U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended June 30, 2000
[_] 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)
1285 Corporate Center Drive, Suite # 175, Eagan, MN 55121
---------------------------------------------------------
(Address of principal executive offices)
(651) 687-0414
--------------
(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 August 11, 2000: 9,561,890.
<PAGE>
SAC TECHNOLOGIES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance sheets as of December 31, 1999 and June 30, 2000............3
Statements of operations for the three and six months ended June 30,
1999 and 2000, and January 7, 1993 (date of inception)
through June 30, 2000.........................................4
Statements of cash flows for the three and six months ended June 30,
1999 and 2000, and January 7, 1993 (date of inception)
through June 30, 2000.........................................5
Notes to interim financial statements...............................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................9
PART II. OTHER INFORMATION
Item 1 - Legal proceedings..............................................15
Item 2 - Changes in Securities and Use of Proceeds......................15
Item 3 - Defaults Upon Senior Securities................................15
Item 4 - Submission of Matters to a Vote of Security Holders............15
Item 5 - Other Events...................................................15
Item 6 - Exhibits and Reports on Form 8-K...............................16
2
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 101,152 $ 70,096
Accounts receivable, less allowance
for doubtful receivables of
$62,500 13,331 6,144
Inventories 32,500 32,500
Prepaid expenses 43,120 32,974
------------ ------------
Total current assets 190,103 141,714
EQUIPMENT AND FURNITURE AND FIXTURES - AT COST,
less accumulated depreciation 79,257 55,599
OTHER ASSETS (note 4) 91,364 56,648
------------ ------------
$ 360,724 $ 253,961
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Note payable (note 2) $ 150,000 $ 600,000
Current Maturities of Convertible Debentures -- 837,408
Accounts Payable 341,035 212,894
Accrued liabilities (note 5) 441,797 672,290
------------ ------------
Total current liabilities 932,832 2,322,592
Convertible debentures, less discount
of $46,246 and $20,592, less current maturities (note 6) 1,111,754 --
COMMITMENTS AND CONTINGENCIES (note A2, 7) -- --
STOCKHOLDERS' EQUITY (DEFICIT) (note A2, 6, 7)
Preferred stock - authorized, 5,000,000 shares
of $ .01 par value:50,000 designated as
Series A 9% Convertible (liquidation
preference of $100 per share); issued and
outstanding,13,125 and 19,875,respectively 131 199
Common stock - authorized, 20,000,000 shares
of $.01 par value;issued and outstanding,
9,106,257 and 9,561,890 shares,respectively 91,063 95,619
Additional contributed capital 11,473,269 12,591,229
Deficit accumulated during the development stage (13,248,325) (14,755,678)
------------ ------------
(1,683,862) (2,068,631)
------------ ------------
$ 360,724 $ 253,961
============ ============
</TABLE>
See accompanying notes to interim financial statements.
3
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
January 7,
1993 (date
Three months Six months of inception)
ended June 30, ended June 30, through
------------------------------ ------------------------------ June 30,
1999 2000 1999 2000 2000
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues
Product sales $ 14,738 $ -- $ 39,525 $ -- $ 577,384
Licensing fees -- -- 100,000 -- 100,000
Reimbursed research
and development -- -- -- -- 284,506
Technical support
and other services -- -- -- -- 429,885
------------ ------------ ------------ ------------ ------------
14,738 -- 139,525 -- 1,391,775
Costs and other expenses
Cost of product sales 75,276 -- 112,702 -- 1,736,895
Cost of technical support
and other services -- -- -- -- 237,317
Selling, general
and administrative 580,134 500,545 1,068,033 875,848 9,135,650
Research, development
and engineering 206,811 405,572 469,786 570,367 4,292,315
------------ ------------ ------------ ------------ ------------
862,221 906,117 1,650,521 1,446,215 15,402,177
------------ ------------ ------------ ------------ ------------
Operating loss (847,483) (906,117) (1,510,996) (1,446,215) (14,010,402)
Other income (expense)
Interest and other 7,847 54 105,548 (767) 508,369
Interest expense (92,230) (42,375) (264,904) (60,371) (930,548)
------------ ------------ ------------ ------------ ------------
(84,383) (42,321) (159,356) (61,138) (422,179)
------------ ------------ ------------ ------------ ------------
NET LOSS (931,866) (948,438) (1,670,352) (1,507,353) (14,432,581)
------------ ------------ ------------ ------------ ------------
Other comprehensive income
Unrealized gain on
available-for-sale
securities 900,000 -- 900,000 -- --
------------ ------------ ------------ ------------ ------------
Comprehensive loss $ (31,866) $ (948,438) $ (770,352) $ (1,507,353) $ 14,432,581
