Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
(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, 1999
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 0-24372
Sundog Technologies, Inc.
(Name of small business issuer as specified in its charter)
The Thorsden Group, Ltd.
(Former name of small business issuer)
Delaware 33-0611746
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4505 South Wasatch Blvd., Suite 340
Salt Lake City, Utah 84124
(Address of principal executive offices and Zip Code)
(801) 424-0044
(Registrant's telephone number, including Area Code)
Check whether the registrant: (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
--- ---
As of November 12, 1999, there were issued and outstanding 22,560,234 shares of
the Company's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page No.
<S> <C>
Part I. Financial Information.....................................................................................3
1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1999 (unaudited) and
March 31, 1999 (audited)........................................................................3
Unaudited Condensed Consolidated Statements of Income for the three and six months ended
September 30, 1999 and 1998.....................................................................4
Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended
September 30, 1999 and 1998....................................................................5
Notes to Unaudited Condensed Consolidated Financial Statements...........................................6
2 Management's Discussion and Analysis or Plan of Operation...............................................13
3. Quantitative and Qualitative Disclosures about Market Risk..............................................22
Part II. Other Information......................................................................................22
</TABLE>
2
<PAGE>
PART I
ITEM 1--FINANCIAL STATEMENTS
<TABLE>
SUNDOG TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Condensed Balance Sheets
<CAPTION>
September 30 March 31
1999 1999
----------- -----------
Unaudited
---------
ASSETS
Current Assets
<S> <C> <C>
Cash and Cash Equivalents $ 62,176 $ 2,215,620
Marketable Securities 1,980 3,188
Accounts Receivable 4,245 51,200
Other Receivable $ 540,000 --
Prepaid Expenses 34,894 25,550
----------- -----------
Total Current Assets 643,296 2,295,558
----------- -----------
Property and Equipment 473,696 380,406
Less: Accumulated Depreciation (94,356) (52,146)
----------- -----------
Property and Equipment, Net 379,340 328,260
----------- -----------
Other Assets
Deposits 108,348 105,605
Intangible Assets 80,637 59,983
----------- -----------
Total Other Assets 188,985 165,588
=========== ===========
TOTAL ASSETS $ 1.211,620 $ 2,789,406
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 154,054 $ 140,748
Equipment Lease Obligations 24,973 37,741
Accrued Liabilities 163,853 75,822
----------- -----------
Total Current Liabilities 342,880 254,311
----------- -----------
Equipment Lease Obligations 19,771 30,267
Other Current Liabilities -- --
----------- -----------
Total Liabilities 362,651 284,578
----------- -----------
Stockholders' Equity
Common Stock 23,191 22,530
Additional paid in Capital 6,351,699 5,557,526
Accumulated (Deficit) (5,510,959) (3,061,474)
Accumulated unrealized loss on investments (14,962) (13,754)
----------- -----------
Total Stockholders' Equity 848,969 2,504,828
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,211,620 $ 2,789,406
=========== ===========
</TABLE>
3
<PAGE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
SUNDOG TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Condensed Statement of Income (Unaudited)
<CAPTION>
From Inception
------------------------------------------------------------------------
Six Months Ended Three Months Ended June 11, 1992
------------------------------------------------------------------------
Sept 30, 1999 Sept 30, 1998 Sept 30, 1999 Sept 30, 1998 to Sept 30, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenues 16,197 11,167 10,508 4,917 235,635
--------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of Sales 25,700 999 14,158 148 77,566
Research and Development 1,053,036 445,034 498,091 247,396 2,541,159
Marketing, Admin & Sales 1,410,723 463,115 710,971 217,002 3,209,040
--------------------------------------------------------------------------------------------
Operating Costs and Expenses 2,489,459 909,148 1,223,220 464,546 5,827,765
--------------------------------------------------------------------------------------------
Operating (Loss) (2,473,262) (897,981) (1,212,712) (459,629) (5,592,130)
Interest Income 27,555 18,069 7,445 10,266 98,919
Interest Expense (3,778) (2,869) (1,725) (1,633) (13,662)
Other Expense - - - - (4,356)
Other Income - 100 - - 270
--------------------------------------------------------------------------------------------
Net (Loss) (2,449,485) (882,681) (1,206,992) (450,996) (5,510,959)
============================================================================================
Net (Loss) per share (0.11) (0.04) (0.05) (0.02) (0.24)
--------------------------------------------------------------------------------------------
Weighted average number
Of Shares Outstanding 22,560,234 20,492,335 22,560,234 20,492,335 22,560,234
--------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
<TABLE>
SUNDOG TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Condensed Statement of Cash Flows (Unaudited)
<CAPTION>
CUMULATIVE
--------------------------------------------------------
Six Months Ended Three Months Ended FROM INCEPTION
--------------------------------------------------------
September 30 September 30 June 11, 1992
1999 1998 1999 1998 To Sept 30, 1999
----------------------------------------------------------------------------
Cash Flows (used by) Operating Activities:
<S> <C> <C> <C> <C> <C>
Net (Loss) (2,449,485) (882,681) (1,206,992) (450,996) (5,510,959)
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation 42,210 20,040 23,151 10,054 94,386
Changes in Assets and Liabilities:
Increase Accounts Receivable 46,954 8,313 1,498 6,250 (4,246)
Prepaid Expenses (9,344) - 14,645 - (34,894)
Accounts Payable 13,306 24,005 (13,610) (1,099) 154,055
Deferred Income - (10,417) - (4,167) -
Accrued Liabilities 88,030 (28,028) 86,820 10,320 163,852
----------------------------------------------------------------------------
Net Cash (Used By) Operating Activities (2,268,329) (868,768) (1,094,488) (429,638) (5,137,806)
----------------------------------------------------------------------------
Cash Flows (Used for) Investing Activities:
Additions to Equipment (93,289) (46,215) (11,470) (44,265) (473,727)
Disposition of Marketable Securities - 819,600 - 520,278 823,668
Lease Deposits (2,742) - (1,379) - (108,346)
Patent/Trademark Costs (20,654) (13,609) (10,315) (12,332) (80,637)
----------------------------------------------------------------------------
Net Cash Used for Investing Activities (116,685) 759,776 (23,164) 463,681 160,958
----------------------------------------------------------------------------
Cash Flows Provided By Financing Activities:
Proceeds from Private Placement of Shares 254,834 473,501 60,000 323,250 4,993,280
Increase in Lease Obligations (23,263) 22,298 (11,796) 27,256 44,745
Cash Contribution - - - - 1,000
----------------------------------------------------------------------------
Net Cash Provided By Financing Activities 231,571 495,799 48,204 350,506 5,039,025
----------------------------------------------------------------------------
Net Increase/(Decrease) in Cash and Cash Equivalents (2,153,443) 386,807 (1,069,448) 384,549 62,177
----------------------------------------------------------------------------
Beginning Cash Balance 2,215,620 568,612 1,131,625 570,870 -
----------------------------------------------------------------------------
Ending Cash Balance 62,177 955,419 62,177 955,419 62,177
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Preliminary Note
The Company has prepared the accompanying condensed consolidated financial
statements, without audit, according to the applicable regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in those financial statements prepared according to generally accepted
accounting principles have been condensed or omitted. The Company believes that
the following disclosures are adequate to present clear, unequivocal
information. These condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) that, in the
Company's opinion, are necessary to present fairly the financial position and
results of operations of the Company for the periods presented. We suggest that
these condensed consolidated financial statements are read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999.
