SUPPLEMENT
DATED APRIL 9, 1997
TO
SAC TECHNOLOGIES, INC.
PROSPECTUS DATED FEBRUARY 14, 1997
FRONT COVER PAGE
The third paragraph is amended in its entirety as follows:
Subject to final Nasdaq review of applicable objective criteria which
the Company believes it meets, the Company's common stock has been
approved for listing on the Nasdaq SmallCap Market under the symbol
"SACM." See "Risk Factors--Quotation on Nasdaq; Applicability of 'Penny
Stock" Rules; Possible Impact of Liquidity of Stock."
PAGE 4
"The Offering" section of the Prospectus Summary is amended to insert "Proposed
Nasdaq SmallCap market symbol" in lieu of "Proposed Bulletin Board market
symbol."
PAGE 6
The risk factors entitled "No Listing on Nasdaq SmallCap Market" and "Potential
Applicability of "Penny Stock Rules;" Possible Impact on Liquidity of Stock" are
amended in its entirety as follows:
QUOTATION ON NASDAQ; APPLICABILITY OF "PENNY STOCK" RULES;
POSSIBLE IMPACT ON LIQUIDITY OF STOCK. Subject to final review of
applicable objective criteria, the Common Stock has been approved for
quotation on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") SmallCap Market. There can be no assurance
that such approval will be obtained or maintained. To maintain its
listing after its initial inclusion on Nasdaq, the Company must, in
addition to other requirements, have total assets of at least $2
million, capital and surplus of at least $1 million, a minimum bid
price of at least $1.00 and a market value for its publicly held shares
of at least $200,000. If the Company fails to satisfy the Nasdaq
requirements to maintain listing on Nasdaq in the future, the Common
Stock will likely be quoted only in the local over-the-counter "pink
sheets" and may also be reported on the Nasdaq OTC Bulletin Board. In
the event of delisting of the Common Stock, the public trading market
for the Common Stock could be adversely affected. If the Common Stock
is subsequently delisted for failure to meet the Nasdaq maintenance
requirements, the Common Stock would be subject to the rules
promulgated under the Securities Exchange Act of 1934 relating to
"penny stocks." The "penny stock rules" apply to companies whose common
stock trades at less than $5.00 per share or which have a tangible net
worth of less than $5,000,000 ($2,000,000 if the company has been
operating for three or more years). These rules require brokers who
sell securities subject to such rules to persons other than established
customers and "institutional accredited investors" to complete certain
documentation, make suitability inquiries of investors and provide
investors with certain information concerning the risks of trading in
the security. The application of these rules may restrict the ability
of brokers to sell the Common Stock and may affect the ability of
purchasers in this offering to sell their Shares in the secondary
market.
OUTSIDE BACK COVER
The legend at the bottom of the outside back cover is amended in its entirety as
follows:
UNTIL MAY 22, 1997 (90 DAYS AFTER FEBRUARY 21), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
FORM 10-KSB
A copy of Form 10-KSB of SAC Technologies, Inc., which was filed with the
Securities and Exchange Commission on March 31, 1997, is attached hereto.
U.S. SECURITIES AND EXCHANGE COMMISSION, Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1996 Commission File number 333-16451
SAC TECHNOLOGIES, INC.
Minnesota 41-1741861
4444 West 76th Street, Suite 600, Edina, Minnesota 55435
(Address of principal executive offices) (Zip Code)
Issuers telephone number 612-835-7080
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: 1,210,000 Common
Shares 1 Warrant
Common Stock, $0.01 par value per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes __ No _X_
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this form 10-KSB. _X_
State issuer's revenues for its most recent fiscal year: $ 32,000 .
State the aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant based on the closing sale price as reported by
The NASDAQ OTC Bulletin Board on March 26, 1997: $13,695,000.
As of March 26, 1997, 3,718,750 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Form SB-2 (Commission File No. 333-16451) are
incorporated by reference into Item 13 of Part III.
Transitional Small Business Disclosure Formats (check one): Yes No X
PART I
This Form 10-KSB contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
or "continue" or the negative or other variation thereof or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors
including, without limitation, the risk factors set forth in the "Risk Factors"
section of the Company's Registration Statement on Form SB-2 (File No.
333-16451) filed pursuant to Rule 424(b) dated February 14, 1997 and any future
amendments to this filing.
Unless the context indicates otherwise, all references to the Company",
Registrant" or the "Issuer" in this Annual Report on Form 10-KSB relate to SAC
Technologies, Inc.
The SACMan unregistered trademark appears in this Annual Report on Form
10-KSB and is owned by the Company.
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
In 1992 Jasper Consulting, Inc. ("Jasper") engaged North Country Business
Products, an office supply company located in Bemidji, Minnesota, in discussions
about the possibility of developing an automated fingerprint identification
device. North Country Business Products began a search for someone who could
engineer and develop such a product. Barry M. Wendt, the Company's CEO, was
contacted and determined that the automation of such a process was within his
abilities. Consequently, in 1993, a new company, BBG Engineering, Inc., ("BBG")
was formed by Jasper and Mr. Wendt, along with Benedict A. Wittig and Gary E.
Wendt for the purpose of developing an automated fingerprint identification
system (BBG subsequently changed its name to SAC Technologies, Inc.). Jasper
agreed, in consideration of an assignment of the patent rights to certain
fingerprint identification technology ("FIDS Technology"), to fund the
development of a fingerprint identification system.
By mid-summer of 1993, BBG completed the development of the initial concepts for
electronic analysis of fingerprints. Pursuant to SAC Technologies, Inc.'s (The
"Company") agreement with Jasper, initial patent applications were filed by
Jasper in the fall of 1993. Also, in the fall of 1993 the Company acquired
certain optic technology ("Optic Technology") from Richard Fiskum to be used in
conjunction with and as an integral part of the fingerprint analysis system.
Subsequently, the Company redeemed all of the shares of the Company owned by
Jasper. It was also at this time that the Company finalized the original
intention of its underlying understandings with Jasper with respect to a
licensing agreement (the "Jasper Agreement"). From inception through most of
1996 the Company's development efforts, which by agreement were to be funded by
Jasper, were principally focused on the development of its fingerprint
identification and analysis products.
(b) Business of Issuer
Incorporated in 1993, the Company develops and markets fingerprint
identification products for use in general commercial and consumer applications.
The Company's goal has been to develop automated fingerprint identification
products which are portable, easily integrated with existing applications, and
affordable for mass commercialization. The Company's more significant current
and anticipated product offerings incorporate FIDS Technology, a technology
developed by the Company for Jasper, with other technologies developed by the
Company. The Company has a world-wide license agreement with Jasper for use of
the FIDS Technology in all access control markets. Jasper has the right to
exploit FIDS technology in all other markets including specifically financial
services, law enforcement, national identification systems and personal
identification systems for government and medical applications, which market
rights belong to Jasper.
The Company's underlying technology consists of (i) the Optic Technology, which
captures the image of a fingerprint; (ii) hardware and software which translates
and standardizes the image of the fingerprint for computer analysis ("Biometric
Solution"); (iii) a license to the FIDS Technology, which is software which
classifies the fingerprint and matches it to an existing database; and (iv)
SAC_App, an application generator development package which facilitates
integration of the Company's products for vertical market applications.
Utilizing these technologies, the Company has continued the development of its
initial automated fingerprint identification products. Its initial product,
SACMan(TM), is principally targeted to control access to information resources
such that only individuals comprising an approved fingerprint database are
allowed access to computers, computer networks, and/or specific applications.
The Company's SAC_Remote product, currently scheduled for release in mid-1997,
is designed principally for use in restricting door entry access to a specific
set of individuals.
The Company also has developed a computer technology which consists of a small
box which can be placed on top of a television set (the "Set Top Box") which
performs basic personal computer functions, including word processor,
spreadsheet, and database functions, as well as Internet access. With
connections to a phone line for communications and a television for display
purpose, the Set Top Box is intended to provide for low-cost home computing. The
user communicates with the unit via an infra-red keyboard and track-ball mouse.
The Company does not believe that the promotion and marketing of the Set Top Box
is within its primary focus and, accordingly, conveyed the technology to another
company, Inter-Con/PC, Inc. ("Inter-Con") in exchange for fifty-percent (50%) of
the initial equity of Inter-Con. The Company also negotiated a short-term
royalty of two percent (2%) of net revenues from Inter-Con. The royalty
obligation of Inter-Con will terminate on the earlier of November 1, 2002, or
the completion by Inter-Con of a public offering of its common stock. It is not
currently anticipated that any member of the Company's board of directors or
executive officers of the Company will be a member of the board of directors or
an executive officer of Inter-Con. The Company does, however, pursuant to a
shareholder control agreement, have a short-term right to elect two members to a
five-person board of directors of Inter-Con.
1. Products and Their Markets
The Company's current plan is to develop and market products which address
industry-specific security applications. The Company also plans to develop some
limited manufacturing and product assembly capability and to contract for
outside manufacturing and assembly of its products, as needed. The products are
intended to provide controlled access to information, resources, and facilities.
The Company's SACMan(TM) and SAC_App products have undergone extensive internal
and external testing and are believed to be ready for commercial scale
production, sale and use. The Company has not yet completed final development or
commenced testing of its SAC_Remote and SAC_Encrypt products; however, the
initial hardware design of these products has been completed. It is anticipated
that development and testing of the SAC_Remote and SAC_Encrypt products will be
completed in mid-1997, at which time the product is expected to be made
available for commercial release. Although the Company does not expect to derive
any significant short-term revenue from the markets serviced by Jasper, the
Company also plans to package its products for sale by Jasper to the consumer
credit verification and validation, law enforcement applications, and national
identification systems markets.
The Company's products use a camera to take a visual image of an approximately
one-half inch by one-half inch area of a fingerprint. The image is produced at
an effective resolution of approximately 1000 dots per inch (DPI). The products
then make several passes on the image to optimize and clarify it. Subsequently
the products identify distinguishing characteristics of a fingerprint. These
distinguishing characteristics are mapped by the Company's technology such that
the product can verify whether the characteristics match those of a previously
mapped fingerprint.
Each SACMan(TM) unit scans and analyzes a fingerprint in approximately three
seconds and generates an identification code which can be used to identify the
owner of the print from an online database located on an attached personal
computer. The SACMan(TM) can verify the identity of a computer user desiring
access and allow or stop the user from accessing a computer, computer network,
or specific application. The Company currently plans to make this product
available in desk-top and wall-mount enclosures created for cost-effective uses
in existing mass marketplaces.
The Company has also developed its SAC-App application database development
software which can be used to enter, sort, structure, manipulate, and manage a
database of fingerprint models. The product has been designed to facilitate the
integration of the Company's technology into a wide variety of markets and to
provide for simple application definition through a menu selection process.
The Company believes that its products will have a broad range of possible
applications relating to high technology security solutions. The potential
applications for secure access control include the following:
i. General access control - Every doorway presently utilizing any
form of controlled access represents a possible sale
opportunity for the Company. Secure access control was
estimated by Security Management Magazine (January, 1996) to
be a $1 billion market in the United States during 1994.
ii. Information resource and network access control - Every
existing computer network and stand-alone computer system
represents an opportunity for use of the Company's technology,
which could provide a cost effective method for securing
information resources.
