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 March 31, 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 May 15, 2000: 9,551,890.
<PAGE>
SAC TECHNOLOGIES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance sheets as of December 31, 1999 and March 31, 2000............3
Statements of operations for the three months ended March 31, 1999
and 2000, and January 7, 1993 (date of inception)
through March 31, 2000.........................................4
Statements of cash flows for the three months ended March 31, 1999
and 2000, and January 7, 1993 (date of inception)
through March 31, 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, March 31,
1999 2000
---- ----
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 101,152 $ 288,407
Accounts receivable, less allowance for doubtful receivables of
$62,500 (note 8) 13,331 3,000
Inventories 32,500 32,500
Prepaid expenses 43,120 27,058
------------ ------------
Total current assets 190,103 350,965
EQUIPMENT AND FURNITURE AND FIXTURES - AT COST,
less accumulated depreciation 79,257 64,595
OTHER ASSETS (note 4) 91,364 81,692
------------ ------------
$ 360,724 $ 497,252
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Note Payable (note 2) $ 150,000 $ 300,000
Accounts payable 341,035 230,111
Accrued liabilities (note 5) 441,797 573,639
------------ ------------
Total current liabilities 932,832 1,103,750
Convertible debentures, less discount of $46,246 and $38,539 1,111,754 819,461
Commitments and contingencies (note 7) -- --
STOCKHOLDERS' EQUITY (DEFICIT) (note 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 9,551,890 shares,
respectively 91,063 95,518
Additional contributed capital 11,473,269 12,285,564
Deficit accumulated during the development stage (13,248,325) (13,807,240)
------------ ------------
(1,683,862) (1,425,959)
------------ ------------
$ 360,724 $ 497,252
============ ============
</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
of inception)
Three months through
ended March 31, March 31,
--------------- -------------
1999 2000 2000
---- ---- ----
<S> <C> <C> <C>
Revenues
Product sales $ 24,787 $ -- $ 577,384
Licensing fees 100,000 -- 100,000
Reimbursed research and development -- -- 284,506
Technical support and other services -- -- 429,885
------------ ------------ ------------
124,787 -- 1,391,775
Costs and other expenses
Cost of product sales 37,426 -- 1,736,895
Cost of technical support and other services -- -- 237,317
Selling, general and administrative 487,899 375,303 8,635,105
Research, development and engineering 262,975 164,795 3,886,743
------------ ------------ ------------
788,300 540,098 14,496,060
------------ ------------ ------------
Operating loss (663,513) (540,098) (13,104,285)
Other income (expense)
Interest and other income 97,701 (821) 508,315
Interest expense (172,674) (17,996) (888,173)
------------ ------------ ------------
(74,973) (18,817) (379,858)
------------ ------------ ------------
NET LOSS $ (738,486) $ (558,915) $(13,484,143)
============ ============ ============
Basic and diluted loss per common share $ (.10) $ (.06) $ (2.26)
============ ============ ============
Weighted average number of shares outstanding 7,530,289 9,279,319 5,958,394
============ ============ ============
</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
of inception
Three months through
ended March 31, March 31,
--------------- ---------
1999 2000 2000
---- ---- ----
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (738,486) $ (558,915) $(13,484,143)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 5,000 14,662 178,318
Amortization 172,459 18,501 1,098,420
Allowance for uncollectible receivables -- -- --
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 -- 83,300 869,050
Other -- -- (18,490)
Change in assets and liabilities:
Accounts receivable (236,510) 10,331 (3,000)
Inventories 18,414 -- (916,015)
Prepaid expenses 18,318 16,062 (27,058)
Accounts payable (41,892) (110,924) 230,111
Accrued liabilities (3,656) 131,842 584,599
Deferred revenue 150,000 -- --
------------ ------------ ------------
82,133 163,774 2,822,427
------------ ------------ ------------
Net cash used in operating activities (656,353) (395,141) (10,661,716)
Cash flows from investing activities
Capital expenditures -- -- (242,913)
Security Deposits -- (1,123) (23,142)
Proceeds from sales of Inter-Con/PC stock -- -- 190,000
Patents and trademarks -- -- (4,534)
------------ ------------ ------------
Net cash used for investing activities -- (1,123) (80,589)
Cash flows from financing activities
