Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1999
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
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Commission File Number 0-24372
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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 February 16, 2000, there were issued and outstanding 23,416,166 shares of
the Company's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one): Yes No X
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1
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<TABLE>
Table of Contents
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information.......................................................................................3
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of December 31, 1999 and
March 31, 1999....................................................................................3
Unaudited Condensed Consolidated Statements of Operations for the three
and nine months ended December 31, 1999 and
1998.......................................................................................................4
Unaudited Condensed Consolidated Statements of Cash Flows for nine
months ended December 31, 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
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PART I
ITEM 1--FINANCIAL STATEMENTS
<TABLE>
SUNDOG TECHNOLOGIES, INC.
(A Development Stage Company)
Unaudited Condensed Consolidated Balance Sheets
<CAPTION>
December 31 March 31
1999 1999
----------- -----------
ASSETS
<S> <C> <C>
Current Assets
Cash $ 995,678 $ 2,215,620
Marketable securities 1,547 3,188
Accounts receivable 11,890 51,200
Prepaid expenses 24,988 25,550
----------- -----------
Total Current Assets 1,034,103 2,295,558
----------- -----------
Equipment 518,054 380,406
Less: Accumulated depreciation (169,616) (52,146)
----------- -----------
Equipment, net 348,438 328,260
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Other Assets
Deposits 39,840 105,605
Intangible assets, net amortization 147,050 59,983
----------- -----------
Total Other Assets 186,890 165,588
----------- -----------
TOTAL ASSETS $ 1,569,431 $ 2,789,406
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 162,597 $ 140,748
Current portion of capital lease obligations 19,040 37,741
Accrued liabilities 70,207 75,822
----------- -----------
Total Current Liabilities 251,844 254,311
----------- -----------
Capital lease obligations, net of current portion 15,784 30,267
----------- -----------
Total Liabilities 267,628 284,578
----------- -----------
Stockholders' Equity
Common stock 23,416 22,530
Additional paid in capital 8,064,407 5,557,526
Accumulated deficit (6,770,625) (3,061,474)
Accumulated unrealized loss on
securities available for sale (15,395) (13,754)
----------- -----------
Total Stockholders' Equity 1,301,803 2,504,828
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,569,431 $ 2,789,406
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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<TABLE>
SUNDOG TECHNOLOGIES, INC.
(A Development Stage Company)
Unaudited Condensed Consolidated Statements of Operations
<CAPTION>
Cummulative
Three Months Ended Nine Months Ended From Inception
December 31, December 31, (June 11, 1992
1999 1998 1999 1998 to Dec 31, 1999)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenues $ 15,060 $ 12,000 $ 31,257 $ 23,167 $ 250,695
Costs and Expenses:
Cost of revenues 19,476 14,848 45,176 15,846 97,042
Research and development 547,421 317,475 1,600,457 762,509 3,088,580
Selling, General and Administrative 710,465 307,629 2,121,188 770,744 3,919,505
------------------------------------------------------------------------------
Operating Costs and Expenses 1,277,362 639,952 3,766,821 1,549,099 7,105,127
------------------------------------------------------------------------------
Operating Loss (1,262,302) (627,952) (3,735,564) (1,525,932) (6,854,432)
------------------------------------------------------------------------------
Interest income 5,886 14,762 33,441 32,830 104,805
Interest expense (2,198) (1,597) (5,976) (4,468) (15,860)
Other income (expense), net (1,052) (108) (1,052) (8) (5,119)
------------------------------------------------------------------------------
Net Loss $ (1,259,666) $ (614,895) $ (3,709,151) $ (1,497,578) $ (6,770,606)
==============================================================================
Net loss per share $ (0.05) $ (0.03) $ (0.16) $ (0.07)
Weighted average number
Of Shares Outstanding 23,068,841 20,657,336 22,710,878 20,552,592
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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<TABLE>
SUNDOG TECHNOLOGIES, INC.