In addition, the Company may derive revenue from the efforts of Jasper in those
longer-term, markets reserved for Jasper under the Jasper Agreement. However,
the Company is not relying on these potential sources of revenue to
significantly impact its results of operations.
2. Distribution Methods of the Products
The Company currently plans to market its products through various distributors,
original equipment manufacturers ("OEMS"), dealers and value added resellers, as
well as directly to end users. Marketing plans include direct mailing,
telemarketing, trade show presentations, advertising in trade publications, and
catalog sales. The Company plans to develop an effective strategy for
identifying the major purchasing entities of each to its target markets and
determining the appropriate medium for reaching such entities. The Company has
developed marketing literature for its SACMan product and has displayed its
SACMan product at various product conferences and conventions.
A majority of the Company's sales are expected to be made though qualified
volume resellers, consisting primarily of distributors, OEMS, and system
integrators. Sales to end users are likely to be made through existing retail
electronics distribution channels so that the Company can attempt to optimally
allocate its technical support resources to volume users. The Company plans to
develop a marketing team which will require the hiring of new individuals and
technical support staff.
3. Status of Any Publicly Announced New Product
The Company hopes to complete development in the near term of its SAC_Remote
product, currently scheduled for release in mid-1997. SAC_Remote is designed to
restrict door access through fingerprint identification by incorporating local
processing capability to the basic unit to allow for analysis and database
comparison without the necessity of an attached personal computer. These units
will include a communication port for complex facility access control
configurations, such as hotels, apartment buildings, and office complexes which
have many access points and a continually changing database of users.
Finally, the SAC_Encrypt computer data security system, scheduled for release in
mid-1997, will provide for the encryption/de-encryption of local applications
programs by controlling all access to data files and networks according to a
user's unique fingerprint key, thereby controlling all data movement and
peripherals (e.g. disk drives, network cards and printers) within a computer
system.
4. Competition
In addition to existing commonplace methods of restricting access to facilities
such as pass cards, personal identification numbers, password access, and locks
and keys, there are numerous companies involved in the development, manufacture,
and marketing of fingerprint biometric products to government, law enforcement,
prison, and consumer markets. Some of these companies include Computer Research
Labs, Digital Biometrics, Inc., Pintrak International, Indenticator, Indetix
Fingermatrix, Inc., Mytec Technologies, Inc., The National Registry, Sandia
Labs, Fujitsu, Biometric Identification, Inc., and Ultrascan, Inc. Many of these
competitors have substantially greater resources and experience in developing
and marketing biometric products.
Most current automated fingerprint product offerings are primarily targeted to
government and law enforcement applications and are priced higher than the
anticipated price for SACMan(TM). In part, this may be attributable to the fact
that several of its competitors are integrating other manufacturers' hardware
and/or software and, as such, may be forced to bear higher component costs and
technology licensing fees, as well as greater selling expenses. Of the companies
specifically targeting consumer application markets, many are projecting product
availability during 1997 or 1998. The Company has yet to manufacture, market, or
sell any of its products on a wide-scale commercial basis.
With current non-biometric technologies the user must typically possess a key,
card, or bit of information such as a personal identification number or
password. These systems are easily defeated by obtaining possession of the key,
card, or password, or by counterfeiting the key or card. The Company's products
will also be competing for market share with other biometric technologies
including hand geometry, facial recognition, iris scanning, retinal scanning,
signature verification, and voice analysis, as well as existing
lock/security/card technology.
5. Sources of Raw Materials and Principal Suppliers
Assembly of the Company's products utilizes components, equipment and processes
generally available from outside electronics firms. To date, the Company has
purchased all electronic parts, optics parts, circuit boards, and cases from
outside vendors and has performed the final assembly, calibration, testing and
serialization of its products. Products have also been assembled by two outside
vendors located in Minnesota. In order to meet anticipated pre-production
product demand, the Company has acquired a semi-automated assembly line. In
addition, the Company has identified several regional manufacturers which it
believes have the ability to perform assembly of its products, as appropriate,
to meet production and assembly requirements beyond this pre-production stage.
6. Dependence on One or a Few Major Customers
The Company is not dependent on one or a few principal customers because they do
not have any significant sales at this time. The Company does not expect to be
dependent on a limited group of customers as it intends to reach the mass
marketplace with its products.
7. Intellectual Property Rights
The Company's technology consists of knowledge and information relating to
computer hardware and software which is used to create an automated process of
imaging a fingerprint, formatting the fingerprint for computer analysis, and
identifying and verifying the print relative to an existing database of
fingerprint information. The Optic Technology and the Company's Biometric
Solution are owned by the Company, subject to an exclusive worldwide license
which has been granted to Jasper to use and sell products in certain markets.
The FIDS Technology used for fingerprint analysis is owned by Jasper, subject to
an exclusive worldwide license which has been granted to the Company to make
products for all markets and to use and sell products in certain markets.
For products utilizing FIDS Technology the Jasper Agreement provides that the
Company will be paid a royalty of $30.00 for each product sold by Jasper, that
Jasper will be paid a royalty of $30.50 for each product sold by the Company,
and that all of Jasper's product requirements may be made by the Company at a
gross margin of twenty percent, pursuant to the provisions of a separate OEM
agreement between Jasper and the Company. The Jasper Agreement exclusively
reserves to Jasper all other market areas including, but not limited to, credit
card clearing, check clearing and other such financial applications, law
enforcement, national identification systems, immigration control, automobiles,
medical patient identification systems, and personnel identification systems for
federal and state government applications.
Pursuant to the Jasper Agreement, either Jasper or the Company may transfer or
license its rights to FIDS Technology, with the consent of the other party. Any
consideration received with respect to a transfer of FIDS Technology within
Jasper's field of use, will be divided as follows: (i) 10% to Jasper for
purposes of funding any legal fees and costs incurred with respect to the
transfer or claims; (ii) 10% to the Company for purposes of funding ongoing
research and development expenses with respect to the FIDS Technology, Optic
Technology, or Biometric Solution; (iii) 48% to Jasper without restriction; and
(iv) 32% to the Company without restriction. Any consideration received with
respect to a transfer of FIDS Technology within the Company's field of use, will
be divided as follows: (i) 10% to Jasper for purposes of funding any legal fees
and costs incurred with respect to the transfer or claims; (ii) 10% to the
Company for purposes of funding ongoing research and development expenses with
respect to the FIDS Technology, Optic Technology, or Biometric Solution; (iii)
48% to the Company without restriction; and (iv) 32% to Jasper without
restriction.
While the Company has filed a patent application relating to both the Optic
Technology and Biometric Solution components of its technology, no patents have
yet been issued or indicated as allowable. In addition, although Jasper has
filed certain patent applications with the United States Patent & Trade Office
with respect to FIDS Technology, no patent has yet issued and, accordingly, none
of the technologies described herein are currently patented by the Company. Part
of the Company's technology consists of software or hardware implementations of
software ("firmware"). The Company intends to take measures to ensure copyright
protection for its software and firmware releases prior to distribution. Also,
the firmware/software is serialized to ensure that only matched sets will
function together. This provides both a mechanism to combat cloning of the
Company's products and a method for standardizing products. The Company believes
it has developed common law trademark rights in the term SACMan(TM) but has not
filed a state or federal trademark application. The Company does not claim any
additional trademarks.
8. Government Approval of Principal Products
Not applicable.
9. Government Regulation
The Company currently is not subject to direct regulation by any government
agency, other than regulations applicable to business generally.
10. Research and Development
During 1995, the Company spent approximately $250,000 on research and
development. The Company spent approximately $390,000 on research and
development in 1996. The Company's customers did not directly bear the costs for
the research and development during 1995 or 1996, which were principally funded
through outside sources of equity and debt financing, as well as amounts paid by
Jasper.
11. Environmental Compliance
Not applicable.
12. Employees
The Company currently employs 13 individuals on a full-time basis. Five are
primarily involved in research, development, and technical support, one is
principally involved in technical support and quality control, two are
principally involved in research, development, and administrative matters, three
are principally involved in administrative and finance matters, and two are
principally involved in sales and marketing efforts. The Company also employs a
part-time employee who is principally involved in administrative and finance
matters.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 2,000 square feet of space at 4444 West 76th
Street, Suite 600, Edina, Minnesota 55435 from Main Street Partners, LLP. The
Company plans to use this space for ongoing research and development. The lease
is for three years and terminates on August 31, 1998. During the term of the
lease, the monthly rent increases from $1,792 to $1,875. The Company also leases
approximately 3,840 square feet of space at 4620 South Valley View Road, Suite
A1, Las Vegas, Nevada 89103 from Paul V. Wells. The Company currently plans to
use this space for marketing and showroom facilities as well as product support.
The lease is for three years and terminates on February 14, 2000, with a monthly
rent of approximately $3,009. In addition, the Company leases an apartment in
Minneapolis, Minnesota, for use by the Company's officers, directors, and sales
staff as needed. The principal use of this apartment is for employees from the
Las Vegas office to use when working out of the Edina office. The Company plans
to locate additional facilities for both marketing and manufacturing efforts.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of any
threatened litigation that would have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has recently been approved for listing on the NASDAQ Small Cap
Market. The following are the high and low bids from the NASDAQ OTC Bulletin
Board for the Company's Common Stock for the month of February since it began
trading on February 21, 1997: High 8 1/2; Low 6 1/2. These over-the-counter
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
As of March 28, 1997, there are (i) 3,718,750 shares of Common Stock outstanding
(1,210,000 of which are freely tradeable without restriction under the
Securities Act of 1933, as amended) held of record by approximately 78
registered holders on behalf of approximately 654 beneficial owners; (ii)
outstanding options to purchase an aggregate of 303,000 shares, none of which
are exercisable within 60 days from the date of this report, held of record by
12 holders; and (iii) outstanding warrants to purchase an aggregate of 136,108
shares of common stock (50,000 of which are exercisable within 60 days from the
date of this report, held of record by 6 holders.) During December of 1996, the
Company agreed to issue warrants to a consultant to purchase 12,500 shares of
common stock at $6.00 per share. The Company has reserved 375,000 shares of its
common stock for issuance pursuant to its 1996 Stock Option Plan. The Company
issued to the investors, in connection with the May 17, 1996 Bridge Loan,
warrants to purchase 50,000 shares of common stock, at $2.00 per share. The
Company issued to Tuschner & Company, its underwriter in connection with the
July, 1996 private placement and May 17, 1996 Bridge Loan, warrants to purchase
41,639 shares of common stock, at an adjusted exercise price of $6.00 per share.
