U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number 1-13463
--------------------------------
SAC TECHNOLOGIES, INC.
(Exact name of small business Issuer as specified in its charter)
MINNESOTA 41-1741861
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4444 West 76th Street, Suite 600, Edina, MN 55435
(Address of principal executive offices)
(612) 835-7080
(Issuer's telephone number)
--------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes _X_ No ___
Shares of the registrant's Common Stock, par value $.01 per share, outstanding
as of November 5, 1998: 7,510,867.
<PAGE>
SAC TECHNOLOGIES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance sheets as of December 31, 1997 and September 30, 1998 3
Statements of operations for the three and nine months ended
September 30, 1997 and 1998, and January 7, 1993 (date of
inception) through September 30, 1998 4
Statements of cash flows for the three and nine months ended
September 30, 1997 and 1998, and January 7, 1993 (date of
inception) through September 30, 1998 5
Notes to interim financial statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION
Item 1 - Legal proceedings 18
Item 2 - Changes in securities 18
Item 3 - Defaults upon senior securities 19
Item 4 - Submission of matters to a vote of security holders 19
Item 5 - Other events 19
Item 6 - Exhibits and reports on Form 8-K 19
2
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,351,753 $ 2,036,238
Accounts receivable, net 56,770 125,638
Inventories 464,927 413,035
Prepaid expenses 110,760 185,087
----------- -----------
Total current assets 3,984,210 2,759,998
EQUIPMENT AND FURNITURE AND FIXTURES - AT COST, less
accumulated depreciation 163,966 151,251
OTHER ASSETS (note 4) 17,518 274,118
----------- -----------
$ 4,165,694 $ 3,185,367
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 288,688 $ 261,018
Accrued liabilities and other (note 5) 235,323 95,274
Convertible debentures, net of discount of $508,200 (note 6) -- 1,991,800
----------- -----------
Total current liabilities 524,011 2,348,092
COMMITMENTS AND CONTINGENCIES (note 9) -- --
STOCKHOLDERS' EQUITY (DEFICIT) (note 7)
Common stock - authorized, 20,000,000 shares of $.01 par value;
issued and outstanding, 7,461,367 and 7,510,867 shares 74,614 75,108
Additional contributed capital 7,241,690 8,960,136
Deficit accumulated during the development stage (3,583,666) (8,126,963)
Unearned compensation (90,955) (71,006)
----------- -----------
3,641,683 837,275
----------- -----------
$ 4,165,694 $ 3,185,367
=========== ===========
</TABLE>
See accompanying notes to interim financial statements.
3
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
January 7,
1993 (date of
Three months ended Nine months ended inception)
September 30, September 30, through
---------------------------- ---------------------------- September 30,
1997 1998 1997 1998 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues
Product sales $ 74,008 $ 63,170 $ 118,318 $ 344,762 $ 497,546
Reimbursed research and development -- -- 36,000 10,200 284,506
Technical support and other services 78,677 -- 195,467 7,750 429,885
----------- ----------- ----------- ----------- -----------
152,685 63,170 349,785 362,712 1,211,937
Costs and other expenses
Cost of product sales 60,137 394,659 141,290 955,172 1,187,011
Cost of technical support and other services 54,244 -- 102,496 1,846 237,078
Selling, general and administrative 689,111 608,884 1,591,019 2,489,590 5,283,225
Research and development 119,995 329,666 344,662 1,324,285 2,619,508
----------- ----------- ----------- ----------- -----------
923,487 1,333,209 2,179,467 4,770,893 9,326,822
----------- ----------- ----------- ----------- -----------
Operating loss (770,802) (1,270,039) (1,829,682) (4,408,181) (8,114,885)
Other income (expense)
Interest and other income 62,608 36,836 151,616 81,684 282,323
Interest expense -- (216,800) (3,897) (216,800) (256,304)
----------- ----------- ----------- ----------- -----------
62,608 (179,964) 147,719 (135,116) 26,019
----------- ----------- ----------- ----------- -----------
NET LOSS $ (708,194) $(1,450,003) $(1,681,963) $(4,543,297) $(8,088,866)
=========== =========== =========== =========== ===========
Basic and diluted loss per common share $ (.10) $ (.19) $ (.24) $ (.61) $ (1.51)
=========== =========== =========== =========== ===========
Weighted average number of shares outstanding 7,437,500 7,510,106 6,992,000 7,488,998 5,343,499
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to interim financial statements.