============ ============ ============ ============ ============
Basic and diluted net loss
per common share (note A3) $ (.12) $ (.10) $ (.21) $ (.16) $ (.24)
============ ============ ============ ============ ============
Weighted average number
of shares outstanding 8,086,718 9,561,880 7,810,041 9,424,192 6,084,444
============ ============ ============ ============ ============
</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,
1993 (date
Three months Six Months of inception
ended June 30, ended June 30, through
------------------------------ ------------------------------ June 30,
1999 2000 1999 2000 2000
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash
and Cash Equivalents
Cash flows from operations
Net loss $ (931,866) $ (948,438) $ (1,670,352) $ (1,507,353) $(14,432,581)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation 21,000 8,995 26,000 23,657 187,313
Amortization 273,736 37,644 479,172 56,145 1,136,064
Write-down of inventory -- -- -- -- 883,515
Write-down of deferred
financing costs -- -- -- -- 132,977
Gain on sale of
Inter-Con/PC stock -- -- -- -- (190,000)
Non-cash option and
warrant issuances 305,765 389,065 1,174,815
Other (15,000) -- (15,000) -- (18,490)
Change in assets and liabilities:
Accounts receivable 36,264 (3,144) (200,246) 7,187 (6,144)
Inventories 62,113 -- 80,527 -- (916,015)
Prepaid expenses 22,481 (5,916) 40,799 10,146 (32,974)
Accounts payable 40,488 (17,217) (1,404) (128,141) 212,894
Accrued liabilities 68,062 98,651 64,406 230,493 683,250
Deferred revenue -- -- 150,000 -- --
------------ ------------ ------------ ------------ ------------
509,144 424,778 624,254 588,552 3,247,205
------------ ------------ ------------ ------------ ------------
Net cash used in operations (422,722) (523,660) (1,046,098) (918,801) (11,185,376)
Cash flows from investing activities
Capital expenditures (2,438) -- (2,438) -- (242,913)
Security Deposits -- 7,019 -- 5,896 (16,123)
Proceeds from sales
of Inter-Con/PC stock -- -- -- -- 190,000
Patents and trademarks -- (1,670) -- (1,670) (6,204)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used for)
investing activities (2,438) 5,349 (2,438) 4,226 (75,240)
Cash flows from
financing activities
Net borrowings under
short-term borrowing
agreements 100,000 300,000 100,000 450,000 483,000
Issuance of convertible
bridge notes -- -- -- -- 175,000
Issuance of convertible
debentures -- -- -- -- 1,775,000
Issuance of warrants and
convertible debentures discount -- -- -- -- 884,000
Deferred financing costs (12,000) -- (12,000) -- (312,977)
Exercise of stock options -- -- 28,500 -- 190,799
Sales of common and
preferred stock -- -- -- 433,519 8,273,890
Redemption of common
Stock Issuance of
convertible debentures -- -- -- -- (138,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities 88,000 300,000 116,500 883,519 11,330,712
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents (337,160) (218,311) (932,036) (31,056) 70,096
Cash and cash equivalents,
at beginning of period 468,740 288,407 1,063,616 101,152 --
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents,
at end of period $ 131,580 $ 70,096 $ 131,580 $ 70,096 $ 70,096
============ ============ ============ ============ ============
</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, 1999,
and June 30, 2000 (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 are 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, 1999.
2. Liquidity and Capital Resource 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, and has accumulated
losses since inception of $14,432,581 of which $948,438 was incurred
during the quarter ended June 30, 2000. The Company believes operating
losses will continue for the foreseeable future.
On March 31, 2000, the Company obtained a bridge loan from the Shaar
Fund Ltd. (the "Fund") in the amount of $300,000. The loan bears
interest at a rate of 10% per annum and was due on June 30, 2000. As of
the date of this filing, the Fund has not demanded repayment.
On May 24, 2000, the Company obtained a bridge loan from the Fund in
the amount of $300,000. The loan bears interest at a rate of 10% per
annum and is due on the earlier of November 30, 2000 or the Company
completing a private equity financing resulting in gross proceeds to
the Company of at least $1,250,000.
As of the date of this filing the Company has minimal cash resources
and is in need of substantial additional capital to maintain operations
beyond the end of the third quarter of 2000. The Company is seeking to
obtain additional financing through the issuance of debt or equity
securities of the Company on a negotiated private placement basis with
institutional and accredited investors. In this regard, the Company has
been engaged in discussions with certain investors, however, as of the
date of this filing, the Company has not reached any definitive
agreement with any such investor regarding the specific terms of an
investment in the Company.