The Company has issued its underwriter, in connection with its initial public
offering, a warrant to purchase 44,469 shares of common stock, exercisable for a
period of four years commencing February 14, 1998 at an exercise price of, $7.20
per share. The Company has not declared or paid any cash dividends on its Common
Stock since inception and does not intend to pay any dividends for the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
January 7,
1993 (date
of inception)
Years ended December 31, through
--------------------------------------------- December 31,
1994 1995 1996 1996
----------- ----------- ----------- -----------
Selected Statements of Operations Data
Revenues $ 107,000 $ 229,070 $ 32,000 $ 385,057
Costs and other expenses
Costs of other services
and technical support 33,154 28,799 14,875 76,828
Selling, general and
administrative 12,932 35,849 422,681 496,487
Research and development 72,199 250,808 386,613 732,178
----------- ----------- ----------- -----------
118,285 315,456 824,169 1,305,493
----------- ----------- ----------- -----------
Loss from operations (11,285) (86,386) (792,169) (920,436)
Other expense - - (31,319) (31,319)
----------- ----------- ----------- -----------
NET LOSS $ (11,285) $ (86,386) $ (823,488) $ (951,755)
=========== =========== =========== ===========
Loss per share $ - $ (.03) $ (.33) $ (.36)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 2,646,917 2,642,201 2,530,284 2,616,391
=========== =========== =========== ===========
December 31,
--------------------------------------------
1994 1995 1996
----------- ----------- -----------
Selected Balance Sheet Data
Working capital deficit $ (5,628) $ (133,836) $ (355,585)
Total assets 6,598 24,139 405,263
Stockholders' deficit (5,628) (125,188) (156,171)
SEE PART I OF THIS FORM 10-KSB REGARDING A DISCUSSION OF FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN AND ELSEWHERE IN THIS DOCUMENT.
OVERVIEW
The Company was incorporated in 1993 to develop real-time, stand-alone systems
capable of identifying individuals through automated fingerprint analysis for
use in controlling access to resources, information and facilities. From
inception through most of 1996 the Company's development efforts, which by
agreement were to be funded by Jasper Consulting, Inc. ("Jasper"), were
principally focused on the development of its fingerprint identification and
analysis products. In the second half of 1996, the Company began shifting its
principal focus from development to marketing and sales of its products.
The Company's focus in the near term is to market its products primarily in the
following application areas: controlled access to information, resources,
computers, computer networks, and facilities such as apartments, offices and
hotels. The Company anticipates adding approximately 14 employees through 1998.
The Company anticipates ongoing research and development expenses during 1997 at
a level greater than that experienced for the year ended December 31, 1996. The
Company anticipates accounts receivable and inventory levels, and selling,
general and administrative expenses will increase significantly in connection
with its transition from research and development to marketing and sales of its
products.
The Company is considered a development stage enterprise for accounting
purposes. Results achieved to date are not indicative of future results
primarily because the Company has shifted its focus from the development of its
products to the marketing and selling of its products. Broad commercial
acceptance of the Company's products by customers and end users is critical to
the Company's success and ability to generate revenues. The Company has limited
sales to date and has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stage of development. The Company may
continue to sustain operating losses for the foreseeable future.
The Company also has completed development of a product, which provides for
basic personal computer functions and Internet access via a wireless keyboard
and a conventional television set (the "Set Top Box"). However, the Company does
not believe that the promotion and marketing of the "Set Top Box" is within its
focus and, accordingly, conveyed the technology in exchange for an initial 50%
ownership interest in Inter-Con/PC, Inc. ("Inter-Con") a development stage
Company. The Company has a technical support agreement with Inter-Con which
provides for Inter-Con to pay technical support fees to the Company of up to
$20,000 per month. The agreement expires in October 1999 and is subject to three
successive one-year renewals at the option of Inter-Con.
By agreement, Jasper is obligated to pay a royalty to the Company for sales of
certain products and the Company has the exclusive right to manufacture products
sold by Jasper, subject to a predetermined pricing structure. However, the
Company is not relying on these potential sources of revenue from Jasper or its
interest in Inter-Con to significantly impact its results of operation.
RESULTS OF OPERATIONS
GENERAL
Revenues of $385,057 from inception (January 7, 1993) through December 31, 1996
were primarily from reimbursement of development costs and other services
provided to Jasper. Jasper agreed to fund development of SACMan(TM) and related
products through April 1996. As more fully discussed in the Company's notes to
financial statements for the years ended December 31, 1994, 1995 and 1996, the
Company has recognized revenue from Jasper on the cash method, as collection of
amounts billed is not assured.
As of December 31, 1996 there were $407,000 of billings outstanding from Jasper
which have not yet been recognized for financial reporting purposes. Jasper has
agreed to allow the Company to offset future product royalties due to Jasper, if
any, against these unrecognized receivables. In addition, the Company may also
charge an additional $800 for each product manufactured by the Company for
Jasper in order to accelerate payment of the outstanding balance. The Company
has sold no products which would require payment of royalties to Jasper. The
Company has no orders to manufacture products on behalf of Jasper. No assurance
can be given that future sales subject to payment of royalties to Jasper or
orders to manufacture products on behalf of Jasper will occur in amounts
sufficient to offset the uncollected billings above, if at all.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996:
Revenues decreased $197,070 to $32,000 during 1996 as compared to $229,070 for
1995. The decline is attributable to the timing of collection of fees received
under the Company's development arrangement with Jasper. There were $117,000 and
$290,000 of billings to Jasper during the years ended December 31, 1995 and
1996, respectively, which remain outstanding and which have not yet been
recognized for financial reporting purposes as of such dates. The $32,000 of
revenue recognized during 1996 relates to two months billings under the
technical services agreement with Inter-Con (see "Overview").
Selling, general and administrative expense increased $386,832 to $422,681
during the year ended December 31, 1996, as compared to $35,849 for the same
period in 1995. Approximately one-half of the increase is due to additional
salaries and wages for marketing and administrative personnel. The remainder of
the increase is due to the development of promotional materials, increased
attendance at trade shows and increased professional fees.
Research and development expense increased $135,805 to $386,613 during the year
ended December 31, 1996 as compared to $250,808 for 1995. The increase is
attributable to increased development activity to commercialize certain of its
products.
No interest expense was incurred for the year ended December 31, 1995 and
interest expenses was $35,607 during 1996. The interest was principally due to
amortization of debt discount, borrowings under the Company's line of credit
agreement with a bank and borrowings under convertible bridge notes issued
during 1996. The convertible bridge notes were converted to common stock during
June 1996. During February 1997, the Company paid off all outstanding notes
payable.
YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995:
Revenues increased $122,070 to $229,070 during 1995 as compared to $107,000 for
1994. The increase is attributable to fees collected in connection with
increased development activity under its development arrangement with Jasper.
There were $15,421 and $117,000 of billings to Jasper during 1994 and 1995,
respectively, which remain outstanding and which have not yet been recognized
for financial statement purposes as of December 31, 1994 and 1995, respectively.
Research and development expenses increased $178,609 to $250,808 during 1995 as
compared to $72,199 for 1994. The increase is attributable to increased
development activity to commercialize certain of its products.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company's capital needs were principally met by a $700,000
private placement of common stock, the sale of $200,000 of convertible bridge
notes, and $213,000 of borrowings under its revolving note with a bank. The
bridge notes were converted to common stock during 1996. During February and
March 1997, the Company completed its initial public offering of common stock
which resulted in gross proceeds of $7,260,000. See below for further discussion
regarding the above.
Net cash used in operating activities during 1996 was $683,593 and was
principally due to operating losses. Net cash used for investing activities
during 1996 was $45,931 and was principally due to the purchase of a pick and
place assembly machine. Net cash provided by financing activities during 1996
was $813,436 and is discussed below.
During May 1996 the Company issued $200,000 of 8 percent, convertible bridge
notes with detachable warrants (see below). The bridge notes and related accrued
interest were converted into common stock during June 1996 in exchange for
100,920 shares of common stock. A private offering of 349,080 shares of the
Company's common stock was completed during June and July 1996 resulting in net
proceeds of $573,497.
The Company has a $250,000 revolving credit agreement with a bank, of which
$213,000 was outstanding as of December 31, 1996. Interest is at 1% above the
prime rate. The agreement expires in January, 1998. Additionally, the Company
has a $117,000 unsecured, non-interest bearing demand note payable to a
stockholder which originated in connection with the purchase of certain optics
technology from this stockholder during August 1995. All outstanding borrowings
under these agreements were paid off with proceeds from the Company's initial
public offering during February 1997.
During February and March 1997, the Company completed an initial public offering
of 1,210,000 shares of its common stock at $6.00 per share resulting in gross
proceeds of $7,260,000 before deduction of offering expenses. The Company
believes the funds raised from its recent initial public offering will be
adequate to last through mid 1998. No assurance can be given that events and
circumstances may change and require additional capital at an earlier date. No
assurance can be given that any additional financing when needed will be
available on acceptable terms, if at all, and such financing may only be
available on terms dilutive to existing stockholders.
Working capital deficit increased $221,749 during the year ended December 31,
1996 to $355,585, as compared to $133,836 as of December 31, 1995. This increase
is principally due to $213,000 of borrowings under a revolving note payable to a
bank and a $212,950 increase in accounts payable, offset by a $100,616 increase
in inventories and an $83,912 increase in cash. The notes payable increase, net
of the increase in cash, was to fund operating losses. The accounts payable and
inventory increases are attributable to the Company purchasing component parts
for its SACMan and related products for future production, with accounts payable
also increasing for offering costs in connection with the Company's initial
public offering.
During July 1996 the Company issued stock options to employees and consultants
to purchase an aggregate of 173,000 shares of common stock at weighted average
exercise prices of $2.23 per share. Included in the 173,000 of options issued
are 134,000 of options issued to consultants. The estimated fair value of these
options is $125,000 and has been reflected as unearned compensation in the
Company's financial statements to be recognized as expense over the vesting term
of the related stock option agreements of three to five years. Compensation
expense related to the above was $13,000 during the year ended December 31,
1996.
Also, during May and August 1996, in connection with the issuance of convertible
bridge notes and the private offering of common stock discussed above, warrants
to purchase 91,639 shares of common stock were issued (includes 41,639 to the
underwriter of the private placement of common stock) at weighted average
exercise prices of $4.09 per share. In connection with the Company's initial
public offering, the Company issued warrants to the underwriter to purchase
44,469 shares of common stock at an exercise price of $7.20 per share.
During March 1997, the Company entered into a five year employment agreement
with its new Chief Operating Officer. The agreement provides for certain base
salary and incentive payments. In the event of constructive termination, as
defined, this individual is entitled to one year severance pay as defined (two
years in case of merger or acquisition. Additionally, the Company awarded this
individual options to purchase 130,000 shares of common stock at $6.43 per
share. The options vest five percent on June 30, 1997 and five percent each
quarter thereafter, such that on March 31, 1998, twenty percent of such options
are vested. The options vest twenty percent annually on each March 31
thereafter. The options expire during March 2004.
RECENTLY ISSUED ACCOUNTING STANDARD
During 1996, the Company implemented the disclosure requirements of Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Under SFAS 123, the Company will continue to account
for stock-based compensation under the intrinsic value method prescribed by
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees," (APB 25) and will provide proforma disclosures of net loss and loss
per share as if the fair value basis method prescribed in SFAS 123 had been
applied in measuring compensation expense. The proforma disclosure effect of
applying SFAS 123's fair value method to the Company's stock-based awards was
not material to reported results of operations through December 31, 1996.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements of SAC Technologies, Inc. are included herein at the indicated
page numbers:
Page No.