4
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
January 7,
Three months Nine months 1993 (date
ended September 30, ended September 30, of inception)
------------------------- ------------------------- through
1997 1998 1997 1998 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (708,194) $(1,450,003) $(1,681,963) $(4,543,297) $(8,088,866)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 13,171 12,000 30,789 40,500 85,605
Amortization
Warrants -- 16,800 -- 16,800 20,967
Unearned compensation 18,940 23,052 46,440 78,468 153,722
Deferred financing costs -- 23,400 -- 23,400 23,400
Convertible debentures discount -- 200,000 -- 200,000 200,000
Allowance for uncollectible receivables -- -- -- -- 99,000
Write-down of inventory -- 300,000 -- 500,000 500,000
Interest converted to common stock -- -- -- -- 1,841
Revenues realized due to offset of billings
against a stock repurchase -- -- -- -- (170,174)
Options issued for license rights -- -- -- 200,000 200,000
Option issued in connection with distribution agreement -- -- -- 352,650 352,650
Acquired research and development -- -- -- -- 117,000
Warrants issued for services -- 37,500 27,500 37,500 65,000
Warrants issued for underwriter termination of first
right of refusal -- (172,000) -- 132,000 132,000
Contribution of services -- -- -- -- 11,250
Non-cash exercise of stock options -- -- -- -- 21,593
Change in assets and liabilities:
Accounts receivable (108,448) (67,433) (195,388) (68,868) (224,638)
Inventories (95,140) (2,437) (282,420) (448,108) (913,035)
Prepaid expense 8,289 (20,826) (76,392) (74,327) (185,087)
Accounts payable (91,152) (176,771) (108,099) (27,670) 221,018
Accrued liabilities 230,484 17,688 288,133 (140,049) 146,235
----------- ----------- ----------- ----------- -----------
(23,856) 190,973 (269,437) 822,296 858,347
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (732,050) (1,259,030) (1,951,400) (3,721,001) (7,230,519)
Cash flows from investing activities
Capital expenditures (45,365) (3,632) (166,668) (27,785) (236,856)
Security deposits (800) -- (8,101) -- (12,984)
Patents and trademarks -- -- -- -- (4,534)
----------- ----------- ----------- ----------- -----------
Net cash used for investing activities (46,165) (3,632) (174,769) (27,785) (254,374)
Cash flows from financing activities
Restricted cash -- 2,320,000 -- -- --
Net payments under short-term borrowing agreements -- -- (330,000) -- (117,000)
Issuance of convertible bridge notes -- -- -- -- 175,000
Issuance of convertible debentures -- -- -- 1,775,000 1,775,000
Issuance of warrants and convertible debentures discount -- -- -- 725,000 750,000
Deferred financing costs -- -- -- (180,000) (180,000)
Exercise of stock options -- 7,875 -- 113,271 162,299
Sales of common stock -- -- 6,368,392 -- 7,093,832
Redemption of common stock -- -- -- -- (138,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities -- 2,327,875 6,038,392 2,433,271 9,521,131
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (778,215) 1,065,213 3,912,223 (1,315,515) 2,036,238
Cash and cash equivalents, at beginning of period 4,779,571 971,025 89,133 3,351,753 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, at end of period $ 4,001,356 $ 2,036,238 $ 4,001,356 $ 2,036,238 $ 2,036,238
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to interim financial statements.
5
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1997, and September 30, 1997 and 1998 (unaudited)
1. Unaudited Statements
The accompanying unaudited interim financial statements have been prepared
by SAC Technologies, Inc. (the "Company") in accordance with generally
accepted accounting principles, pursuant to the rules and regulations of
the Securities and Exchange Commission. Pursuant to such rules and
regulations, certain financial information and footnote disclosures
normally included in the financial statements have been condensed or
omitted.
In the opinion of management, the accompanying unaudited interim financial
statements contain all necessary adjustments, consisting only of those of
a recurring nature, and disclosures to present fairly the financial
position and the results of its operations and cash flows for the periods
presented. It is suggested that these interim financial statements be read
in conjunction with the financial statements and the related notes thereto
included in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997.
2. Liquidity Matters
Broad commercial acceptance of the Company's products by customers and end
users is critical to the Company's success and ability to generate
revenues. The Company has limited sales to date, principally to affiliates
of the Company, and has accumulated losses since inception of $8,088,866,
of which $4,543,297 was incurred during the nine months ended September
30, 1998. The Company believes operating losses will continue for the
foreseeable future.
As discussed at Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" the Company is not currently in
technical compliance with certain listing requirements of the NASDAQ Small
Cap Market. The Company has responded to a NASDAQ letter related to this
matter. In order to achieve compliance and maintain its listing on the
SmallCap Market, the Company must increase its net tangible assets, either
through the issuance of securities or otherwise, by approximately
$5,000,000. On January 25, 1999 the Company received a notice of delisting
from NASD. On February 1, 1999, the Company requested an oral hearing
objecting to the proposed delisting and on February 25, 1999 the Company
received notice that such hearing will be held on April 15, 1999. If the
Company is not in compliance with the continued listing requirements
applicable to the Nasdaq SmallCap Market by the date of the hearing, its
shares will likely be delisted from the Nasdaq SmallCap Market. If the
Company is delisted, in addition to the consequences and associated risks
previously described in the Company's quarterly and annual reports filed
under the Securities Exchange Act of 1934, it would put the Company in
default under the terms of the Company's $2,500,000 convertible debentures
and could accelerate the repayment thereof. In addition, without
considering the impact of a demand to repay the convertible debentures,
the Company believes its existing cash will not be adequate to fund the
expansion and distribution of its product offerings, and it anticipates it
will need to raise additional funds to support operations.
Should demand be made for repayment of the convertible debentures, the
Company does not have the necessary capital to repay the $2,500,000
convertible debentures. Should demand not be made, the Company's existing
cash may only last until second quarter 1999 based on the Company's
current cash burn rate. Based on current plans and excluding a demand for
repayment of the convertible debentures, the Company estimates it needs
approximately $3,000,000 to $5,000,000 to support operations through
September 30, 1999.
Management is in discussions with a financial broker to raise additional
capital to support its operations which may involve the issuance of
additional debt or equity securities. If a demand for repayment of the
convertible debentures is made without sufficient cash on hand to support
operations, management intends to discuss alternatives for repayment with
the convertible debenture holders. No assurances can be given the above or
that any other form of additional financing will be available on terms
acceptable to the Company, that adequate financing will ultimately be
obtained to meet its needs, or that such financing would not be dilutive
to existing stockholders. Also, no assurances can be given that the
convertible debenture holders would agree to any alternatives for
repayment, if the Company is required to discuss alternatives for
repayment.
If adequate financing is not obtained within the near term, the Company
expects its accountants will include a going concern reference in their
opinion on the December 31, 1998 financial statements.
6
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1997, and September 30, 1997 and 1998 (unaudited)
3. Loss Per Common Share
Basic loss per share is calculated by dividing the net loss attributable
to common stockholders by the number of weighted average common shares
outstanding. Diluted earnings per share were calculated by dividing the
net loss attributable to common stockholders by the weighted average
common shares, and when dilutive, options, warrants and convertible
securities outstanding using the treasury stock method. There was no
difference between basic and dilutive loss per share for all periods
presented as the impact would have been antidilutive.