No assurance can be given that any form of additional financing will be
available on terms acceptable to the Company that adequate financing
will be obtained to meet its needs, or that such financing would not be
dilutive to existing stockholders. Management believes it will need
$2,000,000 to $3,000,000 to support its operations through the next
twelve months.
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 are calculated by
dividing the net loss attributable to common stockholders by the
weighted average common shares, and when dilutive, by including
options, warrants and convertible securities outstanding using the
treasury stock method. There was no difference between basic and
diluted loss per share for all periods presented, as the impact would
have been antidilutive.
6
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS December 31, 1999,
and June 30, 2000 (Unaudited)
4. Other Assets
December 31, June 30,
1999 2000
---- ----
Deferred financing costs, less accumulated
amortization of $215,189 and $245,679
respectively. $64,811 $34,321
Security deposits 22,019 16,123
Patents 4,534 6,204
------- -------
$91,364 $56,648
======= =======
5. Accrued Liabilities
December 31, June 30,
1999 2000
---- ----
Compensation $136,044 $ 67,435
Interest 151,430 190,725
Shaar Fund Penalty (note 7) 132,500 393,750
Other 21,823 20,380
-------- --------
$441,797 $672,290
======== ========
6. Convertible Debentures
During February 2000, $300,000 of principal was converted into
445,633 shares of common stock. The $837,408 balance outstanding under
the convertible debentures is due June 30, 2001.
7
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS December 31, 1999,
and June 30, 2000 (Unaudited)
7. Stockholders Equity
The following summarizes option and warrant activity since December 31,
1999:
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------------------------------------
Date of
Grant
Exercise
Canceled Or 1996 1999 Non-plan
Expiration Plan Plan Options Warrants Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 470,325 885,548 1,038,000 998,466 3,392,339
Granted 01-15-00 40,000 40,000
02-15-00 40,000 40,000
03-15-00 40,000 40,000
03-17-00 67,500 67,500
04-15-00 40,000 40,000
05-15-00 100,000 100,000
05-15-00 40,000 40,000
06-13-00 50,000 50,000
06-15-00 40,000 40,000
06-23-00 400,000 400,000
Exercised -- -- -- -- --
Expired or Canceled (222,935) (472,612) (407,000) -- (1,102,547)
------- --------- --------- ---------- ----------
Balance, June 30, 2000 247,390 512,936 871,000 1,515,966 3,147,292
======= ========= ========= ========== ==========
Available for grant,
June 30, 2000 409,610 1,587,064 -- -- 1,996,674
======= ========= ========= ========== ==========
</TABLE>
Series A Convertible Preferred Stock
On March 17, 2000 the Company completed a private placement of $675,000
face amount of its Series A Convertible Preferred Stock and a 5-year
warrant to purchase 67,500 shares of Common Stock exercisable at $1.196
per share to the Fund. The Company received net proceeds of $185,000
after giving effect to a 33% discount ($225,000) to the face amount of
the preferred stock, offering costs of $15,000, and the repayment of
$250,000 in notes outstanding to the Fund. On July 9, 1999, the Company
issued $1,312,500 face amount of its Series A Convertible Preferred
Stock realizing gross proceeds of $875,000.
The preferred shares provide for a 9% dividend payable semi-annually in
arrears. At the option of the Company, the dividends are payable in
kind through the issuance of additional shares of Company common stock.
The preferred shares are immediately convertible into shares of common
stock at a conversion price equal to the lesser of (a) 110% of the
closing bid of the Company's common stock on July 8, 1999 or (b) a 22%
discount to the average closing bid prices of the Company's common
stock during the five trading day period prior to conversion. As of
June 30, 2000, cumulative undeclared dividends were $130,600. The
preferred shares are redeemable, in whole or in part, at the option of
the Company at 100% of face value ($100 per share). The Company is
obligated to file a registration statement with the Securities and
Exchange Commission covering the resale of the shares of common stock
issuable upon conversion of the preferred shares or exercise of the
warrants.