Note 1 Concentration
The Company is still in the development stage, and its revenues to date are from
four customers.
Note 2 Intangible Assets
The Company has applied for patent and trademark protection for its proprietary
software and brand names and has expended $62,635 for patent rights and $18,002
for trademark rights. These expenses are primarily for professional services in
connections with the applications. The application for registration of these
patents and trademarks are pending. The Company will begin to amortize these
assets upon completion of patent registration or at the point when the products
begin to generate revenue.
Note 3 Subsidiary Company
The Board of Directors created a subsidiary, Qui Vive, Inc., on June 5, 1998,
for the development of a new product. This new entity required the restructuring
of current management as well as the recruitment of new personnel. The team
members have received options to purchase equity in Qui Vive, Inc. as part of
their compensation for successfully developing the project. Additionally, the
company may in the future elect to sell an equity interest in QV directly either
in the public markets or to private individuals or institutions.
Note 4 Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash on
deposit in the bank and other unrestricted investments with original maturities
of three months or less at the time of purchase to be cash equivalents.
6
<PAGE>
Certain Factors that May Affect Future Results, Financial Condition
and the Market Price of Securities
Our short and long-term success is subject to certain risks, many of which are
substantial in nature and you should consider carefully the following risk
factors, in addition to other information contained in this report as you
evaluate the Company and its business. Any one of these factors could cause
actual results of our operations to differ materially from projected results.
We are in the development stage, meaning that we have had only limited revenues
from sales of products or services. The Company is in the development stage and
has a limited operating history. There can be no assurance that we will be able
to achieve a significant level of sales or attain profitability. Our operations
to this point have been limited to developing software, making initial sales
under contracts with various customers and obtaining financing for its
operations. As a result of the increase in operating expenses caused by recent
expansion of our business, operating results may be adversely affected if
significant sales do not materialize in the near term. There can be no assurance
that we will be able to grow in the future or attain profitability. As a result,
we believe that our prior results of operations are not necessarily meaningful
and should not be relied upon as an indication of future performance. The profit
potential of our business is unproven and speculative. We believe that to be
successful we must, among other things, develop and market software that is
widely accepted by business customers at prices that will yield a profit.
Our software and technologies are unproven and we do not know whether the market
will accept them. Our software is in a development stage. The e-mail and
Internet products in particular contain innovative technologies for which there
may be no established market. Our remote computing and database management
products have produced only limited sales to date. There can be no assurance
that any of our products will achieve broad commercial acceptance. Our ability
to generate future revenues will be dependent on a number of factors, many of
which are beyond our control and include, among others, our ability to carry on
timely and effective marketing campaigns and the rate we can establish new
products and the type of competition we may encounter. Because of the foregoing
factors, among others, we are unable to forecast our revenues or the rate at
which we will add new customers with any degree of accuracy. There can be no
assurance that we will be able to increase sales in accordance with our internal
forecasts or to a level that meets the expectations of investors. There can also
be no assurance that we will ever achieve favorable operating results or
profitability.
We require additional capital to continue development of our products and to
fund day-to-day operations. Cash flow from the sale of products and services is
not sufficient to finance our day-to-day operations. Our business is capital
intensive and we expect we will continue to incur significant operating losses
over the next 12 months, primarily due to the market launch of new products,
increased marketing expenditures, and the expansion of research and development
programs. Additional funds will be required in the event we have not begun to
generate significant revenues by the end of February 2000. As a result, we may
find it necessary to postpone or cancel some of our planned marketing and/or
product development programs, which could adversely affect future revenues and
new product introductions. Notwithstanding revenues that may be produced during
the next 12 months, we anticipate that additional funds will be required to
continue the necessary levels of product development and promotional expenses to
meet our long-term goals. We intend to seek such additional funding through
7
<PAGE>
additional public or private financing. There can be no assurance that
additional financing will be available, or, if available, that it will be
available on acceptable terms or in required amounts.
Obtaining additional capital through the sale of common stock will result in
dilution of shareholder interests. If additional funds are raised by issuing
additional shares of common stock, or securities such as options or warrants or
preferred stock convertible into common stock, further dilution of the equity
ownership of existing holders of our common stock will result. If adequate funds
are not made available to us, we may be required to delay, scale back or even
eliminate one or more of our product candidates and/or product development
programs, and/or obtain funds through arrangements with collaborative partners
or others that may require us to relinquish rights that we would not otherwise
relinquish.
Our quarterly operating results may fluctuate significantly. We experience and
expect to continue to experience significant fluctuations in our quarterly
operating results. These fluctuations result from a variety of factors, many of
which are outside our control. Such factors might include, but are not
necessarily limited to:
- The rate at which customers purchase our software and the prices
paid for such software,
- The amount and timing of capital expenditures and other costs
relating to the expansion of our business,
- The introduction of software products by us or our competitors, -
Price competition or changes in Internet and computer technology, and
- Technical difficulties or economic conditions specific to our
business.
A significant portion of our expenses could be fixed in advance based in large
part on future revenue forecasts. If revenue is below expectations in any given
quarter, the adverse impact of the shortfall on the operating results may be
magnified by the inability to adjust spending to compensate for the shortfall.
Therefore, a shortfall in actual as compared to estimated revenue would have an
immediate adverse effect on our business, financial condition and operating
results that could be material.