(A Development Stage Company)
Unaudited Condensed Consolidated Statements of Cash Flows
<CAPTION>
Cumulative
Nine Months Ended From Inception
December 31 June 11, 1992
1999 1998 To Dec 31, 1999
---------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss (3,709,151) (1,497,578) (6,770,625)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 119,126 32,264 171,302
Changes in assets and liabilities:
Decrease in accounts receivable 39,310 (3,687) (11,890)
Decrease in prepaid expenses 562 (6,800) (24,988)
Increase in accounts payable 21,849 34,254 162,597
Deferred revenue - (10,417) -
Decrease in deposits 65,766 (40,076) (39,839)
Decrease in accrued liabilities (5,616) (34,947) 70,206
---------------------------------------------------------
Net Cash Used In Operating Activities (3,468,154) (1,526,987) (6,443,237)
---------------------------------------------------------
Cash Flows From Investing Activities:
Purchase of equipment (137,649) (70,395) (518,085)
Sale of marketable securities - 819,600 823,668
Acquisition of other assets (88,723) (33,184) (148,706)
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Net Cash Provided By (Used In) Investing Activities (226,372) 716,021 156,877
---------------------------------------------------------
Cash Flows Provided By Financing Activities:
Proceeds from the sale of common Stock 2,507,768 848,500 7,246,214
Principle payments on capital lease obligations (33,184) 14,024 34,824
Cash contribution - - 1,000
---------------------------------------------------------
Net Cash Provided By Financing Activities 2,474,584 862,524 7,282,038
---------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (1,219,942) 51,558 995,678
---------------------------------------------------------
Cash, Beginning of Period 2,215,620 568,612 -
---------------------------------------------------------
Cash, End of Period $ 995,678 $ 620,170 $ 995,678
=========================================================
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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SUNDOG TECHNOLOGIES, INC.
Notes to UNAUDITED Condensed Consolidated
Financial Statements
Note 1 Basis of Presentation
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 and not misleading. These unaudited
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. It is suggested that these unaudited
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 2 Concentration
The Company is still in the development stage, and its revenues to date are from
four customers.
Note 3 Intangible Assets
The Company has applied for patent and trademark protection for its proprietary
software and brand names and has expended $25,846 for patent rights during the
nine months ended December 31, 1999. These amounts consist primarily of
professional services in connections with the applications. The application for
registration of these patents are pending.
Note 4 Equipment
Effective October 1, 1999, the Company changed its estimate of the useful life
of its computer equipment from five years to three years. The effect of this
change in estimate will be recognized prospectively from the date of the change.
Note 5 Equity
During the nine months ended December 31, 1999, the Company issued 980,054
shares of common stock at an average price of $1.03 per share. Of the 980,054
shares issued, 963,387 were issued with warrants to purchase 963,387 shares of
common stock. The exercise price of 107,667 warrants is $2.00 if exercised
within 6 months or $3.00 if exercised between 6 and 18 months. The exercise
price for the remaining 855,720 warrants is $3.00 per share if exercised within
one year and $4.00 per share if exercised within two years. In addition, the
Company sold 180,000 shares of Series B preferred stock in its wholly owned
subsidiary for $1,500,000 or $8.33 per share. The 980,054 shares and associated
warrants were sold in connection with the 1998 Private Placement Memorandum.
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Note 6 Subsequent Event
On February 10, 2000, the Company entered into an Acquisition Agreement (the
"Acquisition Agreement") with Perfumania.com, QV Acquisition Co., which is a
wholly owned subsidiary of Perfumania.com., and Rock Mountain Ventures Fund, LP
to sell its entire ownership in the Company's wholly owned subsidiary, Qui Vive.
If the acquisition is consummated, pursuant to the Acquisition Agreement,
Perfumania.com will receive 550,000 of Qui Vive Series A Preferred stock,
representing the Company's entire equity interest in Qui Vive in exchange for
1,530,000 share of Perfumania.com common stock (the "Exchange"). Additionally
the Company will receive 10,000 shares of perfumania.com common stock in
exchange for licensing rights associated with Qui Vive technology. All shares of
Perfumania.com common stock acquired by the Company in this transaction will be
"restricted securities" and, unless subsequently registered under the Securities
Act of 1933, as amended (the "Securities Act"), or sold under an available
exemption from the registration requirements of the Securities Act, such shares
may not be sold for a period of at least one year, and then only in compliance
with Rule 144 promulgated under the Securities Act. The Company can no way
insure the consummation of this transaction. Nor can the Company give any
assurance to the future price or market of Perfumania.com common stock if the
transaction is consummated.
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.
The potential acquisition of the Perfumania.com Shares presents certain risks.
If the Exchange is consummated pursuant to the terms of the Acquisition
Agreement, we will own approximately 1,540,000 shares of common stock of
Perfumania.com, par value $.01 per share (the "Perfumania.com Shares").