In connection with these financings, the Company was obligated to file
a registration statement with the SEC covering the resale of the shares
of common stock issuable upon conversion of the preferred shares or the
exercise of the warrant issued to the Fund. As of the date of this
filing the Company has not filed the registration statement, has
accrued a penalty of $393,750, and as of June 30, 2000 the Fund has not
demanded payment of these amounts.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT
The information contained in this Report on Form 10-QSB and in other
public statements by the Company and Company officers include or may
contain certain forward-looking statements. When used in this Report or
in such statements, the words "estimate," "project," "intends,"
"expects," "believes" and similar expressions are intended to identify
forward-looking statements regarding events and financial trends which
may affect the Company's future operating results and financial
position. Such statements are not guarantees of future performance and
are subject to risks and uncertainties that could cause the Company's
actual results and financial position to differ materially from those
included within the forward-looking statements. Such factors are
described in detail in the Company's Annual Report on Form 10-KSB under
the caption "RISK FACTORS." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of
the date made. The Company undertakes no obligation to publicly release
the results of any revision to these forward-looking statements to
reflect events or circumstances after the date made or to reflect the
occurrence of unanticipated events.
OVERVIEW
The Company's initial goal was to develop automated fingerprint
identification products which were portable, easily integrated with
existing applications and affordable for mass commercialization and
distribution through OEMs, distributors and to a lesser degree, system
integrators in the computer network, general access control and other
markets. This included the development of the SACcat and sixth
generation IDME readers. During the last two fiscal years the Company
has pursued an OEM licensing program and more recently is developing an
integrated Web based biometric authentication system.
The Company's current business plan, which continues to evolve,
consists of a threefold strategy of (i) continued product and
technological development; (ii) marketing its products and technologies
both directly and through licensing agreements with OEMs and private
labelers which address industry-specific applications; and (iii) the
development and licensure of a Web based biometric authentication
software solution to e-commerce and Web based transaction companies.
Technological and Product Development. Although management believes
that the Company's identification technology is one of the most
advanced and discriminating fingerprint technologies available on the
market today, the markets in which the Company competes are
characterized by rapid technological change and evolving standards. In
order to maintain its position in the market, the Company will continue
to upgrade and refine its existing products and technologies. During
the remainder of 2000, the Company will primarily focus on enhancing
its identification technology for large database, Web based server
authentication applications, including porting to multiple platforms
and peer group reader technology. Successful development of this
solution will require additional financing to which there can be no
assurance.
Product Sales and Licensing Agreements. The Company will continue to
market and manufacture its stand-alone products on a special order
basis. As of the date of this Report, the Company does not have any
orders for any material amount of product.
During the last fiscal year the evolution of the Company's technology
has allowed it to shift its focus from product development to the
licensing of its core technology to OEMs for integration into their
product offerings. During February 1999, the Company signed a
non-exclusive OEM Licensing agreement with Sense Technologies, Inc.
primarily for time clock applications. The agreement provides for a
one-time licensing fee of $100,000, of which $37,000 has been paid to
date, and $62,500 has been reserved for, with a minimum annual
pre-purchase (non-refundable) royalty of $50,000 payable through
November 1999, which has not been collected as of the date of this
filing. The Company is obligated to deliver physical product
specifications under the agreement. As of the date of this filing this
is the only license agreement to which the Company is a party.
9
<PAGE>
The Company will continue to focus on general access control and
computer network security applications. There can be no assurance that
the Company will have the marketing or financial resources to enter
into any additional licensing agreements or that any such agreements
will generate any meaningful revenue or earnings for the Company.
Web Based Biometric Authentication Solution. In recent months,
recognizing the exponential growth in electronic commerce and related
security concerns, the Company has been actively positioning its
technology development for the licensing of a Web based biometric
authentication software solution to e-commerce and other companies
which rely on Web based transactions. This initiative has involved
transitioning the Company's technology to focus on identification
applications for large databases and Web based server authentication
applications, including porting to multiple platforms and peer group
reader technology. These efforts have resulted in the de-coupling of
the core identification algorithm from the reader technology providing
for the algorithm to be utilized with other readers available from
other manufacturers. This development has allowed the Company to
explore the licensing of the IDME reader to third party manufacturers.
The Company believes that the versatility provided by the de-coupling
of the identification algorithm and reader technology will facilitate
the pursuit of licensing Web based server authentication applications.
The Web based server authentication application is an integrated
solution involving the sale of readers and the licensure of client and
server based software to provide for reliable and cost effective user
authentication in connection with the processing of e-commerce
transactions. This solution is also intended to secure other general
purpose Web site applications such as restricting access to specific
Web pages or specific information contained on a Web-site. Successful
execution of this initiative will require the development of enhanced
software to provide an effective interface between client and server
based software. In this connection, on July 10, 2000, the Company
purchased from Aultimate Technology Marketing, Inc., an Internet
Web-based Authentication Server software application that was developed
to work with SAC's SACcat Biometric Technology. The Company is
continuing to develop this software and is in discussion with potential
users of such a solution. There can be no assurance that the Company
will have the financial or human resources necessary to complete the
development of the software necessary to effectuate this plan in a
timely manner, if at all.