In addition, we plan to increase operating expenses to fund additional sales and
marketing, general and administrative activities and infrastructure needs. To
the extent these expenses are not accompanied by an increase in revenues, our
business, financial condition, and results of operations could be materially
adversely affected.
Due to all of the foregoing factors, it is likely that our operating results in
one or more future quarters will fail to meet or exceed the expectations of
securities analysts or investors. In such event, the trading price of the common
stock of the Company, to the extent there is a market for such stock, would
likely be materially adversely affected. You should not expect past results to
be reliable indicators of future performance.
Our expansion into Internet, e-mail and other applications, as well as the
growth of our business, require the addition of qualified personnel and increase
our reliance on such personnel. The loss of technically experienced, qualified
personnel is a risk to our success. We may not be equipped to successfully
manage any future periods of rapid growth or expansion, which could be expected
to place a significant strain on managerial, operating, financial and other
resources. We are highly dependent upon the efforts of management and
technically skilled personnel, including programmers and engineers, and future
performance will depend, in part, upon the ability of management to manage
8
<PAGE>
growth effectively and to retain the services of these experts. This will
require us to implement financial controls, systems and management information
systems capabilities, to develop our operating, administrative, financial and
accounting systems and controls, to maintain close coordination among
engineering, accounting, finance, marketing, sales and operations, and to hire
and train additional technical and marketing personnel. There is intense
competition for management, technical and marketing personnel. The loss of the
services of any of our management team or the failure to attract and retain
additional key employees could have a material adverse effect on our business,
financial condition, and results of operations.
Our dependence on intellectual property and proprietary information subjects us
to the risk that such property may be inadequately protected or that such
information may be misappropriated. We regard our intellectual property as
critical to our success, and we rely on copyright, patent and trade secret
protection to protect our proprietary rights in intellectual property. We are
currently pursuing and expect to pursue the registration of copyrights, patents
and trademarks in the United States. Effective trademark, copyright, trade
secret or patent protection may not be available in every country in which our
products are or become available. We intend to effect appropriate registrations
internationally and domestically as our operations expand. There can be no
assurance that the United States or foreign jurisdictions will afford any
protection for our intellectual property. There also can be no assurance that
any of our intellectual property rights will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide any competitive
advantage. We could also incur substantial costs in asserting our intellectual
property or proprietary rights against others, including any such rights
obtained from third parties, and/or defending any infringement suits brought
against us. Although we enter into confidentiality and invention agreements with
our employees and consultants, there can be no assurance that such agreements
will be honored or that we will be able to protect effectively our rights to
unpatented trade secrets and know-how. Moreover, there can be no assurance that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets and
know-how. We may be required to obtain licenses to certain intellectual property
or other proprietary rights from third parties. There can be no assurance that
any such licenses or proprietary rights would be made available under acceptable
terms, if at all. If we do not obtain required licenses or proprietary rights,
we could encounter delays in product development or find that the development or
sale of products requiring such licenses could be foreclosed.
Budget and cost overruns and delays frequently characterize development projects
such as those conducted by us. We budget the cost of each project, review cost
reports and update our cost projections and development schedules regularly.
However, there can be no assurance that the actual production costs for projects
will remain within budget or that development will remain on schedule. We have
experienced delays in development objectives in the past and there can be no
assurance we will not incur similar delays in the future. Production delays,
higher talent costs, increased subcontractor costs, and other unanticipated
events (including, but not limited to delays in obtaining necessary financing)
may substantially increase production costs and delay or even prevent completion
of the production of any one or more of the programs we are now pursuing or that
we intend to pursue in the future. The failure to remain within budget and
deliver products on time may have a material adverse effect on our business,
financial condition and results of operations.
The software industry, and in particular, the Internet, are characterized by
rapid development and change. We must develop products and technology that keep
pace with technological change. The software and Internet markets are recognized
for rapid technological developments, frequent new product introductions and
evolving industry standards. The emerging nature of these technologies, products
and services and their rapid evolution require that we continually improve the
performance, features and reliability of our software, particularly in response
9
<PAGE>
to competitive offerings by other companies. There can be no assurance that we
will successfully respond quickly, cost effectively and sufficiently to these
developments. There may be a time-limited market opportunity for our products
and there can be no assurance that we will be successful in achieving widespread
acceptance of our products before competitors offer products and services with
features and performance similar to current offerings. In addition, the
widespread adoption of new technologies or standards could require substantial
expenditures to modify or adapt our products and services and which could have a
material adverse effect on our business, financial condition and results of
operations. Furthermore, our new software enhancements may contain design flaws
or other defects that limit their marketability. There can also be no assurance
that research and development and discoveries by others will not render some or
all of our products or potential product offerings uncompetitive or obsolete. We
compete with a number of entities that are currently developing and producing
software products that compete with our current and proposed products. Many of
these competitors have substantially greater capital resources, research and
development capabilities, and production and marketing resources, capabilities
and experience than we have available to us. These competitors may succeed in
developing products that are more effective or less costly than any products
that we may develop, or that gain market acceptance prior to any of our
products, making market penetration more difficult for us.
We depend on the technology of third parties in the development of our software.
Our use of such technology has been licensed to us. If our license to any such
technology were terminated or otherwise restricted beyond our current ability to
use it and incorporate it into our own products, our development efforts would
be adversely affected. If we were not capable of obtaining the license to other
technology to replace that which was lost because of the termination of a
license, our products that are dependent upon the technology would become
inoperable or their effectiveness and performance significantly reduced. In
addition, if the vendors of such technology were to materially alter or modify
or discontinue their products, we would be forced to incur additional expense to
acquire or develop products that would enable us to continue with our own
products. If the cost of licensing third-party technology materially increased,
our gross margins and earnings would decrease.
Like many software development companies, our business model is characterized by
a very high degree of operating leverage. Many of our operating costs and
expenses consist of employee and facility related costs, which are fixed over
the short term. Our operating expenses and hiring plans are based substantially
on our internal projections of future revenue, which are inherently subject to
risks and factors that are often outside our ability to control. If revenues do
not meet expectations, net income will be adversely affected.
Changes in the marketplace may require the Company to make changes to our
current pricing models. We may choose later this year or in future periods to
make changes to current pricing practices, including offering discounts to
customers or a reduction of transactions that involve perpetual use licenses of
our products, changes in maintenance pricing or other changes in the manner in
which we charge customers for the use of our products. These changes may not be
well received by customers. Furthermore, the changes may depend on an increase
of volume and the failure to achieve sufficient increases in user volume would
adversely affect earnings.
