UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-17020
Sensar Corporation
(Exact name of registrant as specified in its charter)
Nevada 87-0429944
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
(Address of principal executive offices) (Zip Code)
(801) 350-0587
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 10, 2000, the Company had 6,548,546 shares of its common
stock, par value $0.001 per share, issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Sensar Corporation (the "Company") has included the consolidated balance
sheets of the Company and its subsidiaries as of June 30, 2000 (unaudited), and
December 31, 1999 (the end of the Company's most recently completed fiscal
year), and unaudited consolidated statements of operations for the three and six
months ended June 30, 2000 and 1999, and unaudited consolidated statements of
cash flows for the six months ended June 30, 2000 and 1999, together with
unaudited condensed notes thereto. In the opinion of management of the Company,
the financial statements reflect all adjustments, all of which are normal
recurring adjustments, necessary to fairly present the financial condition,
results of operations, and cash flows of the Company for the interim periods
presented. The financial statements included in this report on Form 10-Q should
be read in conjunction with the audited financial statements of the Company and
the notes thereto included in the annual report of the Company on Form 10-K for
the year ended December 31, 1999.
<PAGE>
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ -------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,350,316 $ 3,735,115
Notes receivable 1,537,995 1,455,134
Other current assets 55,704 25,598
------------- -------------
Total current assets 5,944,015 5,215,847
Office equipment and furnishings, net of
accumulated depreciation 6,232 27,992
Investments - 325,000
------------- -------------
$ 5,950,247 $ 5,568,839
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 41,036 $ 31,438
Accrued liabilities 6,989 150,320
------------- -------------
Total current liabilities 48,025 181,758
Deferred compensation 4,257,236 5,342,040
Deferred gain 200,000 200,000
------------- -------------
Total liabilities and deferred gain 4,505,261 5,723,798
------------- -------------
Commitments and contingencies - -
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; authorized
10,000,000 shares; issued and outstanding
zero shares at June 30, 2000, and
December 31, 1999 - -
Common stock, $0.001 par value; authorized
290,000,000 shares; issued and outstanding
6,548,546 shares at June 30, 2000, and
6,326,038 shares at December 31, 1999 6,549 6,326
Additional paid-in capital 34,828,529 34,850,817
Accumulated deficit (33,390,092) (35,012,102)
------------- -------------
Total stockholders' equity (deficit) 1,444,986 (154,959)
------------- -------------
$ 5,950,247 $ 5,568,839
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Interest income $ 97,955 $ 29,624 $ 183,654 $ 34,117
------------ ----------- ------------ ------------
Costs and operating expenses:
General and administrative 347,580 211,045 699,173 338,447
Compensation expense for stock options (4,575,000) 717,328 (1,200,000) 717,328
Deferred compensation expense (4,578,349) - (1,084,804) -
Other expense - 21,665 - 21,665
Unusual charges, net - 32,860 356,150 157,860
------------ ----------- ------------ ------------
(8,805,769) 982,898 (1,229,481) 1,235,300
------------ ----------- ------------ ------------
Income (loss) from continuing
operations before income taxes 8,903,724 (953,274) 1,413,135 (1,201,183)
Income taxes - - - -
------------ ----------- ------------ ------------
Income (loss) from continuing
operations 8,903,724 (953,274) 1,413,135 (1,201,183)
Gain (loss) on sale of discontinued
operations 30,000 (68,898) 208,875 2,071,267
Income from discontinued operations - 387,319 - 22,528
------------ ----------- ------------ ------------
Net income (loss) $ 8,933,724 $ (634,853) $ 1,622,010 $ 892,612
============ =========== ============ ============
Income (loss) per common share:
Continuing operations:
Basic $ 1.36 $ (0.17) $ 0.22 $ (0.22)
Diluted 1.31 (0.17) 0.21 (0.22)
Discontinued operations:
Basic $ 0.00 $ 0.06 $ 0.03 $ 0.38
Diluted 0.00 0.06 0.03 0.38
Net loss:
Basic $ 1.36 $ (0.11) $ 0.25 $ 0.16
Diluted 1.31 (0.11) 0.24 0.16
Weighted average common and common
equivalent shares:
Basic 6,548,546 5,677,248 6,523,331 5,502,608
Diluted 6,794,990 5,677,248 6,804,888 5,502,608
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities
Income (loss) from continuing operations $ 1,413,135 $(1,201,183)
Adjustments to reconcile income (loss) from continuing
operations to net cash used in continuing operations
Depreciation 2,291 1,503
Compensation from stock option grants (1,200,000) 737,328
Deferred compensation expense (1,084,804) -
Indemnity costs 356,150 -
Provision for impairment losses - 49,306
Changes in assets and liabilities:
Other current assets (30,106) (14,270)
Accounts payable 9,598 (23,867)
Accrued liabilities (143,331) 16,110
------------ ------------
Net cash used in continuing operations (677,067) (435,073)
Net cash used in discontinued operations - (558,474)
------------ ------------
Net cash used in operating activities (677,067) (993,547)
------------ ------------
Cash flows from investing activities
Purchase of property and equipment (11,681) (2,249)
Proceeds from sale of property and equipment - 1,677
Collection of notes receivable 381,594 61,344
Issuance of notes receivable (500,000) (35,000)
Increase in investments - (150,000)
------------ ------------
Net cash used in investing activities of
continuing operations (130,087) (124,228)
Net cash provided by sale of discontinued operations and
other investing activities of discontinued operations 208,875 4,095,684
------------ ------------
Net cash provided by investing activities 78,788 3,971,456
------------ ------------
Cash flows from financing activities
Net proceeds from issuances of common stock and
exercise of options and warrants 1,213,480 1,015,746
Redemption of preferred stock - (3,071,437)
------------ ------------
Net cash provided by (used in) financing
activities of continuing operations 1,213,480 (2,055,691)
Net cash used in financing activities of
discontinued operations - (15,833)
------------ ------------
Net cash provided by (used in) financing activities 1,213,480 (2,071,524)
------------ ------------
Net increase in cash and cash equivalents 615,201 906,385
Cash and cash equivalents at beginning of period 3,735,115 694,959
------------ ------------
Cash and cash equivalents at end of period $ 4,350,316 $ 1,601,344
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SENSAR CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(A) Basis of Presentation
The accompanying unaudited consolidated financial statements of Sensar
Corporation and Subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these financial statements do not include all of the information
and footnote disclosures required by generally accepted accounting principles
for complete financial statements. These financial statements and footnote
disclosures should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1999. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
fairly present the Company's consolidated financial position as of June 30,
2000, its consolidated results of operations for the three months ended June 30,
2000 and 1999, and its consolidated results of operations and cash flows for the
six months ended June 30, 2000 and 1999. The results of operations for the
three months and six months ended June 30, 2000, may not be indicative of the
results that may be expected for the year ending December 31, 2000.
(B) Agreement with Net2Wireless
The Company has entered into an agreement with Net2Wireless Corporation that
gives the Company the right to acquire Net2Wireless in exchange for the issuance
of 18,295,060 shares of the Company's common stock. Net2Wireless is a startup
company that is developing wireless Internet communications, including
multimedia applications.
In the event of a merger, options and warrants to acquire Net2Wireless stock
will be converted into options and warrants to acquire up to 15,266,649 shares
of the Company's common stock. The number of shares to be issued to the
Net2Wireless stockholders will be increased in the event that the cash held by
the Company at closing, plus all amounts collected on the notes receivable held
by the Company, less all cash liabilities is not at least $4.45 million. The
number of additional shares to be issued will be determined by dividing the
short fall, if any, by $1.86. The Company will also issue 1,000,000 shares to
certain individuals involved in introducing Net2Wireless to the Company.
As part of this agreement, the Company has agreed to provide Net2Wireless with
short-term financing of up to $2 million, of which $500,000 was advanced in
February 2000. The advance bears interest at 8% per annum and is due in full on
or before September 30, 2000. The financing will be used to allow further
recruitment of technical staff for ongoing development work by Net2Wireless.