Although the Company has completed the development of its core
technology and readers, neither has gained any meaningful commercial
acceptance, the Company has only generated minimal revenue since
inception and it has not entered into any significant licensing
arrangements. In addition, the Company's business model, particularly
the Web authentication initiative, represents a novel approach to
Internet security, has not been adopted by any Internet company and
there can be no assurance that there will be a demand for such a
solution or that the Company will have the financial, marketing and
human resources necessary to successfully develop and market such a
software solution.
Termination of Certain Strategic Alliance and Distributor Agreements.
Commencing during the fourth quarter of 1997, the Company entered into
various agreements which were intended to allow the Company to
incorporate synergistic technologies consisting of voice and facial
recognition, encryption, desktop configuration, security and video
conferencing capabilities for utilization with its products. These
alliances were typically with development stage technology companies.
At this time, the Company is not pursuing the joint marketing and
development of technologies from Keyware Technologies, Inc. (voice
recognition), Miros, Inc. (face recognition) and Pinnacle Technology,
Inc. (Desktop configuration). In addition, the Company has terminated
distributor, and license agreements with Baraka Intercon, CompuMark
(LLC), and OPUS Technologies, Inc.
Re-structure of Business Relationship with Jasper Consulting, Inc. On
August 12, 2000 the Company entered into a mutual general release and a
Definitive Agreement with Jasper Consulting, Inc. These agreements
include the following material provisions; 1) all previous agreements
between the parties and associated rights or obligations relative to
such agreements were terminated; 2) all debt existing between the
Parties was discharged; 3) all rights to FIDS Technology were assigned
to Jasper Consulting, Inc.; 4) all rights to Vector Segment Technology
("VST"), STBS and Optic technology were assigned to SAC Technologies,
Inc.; 5) a mutual general release of any and all past claims; (6) an
obligation to enter into a license agreement regarding, VST within 120
days; and (7) the dismissal with prejudice of the outstanding
litigation between the parties.
The closing of the definitive agreement is conditioned upon delivery
and testing of the FIDS's technology to the satisfaction of Jasper
which is expected to occur as soon as reasonably practicable.
To the extent the agreements vest the Company with sole ownership of
VST, STBS and Optic Technology and permit the Company to sell or
license its products and technologies in any market without payment of
any fees or royalties to Jasper, the Company believes it is now better
situated to commence the commercial distribution of its products and
technologies.
10
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO JUNE 30, 1999
Revenues
Total revenues decreased $14,738 during the three months ended June 30,
2000 to $ 0 as compared to $14,738 for the three months ended June 30,
1999. Total revenues decreased $139,525 during the six months ended
June 30, 2000 to $0 as compared to $139,525 for the same period in
1999.
The product sales revenues realized of $39,525 during the six months
ended June 30, 1999 consisted primarily of unit sales of SACcat systems
as part of the licensing agreements that were signed during the quarter
and to a lesser extent unit sales of SACMan Developer Toolkit Systems
to entities developing or intending to develop applications which may
utilize the Company's products and/or technology. Although the Company
did not generate any product sales during the six months ended June 30,
2000, it will continue to market and have manufactured its standalone
products on a special order basis for developers.
Revenues from licensing fees decreased $100,000 during the six months
ended June 30, 2000 to $ 0 as compared to $100,000 for the same period
in 1999. These revenues represent payments under a licensing agreement
with Sense Technologies, Inc. The Company did not enter into any
licensing agreements during the six month period ended June 30, 2000.
Although the Company is continuing to pursue its licensing program,
there can be no assurance that the Company will have the marketing or
financial resources to enter into any additional licensing agreements
or that any such agreements will generate any meaningful revenues or
earnings for the Company.
11
<PAGE>
Costs and Other Expenses
Cost of product sold during the three months ending June 30, 2000 were
$0 as compared to $75,276 during the three months ended June 30, 1999.
Cost of product sales exceeded revenues from product sales by $60,538
during the three months ended June 30, 1999. Cost of product sold
during the six months ending June 30, 2000 were $0 as compared to
$112,702 during the six months ended June 30, 1999. The differences
result from the fact that the Company did not manufacture or sell any
products during the six months ended June 30, 2000. Cost of product
sales exceeded revenues from product sales by $73,177 during the six
months ended June 30, 1999. These negative gross margins were
attributable to costs associated with the production of a limited
amount of units. The Company intends to manufacture products on a
special order basis and continues to explore means to reduce its
current product costs, including purchasing certain imaging technology
to replace some of its current optics components. No assurance can be
given that the above objective will be achieved or if achieved, whether
it will result in a reduction of product costs that will lead to the
Company generating positive gross margins or becoming profitable.