There is no present public market for our common stock. If and when such a
market develops, our stock price may be volatile. There has been no market for
our common stock and there is no assurance that any market will develop. The
common stock is not listed on any exchange. If and when such a more established
market may develop, the market price of the common stock, like that of the
securities of other software and high technology companies, may be highly
volatile. Broad market fluctuations may adversely affect the market price of our
10
<PAGE>
common stock. Our stock price may be affected by each of the factors described
above, as well as:
- - Announcements by us or competitors concerning technological
innovations, new products or procedures developed by us
or our competitors,
- The adoption or amendment of governmental regulations and similar
developments in the United States and foreign countries that affect our products
or markets specifically or our markets generally,
- Disputes relating to patents or proprietary rights,
- Publicity regarding actual or potential results relating to
product candidates under development by us or a competitor,
- Delays in product development,
- Slow acceptance of our products in new or existing markets, and
- Economic and other external factors, as well as period-to-period
fluctuations in financial results.
Our common stock may be deemed to be a "low-priced stock" and subject to certain
regulatory action that limits or restricts the market for such stock. Until such
time, if any, as our common stock is included in The Nasdaq SmallCap Market or
listed on another exchange, the common stock will not be eligible for quotation
on Nasdaq and there can be no assurance that it will ever be so eligible. Until
such time as we are eligible to satisfy the listing criteria of Nasdaq or
another stock market, trading, if any, in our common stock would be conducted in
the over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board," under the symbol SUDG. Consequently, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, the Company's securities. In the absence of a security being
quoted on Nasdaq, or if we do not have $2,000,000 in net tangible assets,
trading in the common stock could be covered by Rule 15c2-6 promulgated under
the Exchange Act for non-Nasdaq and non-exchange listed securities. Under such
rule, broker-dealers who recommend such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with a net worth in excess of
$1,000,000 or an annual income exceeding $200,000 or $300,000, jointly with
their spouse) must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale.
Securities are also exempt from this rule if the market price is at least $5 per
share. Under the rules and regulations of the SEC, additional disclosure is
required for penny stocks and for trades in any stock defined as a penny stock.
The SEC has defined a penny stock to be any Nasdaq or non-Nasdaq equity security
that has a market price or exercise price of less than $5 per share and allows
for the enforcement against violators of the rules. Unless exempt, the rules
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining important concepts involving the penny stock
market, the nature of such market, terms used in such market, the
broker-dealer's duties to the customer, a toll-free telephone number for
inquiries about the broker-dealer's disciplinary history, and the customer's
rights and remedies in case of fraud or abuse in the sale.
Disclosure must also be made about commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities, and,
if the broker-dealer is the sole market-maker for the securities, then such fact
11
<PAGE>
must also be disclosed, as well as its control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the investor's account and information on the limited market in penny
stocks. These requirements significantly add to the burden of the broker-dealer
and limit the market for penny stocks.
While many Nasdaq stocks are covered by the definition of penny stock,
transactions in a Nasdaq stock are exempt from all but the sole market-maker for
(i) issuers who have $2,000,000 in tangible assets ($5,000,000 if the issuer has
not been in continuous operation for three years), (ii) transactions in which
the customer is an institutional accredited investor and (iii) transactions that
are not recommended by the broker-dealer. In addition, transactions in a Nasdaq
security directly with the Nasdaq market maker for such securities, are subject
only to the sole market-maker disclosure, and the disclosure with regard to
commissions to be paid to the broker-dealer and the registered representatives.
If our common stock is or becomes subject to the existing rules on penny stocks,
the market liquidity for the common stock could be severely affected by limiting
the ability of broker-dealers to sell the common stock and the ability of
purchasers in this Offering to sell their securities in the secondary market.
Anti-takeover provisions of Delaware Corporate Law, and our ability to issue
preferred stock may affect the price of our common stock and allows the Board of
Directors to issue securities that may significantly dilute your ownership and
voting power. Under our Certificate of Incorporation, as amended, we are
authorized to issue up to 10,000,000 shares of preferred stock, par value $.001
per share ("Preferred Stock"). We have not issued any Preferred Stock and there
are no present plans to issue any Preferred Stock. Our Board of Directors has
the authority to issue the Preferred Stock with such voting and other rights
superior to those of our common stock, which could effectively deter any
attempted takeover of the Company. In addition, the Delaware General Corporation
Law prohibits certain mergers, consolidations, sales of assets or similar
transactions between a corporation on the one hand and another company which is,
or is an affiliate of, a beneficial holder of 15% or more of such corporation's
voting power (defined as an "Interested Stockholder") for three years after the
acquisition of the voting power, unless the acquisition of the voting power was
approved beforehand by the corporation's board of directors or the transaction
is approved by a majority of such corporation's shareholders (excluding the
Interested Stockholder). These provisions prohibiting Interested Stockholder
transactions could also preserve management's control of Sundog.
The large number of shares of our common stock eligible for future sale without
restrictions can affect the market price of the common stock. As of November 12
1999, 20,344,234 shares of our common stock outstanding are "restricted
securities" as that term is defined under Rule 144 of the Securities Act. Either
presently or in the future, these shares of common stock may be sold pursuant to
registration under the Securities Act, in compliance with Rule 144 or pursuant
to another exemption from registration. Under Rule 144 as currently in effect, a
person who has beneficially owned restricted securities of the Company for a
period of at least one year may, within any three month period, sell in
brokerage transactions an amount of such securities that does not exceed the
greater of 1% of our then-outstanding common stock or the average weekly trading
volume of our common stock during the four calendar weeks prior to such sale.
Rule 144, as currently in effect, also permits, under certain circumstances, the
sale of shares without regard to the limitations described above, by
non-affiliates of the Company, after holding such shares for at least two years.
Sales of substantial amounts of our common stock of the Company in the public
market, and any sales by affiliates of the Company, particularly officers and
directors, could adversely affect prevailing market prices for the common stock.
The Company has not declared any dividends with respect to its common stock. We
have never paid cash dividends on our common stock. We intend to retain
12
<PAGE>
earnings, if any, to finance the operation and expansion of our business and,
therefore, we do not expect to pay cash dividends on the Shares in the
foreseeable future.