Acquisition of the Perfumania.com Shares will present, among other risks, the
following:
o The Perfumania.com Shares will be restricted securities. The Perfumania.com
Shares will be "restricted securities" as that term is defined under the
Securities Act, and may not be resold unless and until such time as the
relevant Perfumania.com Shares are registered under applicable federal and
state securities laws or unless an exemption from registration is
available. In the future, the Perfumania.com Shares may be sold in
compliance with Rule 144 adopted under the Securities Act. Rule 144
provides, in part, that a person holding restricted securities for a period
of one year may sell in any three-month period an amount equal to the
greater of the average weekly trading volume of the stock during the four
calendar weeks preceding the sale, or one percent of the issuer's
outstanding Common Stock. Rule 144 also permits, under certain
circumstances, the sale of securities without regard to the limitations
described above, by non-affiliates of Perfumania.com, after holding such
securities for at least two years. As a result of such restrictions on
transferability, The Company will probably not be able to sell any of the
Perfumania.com Shares for a period of at least one year, and probably
longer. The Perfumania.com Shares may significantly decrease in resale
value before The Company is able to sell such shares.
o The Perfumania.com Shares may be significantly overvalued. The valuations
of companies such as Perfumania.com that engage in business over the
Internet have been volatile and, despite such volatility, have generally
increased dramatically over the last few years. Such valuations have been
far out of line with the valuations attributed to companies engaged in
other lines of business and many investment advisors have warned that such
valuations are not warranted and are overinflated. There can be no
assurance that the valuation of the Perfumania.com Shares will not suffer a
significant correction before such Perfumania.com Shares can be sold in
compliance with securities laws.
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o The Company will probably be required to recognize any gain on the sale of
Perfumania.com Shares. If the Company, in accordance with applicable
securities laws, sells some or all of the Perfumania.com Shares, the
Company will likely recognize capital gain (or loss) on the Perfumania.com
Shares sold in an amount equal to the difference between the sale price of
such Perfumania.com Shares and the Company's basis in each such
Perfumania.com Share. Moreover, if, in connection with the Company's sale
of any of the Perfumania.com Shares, the Board of Directors of the Company
declares a dividend, shareholders of the Company entitled to receive such
dividend will be required to pay income taxes at the rate applicable to
ordinary gains. To the extent you give any weight to the value of the
Perfumania.com Shares in valuing the Shares, you should be aware that,
because of applicable taxes, the amount of money the Company may be able to
use or distribute upon eventual disposition of such Perfumania.com Shares
will be significantly less than the market value of such Perfumania.com
Shares.
o The Exchange may not be consummated. The Exchange will not close unless
numerous conditions to the closing of the Exchange occur. Many of these
conditions are beyond the control of the Company. Thus, there can be no
assurance that Sundog will be able to exchange the QV Series A Preferred
for the Perfumania.com Shares.
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
8
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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
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 costsrelating 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.
9
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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
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
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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
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.
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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
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.
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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
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 February 16,
1999, 23,416,116 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
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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
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.
Item 2 MANAGEMENT'S DISCUSSION and Analysis or Plan of Operation
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto appearing
elsewhere in this Quarterly Report on Form 10-QSB.
Overview
Sundog Technologies, Inc. (the "Company" or "Sundog") 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 the
Company is 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.
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 applications more fully
described below. QV is majority owned by Sundog. QV 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 stock in QV and reduce other shareholders
ownership proportionately.
On February 10, 2000, the Company entered into an Acquisition Agreement with
Perfumania.com, QV Acquisition Co., which is a wholly owned subsidiary of
Perfumania.com., and Rock Mountain Ventures Fund, LP to sell its entire
ownership in the Company's wholly owned subsidiary, Qui Vive. If the acquisition
is consummated, pursuant to the Acquisition Agreement, Perfumania.com will
receive 550,000 of Qui Vive Series A Preferred stock, representing the Company's
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entire equity interest in Qui Vive in exchange for 1,530,000 share of
Perfumania.com common stock. Additionally, the Company will receive 10,000
shares of perfumania.com common stock in exchange for licensing rights
associated with Qui Vive technology. The Company can no way insure the
consummation of this transaction. Nor can the Company give any assurance to the
future price or market of Perfumania.com common stock if the transaction is
consummated.
QV Operations
(As disclosed throughout this Quarterly Report on Form 10-QSB, the Company
has entered into an agreement to sell all of its interest in QV. Although
this transaction is subject to several conditions precedent and may or may
not be consummated, the possible sell of the Company's interest in QV
should be considered in connection with the following discussion of QV).
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
is expected to 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.
Dynamic Self-Destruction. Authors may set messages to destroy themselves as
they are read.
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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 is expected to 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
- - Communication of non-public corporate information
- - Communication of any personal, corporate or other information which should not
be public
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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 December 31, 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
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. To date, the Company has not sold any copies of Universal
Update.
ENTERPRISE INFORMATION EXCHANGE
Traditional business valuation models exhibit 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
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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 patent protected "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 group. 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 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 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.
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Sundog' professional services group provides 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
group provides a roadmap for integration at a business level. Together Universal
Update and professional services group 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.