4. Other Assets
December 31, September 30,
1997 1998
-------- --------
Security deposits $ 12,984 $ 12,984
Patents pending 4,534 4,534
Deferred finance costs, less accumulated
amortization of $23,400 as of September 30,
1998 -- 256,600
-------- --------
$ 17,518 $274,118
======== ========
Of the above deferred finance costs, $100,000 was a non-cash transaction
resulting from granting stock warrants for 50,000 shares of common stock
in connection with a private convertible debenture offering (see note 7).
5. Accrued Liabilities and Other
December 31, September 30,
1997 1998
-------- --------
Compensation $232,105 $ 61,882
Deferred revenues -- 27,222
Other 3,218 6,170
-------- --------
$235,323 $ 95,274
======== ========
Included in accrued compensation as of December 31, 1997 and September 30,
1998 is $218,438 and $46,215, respectively, which is the remaining amount
payable from a severance agreement with the Company's former Chief
Operating Officer.
7
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1997, and September 30, 1997 and 1998 (unaudited)
6. Convertible Debentures
On June 30, 1998, the Company sold to Shaar Fund, Ltd., an international
investment fund, $2,500,000 of 5% convertible debentures due June 30,
2001. At the Company's option, an additional $1,000,000 of 5% convertible
debentures may be sold to Shaar Fund, Ltd. if certain targets are met,
including certain minimum share price and trading volume levels for the
Company's common stock. No assurances can be given that the Company will
meet the targets to be able to exercise the option on the $1,000,000 of
additional convertible debentures discussed above.
The debentures are convertible into shares of the Company's common stock
in increments beginning 120 days from June 30, 1998 and are fully
convertible after 181 days. The conversion price equals the lesser of (a)
110% of the closing bid price of the common stock on June 29, 1998, or (b)
the average closing bid price for a five-day period ending the day prior
to the notice of conversion multiplied by a discount factor, which
increases over time from 15% to 22%.
The convertible debentures are redeemable at the option of the Company
under certain circumstances. The Company was obligated to file, and has
filed a registration statement (not yet effective) covering the resale of
the shares of common stock underlying the debentures and the detachable
warrants, among other securities.
The $525,000 estimated fair value of the debenture conversion feature has
been reflected as a discount to the 5% convertible debentures issued and
will be amortized as additional interest expense principally through
February 26, 1999, the date the debenture holder is able to convert their
debenture at the maximum 22% discount discussed above.
The estimated fair market value of the debenture conversion feature was
calculated by applying the maximum 22% discount rate over the maximum
discount period of 240 days. A 7% discount rate was then applied to
calculate the net present value of the conversion feature of $525,000. The
estimated fair market value of the above warrants were calculated by using
three different valuation models (the Black-Scholes and Shelton models,
and a comparative market approach), each of which assumes the warrants are
freely traded in the marketplace. Since the warrants issued are not freely
tradable in the marketplace, a 33% discount was applied to the freely
traded value. See note 7 for discussion of revised estimates (for the
second quarter June 30, 1998) regarding the valuation of the above and
other warrants during the third quarter ended September 30, 1998.
In connection with the convertible debentures, the Company granted a
warrant to purchase 100,000 shares of common stock to Shaar Fund, Ltd. The
$200,000 estimated fair market value of the warrant has been reflected as
a discount to the 5% convertible debentures issued and will be amortized
as additional interest expense over the term of the debentures. In
connection with this transaction, a warrant to purchase 200,000 shares of
common stock was also issued to Tuschner & Company, Inc. (TCI),
underwriter for the Company's initial public offering, as part of an
agreement in which TCI agreed to waive all future rights of first refusal
to sell the Company's securities; the right to 66,000 of such shares vests
immediately and the right to 134,000 of such shares vests upon the
occurrence of certain events discussed at note 9. The $132,000 estimated
fair market value of the portion of the warrant which vested immediately
has been reflected as a component of selling, general and administrative
expenses for the nine months ended September 30, 1998, as this portion of
the warrant relates to TCI's agreement to relinquish its right of first
refusal to sell the Company's securities. The $268,000 estimated fair
market value of the remaining portion of the warrant which did not vest
immediately may be offset against proceeds from a future public offering,
if one occurs (see notes 7 and 9). For accounting purposes, the Company
has not reflected this amount as a deferred finance cost with a
corresponding increase to stockholders equity as it believes it is more
appropriate to offset such amounts against proceeds of a public offering,
since such an offering is not assured.
8
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1997, and September 30, 1997 and 1998 (unaudited)
6. Convertible Debentures - Continued
The convertible debentures agreement contains certain dilution and
conversion price adjustment provisions if certain events occur, as
defined. In addition, the Company is required to meet certain covenants,
including the maintenance of its listing in the NASDAQ Small Cap Market;
in the event of repayment, the Company is subject to certain redemption
premium costs of up to 24% of the principle amount repaid; and the Company
is subject to penalties for late registration of the convertible
debentures of 2% of the principle balance per month commencing in
December. As discussed at Note 2, the Company was not in technical
compliance with the NASDAQ Small Cap Market listing requirements as of
September 30, 1998, and if demand is made, the convertible debentures
could become due and payable. Accordingly, the convertible debentures have
been classified as a current liability in the accompanying financial
statements because it could become immediately due and payable in full,
if the Company is delisted.
7. Stockholders' Equity
The following summarizes option activity since December 31, 1997:
<TABLE>
<CAPTION>
Number
Date of -------------------
Grant, Non-plan
Exercise options
or 1996 and Exercise
Expiration Plan warrants Price Vesting Expiration Issued to
---------- ------- --------- -------- --------------------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1997 -- 451,166 297,216 $ -- -- -- --
Option grant 1/1/98 2,500 -- 10.75 125 shares per quarter 1/1/05 Employee
Option grant 2/2/98 10,000 -- 8.56 500 shares per quarter 2/1/05 Employee
Option grant 2/13/98 -- 48,000 6.42 12,000 shares immediately; 2/13/08 An entity the
3,000 per quarter Company entered
Thereafter into a license
agreement with
Option grant 3/1/98 40,000 -- 8.29 2,000 shares per quarter 3/1/05 Employee
Option grant 4/13/98 -- 100,000 8.46 75,000 upon payment for 4/13/05 ATM (see Item 2)
1,000 SACcat units and
25,000 if ATM purchases
And pays for an additional
1,000 units by July 1, 1998
Option grant 6/20/98 8,000 -- 6.56 400 shares per quarter 6/20/05 Employee
Warrant grant 6/30/98 -- 100,000 7.29 Immediately 6/30/03 Shaar Fund, Ltd.
