98.
The Company and Pinnacle Technology, Inc. ("Pinnacle") have entered into an
exclusive agreement that will integrate Pinnacle's "Trusted Desktop Commander"
security software with the Company's own biometrics technology to provide
convenient point and click configuration and control of Windows 95, Windows NT
and Novell network environments tied to a user's actual identity. The combined
technologies are designed to allow Management Information System ("MIS")
managers and system administrators to biometrically identify and control who can
logon to a workstation or network. In addition, the system is intended to give
administrators the ability to centrally configure the desktop of every user on
the network for
<PAGE>
subsequent profile download to the workstation during logon, restrict access to
applications and data, restrict access to workstation or network resources
including printers and disk drives, audit and monitor all user activities and
allow for user mobility via desktop profile download. Users can also be
restricted from altering their desktops, which may reduce maintenance costs and
training and improve productivity. With an installed base in excess of 150,000
users, Pinnacle's Trusted Desktop software has become an accepted security
solution. This integrated product is anticipated to be completed by mid-98.
The Company and Certicom Corp. ("Certicom") of Toronto, Canada and San Mateo,
Califorina have entered into a licensing agreement. Certicom is a provider of
cryptographic technologies for computing and communications companies. Vendors
of electronic commerce and digital communications products are integrating and
deploying Certicom's core technology, the Certicom Elliptic Curve Engine (CE)2,
across a wide range of operating environments and devices to build security into
software, smart card and wireless applications. Based on Elliptic Curve
Cryptography, (CE)2 provides higher levels of security at smaller key sizes than
any other established public-key cryptographic system. This technology, which is
designed to accomplish similar functionality to the Company's previously
announced SAC_Encrypt product, is anticipated to be available on the Company's
products by late-1998.
The Company has entered into an exclusive agreement with Baraka IntraCom, Inc.
("Baraka") of Torrance, California and London, U.K. Under the agreement the
Company is expected to integrate Baraka IntraComs's video conferencing and video
e-mail technology with its own biometrics technology and cryptographic software
licensed from Certicom Corp. to provide users the ability to biometrically
identify, control, encrypt and secure live video node to node communications
over unsecured channels utilizing an individual's unique Bio-Key. Baraka's
VidCall 32, a software-only video conferencing system for Windows 95, enables
live video conferencing worldwide with dial-up connections over ordinary phone
lines. CineMail, an audio/video e-mail package, allows anyone with a PC, video
camera and standard modem to capture and send full-motion video over normal
telephone lines, the Internet or any of the world's standard e-mail services.
This integration is anticipated to be complete by late 1998 and available on the
Company's products as an add on at that time.
4. COMPETITION
In addition to existing commonplace methods of restricting access to facilities
such as pass cards, personal identification numbers, password access, and locks
and keys, there are numerous companies involved in the development, manufacture,
and marketing of fingerprint biometric products to government, law enforcement,
prison, and consumer markets. Some of these companies include Computer Research
Labs, Digital Biometrics, Inc., PRINTRAK International, Indenticator, Indetix,
Fingermatrix, Inc., Mytec Technologies, Inc., The National Registry, Sandia
Labs, Fujitsu, Biometrics Identification, Inc, Ultrascan, Inc., I/O Software,
Hi-Key Technologies. In addition, the integration of the Company's products with
those of its strategic partners will likely subject the integrated products to
competition with a variety of other competitors in varying industries. Many of
these competitors have substantially greater resources and experience in
marketing biometric products.
Most current automated fingerprint product sales have been for government and
law enforcement applications and are priced higher than the price for SACMan. In
part, this may be attributable to the fact that several of the Company's
competitors are integrating other manufacturers' hardware and/or software and,
as such, may be forced to bear higher component costs and technology licensing
fees' as well as greater selling expenses. Of the companies specifically
targeting consumer application markets, many are projecting product availability
during 1998 or 1999. The Company has yet to manufacture, market, or sell any of
its products on a wide-scale commercial basis.
With current non-biometric technologies the user must typically possess a key,
card, or bit of information such as a personal identification number or
password. These systems are easily defeated by obtaining possession of the key,
card, or password, or by counterfeiting the key or card. The Company's products
will also be competing for market share with other biometric technologies
including hand geometry, iris scanning, retinal scanning, and signature
verification, as well as existing lock/security/card technology. This is
especially true if the Company is able to successfully integrate its technology
with those of its strategic partners.
5. SOURCES OF RAW MATERIALS AND PRINCIPAL SUPPLIER
Assembly of the Company's products utilizes components, equipment and processes
generally available from outside electronics firms. To date, the Company has
purchased all electronic parts, optics parts, circuit boards, and cases from
outside
<PAGE>
vendors and has performed some of the final assembly, calibration, testing and
serialization of its products. Products have also been assembled by two outside
vendors located in Minnesota. In addition, the Company has identified several
regional manufacturers which it believes have the ability to perform assembly of
its products, as appropriate, to meet production and assembly requirements
beyond this pre-production stage. The Company is also exploring opportunities to
have its products manufactured internationally.
6. NO DEPENDENCE ON MAJOR CUSTOMERS
The Company is not dependent on major customers because it does not have any
significant sales at this time. The Company does not expect to be dependent on a
limited group of customers in the future as it intends to reach mass marketplace
applications with its products.
7. INTELLECTUAL PROPERTY RIGHTS
The Company's technology consists of knowledge and information relating to
computer hardware and software which is used to create an automated process of
imaging a fingerprint, formatting the fingerprint for computer analysis, and
identifying and verifying the print relative to an existing database of
fingerprint information. The Optic Technology and the Company's Biometric
Solution are owned by the Company, subject to an exclusive worldwide license
which has been granted to Jasper to use and sell products in certain markets.
The FIDS Technology used for fingerprint analysis is owned by Jasper, subject to
an exclusive worldwide license which has been granted to the Company to make
products for all markets and to use and sell products in certain markets. The
Company has had ongoing discussions with Jasper regarding the possible
recharacterization of the Company's relationship with Jasper. There can be no
assurance of how these conversations will conclude or that the Company won't
lose a critical portion of the technology for the manufacturing of it's product.
While the Company believes it may be able to utilize other currently available
software to classify and match a fingerprint, or may be able to develop such
software with its own internal resources, there can be no assurance that such
other software will be available to the Company on favorable terms, if at all,
that the Company will have the technical ability to develop its own software, or
that such software will ultimately serve as an adequate substitute for the FIDS
technology in the Company's products.
The Jasper Agreement, as it currently exists, provides that the Company will be
paid a royalty of $30.00 for each product sold by Jasper utilizing FIDS
Technology, that Jasper will be paid a royalty of $30.50 for each product sold
by the Company utilizing FIDS Technology, and that all of Jasper's product
requirements may be made by the Company at a gross margin of twenty percent,
pursuant to the provisions of a separate OEM agreement between Jasper and the
Company. Either Jasper or the Company may transfer or license its rights to FIDS
Technology, with the consent of the other party. Any consideration received with
respect to a transfer of FIDS Technology within Jasper's field of use will be
divided as follows: (i) 10% to Jasper for purposes of funding any legal fees and
costs incurred with respect to the transfer or claims; (ii) 10% to the Company
for purposes of funding ongoing research and development expenses with respect
to the FIDS Technology, Optic Technology, or Biometric Solution; (iii) 48% to
Jasper without restriction; and (iv) 32% to the Company without restriction. Any
consideration received with respect to a transfer of FIDS Technology within the
Company's field of use will be divided as follows: (i) 10% to Jasper for
purposes of funding any legal fees and costs incurred with respect to the
transfer or claims; (ii) 10% to the Company for purposes of funding ongoing
research and development expenses with respect to the FIDS Technology, Optic
Technology, or Biometric Solution; (iii) 48% to the Company without restriction;
and (iv) 32% to Jasper without restriction.
While the Company has filed a patent application relating to both the Optic
Technology and Biometric Solution components of its technology, no patents have
yet been issued or indicated as allowable. In addition, although Jasper has
filed certain patent applications with the United States Patent & Trade Office
with respect to FIDS Technology, no patent has yet been issued and, accordingly,
none of the technologies described herein are currently patented by the Company.
Part of the Company's technology consists of software or hardware
implementations of software ("firmware"). The Company intends to take measures
to ensure copyright protection for its software and firmware releases prior to
distribution. Also, the firmware/software is serialized in an attempt to ensure
that only matched sets will function together. This provides both a mechanism to
combat cloning of the Company's products and a method for standardizing
products. The Company believes it has developed common law trademark rights in
the terms SACMan, SACcat, SAC_Remote, Bio-Key, SACSecure, SACcipher and SACBook
and has filed federal trademark applications. The Company does not claim any
additional trademarks.
<PAGE>
8. GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS
Not applicable.
9. GOVERNMENT REGULATION
The Company currently is not subject to direct regulation by any government
agency, other than regulations applicable to business generally. However, in the
event of any international sales of it's products, the Company would likely be
subject to various domestic and foreign laws aimed at regulating such export and
export activities.
10. RESEARCH AND DEVELOPMENT
During 1995, the Company spent approximately $250,000 on research and
development. The Company spent approximately $390,000 and $560,000 on research
and development in 1996 and 1997, respectively. The Company's customers did not
directly bear the costs for the research and development during 1995, 1996, or
1997, which were principally funded through outside sources of equity and debt
financing by the Company, as well as, some minor amounts paid by Jasper.
11. ENVIRONMENTAL COMPLIANCE
Not applicable.
12. EMPLOYEES
The Company currently employs 16 individuals on a full-time basis: seven are
primarily involved in research, development, and technical support, one is
principally involved in technical support and quality control, two are
principally involved in research, development, and administrative matters, three
are principally involved in administrative and finance matters, and three are
principally involved in sales and marketing efforts. The Company also employs a
part-time employee who is principally involved in administrative and finance
matters
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 4,555 square feet of space at 4444 West 76th
Street, Suite 600, Edina, Minnesota 55435 from Main Street Partners, LLP. The
Company plans to use this space for ongoing research and development. The lease
is for five years and terminates on May 31, 2002. During the term of the lease,
the monthly rent increases from $4,270 to $5,124. The Company also leases
approximately 3,840 square feet of space at 4620 South Valley View Road, Suite
Al, Las Vegas, Nevada 89103 from Realty 7. The Company currently plans to use
this space for marketing and showroom facilities as well as product support. The
lease is for three years and terminates on February 14, 2000, with a monthly
rent of approximately $3,009. In addition, the Company leases an apartment in
Minneapolis, Minnesota for use by the Company's officers, directors, and sales
staff, as needed. The principal use of this apartment is for personnel from the
Las Vegas office to use when working out of the Edina office. The Company plans
to obtain additional facilities, as needed, for marketing.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of any
threatened litigation that would have a material adverse effect on its business
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Market for Common Equity and Related Stockholder Matters
The Company's common stock trades on the NASDAQ Small Cap market stock market
under the symbol "SACM", and on the Boston Stock Exchange under the symbol
"SAC".
As of March 26, 1998, there are (i) 7,472,367 shares of Common Stock outstanding
(2,456,000 of which are freely tradable without restriction under the Securities
Act of 1933, as amended) held of record by approximately 96 registered holders;
(ii) outstanding options to purchase an aggregate of 539,166 shares, 183,982 of
which are exercisable within 60 days from the date of this report, held of
record by 17 holders; and (iii) outstanding warrants to purchase an aggregate of
297,216 shares of common stock all of which are exercisable within 60 days from
the date of this report, held of record by 8 holders. During March of 1997, the
Company issued warrants to a consultant to purchase 25,000 shares of common
stock at $3.00 per share. The Company has reserved 750,000 shares of its common
stock for issuance pursuant to the Company's 1996 Stock Option Plan. The Company
issued to the investors, in connection with the May 17, 1996 Bridge Loan,
warrants to purchase 100,000 shares of common stock, at $1.00 per share.
The Company issued to Tuschner & Company, its underwriter in connection with the
July, 1996 private placement and May 17, 1996 Bridge Loan, warrants to purchase
83,278 shares of common stock, exercisable for a period of five years, at an
adjusted exercise price of $3.00 per share. Tuschner & Company has reassigned
warrants to purchase 40,251 shares of common stock to 10 individuals. The
Company has issued its underwriter, in connection with its initial public
offering, a warrant to purchase 88,938 shares of common stock, exercisable for a
period of four years commencing February 14, 1998 at an exercise price of $3.60
per share.
The following table sets forth the range of high and low sale prices per share
of common stock for each of the periods indicated as reported by NASDAQ:
1997 BY QUARTER: HIGH LOW
---- ---
FIRST 8 1/2 6 1/2
SECOND 12 1/4 4 3/4
THIRD 20 3/4 9
FOURTH 13 7/8 8 9/16
The Company has not declared or paid any cash dividends on its Common Stock
since inception and does not intend to pay any dividends for the foreseeable
future.
B. 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.
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)
- --------------------------------------------------------------------------------
(01) Construction of plant, building
and facilities
- --------------------------------------------------------------------------------
(02) Purchase and installation of
Machinery and equipment $163,400
- --------------------------------------------------------------------------------
(03) Purchase of real estate
- --------------------------------------------------------------------------------
(04) Acquisition of other business(s)
- --------------------------------------------------------------------------------
(05) Repayment of indebtedness $117,000 $325,000
- --------------------------------------------------------------------------------
(06) Working capital
- --------------------------------------------------------------------------------
Temporary investment (specify)
(07) Certificates of Deposit $2,154,000
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(08) Money Market $644,530
-----------------------------------------------------------------------
(09)
-----------------------------------------------------------------------
(10)
-----------------------------------------------------------------------
Other purposes (specify)
Officer
Salaries
(11) X Professional Fees $0 $222,712
-----------------------------------------------------------------------
(12) X Administrative Salaries and
Expenses $244,026 $798,713
-----------------------------------------------------------------------
(13) X Inventory and Components $73,064 $562,348
-----------------------------------------------------------------------
(14) X Research and Development $279,929 $214,927
-----------------------------------------------------------------------
(15) X Product Marketing $173,206 $134,895
-----------------------------------------------------------------------
(16) X Sales Promotion $0 $228,191
-----------------------------------------------------------------------
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
JANUARY 7, 1993
(DATE OF INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH DECEMBER 31,
1995 1996 1997 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA
Revenues $ 229,070 $ 32,000 $ 464,168 $ 849,225
Costs and other expenses
Cost of sales, support and
other services 28,799 14,875 390,243 467,071
Selling, general and administrative 35,849 422,681 2,297,148 2,793,635
Research and development 250,808 386,613 563,045 1,295,223
----------- ----------- ----------- -----------
315,456 824,169 3,250,436 4,555,929
----------- ----------- ----------- -----------
Operating loss (86,386) (792,169) (2,786,268) (3,706,704)
Other income (expense), net -- (31,319) 192,454 161,135
----------- ----------- ----------- -----------
NET LOSS (86,386)$ (823,488)$ (2,593,814) $(3,545,569)
=========== =========== =========== ===========
Basic and dilutive loss per share $ (.02) $ (.18) $ (.37) $ (.71)
=========== =========== =========== ===========
Weighted average number of shares
outstanding (basic and dilutive) 4,490,568 4,565,206 7,047,190 5,021,702
=========== =========== =========== ===========
</TABLE>
DECEMBER 31,
1995 1996 1997
--------- --------- ----------
SELECTED BALANCE SHEET DATA
Working capital (deficit) $(133,836) $(355,585) $3,460,199
Total assets 24,139 405,263 4,165,694
Stockholders' equity (deficit) (125,188) (156,171) 3,641,683
SEE PART 1 OF THIS FORM-KSB REGARDING A DISCUSSION OF FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN.
OVERVIEW
The Company was incorporated in 1993. The Company develops and markets
fingerprint identification devices. 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, access
control, consumer credit, and law enforcement markets. To date, the Company has
focused on developing products for use by others in specific applications versus
developing the end user product applications. The Company has recently began to
license 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 product's cost will be acceptable to the marketplace.
<PAGE>
In the second half of 1996 the Company began shifting its focus from development
to marketing and sales of its product. In March 1997, the Company hired a Chief
Operating Officer with a marketing background. In April 1997, the Company hired
a Director of Sales. Subsequently, in October 1997, the Chief Operating Officer
and the Director of Sales were involuntarily terminated by the Company. During
December 1997, the Company hired a Vice President of Business Development. While
the Company has two products currently available it intends to devote
significant effort in the near term to enhancing the performances and
capabilities of these existing products.
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 revenue.
The Company has limited sales to date, principally to affiliates of the Company,
and has accumulated losses since inception of $3,545,569, of which, $2,593,814
was during 1997. The Company believes its existing cash will not be adequate to
fund the expansion and distribution of its product offerings and has undertaken
an effort to seek out additional sources of financing. No assurances can be
given that 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 such financing is not
obtained during 1998, the Company believes it can make appropriate adjustments
to its operating plan to manage its cash through December 1998. 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.
During October 1997 the Company completed initial development of a product which
provides 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. During March
1998, the Company and Inter-Con reached an agreement in principle to terminate
the technical support and development agreement. See below for discussion of a
write-off of receivables from Inter-Con during the fourth quarter of 1997.
The Company is not relying on Jasper (see Part I, Item 1 "Description of
Business" for background) or its interest in Inter-Con to significantly impact
its future results of operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996:
Revenues
Total revenues increased $432,168 during 1997 to $464,168 as compared to $32,000
for 1996. The Company believes revenues for the first quarter ending March 31,
1998 will be significantly less than those of the first quarter of the prior
year.
Revenues from product sales were $152,784 for 1997. These sales were principally
from the sale of SACMAN units to Jasper for a specific application, 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 product.
<PAGE>
Revenues from reimbursed research and development were $36,000 during 1997.
These revenues relate to collections of previously unrecognized research and
development billings to Jasper, recognized on the cash basis of accounting.
Revenues from technical support and other services, which are primarily from
Jasper and Inter-Con , increased $243,384 during 1997 to $275,384 as compared to
$32,000 in 1996. Of the $243,384 increase in 1997, $111,065 relates to billings
under a technical support agreement with Inter-Con and $34,429 relates to other
development activities for Inter-Con. There was also $82,890 of technical
support provided to Jasper. As previously discussed, a termination to the
technical support agreement with Inter-Con has been negotiated.
During August 1997, the Company signed an agreement with Anonymous Data
Corporation (AdC). The agreement calls for the of purchase of five hundred
SAC_Remote units, modified to fit AdC's application, over a twenty-four month
period, commencing in late 1998. The agreement requires the Company to provide
certain defined product development and support services in exchange for $7,000
a month over forty-eight months. The Company received $15,000 upon the signing
of this 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. Delivery of the products under
development are expected to occur in late 1998. However, no assurance can be
given that these products will be completed, will be accepted by AdC, or that
payment from AdC will be forthcoming under the agreement.
During March 1998, the Company signed a letter of intent with Aultimate
Technology Marketing, Inc. (ATM). The terms of the agreement provide for the
following: the Company is to provide ATM, at no charge, 10 SACMAN Developer Tool
Kit systems; ATM is to purchase 1,000 SACcat units; ATM is to receive
preferential pricing on additional product purchases; ATM is to become a
distributor of the Company; the Company is to issue ATM an option to acquire up
to 100,000 shares of common stock of the Company with an exercise price per
share equal to the 30 day average closing price from the signing date of the
letter of intent, exercisable for seven years, with 75,000 shares immediately
exercisable and an additional 25,000 shares in the event ATM purchases and makes
payment for 1,000 additional units before July 1, 1998; and ATM is to issue the
Company an option to acquire up to 400,000 shares of the common stock of ATM,
which the Company estimates will represent approximately twenty-five percent of
the outstanding stock of ATM, at $.25 per share, exercisable for seven years.
Due to the interrelationships of the parties involved, revenues from this
transaction would not be recognized by the Company until ATM resells the product
and can recognize the revenue pursuant to generally accepted accounting
principles. No assurance can be given that a definitive agreement and options
relating to the letter of intent will be signed, that the terms will not
materially change, that the Company will maintain a twenty-five percent
ownership in ATM, or that any units to be purchased by ATM will be subsequently
resold by ATM, among other matters.
Costs and Other Expenses
Costs of product sales exceeded revenues from products sales by $79,055 in 1997.
This was partially due to costs associated with establishing a prototype
pre-production line and the hiring and training of personnel to operate the
equipment. In addition, molds with an undepreciated value of $31,413 were
written-off.