As part of the transaction, the Company has agreed to the following:
1. Maintain a minimum of $4.5 million in cash and notes receivable
(including the advance to Net2Wireless discussed above) with only nominal
current liabilities, not to exceed $50,000;
2. Cause to be exercised all options, to acquire stock of the Company held
by current management and directors; and
3. Have no more than 9,000,000 shares outstanding, including shares subject
to options at the time of closing.
<PAGE>
In order to eliminate the Company's liabilities, other than nominal current
liabilities, the Company will terminate all employment and consulting
agreements, will terminate its deferred compensation plan, and entered into an
agreement effective March 1, 2000, with the chairman of the board whereby the
chairman agreed to indemnify the Company with respect to pending litigation and
assume the real property lease to which the Company is a party. Termination of
the deferred compensation plan and the chief executive officer's employment
agreement are contingent on stockholder approval of options previously granted
by the board of directors to management, non-executive directors, and the chief
consultant.
The agreement is subject to the satisfaction of several conditions, including
the approval of the shareholders of both the Company and Net2Wireless. The
agreement may be terminated by the mutual consent of the parties, by either
party if the closing has not taken place by December 31, 2000, by either party
if there is a breach by the other party, or by the failure of the Company or
Net2Wireless to receive shareholder approval of the transaction.
It is contemplated that, at closing, the current officers and directors of the
Company will resign and Net2Wireless will appoint new directors and executive
officers of the Company. After the acquisition, the shareholders of
Net2Wireless will own a majority of the common stock of the Company then
outstanding. Accordingly, for financial reporting purposes, the merger will be
treated as a reverse acquisition accounted for as a recapitalization of
Net2Wireless.
The Company has filed an S-4 registration statement and preliminary joint proxy
statement and prospectus with the Securities and Exchange Commission (the "SEC")
regarding the proposed transaction. After completion of the SEC's review and
the registration statement is declared effective, the proxy statement will be
mailed to shareholders and a meeting of shareholders will be held to vote on the
approval of the transaction.
(C) Deferred Compensation Plan
On June 24, 1999, the board adopted a deferred compensation plan to provide
long-term incentive compensation to the members of the board and certain other
consultants or members of management. The plan establishes an unfunded deferred
compensation pool, based on specified percentages of the Company's net income
and increases in its market capitalization. No earnings compensation will be
paid into the pool until the cumulative net income from the operations under the
new board has exceeded $2,000,000 and no amounts will be paid for increases in
market capitalization unless the increase in market capitalization exceeds 150%
of any increase in the Russell 2000 Index (with appropriate adjustments for
additional capital infusions or acquisitions). The chief executive officer
received an initial 30% ownership in the pool and may grant the other 70% to
persons other than himself and his family. To date, he has granted a total of
11% to others. On December 31, 2002, amounts due, if any, will be paid out to
the participants. However, in the event of a change of control of the Company,
as defined in the agreement, or in the event the deferred compensation plan is
terminated by the board of directors, a distribution of the deferred
compensation pool will be required. In either of these two events, the amount
of the distribution would be equal to the amount in the deferred compensation
pool or $5 million, whichever is greater. Additionally, in the event the
employment agreement of the chief executive officer is terminated, other than
for cause, he is entitled to his share of the deferred compensation pool, but
not less than $1.5 million. In connection with the planned acquisition of
Net2Wireless discussed above, the deferred compensation plan would be terminated
and the participants in the plan would abandon their interest in the plan
subject only to shareholder approval of options previously granted to the
participants.
Deferred compensation expense is measured based on the changes in factors which
determine the amount of the deferred compensation pool, which to date has solely
been the change in market capitalization of the Company's common stock. For the
three months and the six months ended June 30, 2000, the Company reduced
previously recognized deferred compensation expense by $4,578,349 and
$1,084,804, respectively. These reductions represent the decrease in the
deferred compensation pool multiplied by 41% for the interests granted through
June 30, 2000, and are a direct result of the decrease in the market
capitalization of the Company's common stock as a result of the decline in the
price of the common stock during the corresponding periods. At June 30, 2000,
the aggregate deferred compensation liability recorded since the plan was
established is $4,257,236.