Net borrowings under short-term borrowing agreements -- 150,000 183,000
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 32,977 -- (312,977)
Exercise of stock options 28,500 -- 190,799
Sales of common and preferred stock -- 433,519 8,273,890
Redemption of common stockIssuance of convertible debentures -- -- (138,000)
------------ ------------ ------------
Net cash provided by financing activities 61,477 583,519 11,030,712
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (594,876) 187,255 288,407
Cash and cash equivalents, at beginning of period 1,063,616 101,152 --
------------ ------------ ------------
Cash and cash equivalents, at end of period $ 468,740 $ 288,407 $ 288,407
------------ ------------ ------------
</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 March 31, 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 $13,484,143 of which $ 558,915 was incurred
during the quarter ended March 31, 2000. The Company believes operating
losses will continue for the foreseeable future.
On March 17, 2000, The Shaar Fund, an international investment fund and
a principal stockholder of the Company (the "Fund") purchased 6,750
shares of the Company's Series A 9% Convertible Preferred Stock and a
warrant to purchase 67,500 shares of Common Stock, resulting in net
proceeds of $185,000.
On March 31, 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 June 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 second quarter of 2000. The Company is seeking to
obtain additional financing through the issuance of additional 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, 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 March 31, 2000 (Unaudited)
4. Other Assets
December 31, March 31,
1999 2000
---- ----
Deferred financing costs, less accumulated
amortization of $215,189 and $225,983
respectively. $64,811 $54,017
Security deposits 22,019 23,141
Patents 4,534 4,534
------- -------
$91,364 $81,692
======= =======
5. Accrued Liabilities
December 31, March 31,
1999 2000
---- ----
Compensation $136,044 $100,816
Interest 151,430 169,426
Shaar Fund Penalty 132,500 250,625
Other 21,823 52,772
-------- --------
$441,797 $573,639
======== ========
6. Convertible Debenture
During February 2000, $300,000 of principal was converted into 445, 633
shares of common stock.
7
<PAGE>
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 1999, and March 31, 2000 (Unaudited)
7. Stockholders Equity
The following summarizes option activity since December 31, 1999:
<TABLE>
<CAPTION>
Number of Shares
- -----------------------------------------------------------------------------------------
Date of
Grant Non-plan
Exercise Options
Or 1996 1999 and
Expiration Plan Plan Warrants Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 470,325 885,548 1,038,000 2,393,873
Granted 01-02-00 16,670 16,670
01-15-00 40,000 40,000
02-02-00 16,670 16,670
02-15-00 40,000 40,000
03-02-00 16,670 16,670
03-15-00 40,000 40,000
Exercised -- -- --
Canceled (37,325) (250,612) -- (287,937)
------- --------- --------- ---------
Balance, March 31, 2000 433,000 804,946 1,038,000 2,275,946
======= ========= ========= =========
Available for grant,
March 31, 2000 224,000 1,195,054 -- 1,419,054
======= ========= ========= =========
</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 with 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, repayment of a $150,000
note outstanding to the Fund, as of December 31, 1999, and an
additional $100,000 note to the Fund issued subsequent to year-end.
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 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.
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 in July, 1999 by no later than September 7, 1999 and
have such registration statement declared effective by December 6,
1999. As of the date of this filing the Company has not filed the
registration statement and has accrued a penalty of $250,625 as of
March 31, 2000. In connection with the March 17, 2000 financing
described above, the Company has agreed to file a registration
statement with the SEC covering the resale of shares of common stock
issuable upon conversion of all outstanding shares of Series A
preferred stock or exercise of warrants issued in connection therewith
by no later than on or about June 1, 2000 and to have such registration
statement declared effective by no later than on or about August 14,
2000. Failure to comply with these deadlines will subject the Company
to fines and penalties equal to 3% of the face amount of the
outstanding preferred shares and payment of the accrued penalty of
$250,625.