Report of Independent Certified Public Accountants F-1
Balance Sheets at December 31, 1995 and 1996 F-2
Statements of Operations - Years ended December 31, 1994, 1995 and 1996
and January 7, 1993 (date of inception ) through December 31, 1996 F-3
Statement of Stockholders' Equity (Deficit) - Years ended December 31, 1994,
1995 and 1996 and January 7, 1993 (date of inception) through
December 31, 1996 F-4
Statements of Cash Flows - Years ended December 31, 1994, 1995 and 1996
and January 7, 1993 (date of inception) through December 31, 1996 F-5
Notes to Financial Statements - December 31, 1994, 1995 and 1996 F-6
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
SAC Technologies, Inc.
We have audited the accompanying balance sheets of SAC Technologies, Inc. (a
Minnesota corporation in the development stage) as of December 31, 1995 and 1996
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996,
and the period January 7, 1993 (date of inception) through December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SAC Technologies, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, and the
period January 7, 1993 (date of inception) through December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Divine, Scherzer & Brody, Ltd.
St. Paul, Minnesota
March 21, 1997
SAC Technologies, Inc.
(a Corporation in the Development Stage)
BALANCE SHEETS
ASSETS (note D)
December 31,
------------------------
1995 1996
--------- ---------
CURRENT ASSETS
Cash and cash equivalents (note A2) $ 5,221 $ 89,133
Inventories (note A3) 5,613 106,229
Prepaid expenses 4,657 10,487
--------- ---------
Total current assets 15,491 205,849
EQUIPMENT AND FURNITURE AND FIXTURES - AT COST, less
accumulated depreciation (notes A4 and B) 6,415 41,936
OTHER ASSETS (notes A4, A5 and C) 2,233 157,478
--------- ---------
$ 24,139 $ 405,263
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable (note D) $ 142,000 $ 330,000
Accounts payable (note H) 6,304 219,254
Accrued liabilities 1,023 12,180
--------- ---------
Total current liabilities 149,327 561,434
COMMITMENTS AND CONTINGENCIES (notes E, F and H) - -
STOCKHOLDERS' EQUITY (DEFICIT) (notes D and F)
Common stock - authorized, 20,000,000 shares of $.01 par value
Class A - issued and outstanding, 1,029,375 and 0 shares 10,294 -
Class B - issued and outstanding, 1,029,375 and 0 shares 10,294 -
Common stock - issued and outstanding, 0 and 2,508,750 shares - 25,088
Additional contributed capital - 900,005
Deficit accumulated during the development stage (145,776) (969,264)
Unearned compensation (note A4) - (112,000)
--------- ---------
(125,188) (156,171)
--------- ---------
$ 24,139 $ 405,263
========= =========
The accompanying notes are an integral part of these statements.
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF OPERATIONS
January 7,
1993 (date
of inception)
Years ended December 31, through
--------------------------------------------- December 31,
1994 1995 1996 1996
----------- ----------- ----------- -----------
Revenues (notes A1 and H)
Jasper
Reimbursed research and development $ 76,000 $ 145,320 $ - $ 238,306
Other services 31,000 83,751 - 114,751
Technical support (note C) - - 32,000 32,000
----------- ----------- ----------- -----------
107,000 229,070 32,000 385,057
Costs and other expenses (note H)
Cost of other services and technical support 33,154 28,799 14,875 76,828
Selling, general and administrative 12,932 35,849 422,681 496,487
Research and development (note A6) 72,199 250,808 386,613 732,178
----------- ----------- ----------- -----------
118,285 315,456 824,169 1,305,493
----------- ----------- ----------- -----------
Operating loss (11,285) (86,386) (792,169) (920,436)
Other income (expense)
Interest income - - 4,288 4,288
Interest expense - - (35,607) (35,607)
----------- ----------- ----------- -----------
- - (31,319) (31,319)
----------- ----------- ----------- -----------
NET LOSS $ (11,285) $ (86,386) $ (823,488) $ (951,755)
=========== =========== =========== ===========
Loss per common share (note A7) $ - $ (.03) $ (.33) $ (.36)
=========== =========== =========== ===========
Weighted average number of shares outstanding (note A7) 2,646,917 2,642,201 2,530,284 2,616,391
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Notes D and F)
Common Stock Common Stock
------------------------ -----------------------
Class A Class B
------------------------ ------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
Sales of common stock January 7, 1993 787,500 $ 7,875 787,500 $ 7,875
Sale of common stock January 7, 1993
at $.04 per share 337,500 3,375 337,500 3,375
Contribution of services - - - -
Net loss for the period from January 7, 1993
(date of inception)
through December 31, 1993 - - - -
Net loss for the year ended December 31, 1994 - - - -
---------- ---------- ---------- ----------
Balance as of December 31, 1994 1,125,000 11,250 1,125,000 11,250
Redemption of director and officers common stock
August 4, 1995 at $0 per share (67,500) (675) (67,500) (675)
Sale of common stock August 4, 1995 at $.48 per share 236,250 2,363 236,250 2,363
Redemption of common stock August 4, 1995 at $.47 per share (168,750) (1,688) (168,750) (1,688)
Sale of common stock December 22, 1995 at $.34 per share 73,125 732 73,125 732
Redemption of common stock December 22, 1995 at $.44 per share (168,750) (1,688) (168,750) (1,688)
Net loss for the year ended December 31, 1995 - - - -
---------- ---------- ---------- ----------
Balance as of December 31, 1995 1,029,375 10,294 1,029,375 10,294
Conversion of Class A and B common stock into common stock (1,029,375) (10,294) (1,029,375) (10,294)
Issuance of detachable warrants on May 17, 1996,
in connection with bridge financing arrangements,
valued at $25,000, to purchase an aggregate of 50,000
shares of common stock at $2.00 per share - - - -
Sales of common stock during June and July, 1996 at
$2.00 per share, less offering costs of $124,663 - - - -
Conversion of bridge notes plus accrued interest of
$1,841 to common stock on June 28, 1996 at $2.00 per share - - - -
Unearned compensation grant - - - -
Compensation (note A4) - - - -
Net loss for the year ended December 31, 1996 - - - -
---------- ---------- ---------- ----------
Balance as of December 31, 1996 - $ - - $ -
========== ========== ========== ==========
(WIDE TABLE CONTINUED FROM ABOVE)
COMMON STOCK
-----------------------
SHARES AMOUNT
---------- ----------
Sales of common stock January 7, 1993 - $ -
Sale of common stock January 7, 1993
at $.04 per share - -
Contribution of services - -
Net loss for the period from January 7, 1993
(date of inception)
through December 31, 1993 - -
Net loss for the year ended December 31, 1994 - -
---------- ----------
Balance as of December 31, 1994 - -
Redemption of director and officers common stock
August 4, 1995 at $0 per share - -
Sale of common stock August 4, 1995 at $.48 per share - -
Redemption of common stock August 4, 1995 at $.47 per share - -
Sale of common stock December 22, 1995 at $.34 per share - -
Redemption of common stock December 22, 1995 at $.44 per share - -
Net loss for the year ended December 31, 1995 - -
---------- ----------
Balance as of December 31, 1995 - -
Conversion of Class A and B common stock into common stock 2,058,750 20,588
Issuance of detachable warrants on May 17, 1996,
in connection with bridge financing arrangements,
valued at $25,000, to purchase an aggregate of 50,000
shares of common stock at $2.00 per share - -
Sales of common stock during June and July, 1996 at
$2.00 per share, less offering costs of $124,663 349,080 3,491
Conversion of bridge notes plus accrued interest of
$1,841 to common stock on June 28, 1996 at $2.00 per share 100,920 1,009
Unearned compensation grant - -
Compensation (note A4) - -
Net loss for the year ended December 31, 1996 - -
---------- ----------
Balance as of December 31, 1996 2,508,750 $ 25,088
========== ==========
(WIDE TABLE CONTINUED FROM ABOVE)
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
CONTRIBUTED DEVELOPMENT UNEARNED
CAPITAL STAGE COMPENSATION TOTAL
------- ----- ------------ -----
Sales of common stock January 7, 1993 $ (15,747) $ - $ - $ 3
Sale of common stock January 7, 1993
at $.04 per share 18,250 - - 25,000
Contribution of services 11,250 - - 11,250
Net loss for the period from January 7, 1993
(date of inception)
through December 31, 1993 - (30,596) - (30,596)
Net loss for the year ended December 31, 1994 - (11,285) - (11,285)
--------- --------- --------- ---------
Balance as of December 31, 1994 13,753 (41,881) - (5,628)
Redemption of director and officers common stock
August 4, 1995 at $0 per share 1,350 - - -
Sale of common stock August 4, 1995 at $.48 per share 220,274 - - 225,000
Redemption of common stock August 4, 1995 at $.47 per share (154,798) - - (158,174)
Sale of common stock December 22, 1995 at $.34 per share 48,536 - - 50,000
Redemption of common stock December 22, 1995 at $.44 per share (129,115) (17,509) - (150,000)
Net loss for the year ended December 31, 1995 - (86,386) - (86,386)
--------- --------- --------- ---------
Balance as of December 31, 1995 - (145,776) - (125,188)
Conversion of Class A and B common stock into common stock - - - -
Issuance of detachable warrants on May 17, 1996,
in connection with bridge financing arrangements,
valued at $25,000, to purchase an aggregate of 50,000
shares of common stock at $2.00 per share 25,000 - - 25,000
Sales of common stock during June and July, 1996 at
$2.00 per share, less offering costs of $124,663 570,006 - - 573,497
Conversion of bridge notes plus accrued interest of
$1,841 to common stock on June 28, 1996 at $2.00 per share 179,999 - - 181,008
Unearned compensation grant 125,000 - (125,000) -
Compensation (note A4) - - 13,000 13,000
Net loss for the year ended December 31, 1996 - (823,488) - (823,488)
--------- --------- --------- ---------
Balance as of December 31, 1996 $ 900,005 $(969,264) $(112,000) $(156,171)
========= ========= ========= =========
The accompanying notes are an integral part of this statement.
SAC Technologies, Inc.
(a Corporation in the Development Stage)
STATEMENTS OF CASH FLOWS (Notes A2 and I)
January 7,
1993 (date
of inception)
Years ended December 31, through
---------------------------------------- December 31,
1994 1995 1996 1996
----------- ----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (11,285) $ (86,386) $ (823,488) $ (951,755)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation (note A4) - 509 3,226 3,735
Amortization (note A4)
Warrants - - 4,167 4,167
Unearned compensation - - 13,000 13,000
Interest converted to common stock (note D) - - 1,841 1,841
Revenues realized due to offset of billings against
a stock repurchase (note F) - (170,174) - (170,174)
Acquired research and development (note H) - 117,000 - 117,000
Contribution of services - - - 11,250
Change in assets and liabilities:
Inventories (3,705) (64) (100,616) (106,229)
Prepaid expenses - (4,657) (5,830) (10,487)
Accounts payable 10,028 (4,419) 212,950 219,254
Accrued liabilities 1,479 (480) 11,157 12,180
----------- ----------- ----------- -----------
7,802 (62,285) 139,895 95,537
----------- ----------- ----------- -----------
Net cash used in operating activities (3,483) (148,671) (683,593) (856,218)
Cash flows from investing activities
Capital expenditures - (6,924) (38,747) (45,671)
Security deposits - (2,233) (2,650) (4,883)
Patents and trademarks - - (4,534) (4,534)
----------- ----------- ----------- -----------
Net cash used for investing activities - (9,157) (45,931) (55,088)
Cash flows from financing activities
Net borrowings under short-term
borrowing agreements - 25,000 188,000 213,000
Issuance of convertible bridge notes - - 175,000 175,000
Issuance of warrants - - 25,000 25,000
Sales of common stock - 275,000 573,497 873,500
Redemption of common stock - (138,000) - (138,000)
Deferred offering costs - - (148,061) (148,061)
----------- ----------- ----------- -----------
Net cash provided by financing activities - 162,000 813,436 1,000,439
----------- ----------- ----------- -----------
Net increase (decrease) in cash (3,483) 4,172 83,912 89,133
Cash and cash equivalents at beginning of period 4,532 1,049 5,221 -
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,049 $ 5,221 $ 89,133 $ 89,133
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
SAC Technologies, Inc.