Selling, general and administrative expenses decreased $79,589 to
$509,545 during the three months ended June 30, 2000 as compared to
$580,134 for the corresponding period in 1999. Of the decrease, $48,605
was due to a decrease in salaries and wages for sales and
administrative personnel, $100,000 was due to a one time funding fee in
1999, $89,903 was due to a reduction in selling expenses as the Company
focused on the OEM licensing and Web based marketing model. These
amounts were offset by an increase of $100,050 in administrative
consulting services and an increase in amortization of $76,507 for the
fair market value of warrants issued. Selling, general and
administrative expenses decreased $192,185 to $875,848 during the six
months ended June 30, 2000 as compared to $1,068,033 for the
corresponding period in 1999. Of the decrease $157,947 was due to a
decrease in salaries and wages, $171,877 was due to a reduction in
selling expenses, $100,000 was due to a one time 1999 funding fee, and
$87,237 was due to a decrease in employee related expenses. These
amounts were offset by an increase of $203,850 in administrative
consulting services and an increase of $229,733 for recording the Shaar
registration penalty.
In May 1999, the Company began to implement a cost reduction plan. The
plan called for reductions in the areas of salaries, personnel and
facility space requirements. The Company continues to review other
areas within the organization to further reduce costs.
Research and development expenses increased $198,761 to $405,572 during
the three months ended June 30, 2000 as compared to $206,811 for the
corresponding period in 1999. Of the increase, $196,000 was due to a
purchase of the ATM Active X development tools and the ATM's E-Printz a
web-based server authentication application. Research and development
expenses increased $100,581 to $570,367 during the six months ended
June 30, 2000 as compared to $469,786 for the corresponding period in
1999. Of the increase $196,000 was due to a one time purchase of ATM's
Active-X development tools and ATM's E-Printz, and $37,793 was due to
an increase in software sub-contracting costs. This increase was offset
by a decrease of $160,482 in salaries and wages.
Interest and other decreased $7,793 to $54 during the three months
ended June 30, 2000 as compared to $7,847 during the three months ended
June 30, 1999. The decrease was due to the decrease in the balance of
certificates of deposit. Interest and other decreased $106,315 to
($767) during the six months ended June 30, 2000 as compared to
$105,548 for the corresponding period in 1999. Of the decrease $90,000
was due to the sale of 600,000 shares common stock of Inter-Con P/c
during the six months ended June 30, 1999 without a comparable
transaction for the corresponding period ended June 30, 2000. The
remaining decrease was due to the decrease in the balance of
certificates of deposit.
Interest expense decreased $49,855 to $42,375 during the three months
ended June 30, 2000 as compared to $92,230 during the three months
ended June 30, 1999 and decreased $204,533 to $60,371 during the six
months ended June 30, 2000 as compared to $264,904 during the six
months ended June 30, 1999 due to non-cash charges of for the intrinsic
value of the beneficial conversion feature of the Convertible
Debenture.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three months ended
June 30, 2000 was $523,660 and was principally due to operating losses.
Net cash provided by investing activities during the same period was
$5,349. Net cash provided by financing activities during the same
period was $300,000 and was from cash received from net short term
borrowing activities. Net cash used in operating activities during the
six months ended June 30, 2000 was $918,801 and was principally due to
operating losses. Net cash provided by investing activities during the
same period was $4,226. Net cash provided by financing activities
during the same period was $883,519 and was from cash received from net
short term borrowing activities of $450,000 and the sale of preferred
stock of $433,519.
Working capital decreased $1,438,149 during the six months ended June
30, 2000 to ($2,180,878) as compared to ($742,729) as of December 31,
1999.
Since January 7, 1993 (date of inception), the Company's capital needs
have been principally met as follows: (i) a May 1996 sale of $200,000
of convertible bridge notes and warrants to purchase 50,000 shares of
common stock which were converted to Common Stock during mid-1996; (ii)
a July 1996 $700,000 private placement of Common Stock; (iii) 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; (iv) a June 1998 $2,500,000
private offering of a convertible debenture and detachable warrants;
(v) a July 1999 $1,312,500 private offering of shares of the Series A
convertible Preferred Stock and detachable warrants, resulting in net
proceeds of $800,539 before repayment of debt; (vi) a March 2000
$675,000 private offering of shares of the Series A convertible
Preferred Stock and detachable warrants, resulting in net proceeds of
$435,000 before repayment of debt; (vii) a March 2000 unsecured bridge
loan in the amount of $300,000 before repayment of debt; and (viii) a
May 24, 2000 unsecured bridge loan in the amount of $300,000.
