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 September 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
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(Exact name of registrant as specified in its charter)
Nevada 87-0429944
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
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(Address of principal executive offices) (Zip Code)
(801) 350-0587
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(Registrant's telephone number, including area code)
N/A
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(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 November 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
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ITEM 1. FINANCIAL STATEMENTS
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Sensar Corporation (the "Company") has included the consolidated
balance sheets of the Company and its subsidiaries as of September 30, 2000
(unaudited), and December 31, 1999 (the end of the Company's most recently
completed fiscal year), and unaudited consolidated statements of income for the
three and nine months ended September 30, 2000 and 1999, and unaudited
consolidated statements of cash flows for the nine months ended September 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.
2
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<TABLE>
<CAPTION>
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
2000 1999
--------------------- --------------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,164,929 $ 3,735,115
Notes receivable 500,000 1,455,134
Other current assets 68,982 25,598
------------- -------------
Total current assets 5,733,911 5,215,847
Office equipment and furnishings, net of
accumulated depreciation 5,900 27,992
Investments - 325,000
------------- -------------
$ 5,739,811 $ 5,568,839
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 53,157 $ 31,438
Accrued liabilities 5,212 150,320
------------- -------------
Total current liabilities 58,369 181,758
Deferred compensation 3,320,614 5,342,040
Deferred gain 200,000 200,000
------------- -------------
Total liabilities and deferred gain 3,578,983 5,723,798
------------- -------------
Commitments and contingencies - -
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; authorized
10,000,000 shares; none issued and outstanding - -
Common stock, $0.001 par value; authorized 290,000,000
shares; issued and outstanding 6,548,546 shares at
September 30, 2000, and 6,326,038 shares at
December 31, 1999 6,549 6,326
Additional paid-in capital 34,769,460 34,850,817
Accumulated deficit (32,615,181) (35,012,102)
------------- -------------
Total stockholders' equity (deficit) 2,160,828 (154,959)
------------- --------------
$ 5,739,811 $ 5,568,839
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three months ended September 30, Nine months ended September 30,
------------------------------------- ------------------------------------
2000 1999 2000 1999
---------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Interest income $ 95,027 $ 42,072 $ 278,681 $ 76,189
------------- ------------- ------------ -------------
Costs and operating expenses:
General and administrative 271,938 231,907 971,111 570,354
Compensation expense for stock options - (308,424) (1,200,000) 408,904
Deferred compensation expense (936,622) - (2,021,426) -
Interest expense - 31,390 - 31,390
Other expense - - - 21,665
Unusual charges, net - - 356,150 157,860
------------- ------------- ------------ -------------
(664,684) (45,127) (1,894,165) 1,190,173
-------------- -------------- ------------- -------------
Income (loss) from continuing
operations before income taxes 759,711 87,199 2,172,846 (1,113,984)
Income taxes - - - -
------------- ------------- ------------ -------------
Income (loss) from continuing operations 759,711 87,199 2,172,846 (1,113,984)
Gain on sale of discontinued operations 15,200 1,180,639 224,075 3,251,906
Income from discontinued operations - - - 22,528
------------- ------------- ------------ -------------
Net income $ 774,911 $ 1,267,838 $ 2,396,921 $ 2,160,450
============= ============= ============ =============
Income (loss) per common share:
Continuing operations:
Basic $ 0.12 $ 0.02 $ 0.33 $ (0.20)
Diluted 0.11 0.01 0.32 (0.20)
Discontinued operations:
Basic $ 0.00 $ 0.20 $ 0.04 $ 0.58
Diluted 0.00 0.20 0.03 0.58
Net income:
Basic $ 0.12 $ 0.22 $ 0.37 $ 0.38
Diluted 0.11 0.21 0.35 0.38
Weighted average common and common equivalent shares:
Basic 6,548,546 5,822,646 6,531,798 5,610,460
Diluted 6,791,724 5,995,122 6,801,664 5,610,460
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended September 30,
--------------------------------------------
2000 1999
------------------- --------------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities
Income (loss) from continuing operations $ 2,172,846 $ (1,113,984)
Adjustments to reconcile income (loss) from continuing
operations to net cash used in continuing operations
Depreciation 2,623 2,951
Compensation from stock option grants (1,200,000) 408,904
Deferred compensation expense (2,021,426) -
Indemnity costs 356,150 -
Interest expense from beneficial conversion feature - 30,890
Provision for impairment losses - 49,306
Changes in assets and liabilities:
Other current assets (43,384) (44,904)
Accounts payable 21,719 (58,625)
Accrued liabilities (145,108) 42,655
-------------- ------------
Net cash used in continuing operations (856,580) (682,807)
Net cash used in discontinued operations - (137,586)
------------- -------------
Net cash used in operating activities (856,580) (820,393)
-------------- -------------
Cash flows from investing activities
Purchase of property and equipment (11,681) (7,431)
Proceeds from sale of property and equipment - 1,677
Collection of notes receivable 1,419,589 249,740
Issuance of notes receivable (500,000) (35,000)
Increase in investments - (450,000)
------------- -------------
Net cash provided by (used in) investing activities of
continuing operations 907,908 (241,014)
Net cash provided by sale of discontinued operations
and other investing activities of discontinued operations 224,075 5,550,147
------------- ------------
Net cash provided by investing activities 1,131,983 5,309,133
------------- ------------
Cash flows from financing activities