(a Corporation in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Business
SAC Technologies, Inc. was incorporated in Minnesota in January 1993 to
develop real time, stand-alone systems capable of identifying
individuals through automated fingerprint analysis for use in
controlling access to resources, information and facilities. The
Company is a development stage enterprise that conducts its operations
from Minnesota and Las Vegas.
From inception through most of 1996, the Company's development efforts
which by agreement (see note H) were to be funded by Jasper Consulting,
Inc. ("Jasper"), were principally focused on the development of its
fingerprint identification and analysis products. Jasper was a
stockholder of the Company from inception through December 1995. In the
second half of 1996, the Company began shifting its principal focus
from development to marketing and sales of its products. Broad
commercial acceptance of the Company's products by customers and end
users is critical to the Company's success and ability to generate
revenues. The Company has limited sales to date and has a limited
operating history upon which an evaluation of the Company and its
prospects can be based. The Company's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in the early stage of development. Although, the Company
believes operating losses may continue, the Company believes its
available capital resources are adequate to fund operations at least
through December 31, 1997.
The Company also completed development of a product which provides for
basic personal computer functions and Internet access via a wireless
keyboard and a conventional television set (the "Set Top Box").
However, the Company does not believe that promotion and marketing of
the "Set Top Box" is within its focus and, accordingly, conveyed the
technology in exchange for a 50% ownership interest in the initial
equity of Inter-Con/PC, Inc. ("Inter-Con"), a development stage
company, during October 1996. See note C for additional information.
Summary of Significant Accounting Policies
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
1. Revenue Recognition
Revenue is recognized from product sales and services when a product is
shipped or the services are provided, the sales price is fixed, and
when collection is considered probable. Where collectibility is
considered doubtful, revenue is recognized on the basis of cash
received (see note H).
2. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company
maintains its cash balances in four financial institutions in Minnesota
and Nevada.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
4. Depreciation and Amortization
Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated services lives
of five years using the straight-line method for financial reporting
purposes and accelerated methods for tax reporting purposes. Deferred
income taxes are provided for these differences.
Amortization of the discount on debt issuance is provided for on the
interest method over the term of the debt. Amortization of finance
costs is provided over the respective term of the debt agreement.
Costs associated with patents and trademarks are capitalized, and upon
issuance or approval, are amortized over sixty months or the remaining
life of the patent or trademark, whichever is shorter. If the patent or
trademark issuance approval is denied, the costs will be expensed at
that time.
Unearned compensation related to non-employee stock options is
amortized to expense over the vesting period of the stock options.
Forfeitures of nonvested options are recognized during the period the
forfeitures occur.
5. Other Assets
Deferred offering costs consist of legal fees and related expenses in
connection with the Company's initial public offering of common stock.
Such amounts will be reflected as an offset to the gross proceeds
received from this offering (see note F).
The Company's investment in the common stock of Inter-Con/PC, Inc. is
accounted for at cost plus equity in undistributed earnings (loss)
since the date of acquisition.
6. Research and Development Expenditures
All costs related to development of new products are charged to expense
as incurred. Such costs are required to be expensed until technological
feasibility and proven marketability of the product are established.
There have been no costs capitalized post technological feasibility.
7. Loss per Common Share
Loss per common share is determined by dividing the net loss by the
weighted average number of shares of common stock and common stock
equivalents outstanding.
Under Securities and Exchange Commission rules for initial public
offerings, common stock equivalents for all periods presented include
shares sold or options or warrants granted within twelve months prior
to the date of the Company's initial public offering (February 14,
1997) at per share prices less than that of the initial public offering
($6.00 per share) even if the impact is antidilutive.
8. Income Taxes
The Company provides for income taxes based on income reported for
financial reporting purposes. Certain charges to earnings differ as to
timing from those deducted for tax purposes; these relate primarily to
revenue recognition and net operating loss carry forwards. The tax
effect of these differences are recorded as deferred income taxes.
9. Accounting for Stock Based Compensation
During 1996, the Company implemented the disclosure requirements of
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Under SFAS 123, the Company
will continue to account for stock-based compensation under the
intrinsic value method prescribed by Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees," (APB 25) and
will provide pro forma disclosures of net loss and loss per share as if
the fair value basis method prescribed in SFAS 123 had been applied in
measuring compensation expense.
Pursuant to APB 25, no accounting recognition is given to employee
stock options issued at fair market value or greater until they are
exercised, at which time the proceeds are credited to the capital
accounts. With respect to non-statutory compensatory options, the
Company may recognize a tax benefit upon exercise of these options in
an amount equal to the excess of the fair market value of the common
stock over the option price on the day of the exercise. With respect to
incentive stock options, tax benefits arising from disqualifying
dispositions are recognized at the time of disposition. Tax benefits
related to stock options are credited to additional contributed
capital.
10. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE B - EQUIPMENT AND FURNITURE AND FIXTURES
December 31,
------------------------
1995 1996
-------- --------
Equipment $ 6,924 $ 43,320
Furniture and Fixtures - 2,351
-------- --------
6,924 45,671
Accumulated depreciation (509) (3,735)
-------- --------
$ 6,415 $ 41,936
======== ========
NOTE C - OTHER ASSETS
December 31,
------------------------
1995 1996
-------- --------
Deferred offering costs $ - $148,061
Security deposits 2,233 4,883
Patents - 4,534
Investment in affiliate (see below) - -
-------- --------
$ 2,233 $157,478
======== ========
During October 1996, the Company contributed its "Set Top Box"
technology to Inter-Con for a 50% ownership interest in the initial
equity of Inter-Con. Inter-Con is a development stage enterprise
founded in June 1996 to market and distribute the "Set Top Box" and
related products.
Costs associated with the development of the "Set Top Box" technology
prior to contribution have been expensed as research and development
costs since the technology had not reached technological feasibility
and proven marketability as of the date of transfer. Accordingly, the
Company's capitalized cost basis in the technology as of the date of
contribution was $0. Equity in undistributed net losses of Inter-Con
since acquisition approximated $100,000 as of December 31, 1996.
The Company will receive a 2% royalty on sales of Inter-Con through
November 2002 or until Inter-Con becomes a public company, as defined.
The Company has also entered into a technical support agreement with
Inter-Con for a fee of up to $20,000 per month. The technical support
agreement expires October 31, 1999, however, it is subject to three
successive one year periods at Inter-Con's option. During the year
ended December 31, 1996, no royalties were earned and $32,000 of
technical support fees were recognized and collected.
NOTE D - NOTES PAYABLE
December 31,
---------------------
1995 1996
-------- --------
Revolving line of credit $ - $213,000
Non-interest bearing demand note payable to
stockholder with interest imputed at 8%;
collateralized by a $117,000 receivable from
Jasper (note H) 117,000 117,000
Unsecured note payable to stockholder bearing
interest at 9% 25,000 -
-------- --------
$ 142,000 $330,000
========= ========
The Company entered into a revolving line of credit agreement with a
bank during January 1996, as amended during December 1996 and February
1997. The agreement provides for borrowings of up to $250,000 at 1%
above the prime rate of interest (effective rate of 9.25% at December
31, 1996), the note matures in January 1998. The agreement requires
paydown of outstanding balances to $100 for thirty days during the
year. The note is collateralized by substantially all assets and is
guaranteed by three stockholders.
In connection with issuance of $200,000 of 8% convertible bridge notes
in May 1996, the Company issued warrants to purchase 50,000 shares of
common stock (see note F). A total of $25,000 was assigned as the value
of the warrants and a corresponding $25,000 discount on debt issuance
was recorded.
During June 1996, the convertible bridge note holders converted the
bridge notes and $1,841 of related accrued interest at $2.00 per share
into 100,920 shares of common stock. In connection with this
conversion, the unamortized discount on convertible bridge notes of
$20,833 was also transferred to stockholders' equity.
During February 1997, all outstanding notes payable were paid.
NOTE E - COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company operates from leased facilities under noncancelable
operating leases that expire during August 1998 for its Minnesota
location and February 2000 for its Nevada location. The Company pays
for property taxes, maintenance, insurance, and other occupancy expense
applicable to the leased premises.
Minimum rental commitments of non-cancelable operating leases are
approximately as follows:
Year ending December 31,
1997 $ 55,000
1998 51,000
1999 36,000
2000 6,000
--------------
$ 148,000
==============
Rental expense was as follows:
Year ended December 31,
1994 $ 6,000
1995 11,094
1996 24,571
January 7, 1993 (date of inception) through
December 31, 1996 41,665
Employment Agreements
The Company has employment agreements with five individuals. The
employment agreements contain non-compete clauses that prohibit the
employees from being employed by a competitor of the Company. The
non-compete clause is in effect for two years for voluntary
terminations and three years for terminations with cause. In the event
of "constructive termination", as defined, the agreements provide each
employee with up to five years salary (as of December 31, 1996) reduced
by one month for each month thereafter until December 31, 2001, at
which time the amount of severance is two years. As of December 31,
1996, the aggregate commitment approximates $1,560,000.
NOTE F - STOCKHOLDERS' EQUITY
Initial Public Offering
During February and March 1997, the Company completed an initial public
offering of 1,210,000 shares of its common stock at $6.00 per share
resulting in gross proceeds of $7,260,000 before deduction of offering
expenses.
Authorized Capital and Stock Split
Originally, the Company authorized 1,000,000 shares of capital stock.
The Company's Class A and Class B common stock were identical in all
terms except the Class A stock has voting privileges. In April 1996,
the articles of incorporation were amended and restated to authorize
20,000,000 shares of $.01 par value common stock. The existing shares
of Class A and Class B common stock were converted into the new $.01
par value common stock. Concurrently, the Company declared a nine for
two stock split in the form of a stock dividend. The 1994 and 1995
financial statements and accompanying notes have been restated for the
changes in the authorized capital stock and the stock split.
During August 1995, the Company reacquired 67,500 shares each of Class
A and Class B common stock at no cost from its then existing
stockholders. Additionally, the Company reacquired all of the Company's
common stock held by Jasper during August and December 1995 for total
cash consideration of $138,000, plus a $170,174 non-cash reduction in
amounts billed to Jasper for research and development (note H).