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
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. 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
Letter of Intent with Jasper Consulting, Inc. As described in the
Company's Annual Report on Form 10-KSB, on March 9, 2000, the Company
entered into a letter of intent (the "LOI") with Jasper Consulting,
Inc. with respect to the ownership, use, commercialization and
exploitation of each party's respective technologies. The LOI is
subject to the parties entering into a definitive agreement by no later
than April 21, 2000, which date has been extended to May 19, 2000, and
the parties are currently negotiating the terms of a definitive
agreement.
No assurance can be given that a definitive agreement will ever be
entered into; that the terms as outlined in the Company's 1999 Form
10-K filing will not change; that the Company will outright own VST;
that VST will prove to be significant value added component the
Company's technology and product offerings; or ultimate cost to the
Company to execute a definitive agreement will not be prohibitive or
dilutive.
10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
Revenues
Total revenues decreased $ 124,787 during the three months ended March
31, 2000 to $ 0 as compared to $124,787 for the three months ended
March 31, 1999.
Revenues from product sales decreased $24,787 during the three months
ended March 31, 2000 to $0 as compared to $24,787 for the three months
ended March 31, 1999. The revenues realized during the three months
ended March 31, 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 three months
ended March 31, 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 three months
ended March 31, 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 quarter ended March 31, 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 March 31, 2000 were
$0 as compared to $37,426 during the three months ended March 31, 1999.
The difference results from the fact that the Company did not
manufacture or sell any products during the three months ended March
31, 2000. Cost of product sales exceeded revenues from product sales by
$12,639 during the three months ended March 31, 1999. This negative
gross margin was 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 $112,586 to
$375,303 during the three months ended March 31, 2000 as compared to
$487,889 for the corresponding period in 1999. Of the decrease, $84,019
was due to a decrease in salaries and wages for sales and
administrative personnel, $7,635 was due to decreased unearned
compensation amortization, $102,841 was due to a reduction in selling
expenses as the Company focused on the OEM licensing and Web based
marketing model and $68,571 was due to a reduction in professional
services. These amounts were offset by an increase of $103,800 in
administrative consulting services and an increase in investor
relation's services of $24,500.
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 decreased $98,180 to $164,795 during
the three months ended March 31, 2000 as compared to $262,975 for the
corresponding period in 1999. Of the decrease, $99,565 was due to a
reduction in salaries and wages.
Interest and other income decreased $98,522 to $(821) during the three
months ended March 31, 2000 as compared to $97,701 during the three
months ended March 31, 1999. The Company realized proceeds of $90,000
from the sale of 600,000 shares common stock of Inter-Con P/C during
the quarter ending March 31, 1999 without a comparable transaction
during the three months ended March 31, 2000. The remaining decrease
was due to the decrease in the balance of certificates of deposits.
Interest expense decreased $154,678 to $17,996 during the three months
ended March 31, 2000 as compared to $172,674 during the three months
ended March 31, 1999 due to non-cash charges of $124,624 for the
intrinsic value of the beneficial conversion feature of the Convertible
Debenture.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three months ended
March 31, 2000 was $395,141 and was principally due to operating
losses. Net cash used for investing activities during the same period
was $1,123. Net cash provided by financing activities during the same
period was $583,519 and was principally from cash received from net
short term borrowing activities of $133,519 and the sale of preferred
stock of $450,000.
Working capital decreased $10,056 during the three months ended March
31, 2000 to $-752,785 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; and (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; and (vii) a March 2000 unsecured
bridge loan in the amount of $435,000 before repayment of debt.
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.