Selling, general and administrative expenses increased by $1,874,467 to
$2,297,148 during the year ended December 31, 1997 as compared to $422,681 for
1996. The increase included approximately $650,000 in salaries for new personnel
and increases in salaries to existing personnel, $250,000 of costs associated
with a severance agreement for the Chief Operating Officer, $142,000 in bad debt
expense (see discussion below); $264,000 for increased legal and other
consulting fees; $173,000 for travel, trade shows and collateral; and $71,000
for
<PAGE>
amortization of unearned compensation associated with the issuance of below
market stock options to employees and consultants of the Company and a cashless
stock option exercise. The remainder of the difference is primarily due to
overall increased operating expenses. The Company expects selling, general and
administrative expenses will increase in 1998.
As previously discussed in "Overview," during March 1998, the Company negotiated
an agreement in principle with Inter-Con to terminate the technical support and
development agreement. Also, during February 1998, the Company determined that a
portion of the receivable from Jasper may not be collectable. As a result, the
Company wrote-off $42,621 of receivables from Inter-Con and reserved for $99,000
of receivables from Jasper, effective as of the end of the fourth quarter ended
December 31, 1997.
Research and development expense increased $176,432 to $563,045 as compared to
$386,613 in 1996. The increase was attributed principally to the development of
the SACcat unit and, to a lesser extent, the continued development of the
SAC_Remote product line. With the licensing of the various new layered biometric
software, the Company anticipates research and development costs will
increase during 1998.
Interest income increased by $192,063 to $196,351 during the year ended December
31, 1997 as compared to $4,288 in 1996. The increase was due to interest earned
on certificates of deposit from money received from the initial public offering.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995:
Revenues
Revenues decreased $197,070 to $32,000 during 1996 as compared to $229,070 for
1995. The decline was attributable to the timing of cash collections under the
Company's development arrangement with Jasper. Revenues pursuant to the
development arrangement are recognized on the cash method. The $32,000 of
revenue recognized during 1996 relates to two months billings under the
technical services agreement with Inter-Con (see "Overview").
Costs and Other Expenses
Selling, general and administrative expense increased $386,832 to $422,681
during the year ended December 31, 1996, as compared to $35,849 for the same
period in 1995. Approximately one-half of the increase is due to additional
salaries and wages for marketing and administrative personnel. The remainder of
the increase is due to the development of promotional materials; increased
attendance at trade shows and increased professional fees.
Research and development expense increased $135,805 to $386,613 during the year
ended December 31, 1996 as compared to $250,808 for 1995. The increase is
attributable to increased development activity to commercialize certain of the
Company's products.
No interest expense was incurred for the year ended December 31, 1995 and
interest expenses were $35,607 during 1996. The interest was principally due to
amortization of debt discount, borrowings under the Company's line of credit
agreement with a bank, and borrowings under convertible bridge notes issued
during 1996. The convertible bridge notes were converted to common stock during
June 1996. During February 1997, the Company paid off all outstanding notes
payable.
<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 (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; (ii) a July 1996 $700,000 private
placement of common stock; and (iii) 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 1997 was $2,653,301 and was
principally due to operating losses. Net cash used for investing activities
during 1997 was $171,501 and was primarily due to the purchase of equipment and
furniture. Net cash provided by financing activities during 1997 was $6,087,422
and was principally from proceeds received from the initial public offering
discussed above.
See "Overview" above regarding a discussion of the Company's capital needs.
Working capital increased $3,815,784 during the year ended December 31, 1997 to
$3,460,199, as compared to a deficit of $355,585 as of December 31, 1996. This
increase was principally due to the proceeds received from the initial public
offering offset by $2,593,814 of operating losses through December 31, 1997.
Additionally, during 1997, there was a $358,698 increase in inventories, a
$155,770 increase in accounts receivable, a $100,273 increase in prepaid
expenses, a $223,143 increase in accrued expenses, a $69,434 increase in
accounts payable, and a $330,000 reduction in borrowings under a revolving note
payable to a bank and a $117,000 note payable to an officer/director, both of
which were repaid from proceeds of the initial public offering. The inventory
increase is attributable to purchasing component parts for future production.
The prepaid increase is due to advance payments made in connection with certain
license agreements discussed below. The accounts receivable increase is
attributed to a receivable from Jasper, who has paid $20,187 of such amount
since year end. The increase in accrued expenses primarily relates to remaining
severance payments due to the former Chief Operating Officer.
The Company has entered into various technology license agreements. In
connection with entering into such agreements, the Company has committed to pay
approximately $450,000 to the licensors of the technology primarily during 1998
for the per unit cost of imbedding such technologies into the Company's products
at agreed upon minimum levels, or for the purchase of inventory from such
companies. Thereafter, in order to continue to maintain exclusivity as it
relates to the biometric industry for two of these license agreements, the
Company is required to expend approximately $200,000 annually.
During March 1997, the Company issued its Chief Operating Officer options to
purchase 260,000 (130,000 pre- stock dividend) shares of common stock at $3.22
($6.43 pre-stock dividend) per share. Of the 260,000 options issued, 221,000
shares never vested because of the subsequent termination of this individual.
During April 1997, the Company issued the vice president of finance and a
director of sales and marketing, options to purchase a total of 100,000 (50,000
pre stock dividend) shares of common stock at $4.44 ($8.87 pre stock dividend)
per share. The options vest ratably through April 17, 2002. The options expire
April 2004. In connection with the termination of the director of sales and
marketing, 57,000 of the above options never vested.
The 360,000 (180,000 pre stock dividend) of options discussed above were issued
at per share exercise prices less than the fair market value of the common stock
at the date of issuance. The difference between the option exercise price and
estimated fair value of common stock at the date of grant for these options of
$225,400 has been reflected as unearned compensation in the Company's financial
statements, to be recognized as expense over the five year vesting terms of the
related stock options agreements. In connection with the employee terminations
<PAGE>
discussed above, $184,191 of such unearned compensation was reversed during
1997, with no resulting impact to the statement of operations.
During October 1997, the Company issued to purchase 6,500 and 91,666 shares of
common stock, respectively, options to employees and outside directors at $10.75
per share. The options vest ratably through October 2003 and 2007, respectively.
During February 1998, the Company granted an option to purchase 48,000 shares of
common stock to a company with which the Company had entered into a license
agreement. The option is exercisable at $6.42 ($2.08 below market value at
issuance) through February 2008. The options vest 12,000 immediately and 3,000
per quarter thereafter. The option contains a cashless exercise feature, whereby
the holder may utilize the increase in fair market value above the exercise
price to pay for an option exercise. Such shares used pursuant to this provision
are not exercisable. The difference between the exercise price and the estimated
fair value of common stock at date of grant of $99,840 will be amortized over
the three year term of the license agreement.
During March 1998, the Company granted an option to purchase 40,000 shares of
common stock to its Vice President of Business Development. The option is
exercisable at $8.29 ($1.46 below market value at issuance) through March 2005.
The difference between the exercise price and the estimated fair value of common
stock at the date of grant of $58,520 will be recognized as compensation expense
over the five year vesting term of the stock option agreement.
See above for discussion of 100,000 options granted to ATM.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS AND YEAR 2000 MATTERS
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" were released in July
1997 and will be adopted in 1998. The pronouncements will have no significant
impact on the Company's Financial Statements.
The Company anticipates the impact of modifying its existing computer system
programming to process transactions in the year 2000 and beyond will not have a
significant impact on the Company's ongoing results of operations. Anticipated
spending for this modification is expected to be expensed as incurred.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Certain information about the Company's executive management and members of the
Board of Directors is presented in the table below.
DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITIONS HELD SINCE
<S> <C> <C>
Barry M. Wendt (1) 50 Chief Executive Officer, Chairman of the Board 1993
Richard T. Fiskum (1) 47 President, Director 1995
Gary E. Wendt (1) (2) 56 Chief Financial Officer, Director 1993
Benedict A. Wittig (1) (3) 55 Secretary, Director 1993
Ronald A. Burgmeier 37 Vice President of Finance 1997
Lars T. Carlson (2) (3) 59 Outside Director 1997
Thomas J. Schrade (2) (3) 48 Outside Director 1997
------------------------------
</TABLE>
1. Member of the Stock Option Plan Committee
2. Member of the Compensation Committee
3. Member of the Audit Committee
BARRY M. WENDT, Chief Executive Officer and Chairman of the Board since
inception of the Company, manages engineering initiatives and marketing.
From 1993 to 1994 Mr. Wendt also acted as the part-time and temporary Chief
Executive Officer of Esprit Technologies, Inc., a computer manufacturer
which produced high speed PCs marketed primarily to government and industry
in the Midwest. From 1988 to 1995 Mr. Wendt worked for (and was the CEO
from 1992 to 1995 of) The Technology Congress, Ltd., a service bureau which
supported primarily Fortune 500 companies in CAD/CAM/CAE laser plotting,
scanning, and electrical testing with emphasis on photo-tooling for the
fabrication industry. The Technology Congress, Ltd. filed for protection
under Chapter 11 of the United States Bankruptcy Code in August, 1994 and
was ultimately liquidated under Chapter 7 of the Bankruptcy Code in July,
1995. From 1985 to1988 Mr. Wendt was the President and owner of BMW
Research, a sole proprietorship specializing in the independent research
and development of contract design of electronic products. Mr. Wendt was
President of Custom Computer Systems, Inc., a company specializing in the
design, manufacture, and sale of small business computer systems. Mr. Wendt
received a Bachelor of Science degree in Electronic Engineering from
Florida International University, a diploma in RF and Consumer Electronic
systems from the De Vry Institute of Technology, and an Associate of
Science in Electronic Engineering from Gulf Coast Community College. Mr.
Wendt is the brother of Gary E. Wendt, Chief Financial Officer and a
Director of the Company.
<PAGE>
RICHARD T. FISKUM, President, and a Director since August, 1995, manages and has
an active role in the development of imaging systems and oversees and directs
all manufacturing operations. From 1980 to 1996, Mr. Fiskum was Chief Executive
Officer of Industrial Research and Development, Inc., an enterprise wholly owned
by Mr. Fiskum specializing in prototype to production process development and
manufacturing of precision glass, ceramic, and plastic components and assemblies
for industrial and medical applications. From 1975 to 1980 he was a Vice
President of Litchfield Precision Components, Inc., a manufacturer of chemically
milled glass and metal components. Mr. Fiskum attended Moorhead State University
where he studied physics, chemistry, mathematics, and computer science.
GARY E. WENDT, Chief Financial Officer and a Director of the Company since
inception, reviews the Company's financial reports and administers accounting
operations. From 1993 to 1994 Mr. Wendt was Treasurer and Chief Financial
Officer of Esprit Technologies, Inc., a computer manufacturer which produced
high speed PCs and marketed primarily to government and industry in the Midwest.
From 1988 to 1995 he was Secretary-Treasurer and Chief Financial Officer of The
Technology Congress, Ltd. The Technology Congress, Ltd. filed for protection
under Chapter 11 of the United States Bankruptcy Code in August, 1994, and was
ultimately liquidated under Chapter 7 of the Bankruptcy Code in July, 1995. From
1979-1985 Mr. Wendt was a systems analyst for Custom Computer Systems, Inc. Mr.
Wendt attended Metropolitan State University, North Hennepin Community College,
and the Academy of Accountancy where he was certified in public accounting. Mr.
Wendt is not a Certified Public Accountant. Mr. Wendt is the brother of Barry M.
Wendt, Chief Executive Officer and Chair of the Board of the Company.
BENEDICT A. WITTIG, Director of Systems Software, Secretary and a member of the
Company's Board of Directors since inception, manages all software projects and
is actively involved in software development. From 1993 to 1994 Mr. Wittig was a
Systems Software Manager for Esprit Technologies, Inc., a computer manufacturer
which produced high speed PCs and marketed primarily to government and industry
in the Midwest. From 1983 to 1993, Mr. Wittig was an independent software
developer specializing in software systems for processor controlled hardware.
Prior to 1983, he worked as Staff Systems Programmer for Northern Telecom, Inc.
and as Diagnostic Programmer for Control Data Corporation. Mr. Wittig received
both a Master of Science in Electronic Engineering and a Bachelor of Science in
Electronic Engineering from the University of Missouri.
RONALD A. BURGMEIER, Vice President of Finance since April 16, 1997. Mr.
Burgmeier is a certified public accountant and is responsible for preparation of
the Company's financial reports and handles the Company's SEC reporting
requirements. From 1993 to 1997, Mr. Burgmeier served as an Audit and Accounting
Manager at Divine, Scherzer & Brody, Ltd., a certified public accounting firm.
He received his Bachelor of Science degree in accounting and management from
Saint Mary's University of Winona, Minnesota.
LARS T. CARLSON, a member of the Company's Board of Directors since October
1997. Mr. Nelson presently serves as the Senior Vice President of Administration
for the H.B. Fuller Company. Mr. Carlson has been with the H.B. Fuller Company
since 1977.
THOMAS J. SCHRADE, a member of the Company's Board of Directors since October
1997. Mr. Schrade is currently President of T&F Consultants, Inc., a Las Vegas,
Nevada based consulting company; President of Three Corners LLC, an Owatonna,
Minnesota bases land development company; and President of Celebrity Estates of
Las Vegas, a real estate sales company. Mr. Schrade was also co-owner of Tobies
Enterprises, Inc. of Hinckley, Minnesota from 1972 to 1996.
Directors who are also employees of the Company have executed employment
agreements and non-competition letters containing nondisclosure obligations and,
except as prohibited by law, the obligation to assign to the Company all ideas
and inventions which relate indirectly or directly to the Company's business.
All non-employee directors and the Company's Vice-President of Finance have
signed the same non-competition letter mentioned above.
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended December 31, 1997, the Board of Directors held 2
meetings. The Board of Directors has an Audit Committee, a Compensation
Committee, and a Stock Option Plan Committee.
The Audit Committee which was formed in October 1997, is expected to meet with
the Company's independent auditors at least annually to review the results of
the annual audit and discuss the financial statements; recommends to the Board
of Directors the independent auditors to be retained; and receives and considers
the accountants' comments as to internal controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. The Audit Committee, during the year ended December 31, 1997, was
composed of one employee director and two non-employee directors: Benedict
Wittig, Lars Carlson, and Thomas Schrade, respectively, and did not meet during
1997. After the 1998 Annual Meeting of Shareholders, the Audit Committee is
expected to be composed of the same directors that served on the committee in
1997.
The Compensation Committee which was formed in October 1997, reviews and
recommends to the Board of Directors the compensation and benefits of all
officers of the Company and reviews general policy relating to compensation and
benefits of employees of the Company. The Compensation Committee, during the
fiscal year ended December 31, 1997, was composed of one employee director and
two non-employee directors: Gary Wendt, Lars Carlson, and Thomas Schrade,
respectively, and did not meet during the year.
The Stock Option Plan Committee, composed of four of the current officers and
directors, administers the Plan; determines the purchase price of the common
stock covered by each option; determines the persons to whom and the time or
times at which options or stock awards shall be granted pursuant to the Plan;
determines the number of shares subject to each option or stock award granted
under the Plan; and authorizes and directs the issuance of the common shares
upon stock awards and the exercise of options granted pursuant to the Plan. No
meetings were held during the year.
All directors, officers and beneficial owners of more than ten percent of the
Company's Common Stock registered pursuant to section 12 complied with Section
16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated by reference from the
Company's Definitive Proxy Statement to be filed with the Securities and
Exchange Commission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated by reference from the
Company's Definitive Proxy Statement to be filed with the Securities and
Exchange Commission.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference from the
Company's Definitive Proxy Statement to be filed with the Securities and
Exchange Commission.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following portions of Item 13 are submitted as separate sections of this
report:
(a) (1) - List of financial statements
(a) (2) - List of exhibits
(a) (3) - Exhibits
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the three months prior to December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registration has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SAC TECHNOLOGIES, INC.
Date: March 26, 1998 /s/ Barry M. Wendt
------------------
Barry M. Wendt,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the dates indicated.
Each person whose signature appears below constitutes and appoints Barry M.
Wendt as their true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-KSB
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorney-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Barry M. Wendt March 31, 1998
- ---------------------------------
Barry M. Wendt Chairman, Chief Executive
Officer and Director (Principal
Executive Officer)
/s/ Richard T. Fiskum March 31, 1998
- --------------------------------
Richard T. Fiskum President and Director
/s/ Gary E. Wendt March 31, 1998
- ----------------------------------
Gary E. Wendt Chief Financial Officer and
Director (Principal Financial
and Accounting Officer)
/s/ Benedict A. Wittig March 31, 1998
- ---------------------------------
Benedict A. Wittig Secretary and Director
/s/ Lars T. Carlson March 31, 1998
- -----------------------------------
<PAGE>
Lars T. Carlson Director
/s/ Thomas J. Schrade March 31, 1998
- -------------------------------
Thomas J. Schrade Director
</TABLE>
The annual report to security holders covering the registrant's last fiscal
year, proxy statement, form of proxy and other proxy soliciting materials with
respect to registrant's annual meeting of security holders will be furnished to
security holders subsequent to the filing of the annual report on this Form. The
registrant shall furnish copies of such material to the Commission when it is
sent to security holders.
<PAGE>
ANNUAL REPORT
ON FORM 10-KSB
ITEM 13(a)(1) LIST OF FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31,1996
SAC TECHNOLOGIES, INC.
EDINA, MINNESOTA
Report of Independent Certified Public Accountants
Balance Sheet as of - December 31, 1996 and 1997
Statement of Operations - For the Years ended December 31, 1995, 1996 and 1997
and January 7, 1993 (date of inception) through December 31, 1997
Statement of Shareholders' Equity (Deficit) - For the Years ended December 31,
1995, 1996 and 1997 and January 7, 1993 (date of inception) through December 31,
1997
Statement of Cash Flows - For the Years ended December 31, 1995, 1996 and 1997
and January 7, 1993 (date of inception) through December 31, 1997
Notes to Financial Statements - December 31, 1995, 1996 and 1997
<PAGE>
ANNUAL REPORT ON FORM 10-KSB
ITEM 13(a)(2) LISTING OF EXHIBITS
AND ITEM 13(a)(3)-EXHIBITS
YEAR ENDED DECEMBER 31, 1997
SAC TECHNOLOGIES, INC.
EDINA, MINNESOTA
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
3.1 * Amended and Restated Articles of Incorporation of small business issuer
3.2 * Amended and Restated Bylaws of small business issuer
4.1 * Specimen of Common Stock Certificate
10.1 * SAC Technologies, Inc. 1996 Stock Option Plan
10.2 * License and Marketing Agreement by and among Harinder S. Takhar, Barry M. Wendt, Benedict A. Wittig and
Richard T. Fiskum, Jasper Consulting, Inc. and the Company dated April 26, 1996 (with OEM Agreement by and
between Jasper Consulting, Inc. and the Company dated April 26, 1996 attached as Exhibit A)
10.3 * Employment Agreement by and between Barry M. Wendt and the Company dated as of May 10, 1996 (with
Non-Competition Letter effective May 10, 1996 attached as Exhibit A)
10.4 * Employment Agreement by and between Richard T. Fiskum and the Company dated as of May 10, 1996 (with Non-
Competition Letter effective May 10, 1996 attached as Exhibit A)
Employment Agreement by and between Gary E. Wendt and the Company dated as of May 10, 1996 (with Non-
10.5 * Competition Letter effective May 10, 1996 attached as Exhibit A)
10.6 * Employment Agreement by and between Benedict A. Wittig and the Company dated as of May 10, 1996 (with Non-
Competition Letter effective May 10, 1996 attached as Exhibit A)
10.7 * Employment Agreement by and between Timothy N. Tracey and the Company dated as of March 24, 1997 (with
Non-Competition Letter effective March 27, 1997 attached as Exhibit A)
10.8 * Technical Support and Cooperative Development Agreement by and between the Company and Inter-Con/PC, Inc.
effective November 1, 1996 (with Exhibits A-C)
10.9 * Technical Support and Cooperative Development Agreement with Anonymous Data Corporation
10.10 # Strategic Alliance, Bundling and Authorization to Replicate Agreement with Miros, Incorporated
10.11 # Strategic Alliance Agreement with Keyware Technologies.
10.12 # Certicom OEM Licensing Agreement
10.13 # Strategic Alliance Agreement with Pinnacle Technology, Inc.