Year 2000 compliance issues could adversely affect our business. During the next
year, many software programs may not recognize calendar dates beginning in the
Year 2000. This problem could force computers or machines that use date
dependent software or embedded technologies to either shut down or provide
incorrect information. To address this problem internally, we have examined our
computer and information systems, contacted our software and hardware providers,
and, where necessary, made upgrades to our systems. Our products are being
developed to address this problem without modification by the user. Although we
believe that our products are Year 2000 compliant, undetected errors or defects
may remain. Disruptions to our business or unexpected costs could arise because
of undetected errors or defects in the technology used in our products or
internal information systems, which are comprised predominantly of third party
software and hardware. If we, or any of our key suppliers or customers, fail to
recognize and mitigate internal and external Year 2000 risks, we may temporarily
be unable to process transactions, send invoices, or engage in normal business
activities or we may experience a decline in sales, which could have a material
adverse effect on our business, financial condition and results of operations.
Although our license terms limit our liability for product liability claims,
there can be no assurance that such a claim will not be brought in the future.
We have not experienced product liability claims to date. However, our products
include programs designed for mission critical applications, creating the risk
that the failure or malfunction of our products may result in serious damage or
loss and open the Company to a claim for damages. While contract terms limit our
exposure, there can also be no assurance that a court would not rule such
provisions to be invalid or unenforceable, or that changes in the law would
render such terms void or unenforceable. A successful claim could have a
material adverse effect on the Company. Furthermore, the cost of defending
against a claim, even successfully, could be material and could have an adverse
effect on our results of operations and an adverse effect on the marketing of
our products.
Item 2 MANAGEMENT'S DISCUSSION and Analysis or Plan of Operation
The following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto appearing elsewhere in this Quarterly
Report on Form 10-QSB.
Overview
Sundog Technologies, Inc. (the "Company") is a Delaware corporation organized in
1992 for the purpose of seeking and acquiring business opportunities. The
Company was formerly known as The Thorsden Group, Ltd. and changed its name to
Sundog Technologies, Inc. in April 1999. In October 1997, the Company acquired
Arkona, Inc., a Utah corporation, through a wholly owned subsidiary corporation.
Arkona Inc.'s predecessor, Arkona LLC, a Utah limited liability company, was
founded in September 1996 and had limited business operations prior to its
acquisition by the Company. Although the legal entity is intact, the Arkona
subsidiary has been effectively absorbed by Sundog and we are continuing
Arkona's business of developing, marketing and selling software products for use
in portable and distributed network computing under the Sundog Technologies
name. Arkona projects are discussed more particularly below under the headings
"Universal Update" and Professional Services.
13
<PAGE>
On June 5, 1998, the Company formed a new subsidiary company, Qui Vive Inc.
("QV"), incorporated in Delaware. This company is engaged in the development of
an e-mail security software product and Internet application more fully
described below. QV is majority owned by Sundog. The Company has granted options
to key personnel of QV as an incentive to further the development work on the QV
products. If exercised in full when vested, the options granted to the QV
development team would result in the team's ownership of approximately 45% of
the outstanding preferred and common equity in QV and reduce the ownership of
proportionately.
QV Operations
The digital revolution has evolved around a simple notion: that information
should be permanent. Unlike other media formats, digital information (such as
e-mail) can be stored forever, recovered at will, copied with ease, and shared
anywhere. Unfortunately, these attributes also give digital information a more
sinister side. E-mail, for example, can just as easily be saved, copied,
recovered, and redistributed by anyone at any time with or without consent and
frequently without knowledge of the author. Once an electronic e-mail message
has been sent, the author loses complete control of his or her words. According
to industry analyst Esther Dyson, "The challenge is not to keep everything
secret, but to limit misuse of such information."
QV was created to develop a solution to these problems. The purpose of the QV
solution is to facilitate communication and give content control back to the
author. QV is in the architecture and implementation phase of developing an
enhanced e-mail product. When the first version of the product is launched, it
will give e-mail users the chance to direct:
- how their words will be released,
- who can see them,
- how they can be redistributed,
- whether they can be printed, copied, or saved, and
- the ability to retract a message after it has been sent.
There can be no complete gaurantee that the safeguards of QV's enhanced e-mail
will not be abused or circumvented by someone with the requisite degree of
computer sophistication and a malicious motive. However, subsequent versions
will continue to raise the bar against potential abuse and compromise of
security that is so easily breached, often accidentally, with current systems.
The Company believes that the level of security embedded in the first
implementation of QV's enhanced e-mail product will be sufficient to cover the
needs of approximately 80% of the e-mail market. Enhancements designed to
increase security and to further simplify the product's usability will be added
over time.
Key Features
The first version of this product is expected to include the following key
features:
Content Restrictions. Authors can decide whether their e-mail messages can
be printed, copied, or saved by the recipient.
Forwarding Restrictions. Authors can prohibit recipients from forwarding
their e-mail.
Lifespan Limits. Authors can configure messages to self-destruct after a
pre-defined period or to be accessed only at certain times.
14
<PAGE>
Dynamic Self-Destruction. Authors may set messages to destroy themselves as
they are read.
Conditions of Acceptance. Authors may require recipients to agree to
conditions the sender has composed, before gaining access to a message.
Retraction. Authors may retract a message after it has been sent, denying
all views of the message which are initiated after the retraction.
Phase I Functionality
The key features listed above will include the following functionality:
E-mail is created using popular e-mail software or a browser-based
interface. Currently designed as an add-on to existing e-mail software, the
enhanced e-mail will be capable of being sent from Java-enabled e-mail
clients, including e-mail products from Netscape, Microsoft, Lotus, and
others. Once an e-mail has been written, the author selects appropriate
security and auditing options from a simple, easy to graphic user interface
or relies on either the user-preset or embedded defaults.
The e-mail message is secured. A QV appliance on the sender's network
encapsulates and encrypts the email message. The appliance can reside
within a corporation or with an outsource e-mail provider.
Recipient access is authorized according to the security level chosen by
the sender or his corporation. A message may be password protected, may
require a personal certificate for employees in companies using public key
infrastructures, or it may require nothing more than access to the
recipient's e-mail client.
For recipients using supported email clients, the message will render
within the standard email frame as would any other message. For recipients
using older email clients, it may be necessary to click on the QV
attachment and view the message in a web browser frame.