1996 Stock Option Plan
During May 1996, the Board of Directors and stockholders of the Company
adopted the 1996 Stock Option Plan (the Plan). Under the Plan, 375,000
shares of common stock are reserved for issuance to employees,
officers, directors, and consultants of the Company at exercise prices
which may not be below 100% of fair market value for incentive stock
options and 85% for all others. Pursuant to the Plan, the term of
incentive stock options and nonstatutory stock options granted may not
exceed ten years. Options issued under the Plan vest pursuant to the
terms of stock option agreements with the recipients. In the event of a
change in control, as defined, all options outstanding vest immediately
and are exercisable for their remaining terms. The Plan terminates in
May 2006.
The Plan contains a director option formula arrangement. Pursuant to
the formula arrangement, each non-employee director, upon election to
the board of directors, will be granted options to purchase shares of
common stock equal to 25,000 multiplied by a percentage, the numerator
is the total months remaining between grant date and May 2001 and the
denominator is 60 months. The formula arrangement is reset every five
years (again in May 2001) whereby the numerator becomes the number of
months remaining between grant date and May 2006. The options vest
annually during May at 5,000 shares per year except the first partial
year vested amount represents that portion applicable to one twelfth of
the total number of months from grant date to the following May.
1996 Stock Option Plan
During July 1996, the Company issued 173,000 options to employees and
consultants at a weighted average exercise price of $2.23 per share. As
of December 31, 1996, all of the options remain outstanding and none of
the options are exercisable; the exercise prices of the options range
from $2.00 to $2.25 per share; and the weighted average remaining
contractual life of the options is 6.58 years. The estimated fair value
of the options granted during 1996 was $144,000.
The estimated fair value of the options granted to consultants was
$125,000. Initially, the total market value of the options is treated
as unearned compensation and is charged to expense over the respective
vesting periods.
Option Proforma Information
Had compensation cost for the Company's stock option plans been
determined at the grant date for stock options awarded pursuant to the
fair value method prescribed by SFAS 123 (see note A9), the Company's
net loss and net loss per share for the year ended December 31, 1996
and the period January 7, 1993 (date of inception) through December 31,
1996 would have been $842,488 and $.33, and $970,755 and $.37,
respectively. Proforma information for the year ended December 31, 1995
is not presented as there were no stock options awarded during this
period. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes options pricing model with the following
weighted average assumptions used for grants in 1996: (a) no dividends;
(b) expected volatility of 0%; (c) risk free interest rates of 6%; and
(d) expected lives of four years.
Warrants
The Company issued warrants to purchase shares of common stock to
convertible bridge note holders in May 1996 and to Tuschner & Company
("Agent") in September 1996 in connection with the Company's July 1996
private stock offering. Warrant activity is summarized as follows:
Exercisable
Price at
per Expiration December
Outstanding share date 31, 1996
----------- -------------- -------------- ----------
Balance December 31, 1995 - $ - - -
Granted to bridge noteholders A-E 43,750 2.00 1999 43,750
Granted to bridge noteholder F 6,250 6.00 1999 6,250
Granted to Agent 41,639 6.00 2001 -
------ ------
Balance December 31, 1996 91,639 50,000
====== ======
Exercised through December 31, 1996 -
======
In connection with the Company's initial public offering (see above),
the Agent received a five-year warrant to purchase 44,469 shares of
common stock at an exercise price of $7.20 per share. The warrant is
exercisable from February 1998 through February 2002. Additionally, in
connection with the above, the Agent and a warrant holder consented to
adjust the exercise price of their existing warrants to purchase 41,639
and 6,250 shares of common stock from $2.40 and $2.00 per share to
$6.00 per share, respectively. All Agent warrants have certain demand
registration rights.
During December 1996, the Company agreed to issue warrants to a
consultant to purchase 12,500 shares of common stock at $6.00 per
share. The warrants are exercisable for seven years.
NOTE G - INCOME TAXES
Deferred taxes consist of the following:
December 31,
------------------------
1996 1995
--------- ---------
Revenue recognition $ 157,000 $ 30,000
Net operating loss carryforwards 209,000 3,000
--------- ---------
366,000 33,000
Less valuation allowance (366,000) (33,000)
--------- ---------
$ - $ -
========= =========
Valuation allowances have been recorded due to uncertainty of
realization of deferred tax assets principally due to the development
stage nature and operating loss history of the Company. However, the
valuation allowances could be reduced or eliminated based on future
earnings and future estimates of taxable income.
As of December 31, 1996, the Company had federal and Minnesota net
operating loss carryforwards of approximately $544,000. These operating
losses expire between 2008 and 2011. Net operating loss carryforwards
available to offset future taxable income may be subject to the
limitations under Section 382 of the Internal Revenue Code due to
changes in the equity ownership of the Company.
NOTE H - RELATED PARTY TRANSACTIONS
Research and Development Arrangement With Jasper
The Company's more significant current product offerings incorporate
the Company's "Optic Technology" and "Biometric Solution" with "FIDS
Technology". The "FIDS Technology" was developed by the Company for
Jasper. The Company has licensed the "FIDS Technology" from Jasper. The
Company has a world-wide license agreement with Jasper for use of the
FIDS technology in all markets except for financial services, law
enforcement, national identification systems, and personal
identification systems for government and medical applications, which
market rights belong to Jasper. In addition, Jasper has a world-wide
license agreement with the Company for use of the "Optic Technology"
and "Biometric Solution" technology within Jasper's above described
markets.
Jasper agreed to fund research and development for the Company's
products from inception through April 1996 principally in consideration
of an assignment of the patent rights to the "FIDS" Technology.
Research and development funding after this date was the responsibility
of the Company. The Company maintains the patent rights to the
non-"FIDS" technologies.
The Company has billed various amounts for reimbursement under the
development arrangement with Jasper. Jasper has not paid the majority
of these billings. The Company believes Jasper does not have the
financial wherewithal to pay for such amounts. The Company has an
agreement with Jasper, whereby the Company may offset future product
royalties (see below) due to Jasper, if any, against outstanding
billings. The Company may also charge an additional $800 for each
product manufactured by the Company for Jasper.
The Company has sold no products which would require payment of
royalties to Jasper. The Company has no orders to manufacture products
on behalf of Jasper. No assurance can be given that future sales
subject to payment of royalty to Jasper or orders to manufacture
products on behalf of Jasper will occur in amounts sufficient to offset
the uncollected billings, if at all. Therefore, realizability of
outstanding billings to Jasper are not assured and have not been
recognized. Should outstanding billings to Jasper be collected in the
future, they will be reflected in income upon receipt.
The following summarizes outstanding billings to Jasper:
December 31,
---------------------
1995 1996
-------- --------
Research and development
Optics technology (note D) $117,000 $117,000
Other - 290,000
-------- --------
$117,000 $407,000
======== ========
Total costs incurred pursuant to the development arrangement with
Jasper were as follows:
Year ended December 31,
1994 $ 72,199
1995 236,891
1996 72,471
January 7, 1993 (date of inception) through
December 31, 1996 404,118
FIDS License Agreement With Jasper
The following are the more significant terms and conditions of the FIDS
license arrangement with Jasper:
* The Company and Jasper have the exclusive world wide license
rights to each others technologies, as defined (see note A).
* The Company is to pay a $30.50 per unit royalty to Jasper for
all sales made by the Company of products utilizing the "FIDS
Technology".
* The Company is to receive a $30.00 per unit royalty from
Jasper for sales made by Jasper of products utilizing the
"FIDS Technology".
* Jasper receives all rights to future modifications or
improvements made by the Company to the "FIDS Technology".
* The Company may not sell, assign, or transfer its "FIDS
Technology" or grant sublicenses without consent of Jasper. In
the event of sale, assignment, transfer, or sublicense of
"FIDS Technology" by the Company, 42% of any sales proceeds
are required to be remitted to Jasper and 10% to be retained
to fund ongoing development. Additionally, in the event of
sale, assignment, transfer, or sublicense of "FIDS Technology"
by Jasper, 42% of any sales proceeds are required to be
remitted to the Company, with 10% of such amount to be
utilized to fund ongoing development.
* The term of the agreement expires the later of April 2016 or
the date of the last patent to expire (as of December 31, 1996
no patents were issued, and none can be assured of being
issued).
There was no royalty income or expense during the periods presented.
Other Transactions or Agreements With Jasper
The Company has the exclusive right to manufacture certain products
sold by Jasper during the term of the license agreement discussed
above. Repayment of amounts due are subject to 45 day payment terms.
Total accounts payable to Jasper were $6,304 as of December 31, 1995.
Other Transactions
January 7,
1993 (date
of inception)
Years ended December 31, through
------------------------------------------------ December 31,
1994 1995 1996 1996
-------------- ------------- ------------ ---------------
Revenues from Jasper $ 107,000 $ 229,070 $ - $ 353,057
Revenues from Inter-Con
(see note C) - - 32,000 32,000
Purchase of optics technology
(see below) - 117,000 - 117,000
Purchase of component parts
from a company owned by
a stockholder - - 21,434 21,434
Payments for rent, assembly, and
computer aided design services
from an affiliate 48,893 22,156 - 77,049
Equipment purchased from
stockholder - 5,000 - 5,000
During August 1995, the Company purchased certain elements of its
"Optic Technology" from an individual who also purchased common stock
of the Company. The total purchase price of $117,000 was agreed to be
reimbursed by Jasper. See note D for information on related party notes
payable.
NOTE I - SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
January 7,
1993 (date
of inception)
Years ended December 31 through
------------------------------------------------ December 31,
1994 1995 1996 1996
------------- ------------- ------------- -----------------
1. Cash Paid for Interest
Expense and Income
Taxes
Interest $ - $ - $ - $ -
Income taxes - - 24,564 24,564
2. Noncash Financing
Activities
Common stock
repurchases - 170,174 - 170,174
Conversion of bridge
notes into
common stock - - 179,167 179,167
NOTE J - FAIR VALUES OF FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value
information as of December 31, 1995 and 1996 as required by FASB
Statement 107. Such information, which pertains to the Company's
financial instruments, is based on the requirements set forth in that
Statement and does not purport to represent the aggregate net fair
value of the Company. All material financial instruments as of December
31, 1995 and 1996 for which it is practicable to estimate the value,
approximated fair value because of the short maturity of those
instruments.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Certain information about the Company's executive management and members of the
Board of Directors is presented in the table below.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
DIRECTOR
NAME AGE POSITIONS HELD SINCE
- ---- --- -------------- -----
Barry M. Wendt (1) 49 Chief Executive Officer, Chairman
of the Board 1993
Richard T. Fiskum (1) 46 President, Director 1995
Gary E. Wendt (1) 55 Chief Financial Officer, Director 1993
Benedict A. Wittig (1) 54 Secretary, Director 1993
Timothy N. Tracey 42 Chief Operating Officer
- ------------------------------
(1) Member of the Committee for the 1996 Stock Option Plan
BARRY M. WENDT, Chief Executive Officer and Chairman of the Board since
inception of the Company, manages engineering and marketing. From 1993 to 1994
Mr. Wendt also acted as the part-time and temporary Chief Executive Officer of
Esprit Technologies, Inc., a computer manufacturer which produced high speed PCs
marketed primarily to government and industry in the Midwest. From 1988 to 1995
Mr. Wendt worked for (and was the CEO from 1992 to 1995 of) The Technology
Congress, Ltd., a service bureau which supported primarily Fortune 500 companies
in CAD/CAM/CAE laser plotting, scanning, and electrical testing with emphasis on
photo-tooling for the fabrication industry. The Technology Congress, Ltd. filed
for protection under Chapter 11 of the United States Bankruptcy Code in August,
1994 and was ultimately liquidated under Chapter 7 of the Bankruptcy Code in
July, 1995. From 1985 to 1988 Mr. Wendt was the President and owner of BMW
Research, a sole proprietorship specializing in the independent research and
development of contract design of electronic products. Mr. Wendt was President
of Custom Computer Systems, Inc., a company specializing in the design,
manufacture, and sale of small business computer systems. Mr. Wendt received a
Bachelor of Science degree in Electronic Engineering from Florida International
University, a diploma in RF and Consumer Electronic systems from the De Vry
Institute of Technology, and an Associate of Science in Electronic Engineering
from Gulf Coast Community College. Mr. Wendt is the brother of Gary E. Wendt,
Chief Financial Officer and a Director of the Company.