10.14 # Strategic Alliance Agreement with Baraka Intercom, Inc.
22.1 Subsidiaries of the Registrant
24.1 Consent of Independent Certified Public Accountants
25.1 Power of Attorney (included in the signature page to the
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
None.
- ------------------------------------
Being filed pursuant to Item 601 (b)(10)(ii)(A) of Regulation S-B
* Previously filed and incorporated by reference to the Registrant's form
10-KSB for the year ended December 31, 1997, filed with the Commission on
March 31, 1998.
# Confidential Treatment requested pursuant to the Securities Exchange Act
of 1934, as amended, Rule 24b-2; confidential portions of the exhibits
have been deleted and filed separately with the Securities and Exchange
Commission.
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
The following financial statements of SAC Technologies, Inc. are included herein
at the indicated page numbers:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Certified Public Accountants F-1
Balance Sheets at December 31, 1996 and 1997 F-2
Statements of Operations - Years ended December 31, 1995, 1996 and 1997
and January 7, 1993 (date of inception) through December 31, 1997 F-3
Statement of Stockholders' Equity (Deficit) - Years ended December 31, 1995,
1996 and 1997 and January 7, 1993 (date of inception) through
December 31, 1997 F-4
Statements of Cash Flows - Years ended December 31, 1995, 1996 and 1997
and January 7, 1993 (date of inception) through December 31, 1997 F-5
Notes to Financial Statements - December 31, 1995, 1996 and 1997 F-6
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
SAC Technologies, Inc.
We have audited the accompanying balance sheets of SAC Technologies, Inc. (a
Minnesota corporation in the development stage) as of December 31, 1996 and 1997
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997,
and the period January 7, 1993 (date of inception) through December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SAC Technologies, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, and the
period January 7, 1993 (date of inception) through December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Divine, Scherzer & Brody, Ltd.
Minneapolis, Minnesota
March 13, 1998
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1996 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (note A2) $ 89,133 $ 3,351,753
Accounts receivable, less allowance for doubtful receivables of
$99,000 (notes J and M) -- 56,770
Inventories (notes A3 and F) 106,229 464,927
Prepaid expenses 10,487 110,760
----------- -----------
Total current assets 205,849 3,984,210
EQUIPMENT AND FURNITURE AND FIXTURES - AT COST, less
accumulated depreciation (notes A4 and B) 41,936 163,966
OTHER ASSETS (notes A4, A5 and C) 157,478 17,518
----------- -----------
$ 405,263 $ 4,165,694
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable (note E) $ 330,000 $ --
Accounts payable (note J) 219,254 288,688
Accrued liabilities (note D) 12,180 235,323
----------- -----------
Total current liabilities 561,434 524,011
COMMITMENTS AND CONTINGENCIES (notes F, G and J) -- --
STOCKHOLDERS' EQUITY (DEFICIT) (note G)
Common stock - authorized, 20,000,000 shares of $.01 par value;
issued and outstanding, 5,017,500 and 7,461,367 shares 50,176 74,614
Additional contributed capital 895,505 7,241,690
Deficit accumulated during the development stage (989,852) (3,583,666)
Unearned compensation (note A4) (112,000) (90,955)
----------- -----------
(156,171) 3,641,683
----------- -----------
$ 405,263 $ 4,165,694
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 7,
1993 (date
of inception)
through
Years ended December 31, December 31,
1995 1996 1997 1997
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues (notes A1, C and J)
Product sales $ -- $ -- $ 152,784 $ 152,784
Reimbursed research and development 145,319 -- 36,000 274,306
Technical support and other services 83,751 32,000 275,384 422,135
--------- ----------- ----------- -----------
229,070 32,000 464,168 849,225
Costs and other expenses (note J)
Cost of product sales -- -- 231,839 231,839
Cost of technical support and other services 28,799 14,875 158,404 235,232
Selling, general and administrative 35,849 422,681 2,297,148 2,793,635
Research and development (note A6) 250,808 386,613 563,045 1,295,223
--------- ----------- ----------- -----------
315,456 824,169 3,250,436 4,555,929
--------- ----------- ----------- -----------
Operating loss (86,386) (792,169) (2,786,268) (3,706,704)
Other income (expense)
Interest income -- 4,288 196,351 200,639
Interest expense -- (35,607) (3,897) (39,504)
--------- ----------- ----------- -----------
-- (31,319) 192,454 161,135
--------- ----------- ----------- -----------
NET LOSS $ (86,386) $ (823,488) $(2,593,814) $(3,545,569)
========= =========== =========== ===========
Loss per common share (note A7)
Basic $ (.02) $ (.18) $ (.37) $ (.71)
Duluted (.02) (.18) (.37) (.71)
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Notes A4 and G)
<TABLE>
<CAPTION>
Common stock
Class A
Shares Amount
---------- --------
<S> <C> <C>
Sales of common stock January 7, 1993 1,575,000 $ 15,750
Sale of common stock January 7, 1993 at $.02 per share 675,000 6,750
Contribution of services - -
Net loss for the period from January 7, 1993 (date of inception) through
December 31, 1993 - -
Net loss for the year ended December 31, 1994 - -
---------- --------
Balance as of December 31, 1994 2,250,000 22,500
Redemption of director and officers common stock August 4, 1995 at
$0 per share (135,000) (1,350)
Sale of common stock August 4, 1995 at $.24 per share 472,500 4,725
Redemption of common stock August 4, 1995 at $.24 per share (337,500) (3,375)
Sale of common stock December 22, 1995 at $.17 per share 146,250 1,463
Redemption of common stock December 22, 1995 at $.22 per share (337,500) (3,375)
Net loss for the year ended December 31, 1995 - -
---------- --------
Balance as of December 31, 1995 2,058,750 20,588
Conversion of Class A and B common stock into common stock (2,058,750) (20,588)
Issuance of detachable warrants on May 17, 1996, in connection with bridge
financing arrangements, valued at $25,000, to purchase
100,000 shares of common stock at $1.00 per share - -
Sales of common stock during June and July, 1996 at $1.00 per share,
less offering costs of $124,663 - -
Conversion of bridge notes plus accrued interest of $1,841 to common
stock on June 28, 1996 at $1.00 per share - -
Unearned compensation grant - -
Compensation (note A4) - -
Net loss for the year ended December 31, 1996 - -
---------- --------
Balance as of December 31, 1996 - -
Accrued interest contributed to capital by officer - -
Unearned compensation grant - -
Unearned compensation amortization - -
Unearned compensation reversal related to employee terminations - -
Exercise of stock options - -
Sales of common stock in February and March, 1997 at $3.00 per share, less
offering costs of $1,039,668 - -
Issuance of warrants on March 24, 1997, valued at $27,500 to purchase
25,000 shares of common stock at $3.00 - -
Net loss for the year ended December 31, 1997 - -
---------- --------
Balance as of December 31, 1997 - $ -
========== ========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the
Class B Common stock contributed development Unearned
Shares Amount Shares Amount capial stage compensation Total
- ---------- -------- --------- ------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1,575,000 $ 15,750 - $ - $ (22,750) $ (8,747) $ - $ 3
675,000 6,750 - - 11,500 - - 25,000
- - - - 11,250 - - 11,250
- - - - - (30,596) - (30,596)
- - - - - (11,285) - (11,285)
- ---------- -------- --------- ------- ----------- ----------- --------- -----------
2,250,000 22,500 - - - (50,628) - (5,628)
(135,000) (1,350) - - 2,700 - - -
472,500 4,725 - - 215,550 - - 225,000
(337,500) (3,375) - - (151,424) - - (158,174)
146,250 1,463 - - 47,074 - - 50,000
(337,500) (3,375) - - (113,900) (29,350) - (150,000)
- - - - - (86,386) - (86,386)
- ---------- -------- --------- ------- ----------- ----------- --------- -----------
2,058,750 20,588 - - - (166,364) - (125,188)
(2,058,750) (20,588) 4,117,500 41,176 - - - -
- - - - 25,000 - - 25,000
- - 698,160 6,982 566,515 - - 573,497
- - 201,840 2,018 178,990 - - 181,008
- - - - 125,000 - (125,000) -
- - - - - - 13,000 13,000
- - - - - (823,488) - (823,488)
- ---------- -------- --------- ------- ----------- ----------- --------- -----------
- - 5,017,500 50,176 895,505 (989,852) (112,000) (156,171)
- - - - 10,960 - - 10,960
- - - - 225,400 - (225,400) -
- - - - - - 62,254 62,254
- - - - (184,191) - 184,191 -
- - 23,867 238 70,384 - - 70,622
- - 2,420,000 24,200 6,196,132 - - 6,220,332
- - - - 27,500 - - 27,500
- - - - - (2,593,814) - (2,593,814)
- ---------- -------- --------- ------- ----------- ----------- --------- -----------
- $ - 7,461,367 $74,614 $ 7,241,690 $ 3,583,666) $ (90,955) $ 3,641,683
========== ======== ========= ======= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF CASH FLOWS (Notes A2 and K)
<TABLE>
<CAPTION>
January 7,
1993 (date
of inception)
through
Years ended December 31, December 31,
1995 1996 1997 1997
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (86,386) $(823,488) $(2,593,814) $(3,545,569)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation (note A4) 509 3,226 41,370 45,105
Amortization (note A4)
Warrants - 4,167 - 4,167
Unearned compensation - 13,000 62,254 75,254
Allowance for uncollectible receivables - - 99,000 99,000
Interest converted to common stock - 1,841 - 1,841
Revenues realized due to offset of billings
against a stock repurchase (170,174) - - (170,174)
Acquired research and development (note J) 117,000 - - 117,000
Warrants issued for services - - 27,500 27,500
Contribution of services - - - 11,250
Non-cash exercise of stock options - - 21,593 21,593
Change in assets and liabilities:
Accounts receivable - - (155,770) (155,770)
Inventories (64) (100,616) (358,698) (464,927)
Prepaid expenses (4,657) (5,830) (100,273) (110,760)
Accounts payable (4,419) 212,950 69,434 288,688
Accrued liabilities (480) 11,157 234,103 246,283
--------- --------- ----------- -----------
(62,285) 139,895 (59,487) 36,050
--------- --------- ----------- -----------
Net cash used in operating activities (148,671) (683,593) (2,653,301) (3,509,519)
Cash flows from investing activities
Capital expenditures (6,924) (38,747) (163,400) (209,071)
Security deposits (2,233) (2,650) (8,101) (12,984)
Patents and trademarks - (4,534) - (4,534)
--------- --------- ----------- -----------
Net cash used for investing activities (9,157) (45,931) (171,501) (226,589)
Cash flows from financing activities
Net borrowings under short-term borrowing agreements 25,000 188,000 (330,000) (117,000)
Issuance of convertible bridge notes - 175,000 - 175,000
Issuance of warrants - 25,000 - 25,000
Exercise of stock options - - 49,029 49,029
Sales of common stock 275,000 573,497 6,368,393 7,093,832
Redemption of common stock (138,000) - - (138,000)
Deferred offering costs - (148,061) - -
--------- --------- ----------- -----------
Net cash provided by financing activities 162,000 813,436 6,087,422 7,087,861
--------- --------- ----------- -----------
NET INCREASE IN CASH 4,172 83,912 3,262,620 3,351,753
Cash and cash equivalents, beginning of period 1,049 5,221 89,133 -
--------- --------- ----------- -----------
Cash and cash equivalents, end of period $ 5,221 $ 89,133 $ 3,351,753 $ 3,351,753
========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
SAC Technologies, Inc. was incorporated in Minnesota in January 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. The
Company is a development stage enterprise that conducts its operations
from Minneapolis, Minnesota and Las Vegas, Nevada.
From inception through most of 1996, the Company's development efforts
which by agreement (see note J) were to be funded by Jasper Consulting,
Inc. ("Jasper"), were principally focused on the development of its
fingerprint identification and analysis products. Jasper was a
stockholder of the Company from inception through December 1995.
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 $3,545,569, of which $2,593,814 was incurred during 1997. The
Company believes operating losses may continue. The Company believes
its existing cash will not be adequate to fund the expansion and
distribution of its product offerings and has undertaken an effort to
seek out additional sources of financing. No assurances can be given
that financing will be available on terms acceptable to the Company or
that adequate financing will be obtained to meet its needs. If such
financing is not raised during 1998, the Company believes it can make
appropriate adjustments to its operating plan to manage its cash
through December 31, 1998. 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.
During October 1995, the Company completed development of a product
which provides 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 promotion and
marketing of the "Set Top Box" is 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 during October 1995. See
note C for additional information.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
Summary of Significant Accounting Policies
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
1. Revenue Recognition
Revenue is recognized from product sales and services when a product is
shipped or the services are provided, the sales price is fixed, and
when collection is considered probable. Where collectibility is
considered doubtful, revenue is recognized on the basis of cash
received (see note J).
2. Cash and Cash Equivalents
The Company includes as cash equivalents certificates of deposit and
all other liquid investments with a maturity of three months or less
when purchased. The Company maintains its cash balances in two
financial institutions in Minnesota and Nevada. These balances are
insured by the Federal Deposit Insurance Corporation up to $100,000.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
4. Depreciation and Amortization
Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated services lives
of three and five years using the straight-line method for financial
reporting purposes and accelerated methods for tax reporting purposes.
Deferred income taxes are provided for these differences.
Costs associated with patents and trademarks are capitalized, and upon
issuance or approval, are amortized over sixty months or the remaining
life of the patent or trademark, whichever is shorter. If the patent or
trademark issuance approval is denied, the costs will be expensed at
that time.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
4. Depreciation and Amortization (continued)
Unearned compensation related to stock options is amortized to expense
over the vesting period of the stock options. Forfeitures of nonvested
options are recognized as a reduction of additional contributed capital
during the period the forfeitures occur.
5. Other Assets
The Company's investment in the common stock of Inter-Con/PC, Inc. is
accounted for at cost plus equity in undistributed earnings (loss)
since the date of acquisition.
6. Research and Development Expenditures
All costs related to development of new products are charged to expense
as incurred. Such costs are required to be expensed until technological
feasibility and proven marketability of the product are established.
There have been no costs capitalized post technological feasibility.
7. Loss per Common Share
During December 1997 the Company adopted Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS 128). SFAS 128 is effective for
both interim and annual financial statements with periods ending after
December 15, 1997; early adoption was not permitted. The impact of
adopting this new standard, after considering the impact of the 1997
stock split (see note G), was to increase the previously reported net
loss per share for the year ended December 31, 1996 of ($.17) by ($.01)
to ($.18) per share.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
7. Loss per Common Share (continued)
Basic loss per share are calculated by dividing the net loss
attributable to common stockholders by the number of weighted average
common shares outstanding (4,490,568, 4,565,206, 7,047,190 and
5,021,702 shares for the years ended December 31, 1995, 1996 and 1997,
and the period from January 7, 1993 (date of inception) to December 31,
1997, respectively). Diluted earnings per share are calculated by
dividing the net loss attributable to common stockholders by the
weighted average common shares, and when dilutive, options and warrants
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.
8. Income Taxes
The Company provides for income taxes based on income reported for
financial reporting purposes. Certain charges to earnings differ as to
timing from those deducted for tax purposes; these relate primarily to
revenue recognition and net operating loss carry forwards. The tax
effect of these differences are recorded as deferred income taxes.
9. Accounting for Stock Based Compensation
During 1996, the Company implemented the disclosure requirements of
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Under SFAS 123, the Company
will continue to account for stock-based compensation under the
intrinsic value method prescribed by Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees," (APB 25) and
will provide pro forma disclosures of net loss and loss per share as if
the fair value basis method prescribed in SFAS 123 had been applied in
measuring compensation expense.
Pursuant to APB 25, no accounting recognition is given to employee
stock options issued at fair market value or greater until they are
exercised, at which time the proceeds are credited to the capital
accounts. With respect to non-statutory compensatory options, the
Company may recognize a tax benefit upon exercise of these options in
an amount equal to the tax effect of the excess of the fair market
value of the common stock over the option price on the day of the
exercise. With respect to incentive stock options, tax benefits arising
from disqualifying dispositions may be recognized at the time of such
disposition. Tax benefits recognized related to stock options are
credited to additional contributed capital.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
10. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates
NOTE B - EQUIPMENT AND FURNITURE AND FIXTURES
December 31,
1996 1997
------------- --------------
Equipment $ 43,320 $ 176,600
Furniture and fixtures 2,351 32,471
------------ --------------
45,671 209,071
Accumulated depreciation (3,735) (45,105)
------------ --------------
$ 41,936 $ 163,966
=========== ==============
NOTE C - OTHER ASSETS
December 31,
1996 1997
------------- --------------
Deferred offering costs $ 148,061 $ -
Security deposits 4,883 12,984
Patents pending 4,534 4,534
Investment in affiliate (see below) - -
--------------- --------------
$ 157,478 $ 17,518
========== ===========
During October 1996, the Company contributed its "Set Top Box"
technology to Inter-Con for an initial 50% (35.8% as of December 31,
1997) ownership interest in Inter-Con . Inter-Con is a development
stage enterprise founded in June 1996 to market and distribute the "Set
Top Box" and related products.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE C - OTHER ASSETS - CONTINUED
Costs associated with the development of the "Set Top Box" technology
prior to contribution have been expensed as research and development
costs since the technology had not reached technological feasibility
and proven marketability as of the date of transfer. Accordingly, the
Company's capitalized cost basis in the technology as of the date of
contribution was $0.
The Company entered into a technical support agreement with Inter-Con
for a fee of up to $20,000 per month. During March 1998, the Company
and Inter-Con reached an agreement in principle to terminate the
technical support agreement. The Company has not recorded revenue from
the technical support agreement since November 1997. During the fourth
quarter of 1997, the Company wrote-off $42,621 of receivables from
Inter-Con. During the years ended December 31, 1996 and 1997 $32,000
and $143,065 of technical support fees were recognized, respectively.
NOTE D - ACCRUED LIABILITIES
December 31,
1996 1997
------------- -------------
Compensation $ 1,000 $ 232,105
Interest and other 11,180 3,218
------------- --------------
$ 12,180 $ 235,323
============= ==============
Included in accrued compensation as of December 31, 1997 is $218,438,
which is the remaining amount payable from a severance agreement with
the Company's former Chief Operating Officer. The severance amount was
included in selling, general and administrative expenses for the year
ended December 31, 1997.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE E - NOTES PAYABLE
<TABLE>
<CAPTION>
December 31,
1996 1997
------------- -------------
<S> <C> <C>
Revolving line of credit $ 213,000 $ -
Non-interest bearing demand note payable to
stockholder with interest imputed at 8%;
collateralized by a $117,000 receivable from
Jasper (note J) 117,000 -
------------- --------------
$ 330,000 $ -
============= ==============
</TABLE>
The Company entered into a revolving line of credit agreement with a
bank during January 1996, as amended during December 1996 and February
1997. The agreement provides for borrowings of up to $250,000 at 1%
above the prime rate of interest (effective rate of 9.25% at December
31, 1996). The note matured in January 1998 and was not renewed.
NOTE F - COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company operates from leased facilities under noncancelable
operating leases that expire during May 2002 for its Minnesota location
and February 2000 for its Nevada location. The Company pays for
property taxes, maintenance, insurance, and other occupancy expense
applicable to the leased premises.
Minimum rental commitments of non-cancelable operating leases are
approximately as follows:
Year ending December 31,
1998 $ 73,000
1999 76,000
2000 48,000
2001 44,000
2002 19,000
-----------
$ 260,000
==============
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE F - COMMITMENTS AND CONTINGENCIES - CONTINUED
Lease Agreements - Continued
Rental expense was as follows:
Year ended December 31,
1995 $ 11,094
1996 24,571
1997 84,631
January 7, 1993 (date of inception) through
December 31, 1997 126,296
Inventory Purchase Commitments and License Fees
The Company has entered into various technology license agreements for
periods from one to three years. In connection with entering into such
agreements, the Company has committed to pay approximately $450,000, to
the licensors of the technology primarily during 1998 for the per unit
cost of imbedding such technologies into the Company's products at
agreed upon minimum levels, or for the purchase of inventory from such
companies. In order to maintain exclusivity as it relates to the
biometric industry for two of these licenses through 2000, the Company
is required to purchase approximately $200,000 of products per year.
See note G regarding options granted to a licensor.