Content is controlled through sender-defined options. Even after access has
been granted, secured e-mail continues to be restricted by the
sender-defined options. Recipients cannot forward, save, print, or
manipulate the original e-mail message in any way forbidden by the sender.
Future Functionality
Subsequent versions of the software will include significant enhancements that
will be announced as the products are released.
How the Customer Benefits
The Company expects this QV product to be a critical solution to a growing
problem, which it believes may well become the legally required standard of care
for a wide variety of industries, professions, and situations. In fact, the
Company believes its secured e-mail should be used in any situation requiring
discretion. It is intended as an ideal solution for:
- Legal communications
- Governmental agencies
- Contract negotiations
- Medical information
- Sensitive human resource information
15
<PAGE>
- Communication of non-public corporate information
- Communication of any personal, corporate or other information which
should not be public
Status of Development
The product is currently in prototype stage, and the majority of the initial
functionality has been successfully demonstrated. The Company anticipates that
this product will evolve from its initial implementation, which, as described
above, will represent a level of functionality sufficient to cover most e-mail
users' primary privacy concerns. However, the Company intends to implement other
designs that eliminate intermediary services, further simplify the functionality
and usability of the product and simultaneously increase the level of security
in the product.
The ultimate design goal is to meet the most stringent secure messaging
requirements up to and including the standards of the United States Department
of Defense. Increasingly rigorous levels of security will be implemented en
route to achieving this final goal. Once the e-mail solution is successfully
launched, implementations beyond e-mail will be designed and marketed. Markets
to be targeted after the initial releases include, but will not necessarily be
limited to: voice mail, pagers, databases, Usenet newsgroups, and web publishing
tools.
Sundog has engaged engineers, marketers and an administrative staff to support
the development of the product for delivery to the marketplace. There can be no
assurance that Sundog will successfully complete the product, or that the
product will include all or substantially all of the elements described above,
or that any of the other risks described herein will not adversely affect the
outcome of the project.
Arkona Operations
During the quarter ended September 30, 1999, Arkona continued promotion of
Universal Update; however, promotional activities were slowed due to required
budget constraints. During this period, several large corporate prospects
completed in-house evaluations of Universal Update v1.5 and are currently
evaluating internal implementation plans.
Negotiations with these companies are on going.
Also during this quarter, Arkona's professional service group continued work for
the Federal Government Department of Financial and Administrative services
(DFAS) in partnership with Digital Systems Group, and completed the first phase
of a project with the Washington Metropolitan Area Transit Authority (WMATA) in
partnership with Abacus, Inc.
In addition to these activities, Arkona signed memorandum's of understanding
with three significant resellers/partners. The Company intends to pursue more
formal partnership agreements with each of these entities in late 1999.
Universal Update
In 1997, Sundog's founders anticipated the growth of an emerging market
requiring the seemless exchange of information between disparate data sources.
This market for enterprise information exchange (EIX) is an outgrowth of the
traditional data replication/synchronization marketplace. This innovative
technology allows rapid integration of business information systems throughout
the enterprise, and the ability to easily share critical information with
remote, occasionally connected workers and partners around the world.
During December 1998, the first shipping version of Arkona's core product,
Universal Update, was publicly introduced. In June 1999 the second shipping
version was released.
16
<PAGE>
ENTERPRISE INFORMATION EXCHANGE
Traditional twentieth-century business valuation models are exhibiting a
fundamental shift away from focusing on products and assets within corporate
entities. A driving force for this change is the rise of the Internet, with
business and investors alike discovering that:
- The value of inventory is being replaced by the value of information
- Physical assets are being traded for intellectual assets
- Closed business systems are giving way to collaborative relationships
To gain scale and provide maximum value to share holders, companies are turning
from vertical integration to virtual integration. Companies are actively seeking
ways to openly share critical business information between new and legacy
information systems, supply chain partners, remote workers, and even customers.
In this information-driven economy, a company's ability to connect and leverage
"islands of information" directly impacts corporate valuation and competitive
advantage. In contrast, the potential value of inaccessible information is
immediately lost.
THE UNIVERSAL UPDATE SOLUTION
Universal Update provides robust yet simple solutions for the information
exchange requirements of medium to large distributed enterprise customers. These
products and services help customers overcome the significant challenge of
seamlessly accessing, transforming, and distributing business intelligence
between disparate enterprise systems, and also making that information easily
available to distributed employees, partners and customers. Additionally,
Universal Update incorporates proprietary "differencing" technology that
automatically detects changes to data environments and updates related data
stores based on rules set by the system administrator.
The Company believes that with increasingly distributed data environments, the
need for synchronization and updating technology will grow. Specific markets and
system environments to which Universal Update could be applied include:
- Network Directory Services
- Business to Business e-commerce
- Synchronization of mobile device data, such as Palm(TM) devices, with
corporate data stores
- Electronic publishing applications, particularly those utilizing
NextPage's Live Publish product
Professional Services
In February 1999, Sundog launched its professional services. The group provides
Sundog's customers with both training and consulting in business process
improvement (BPI), a service used to drive demand for Sundog's software products
and a prerequisite to ensure complete client satisfaction. Additionally, the
Professional Services group has significant experience developing business in
the federal government market.
Sundog's Business Process Improvement (BPI) and related Knowledge Management
helps managers identify how their organizations must change to meet the
challenges of tomorrow and provides a road map for implementing that change. It
is a rigorous and structured approach for fundamentally rethinking and
redesigning how an organization meets its objectives. It gives managers the
analytical tools and strategies to question current management assumptions about
work practices and procedures. BPI allows managers to decide if a practice is
17
<PAGE>
necessary, and if so, whether it should be performed in-house or outsourced. It
also includes methods to evaluate best practices and future technology
requirements.
Sundog's approach to BPI ensures that clients have the support necessary to
revalidate their missions, set a visionary course for the future, and
reconfigure their operations to create an enterprise that works better and costs
less. To that end, Sundog provides comprehensive methods, tools, advisory
services, and education concerning the disciplines of BPI and Knowledge
Management.
Sundog' Professional Services provide a perfect complement to Universal Update.
While Universal Update is designed to simplify the integration of information
and processes at a technology level, Sundog's Professional Services provides a
roadmap for integration at a business level. Together Universal Update and
Professional Services form a complete business integration package.
BPI Services include the following:
- Strategic Planning: define the domain, conduct relevant analysis, and
identify major drivers and opportunities for improvement in functional
areas.