Warrant grant 6/30/98 -- 50,000 7.29 Immediately 6/30/03 Company
arranging Shaar
financing
Warrant grant 6/30/98 -- 200,000 7.50 66,000 immediately; 6/30/03 Tuschner & Co.
134,000 at closing of the
Next "public offering"
Option granted 9/15/98 -- 375,000 3.00 Fully vested after 3 months 9/15/03 McCap, Inc.
Options exercised Various (42,000) (7,500) -- -- -- --
Options cancelled Various (30,000) -- -- -- -- --
------- ---------
Balance, September 30,
1998 439,666 1,162,716
======= =========
Exercisable,
September 30, 1998 86,447 651,816
======= =========
</TABLE>
* As of July 1, 1998, ATM did not meet its purchase requirements in order to
vest in the remaining 25,000 shares under the option.
9
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1997, and September 30, 1997 and 1998 (unaudited)
7. Stockholders' Equity - Continued
The difference between the option exercise price and estimated fair value
of common stock at the date of grant for the option to purchase 40,000
shares of common stock is $58,520 and has been reflected as unearned
compensation in the Company's financial statements to be recognized as a
non-cash component of selling, general and administrative expense over the
five-year vesting term of the stock option agreement. The estimated fair
market value of the option to purchase 48,000 shares of common stock of
$200,000 has been reflected as a non-cash component of research and
development costs for the nine months ended September 30, 1998. The
estimated fair market value of the option to purchase 75,000 shares of
common stock of $352,600, has been reflected as a non-cash component of
selling, general and administrative expenses for the nine months ended
September 30, 1998. In September the Company issued the McCap, Inc. Agency
an option to purchase 375,000 shares of common stock. The $37,500
approximate fair market value of the option has been reflected as a
non-cash component of selling, general and administrative expenses for the
nine months ended September 30, 1998. See note 6 for additional
information regarding the estimated fair market value of other warrants
granted.
After the filing of the Company's Second Quarter Form 10-QSB, the Company
retained additional outside valuation assistance to review previous
estimates of certain warrants values. Based upon this assistance (see note
6 for discussion of assumptions and methods used), the Company lowered its
previous estimate of fair market value of certain warrant issuance's,
principally because lack of marketability was not considered in the
earlier estimate, as follows:
Number
Date of Original Revised
issued Warrants Value Value
------ -------- ----- -----
Shaar 6/30/98 100,000 $470,000 $200,000
CCM 6/30/98 50,000 230,000 100,000
Tuschner 6/30/98 66,000 304,000 132,000
The majority of the impact of the above was to the balance sheet as of
June 30, 1998. However, approximately $172,000 of the above would have
resulted in a non-cash reduction of reported net loss for the second
quarter ended June 30, 1998.
8. Related Party Transactions
Included in accounts receivable as of December 31, 1997 and September 30,
1998 are $156,895 and $139,420, respectively of amounts due from Jasper
Consulting, Inc. During the three and nine months ended September 30, 1997
and 1998, $63,678 and $216,467, and $20,400 and $283,329, respectively of
revenues were recognized from transactions with ATM, Inter-Con/PC, Inc.
and Jasper Consulting, Inc. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further information
regarding the Company's relationship with Inter-Con/PC, Inc. and Jasper
Consulting, Inc.
10
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1997, and September 30, 1997 and 1998 (unaudited)
8. Related Party Transactions
In addition, the Company had transactions with IR & D (a major stockholder
of the Company was previously a owner and a director of IR & D through
August 12, 1998). Accounts receivable from IR & D as of September 30, 1998
were $12,271. Accounts payable to IR & D as of September 30, 1997 and 1998
were $1,392 and $16,294, respectively. Purchases during the three months
and nine months ended September 30, 1997 and 1998 were $8,147 and
$46,884 and $29,037 and $240,019, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for further information regarding Company's relationship with IR & D.
9. Commitments and Contingencies
On June 30, 1998, the Company entered into an agreement with TCI whereby
TCI agreed to waive all future rights of first refusal to sell the
Company's securities. In exchange for this, the Company agreed to pay TCI
$100,000, of which $34,000 was paid after closing on the sale of
convertible debentures and $66,000 will be due if the Company closes on a
future public offering. Payment of the $100,000 would be reduced by any
amount TCI might receive as a non-accountable expense allowance if a
future public offering occurs. In addition, TCI would have the right ,
until June 30, 1999 to participate as a select dealer or co-selling agent
or co-underwriter to the extent of ten percent (10%) of any future
offering of securities, whether public or private, for a period of one
year.
During September, 1998 the Company entered into a one year agreement with
MacCap, Inc. to help develop a strategic growth plan and to enhance
shareholder value. The Company will pay the McCap, Inc. $10,000 a month
for their services and, as discussed in note 7, granted McCap, Inc. an
option to purchase 375,000 of its common stock.