Net proceeds from issuances of common stock and
exercise of options and warrants 1,154,411 1,035,746
Redemption of preferred stock - (3,071,437)
Proceeds from issuance of convertible debenture - 40,000
------------- ------------
Net cash provided by (used in) financing
activities of continuing operations 1,154,411 (1,995,691)
Net cash used in financing activities of
discontinued operations - (15,833)
------------- -------------
Net cash provided by (used in) financing activities 1,154,411 (2,011,524)
------------- -------------
Net increase in cash and cash equivalents 1,429,814 2,477,216
Cash and cash equivalents at beginning of period 3,735,115 694,959
------------- ------------
Cash and cash equivalents at end of period $ 5,164,929 $ 3,172,175
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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 September 30,
2000, its consolidated results of operations for the three months ended
September 30, 2000 and 1999, and its consolidated results of operations and cash
flows for the nine months ended September 30, 2000 and 1999. The results of
operations for the three months and nine months ended September 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 17,073,071 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 December 31, 2000.
As part of the transaction, the Company has agreed to the following:
1. To have a minimum of $4.5 million in cash and notes receivable
(including the advance to Net2Wireless discussed above) at closing with
only nominal current liabilities, not to exceed $50,000;
2. Have no more than 9,000,000 shares outstanding, including shares
subject to options at the time of closing.
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.
6
<PAGE>
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, which includes a joint
proxy statement and prospectus, with the Securities and Exchange Commission (the
"SEC") regarding the proposed transaction. The registration statement was
declared effective on October 25, 2000. The proxy statement has been mailed to
shareholders and a meeting of shareholders has been scheduled for December 5,
2000 to vote on the approval of the transaction. Additionally, the shareholders
will be asked to approve a change of corporate domicile to Delaware, to change
the name of the Company to Jigami Corporation, to adopt a stock option plan
covering up to 6,000,000 shares, and to ratify the grant of 2,200,000 options to
current management, directors, and consultants.
(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
subsequent to May 1, 1999, 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 nine months ended September 30, 2000, the Company reduced
previously recognized deferred compensation expense by $936,622 and $2,021,426,
respectively. These reductions represent the decrease in the deferred
compensation pool multiplied by 41% for the interests granted through September
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 September 30, 2000, the
aggregate deferred compensation liability recorded since the plan was
established is $3,320,614.
(D) Compensation Expense for Stock Options
Among the stock options outstanding during the three months and the nine months
ended September 30, 2000, are options to management to acquire 200,000 shares of
common stock. Prior to the end of June 2000, when the Company and Net2Wireless
executed the third amendment to their agreement, these options were subject to
cashless exercise provisions. The third amendment eliminated the cashless
exercise feature. Generally accepted accounting principles require that
compensation be recorded each period for stock options with cashless exercise
provisions, equal to the change in the stock price above the exercise price. If
the price of the stock declines during the period, a
7
<PAGE>
credit is recorded against previously recorded compensation expense, but not in
excess of the cumulative compensation recorded since the grant date. During the
nine months ended September 30, 2000, the Company reduced previously recognized
compensation by $1,200,000, as a consequence of the decrease in the market value
of the Company's common stock (through the date the cashless provision was
eliminated) associated with these options to management. Due to the elimination
of the cashless feature at the end of June 2000, compensation expense for the
three months ended September 30, 2000, is not affected. At September 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
September 30, 2000, when the closing price of the common stock was $19.125 per
share, the Company would have recorded a non-cash compensation charge of
approximately $35 million against operations. The effect on the consolidated
balance sheet at September 30, 2000, would have been to decrease liabilities and
increase stockholders' equity by $3,320,614, 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 September 30, Nine months ended September 30,
------------------------------------- ------------------------------------
2000 1999 2000 1999
----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations $ 759,711 $ 87,199 $ 2,172,846 $ (1,113,984)
Dividends on preferred stock - - - (25,414)
----------------- ---------------- --------------- -----------------
Income (loss) from continuing
operations applicable to
common stock $ 759,711 $ 87,199 $ 2,172,846 $ (1,139,398)
================= ================ =============== =================
Common shares outstanding
during the entire period 6,548,546 5,822,646 6,326,038 5,228,366
Weighted average common
shares issued during the period - - 205,760 382,094
----------------- ---------------- --------------- -----------------
Weighted average number of
common shares used in basic
EPS 6,548,546 5,822,646 6,531,798 5,610,460
Dilutive effect of stock options
and warrants 243,178 172,476 269,866 -
----------------- ---------------- --------------- -----------------
Weighted average number of
common shares used in diluted
EPS 6,791,724 5,995,122 6,801,664 5,610,460
================= ================ =============== =================
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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. The number of shares to be issued to Net2Wireless
stockholders will be reduced 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.