<PAGE>
(D) Compensation Expense for Stock Options
Among the stock options outstanding during the three months and the six months
ended June 30, 2000, are options to management, with cashless exercise
provisions, to acquire 200,000 shares of common stock. Generally accepted
accounting principles require that compensation be recorded each period for such
stock options, equal to the change in the stock price above the exercise price.
If the price of the stock declines during the period, a credit is recorded
against previously recorded compensation expense, but not in excess of the
cumulative compensation recorded since the grant date. During the three months
and the six months ended June 30, 2000, the Company reduced previously
recognized compensation by $4,575,000 and $1,200,000, respectively, as a
consequence of the decrease in the market value of the Company's common stock
associated with these options to management. At June 30, 2000, the aggregate
compensation recorded for such options since the options were granted in April
of 1999 is $4,418,750.
During April and May of 1999, the Company also granted options to acquire
200,000 shares of common stock to each of three new non-executive directors,
half of which are exercisable at $1.50 per share and half at $2.50 per share.
These options are subject to shareholder approval, which approval will be sought
at the next meeting of shareholders. In November 1999, the board of directors
also approved options to acquire an aggregate of 1,600,000 shares of common
stock for $2.00 per share to participants in the Company's deferred compensation
plan; the chief executive officer, the non-executive members of the board of
directors, and the Company's chief consultant. These grants are also subject to
shareholder approval, which approval will also be sought at the next meeting of
shareholders. If these options are approved by the shareholders, the
participants in the deferred compensation plan have agreed to abandon their
interests in the deferred compensation pool and the board of directors has
agreed to terminate the deferred compensation plan. If approved by the
shareholders, the Company will record compensation expense as measured under
generally accepted accounting principles on the date of shareholder approval,
less the amount of the deferred compensation liability terminated at that date.
For illustrative purposes, had such shareholder approval been obtained at June
30, 2000, when the closing price of the common stock was $23.75 per share, the
Company would have recorded a non-cash compensation charge of approximately $44
million against operations. The effect on the consolidated balance sheet at June
30, 2000, would have been to decrease liabilities and increase stockholders'
equity by $4,257,236, respectively.
(E) Income (Loss) Per Common Share
Basic income (loss) per common share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during each period. Diluted income (loss) per common share is
similarly calculated, except that the weighted average number of common shares
outstanding includes common shares that may be issued subject to existing rights
with dilutive potential.
The following data show the amounts used in computing net income (loss) per
common share from continuing operations and the weighted average number of
shares and rights to acquire shares with dilutive potential.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations $8,903,724 $ (953,274) $1,413,135 $(1,201,183)
---------- ----------- ---------- ------------
Dividends on preferred stock - (25,414) - (25,414)
Income (loss) from continuing
operations applicable to
common stock $8,903,724 $ (978,688) $1,413,135 $(1,226,597)
---------- ----------- ---------- ------------
Common shares outstanding
during the entire period 6,548,546 5,357,024 6,326,038 5,228,366
Weighted average common
shares issued during the period - 320,224 197,293 274,242
Weighted average number of
common shares used in basic
EPS 6,548,546 5,677,248 6,523,331 5,502,608
---------- ----------- ---------- ------------
Dilutive effect of stock options
and warrants 246,444 - 281,557 -
Weighted average number of
common shares used in diluted
EPS 6,794,990 5,677,248 6,804,888 5,502,608
---------- ----------- ---------- ------------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains certain forward looking statements and
information relating to the Company and its proposed merger with Net2Wireless
Corporation. These forward looking statements are not based on historical
facts, but reflect the Company's current expectations concerning future results
and events. Such statements generally describe the objectives, goals, and plans
of the Company and are not intended to be accurate descriptions of the future.