- Enterprise Development and Modeling Services: assist clients to
develop functional area dna enterprise level data models that improve
leaders' understanding area of responsibility.
- Functional Process Assessments: utilize BPI techniques and tools to
review and validate the design, development, and implementation of
functional process improvements.
- Functional Architectures: assist client in defining the scope of the
functional area and its functional activities; current and future
methods, management processes, and data structures; objectives,
performance measures, and targets to support recommendations.
- Process and Data Baselines: reviews existing methods, management
processes, and data structures to identify process and data
improvements.
- Activity Modeling: provides a clear picture of improvement
opportunities and non-value added processes.
- Activity-Based Analysis and Activity-Based Costing: provides basis for
developing recommendations.
- Business Rule Development: documents the information requirements of
functional activities.
- Evaluation of Alternatives and Selection of Process, Data, and
Information System Improvements.
- Requirements Prototyping: offers solutions for current and future
information management requirements.
18
<PAGE>
Results of Operations
Three Months Ended September 30, 1999 and 1998
Revenues for the quarter ended September 30, 1999 were $10,508 (1998: $4,917).
Cost of revenues totaled $1,223,220 in the quarter ended September 30, 1999
(1998: $464,546). The 1999 expenses included $498,091 in research and
development expense (1998: $247,396). The increased expenses in 1999 reflect the
addition of personnel primarily to work on the enhanced e-mail product. The
Company expects that research and development expenditures will continue to
increase during the next twelve months as development of existing and new
products continues. We expect that adding new personnel in this area will
increase these expenses by approximately 10% in the next quarter.
The Company had $7,445 in interest income during the quarter ended September 30,
1999 (1998: $10,266). The decrease in interest income is due to decreased cash
balances maintained in banks. The net loss for the quarter was $1,206,992 (or
$.05 per share) compared to a loss $450,996 (or $.02 per share) in 1998.
Revenues for the quarter were provided by our professional services group
through work provided to three different customers. Arkona is currently bidding
for a number of projects utilizing its core technologies but there is no
assurance it will be the succeeding bidder on any of such projects. Expenses for
the quarter reflect the cost of people, engineering research, and marketing and
selling efforts, which will form the foundation of future increased revenue and
profitability growth.
The primary marketing focus for the quarter continued to be establishing the
Company's identity in the marketplace and building a secure platform for future
growth, including recruiting the key personnel and business partners required to
build end-user solutions.
Six Months Ended September 30, 1999 and 1998
Revenues during the six months ended September 30, 1999 were $16,197 (1998:
$11,167). Cost of revenues totaled $2,489,459 during the six months ended
September 30, 1999 (1998: $909,148). The 1999 expenses included $1,053,036 in
research and development expense (1998: $445,034). The increased expenses in
1999 reflect the addition of personnel primarily to work on the enhanced e-mail
product. The Company expects that research and development expenditures will
continue to increase during the next 12 months as development of existing and
new products continues.
The Company had $27,555 in interest income during the six months ended September
30, 1999 (1998: $18,069). The net loss for the period was $2,449,485 (or $.11
per share) compared to a loss of $882,681 (or $.04 per share) in 1998.
Liquidity and Capital Resources
At September 30, 1999, the Company had cash and cash equivalents of $62,176, as
compared to cash and cash equivalents of $2,215,620 as of March 31, 1999. Cash
was provided during the period through the sale of stock in a private placement
and the exercise of Stock Warrants issued with the PPM of August 1998.
Additional funds of $540,000 were committed in the quarter and subsequently
collected.
Capital spending of $93,289 in the 6 months was primarily for computer and
related equipment used in the Company's operations, including product
development and research.
19
<PAGE>
The Company held marketable securities available for sale at September 30, 1999.
Although the Company does not intend to engage in the business of investing in
or buying and selling securities of other companies, these securities were
received as partial consideration in connection with the sale of the Company's
common stock in October 1998. These marketable securities were 3,000 shares of
common stock of Eurogas Corp. ("EUGS").
At September 30, 1999, the sale price of EUGS common stock, as reported by the
over-the-counter ("OTC") electronic bulletin board, was $0.66 per share. Shares
traded in the NASDAQ OTC markets are characterized by volatile changes in price
and thin trading volumes. The relatively low volume of securities traded and the
dramatic effect that sales of even a few shares can have on the market price of
such securities may have an adverse effect on the Company's ability to liquidate
its remaining holdings or to realize the values similar to those shown above.
Year 2000 Issues
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result there is a
risk that certain Company's computer programs or equipment that have
date-sensitive software or embedded technology may recognize a date using "00"
as the year 1900, rather than the year 2000. With the approaching change in the
century, this could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, collect payment or engage in similar
normal business activities or complete ongoing development projects.
The Company relies on computer hardware, software and related technology,
together with data, in the operation of its business. Such technology and data
are used in the Company's internal operations, such as billing and accounting.
Based on its assessment of activities to date, the Company is not aware of a
Year 2000 problem with any of its internal systems. The Company intends to
continue to assess its Year 2000 readiness and put in place recovery and
contingency plans for any potential issues. This includes seeking and/or
requiring remediation of any Year 2000 Issues that are related to the Company's
customers, suppliers and distributors. There is, however, no assurance that such
third parties will successfully remediate their own Year 2000 Issues over which
the Company has no control.
The Company develops its software and designs its products to be Year 2000
compliant. Customers may require the Company to certify that its products are
Year 2000 compliant. If its products were shown to have been the cause of a Year
2000 problem in a customer's system or business, the Company could incur
liabilities for breaching the warranty, if any, that it may give its customers
concerning the status of its products under applicable Year 2000 standards. As
there are few deployments of the Company's products under license, the company
believes it has little exposure with customers regarding Year 2000 issues.
20
<PAGE>
OutlooK
Cautionary Statement Regarding Forward-Looking Statements
The Company considers all forward-looking statements contained in this Quarterly
Report to be covered by and to qualify for the safe harbor protection provided
by Section 21E of the Securities Exchange Act of 1934, as amended. Shareholders
and prospective shareholders should understand that several factors govern
whether the results described by any such forward-looking statement will be or
can be achieved. Any one of those factors could cause actual results to differ
materially from those projected in this Report.