See note J for information regarding the licensing/royalty agreement
with Jasper.
Employment Agreements
The Company has employment agreements with four individuals. The
employment agreements contain non-compete clauses that prohibit the
employees from being employed by a competitor of the Company. The
non-compete clause is in effect for two years for voluntary
terminations and three years for terminations with cause. In the event
of "constructive termination", as defined, the agreements provide each
employee with up to four years salary (as of December 31, 1997) reduced
by one month for each month thereafter until December 31, 2001, at
which time the amount of severance is two years. As of December 31,
1997, the aggregate commitment approximates $2,773,196.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE G - STOCKHOLDERS' EQUITY
Initial Public Offering
During the quarter ended March 31, 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 per share ($6.00 pre stock
dividend) resulting in gross proceeds of $7,260,000 before deduction of
offering expenses.
Stock Split
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.
1996 Stock Option Plan
During May 1996, the Board of Directors and stockholders of the Company
adopted the 1996 Stock Option Plan (the Plan). Under the Plan, 750,000
(375,000 pre stock dividend) shares of common stock may be issued to
employees, officers, directors, and consultants of the Company at
exercise prices which may not be below 100% of fair market value for
incentive stock options and 85% for all others. Pursuant to the Plan,
the term of incentive stock options and nonstatutory stock options
granted may not exceed ten years. Options issued under the Plan vest
pursuant to the terms of stock option agreements with the recipients.
In the event of a change in control, as defined, all options
outstanding vest immediately and are exercisable for their remaining
terms. The Plan terminates in May 2006.
Pursuant to the Plan, each non-employee director may receive options to
purchase 50,000 shares of common stock which will vest 20% annually for
five years. Five years after the initial grant of an option to a
non-employee director, and every fifth year thereafter, non-employee
directors who remain on the Board shall automatically be granted
additional options to purchase 50,000 shares of Common Stock which
shall vest 20% on May 1 of each year over a period of five years. All
options granted to non-employee directors shall have an exercise price
equal to 100% of the fair market value of the Company's common stock.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE G - STOCKHOLDERS' EQUITY - CONTINUED
1996 Stock Option Plan - Continued
The following table summarizes option activity:
<TABLE>
<CAPTION>
Weighted
Range of average
Number exercise exercise
of shares prices price
<S> <C> <C> <C>
Balance, December 31, 1995 - $ - $ -
Granted 346,000 1.00 - 1.13 1.12
----------
Balance, December 31, 1996 346,000 1.00 - 1.13 1.12
Granted 458,166 3.21-10.75 5.09
Exercised (25,000) 1.00 - 4.43 2.49
Expired or canceled (328,000) 1.12 - 4.43 3.12
----------
Balance, December 31, 1997 451,166 1.00-10.75 3.63
==========
Available for grant, December 31, 1997 273,834
==========
</TABLE>
The weighted average fair value of all options granted during the years
ended December 31, 1996 and 1997 were $.83 and $6.37 per share,
respectively.
Additional information regarding options outstanding as of December 31,
1997 follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of average average average
exercise Number of exercise remaining Number exercise
prices options price life exercisable price
-------------- ------------- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 1.00 - 1.13 284,000 $ 1.12 5.58 65,997 $ 1.12
3.21 - 4.43 69,000 3.85 6.65 33,000 3.21
10.75 98,166 10.75 4.50 - -
</TABLE>
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE G - STOCKHOLDERS' EQUITY - CONTINUED
1996 Stock Option Plan - Continued
The estimated fair value of the options granted to consultants during
1996 was $125,000. Initially, the total market value of the options is
treated as unearned compensation and is charged to expense over the
respective vesting periods.
During 1997, 360,000 (180,000 pre stock dividend) of options were
issued to employees at per share exercise prices less than the fair
market value of the common stock at the date of issuance. The
difference between the option exercise price and estimated fair value
of common stock at the date of grant for these options was $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
terms of the related stock option agreements. In connection with
certain employee terminations, $184,191 of unearned compensation was
reversed during 1997, with no resulting impact to the statement of
operations.
During February 1998, the Company granted an option to purchase 48,000
shares of common stock to a company with which the Company had entered
into a license agreement (see note F). The option is exercisable at
$6.42 ($2.08 less than market value at the date of issuance) through
February 2008. The option vests as follows: 12,000 shares immediately
and 3,000 shares per quarter thereafter. The option contains a cashless
exercise feature whereby the holder may utilize the increase in fair
market value above the exercise price to pay for an option exercise.
The estimated fair value of the option of $99,840 will be amortized
over the three year term of the license agreement.
During March 1998, the Company granted an option to purchase 40,000
shares of common stock to its Vice President of Business Development.
The option is exercisable at $8.29 through March 2005. The $1.46
difference between the exercise price and the market value of the
common stock at the date of grant of $58,520 will be recognized as
compensation expenses over the five year term of the stock option
agreement.
During March 1998, the Company signed a letter of intent with a company
who intends to become a distributor of the Company. The terms of the
letter of intent provide for an option to purchase up to 100,000 shares
of common stock with an exercise price per share equal to the 30 day
average closing price from the signing date of the letter of intent,
exercisable for seven years with 75,000 shares immediately exercisable
and an additional 25,000 shares in certain circumstances.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE G - STOCKHOLDERS' EQUITY - CONTINUED
Option Proforma Information
Had compensation cost for the Company's stock option plan been
determined at the grant date for stock options awarded pursuant to the
fair value method prescribed by SFAS 123 (see note A9), the Company's
net loss and net loss per share for the periods ended December 31,
would have been as follows:
<TABLE>
<CAPTION>
January 7,
1993 (date
of inception
Years ended December 31, through
------------------------ December 31,
1996 1997 1997
---- ---- ----
<S> <C> <C> <C>
Net loss
As reported $(823,488) $(2,593,814) $(3,545,569)
Proforma (842,488) (2,625,814) (3,596,569)
Net loss per share
As reported
Basic (.18) (.37) (.71)
Diluted (.18) (.37) (.71)
Proforma
Basic (.18) (.37) (.72)
Diluted (.18) (.37) (.72)
</TABLE>
Proforma information for the year ended December 31, 1995, is not
presented as there were no stock options awarded during this period.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options pricing model with the following
weighted average assumptions used for grants:
1996 1997
---- ----
Risk free interest rate 6.0% 6.25%
Expected life of options (in years) 4.0 4.0
Expected dividends - -
Volatility of stock price - 93.1%
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE G - STOCKHOLDERS' EQUITY - CONTINUED
1996 Stock Option Plan - Continued
Warrants
Warranty activity is summarized as follows:
<TABLE>
<CAPTION>
Exercisable
Price at
per Expiration December
Outstanding share date 31
----------- --------- ----- ----------
<S> <C> <C> <C> <C>
Balance December 31, 1995 - $ - - -
Granted to bridge noteholders
(A-E) 87,500 1.00 1999 87,500
Granted to bridge noteholder (F) 12,500 3.00 1999 12,500
Granted to Tuchner & Company
(Agent) 83,278 3.00 2001 83,278
------- -------
Balance December 31, 1996 183,278 183,278
Granted to consultant 25,000 3.00 2004 25,000
Granted to Agent 88,938 3.60 2002 -
------- -------
Balance, December 31, 1997 297,216 208,278
======= =======
Exercised through December 31, 1997 -
=======
</TABLE>
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE H - PROFIT SHARING PLAN AND TRUST
During the year ended December 31, 1997, the Company implemented the
SAC Technologies, Inc. 401(k) Profit Sharing Plan and Trust which
covers substantially all of its employees. Participants may elect to
enter into salary reduction agreements with the Company for a portion
of their compensation. The plan authorizes the Board of Directors of
the Company to annually authorize contributions, out of earnings and
profits. For the year ended December 31, 1997, contributions to the
plan totaled $52,396. There were no contributions made by the Company
during 1997.
NOTE I - INCOME TAXES
Deferred taxes consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
------------- --------------
<S> <C> <C>
Allowance for doubtful receivables $ - $ 40,000
Compensation - 76,000
Revenue recognition 157,000 150,000
Income tax credits - 20,000
Net operating loss carryforwards 209,000 1,158,000
------------- --------------
366,000 1,444,000
Less valuation allowance (366,000) (1,444,000)
------------- --------------
$ - $ -
============= ==============
</TABLE>
A valuation allowance has been recorded due to uncertainty of
realization of deferred tax assets principally due to the development
stage nature and operating loss history of the Company; however, the
valuation allowances could be reduced or eliminated based on future
earnings and future estimates of taxable income. Also, income tax
benefits related to stock option exercises have not been recognized in
the financial statements for the same reasons.
As of December 31, 1997, the Company had federal and Minnesota net
operating loss carryforwards of approximately $2,800,000. These
operating losses expire between 2008 and 2012. Net operating loss
carryforwards available to offset future taxable income may be subject
to the limitations under Section 382 of the Internal Revenue Code due
to changes in the equity ownership of the Company.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE J - RELATED PARTY TRANSACTIONS AND CONCENTRATIONS
Research and Development Arrangement With Jasper
The Company's primary current product offerings incorporate the
Company's "Optic Technology" and "Biometric Solution" with "FIDS
Technology." The "FIDS Technology" was developed by the Company for
Jasper. The Company has licensed the "FIDS Technology" from Jasper. The
Company has a world-wide license agreement with Jasper for use of the
FIDS technology in certain markets. In addition, Jasper has a
world-wide license agreement with the Company for use of the "Optic
Technology" and "Biometric Solution" technology within Jasper's market
areas.
Jasper agreed to fund research and development for the Company's
products from inception through April 1996 principally in consideration
of an assignment of the patent rights to the "FIDS" Technology.
However, most of this funding was provided by the Company. Research and
development funding after this date was the responsibility of the
Company. The Company maintains the patent and other intellectual
property rights to the non-"FIDS" technologies.
Through 1996, the Company had billed various amounts for reimbursement
under the development arrangement with Jasper. Jasper had not paid the
majority of these billings. At such time, the Company believed Jasper
did not have the financial wherewithal to pay for such amounts.
Therefore, realizability of the outstanding billings to Jasper were not
assured and were not recognized as revenues. Should such outstanding
billings to Jasper be collected in the future, they will be reflected
in income upon receipt. During the year ended December 31, 1997, the
Company recognized $36,000 of revenues related to collections on these
prior billings.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE J - RELATED PARTY TRANSACTIONS AND CONCENTRATIONS - CONTINUED
Research and Development Arrangement With Jasper (continued)
The following summarizes outstanding billings (not yet recognized as
revenues for financial statements purposes) to Jasper:
December 31,
------------
1997 1996
------------- --------------
Research and development
Optics technology (note E) $ 117,000 $ 81,000
Other 290,000 290,000
------------- --------------
$ 407,000 $ 371,000
============= ==============
Total costs incurred pursuant to the development arrangement with
Jasper were as follows:
Year ended December 31,
1995 $ 236,891
1996 72,471
January 7, 1993 (date of inception) through
December 31, 1997 404,118
FIDS License Agreement With Jasper
The following are the more significant terms and conditions of the FIDS
license arrangement with Jasper:
* The Company and Jasper have the exclusive worldwide license
rights to each other's technologies, as defined.
* The Company is to pay a $30.50 per unit royalty to Jasper for
all sales made by the Company of products utilizing the "FIDS
Technology."
* The Company is to receive a $30.00 per unit royalty from
Jasper for sales made by Jasper of products utilizing the
"FIDS Technology."
* Jasper receives all rights to future modifications or
improvements made by the Company to the "FIDS Technology."
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE J - RELATED PARTY TRANSACTIONS AND CONCENTRATIONS - CONTINUED
FIDS License Agreement with Jasper - Continued
o The Company may not sell, assign, or transfer its "FIDS
Technology" or grant sublicenses without consent of Jasper. In
the event of sale, assignment, transfer, or sublicense of
"FIDS Technology" by the Company, 42% of any sales proceeds
are required to be remitted to Jasper and 10% to be retained
to fund ongoing development. Additionally, in the event of
sale, assignment, transfer, or sublicense of "FIDS Technology"
by Jasper, 42% of any sales proceeds are required to be
remitted to the Company, with 10% of such amount to be
utilized to fund ongoing development.
o The term of the agreement expires the later of April 2016 or
the date of the last patent to expire (as of December 31, 1997
no patents were issued, and none can be assured of being
issued).
There was no royalty income or expense during the periods presented.
Other Transactions or Agreements With Jasper
Accounts receivable from Jasper, excluding the $407,000 and $371,000 of
uncollected billings as of December 31, 1996 and 1997, respectively,
discussed above, were $10 and $156,895 as of December 31, 1996 and
1997, respectively.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE J - RELATED PARTY TRANSACTIONS AND CONCENTRATIONS - CONTINUED
<TABLE>
<CAPTION>
Other
January 7,
1993 (date
of inception)
Years ended December 31, through
------------------------ December 31,
1995 1996 1997 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues recognized from
Jasper (see note M) $229,070 $ - $211,918 $564,975
Revenues recognized from
Inter-Con (see notes
C and M) - 32,000 177,494 209,494
Offset of deferred offering
costs against the proceeds
of the initial public
offering - - 148,061 148,061
Purchase of optics
technology (see below) 117,000 - - 117,000
Purchase of component
parts from a company
owned by a stockholder - 21,434 - 21,434
Payments for rent, assembly,
and computer aided
design services from an
affiliate 22,156 - - 77,049
Equipment purchased from a
stockholder 5,000 - - 5,000
</TABLE>
During August 1995, the Company purchased certain elements of its
"Optic Technology" from an individual who also purchased common stock
of the Company. The total purchase price of $117,000 was agreed to be
reimbursed by Jasper. See note E for information on related party notes
payable.
Purchases from an unaffiliated electronics components vendor
approximated 25% of total purchases during the year ended December 31,
1997.
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
NOTE K - SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
January 7,
1993 (date
of inception)
Years ended December 31, through
------------------------ December 31,
1995 1996 1997 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Cash Paid for:
Interest $ - $ 24,564 $ 3,980 $ 24,564
Income taxes - - - -
Noncash Financing
Activities
Accrued interest
contributed to
capital by
officer - - 10,960 10,960
Conversion of bridge
notes into
common stock - 179,167 - 179,167
Common stock
repurchases offset 170,174 - - 170,174
by a reduction in
amounts billed to
Jasper for research
and development
</TABLE>
NOTE L - FAIR VALUES OF FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value
information as of December 31, 1996 and 1997 as required by Financial
Accounting Standards Board No. 107 ("SFAS 107"). Such information,
which pertains to the Company's financial instruments, is based on the
requirements set forth in SFAS 107 Statement and does not purport to
represent the aggregate net fair value of the Company. All material
financial instruments as of December 31, 1996 and 1997 for which it is
practicable to estimate the value, approximated fair value because of
the short maturity of those instruments.
NOTE M - FOURTH QUARTER MATTERS
As discussed in note C, during March 1998, the Company and Inter-Con
reached an agreement in principle to terminate the technical support
and development agreement. Also, during February 1998, the Company
determined that a portion of the receivable from Jasper may not be
collected. As a result, the Company wrote-off $42,621 of receivables
from Inter-Con and reserved for $99,000 of receivables from Jasper
effective as of the end of the fourth quarter ended December 31, 1997.
STRATEGIC ALLIANCE, BUNDLING & AUTHORIZATION TO
REPLICATE AGREEMENT
FOR THE INTEGRATION OF SAC TECHNOLOGIES FINGERPRINT TECHNOLOGY AND
MIROS TRUEFACE SOFTWARE PRODUCTS
Duly made and executed on this 13th day of February 1998, by and between:
SAC Technologies, Inc., a Minnesota corporation having its principal place of
business at 4444 West 76th Street, Edina Minnesota 55435 hereinafter referred to
as "SAC", represented by Barry Wendt, Chief Executive Officer; and
Miros Incorporated, a Delaware corporation with its principal offices at 572
Washington Street, Wellesley, MA, 02181, hereinafter referred to as "MIROS",
represented by Keith G. Angell, Chief Operation Officer.
INTRODUCTION
This Strategic Alliance, Bundling and Authorization to Replicate AGREEMENT
contains understandings between MIROS and SAC (the "Parties"), with regard to
the integration of biometric technologies, including, but not limited to: voice,
facial recognition and fingerprint for desktop computer/network access,
appliance access control and facility access control for Industrial, Commercial
and Consumer market applications.
MIROS is currently developing, marketing and licensing software products based
on facial verification, including the TrueFace PC/95, a stand alone product for
logon to Windows95, and TrueFace PC/NT, a stand alone product for logon to
WindowsNT, together referred to as the "PRODUCTS" which address opportunities in
the authentication market and desires to participate with SAC in the areas of
integration and co-marketing.
SAC is currently developing, marketing and selling various fingerprint
"identification" based products such as SACCat, SACMan, SAC_Remote and
SAC_Encrypt along with associated applications, has technical and business
interests in the PRODUCTS and desires to participate with MIROS in the areas of
integration, bundling, replication and co-marketing. From time to time, SAC may
integrate the MIROS PRODUCTS with SAC products and this integration will be
known as the "Bundle".
1.0 SCOPE OF COOPERATION - MIROS and SAC's intended cooperation will include
the following:
1.1 MIROS OBLIGATIONS - Miros grants SAC the nonexclusive,
non-transferable worldwide right and license to distribute, promote,
market, and advertise the PRODUCTS, but only when the PRODUCTS are
distributed to resellers or end users as part of the SAC product
Bundle. Miros' PRODUCTS will be included in each SAC Product Bundle.
Miros grants SAC the nonexclusive, non-transferable worldwide right
to replicate the PRODUCTS without alteration for inclusion in the
Bundle for distribution by SAC under this AGREEMENT. Miros will
deliver or otherwise make available to SAC at the delivery address
set forth in Section 6:
* a master of the PRODUCTS in suitable digital form on diskette
or CD;
* all applicable artwork associated with the PRODUCTS.
During the term of this AGREEMENT, Miros will notify SAC of any
changes to the PRODUCTS or artwork prior to the date Miros
implements the change, and will promptly provide SAC with the
necessary material for SAC to replicate the changed PRODUCTS or
artwork. SAC or its agent is responsible for providing support to
end users of the Bundle. Miros will have no obligation to provide
support to end users of the Bundle.
1.2 SAC OBLIGATIONS - SAC will include the PRODUCTS in the CD/diskette
for every SAC Product Bundle. SAC will incorporate any changes to
the PRODUCTS or artwork provided by Miros in updates to the Bundle
in a timely fashion, unless mutually agreed upon by both parties.
SAC will provide Miros with one (1) copy of the Bundle and of each
subsequent version of the Bundle containing changes to the
<PAGE>
PRODUCTS or artwork upon commercial availability. SAC grants Miros
the nonexclusive, worldwide right and license to distribute,
promote, market, and advertise the SAC line of products.
1.3 Furthermore, the parties agree to cooperate and share resources and
information, on a global basis, in the mutual and/or joint
development, promotion, marketing and sales described below in
Sections 1.4-1.7
1.4 DEVELOPMENT-
* Joint development of, support for, and integration for certain SAC
products with MIROS' PRODUCTS.
* Joint development of, support for, and integration of biometric
facial authentication and SAC's technology.
* Working together and sharing resources and information on the
support of new interfaces and standards, in order to ensure the
timely support of significant industry standards by both parties'
products.
* Providing reciprocal access to each party's white papers and
technical briefs and reciprocal participation in beta testing,
subject to appropriate confidentiality obligations.
1.5 MARKETING AND SALES - On a case by case basis, based on mutual
business considerations and approvals:
* Joint participation in marketing efforts, including joint
advertising, press releases, joint participation in trade shows,
linking web sites, and other industry events.
* Mutual referral of relevant customer leads as determined by the
source party.
* For use on brochures, advertising, packaging and other promotional
material for the sale of the Bundle created under this AGREEMENT,
SAC may itself or may authorize SAC authorized resellers to without
Miros' prior approval, provided that Miros may at any time in its
sole discretion object to a use or uses by SAC or any SAC reseller
and such use shall promptly be suspended until the parties are able
to agree mutually on further use:
1) reproduce without alteration the PRODUCTS or artwork as
part of the Bundle; or
2) use without alteration Miros' name and the current
Miros' designated product name as part of the Bundle;
3) make factual statements referring to the fact that the
PRODUCTS are contained in the Bundle without using any
stylized form of such PRODUCTS names or other stylized
logo or symbol appearing on such PRODUCTS.