On or about August 11, 1998 a lawsuit was filed in Hennepin county
District Court against the Company. Plaintiffs Johnson and Norenberg have
alleged that they were wrongfully terminated or constructively discharged
from their employment with the Company. Their complaint seeks relief in an
amount in excess of $50,000 for each of the respective plaintiffs. The
Company adamantly denies the validity of the plaintiff's claims or the
extent of plaintiff's damages. It is the Company's intention to proceed
with further discovery and move towards a motion to dismiss plaintiff's
claims.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS. FOR THIS PURPOSE,
ANY STATEMENTS CONTAINED IN THIS FORM 10-QSB THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT
LIMITING THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE,"
"ANTICIPATE," OR "CONTINUE" OR THE NEGATIVE OF OTHER VARIATION THEREOF OR
COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A
VARIETY OF FACTORS INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS SET
FORTH IN THE "RISK FACTORS" SECTION OF THE COMPANY'S REGISTRATION
STATEMENTS ON FORM SB-2 (FILE NO. 333-16451) AND FORM S-3 AND THE
COMPANY'S ANNUAL AND QUARTERLY REPORTS, ALONG WITH OTHER PERIODIC
REPORTING ON FORMS 10-QSB, 10-KSB AND 8-K, AS FILED FROM TIME TO TIME WITH
THE SEC.
OVERVIEW
The Company was incorporated in 1993. The Company develops and markets
biometric technology products. To date, the Company has focused on
developing products for use by others in specific applications and
developing an end user product for computer security and access control
applications. The Company's products are marketed to distributors, VAR's
(Value Added Resellers), OEM's (Original Equipment Manufacturers) and
system integrators in the information management and access control
markets.
The Company has two products currently available and it intends to devote
significant effort in the near term to enhancing the performances and
capabilities of these existing products. In this regard, the Company has
licensed certain other biometric technologies that it intends to
incorporate into its current product offerings. The Company is dependent
upon others to incorporate such technologies with its existing and future
products. No assurance can be given that these technologies will be
incorporated in a manner acceptable to potential customers, that it will
be timely implemented, or that the products' costs will be acceptable to
the marketplace.
The Company is considered a development stage enterprise for accounting
purposes. Broad commercial acceptance of the Company's products by
customers and end users is critical to the Company's success and ability
to generate revenues. The Company has limited sales to date, principally
to affiliates of the Company, and has accumulated losses since inception
of $8,088,866, of which $4,543,297 was incurred during the nine months
ended September 30, 1998. The Company believes operating losses will
continue for the foreseeable future.
As discussed at Liquidity and Capital Resources - Other, the Company is
not currently in technical compliance with certain listing requirements of
the NASDAQ Small Cap Market. In order to achieve compliance and maintain
its listing on the SmallCap Market, the Company must increase its net
tangible assets, either through the issuance of securities or otherwise,
by approximately $5,000,000. On January 25, 1999 the Company received a
notice of delisting from NASD. On February 1, 1999, the Company requested
an oral hearing objecting to the proposed delisting and on February 25,
1999 the Company received notice that such hearing will be held on April
15, 1999. If the Company is not in compliance with the continued listing
requirements applicable to the Nasdaq SmallCap Market by the date of the
hearing, its shares will likely be delisted from the Nasdaq SmallCap
Market. If the Company is delisted in addition to the consequences and
associated risks previously described in the Company's quarterly and
annual reports filed under the Securities Exchange Act of 1934, it could
put the Company in default under the terms of the Company's $2,500,000
convertible debentures and could accelerate the repayment thereof. In
addition, without considering the impact of a demand to repay the
convertible debentures, the Company believes its existing cash will not be
adequate to fund the expansion and distribution of its product offerings,
and it anticipates it will need to raise additional funds to support
operations.
Should demand be made for repayment of the convertible debentures, the
Company does not have the necessary capital to repay the $2,500,000
convertible debentures. Should demand not be made, the Company's existing
cash may only last until second quarter 1999 based on the Company's
current cash burn rate. Based on current plans and excluding a demand for
repayment of the convertible debentures, the Company estimates it needs
approximately $3,000,000 to $5,000,000 to support operations through
September 30, 1999.
Management is in discussions with a financial broker to raise additional
capital to support its operations which may involve the issuance of
additional debt or equity securities. If a demand for repayment of the
convertible debentures is made with out sufficient cash on hand to support
operations, management intends to discuss alternatives for repayment with
the convertible debenture holders. No assurances can be given that the
above or any other form of additional financing will be available on terms
acceptable to the Company, that adequate financing will ultimately be
obtained to meet its needs, or that such financing would not be dilutive
to existing stockholders. Also, no assurances can be given that the
convertible debenture holders would agree to any alternatives for
repayment, if the Company is required to discuss alternatives for
repayment.
If the Company does not obtain adequate financing with in the near term,
the Company expects its accountants will include a going concern
reference in their opinion on the December 31, 1998 financial statements.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW (CONTINUED)
During October 1996, the Company completed initial development of a
product designed to provide for basic personal computer functions and
Internet access via a wireless keyboard and a conventional television set
(the "Set Top Box"). However, the Company did not believe that the
promotion and marketing of the Set Top Box was within its focus and,
accordingly, conveyed the technology in exchange for an initial 50% (35.8%
as of December 31, 1997) ownership interest in Inter-Con/PC, Inc.
("Inter-Con"), a development stage Company. The Company had a technical
support agreement with Inter-Con which provided for Inter-Con to pay
technical support fees to the Company of up to $20,000 per month.
Effective December 31, 1997, the technical support and development
agreement between the Company and Inter-Con was terminated.
By current agreement, Jasper (a former stockholder) is obligated to pay a
royalty to the Company for sales of certain products and the Company has
the exclusive right to manufacture products sold by Jasper, subject to a
predetermined pricing structure. However, the Company has been engaged an
ongoing efforts redefine the parties obligations and is not relying on
these potential sources of revenue from Jasper or its interest in
Inter-Con to significantly impact its results of operations.
In April 1998 the Company received certification in the first round of
biometric testing from the International Computer Security Association, a
leading independent certification organization. Of the six participating
vendors, SAC was the only vendor who participated and received
certification in the identification ("one to many") category.