The proposed merger with Net2Wireless Corporation is subject to a number of
conditions, including approval by the shareholders of both the Company and
Net2Wireless Corporation, the Company eliminating any liabilities it may have
other than up to $50,000 in current liabilities, and the satisfaction of a
number of standard closing conditions, that may or may not be met. The
potential products and services of Net2Wireless are still in the development
stage. The proposed business and potential products and services of
Net2Wireless are subject to the substantial risks associated with new market
introductions, including the ability of Net2Wireless to successfully develop
commercial products based on its technology, the ability of Net2Wireless to
address technical and manufacturing problems in producing new products,
favorable market acceptance of any products produced, the ability of
Net2Wireless to obtain a price for its products and services sufficient for it
to make a profit, Net2Wireless' ability to enter into favorable strategic
alliances, joint ventures, or other collaborative arrangements with established
industry partners, the success of the marketing efforts of Net2Wireless, the
ability of Net2Wireless to successfully protect its intellectual property to
prevent competitors from benefiting from the technology, the ability of
Net2Wireless to compete with larger, more established entities, and the ability
of Net2Wireless to obtain the necessary financing to successfully complete its
goals. In addition, Net2Wireless proposes to conduct business and develop
products for a market that is only just emerging. There may not be significant
consumer demand for some or all of the proposed products and services of
Net2Wireless Corporation. One or more of the factors listed above, or other
factors or influences that may develop in the future or that may currently seem
inconsequential, may change the actual results of the Company significantly from
those described in the forward looking statements. The Company does not intend
to update these forward looking statements, except as may occur in the regular
course of its periodic reporting obligations.
The following discussion should be read in conjunction with the
consolidated financial statements and related notes contained herein and the
audited consolidated financial statements and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included in the
Company's report on Form 10-K for the year ended December 31, 1999.
RECENT EVENTS
The Company has entered into an agreement (the "Reorganization Agreement")
to acquire Net2Wireless Corporation ("Net2Wireless") through the merger of
Net2Wireless with and into the Company. Net2Wireless is a privately-held
Delaware corporation with a research and development subsidiary located in
Israel. Net2Wireless maintains a website at www.net2w.com.
The merger was unanimously approved by the board of directors of both
Sensar and Net2Wireless. Neither board obtained a fairness opinion in
connection with their consideration of the merger. As part of the merger:
(a) The shares of Net2Wireless outstanding immediately prior to the
merger will be converted into 18,295,060 shares of common stock of Sensar and
1,000,000 shares of common stock of Sensar will be issued to finders. If the
transactions contemplated by the stock purchase agreement between Net2Wireless
and Nextel Finance Company is completed prior to the closing of the merger,
Sensar will issue an additional 1,000,000 shares of common stock in the merger.
The number of shares to be issued to Net2Wireless stockholders will be reduced
<PAGE>
in the event that any Net2Wireless stockholders exercise their right to dissent.
The number of shares may also be increased if Sensar does not meet certain
financial conditions, but this is not anticipated.
(b) Options and warrants to acquire Net2Wireless common stock will be
converted into options and warrants to acquire up to 15,266,649 shares of Sensar
common stock. Net2Wireless has granted 15,145,612 of these options through June
28, 2000, with a weighted average exercise price of $2.39 per share. Of these
options, 13,396,130 are currently exercisable.
(c) At the initial meeting of the directors approximately two weeks
subsequent to the merger, the current directors of Sensar will resign and the
current directors of Net2Wireless, Nechemia Davidson, David Rubner, and Joav
Avtalion will be appointed as directors of the combined company. The current
management of Net2Wireless will become the management of the combined company.
On completion of the merger, the current shareholders of Net2Wireless will
hold approximately 65% of the outstanding common stock of the Company and
warrants and options that will permit them to increase their ownership to
approximately 77% of the Company on exercise. In addition the current directors
and officers of the Company will resign and nominees of Net2Wireless will be
appointed in their place. As a result, the current shareholders and management
of Net2Wireless will control the Company subsequent to the merger.
Completion of the merger is subject to the approval of the transaction by
the shareholders of both the Company and Net2Wireless and the satisfaction of
additional standard closing conditions. If the merger is completed, the
corporate domicile of the Company will be moved from Nevada to Delaware and its
name will be changed to "Net2Wireless Corporation." The Company has filed a
preliminary amended registration statement on Form S-4 with respect to the
proposed transaction with Net2Wireless. This registration statement is
currently being reviewed by the staff of the SEC and is subject to their
comments and additional changes by the Company.
RESULTS OF OPERATIONS
Comparison of Three Months ended June 30, 2000 and 1999
Revenues
With the disposition of the assets of its historical operations, the
Company's sole source of revenue from continuing operations was interest income
of $97,955 for the three months ended June 30, 2000, and $29,624 for the three
months ended June 30, 1999, earned on temporary cash investments and notes
receivable.