In addition, the Company is required to meet certain covenants.
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 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 by no later than on or about June 1, 2000 and to have such
13
<PAGE>
registration statement declared effective by no later than August 14,
2000. Failure to do so will subject the Company to additional fines and
penalties of 3% of the face amount of the preferred shares per month.
The Company has already accrued $250,625 for fines and penalties
associated with the failure to timely file a registration statement
covering the shares issuable upon conversion or exercise, as
applicable, of the preferred shares and warrants issued to the Fund in
July 1999. This amount will become due and payable in the event that
the time deadlines described above are not met. The Company is
currently in discussions with the Fund to extend and abate these
penalties. The Company does not have the financial resources necessary
to pay any such fines or penalties.
On March 31, 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 June 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 second 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.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
1. On April 15, 2000 the Company issued options to purchase 40,000
shares of Common Stock to Bruce Nordin, an executive management
consultant, at the closing market price of the Company's Common Stock
on the 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 15, 2000 the Company issued options under its 1999 Stock
Incentive Plan to Mira La Cous to purchase 100,000 shares of Common
Stock at an exercise price equal to the closing market price of the
Company's Common Stock on the day of grant. The options vested 50% upon
issuance with the remainder vesting in equal annual installments
commencing May 15, 2001. The options 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER EVENTS
1. Discussion with ATM Regarding Acquisition of Technology:
As described in the Company's Annual Report on Form 10-KSB, on January
24, 2000 the Company signed a letter of intent to acquire Aultimate
Technology Marketing Inc. ("ATM"), which has expired. The Company is
currently in discussions with ATM regarding the acquisition of certain
technologies from ATM which, as of the date of this report, have not
been finalized.
2. Elimination of Vice President of Finance Position:
Effective April 15, 2000 the Company eliminated the Vice President of
Finance position. Consistent with its plan to reduce overhead cost, the
responsibilities of this position have been assumed by the Company's
Chief Financial Officer and at this time, the Company intends to leave
the Vice President of Finance position vacant.
15
<PAGE>
3. Retention of Technology Officer Position:
On May 15, 2000, the Company hired Mira La Cous to serve as the
Company's Vice President of Technology at an annual base salary of
$80,000 plus a discretionary bonus, if any, to be determined annually
by the Board of Directors. Upon commencing employment the Company paid
her a signing bonus of $15,000 and granted her options to purchase
100,000 shares of Common Stock. Ms. La Cous has over 15 years computer
software design experience in the areas of Voice Automation, Commercial
Building Control, Information Scanning and Internet Systems, and
Internet Security Training. Prior to joining the Company, since 1997,
she acted as independent consultant serving such clients as TEL-line
Systems, National Computer Systems, and Security Analysts. From 1989 to
1997 she served as a Senior Project Manager with The Trane Company. Ms.
La Cous earned a Bachelors degree in Computer Science from North Dakota
State University.
ITEM 6. EXHIBITS
(a) Exhibits
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<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.
Dated: May 15, 1999 SAC Technologies, Inc.
/s/ Barry Wendt
--------------
Barry Wendt, Chief Executive Officer
/s/ Gary Wendt
--------------
Gary Wendt, Chief Financial Officer
17
<PAGE>
Exhibit No. Exhibit
- ----------- -------
27 Financial Data Schedule
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 288,407
<SECURITIES> 0
<RECEIVABLES> 65,500
<ALLOWANCES> 62,500
<INVENTORY> 32,500
<CURRENT-ASSETS> 350,965
<PP&E> 242,913
<DEPRECIATION> 178,318
<TOTAL-ASSETS> 497,252
<CURRENT-LIABILITIES> 1,103,750
<BONDS> 0
0
0
<COMMON> 95,518
<OTHER-SE> (1,521,477)
<TOTAL-LIABILITY-AND-EQUITY> 497,252
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 540,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,996
<INCOME-PRETAX> (558,915)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (558,915)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
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