4) SAC shall provide Miros a copy of each use of Miros'
name and of any Miros product name, trademark, trade
name and trade dress, and shall require its resellers to
do the same.
* Except as stated above concerning replication of PRODUCTS, and in
the preceding paragraph: (a) no license or rights under any
trademark, trade name or trade dress of Miros is granted under this
AGREEMENT; (b) no reference to any trademark, trade name or trade
dress of Miros may appear on the Bundle, or on packaging, or related
advertising or promotional materials for the Bundle without Miros'
express prior written consent. Reference to Miros PRODUCTS, using
Miros approved artwork, on all SAC or SAC reseller packaging is
required.
* SAC acknowledges Miros' ownership of the Miros trademarks, trade
names, and trade dress that appear on the PRODUCTS and that every
use of these trademarks, trade names, and trade dress inures solely
to the benefit of Miros.
* SAC or Miros may issue press releases relating to the Bundle.
Neither party will publish such releases without the prior written
consent of the other party, such consent not to be reasonably
withheld.
1.6 SERVICES, TRAINING & SUPPORT - On a case by case basis, based on
mutual business considerations and approvals:
* Joint technical seminars for application developers;
* Joint "road shows" addressing the parties' target markets;
* Training of MIROS associates by SAC and training of SAC associates
by MIROS, providing reciprocal high priority access to technical
support resources.
1.7 EXPENSES - Additionally, the parties have agreed to the following
principals on a case by case basis, based on mutual business
considerations:
* MIROS and SAC shall be responsible for their own out of pocket
expenses generated by each party in relation to
special/extraordinary development, promotion marketing and sales
work done by either party to support the requests of the other
party.
<PAGE>
2.0 TERM - The term of this AGREEMENT will be for [*] from the signature date,
unless terminated as defined in Section 8.0. The term may be extended or
renewed by the mutual written agreement of both parties.
3.0 TERRITORY/MARKET - The parties shall promote, market and sell the products
on a worldwide basis for desktop computer/network access, appliance access
control and facility access control for Industrial, Commercial and
Consumer market applications. The stated Territory/Market definition does
not include any existing exclusive arrangements that the parties may have
at the time of the execution of this AGREEMENT. Such exclusive
arrangements will be only as defined in an Addendum to this AGREEMENT.
4.0 CONFIDENTIALITY
4.1 In order to pursue the facilitation of the cooperation between the
parties as detailed in section 1.0 to this AGREEMENT ("Scope of
Cooperation"), the parties, having recognized that there is need to
disclose to each other confidential information, and to provide for
mutual agreements to protect such confidential information which is
to be used only for the purposes of facilitating the Scope of
Cooperation, have signed a Non Disclosure Agreement ("The NDA") on
October 8, 1997.
4.2 Without derogating from the generality of the AGREEMENT, this NDA
shall remain in effect for a period of [*] from the later of the
signature date of the present AGREEMENT or the date of subsequent
addendum to this AGREEMENT.
5.0 INTELLECTUAL PROPERTY RIGHTS
5.1 The parties hereby agree that all the proprietary interests and/or
all intellectual property rights, owned by each party prior to
entering this AGREEMENT shall remain the property of that party
solely, and that in entering this AGREEMENT or any other agreement
deriving from it, either party does not, and shall not, acquire any
rights in the other party's proprietary interests and/or all
intellectual property rights.
5.2 All rights (including but not limited to copyright, patent, trade
secret and other intellectual property rights) in and to the
PRODUCTS provided by Miros (including but not limited to any images,
photographs, animations, video, audio, or text incorporated into the
PRODUCTS), the accompanying printed materials, and any copies of the
PRODUCTS are owned by Miros and its suppliers. SAC may not rent,
lease, timeshare, lend or otherwise share or allow others to use the
PRODUCTS and may not transfer any rights under this AGREEMENT.
5.3 The parties hereby agree that software and hardware developed by SAC
for the support and integration of the PRODUCTS are the property of
SAC.
5.4 Each of MIROS and SAC hereby represents that it does not, in any
manner whatsoever, possess any proprietary interest in the
intellectual property rights owned by the other party. MIROS and SAC
shall be entitled to use each others' name, trade-names and logos as
described in this AGREEMENT, and subject to obtaining the counter
party's prior written consent, such consent not to be unreasonably
withheld.
6.0 TEAM COORDINATORS - The Parties will assign a representative from each
company to assign attendees for joint project workshops as necessary.
* For MIROS - Keith Angell, Chief Operations Officer
Miros address for notices, reports and remittances:
Miros, Inc.
572 Washington Street, Suite 18
Wellesley, MA 02181
Phone: 781-235-0330
Fax: 781-235-0720
* For SAC - Barry Wendt, Chief Executive Officer
SAC address for notices, reports and remittances:
SAC Technologies, Inc.
4444 West 76th Street, Suite 600
Edina, Minnesota 55435
Phone: 612-835-7080
Fax: 612-835-6620
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission.
<PAGE>
7.0 TERMS AND CONDITIONS -
7.1 There will be [*] annual volume requirements for either
party.
7.2 SAC Technologies will pay a per copy license cost for MIROS Products
based on the number of SAC product shipments, according to the fee
schedule below for quantities based on an annual calendar year
cumulative basis. Each calendar year will be a zero restart.
Annual Cumulative Quantity PRODUCT Price per Copy
-------------------------- ----------------------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
7.3 SAC Technologies will receive the best available pricing for the
PRODUCTS based on their annual volume, prepayment and
licensing/bundling fee for the term of the AGREEMENT.
7.4 In consideration of the alliance, MIROS will be assigned Distributor
status for SAC's products and be entitled to Volume Purchase pricing
at the highest quantity, according to SAC's current published price
list as amended from time to time.
7.5 SAC hereby grants MIROS an option for 48,000 shares of unregistered
SAC stock with a strike price of 85% of fair market per share price
based on an average price of the last ten (10) trading days before
execution of this AGREEMENT, exercisable for ten years from the date
of this agreement. Of these 48,000 stock option shares, 12,000
shares vest immediately and 3000 vest quarterly thereafter for three
years (total of 12,000 shares per year). SAC will allow Miros to
effect a cashless exercise of this option, which should enable Miros
to tack their holding period back to the vestment date. In the event
that SAC performs another round of financing, MIROS shares will be
registered at that time.
7.6 SAC will make a non-refundable payment of [*] as follows; [*] and
[*] to secure this alliance pricing. This payment will be used to
offset the purchase of [*] copies of the PRODUCTS for [*] a copy.
7.7 License fees are payable by SAC to Miros monthly. Within 30 days
after the end of each calendar month following initial commercial
shipment of the Bundle by SAC, SAC will mail a written statement
setting forth the basis for SAC's calculation of the license fee due
Miros at the address stated in Schedule 1, and a check covering
payment of all required license fees, to the remittance address set
forth in Schedule 1.
7.8 In order that the reports and license fees may be verified, SAC
agrees to keep full, complete, and accurate books and records in
accordance with generally accepted accounting principles covering
the Bundles sold and fees payable under this AGREEMENT for a period
of three years after the relevant transaction which gave rise to the
accrual of a fee obligation hereunder.
7.9 It is agreed that the books and records of SAC may be audited from
time to time upon written notice at least five business days in
advance, during SAC's normal business hours, but not more than twice
in each calendar year, by an independent certified public accountant
appointed by Miros and reasonably acceptable by SAC, to the extent
necessary to verify the accuracy of the fee statements and payments.
Such audit shall be completed at Miros' sole expense, at SAC's
location unless otherwise agreed to by the Parties, and limited to
an audit of the fee reports for the two years preceding the date of
the audit, except that if any discrepancy or error exceeding five
percent of the money actually due is found in connection with the
computation, the reasonable cost of such audit shall be borne by
SAC, and the scope of the audit may be expanded to cover the three
years preceding the audit.
7.10 Fee payments are to be made in U.S. dollars.
7.11 All products sold by SAC to MIROS and by MIROS to SAC shall bear the
cost of any related royalties. If the existence of other
intellectual property rights relevant to a product comes to light,
the supplying party will secure the full right to use the item
throughout the world.
8.0 TERMINATION - This AGREEMENT shall terminate at the end of its initial
term unless extended or renewed by the mutual written agreement of the
parties. Prior thereto, this AGREEMENT may be terminated by the mutual
written agreement of the parties; by either party if the other party makes
any assignment for the benefit of
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
its creditors or makes any composition with creditors, if any actions or
proceedings under any bankruptcy or insolvency law are taken by or against
it, if it passes a resolution for its voluntary or compulsory liquidation,
or if it suffers execution to be levied against any of its assets; or by
either party upon the failure of the other to comply with any of the
material terms and conditions in this AGREEMENT by giving the other party
written notice of termination stating the nature of the breach at least
thirty (30) days prior to the effective date of termination, provided that
the party allegedly in default may avoid termination by immediately
initiating a remedy to cure such default, curing it to the other party's
reasonable satisfaction within the thirty (30) day period, and promptly
providing proof thereof to the other party. If such default is not cured
within that time, or such longer period as applicable law may require,
this AGREEMENT shall terminate without further notice to the party
allegedly in default effective immediately upon expiration of the thirty
(30) day period or such longer period as applicable law may require. Upon
the expiration or termination of this AGREEMENT, SAC shall immediately
destroy all copies and all component parts of the PRODUCTS then in SAC's
possession. In the event of a termination of this AGREEMENT by SAC prior
to the end of the initial term pursuant to this section because of an
uncured breach by Miros, the stock option granted in Section 7.5 shall
terminate in respect to any unvested shares.
9.0 SURVIVAL - The provisions of Section 4 and 5, governing Confidentiality
and Intellectual Property Rights and any other provision which, by its
sense and context is intended to survive the termination of this
AGREEMENT, shall indefinitely survive the termination of this AGREEMENT.
10.0 WARRANTIES - Miros warrants that for a period of ninety (90) days from the
date of purchase, the Products, if operated as directed, will
substantially achieve the functionality described in the Documentation.
Miros does not warrant, however, that SAC's use of the software will be
uninterrupted or that the operation of the Software will be error-free.
Miros also warrants that the media containing the Software, if provided by
Miros, is free from defects in material and workmanship and will so remain
for ninety (90) days from the date SAC purchased it. Miros' sole and
exclusive obligation and liability for any breach of this warranty shall
be, in Miros' discretion: (i) to replace SAC's defective media, (ii) to
repair or correct SAC's defective media so that it will conform to the
above warranty, or (iii) to demonstrate to SAC how to achieve
substantially the same functionality with the Software as described in the
Documentation through a procedure different from that set forth in the
Documentation. Repaired, corrected, or replaced Software and Documentation
shall be covered by this limited warranty for the period remaining under
the warranty that covered the original Software or, if longer, for thirty
(30) days after the date (A) of shipment to SAC of the repaired or
replaced Software, or (B) Miros advised SAC how to operate the Software so
as to avoid the difficulty that SAC was having to achieve this
functionality. Only if SAC informs Miros of its problem with the Software
during the applicable warranty period will Miros be obligated to honor
this warranty. SAC must contact Miros by telephone or in writing to inform
Miros of the problem. THIS IS A LIMITED WARRANTY AND IT IS THE ONLY
WARRANTY MADE BY MIROS. NO MIROS SUPPLIER OR EMPLOYEE IS AUTHORIZED TO
MAKE ANY MODIFICATIONS, EXTENSIONS, OR ADDITIONS TO THIS WARRANTY. The
warranties set forth above shall not apply to errors or other problems
arising out of (i) modifications made to the Software by anyone other than
Miros, (ii) use of the Software on or in conjunction with hardware or
software other than the unmodified version of the hardware and software
with which the Software was designed to be used as described in the
Documentation, or (iii) with respect to the media, disaster, accident,
negligence or misuse after delivery to SAC. THIS LIMITED WARRANTY GIVES
SAC SPECIFIC LEGAL RIGHTS. SAC MAY HAVE OTHERS, WHICH VARY FROM
STATE/JURISDICTION TO STATE JURISDICTION. TO THE MAXIMM EXTENT PERMITTED
BY APPLICABLE LAW, MIROS AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES,
EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
REGARDS TO THE SOFTWARE AND ANY ACCOMPANYING HARDWARE.
11.0 LIMITATION OF LIABILITY - To the maximum extent permitted by applicable
law, and except as expressly provided in section 10 of this AGREEMENT, in
no event shall Miros or its suppliers be liable for any special,
incidental, indirect, or consequential damages whatsoever (including,
without limitation, damages for lost business profits, business
interruption, loss of business information, or any other pecuniary loss)
arising out of the use of or inability to use the software, even if Miros
has been advised of the possibility of such damages. Because some states
and jurisdictions do not allow the exclusion or limitation of liability
for consequential or incidental damages, the above limitation may not
apply to user.
<PAGE>
12.0 INDEMNIFICATION - Notwithstanding any limitations under Section 11.0
hereof: I) Miros will indemnify, defend and hold SAC harmless against any
claim that the PRODUCTS distributed hereunder infringe any patent,
copyright, or trademark and Miros will pay any costs and damages,
including reasonable attorney's fees, that a court finally awards against
SAC as a result of such claim, provided SAC gives Miros prompt written
notice of such claim and tenders to Miros the defense and all related
settlement negotiations; 2) SAC will indemnify, defend and hold Miros
harmless against any claim that the SAC products and other Bundle software
in the Bundle distributed hereunder infringe any patent, copyright, or
trademark and SAC will pay any costs and damages, including reasonable
attorney's fees, that a court finally awards against SAC as a result of
such claim or that are paid in settlement thereof, provided Miros gives
SAC prompt written notice of such claim and tenders to SAC the defense and
all related settlement negotiations; 3) SAC will indemnify Miros against
any cost, loss, liability, or expense, including reasonable attorneys'
fees, arising out of third party claims against Miros relating to the
Bundle except to the extent the claim relates to or is caused by the
PRODUCTS; and 4) Miros will indemnify SAC against any cost, loss,
liability, or expense, including reasonable attorneys' fees, arising out
of third party claims against SAC relating to the Bundle except to the
extent the claim relates to or is caused by SAC or the third party
products included in the Bundle.
13.0 ASSIGNMENTS - The parties privileges, ownership or control in this
AGREEMENT are not transferable and shall not be transferred or assigned to
any other person, firm, corporation, partnership or other business entity,
whether by operation of law or otherwise, without the other parties prior
approval. Such transfer for assignment without the prior written approval
of the other party shall be null and void and shall not be binding.
14.0 ENTIRE AGREEMENT - This AGREEMENT, together with the Addendum's attached
constitutes the entire understanding and AGREEMENT between the parties and
supersedes any understanding, agreement or arrangements previously made or
in existence between the parties. This AGREEMENT may not be altered,
enlarged, supplemented, abridged, modified, nor any provisions waived
except as provided in this AGREEMENT, or by a written AGREEMENT between
SAC and MIROS that makes express reference to this AGREEMENT, and
specifically declares it is intended as an amendment hereto.
15.0 APPLICATION LAW - This AGREEMENT shall be governed by and construed in
accordance with the laws of the State of Massachusetts, United States of
America.
16.0 ARBITRATION - Any dispute relating to the interpretation of this Agreement
or the relationship between the parties hereunder, shall be settled by
final and binding arbitration pursuant to the rules of the American
Arbitration Association. The arbitration shall take place before a panel
of three qualified arbitrators, one chosen by each of the parties. The
parties hereby agree that results of the arbitration are final and binding
and may not be appealed by either party to any court of judicial
authority. Disputes arising out of, resulting from or relating to the
intellectual property rights of a party (including but not limited to
patents and patent rights, copyrights, trademarks, service marks, trade
secrets, and unauthorized disclosure of Confidential Information shall be
resolved as follows: notwithstanding anything to the contrary in this
Section, in the event of alleged violation of a party's intellectual
property rights, that party may seek temporary injunctive relief from any
court of competent jurisdiction. The party requesting such relief shall
simultaneously file a demand for arbitration of the dispute, and shall
request the AAA to proceed under its rules for expedited hearing. In no
event shall any such temporary injunctive relief continue for more than 30
days without review by the issuing court.
17.0 EFFECTIVE DATE - This AGREEMENT shall become effective upon execution by
both parties as of the date and year first above written, and shall
continue in force and govern all relations and transactions between the
parties until terminated and thereafter to the extent necessary to give
effective to those provisions, hereof applicable following termination.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Alliance AGREEMENT to be
executed by their respective authorized representatives.
For Miros Incorporated: For SAC Technologies, Inc.:
/s/ Keith Angell 3/3/98 /s/ Barry Wendt 2-13-98
- ------------------------------------- ------------------------------------
Keith Angell Date Barry Wendt Date
Chief Operating Officer Chief Executive Officer
STRATEGIC ALLIANCE AGREEMENT
FOR THE INTEGRATION OF SAC TECHNOLOGIES FINGERPRINT TECHNOLOGY AND
KEYWARE VOICE GUARDIAN SOFTWARE PRODUCTS
Duly made and executed on this 26th day of Nov 1997, by and between:
SAC Technologies, Inc., a Minnesota corporation having its principal place of
business at 4444 West 76th Street, Edina Minnesota 55435 hereinafter referred to
as "SAC", represented by Barry Wendt, Chief Executive Officer; and Keyware
Technologies, a Massachusetts company with its principal offices at 500 West
Cummings Park, Suite 3600, Woburn, MA, 01801, hereinafter referred to as
"Keyware", represented by Robert Doherty, Business Development
Manager.
INTRODUCTION
This Strategic Alliance Agreement contains understandings between Keyware and
SAC (the "Parties"), with regard to the integration of biometric technologies,
including, but not limited to: voice, facial recognition and fingerprint for
desktop computer/network access, appliance access control and facility access
control for Industrial, Commercial and Consumer Market applications.
Keyware is currently developing, marketing and selling products based on voice
verification (herein referred to as VERIFICATION PRODUCTS), to address
opportunities in the authentication markets and desires to participate with SAC
in the areas of integration and co-marketing.
SAC is currently developing marketing and selling various fingerprint
"identification" based products and applications and has technical and business
interests in VERIFICATION PRODUCTS and desires to participate with Keyware in
the areas of integration and co-marketing.
1.0 SCOPE OF COOPERATION - The Parties may expand the scope of this agreement
by reducing said mutually agreed conditions to writing as an addendum of
this agreement.
1.1 Keyware and SAC's intended cooperation will include the following:
1.2 GENERAL - Cooperating and sharing resources and information, on a
global basis, in the mutual and/or joint development, promotion,
marketing and sales as per below;
1.3 DEVELOPMENT
* Joint development of support for and integration for certain
SAC products with Keyware's products.
* Joint development of support for and integration of biometric
authentication and SAC's technology.
* Working together and sharing resources and information on the
support of new interfaces and standards, in order to ensure
the timely support of significant industry standards by both
parties' products.
* Providing reciprocal access to each party's white papers and
technical briefs; reciprocal participation in beta testing.
1.4 MARKETING AND SALES - On a case by case basis, based on mutual
business considerations;
* Joint participation in marketing efforts, including joint
advertising, press releases, joint participation in trade
shows, linking web sites, and other industry events, and joint
developing of marketing collateral.
* Mutual referral of relevant customer leads as determined by
the source party.
<PAGE>
1.5 SERVICES, TRAINING & SUPPORT - Joint technical seminars for
application developers; joint "road shows" addressing the parties'
target markets; training of Keyware associates by SAC and training
of SAC associates by Keyware, providing reciprocal high priority
access to technical support resources.
2.0 Additionally, the parties have agreed to the following principals on a
case by case basis, based on mutual business considerations;
2.1 Keyware and SAC shall participate in the out of pocket expenses
generated by the parties in relation to special/extraordinary
development, and promotional marketing and sales work done by either
party to support the requests of the counter party.
2.2 All products sold by SAC to Keyware and by Keyware to SAC shall bear
the cost of any related royalties. If the existence of other
intellectual property rights relevant to a product comes to light,
the supplying party will secure the full right to use the item
throughout the world.
3.0 TERM - The term of this agreement will be for [*] from the signature date
of the most recently signed addendum.