In June 1998, the Company integrated Pinnacle Technology's "Trusted
Desktop Commander(TM)" security software with its SACcat biometric
"identification" technology which includes workstation log-on and screen
saver lockout to provide for convenient point and click configuration
access and control of Windows 95 and 98, tied to a user's actual identity.
The product is currently available for installation by MIS and system
administrators. The Company is currently working on the development of a
simplified end user point and click product. No assurances can be given
that this will be developed timely or in a cost effective manner, or that
it will be accepted in the marketplace.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW (CONTINUED)
The Company has integrated Key Ware Technologies "voice verification
technology" with its SACMan Developer Toolkit. This product offers a
fingerprint identification and voice verification solution to security
needs. This product is not yet available in the Company's SACcat product
line. No assurances can be given that the Company will be able to
successfully introduce the Key Ware Technology into its SACcat product or
that significant revenues will ever develop from products into which the
Company incorporates the Key Ware Technology.
In June 1998, the Company completed its evaluation of Imedge Technology's
holographic fingerprint imaging technology and currently intends to
exercise an option to acquire the exclusive use of Imedge's holographic
fingerprint technology, subject to negotiation of terms and the signing of
a definitive agreement. The Company believes the benefits to be derived
from this technology include a potential cost reduction from its current
optics componentry and a significant reduction in the size of certain of
its optics components. No assurances can be given that an agreement will
be entered into on acceptable terms to the Company, or that such an
agreement would not result in any significant dilution to stockholders or
that the technology will achieve the Company's intended objectives.
During September 1998, the Company's two outside directors resigned. In
November of 1998, the Company's two outside director positions were
filled.
Also, during September 1998, the Company entered into a one year agreement
with McCap, Inc. to help develop a strategic growth plan and to enhance
shareholder value. As part of its compensation the Company granted the
agency an option to purchase 375,000 shares of the Company's stock at
$3.00 a share. The options are fully vested after three months. The
Company will pay McCap, Inc. $10,000 a month for their services.
The Company does not anticipate adding any additional employees during
1998. The Company anticipates ongoing research and development expenses
during 1998 at a level greater than that experienced for the year ended
December 31, 1997. The Company anticipates accounts receivable and
inventory levels, and selling, general and administrative expenses will
increase significantly in connection with its continuing transition to
marketing and selling its products.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO
SEPTEMBER 30, 1998:
Revenues
Total revenues decreased $89,515 during the three months ended September
30, 1998 to $63,170 as compared to $152,685 for the same period in 1997.
Total revenue increased $12,927 during the nine months ended September 30,
1998 to $362,712 as compared to $349,785 for the same period in 1997.
Revenues from product sales decreased $10,838 during the three months
ended September 30, 1998 to $63,170 as compared to $74,008 for the same
period in 1997. Revenue from product sales increased $226,444 during the
nine months ended September 30, 1998 to $344,762 as compared to $118,318
for the same period in 1997; these revenues were primarily from sales to
ATM, a related party and a distributor of the Company (see below), and, to
a lesser extent, include sales of SACMan Developer Tool Kit Systems to
entities developing or investigating the development of applications which
may utilize the Company's products.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Revenues - Continued
Revenues from reimbursed research and development decreased $25,800 to
$10,200 during the nine months ended September 30, 1998. These revenues
related to collection of previously unrecognized research and development
billings to Jasper, which are being recognized on the cash basis of
accounting. No assurances can be given that any additional amounts will be
collected in the future.
Revenues from technical support and other services, which were primarily
from Jasper and Inter-Con, decreased $78,677 to $0 for the three months
ended September 30, 1998 and decreased $187,717 to $7,750 for the nine
months ended September 30, 1998. As previously discussed, the technical
support agreement with Inter-Con was mutually terminated effective
December 31, 1997. No assurance can be given that any additional technical
support or other revenues will be realized from Jasper in the future, nor
is this a primary focus of the Company.
Effective April 13, 1998, the Company signed a Distribution Agreement with
Aultimate Technology Marketing (ATM). Terms of the agreement include the
following: ATM was to purchase 1,000 SACcat units or SACMan Developer Tool
Kits or a mixture thereof, of which 760 units had been purchased and paid
for as of September 30, 1998; ATM was to receive preferential pricing on
additional product purchases; ATM became a distributor of the Company's
products; ATM issued the Company an option to acquire up to 400,000 shares
of its common stock at $.25 per share, exercisable for seven years; and
the Company granted ATM an option to purchase 100,000 shares of its common
stock (see note 7 to the interim financial statements). Due to the
interrelationships of the parties involved, revenues from this transaction
will only be recognized by the Company when ATM resells or otherwise uses
the product and can recognize revenue pursuant to generally accepted
accounting principles. As of September 30, 1998, there was $27,222 of
deferred revenue related to sales made to ATM. Sales made to ATM are
covered under the Company's standard return policy.
Costs and Other Expenses
Cost of product sales exceeded revenues from product sales by $331,489
during the three months ended September 30, 1998, and $610,410 for the
nine month period ended September 30, 1998 as compared to $22,972 for the
nine-month period ended September 30, 1997. This principally was due to
the $300,000 and $500,000 (cumulative) write down of inventory to its net
realizable value during the three and nine months ended September 30,
1998, respectively. The write downs resulted from a process, over time, of
the Company evaluating current sales of the Company's products and
competitive pricing. The remaining variances were primarily from costs
associated with the production of a limited amount of units.
The principal supplier of the Company's optical components to date has
been Industrial Research and Development, Inc. ("IR&D"), a company
formerly owned by Rick Fiskum, an officer and director of the Company. Mr.
Fiskum retained a directorship with IR&D through August 12, 1998 at which
time he resigned. Mr. Fiskum retains a consulting relationship with IR&D
and as a result of this and the previous buyout of his ownership interest
in IR&D, will continue to receive ongoing payments from IR&D.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Costs and Other Expenses - Continued
As discussed above, in an effort to reduce its product costs, the Company
is considering to exercise an option to purchase certain imaging
technology to replace some of its current optics componentry.