The forward-looking statements contained in this report include plans and
objectives of management for future operations, relating to the products and the
economic performance of the Company. Assumptions applicable to the foregoing
involve judgments with respect to, among other things, future economic,
competitive, and market conditions, future business decisions, and the time and
money required to successfully complete development projects, all of which are
difficult or impossible to predict accurately and many of which are beyond the
Company's control. Although the Company believes that the assumptions underlying
the forward-looking statements are reasonable, any of those assumptions could
prove inaccurate. Therefore, we cannot assure that the results contemplated in
any of the forward-looking statements contained herein will be realized. The
impact of actual experience and business developments may cause the Company to
alter its marketing, capital expenditure plans, or other budgets, which may in
turn affect the Company's results of operations. In light of the inherent
uncertainties in forward-looking statements, the inclusion of any such statement
does not guarantee that the objectives or plans of the Company will be achieved.
Among other factors to consider is the possible impact of the following risk
factors on the financial condition and results of operation of the Company.
Development Stage, Accumulated Deficit
The Company is a development stage company and has had only limited revenues
since its inception. There can be no assurance that the Company will be able to
achieve a significant level of sales or attain profitability. The Company's
operations have been limited to developing software, initial sales and fund
raising activities. There can be no assurance that the Company will be able to
grow in the future or attain profitability. As a result, the Company believes
that its prior results of operation are not necessarily meaningful and should
not be relied upon as an indication of future performance. The profit potential
of the Company's business is speculative, and to be successful, the Company
must, among other things, develop and market software that is widely accepted by
business customers at prices that will yield a profit. The Company's software
products are in the development stage. There can be no assurance that the
products of the Company will achieve broad commercial acceptance. The Company's
ability to generate future revenues will depend on a number of factors, many of
which are beyond the Company's control and include, among others, the ability of
the Company to complete its product development activities and to carry on
timely and effective marketing campaigns.
Because of the foregoing factors, among others, the Company is unable to
forecast its revenues or the rate at which it will add new customers with any
degree of accuracy. There can be no assurance that the Company will be able to
increase its sales in accordance with its internal forecasts or to a level that
meets the expectations of investors. There can also be no assurance that the
Company will ever achieve favorable operating results or profitability.
21
<PAGE>
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position,
operating results or cash flows due to adverse changes in financial market
prices and rates. We are, or may become, exposed to market risk in the areas of
changes in United States interest rates and changes in foreign currency exchange
rates as measured against the United States Dollar. These exposures are directly
related to our normal operating and funding activities. Historically and as of
September 30, 1999, we have not used derivative instruments or engaged in
hedging activities.
Foreign Currency Risk
We may enter into contracts where we pay or a third party pays us in a foreign
currency. This would expose us to changes in exchange rates. Changes in the
foreign exchange rates may positively or negatively affect our financial
position, results of operations or cash flows. We do not believe that near-term
changes in exchange rates will result in a material effect on future earnings,
fair values or cash flows, and therefore have chosen not to enter into foreign
currency hedging instruments. Such an approach may not be successful, especially
in the event of a significant and sudden decline in the foreign exchange rates.
Part II. Other Information
ITEM 2. CHANGES IN SECURITIES
Unregistered sales of equity securities during quarter (other than in
reliance on Regulation S).
Recent Sales of Unregistered Securities. During the three months ended September
30, 1999, the Company issued equity securities that were not registered under
the Securities Act of 1933, as amended (the "Act"). Specifically, the Company
committed to issue 63,158 shares of common stock and warrants to purchase 63,158
shares of common stock. Gross proceeds to the Company of $60,000 were generated
by the sale of these securities. The Company issued such shares without
registration under the Act in reliance on exemptions from registration under the
Section 4(2) and/or 3(b), as well as Regulation D promulgated under the Act. The
shares of common stock were (and the shares issueable upon exercise of the
warrants will be) issued as restricted securities and the certificates
representing such shares are or will be stamped with a restrictive legend to
prevent any resale without registration under the Act or compliance with an
exemption. In each case, the purchasers of the securities were accredited
investors, as that term is defined by Rule 501 under the Act, or represented to
the Company that they were sophisticated investors who were experienced in
making investments of this type, either alone or with a purchaser
representative, and that they or their purchaser representatives were otherwise
suitable (under state and federal regulations) and possessed adequate means of
providing for their current needs and personal contingencies and who had no need
for liquidity in an investment in securities such as the Company's common stock,
which are subject to certain risks, including the possible loss of a person's
investment in whole or in part.
The Company's common stock is quoted on the over-the-counter ("OTC") Nasdaq
electronic bulletin board under the symbol SUDG. To date there has been only
limited trading activity in the Company's stock.
22
<PAGE>
The Company has outstanding warrants to purchase 718,281 shares of common stock
at a price of $2.00 per share over the next nine months, and warrants to
purchase 218,507 shares of common stock at a price of $3.00 per share over the
next twelve months. In addition the Company has outstanding warrants to purchase
822,125 shares of common stock at a price of $2.00 per share if exercised in the
next nine months or $3.00 per share if exercised in the calendar year 2001. If
all warrants were exercised, the proceeds to the Company would be between $
3,736,333 and $ 4,558,458. The Company cannot require the exercise of these
warrants, and there can be no assurance that the warrants, or a significant part
of them, will ever be exercised. In addition, if such warrants are exercised at
a time when the market price of the Company's common stock is significantly
higher than the exercise price of the warrants, the issuance of such shares will
result in significant dilution of existing stockholders and may result in a
decline of the market price of the Company's Securities. Furthermore, the fact
that the warrants have been granted may have an adverse effect on the price of
the Company's stock because of the potential for dilution.
23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (previously filed)
24
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNDOG TECHNOLOGIES, INC.
(Registrant)
Date: November 12, 1999 /s/Jerral R. Pulley
-------------------
Jerral R. Pulley
Chairman of the Board
Sundog Technologies, Inc.
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 62177
<SECURITIES> 1980
<RECEIVABLES> 544245
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 643296
<PP&E> 473695
<DEPRECIATION> (94356)
<TOTAL-ASSETS> 1211620
<CURRENT-LIABILITIES> 342880
<BONDS> 0
0
0
<COMMON> 23191
<OTHER-SE> 825778
<TOTAL-LIABILITY-AND-EQUITY> 1211620
<SALES> 10508
<TOTAL-REVENUES> 10508
<CGS> 14158
<TOTAL-COSTS> 1223220
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1725)
<INCOME-PRETAX> (1206992)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1206992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1206992)
<EPS-BASIC> (.054)
<EPS-DILUTED> (.054)
</TABLE>