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Results of Operations
Three Months Ended December 31, 1999 and 1998
Revenues for the quarter ended December 31, 1999 were $15,060 compared to
$12,000 for the quarter ended December 31, 1998. Operating costs and expenses
totaled $1,277,362 in the quarter ended December 31, 1999 as compared to
$639,952 for the same period in 1998. Operating expenses for 1999 included
$547,421 research and development costs and $710,465 for selling, general and
administrative expenses compared to research and development costs of $317,475
and $307,629 for selling, general and administrative expenses for the same
period in 1998. The increased expenses in 1999 are due to costs incurred by the
company's Qui Vive subsidiary in the development and promotion of the enhanced
e-mail product. The Company expects expenditures to increase in all areas of its
business during the next twelve months as development and promotion of existing
and new products continues assuming available working capital.
The Company had $5,886 in interest income during the quarter ended December 31,
1999 as compared to $14,762 for the same period in 1998. The decrease in
interest income is due to decreased cash balances maintained by the Company in
banks. The net loss for the quarter was $1,259,666, or $.05 per share, compared
to a loss $614,895, or $.03 per share for the same quarter in 1998.
Revenues for the quarter were generated by the professional services group
through work provided to one customer. 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.
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.
Nine Months Ended December 31, 1999 and 1998
Revenues during the nine months ended December 31, 1999 and 1998 were $31,257
and $23,167 respectively. Revenues for both periods were for consulting services
rendered by the Company's professional services group. Operating costs and
expenses totaled $3,766,821 during the nine months ended December 31, 1999 and
$1,549,099 for the same period in 1998. The 1999 operating expenses include
$1,600,457 in research and development costs and $2,121,188 in selling, general
and administrative expense compared to research and development costs of
$762,509 and $770,774 for selling, general and administrative expenses for the
same period in 1998. The increased expenses in 1999 are due to costs incurred by
the company's Qui Vive subsidiary in the development and promotion of the
enhanced e-mail product. The Company expects that expenditures in all areas of
its business will continue to increase during the next 12 months as development
and promotion of existing and new products continues assuming available working
capital.
The Company had $33,441 in interest income during the nine months ended December
31, 1999 and $32,830 for the same period in 1998. The increase is due to
increased cash balances maintained in the Company's bank accounts. The net loss
for nine month period ended December 31, 1999 was $3,709,151 or $.16 per share
compared to a loss of $1,497,578 or $.07 per share in 1998.
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Liquidity and Capital Resources
At December 31, 1999, the Company had cash and cash equivalents of $995,678, 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.
Capital spending of $137,649 in the nine months ended December 31, 1999 was
primarily for computer and related equipment used in the Company's operations,
including product development and research.
The Company has outstanding warrants to purchase 339,818 shares of common stock
at a price of $2.00 per share over the next six months. The Company also has
outstanding warrants to purchase 1,043,119 shares of common stock at a price of
$3.00 per share over the next eighteen months, 865,725 of which may be exercised
at $2.00 per share if exercised within the next six months. In addition the
Company has outstanding warrants to purchase 855,718 shares of common stock at
$3.00 if exercised by 10/31/00 or at $4.00 if exercised between 11/1/00 and
10/31/01. If all warrants were exercised, the proceeds to the Company would be
between $5,510,422 and $6,552229. 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.
The Company held marketable securities available for sale at December 31, 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 1997. These marketable securities were 3,000 shares of
common stock of Eurogas Corp. ("EUGS").
At December 31, 1999, the sale price of EUGS common stock, as reported by the
over-the-counter ("OTC") electronic bulletin board, was $0.52 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.
On February 10, 2000, the Company entered into an Acquisition Agreement with
Perfumania.com, QV Acquisition Co., which is a wholly owned subsidiary of
Perfumania.com., and Rock Mountain Ventures Fund, LP to sell its entire
ownership in the Company's wholly owned subsidiary, Qui Vive. If the acquisition
is consummated, pursuant to the Acquisition Agreement, Perfumania.com will
receive 550,000 of Qui Vive Series A Preferred stock, representing the Company's
entire equity interest in Qui Vive in exchange for 1,530,000 share of
Perfumania.com common stock. Additionally the Company will receive 10,000 shares
of perfumania.com common stock in exchange for licensing rights associated with
Qui Vive technology.All shares of Perfumania.com common stock acquired by the
Company in this transaction will be "restricted securities" and, unless
subsequently registered under the Securities Act of 1933, as amended (the
"Securities Act"), or sold under an available exemption from the registration
requirements of the Securities Act, such shares may not be sold for a period of
at least one year, and then only in compliance with Rule 144 promulgated under
the Securities Act.The Company can no way insure the consummation of this
transaction. Nor can the Company give any assurance to the future price or
market of Perfumania.com common stock if the transaction is consummated.