RICHARD T. FISKUM, President, and a Director since August, 1995, manages and has
an active role in the development of imaging systems and oversees and directs
all manufacturing operations. From 1980 to 1996, Mr. Fiskum was Chief Executive
Officer of Industrial Research and Development, Inc., an enterprise wholly owned
by Mr. Fiskum specializing in prototype to production process development and
manufacturing of precision glass, ceramic, and plastic components and assemblies
for industrial and medical applications. From 1975 to 1980 he was a Vice
President of Litchfield Precision Components, Inc., a manufacturer of chemically
milled glass and metal components. Mr. Fiskum attended Moorhead State University
where he studied physics, chemistry, mathematics, and computer science.
GARY E. WENDT, Chief Financial Officer and a Director of the Company since
inception, prepares the Company's financial reports and administers accounting
operations. From 1993 to 1994 Mr. Wendt was Treasurer and Chief Financial
Officer of Esprit Technologies, Inc., a computer manufacturer which produced
high speed PCs and marketed primarily to government and industry in the Midwest.
From 1988 to 1995 he was Secretary-Treasurer and Chief Financial Officer of The
Technology Congress, Ltd. The Technology Congress, Ltd. filed for protection
under Chapter 11 of the United States Bankruptcy Code in August, 1994, and was
ultimately liquidated under Chapter 7 of the Bankruptcy Code in July, 1995. From
1979-1985 Mr. Wendt was a systems analyst for Custom Computer Systems, Inc. Mr.
Wendt attended Metropolitan State University, North Hennepin Community College,
and the Academy of Accountancy where he was certified in public accounting. Mr.
Wendt is not a Certified Public Accountant. Mr. Wendt is the brother of Barry M.
Wendt, Chief Executive Officer and Chair of the Board of the Company.
BENEDICT A. WITTIG, Director of Systems Software, Secretary and a member of the
Company's Board of Directors since inception, manages all software projects and
is actively involved in software development. From 1993 to 1994 Mr. Wittig was a
Systems Software Manager for Esprit Technologies, Inc., a computer manufacturer
which produced high speed PCs and marketed primarily to government and industry
in the Midwest. From 1983 to 1993, Mr. Wittig was an independent software
developer specializing in software systems for processor controlled hardware.
Prior to 1983, he worked as Staff Systems Programmer for Northern Telecom, Inc.
and as Diagnostic Programmer for Control Data Corporation. Mr. Wittig received
both a Master of Science in Electronic Engineering and a Bachelor of Science in
Electronic Engineering from the University of Missouri.
TIMOTHY N. TRACEY, Chief Operating Officer, has been recently hired to manage
the operations of the Company as well as assist in finance matters. From 1994 to
1996, Mr. Tracey served as Vice President - Currency Handling Systems of
Lefebure, Inc., a manufacturer of currency handling systems and security
equipment. From 1991 to 1993, Mr. Tracey was President and Founder of National
Payment Corporation which provides on-line electronic payment services to small
and medium sized businesses. From 1989 to 1991, Mr. Tracey was President and
Founder of Barrington Corporation which specialized in electronic funds transfer
for smaller financial institutions. From 1988 to 1989, Mr. Tracey served as
Director of New Business Development for Microrim, Inc., a personal computer
database software company. From 1980 to 1988, Mr. Tracey was Senior Marketing
Manager of Honeywell, Inc. From 1976 to 1978, Mr. Tracey was a Overseas
Operations Manger for AT&T Long Lines. Mr. Tracey received a Masters in Business
Administration from Harvard Business School and a Bachelor of Arts from Columbia
University.
All of the foregoing individuals have executed employment agreements and
noncompetition letters containing nondisclosure obligations and, except as
prohibited by law, the obligation to assign to the Company all ideas and
inventions which relate indirectly or directly to the Company's business.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has a Committee for administration of its 1996 Stock Option Plan (the
"Plan"), composed of four of the current officers and directors which (i)
administers the Plan; (ii) determines the purchase price of the common stock
covered by each option; determines the persons to whom and the time or times at
which options or stock awards shall be granted pursuant to the Plan; (iii)
determines the number of shares subject to each option or stock award granted
under the Plan; and (iv) authorizes and directs the issuance of the common
shares upon stock awards and the exercise of options granted pursuant to the
Plan.
All directors, officers and beneficial owners of more than ten percent of the
Company's Common Stock registered pursuant to section 12 have complied with
Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides certain summary information for the past three
years ended December 31, 1994, December 31, 1995 and December 31, 1996
concerning executive compensation paid or accrued by the Company to the
Company's Chief Executive Officer. Other than as listed below, no executive
officers salary and bonus compensation for 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
FISCAL SECURITIES UNDERLYING
NAME AND PRINCIPAL YEAR SALARY BONUS OTHER OPTIONS
- ------------------ ---- ------ ----- ----- -------
POSITION
- --------
Barry M. Wendt 1996 $97,672 -- $7,614 None
(Chief Executive Officer) 1995 40,584 -- 1,621 None
1994 17,533 -- -- None
Other Compensation includes group health insurance premiums and a vehicle
allowance. Additional columns required by Securities and Exchange Commission
rules to be included in the foregoing table, and certain additional tables
required by such rules, have been omitted because no compensation required to be
disclosed therein was paid or awarded to the Named Executive Officer.
OUTSIDE DIRECTOR COMPENSATION
Members of the Board have received no cash compensation for serving on the
Board. Pursuant to the Company's 1996 Stock Option Plan, each future
non-employee Director will receive options to purchase 25,000 shares of common
stock which will vest 20% annually for five years. Five years after the initial
grant of an option to a non-employee director, and every fifth year thereafter,
non-employee directors who remain on the Board shall automatically be granted
additional options to purchase 25,000 shares of Common Stock which shall vest
20% on May 1 of each year over a period of five years. All options granted to
non-employee directors shall have an exercise price equal to 100% of the fair
market value of a share of the Company's Common Stock which, if the stock is
listed on an exchange or traded over-the-counter, shall be equal to the average
of the reported bid and asked prices as of the date of valuation determination.
1996 STOCK OPTION PLAN
The Company's Board of Directors and shareholders adopted the 1996 Stock Option
Plan on May 1, 1996 (the "Stock Option Plan"). The Stock Option Plan provides
for the reservation of 375,000 shares of Common Stock for issuance pursuant to
the exercise of stock options which may be granted to employees, officers,
directors and consultants of the Company, and permits granting both incentive
stock options (as defined under Section 422 of the Code) and options which do
not qualify as incentive stock options ("nonqualified stock options").
The Plan is administered by a committee appointed by the Board of Directors of
the Company (the "Committee"). The Committee, by action of a majority of its
members, has the authority to establish rules for administering and interpreting
the Plan. The Committee has the authority to select individuals to whom awards
are granted and the timing of such awards; to adopt, amend, and rescind
administrative and interpretive rules and regulations relating to the Plan; and
to make all other determinations necessary or advisable for administering the
Plan. The committee shall be under no duty to provide terms of like duration for
options granted under the Plan, but the term of an incentive stock option may
not extend more than ten (10) years from the date of granting of such option.
The Stock Option Plan also provides for the acceleration of the vesting of
unvested options upon a "Change of Control" of the Company. A Change of Control
is defined in the Stock Option Plan to include (i) a sale or transfer of
substantially all of the Company's assets; (ii) the dissolution or liquidation
of the Company; (iii) a merger or consolidation to which the Company is a party
and after which the prior shareholders of the Company hold less than 50% of the
shares of the surviving entity; (iv) if any person becomes a "beneficial owner"
of more than 50% of the combined voting power of the Company's outstanding
securities; (v) the incumbent directors cease to constitute at least a majority
of the Board; or (vi) a change in control of the Company which would otherwise
be reportable under Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended.
The exercise price per share of stock purchasable under any incentive stock
option granted pursuant to the Stock Option Plan will be determined by the
Committee, but shall not be less than 100% of the fair market value of the stock
on the date of the grant of such option. The option price for options granted
under the Stock Option Plan which do not qualify as incentive stock options
shall also be determined by the Committee, but may not be less than 85% of the
fair market value of the Common Stock at the date of granting of such option.
No option granted under the Plan is transferable by an optionee, other than by
will or the laws of descent or distribution. With few exceptions, during the
lifetime of an optionee the option shall be exercisable only by such optionee.
The foregoing is a brief summary of the provisions of the Plan and does not
purport to be a complete statement of its respective terms and conditions.
EMPLOYMENT AND CONSULTING AGREEMENTS
On May 10, 1996, the Company entered into a five-year Employment Agreement with
four of the Company's officers: Barry M. Wendt, Chief Executive Officer; Richard
T. Fiskum, President; Benedict A. Wittig, Secretary; and Gary E. Wendt, Chief
Financial Officer. The terms of the Employment Agreements for each of the above
individuals are substantially the same, with differences only as to base salary.
Each officer and director may be terminated only for "cause" as that term is
defined in the Employment Agreements. In the event of termination without cause,
each employee with severance for the greater of (1) the number of years or
portions thereof are remaining between May 10, 1996 and December 31, 2001 or (2)
two years. The Employment Agreements also contain confidentiality obligations
and incorporate a Non-Competition Letter. The Non-Competition Letter prohibits
these individuals from competing with the Company for a period of three years if
the Company terminates the employment of any one of the said individuals for
cause, and a period of two years if any individual voluntarily terminates
employment. In the event of a "constructive termination" as defined in the
Employment Agreements, including such matters as an adverse change in an
employee's status or position in the Company, a reduction of such employee's
base salary other than for austerity purposes, or the breach by the Company of
any of its other contractual obligations for other than austerity reasons, the
employee's noncompetition obligations lapse, and the employee's salary will be
continued for up to two years. Except as may be prohibited by law, during the
term of the Employment Agreements, each of the said employees are obligated to
disclose and assign to the Company all ideas, inventions and business plans
developed by each of them which relate directly or indirectly to the Company's
business.