Costs and Expenses
General and administrative expenses associated with continuing operations
increased from $211,045 for the three months ended June 30, 1999, to $347,580
for the three months ended June 30, 2000. The increase was principally related
to increases in legal, consulting, and travel costs associated with the
Net2Wireless transaction.
During the three months ended June 30, 2000, the Company reduced previously
recognized non-cash compensation by $4,575,000 related to the stock option to
acquire 200,000 shares granted to the chief executive officer that has a
cashless exercise provision. Generally accepted accounting principles require
that compensation be recorded for the amount of the change in the value of the
common stock underlying options with such provisions. Likewise, if the price of
the stock declines during the period, compensation is reduced by the amount of
the decrease in the value of the stock underlying the options, but not in excess
of the cumulative compensation recorded since the grant date. The amount of the
reduction in compensation is equal to the decrease in the stock price during the
quarter multiplied by the 200,000 shares.
<PAGE>
During the three months ended June 30, 2000, the Company also recorded a
reduction in non-cash deferred compensation expense of $4,578,349 for the
decrease during the quarter in the accrual of amounts earned under a deferred
compensation plan established in 1999. This plan created an unfunded deferred
compensation pool based on specified percentages of the Company's net income and
increases in market capitalization. As of June 30, 2000, the entire amount of
the liability for the deferred compensation pool is attributable to the increase
in market capitalization of the Company since the plan was established. For the
three months ended June 30, 2000, the reduction in deferred compensation expense
was attributable to the decrease in market capitalization of the Company during
the quarter then ended.
Comparison of Six Months ended June 30, 2000 and 1999
Revenues
With the disposition of the assets of its historical operations, the
Company's sole source of revenue from continuing operations was interest income
of $183,654 for the six months ended June 30, 2000, and $34,117 for the six
months ended June 30, 1999, earned on temporary cash investments and notes
receivable.
Costs and Expenses
General and administrative expenses associated with continuing operations
increased from $338,447 for the six months ended June 30, 1999, to $699,173 for
the six months ended June 30, 2000. The increase was principally related to
increases in legal, consulting, and travel costs associated with the
Net2Wireless transaction.
For the reasons described above, during the six months ended June 30, 2000,
the Company reduced previously recognized non-cash compensation by $1,200,000
related to the stock option to acquire 200,000 shares granted to the chief
executive officer. The amount of the reduction in compensation is equal to the
decrease in the stock price during the six months ended June 30, 2000 multiplied
by the 200,000 shares.
Likewise, for the reasons described above, during the six months ended June
30, 2000, the Company also recorded a reduction in non-cash deferred
compensation expense of $1,084,804 for the decrease during the six months ended
June 30, 2000, in the accrual of amounts earned under a deferred compensation
plan. The reduction in deferred compensation expense was attributable to the
decrease in market capitalization of the Company during the six months ended
June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had total current assets of $5,944,015,
including cash and cash equivalents of $4,350,316. The Company had total
current liabilities of $48,025 at June 30, 2000, resulting in working capital of
$5,895,990.
The Company's primary source of cash for the six months ended June 30,
2000, was $1,213,480 from the exercise of options and warrants. The Company's
primary uses of cash for the six months ended June 30, 2000, were the $500,000
advance to Net2Wireless and net cash used to meet general and administrative
expenses.
Management believes that the current cash balances are more than sufficient
to meet the warranty obligations associated with the merger with Net2Wireless
and to meet its ongoing expenses prior to closing.
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document
------- --------- -----------------
<S> <C> <C>
1 (27) Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
During the quarter ended June 30, 2000, the Company filed five reports on
Form 8-K dated April 7, May 31, June 6, June 22, and June 27, 2000,
respectively. Subsequent to June 30, 2000, the Company filed one report on Form
8-K dated July 27, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Sensar Corporation
Dated: August 10, 2000 By /s/ Howard S. Landa
Howard S. Landa, Chairman of the Board
(Chief Executive Officer and
Principal Financial and Accounting Officer)
<PAGE>