4.0 TERRITORY - The parties shall promote, market and sell the products on a
worldwide basis for desktop computer/network access, appliance access
control and facility access control for Industrial, Commercial and
Consumer market applications. The stated Territory/Market definition does
not include any existing exclusive arrangements that the parties may have
at the time of the execution of this agreement. Such exclusive
arrangements will be defined as an Addendum to this Agreement.
5.0 CONFIDENTIALITY
5.1 In order to pursue the facilitation of the cooperation between the
parties as detailed in section 1.0 to this Agreement ("Scope of
Cooperation"), the parties, having recognized that there is need to
disclose to each other confidential information, and to provide for
mutual agreements to protect such confidential information which is
to be used only for the purposes of facilitating the Scope of
Cooperation, will sign a Non Disclosure Agreement whenever judged
necessary by either party ("The NDA").
5.2 Without derogating from the generality of the Agreement, this
section 5.0 shall remain in effect for a period of [*]
from the later of the signature date of the present agreement or the
date of the termination of subsequent addendum to this agreement.
6.0 INTELLECTUAL PROPERTY RIGHTS
6.1 The parties hereby agree that all the proprietary interests and/or
all intellectual property rights, owned by each party prior to
entering this Agreement, shall remain the property of that party
solely, and that in entering this Agreement or any other agreement
deriving from it, either party does not, and shall not, acquire any
rights in the other party's proprietary interests and/or all
intellectual property rights.
6.2 Both Keyware and SAC hereby represent that they do not, in any
manner whatsoever, possess any proprietary interest in the
intellectual property rights owned by the counter party. Keyware and
SAC shall be entitled to use each others' name, trade-names and
logos only in connection with the Scope of Cooperation, and subject
to obtaining the counter party's prior written consent.
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
7.0 TEAM COORDINATORS - The Parties will assign a representative from each
company to assign attendees for joint project workshops as necessary.
* For Keyware-Robert Doherty
* For SAC-Barry Wendt
8.0 GENERAL PROVISIONS
8.1 Both Keyware and SAC may make public statements as to the
cooperation contemplated in this agreement. Such public statements
shall be coordinated between the parties prior to their
distribution.
8.2 This Agreement is governed only by the laws of Massachusetts and
only the courts in Massachusetts shall have jurisdiction in any
conflict of dispute arising out of this Agreement.
9.0 TERMS AND CONDITIONS- The parties will make payments prepaid, cash or COD.
Following credit application/approval, the parties will make payments
thirty (30) days from invoice.
9.1 SAC Technologies will pay [*] per copy for Keyware Voice Guardian
Software, which is integrated into SAC's products.
9.2 SAC will purchase a minimum of [*] copies of Keyware Voice Guardian
Software on signing of this agreement as follows; [*] immediately
and [*] copies every [*] months thereof until [*] copies have been
purchased.
9.3 SAC Technologies will receive most favored nation pricing (i.e.; if
Keyware Voice Guardian is available for less to another Keyware OEM
or reseller with similar volumes, then that price will be available
to SAC).
9.4 In Consideration, Keyware will be assigned Distributor status for
SAC's products and be entitled to Volume Purchase pricing at the
[*] unit level. If Keyware purchases exceed the [*] unit level
then Keyware will be entitled to pricing as determined by SAC's
current price list (see attached).
10.0 TERMINATION - This agreement shal1 terminate the day after the [*] of the
most recent signed addendum of this agreement or by mutual agreement
reduced to writing by the Parties hereto, if either party becomes
insolvent, or if the technology provided by either party is
non-competitive according to generally accepted industry standards. In the
event of termination the obligations of the parties will also terminate.
11.0 ASSIGNMENTS- The parties privileges, ownership or control in this
Agreement are not transferable and shall not be transferred or assigned to
any other person, firm, corporation, partnership or other business entity,
whether by operation of law or otherwise, without the other parties prior
approval. Such transfer for assignment without the prior written approval
of the other party shall be null and void and shall not be binding.
12.0 ENTIRE AGREEMENT- This Agreement together with the Addendum's attached
constitutes the entire understanding and agreement between the parties and
supersedes any understanding, agreement or arrangements previously made or
in existence between the parties. This Agreement may not be altered,
enlarged, supplemented, abridged, modified, nor any provisions waived
except as provided in this Agreement, or by a written agreement between
SAC and Keyware that makes express reference to this Agreement, and
specifically declares it is intended as an amendment hereto.
13.0 APPLICATION LAW- This Agreement shall be governed by and construed in
accordance with the laws of the State of Massachusetts, United States of
America.
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
14.0 EFFECTIVE DATE- This Agreement shall become effective upon execution by
both parties as of the date and year first above written, and shall
continue in force and govern all relations and transactions between the
parties until terminated and thereafter to the extent necessary to give
effective to those provision, hereof app1icable following termination.
IN WITNESS WHEREOF, the Parties have caused this Alliance to be executed by
their respective authorized representatives.
For Keyware Technologies: For SAC Technologies, Inc.:
/s/ Robert Doherty 11-26-97 /s/ Barry Wendt 11-26-97
- -------------------------------- -------------------------------
Robert Doherty Date Barry Wendt Date
Business Development Manager Chief Executive Officer
CERTICOM OEM LICENSE AGREEMENT
CERTICOM CORP SAC
Suite 103 4444 West 76th STE 600
200 Matheson B1vd W. Edina, Minnesota 55435
Mississauga, Ontario
Canada L5R 3L7
("CERTICOM") ("LICENSEE")
1. EFFECTIVE DATE OF THIS AGREEMENT: 11-26-97
2. MATERIALS: Software: Security Builder, Re1ease 1.2
Documentation: Getting Started Guide; Developer's Guide;
Programmer's Reference
3. LICENSEE APPLICATIONS: SAC TECHNOLOGIES BIOMETRIC
IDENTIFICATION, COMMUNICATION
AND SECURITY PRODUCT LINE,
(I.E.; SACMAN, SACCAT, SACREMOTE ETC.)
4. FEES: Base License Fee: [*]
Per Copy License Fee: [*]
Maintenance Fees: [*] per year for one Licensee
contact person;
[*] per year for each additional
contact person
5. SPECIAL TERMS: Maintenance fees will be waived for [*] from the date
of this agreement.
================================================================================
Certicom, or it's designated subsidiary, agree to license to Licensee the
Software and Documentation noted above (collectively, the "Materials"), and
Licensee agrees to accept such license and pay the fees noted above, all in
accordance with the attached terms and conditions.
CERTICOM CORP.
By: /s/ Rick Dalmazzi By: /s/ Barry Wendt
----------------------------- --------------------------
Name: Rick Dalmazzi Name: Barry Wendt
Title: EVP Sales & Marketing Title: CEO
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
TERMS AND CONDITIONS FOR CERTICOM OEM LICENSE AGREEMENT
1. LICENSE. Certicom grants Licensee a non-exclusive, non-transferable license
to use, and to make a reasonable number of copies of the Materials solely to
create Licensee Applications. Certicom also grants Licensee a non-exclusive,
non-transferable right to reproduce and distribute object code of those portions
of the Software designated in the Software as the Runtime files or
re-distributable files ("Runtime"); provided Licensee agrees to: (i) distribute
the Runtime in object code form only, loaded or burned into memory in an
integrated circuit, and only in conjunction with and as part of Licensee
Applications; (ii) indemnify, hold harmless, and defend Certicom from and
against any claims or lawsuits, including attorney's fees, that arise or result
from the use or distribution of Licensee Applications: (iii) not permit further
distribution of the Runtime by Licensee's end users except as authorized in this
Agreement; and (iv) reproduce and place in the Runtime the proprietary rights
notices of Certicom that appear in the Software. Licensee shall notify Certicom
within 30 days of Licensee's public distribution of each Licensee Application or
upgrade.
2. SUB-LICENSE RIGHTS. Licensee may sub-license to another party
("Sub-Licensee") the right to copy Licensee Applications incorporating the
Runtime provided that: (i) Licensee obtains the prior written approval of
Certicom, such approval not to be unreasonably withheld: and (ii) Licensee
requires that Sub-Licensee accounts for the number of copies made, and Licensee
pays for all such copies in accordance with Section 5. Licensee may also
sub-license to Sub-Licensee the sub-license rights set forth in the preceding
sentence, including the right to further sub-license such rights under the terms
herein provided that in all such cases Licensee shall be responsible for making
payments to Certicom of each per copy fee as required under Section 5. Licensee
shall impose restrictions on Sub-Licensee no less restrictive or no less
protective of Certicom than those specified in Sections 1, 2, 3 and 4.
3. OWNERSHIP; PROTECTION. All title and ownership in and to the Materials,
including all intellectual property rights such as copyright, trade secrets,
patents and trade-marks, shall at all times remain with Certicom. Licensee
acknowledges that the Software represents and embodies trade secrets and
confidential information of Certicom and its licensors. Licensee agrees to take
all reasonable measure to keep confidential the Software and protect Certicom's
rights in the Materials. Licensee agrees not to disclose the Materials to
anyone, or copy them, except as permitted under this Agreement, and Licensee
agrees not to disassemble, decompile or otherwise reverse engineer the Software.
Licensee will include in its written license agreements and distribution
agreements for Licensee Applications provisions no less restrictive or
protective of Certicom than those specified in Sections 1, 2, 3 and 4.
4. COMPLIANCE WITH LAWS. Licensee shall comply with all applicable export,
control and other relevant laws of any applicable jurisdiction. Determination of
the applicable law is Licensee's responsibility. Licensee understands that the
Software is cryptographic in nature and therefore the Materials are highly
regulated. For purposes of use of the Materials by the US Government, the
Materials are provided with Restricted Rights and use. Duplication or disclosure
by the US Government is subject to restrictions as set forth in subparagraph
(c)(1)(ii) of the Rights in Technical Data and Computer Software clause at DFARS
252.227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer Software
Restricted Rights at 48 CFR 52.227-19, as applicable. Manufacturer is Certicom
Corp., 200 Matheson Blvd. W., Suite 103, Mississauga, Ontario, Canada, LSR 3L7.
5. FEES. Licensee shall pay to Certicom the one-time base license fee set out on
page 1 of this Agreement within 30 days after Certicom delivers the Software to
Licensee. In addition, Licensee shall also pay to Certicom the per copy fee set
out on page 1 of this Agreement for each copy of the License Applications
containing a Runtime that Licensee uses or authorizes a third party to use
directly or through third parties. If Licensee Applications are used in a
service bureau environment or otherwise rented to subscribers, then each
subscriber is counted as one copy. Within 10 days after the end of each calendar
quarter Licensee shall pay to Certicom the per copy license fees for each copy
of Licensee Applications that Licensee, its Sub-licensees or any of their
distributors authorized in such quarter, together with a report indicating the
total number of copies of Licensee Applications authorized. Maintenance,
training and other fees are due within 30 days of the invoice date and are
subject to change by Certicom once per year. Interest shall accrue on all
overdue amounts at a rate equal to the lesser of (i) 18% per year or (ii) the
highest rate allowed by law.
6. TAXES. In addition to the fees payable by Licensee to Certicom, all taxes,
duties or other charges of any kind resulting from this Agreement stall be the
responsibility of Licensee. If any withholding tax or similar charge is
applicable to the fees paid by the Licensee to Certicom, Licensee shall pay such
additional amount as shall result in Certicom receiving the total amount of the
fees it would have been paid but for such tax or levy.
7. BOOKS AND RECORDS; AUDIT. For each year hereof Licensee agrees to maintain,
until seven years after such year, complete books, records and accounts relevant
to computation and accounting for amounts payable under Section 5. Licensee
agrees to allow a representative of Certicom the right to audit and examine such
books, records and accounts during Licensee's normal business hours no more than
once per year upon reasonable notice to verify the accuracy of the reports and
payments made to Certicom under Section 5. If such examination leads to a
determination that Licensee has not paid all amounts properly payable under this
Agreement, Licensee agrees to pay, in addition to any damages to which Certicom
might be entitled, the amount of such shortfall plus the costs incurred by
Certicom in respect of the audit.
8. MAINTENANCE. Maintenance Services will be available for the fees noted on
page l, provided that either party may terminate Maintenance Services on 90 days
notice. Maintenance Services consists of: reasonable technical assistance to one
designated contact of Licensee for the correction of errors in the Software; and
upgrades to the Software that Certicom makes available as part of Maintenance
Services. Licensee shall be solely responsible for the maintenance and support
of Licensee Applications and Licensee shall instruct its sub-licensees and
licensees to contact Licensee directly.
9. LIMITED WARRANTY. Certicom warrants for a period of sixty (60) days from the
first date that it delivers to Licensee a copy of the Software that (i) the
Software shall operate in conformity with the current Documentation for such
<PAGE>
Software: and (ii) the media on which the Software is furnished shall be free
from defects in materials and faulty workmanship under normal use. Certicom's
sole liability and Licensee's exclusive remedy for any failure to meet these
warranties shall be limited to repair or replacement of the Software at
Certicom's option and expense.
10. WARRANTY DISCLAIMER. Except as provided in Section 9, Certicom licenses the
Materials to Licensee on an "as is" basis. The warranties in Section 9 are in
lieu of all other warranties or conditions, and Certicom makes no other
warranty, condition or representation of any kind whether express or implied,
and Certicom expressly disclaims the implied warranties or conditions of
merchantability, merchantable quality, fitness for a particular purpose,
infringement and those arising by statute or otherwise in law or from the course
of dealing or usage of trade. Certicom does not represent or warrant that the
Software will meet any or all of Licensee's particular requirements, that the
operation of the Software will be error-free or uninterrupted, or that all
programming errors in the Software can be found in order to be corrected.
11. LIMITATION OF LIABILITY. LICENSEE AGREES THAT ANY LIABILITY ON THE PART OF
CERTICOM FOR BREACH OF THE WARRANTIES CONTAINED HEREIN OR ANY OF THE OTHER
PROVISIONS OF THIS AGREEMENT OR ANY OTHER BREACH GIVING RISE TO LIABILITY OR IN
ANY OTHER WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT FOR ANY CAUSE OF
ACTION WHATSOEVER AND REGARDLESS OF THE FORM OF ACTION (INCLUDING BREACH OF
CONTRACT, STRICT LIABILITY, TORT INCLUDING NEGLIGENCE OR ANY OTHER LEGAL OR
EQUITABLE THEORY), SHALL BE LIMITED TO LICENSEE'S DIRECT DAMAGES IN AN AMOUNT
NOT TO EXCEED THE TOTAL AMOUNT PAID TO CERTICOM BY LICENSEE UNDER THIS AGREEMENT
DURING THE TWO YEARS PRIOR TO THE EVENT GIVING RISE TO LIABILITY. LICENSEE
AGREES THAT IN NO EVENT WILL CERTICOM BE LIABLE FOR DAMAGES IN RESPECT OF
INCIDENTAL, ORDINARY, PUNITIVE, EXEMPLARY, INDIRECT, SPECIAL, OR CONSEQUENTIAL
DAMAGES EVEN IF CERTICOM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
INCLUDING, BUT NOT LIMITED TO, BUSINESS INTERRUPTION, LOST BUSINESS REVENUE,
LOST PROFITS, FAILURE TO REALIZE EXPECTED SAVINGS, ECONOMIC LOSS, LOSS OF DATA,
LOSS OF BUSINESS OPPORTUNITY OR ANY CLAIM AGAINST LICENSEE BY ANY OTHER PARTY.
12. INDEMNIFICATION. Certicom shall defend Licensee from any claim that the
copies of the Software or Documentation licensed to Licensee hereunder, when
used within the scope of this Agreement, infringe any patent, copyright,
trademark or trade secret of any third party and Certicom shall indemnify
Licensee for any costs and damages (including reasonable attorney's fees)
awarded by a court against Licensee in respect of such a claim; provided that
Licensee promptly notifies Certicom in writing of any such claim and promptly
tenders the control of the defense and settlement of any such claim to Certicom
at Certicom's expense and with Certicom's choice of counsel. Licensee shall
cooperate with Certicom, at Certicom's expense, in defending or settling such
claim. Certicom may, at Certicom's sole option and expense: (i) procure for
Licensee the right to continue use of the pertinent item or infringing part
thereof, (ii) modify the pertinent item or infringing part thereof with other
software having substantially the same capabilities, or (iii) if neither of the
foregoing is commercially practicable to achieve within a reasonable period of
time, Certicom may terminate Licensee's right to use the pertinent item and
refund to Licensee the amount it has paid Certicom for such item less a
reasonable amount to reflect Licensee's prior use of the item. Certicom shall
have no liability for any infringement arising from (i) the use of the Software
other then as set forth in its accompanying Documentation; (ii) the modification
of the Software unless such modification was made or authorized by Certicom,
when such infringement would not have occurred but for such modification; or
(iii) the combination or use of the Software with other software, items or
processes not approved by Certicom in advance if such infringement would have
been avoided by the use of the Software standing alone. This section states
Certicom's entire obligation with respect to any claim regarding the
intellectual property rights of any third party.
13. TERM AND TERMINATION. The term of this Agreement shall commence on the
Effective Date and shall continue until terminated as set forth below:
(i) If Licensee fails to make any payment due within 30 days after
receiving written notice from Certicom that such payment is delinquent,
Certicom may terminate this Agreement on written notice to Licensee at
any time following the end of such 30 day period;
(ii) If Licensee is late in making payments more than two times in any
twelve month period or an audit, pursuant to Section 7, discovers any
under payment of 25% or more for the payment due for any twelve month
period, Certicom may terminate this Agreement immediately upon written
notice to the Licensee;
(iii) If either party materially breaches any term or condition of this
Agreement and fails to cure that breach within 30 days after receiving
written notice of the breach, the non-breaching party may terminate
this Agreement on written notice at any time following the end of such
30 day period.
(iv) This Agreement shall terminate automatically without notice and
without further action by Certicom in the event Licensee becomes
insolvent (i.e., becomes unable to pay its debts in the ordinary course
of business as they come due) or makes an assignment of this Agreement
for the benefit of creditors or if any other bankruptcy proceedings are
commenced by or against Licensee.
Upon the termination of this Agreement for any reason: (1) all rights granted
hereunder shall automatically revert to Certicom; (2) Licensee shall immediately
pay to Certicom all amounts due and outstanding as of the date of such
termination or expiration; and (3) licensee shall (a) return to Certicom the
originals and all copies of the Materials and all other materials received from
Certicom in Licensee's possession or control; (b) erase any and all of the
foregoing from all computer memories and stored Licensee Applications within its
possession or control; and (c) provide Certicom with a written statement
certifying that it has complied with the foregoing obligations. The end user
licenses to Licensee Applications which have already been granted shall survive
any such termination.
14. GENERAL.
<PAGE>
(a) All notices hereunder shall be in writing and shall be duly given
if delivered personally or sent by registered or certified mail return receipt
requested, postage prepaid, to the respective addresses of the parties appearing
on page one of this Agreement. Any notice given shall be deemed to have been
received on the date which it is delivered if delivered personally, or, if
mailed, on the fifth business day next following the mailing thereof. Either
party may change its address for notices by giving notice of such change as
required in this clause (a).
(b) Dates and times by which Certicom is required to render performance
shall be postponed automatically to the extent and for the period of time that
Certicom is prevented from meeting them by reason of any cause beyond its
reasonable control.
(c) This Agreement, the license rights granted hereunder and the
Materials, or any part thereof, may not be assigned or transferred by Licensee
without the prior written consent of Certicom. A change of control of Licensee,
whether by sale or issuance of shares, or merger, or otherwise, shall be deemed
to be an assignment.
(d) This Agreement shall be governed by the laws in force in the
Province of Ontario. NO ACTION AGAINST CERTICOM REGARDLESS OF FORM (INCLUDING
NEGLIGENCE), ARISING OUT OF ANY CLAIMED BREACH OF THIS AGREEMENT OR TRANSACTIONS
UNDER THIS AGREEMENT OR IN ANY OTHER WAY RELATED TO THIS AGREEMENT MAY BE
BROUGHT BY LICENSEE MORE THAN ONE YEAR AFTER THE CAUSE OF ACTION HAS OCCURRED.
(e) Licensee and Certicom are independent contracting parties. Neither
Licensee nor Licensee employees, consultants, contractors, or agents are agents,
employees or joint venturers of Certicom, nor do they have any authority to bind
Certicom by contract or otherwise to any obligation. Licensee agrees not to make
any statements which state or imply that Certicom certifies or guarantees
Licensee Applications or that Licensee Applications are warranted, tested or
approved by Certicom.