The Company does not currently maintain a line of credit or term loan
with any commercial bank or other financial institution.
On June 30, 1998, the Company sold to Shaar Fund, Ltd., an
international investment fund and principal stockholder of the Company
(the "Fund") $2,500,000 of 5% Convertible Debenture due June 30, 2001
(the "Convertible Debenture"). The Convertible Debenture is convertible
into shares of the Company's Common Stock at a conversion price equal
to the lesser of (i) $7.15; or (ii) the average closing bid price of
the Company's Common Stock for a five-day period ending the day prior
to the notice of conversion multiplied by a discount factor of 22%. The
Convertible Debenture is redeemable at the option of the Company under
certain circumstances. Interest is payable quarterly in arrears, and at
the option of the Company, is payable in-kind through the issuance of
additional shares of the Company's Common Stock at the conversion
price. As of the date of this filing, $1,642,000 principal amount of
Convertible Debentures has been converted into an aggregate of
2,015,023 shares of Common Stock. The Convertible Debenture agreement
contains certain dilution and conversion price adjustment provisions if
certain events occur. In the event of repayment, the Company is subject
to certain repayment costs of up to 24% of the principal amount repaid.
On July 9, 1999 the Company completed a private placement of 13,125
shares of its Series A Convertible Preferred Stock and 5-year warrants
to purchase 131,250 shares of Common Stock exercisable at $1.196 per
share to the Fund. The Company realized net proceeds of $800,539 from
the sale of these securities. On March 17, 2000 the Company completed a
private placement of 6,750 shares of its Series A Convertible Preferred
Stock and 5-year warrants to purchase 67,500 shares of common stock
with the Fund. The Company realized net proceeds of $185,000 after
giving effect to the repayment of $250,000 of notes payable to the
Shaar Fund.
The preferred shares provide for a 9% dividend payable semi-annually in
arrears. At the option of the Company, the dividends are payable in
kind through the issuance of additional shares of Company common stock.
The preferred shares are immediately convertible into shares of common
stock at a conversion price equal to the lesser of (a) 110% of the
closing bid of the Company's common stock on July 8, 1999 or (b) a 22%
discount to the average closing bid prices of the Company's common
stock during the five trading day period prior to conversion. The
preferred shares are redeemable, in whole or in part, at the option of
the Company at 100% of face value ($100 per share). The Company was
obligated to file a registration statement with the Securities and
Exchange Commission covering the resale of the shares of common stock
issuable upon conversion of the preferred shares or exercise of the
warrants by no later than on or about June 1, 2000 and to have such
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registration statement declared effective by no later than August 14,
2000. As of the date of this filing, the Company has not filed the
registration statement, has accrued a penalty of $393,750 and as of
June 30, 2000 the Fund has not demanded payment of these amounts. As of
June 30, 2000, cumulative undeclared dividends were $130,600 which
amount is payable in shares of restricted common stock.
On March 31, 2000, the Company obtained a bridge loan from the Shaar
Fund in the amount of $300,000. The loan bears interest at a rate of
10% per annum and was due on June 30, 2000. As of the date of this
filing, the Fund has not demanded payment of these amounts.
On May 24, 2000, the Company obtained a bridge loan from the Fund in
the amount of $300,000. The loan bears interest at a rate of 10% per
annum and is due on the earlier of November 30, 2000 or the Company
completing a private equity financing resulting in gross proceeds to
the Company of at least $1,250,000.
As of the date of this filing the Company has minimal cash resources
and is in need of substantial additional capital to maintain operations
beyond the third quarter of 2000. Management is seeking to obtain
additional financing through the issuance of additional debt or equity
securities of the Company on a negotiated private placement basis to
institutional and accredited investors. In this regard, the Company has
been engaged in discussions with certain investors, however, as of the
date of this Report, the Company has not reached any definitive
agreement with any such investor regarding the specific terms of an
investment in the Company.
No assurance can be given that any form of additional financing will be
available on terms acceptable to the Company that adequate financing
will be obtained to meet its needs, or that such financing would not be
dilutive to existing stockholders. Management believes it will need
$2,000,000 to $3,000,000 to support its operations through the next
twelve months.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 24, 2000, Jasper Consulting, Inc. ("Jasper") filed a complaint against
Sac Technologies, Inc. ("the Company") in Minnesota State Court sitting in
Beltrami County, Minnesota. The complaint was amended on August 9, 2000, to
include additional claims.