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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 marketing
efforts 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.
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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. The Company is, 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 December 31, 1999, the Company has not used derivative instruments or
engaged in hedging activities.
Foreign Currency Risk
The Company may enter into contracts where we pay or a third party pays us in a
foreign currency. This would expose the Company 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. Management does 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 AND USE OF PROCEEDS
Unregistered sales of equity securities during quarter (other than in
reliance on Regulation S).
Recent Sales of Unregistered Securities. During the three months ended December
31, 1999, the Company issued equity securities that were not registered under
the Securities Act of 1933, as amended (the "Act"). Specifically, the Company
received proceeds of $752,93,or an average price of $.95 per share and committed
to issue 792,562 shares of common stock and warrants to purchase 792,562 shares
of common stock. 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 warrants described above originally had an exercise price of $2.00 per
share. In October of 1999 the company offered warrant holders the opportunity to
exercise their warrants at $.95 instead of $2.00 if done between October 1, 1999
and December 31, 1999.
The Company's common stock is quoted on the over-the-counter ("OTCBB") Nasdaq
electronic bulletin board under the symbol SUDG. To date there has been only
limited trading activity in the Company's stock.
23
<PAGE>
The Company has outstanding warrants to purchase 339,818 shares of common stock
at a price of $2.00 per share over the next six months. The Company also has
outstanding warrants to purchase 1,043,119 shares of common stock at a price of
$3.00 per share over the next eighteen months, 865,725 of which may be exercised
at $2.00 per share if exercised within the next six months. In addition the
Company has outstanding warrants to purchase 855,718 shares of common stock at
$3.00 if exercised by 10/31/00 or at $4.00 if exercised between 11/1/00 and
10/31/01. If all warrants were exercised, the proceeds to the Company would be
between $ $5,510,422 and $6,552229. 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.
ITEM 5. Subsequent Event
On February 10, 2000, the Company entered into an Acquisition Agreement with
Perfumania.com, QV Acquisition Co., which is a wholly owned subsidiary of
Perfumania.com., and Rock Mountain Ventures Fund, LP to sell its entire
ownership in the Company's wholly owned subsidiary, Qui Vive. If the acquisition
is consummated, pursuant to the Acquisition Agreement, Perfumania.com will
receive 550,000 of Qui Vive Series A Preferred stock, representing the Company's
entire equity interest in Qui Vive in exchange for 1,530,000 share of
Perfumania.com common stock. Additionally the Company will receive 10,000 shares
of Perfumania.com common stock in exchange for licensing rights associated with
Qui Vive technology.All shares of Perfumania.com common stock acquired by the
Company in this transaction will be "restricted securities" and, unless
subsequently registered under the Securities Act of 1933, as amended (the
"Securities Act"), or sold under an available exemption from the registration
requirements of the Securities Act, such shares may not be sold for a period of
at least one year, and then only in compliance with Rule 144 promulgated under
the Securities Act. The Company can no way insure the consummation of this
transaction. Nor can the Company give any assurance to the future price or
market of Perfumania.com common stock if the transaction is consummated.
See "Certain Factors that May Affect Future Results, Financial Condition and the
Market Price of Securities" beginning on page 7 of this Report.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Document Description
----------- --------------------
3.1 Certificate of Incorporation (Incorporated by reference to such
exhibit as filed with the Company's registration statement on Form
10-SB, File No. 0-24372)
3.2 Amendment to Certificate of Incorporation (incorporated by reference
to Definitive Information Statement on Form 14C, May 6, 1998)
3.3 Bylaws (Incorporated by reference to such exhibit as filed with the
Company's registration statement on Form 10-SB, File No. 0-24372)
4.1 Specimen common stock certificate (Incorporated by reference to such
exhibit as filed with the Company's registration statement on Form
10-SB, File No. 0-24372)
4.2 Form of Warrant A to Purchase Common Stock (incorporated by reference
to the Company's quarterly report on Form 10-QSB for the quarter ended
March 31, 1998)
4.3 Form of Warrant B to Purchase Common Stock (incorporated by reference
to the Company's quarterly report on Form 10-QSB for the quarter ended
March 31, 1998)
27 Financial Data Schedule
(b) Reports on form 8-K. No Current Reports on Form 8-K were filed for the
quarter ended December 31, 1999.
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: February 18, 2000
-----------------
/s/ Alan D. Rudd
----------------
Alan D. Rudd
Chairman of the Board
Sundog Technologies, Inc.
25
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