Additionally, the Company intends to explore offshore manufacturing
opportunities and is trying to redefine its relationship with Jasper. No
assurances may be given that the above objectives will be achieved or that
it would result in a reduction of product costs that will lead to the
Company becoming profitable.
Selling, general and administrative expenses decreased $80,227 to $608,884
during the three months ended September 30, 1998 and increased $898,571 to
$2,489,590 for the nine month period ended September 30, 1998, as compared
to the three and nine month period ended September 30, 1997. Of the
increase for the three and nine months ended September 30, 1998, $10,865
and $128,756 related to additional salaries and wages for sales and
administrative personnel, $133,685 and $155,643 was related to
professional fees, and $37,500 and $522,150 was principally due to
non-cash charges related to the approximate value of a warrant granted to
ATM as part of a sales distribution arrangement (see above), a warrant
granted to TCI in order to terminate its right of first refusal of future
public offerings (see note 6 to the interim financial statements) and a
non-cash charge related to the approximate fair market value of a option
granted to McCap, Inc. to help develop a strategic growth plan and to
enhance shareholder value, $7,413 and $44,005 was due to completion of the
installation of the Company's internal computer network, $30,391 and
$48,511 related to promotional equipment given to potential customers for
marketing purposes. The above were offset by a decrease of $250,000 and
$334,456, respectively for costs associated with employee recruiting and
moving, and a one time charge for the severance package for the COO who
was terminated in October, 1997. Also, $172,000 reduction of expense was
recorded in the three month period ended September 30, 1998. This was due
to the Company lowering the estimated fair market value of one of the
warrants it issued during the second quarter ended June 30, 1998. See
footnote 7 for more information.
Research and development expenses increased $209,671 to $329,666 during
the three months ended September 30, 1998 and increased $979,623 to
$1,324,285 for the nine months ended September 30, 1998 as compared to the
three and nine months ended September 30, 1997. Of the increase for the
three and nine months ended September 30, 1998, $130,000 and $490,750 was
related to licensing and integration costs associated with technologies
the Company plans to incorporate into its SACcat product, and $0 and
$200,000 respectively was related to a non-cash charge for the estimated
fair market value of an option granted to an entity with which the Company
entered into a license agreement. The above costs were expensed because
the realizability of cash flows from the licenses was no longer being
projected. The remaining increase is attributable to increased development
activity for the Company to commercialize and evolve certain of its
products.
Interest expense increased $216,800 to $216,800 during the three months
ended September 30, 1998 and increased $212,903 to $216,800 for the nine
months ended September 30, 1998 as compared to the three and nine months
ended September 30, 1997, the increase is due to the recent issuance of
the convertible debenture. The Company expects interest expense will
increase in the future in connection with the convertible debentures
financing.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since January 7, 1993 (date of inception), the Company's capital needs
have been principally met as follows: (i) by a February 1997 initial
public offering of 2,420,000 shares of common stock at $3.00 per share
which resulted in net proceeds of $6,220,331, after deduction of offering
expenses; (ii) a July 1996 $700,000 private placement of common stock;
(iii) a May 1996 sale of $200,000 of convertible bridge notes (converted
to common stock in 1996) and warrants to purchase 50,000 shares of common
stock; and (iv) a $2,500,000 1998 private offering of convertible
debentures (see note 6 to the interim financial statements for the terms
of the debentures).
Net cash used in operating activities during the nine months ended
September 30, 1998 was $3,721,001 and was principally due to operating
losses. Net cash used for investing activities during the same period was
$27,785. Net cash provided by financing activities during the same period
was $2,433,271 and was principally from cash received from the issuance of
the convertible debenture.
See "Overview" above regarding a discussion of the Company's capital
needs.
Working capital decreased $3,048,293 during the nine months ended
September 30, 1998 to $411,906 as compared to $3,460,199 as of December
31, 1997. This decrease is principally due to cash used in operating
activities. Additionally, during the nine months ended September 30, 1998,
there was a $448,108 increase in inventories which was attributable to
purchasing component parts for its products for future production.
See notes 6 and 7 to the interim financial statements for information
regarding stock option and warrant transactions.
OTHER
As of September 30, 1998, the Company was not in technical compliance with
certain provisions of the NASDAQ Small Cap Market, listing maintenance
requirements, namely minimum capitalization or net worth provisions, and
maintenance of two independent directors. The Company has since recruited
and named two independent directors. In order to achieve compliance and
maintain its listing on the SmallCap Market, the Company must increase its
net tangible assets, either through the issuance of securities or
otherwise, by approximately $5,000,000. On January 25, 1999 the Company
received a notice of delisting from NASD. On February 1, 1999, the Company
requested an oral hearing objecting to the proposed delisting and on
February 25, 1999 the Company received notice that such hearing will be
held on April 15, 1999. If the Company is not in compliance with the
continued listing requirements applicable to the Nasdaq SmallCap Market by
the date of the hearing, its shares will likely be delisted from the
Nasdaq SmallCap Market. There can be no assurance, however, that meeting
applicable maintenance standards will insure the Company's continued
listing on the Nasdaq SmallCap Market (see "Overview" for discussion of
liquidity).
In the event of a delisting of the Company's Common Stock, the Company
would be in default under the outstanding convertible debenture resulting
in the acceleration of the Company's obligation to repay the principal and
all accrued interest due thereunder and an increase of the applicable
interest rate from 5% to 9%. In addition, the public trading market for the
Common Stock would be adversely affected and the Common Stock will likely
be quoted on the Nasdaq OTC Bulletin Board which provides for limited
liquidity. In addition, in event the Company's Common Stock trades below
$5.00, it will be subject to SEC Rules and Regulations which impose
limitiations upon the manner in which certain low priced securities
(referred to as a "penny stock") are publicly traded. Under these
regulations a penny stock is defined as any equity security having a
market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on the Nasdaq National
Market or SmallCap Market and any equity security issued by an issuer that
has (i) net tangible assets of at least $2,000,000, if such issuer has been
in continuous operation for three years, (ii) net tangible assets of at
least $5,000,000, if such issuer has been in continuous operation for less
than three years, or (iii) average annual revenue of at least $6,000,000 if
such issuer has been in continuous operation for less than three years.
Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith. Also,
under these regulations, certain broker/dealers who recommend such
securities to persons other than established customers and certain
accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a
transaction prior to sale.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," applicable to entities with other comprehensive income. This
pronouncement is effective for the year beginning January 1, 1998. The
Company had no items of other comprehensive income, as defined, for the
three and nine months ended September 30, 1998 and 1997.
In June 1997, the financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information," which requires that the Company report certain information
about operating segments. This pronouncement is effective for the year
beginning January 1, 1998. The Company currently operates in one
reportable segment.
YEAR 2000
The Company is currently working to minimize the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to
define the applicable year, which could result in miscalculation or system
failures. All of the Company's products are believed to be Year 2000
compliant. Any software used by the Company for internal operations that
is not Year 2000 compliant is expected to be exchanged for Year 2000
compliant software prior to the occurrence of any internal problems. Based
on preliminary information, costs of addressing potential problems are
currently not expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods.
However, if the Company, its customers, strategic partners or vendors are
unable to resolve any processing issues in a timely manner, it could
result in material financial risk to the Company. Accordingly, the Company
plans to devote the necessary resources to resolve all potential
significant year 2000 issues in a timely manner. Specifically, the Company
has also contacted its customers, strategic partners and suppliers to
identify any Year 2000 problems which might impact the Company. The
Company has only received a response from three of its strategic partners,
all of which stated that they believed that their products are Year 2000
compliant.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about August 11, 1998 a lawsuit was filed in Hennepin County
District Court against the Company. Plaintiffs Johnson and Norenberg have
alleged that they were wrongfully terminated or constructively discharged
from their employment with the Company. Their complaint seeks relief in an
amount in excess of $50,000 for each of the respective plaintiffs. The
company adamantly denies the validity of plaintiff's claims or the extent
of plaintiff's damages. It is the Company's intention to proceed with
further discovery and move towards a motion to dismiss plaintiff's claims.
Item 2. Changes in Securities and Use of Proceeds
Use of Proceeds from Registered Securities
1. The effective date of the registration statement for which this
information is reported was February 14, 1997.
2. The following is a reasonable estimate of, the amount of net
offering proceeds to the issuer used for each of the purposes listed
below. An "X" has been placed in the box to the left of any amount
that is an estimate.
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENT OF DIRECTORS, OFFICERS
GENERAL PARTNERS OF THE ISSUER OR THEIR DIRECT OR
ASSOCIATES; TO PERSONS OWNING TEN PERCENT OR INDIRECT
MORE OF ANY CLASS OF EQUITY SECURITIES OF THE PAYMENTS
ISSUER, AND TO AFFILIATES OF THE ISSUER TO OTHERS
--------------------------------------------------- ----------
(A) (B)
----------- ----------
<S> <C> <C>
(01) Construction of Plant, Building and Facilities $ -- $ --
(02) Purchase and Installation of Machinery and
Equipment -- 187,553
(03) Purchase of Real Estate -- --
(04) Acquisition of Other Business(s) -- --
(05) Repayment of Indebtedness 117,020 325,000
(06) Working Capital -- --
Other purposes (specify)
Officer
Salaries
(07) X Professional Fees -- 318,422
(08) X Administrative Salaries and Expenses -- 1,575,610
(09) X Inventory and Components -- 1,000,219
(10) X Research and Development 402,081 393,619
(11) X Product Marketing -- 632,152
(12) X Sales Promotion -- 260,519
(13) X Acquired Technology -- 388,517
(14) X Feasibility Test -- 154,750
(15) X Contract Assembly -- 97,997
</TABLE>
18
<PAGE>
PART II - OTHER INFORMATION - Continued
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Events
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(i) Those exhibits required to be furnished in response to this
item, other than parts of Exhibit 10 and all of Exhibit 27, were
furnished in connection with the Company's:
(A) Registration Statement on Form SB-2, File No. 33-16451 as
filed with the Securities Exchange Commission on November
20, 1996, and as amended by Amendment No. 1 thereto filed on
January 10, 1997, Amendment No. 2 thereto filed February 7,
1997 and Amendment No. 3 thereto filed February 14, 1997 and
as supplemented by supplement dated April 9, 1997, all of
which are incorporated herein by reference.
(B) The Company's annual report on Form 10-KSB for the years
ended December 31, 1996 and 1997 as filed on March 31, 1997
and 1998, and
(C) The Company's quarterly report on Form 10-QSB for the
quarters ended June 30, 1997 through June 30, 1998.
(ii) Exhibit 10 - Material Contracts
None.
(iii) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company's current report on Form 8-K filed on July 7, 1998.
19
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SAC Technologies, Inc.
(the "Registrant")
Date: November 16, 1998 /s/ Barry Wendt
--------------------------------------
Barry Wendt, Chief Executive Officer
/s/ Gary Wendt
--------------------------------------
Gary Wendt, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,036,238
<SECURITIES> 0
<RECEIVABLES> 224,635
<ALLOWANCES> 99,000
<INVENTORY> 413,035
<CURRENT-ASSETS> 2,759,998
<PP&E> 236,856
<DEPRECIATION> 85,605
<TOTAL-ASSETS> 3,185,367
<CURRENT-LIABILITIES> 2,348,092
<BONDS> 0
0
0
<COMMON> 75,108
<OTHER-SE> 762,167
<TOTAL-LIABILITY-AND-EQUITY> 3,185,367
<SALES> 344,762
<TOTAL-REVENUES> 362,712
<CGS> 955,172
<TOTAL-COSTS> 457,108
<OTHER-EXPENSES> 3,813,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,800
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,543,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,543,297)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