(f) Failure by Certicom to enforce any provision of this Agreement
shell not be deemed a waiver of future enforcement of that or any other
provision and no waiver of a breach will constitute a waiver of subsequent
breaches of the same or of a different nature unless expressly stated in writing
signed by Certicom.
(g) All monetary amounts referred to in this Agreement are in United
States dollars.
(h) The provisions in Sections 3, 4, 7, 10, 11 and 13 shall remain in
force and effect after the termination of this Agreement.
(i) This Agreement and any subsequent written amendments signed by both
parties, shall constitute the entire agreement between the parties hereto in
respect of the subject matter of this Agreement.
* END OF TERMS AND CONDITIONS *
STRATEGIC ALLIANCE AGREEMENT
FOR THE INTEGRATION OF SAC TECHNOLOGIES FINGERPRINT TECHNOLOGY AND
PINNACLE TECHNOLOGY SOFTWARE PRODUCTS
Duly made and executed to be effective as of the 23rd day of January, 1998, by
and between:
SAC Technologies, Inc., a Minnesota corporation, having its principal place of
business at 4444 West 76th Street, Edina, Minnesota 55435, hereinafter referred
to as "SAC," represented by Barry Wendt, Chief Executive Officer, and Pinnacle
Technology, Inc., an Oklahoma corporation with its principal offices at 114 S.
Main, #6, Kirklin, Indiana 46050, hereinafter referred to as "Pinnacle",
represented by Dr. W. Herbert Senft, II, President and CEO.
INTRODUCTION
This Strategic Alliance Agreement (the "Agreement") contains understandings
between Pinnacle and SAC (the "Parties"), with regard to the integration of
Pinnacle's Trusted Desktop Commander (previously known as the Desktop Commander)
security software (the "Product") and SAC's biometric technologies, including,
but not limited to: voice, facial recognition and fingerprint identification for
desktop computer/network access, and control for industrial, commercial and
consumer market applications.
Pinnacle is currently developing, marketing and selling the Product and desires
to cooperate with SAC in integrating the Product with SAC's technologies.
SAC is currently developing, marketing and selling various fingerprint
"identification" based products and applications and has technical and business
interests in products similar to the Product and desires to participate with
Pinnacle in integrating the Product with SAC's technologies. SAC intends to
offer to its customers a biometric controlled desktop security product, which
offers the user the option to enable any combination of incorporated biometrics
(the "'Technology").
1.0 SCOPE OF COOPERATION - Pinnacle and SAC's intended scope of cooperation (the
"Scope of Cooperation") will include the following:
1.1 GENERAL - Cooperating and sharing resources and information, on a
global basis, as the Parties may agree, in the mutual and/or joint development,
promotion, marketing and sales as described below;
1.2 DEVELOPMENT
* Joint development of support for and integration for certain SAC
technologies with the Product.
* Each party agrees to devote up to five (5) days to the other party
for the joint development of support for and integration of desktop
security and SAC's technology.
<PAGE>
* Training of Pinnacle associates by SAC for up to five (5) days and
training of SAC associates by Pinnacle for up to five (5) days,
providing reciprocal high priority access to technical support
resources.
* Providing reciprocal access to each other Party's white papers and
technical briefs; reciprocal participation in beta testing, subject
to appropriate confidentiality obligations.
1.3 MARKETING AND SALES - On a case by case basis, based on mutual
business considerations and subject to prior approval by both parties:
* Joint participation in marketing efforts, including joint
advertising, press releases, joint participation in trade shows,
linking web sites, and other industry events.
* Mutual referral of relevant customer leads as determined by the
source party.
1.4 SERVICES, TRAINING & SUPPORT - On a case by case basis, based on
mutual business considerations and subject to prior approval by both parties:
* Joint technical seminars for application developers and joint "road
shows" addressing the parties' target markets.
* Working together and sharing resources and information on the
support of new standards in order to ensure the timely support of
significant industry standards by both Parties' products.
2.0 EXPENSES/ROYALTIES - Additionally, the Parties have agreed to the
following principles on a case by case basis, based on mutual business
considerations and subject to prior approval by both parties:
2.1 Pinnacle and SAC may participate in the out of pocket expenses
incurred by a Party in relation to special/extraordinary development, and
promotional marketing and sales work done by either party to support the
requests of the other Party.
2.2 All products sold by SAC to Pinnacle and by Pinnacle to SAC shall bear
the cost of any related royalties. If the existence of other intellectual
property rights relevant to a product comes to light, the supplying party will
secure the full right to use the item throughout the world or modify its product
to the extent practicable to make it non-infringing.
3.0 TERM - The term of this Agreement will be for [*] from the Effective
Date and may be mutually extended in writing for [*] periods thereafter.
4.0 TERRITORY - Pinnacle shall promote, market and sell SAC's products
incorporating the Technology on a non-exclusive, worldwide, basis for desktop
computer/network access, appliance access control and facility access control
for industrial, commercial and consumer market applications. SAC shall promote,
market and sell the Product on a non-exclusive, worldwide basis for desktop
computer/network access, appliance access control and facility access control
for industrial, commercial and consumer market
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
applications. The Parties represent and warrant to each other that they do not
have any existing exclusive arrangements that may conflict with the ability of a
Party to sell the other Party's products. SAC will not bundle or embed another
desktop security software product similar to the Product with SAC's technologies
and Pinnacle will not offer its Product for bundling or embedding with another
biometric company's product which is utilized for biometric identification and
verification (as defined in the Introduction) for desktop computer/network
access similar to SAC's technologies. For the foregoing clause to remain in
effect SAC must purchase at least [*] copies of the Product each calendar
year.
5.0 CONFIDENTIALITY - The Parties acknowledge that in December 1997 they
entered into a certain Confidentiality and Non-Disclosure Agreement (the
"Confidentiality Agreement"). The Parties agree that the Confidentiality
Agreement shall continue to apply to all information exchanged between them
pursuant to this Agreement and that the Parties' obligation to maintain
information in confidence shall extend for [*] after the term of this
Agreement or at such time as the information becomes generally available to the
public. The foregoing clause is intended to modify the first sentence of Section
6 of the Confidentiality Agreement, but in all other respects the
Confidentiality Agreement remains in full force and effect and is incorporated
herein by reference.
6.0 INTELLECTUAL PROPERTY RIGHTS
6.1 The Parties hereby agree that all the proprietary interests and/or all
intellectual property rights, owned by each Party prior to entering this
Agreement, shall remain the property of that Party solely, and that by entering
into this Agreement or any other agreement deriving from it, a Party does not,
and shall not, acquire any rights in the other Party's proprietary interests
and/or all intellectual property rights.
6.2 Both Pinnacle and SAC hereby represent that they do not, in any manner
whatsoever, possess any proprietary interest in the intellectual property rights
owned by the other Party. Pinnacle and SAC shall be entitled to use each others'
name, trade-names and logos only in connection with the Scope of Cooperation,
and subject to obtaining the other Party's prior written consent.
6.3 Pinnacle grants to SAC, subject to these terms and conditions, a
nonexclusive and nontransferable right to (i) reproduce, without change, the
Product in executable form only on any tangible media and (ii) distribute by
sublicense copies of the Product with Pinnacle's end user license agreements or
on substantially similar terms to Pinnacle's end user license agreements.
6.4 Except as expressly permitted by applicable law, during the term of
this Agreement and thereafter, SAC shall not, and shall not permit any end user
or other person to; copy, modify, translate, decompile, reverse engineer,
disassemble, or otherwise determine or attempt to determine source code from the
Product, to create any derivative works based upon the Product, or to merge or
combine the Product with other software (other than SAC's technology) or other
hardware. In the event of termination of this Agreement, the foregoing
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
clause shall not be construed to imply a limitation on the right of SAC to
develop or acquire an alternative software solution comparable to the Product,
provided that SAC will continue to adhere to the foregoing clause.
7.0 TEAM COORDINATORS - The Parties will assign a representative from each
company to assign attendees for joint project workshops as necessary.
* For Pinnacle - Dr. W. Herbert Senft II
* For SAC - Barry Wendt
8.0 GENERAL PROVISIONS
8.1 Both Pinnacle and SAC may make public statements as to the cooperation
contemplated in this Agreement. Such public statements shall be in a mutually
agreeable form prior to their distribution.
8.2 Each party is an independent contractor with respect to its rights and
obligations under this Agreement. Nothing herein shall, or shall be deemed or
construed, to create a joint venture, partnership, agency or employment
relationship as between the Parties. No Party shall have the power, or represent
that it has any power, to bind the other Party or to assume or create any
obligation or responsibility on behalf of the other Party.
8.3 SAC shall provide all front-line technical support to end users in
accordance with Pinnacle's then-current support terms and conditions. SAC shall
employ at least one (1) fully trained, full-time support personnel and provide
support at least five days per week during applicable local business hours. SAC
agrees that any documentation or packaging distributed by SAC shall
conspicuously state that end users must call SAC or a SAC representative for
technical support for the Product. Pinnacle will have no obligation to furnish
any assistance, information or documentation to any end user, and SAC will
cooperate with Pinnacle to ensure that end users do not contact Pinnacle
directly. Pinnacle will provide back-end telephone support to SAC for SAC's
customers and maintenance support to SAC at no charge. In the event that SAC
enters into a separate maintenance agreement with a customer, SAC will pay to
Pinnacle an equitable and mutually agreeable percentage of the revenue received
by SAC in connection with any such agreement.
8.4 SAC shall sublicense or otherwise distribute the Product and
documentation to end users only pursuant to a written sublicense agreement that
contains terms and conditions not inconsistent with and no less restrictive than
the terms and conditions set forth in Pinnacle's then current end user license
agreement provided with the Product. SAC agrees to ensure that each Product is
accompanied by the applicable license, to inform users of the conditions in the
license and to protect the Product from any use in violation of the license. The
applicable license if different from the end user license agreement provided by
Pinnacle with the Product must be approved by Pinnacle prior to use.
9.0 TERMS AND CONDITIONS
<PAGE>
9.1 SAC will pay to Pinnacle the following per copy license cost for the
Product based on the number of SAC products shipped during the entire term of
this Agreement which incorporate the Product and the number of copies of the
Product sold, if sold separately. The following costs are based on quantities on
a cumulative basis during the entire term of this Agreement.
# of Pinnacle Product Copies Shipped Price
by SAC -----
------
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
SAC will provide to Pinnacle by the 15th day of each month a report, which
specifies the number of copies of the Product, which have been shipped by SAC in
the prior month. Payment of the foregoing license costs will be made by SAC to
Pinnacle by the last day of each month based on the information provided in the
foregoing monthly reports as to shipments in the prior month. If full payment is
not received when due, interest will accrue at the prime rate published from
time to time by National City Bank of Indiana plus 5% compounded monthly, on all
over-due amounts until paid in full. Pinnacle shall also be entitled to all
costs of collection, including reasonable attorneys' fees and costs. In
addition, SAC shall maintain all other data reasonably requested by Pinnacle and
Pinnacle may conduct up to two audits per year (during reasonable times and with
reasonable prior notice), to verify compliance with this Agreement, which shall
be conducted at Pinnacle's expense unless the results establish that
inaccuracies in SAC's reports have resulted in underpayment to Pinnacle of more
than five percent (5%) of the amount actually due, in which case SAC shall pay
all amounts due with interest as provided above and bear the reasonable expenses
of the audit.
9.2 Concurrently with the execution of this Agreement, SAC hereby agrees
to purchase [*] copies of the Product for an agreed upon price of [*] per copy
as follows: [*] copies immediately and [*] copies each in the second, third and
fourth calendar quarter of 1998 for a total of [*] copies. As to the first [*]
copies, SAC will remit payment to Pinnacle of [*] immediately upon execution of
this Agreement and [*] within ten (10) days after integration of the Product
into the Technology, Subsequent calendar quarterly orders will be payable within
the first five days of the beginning of each such calendar quarter, assuming
Product integration has been completed.
9.3 SAC will receive most favored pricing in a given calendar year if
Pinnacle's software is available for less to another Pinnacle OEM or reseller
with similar annual volumes, in which case that price will be available to SAC
for the rest of that calendar year.
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
9.4 In consideration, Pinnacle will be assigned Distributor status for
SAC's products and be entitled to volume purchase pricing at the [*] level. If
Pinnacle's purchases exceed the [*] level, then Pinnacle will be entitled to
pricing as determined by SAC's then current price list.
10.0 TERMINATION - This Agreement shall expire upon the earlier of: (a)
the term provided in Section 3 or (b) by mutual agreement reduced to writing by
the Parties hereto or (c) if either party becomes insolvent or (d) upon one
hundred eighty (180) days notice by either party to the other party, which
notice may not be given until at least six (6) months after the execution date
hereof In addition to any other termination provisions contained herein, this
Agreement may be terminated by either Party upon breach of any material term or
condition by the other Party which is uncured following ninety (90) days written
notice by the Party seeking termination or five (5) days' written notice of
termination in the case of nonpayment of undisputed license costs. Termination
by either Party shall not act as a waiver or release of any breach hereof or any
liability hereunder existing on the date of termination. Except where specified
otherwise, the rights and remedies granted to a Party hereunder are cumulative
and in addition to, and not in lieu of, any other rights or remedies which the
Party may possess at law or in equity. Upon any termination or expiration of
this Agreement, all amounts due a Party shall be immediately due and payable. In
such event, both Parties shall discontinue distribution and sublicensing of
their respective products and shall return all property of the other Party,
including hardware, software, inventory and Information (as defined in the
Confidentiality Agreement). In the event of termination the obligations of the
Parties set forth in Sections 5, 11, 12 and 13 will survive such termination and
continue to be binding upon the Parties.
11.0 LIMITED WARRANTY Pinnacle warrants only to SAC that the Product when
properly installed and used will substantially conform to the functional
specifications set forth in Pinnacle's documentation in effect when the Product
is delivered to SAC Pinnacle's warranty and obligation shall extend for a period
of ninety (90) days ("Warranty Period") from the date Pinnacle first delivers
the Products to SAC. All warranty claims not made in writing or not received by
Pinnacle within the Warranty Period shall be deemed waived. Pinnacle's warranty
is solely for the benefit of SAC, who has no authority to extend this warranty
to any other person or entity. THE EXPRESS WARRANTY SET FORTH IN THIS SECTION
CONSTITUTES THE ONLY WARRANTY MADE BY PINNACLE. PINNACLE MAKES NO OTHER
REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED (EITHER IN
FACT OR BY OPERATION OF LAW), WITH RESPECT TO THE PRODUCT OR RELATED
DOCUMENTATION. PINNACLE EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OR CONDITIONS
INCLUDING THOSE OF TITLE, MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A
PARTICULAR PURPOSE. PINNACLE DOES NOT WARRANT THAT THE PRODUCTS OR DOCUMENTATION
ARE ERROR-FREE OR THAT OPERATION OF THE PRODUCTS WILL BE SECURE OR UNINTERRUPTED
AND PINNACLE DISCLAIMS ANY AND
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
ALL LIABILITY ON ACCOUNT THEREOF. THE ABOVE LIMITATIONS SHALL APPLY TO THE
EXTENT ALLOWED BY APPLICABLE LAW. Pinnacle shall have no obligation under the
foregoing warranty for any nonconformance caused by: (a) the incorporation,
attachment or engagement of any attachment, feature, program, or device, other
than by Pinnacle to the Product or any part thereof; (b) accident,
transportation, neglect or misuse, alteration, modification, or enhancement of
the Product other than by Pinnacle; (c) failure to provide an installation
environment recommended for the Product; (d) use of supplies or materials not
meeting Pinnacle specifications; (e) use of the Product for other than the
intended purpose; (f) use of the Product on any systems other than the specified
hardware platform for such Product; (g) SAC's use of defective media or
defective duplication of the Product; or (h) SAC's failure to incorporate any
update previously released by Pinnacle which corrects such nonconformance. If
SAC provides Pinnacle with written notice of a failure under this limited
warranty during the Warranty Period, Pinnacle will use reasonable efforts to
correct promptly, at no charge to SAC, any such errors or failures. This is
SAC's sole and exclusive remedy for breach of warranty hereunder.
12. INDEMNITY
12.1 Pinnacle shall indemnify and hold harmless SAC by defending or
settling, at Pinnacle's option, any action brought against SAC to the extent it
is based on a claim that use, reproduction or distribution by SAC of the
Pinnacle owned portion of products distributed by SAC hereunder directly
infringes any valid patent, copyright or trade secret. Pinnacle will pay
resulting costs, damages and legal fees finally awarded against SAC in such
action which are attributable to such claim provided that: (i) SAC promptly
notifies Pinnacle in writing of any claim; (ii) Pinnacle has sole control of the
defense and all related settlement negotiations; and (iii) SAC cooperates with
Pinnacle at Pinnacle's expense, in defending or settling such claim. Should a
Product become, or be likely to become in Pinnacle's opinion, the subject of an
infringement claim described above, Pinnacle shall first try to (x) procure for
SAC the right to continue using the same or (y) replace or modify it to make it
noninfringing. In the event Pinnacle is not successful in meeting its
obligations under (x) or (y) directly above, Pinnacle may demand that SAC and
end users discontinue use and distribution of the Product and return all copies
to Pinnacle and Pinnacle shall return the license costs paid by SAC which are
allocable to the Product. Pinnacle shall have no obligation or liability for,
and SAC shall defend, indemnify and hold Pinnacle harmless from and against any
claim based upon: (a) use of other than the then current, unaltered version of
the Product, unless the infringing portion is also in the then current,
unaltered release; (b) use, operation or combination of the Product with
non-Pinnacle programs, data, equipment or documentation if such infringement
would have been avoided but for such use, operation or combination; (c) SAC's or
its agent1s activities after Pinnacle has notified SAC that Pinnacle believes
such activities may result in such infringement; (d) compliance with SAC's
designs, specifications or instructions; (e) any modifications or marking of the
Product not specifically authorized in writing by Pinnacle; (f) any unauthorized
use of any Pinnacle intellectual property or Pinnacle Confidential Information;
or (g) third party software. THE FOREGOING STATES THE ENTIRE LIABILITY OF
PINNACLE AND THE EXCLUSIVE REMEDY OF SAC WITH RESPECT
<PAGE>
TO INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT, WHETHER UNDER THEORY OF
WARRANTY, INDEMNITY OR OTHERWISE.
12.2 SAC shall indemnify, hold harmless and defend Pinnacle and/or its
suppliers from and against any and all claims, liabilities, losses, damages,
expenses and costs (including attorneys1 fees and costs) relating to (i) any
claim that SAC's products or the integration of SAC's product with the Product
infringe upon the patent, copyright, trade secret, trademark or other rights of
third parties, (ii) SAC's failure to include in each end user license agreement
the contractual terms required to be included therein hereunder, or (iii) SAC's
use, distribution or reproduction of the Product including, without limitation,
any claims, liabilities, losses, damages, expenses and costs relating to
defective reproduction of or the use of defective media in the reproduction of
the Product, claimed product liability, breach of warranty or support
obligations or infringement or misappropriation of intellectual property rights,
except to the extent such is covered under Section 12.1.
13. LIMITATION OF LIABILITY
TO THE EXTENT ALLOWED BY APPLICABLE LAW, IN NO EVENT SHALL PINNACLE OR ITS
SUPPLIERS BE LIABLE FOR ANY LOSS OF PROFITS, LOSS OF USE OF DATA, INTERRUPTION
OF BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE OF ANY
KIND, EVEN IF PINNACLE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH REMEDY.
EXCEPT AS SET FORTH IN THE INDEMNITY SECTION ABOVE, IN NO EVENT WILL PINNACLE
OR ITS SUPPLIERS BE LIABLE FOR (i) ANY REPRESENTATION OR WARRANTY MADE TO ANY
END USER OR ANY THIRD PARTY BY SAC OR ITS EMPLOYEES, AGENTS OR CONTRACTORS; (ii)
FAILURE OF THE PRODUCT TO PERFORM EXCEPT AS, AND TO THE EXTENT, OTHERWISE
EXPRESSLY PROVIDED HEREIN; (iii) FAILURE OF THE PRODUCT TO PROVIDE SECURITY; OR
(iv) THE RESULTS OR INFORMATION OBTAINED OR DECISIONS MADE BY END USERS OF THE
PRODUCT. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, PINNACLE'S
ENTIRE LIABILITY TO SAC FOR DAMAGES CONCERNING PERFORMANCE OR NONPERFORMANCE BY
PINNACLE OR IN ANY WAY RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT, AND
REGARDLESS OF WHETHER THE CLAIM FOR SUCH DAMAGES IS BASED IN CONTRACT OR IN
TORT, SHALL NOT EXCEED THE AMOUNT RECEIVED BY PINNACLE FROM SAC DURING THE
PREVIOUS 12 MONTHS FOR THE PRODUCT GIVING RISE TO SUCH CLAIM.