On March 24, 1997, the Company entered into an Employment Agreement (which
expires on March 24, 2002) with Timothy N. Tracey, Chief Operating Officer.
Under the terms of the Employment Agreement, Mr. Tracey may be terminated for
"cause," as that term is defined in the Employment Agreement, or without "cause"
at any time upon ninety (90) days prior written notice. In the event of
involuntary termination without "cause" or "constructive termination" as defined
in the Employment Agreement, including such matters as an adverse change in Mr.
Tracey's status or position in the Company, a reduction of his base salary other
than for austerity purposes, or the breach by the Company of any of its other
contractual obligations for other than austerity reasons, Mr. Tracey's salary
will be continued for up to one year (two years in the case of a merger or
acquisition). The Employment Agreement also contains confidentiality obligations
and incorporates a Non-Competition Letter.
OTHER EMPLOYEE BENEFITS
Each officer and director of the Company receives a vehicle allowance of $300
per month. The Company provides standard health insurance packages to its
officers, directors and employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the information as of March 26, 1997, regarding
beneficial ownership of the Company's common stock for (i) all directors and
each executive officers named in the Summary Compensation table set forth in
"Executive Compensation," (ii) all directors and executive officers as a group
and (iii) each person known by the Company to be the beneficial owner of 5% or
more of the outstanding shares of common stock of the Company.
Title of Class Name and Address of Beneficial Amount and Nature of Percent of Class
Owner Beneficial Ownership
Common Stock Barry M. Wendt(1) 618,750 16.64
7201 York Avenue South
Apartment 211
Edina, MN 55435
Common Stock Richard T. Fiskum 618,750 16.64
28690 - 660th Avenue
Litchfield, MN 55355
Common Stock Gary E. Wendt 202,500 5.45
3738 St. Phillip Court
North Las Vegas, NV 89031
Common Stock Benedict A. Wittig 618,750 16.64
10264 Scarborough Circle
Bloomington, MN 55432
Common Stock All above officers and 2,058,750 55.36
Directors as a group (4
persons)
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(1) Barry M. Wendt also maintains a residence at 9708 Park Brook Avenue, Las
Vegas, Nevada 89134.
No arrangements currently exist with the Company which may result in a change of
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 4, 1995, Barry M. Wendt and Benedict A. Wittig, officers and directors
of the Company, each received 618,750 shares of the Company's Class A and Class
B common stock in a recapitalization of their previous equity interests in the
Company. Concurrently, Gary E. Wendt, a third officer and director, received
202,500 shares of the Company's Class A and Class B common stock in a
recapitalization of his previous interests in the Company. Each of these
individuals had previously paid $1.00 for their interests in the Company. On
April 24, 1996, all of these shares were converted into shares of common stock
of one class.
On August 4, 1995, Richard T. Fiskum, an officer and director of the Company,
purchased 472,500 shares of the Company's Class A and Class B common stock for
$225,000. Also, on December 22, 1995 Mr. Fiskum purchased an additional 146,250
shares of the Company's Class A and Class B common stock for $50,000. On April
24, 1996, all of these shares were converted into shares of common stock of one
class.
During August and December, 1995 the Company repurchased all of the shares of
common stock held by Jasper for a total price of $308,174, of which $138,000 was
paid in cash. This price was commensurate with the then aforementioned most
recent sales price of the Company's Common Stock to Mr. Fiskum.
On May 17, 1996, the Company, with the Underwriter as its selling agent,
completed a bridge loan pursuant to which it raised a total of $200,000, less a
commission and expense allowance to Tuschner of $8,660 (the "Bridge Loan").
Investors in the Bridge Loan received a promissory note bearing interest at a
rate of eight percent (8%) (the "Convertible Note"). Each Convertible Note
converted into shares of the Company's Common Stock at a price of $2.00 per
share upon completion of the private placement described below. The lenders in
the Bridge Loan also received warrants to purchase an aggregate 50,000 shares of
Common Stock at $2.00 per share.
On July 17, 1996, the Company, with Tuschner & Company as its selling agent,
completed a $900,000 private placement of its Common Stock at a per share price
of $2.00. Of this $900,000, $200,000 was represented by the conversion of the
Convertible Notes. Tuschner & Company, as the underwriter, received a commission
and expense allowance in an approximate amount of $110,279 and a warrant to
purchase 41,639 shares of Common Stock which has an adjusted exercise price of
$6.00 per share.
The Company intends to contract with Industrial Research & Development, Inc.
("IR-D"), a company formally owned by Richard T. Fiskum, to manufacture initial
prototypes and pre-production optics assemblies. The arrangement with IR-D is
not intended to be a long-term or exclusive relationship and will be structured
on a competitive basis. During 1996, the Company purchased $21,434 of component
parts from IR-D.
During Mr. Fiskum's development of the Optic Technology, he purchased certain
inventory and supplies totaling approximately $70,000. Mr. Fiskum believes these
items could be used in the manufacture of products for Jasper. The Company and
Mr. Fiskum have an understanding whereby if such inventory and supplies are
needed by the Company, the Company will purchase such items from Mr. Fiskum at a
fair price, as determined in good faith by the parties.
In connection with its initial public offering in February of 1997, the Company
adjusted the exercise price of a warrant issued to one of the lenders who
participated in the Bridge Loan from $2.00 per share to $6.00 per share.
During March 1997, the Company entered into a five year employment agreement
with Timothy N. Tracey, Chief Operating Officer. The agreement provides for an
initial base salary of $167,000 and incentive payments. In the event of
constructive termination, as defined, Mr. Tracey is entitled to one year
severance pay as defined (two years in the case of merger or acquisition).
Additionally, the Company awarded Mr. Tracey options to purchase 130,000 shares
of common stock at $6.43 per share. The options vest five percent on June 30,
1997 and five percent each quarter thereafter, such that on March 31, 1998,
twenty percent of such options are vested. The options vest twenty percent
annually on March 31 thereafter. The options expire during March 2004.
Other than as listed above, the Company has not entered into any other material
transactions with any of its officers, directors or affiliates. The Company or
its affiliates will not engage in any future material transactions with its
officers, directors or affiliates, unless the transactions are (i) on terms no
less favorable to the Company or its affiliates than those that are generally
available from unaffiliated third parties, and (ii) ratified by a majority of
independent outside members of the Company's Board of Directors who do not have
an interest in the transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following portions of Item 13 are submitted as separate sections of this
report:
(a) (1) -List of financial statements
(a) (2) -List of exhibits
(a) (3) -Exhibits
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the three months prior to December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registration has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SAC TECHNOLOGIES, INC.
March 28, 1997 /s/ Barry M. Wendt
------------------
Date Barry M. Wendt, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the dates indicated.
Each person whose signature appears below constitutes and appoints Barry M.
Wendt as their true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-KSB
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorney-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Signature Title Date
/s/ Barry M. Wendt March 28, 1997
-------------------------
Barry M. Wendt Chairman, Chief Executive
Officer and Director (Principal
Executive Officer)
/s/ Richard T. Fiskum March 28, 1997
-------------------------
Richard T. Fiskum President and Director
/s/ Gary E. Wendt March 28, 1997
-------------------------
Gary E. Wendt Chief Financial Officer and
Director (Principal Financial
and Accounting Officer)
/s/ Benedict A. Wittig March 28, 1997
-------------------------
Benedict A. Wittig Secretary and Director
/s/ Timothy N. Tracey March 28, 1997
-------------------------
Timothy N. Tracey Chief Operating Officer
The annual report to security holders covering the registrant's last fiscal
year, proxy statement, form of proxy and other proxy soliciting materials with
respect to registrant's annual meeting of security holders will be furnished to
security holders subsequent to the filing of the annual report on this Form. The
registrant shall furnish copies of such material to the Commission when it is
sent to security holders.
ANNUAL REPORT ON FORM 10-KSB
ITEM 13(a)(1)
LIST OF FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31,1996
SAC TECHNOLOGIES, INC.
EDINA, MINNESOTA
Report of Independent Certified Public Accountants
Balance Sheets as of - December 31, 1995 and 1996
Statements of Operations - For the Years ended December 31, 1994, 1995 and 1996
and January 7, 1993 (date of inception) through December 31, 1996
Statement of Shareholders' Equity (Deficit) - For the Years ended December 31,
1994, 1995 and 1996 and January 7, 1993 (date of inception) through
December 31, 1996
Statement of Cash Flows - For the Years ended December 31, 1994, 1995 and 1996
and January 7, 1993 (date of inception) through December 31, 1996
Notes to Financial Statements - December 31, 1994, 1995 and 1996
ANNUAL REPORT ON FORM 10-KSB
ITEM 13(a)(2) LISTING OF EXHIBITS
AND
ITEM 13(a)(3)-EXHIBITS
YEAR ENDED DECEMBER 31,1996
SAC TECHNOLOGIES, INC.
EDINA, MINNESOTA
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K
a. Exhibits
Exhibit No. Exhibit
- ----------- -------
3.1 Amended and Restated Articles of Incorporation of small busines
issuer
3.2 Amended and Restated Bylaws of small business issuer
4.1 Specimen of Common Stock Certificate
10.1 SAC Technologies, Inc. 1996 Stock Option Plan
10.2 License and Marketing Agreement by and among Harinder S. Takhar,
Barry M. Wendt, Benedict A. Wittig and Richard T, Fiskum, Jasper
Consulting, Inc. and the Company dated April 26, 1996 (with OEM
Agreement by and between Jasper Consulting, Inc. and the Company
dated April 26, 1996 attached as Exhibit A)
10.3 Employment Agreement by and between Barry M. Wendt and the Company
dated as of May 10, 1996 (with Non-Competition Letter effective
May 10, 1996 attached as Exhibit A)
10.4 Employment Agreement by and between Richard T. Fiskum and the
Company dated as of May 10, 1996 (with Non-Competition Letter
effective May 10, 1996 attached as Exhibit A)
10.5 Employment Agreement by and between Gary E. Wendt and the Company
dated as of May 10, 1996 (with Non-Competition Letter effective
May 10, 1996 attached as Exhibit A)
10.6 Employment Agreement by and between Benedict A. Wittig and the
Company dated as of May 10, 1996 (with Non-Competition Letter
effective May 10, 1996 attached as Exhibit A)
10.7 Employment Agreement by and between Timothy N. Tracey and the
Company dated as of March 24, 1997 (with Non-Competition Letter
effective March 27, 1997 attached as Exhibit A)
10.8 Technical Support and Cooperative Development Agreement by and
between the Company and Inter-Con/PC, Inc. effective November 1,
1996 (with Exhibits A-C)
11.1 Computation of Per Share Loss
21.1 Subsidiaries of the Registrant
25.1 Power of Attorney (included in the signature page to the
Registrant Statement)
27.1 Financial Data Schedule
Exhibit 10.7 is on page 37. Exhibit 11.1 is on page 47. Exhibit 21.1 is on page
48. Exhibit 27.1 is on page 48. The remaining exhibits are incorporated by
reference to the corresponding exhibit numbers from the Registration Statement
on Form SB-2, Commission File No. 333-16451.
b. Reports on Form 8-K
None.
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Being filed pursuant to Item 601 (b)(10)(ii)(A) of Regulation S-B