9
<PAGE>
(b) Options and warrants to acquire Net2Wireless common stock
will be converted into options and warrants to acquire up to 17,073,071
shares of Sensar common stock. Net2Wireless has granted 16,531,473 of
these options through September 4, 2000, with a weighted average
exercise price of $4.72 per share. Of these options, 13,996,354 are
currently exercisable.
(c) At the initial meeting of the directors subsequent to the
merger, the current directors of Sensar will resign and the current
directors of Net2Wireless, Nechemia Davidson, David Rubner, Joav
Avtalion, and Ben-Zion Weiner 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 71% of the outstanding common stock of the Company and
warrants and options that will permit them to increase their ownership to
approximately 82% 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 approved by the shareholders, the
corporate domicile of the Company will be moved from Nevada to Delaware and its
name will be changed to "Jigami Corporation" at the same time. The Company has
filed a registration statement on Form S-4 with respect to the proposed
transaction with Net2Wireless. This registration statement was declared
effective by the SEC on October 25, 2000. A shareholders' meeting is scheduled
for December 5, 2000, at which approval of this transaction will be voted upon.
Additional important information regarding the shareholders' meeting and the
matters to be considered are contained in the registration statement which can
be obtained from the SEC's website at http://www.sec.gov or obtained by requests
from the Company at 50 West Broadway, Suite 501, Salt Lake City Utah 84101 (801)
350-0587.
RESULTS OF OPERATIONS
Comparison of Three Months ended September 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 $95,027 for the three months ended September 30, 2000, and $42,072 for the
three months ended September 30, 1999, earned on temporary cash investments and
notes receivable.
Costs and Expenses
General and administrative expenses associated with continuing
operations increased from $231,907 for the three months ended September 30,
1999, to $271,938 for the three months ended September 30, 2000. The increase
was principally related to increases in legal and consulting costs associated
with the Net2Wireless transaction.
At the end of June 2000, the Company eliminated the cashless exercise
feature of options to acquire 200,000 shares of common stock held by management.
Accordingly, compensation expense for stock options for the three months ended
September 30, 2000, was not affected.
10
<PAGE>
During the three months ended September 30, 2000, the Company recorded
a reduction in non-cash deferred compensation expense of $936,622 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 September 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 September 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 Nine Months ended September 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 $278,681 for the nine months ended September 30, 2000, and $76,189 for the
nine months ended September 30, 1999, earned on temporary cash investments and
notes receivable.
Costs and Expenses
General and administrative expenses associated with continuing
operations increased from $570,354 for the nine months ended September 30, 1999,
to $971,111 for the nine months ended September 30, 2000. The increase was
principally related to increases in legal, consulting, and travel costs
associated with the Net2Wireless transaction.
During the nine months ended September 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 that had
a cashless exercise provision. This cashless exercise feature was eliminated at
the end of June 2000 as the result of the third amendment to the agreement
between the Company and Net2Wireless. 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 period that the cashless feature was in effect, multiplied by
the 200,000 shares.
For the reasons described above, during the nine months ended September
30, 2000, the Company recorded a reduction in non-cash deferred compensation
expense of $2,021,426 for the decrease during the nine months ended September
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 nine months ended September
30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had total current assets of
$5,733,911, including cash and cash equivalents of $5,164,929. The Company had
total current liabilities of $58,369 at September 30, 2000, resulting in working
capital of $5,675,542.
The Company's primary sources of cash for the nine months ended
September 30, 2000, were the collection of notes receivables of $1,419,589 and
$1,154,411 from the exercise of options and warrants. The Company's primary uses
of cash for the nine months ended September 30, 2000, were the $500,000 advance
to Net2Wireless and 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.
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<PAGE>
PART II
OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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EXHIBITS
The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document
------ ------ -----------------
1 (27) Financial Data Schedule
REPORTS ON FORM 8-K
During the quarter ended September 30, 2000, the Company filed one
report on Form 8-K dated July 27, 2000. Subsequent to September 30, 2000, the
Company filed three reports on Form 8-K dated October 5, October 16, and
November 8, 2000, respectively.
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<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: November 13, 2000 By /s/ Howard S. Landa
--------------------------------------
Howard S. Landa, Chairman of the Board
(Chief Executive Officer and
Principal Financial and Accounting
Officer)
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