14.0 ASSIGNMENT - The Parties' privileges, ownership or control in this
Agreement are not transferable and shall not be transferred or assigned to any
other person, firm, corporation, partnership or other business entity, whether
by operation of law or otherwise, without the other Party's prior approval,
except that such approval need not be
<PAGE>
obtained in the event of a sale of substantially all assets of a Party or a
merger or other business combination, in which event this Agreement will be
assigned to the successor. A transfer or assignment other than under the
foregoing circumstances without the prior written approval of the other Party
shall be null and void and shall not be binding.
15.0 ENTIRE AGREEMENT - This Agreement, together with the Confidentiality
Agreement and any Addendum attached hereto constitute the entire understanding
and agreement between the parties and supersedes any understanding, agreement or
arrangements previously made or in existence between the Parties. This Agreement
may not be altered, enlarged, supplemented, abridged, modified, nor any
provisions waived except as provided in this Agreement, or by a written
agreement between SAC and Pinnacle that makes express reference to this
Agreement, and specifically declares it is intended as an amendment hereto.
16.0 APPLICATION LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota, United States of America.
17.0 EFFECTIVE DATE. This Agreement shall become effective upon execution
by both Parties below as of the Effective Date first above written, and shall
continue in force and govern all relations and transactions between the Parties
until terminated and thereafter to the extent necessary to give effect to those
provisions hereof which remain applicable following termination pursuant to
Section 10 hereof.
18.0 ARBITRATION. Any dispute relating to the interpretation of this
Agreement or the relationship between the parties hereunder shall be settled by
final and binding arbitration pursuant to the rules of the American Arbitration
Association. The arbitration shall take place in Chicago, Illinois or another
mutually agreeable place before a panel of three qualified arbitrators, one
chosen by each of the parties hereto and the third chosen by mutual agreement of
the two arbitrators chosen by the parties. The parties hereby agree that results
of this arbitration are final and binding and may be enforced in any court of
competent jurisdiction, but such arbitration results may not be appealed by
either party to any such court or other judicial authority.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective authorized representatives.
For Pinnacle Technology, Inc.: For SAC Technologies, Inc.:
/s/ Dr. W. Herbert Senft II 1/23/98 Barry Wendt 1-23-98
- ------------------------------------- --------------------------------
Dr. W. Herbert Senft II Date Barry Wendt Date
President and CEO Chief Executive Officer
STRATEGIC ALLIANCE AGREEMENT
FOR THE INTEGRATION OF SAC TECHNOLOGIES FINGERPRINT TECHNOLOGY AND
BARAKA INTRACOM, INC. SOFTWARE PRODUCTS
Duly made and executed on this 28th day of January 1998, by and between:
SAC Technologies, Inc., an Edina corporation having its principal place of
business at 4444 West 76th Street, Edina Minnesota 55435 hereinafter referred to
as "SAC", represented by Barry Wendt, Chief Executive Officer; and Baraka
IntraCom, Inc., a California company with its principal offices at 400 Crenshaw
Boulevard, Suite 200, Torrance California, hereinafter referred to as "Baraka",
represented by Mohamad Dagher, Managing Director.
INTRODUCTION
This Strategic Alliance Agreement contains understandings between Baraka and SAC
(the "Parties"), with regard to the integration of Baraka's Video Conferencing
and Video E-mail applications, and SAC's biometric technologies, including, but
not limited to: voice, facial recognition and fingerprint for desktop
computer/network access control for Industrial, Commercial and Consumer Market
applications.
Baraka is currently developing, marketing and selling Video Conferencing and
Video E-mail software products and desires to participate with SAC in the areas
of integration and co-marketing.
SAC is currently developing, marketing and selling various fingerprint
"identification" based products and applications and has technical and business
interests in Teleconferencing Products and desires to participate with Baraka in
the areas of integration and co-marketing. SAC intends to offer to its customers
a biometric controlled Teleconferencing product, which offers the user the
option to enable any combination of incorporated biometrics.
1.0 SCOPE OF COOPERATION - Baraka and SAC's intended cooperation will include
the following:
1.1 The Parties may expand the scope of this agreement by reducing said
mutually agreed conditions to writing as an addendum of this
agreement.
1.2 GENERAL - Cooperating and sharing resources and information, on a
global basis, in the mutual and/or joint development, promotion,
marketing and sales as per below;
1.3 DEVELOPMENT
* Joint development of support for and integration for certain
SAC products with Baraka products. Providing the necessary
technical information and support to facilitate this
integration.
* Joint development of support for and integration of
Teleconferencing and SAC's technology. Providing the necessary
technical information and support to facilitate this
integration.
* Working together and sharing resources and information on the
support of new standards in order to ensure the timely support
of significant industry standards by both parties' products.
* Providing reciprocal access to each party's white papers and
technical briefs; reciprocal participation in beta testing.
1.4 MARKETING AND SALES - On a case by case basis, based on mutual
business considerations and subject to prior approval by both
parties;
* Joint participation in marketing efforts, including joint
advertising, press releases, joint participation in trade
shows, linking web sites, and other industry events, and joint
developing of marketing collateral.
* Mutual referral of relevant customer leads as determined by
the source party.
<PAGE>
1.5 SERVICES, TRAINING & SUPPORT - Joint technical seminars for
application developers; joint "road shows" addressing the parties'
target markets; training of Baraka associates by SAC and training of
SAC associates by Baraka, providing reciprocal high priority access
to technical support resources.
2.0 Additionally, the parties have agreed to the following principals on a
case by case basis, based on mutual business considerations and subject to
prior approval by both parties;
2.1 Baraka and SAC shall participate in the out of pocket expenses
generated by the parties in relation to special/extraordinary
development, and promotional marketing and sales work done by either
party to support the requests of the counter party.
2.2 All products sold by SAC to Baraka and by Baraka to SAC shall bear
the cost of any related royalties. If the existence of other
intellectual property rights relevant to a product comes to light,
the supplying party will secure the full right to use the item
throughout the world.
3.0 TERM - The term of this agreement will be for [*] from the signature date
of the most recently signed addendum and may be mutually extended for [*]
periods thereafter.
4.0 TERRITORY - The parties shall promote, market and sell the products on a
worldwide basis for desktop computer/network access, appliance access
control and facility access control for Industrial, Commercial and
Consumer market applications. The stated Territory/Market definition does
not include any existing exclusive arrangements that the parties may have
at the time of the execution of this agreement. Such exclusive
arrangements will be defined as an Addendum to this agreement.
5.0 CONFIDENTIALITY
5.1 In order to pursue the facilitation of the cooperation between the
parties as detailed in section 1.0 to this Agreement ("Scope of
Cooperation"), the parties, having recognized that there is need to
disclose to each other confidential information, and to provide for
mutual agreements to protect such confidential information which is
to be used only for the purposes of facilitating the Scope of
Cooperation, will sign a Non Disclosure Agreement whenever judged
necessary by either party ("The NDA").
5.2 Without derogating from the generality of the Agreement, this
section 5.0 shall remain in effect for a period of [*] from the
later of the signature date of the present agreement or the date of
the termination of subsequent addendum to this agreement.
6.0 INTELLECTUAL PROPERTY RIGHTS
6.1 The parties hereby agree that all the proprietary interests and/or
all intellectual property rights, owned by each party prior to
entering this Agreement, shall remain the property of that party
solely, and that in entering this Agreement or any other agreement
deriving from it, either party does not, and shall not, acquire any
rights in the other party's proprietary interests and/or all
intellectual property rights.
6.2 Each of Baraka and SAC hereby represents that they do not, in any
manner whatsoever, possess any proprietary interest in the
intellectual property rights owned by the counter party. Baraka and
SAC shall be entitled to use each others' name, trade-names and
logos only in connection with the Scope of Cooperation, and subject
to obtaining the counter party's prior written consent, such consent
not to be unreasonably withheld.
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
7.0 TEAM COORDINATORS - The Parties will assign a representative from each
company to assign attendees for joint project workshops as necessary.
* For Baraka - Mohamad Dagher
* For SAC - Barry Wendt
8.0 GENERAL PROVISIONS
8.1 Both Baraka and SAC may make public statements as to the cooperation
contemplated in this agreement. Such public statements shall be
coordinated between the parties prior to their distribution.
8.2 This Agreement is governed only by the laws of California.
9.0 TERMS AND CONDITIONS - The parties will make payments prepaid, cash or
COD. Following credit application/approval, the parties will make payments
thirty (30) days from invoice.
9.1 SAC will pay a per copy license cost for Baraka's Video Conferencing
and Video E-mail software applications based on the number of SAC
shipments which contain Baraka's software, accordingly to the
schedule below for quantities on a cumulative basis.
Cumulative Quantity Price
------------------- -----
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
9.2 SAC will purchase a minimum of [*] copies of Baraka's Software,
for a price of [*] on signing of this agreement during the first
year as follows; [*] copies on signing and [*] copies each
quarter thereafter once integration of the two companies'
technologies has been completed as per section 9.6.
9.3 The relationship between SAC and Baraka will be exclusive. SAC will
not bundle or embed another Teleconferencing Software similar to
Baraka's product with SAC's product and Baraka will not offer its
Teleconferencing product for bundling or embedding with another
Biometric Company's product similar to SAC's product. For this
clause to remain in effect SAC must purchase an annual minimum of
[*].
9.4 SAC will receive most favored nation pricing (i.e.; if Baraka's
software is available for less to another Baraka OEM or reseller
with similar volumes, then that price will be available to SAC). For
comparative purposes SAC's purchase volumes will be cumulative on an
annual basis.
9.5 In consideration, Baraka will be assigned Distributor status for
SAC's products and be entitled to Volume Purchase pricing at the
[*] level. If Baraka's purchases exceed the [*] level
then Baraka will be entitled to pricing as determined by SAC's then
current price list.
9.6 SAC will pay Baraka an integration fee of [*] to
integrate the two companies' technologies to produce the TECHNOLOGY.
Estimates of the integration costs will be provided upon exchange of
technical data and defining scope of work. Initial integration cost
may not exceed [*].
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
10.0 TERMINATION - This agreement shall terminate the day after the [*] of the
most recent signed addendum of this agreement or by mutual agreement
reduced to writing by the Parties hereto, if either party becomes
insolvent, or if the technology provided by either party is
non-competitive according to generally accepted industry standards. In the
event of termination the obligations of the parties will also terminate.
11.0 ASSIGNMENTS - The parties privileges, ownership or control in this
Agreement are not transferable and shall not be transferred or assigned to
any other person, firm, corporation, partnership or other business entity,
whether by operation of law or otherwise, without the other parties prior
approval. Such transfer for assignment without the prior written approval
of the other party shall be null and void and shall not be binding.
12.0 ENTIRE AGREEMENT - This Agreement, together with the Addendum's attached
constitutes the entire understanding and agreement between the parties and
supersedes any understanding, agreement or arrangements previously made or
in existence between the parties. This Agreement may not be altered,
enlarged, supplemented, abridged, modified, nor any provisions waived
except as provided in this Agreement, or by a written agreement between
SAC and Baraka that makes express reference to this Agreement, and
specifically declares it is intended as an amendment hereto.
13.0 WARRANTY-SAC and Baraka warrant their component parts of the TECHNOLOGY as
per the attached warranty.
14.0 INDEMNIFICATION:
14.1 SAC agrees to indemnify and hold Baraka harmless against all
liabilities, demands, damages, expenses, or losses arising from the
use or sale of TECHNOLOGY if such losses are occasioned by the
inclusion of SAC's component part therein. The amount of any claims
shall be limited to the total amount received by SAC from Baraka
during the previous 12 months.
14.2 Baraka agrees to indemnify and hold SAC harmless against all
liabilities, demands, damages, expenses, or losses arising from the
use or sale of TECHNOLOGY if such losses are occasioned by the
inclusion of Baraka's component part therein. The amount of any
claims shall be limited to the total amount received by Baraka from
SAC during the previous 12 months.
15.0 SAC will include Baraka's standard License agreement with the TECHNOLOGY.
16.0 EFFECTIVE DATE - This Agreement shall become effective upon execution by
both parties as of the date and year first above written, and shall
continue in force and govern all relations and transactions between the
parties until terminated and thereafter to the extent necessary to give
effective to those provision, hereof applicable following termination.
IN WITNESS WHEREOF, the Parties have caused this Alliance to be executed by
their respective authorized representatives.
For Baraka Intracom, Inc.: For SAC Technologies, Inc.:
/s/ Mohamad Dagher 1-30-98 /s/ Barry Wendt 1-28-98
- ----------------------------------- -------------------------------
Mohamad Dagher Date Barry Wendt Date
Managing Director Chief Executive Officer
* Confidential portion has been omitted and filed separately with the Securities
and Exchange Commission
<PAGE>
WARRANTY BY BARAKA INTRACOM TO SAC TECHNOLOGIES - Software is sold subject only
to the terms and conditions of the Software License and warranty between
Baraka IntraCom and the Software End-user. Should a Software End-user make
a claim under the Software warranty, Baraka IntraCom will replace the
Software at no cost to SAC. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT
AND IN Baraka IntraCom' SOFTWARE WARRANTY TO THE ORIGINAL END-USER, THERE
ARE NO WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE.
Baraka IntraCom DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. ANY WARRANTIES MADE BY Baraka IntraCom
TO SAC UNDER THIS AGREEMENT EXTEND SOLELY TO SAC. Both Software License
Agreement (Appendix C) and the Baraka IntraCom Warranty Provisions
(Appendix D) are attached and form part of this agreement.
WARRANTIES BY SAC TO ITS CUSTOMERS - SAC agrees that any warranties made to its
Customers shall be made only by SAC except for those made by Baraka
IntraCom in the Software License Agreement. SAC acknowledges and agrees
that it will make no representations to its customers with respect to any
warranty made by Baraka IntraCom except those made by Baraka IntraCom in
the Software License Agreement. SAC hereby agrees to indemnify Baraka
IntraCom for any loss due to SAC's failure to comply with its obligations
hereunder with respect to warranties.
<PAGE>
APPENDIX C
SOFTWARE LICENCE AGREEMENT
IMPORTANT: READ CAREFULLY BEFORE OPENING SOFTWARE PACKET(S)
By opening the sealed packet(s) containing the software, you indicate your
acceptance of the following Baraka IntraCom License Agreement.
BARAKA INTRACOM, INC. LICENSE AGREEMENT
(VIDCALL32 AND CINEMAIL)
This is a legal agreement between you the end user and Baraka IntraCom, Inc. By
opening the sealed software packet(s) you are agreeing to be bound by the terms
of this agreement. If you do not agree to the terms of this agreement, promptly
return the unopened software packet(s) and the accompanying items (including
written materials and binders or other containers) to the place you obtained
them for a full refund.
1. GRANT OF LICENSE. This License Agreement permits you to use one copy of
the enclosed Baraka IntraCom software program (the "SOFTWARE") on a single
computer. The SOFTWARE is in "use" on a computer when it is loaded into
temporary memory (i.e., RAM) or installed into permanent memory (e.g. hard
disk, CD-ROM, or other storage device) of that computer. However,
installation on a network server for the sole purpose of internal
distribution shall not constitute "use" for which a separate license is
required, provided you have a separate license for each computer to which
the SOFTWARE is distributed.
2. COPYRIGHT. The SOFTWARE is owned by Baraka IntraCom or its suppliers and
is protected by United States copyright laws and international treaty
provisions. Therefore, you must treat the SOFTWARE like any other
copyrighted material (e.g. a book or musical recording) except that you
may either (a) make one copy of the SOFTWARE solely for backup or archival
purposes, or (b) transfer the SOFTWARE to a single hard disk provided you
keep the original solely for backup or archival purposes. You may not copy
the written materials accompanying the SOFTWARE.
3. OTHER RESTRICTIONS. You may not rent or lease the SOFTWARE, but you may
transfer the SOFTWARE and accompanying written materials on a permanent
basis provided you retain no copies and the recipient agrees to the terms
of this Agreement. You may not reverse engineer, decompile, or disassemble
the SOFTWARE. If the SOFTWARE is an update or has been updated, any
transfer must include the most recent update and all prior versions.
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(l)(ii) of The Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(l) and (2) of the
Commercial Computer Software - Restricted Rights 48 CFR 52.227-19, as
applicable. Manufacturer is Baraka IntraCom, Inc., 400 Crenshaw Blvd., #200,
Torrance, CA 90503.
If you acquired this product in the United States, this Agreement is governed by
the laws of the State of California.
Should you have any questions concerning this Agreement, or if you desire to
contact Baraka IntraCom for any reason, please write to: Baraka IntraCom, Inc.
Customer Sales and Service, Baraka IntraCom, Inc., 400 Crenshaw Blvd., #200,
Torrance, CA 90503, U.S.A.
<PAGE>
APPENDIX D
BARAKA INTRACOM WARRANTY PROVISIONS
LIMITED WARRANTY
LIMITED WARRANTY. Baraka IntraCom warrants that (a) the SOFTWARE will perform
substantially in accordance with the accompanying written materials for a period
of one (1) year from the date of receipt; and (b) any hardware accompanying the
SOFTWARE will be free from defects in materials and workmanship under normal use
and service for a period of one (1) year from the date of receipt. Any implied
warranties on the SOFTWARE and hardware are limited to one (1) year and one (1)
year, respectively. Some states/jurisdictions do not allow limitations or
duration of an implied warranty, so the above limitation may not apply to you.
CUSTOMER REMEDIES. Baraka IntraCom and its suppliers' entire liability and your
exclusive remedy shall be, at Baraka IntraCom's option, either (a) return of the
price paid or (b) repair or replacement of the SOFTWARE or hardware that does
not meet Baraka IntraCom's Limited Warranty and which is returned to Baraka
IntraCom with a copy of your receipt. This limited Warranty is void if failure
of the software or hardware has resulted from accident, abuse or misapplication.
Any replacement SOFTWARE or hardware will be warranted for the remainder of the
original warranty period or thirty (30) days, whichever is longer. Outside the
United States of America, neither these remedies nor any product support
services offered by Baraka IntraCom are available without proof of purchase from
an authorized non-U.S. source.
NO OTHER WARRANTIES. To the maximum extent permitted by applicable law, Baraka
IntraCom and its suppliers disclaim all other warranties, either expressed or
implied, including, but not limited to, implied warranties of merchantability
and fitness for a particular purpose, with regard to the SOFTWARE, the
accompanying written materials, and any accompanying hardware. This limited
warranty gives you specific legal rights. You may have others, which vary from
state/jurisdiction to state/jurisdiction.
NO LIABILITY FOR CONSEQUENTIAL DAMAGES. To the maximum extent permitted by
applicable law, in no event shall Baraka IntraCom or its suppliers be liable for
any damages whatsoever (including, without limitation, damages for loss of
business profits, business interruption, loss of business information, or any
pecuniary loss) arising out of the use of or inability to use this Baraka
IntraCom product, even if Baraka IntraCom has been advised of the possibility of
such damages. Because some states/jurisdictions do not allow the exclusions or
limitation of liability for consequential or incidental damages, the above
limitation may not apply to you.
EXHIBIT 22.1 - SUBSIDIARIES OF THE REGISTRANT
SAC TECHNOLOGIES, INC.
Subsidiary State of Incorporation
---------- ----------------------
Inter-Con/PC, Inc.* Minnesota
* While the Company is not active in management of Inter-Con/PC, Inc. and does
not actively control this entity, the company does maintain an approximate
35.8% ownership stake.
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 13, 1998 accompanying the financial
statements of SAC Technologies, Inc., included in the Annual Report on Form
10-KSB for the year ended December 31, 1998. We hereby consent to the
incorporation by reference of said report in the Registration Statement of SAC
Technologies, Inc. on Form S-8 (File No. 333-37351) effective October 7, 1997.
/s/ Divine, Scherzer & Brody, Ltd.
Minneapolis, Minnesota
March 13, 1998
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