Jasper alleges a breach of the April 26, 1996 licensing and marketing agreement
(the "Agreement") by and between Jasper and the Company based on the Company's
alleged failure to disclose to Jasper alleged improvements related to FIDS
Technology, failure to pay license fees and disclosure of confidential
information. Jasper seeks unspecified damages, attorney's fees and costs and a
submission of the matter to binding arbitration before the American Arbitration
Association in accordance with the terms of the Agreement. Jasper also alleges
that the Company has unlawfully converted the FIDS Technology and alleged
improvements thereto and seeks injunctive relief. In this connection, Jasper
obtained a temporary restraining order (the "TRO") prohibiting the Company from
obtaining access to the Company's safety deposit box in which the FIDS
Technology, among other things, is being held. Jasper is also seeking an order
to seize the FIDS Technology from the safety deposit box and compel the Company
to deliver the FIDS Technology and certain related information to Jasper.
A hearing was originally scheduled for Thursday August 3, 2000 regarding
Jasper's motion for seizure of the FIDS's Technology and other property. The
Company sought and was granted an extension of the hearing date until August 14,
2000.
On August 12, 2000, the Company and Jasper entered into a mutual general release
and settlement of this litigation and any and all other claims between them, the
material terms of which are described elsewhere in this report. See Part I Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Restructure of Business Relationship with Jasper Consulting Ltd."
Accordingly, the parties will present the court with a stipulation to settle,
discontinue and end this claim.
ITEM 2. CHANGES IN SECURITIES
1. On April 15, May 15, June 15, 2000 the Company granted options to
purchase 40,000 shares of Common Stock aggregating 120,000 shares to
Bruce Nordin, an executive management consultant, at the closing market
price of the Company's Common Stock on each date of grant. The options
immediately exercisable were issued in a private placement transaction
exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Section 4(2) thereunder without payment
of underwriting discounts or commissions to any person.
2. On May 31, 2000 the Company granted options to purchase 100,002
shares of Common Stock to Jim Broseth, an investor relations
consultant, at a strike price of $1.00 per share. The options are
immediately exercisable and were issued in a private placement
transaction exempt from the registration requirements of the Securities
Act of 1993, as amended, pursuant to Section 4(2) thereunder without
payment of underwriting, discounts or commission to any person.
3. On June 13, 2000 the Company granted a five year warrant to purchase
50,000 shares of Common Stock to Advanced Technologies Integration,
Inc. (ATI) at a strike price of $1.00 per share. The warrants vest and
become exercisable in equal 20% increments based on the Company's
acceptance of ATI deliverables in accordance with the June 13, 2000,
Development Agreement between the parties. The warrants were issued in
a private placement transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereunder without payment of underwriting discounts or
commissions to any person.
4. On July 10, 2000 the Company granted a four year warrant to purchase
400,000 shares of Common Stock to Aultimate Technology Marketing, Inc.
at a strike price of $1.00 per share in connection with the acquisition
of certain technology. The warrants immediately exercisable were issued
in a private placement transaction exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to
Section 4 (2) thereunder without payment of underwriting discounts or
commissions to any person.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
1. As described elsewhere in this Report, the Company is currently
in default with respect to the payment of the full principal amount
due under the March 24, 2000 unsecured promissory note in the
principal amount of $300,000 in favor of the Fund. As of the date of
this Report, the Company has not made any payment under the note and
the Fund has not demanded repayment.
2. As of the date of this Report, the Company has cumulative
undeclared dividends on its Series A 9% Convertible Preferred Stock
in the amount of $130,600 which is payable in shares of restricted
common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER EVENTS
1. Acquisition of E-printz Technology from ATM:
Pursuant to a July 10, 2000 Technology Transfer Agreement with
Aultimate Technology Marketing, Inc. ("ATM"), the Company acquired
all rights to the Active X development tools and E-printz, an
Internet Web-based Authentication Server application that was
developed to work with SAC's SACcat Birometric Technology. Under the
agreement, ATM transferred all rights to E-printz and the Active X
development tools to the Company and all previous business
agreements between the Parties and associated rights, liabilities or
obligations relative to such agreements were terminated.
ITEM 6. EXHIBITS
(a) Exhibits
Exhibit No. Exhibit
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27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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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.
Dated: August 14, 2000 SAC Technologies, Inc.
/s/ Barry Wendt
--------------
Barry Wendt, Chief Executive Officer
/s/ Gary Wendt
--------------
Gary Wendt, Chief Financial Officer
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Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
