AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998 REGISTRATION NO. 333-16451 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------- SAC TECHNOLOGIES, INC. (Name of Small Business Issuer in its Charter) MINNESOTA 3577 41-1741861 (State or other jurisdiction (Primary standard industrial (I.R.S. Employer of incorporation) classification code number) Identification Number) 4444 WEST 76TH STREET, SUITE 600, EDINA, MINNESOTA 55435 (612) 835-7080 (Address and Telephone Number of Principal Executive Offices) ----------------------- BARRY M. WENDT, CHIEF EXECUTIVE OFFICER SAC TECHNOLOGIES, INC., 4444 WEST 76TH STREET, SUITE 600, EDINA, MINNESOTA 55435 TELEPHONE: (612) 835-7080 TELEFAX: (612) 835-6620 (Name, Address, and Telephone Number of Agent for Service) ----------------------- Copies to: STEPHEN E. SMITH, ESQ. DANIEL R. TENENBAUM, ESQ. SANDRA SCHREUR JONES, ESQ. DOHERTY, RUMBLE & BUTLER PROFESSIONAL ASSOCIATION 3500 FIFTH STREET TOWERS, 150 SOUTH FIFTH STREET MINNEAPOLIS, MINNESOTA 55402 TELEPHONE: (612) 340-5555 TELEFAX: (612) 340-5584 ----------------------- APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement as determined by market conditions and other factors. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: |_| If any of the securities being registered on this form are being offered on a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of 1933, check the following: |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| - ----------------------------------------------------------------------------------------------------- Proposed Proposed maximum maximum Title of securities Amount to be offering price aggregate Amount of to be registered registered per share(2) offering price(2) registration fee - ----------------------------------------------------------------------------------------------------- Common Stock 1,455,170 shares(1) $4.84 $7,043,022.88 $2,360 ($.01 par value) - ----------------------------------------------------------------------------------------------------- (1) One million four hundred fifty five thousand and eight (1,455,170) shares underlying warrants, stock options and convertible debentures. (2) Estimated pursuant to Rule 457(c), solely for the purpose of calculating the registration fee, based on the average of the high and low sale prices per share of Common Stock, as reported on the Nasdaq SmallCap Market, on August 12, 1998. -------------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ PART I INFORMATION REQUIRED IN PROSPECTUS SUBJECT TO COMPLETION AUGUST 14, 1998 PROSPECTUS 1,455,170 SHARES SAC TECHNOLOGIES, INC. COMMON STOCK ------------------------ This Prospectus relates to the resale of up to 1,455,170 shares of Common Stock, $.01 par value per share (the "COMMON STOCK"), of SAC Technologies, Inc., a Minnesota corporation (the "COMPANY"), underlying certain warrants, stock options and convertible debentures issued to certain investors (the "SELLING SHAREHOLDERS") by the Company. See "Selling Shareholders." The securities covered by this Prospectus consist of (i) 83,278 shares of the Company's Common Stock issuable upon exercise of a warrant issued to Tuschner & Company, Inc. as partial compensation for acting as the Company's agent in the Company's 1996 Private Placement; (ii) 87,062 shares of the Company's Common Stock issuable upon exercise of a warrant issued to Tuschner & Company, Inc. as partial compensation for serving as the Company's underwriter in the Company's initial public offering; (iii) 200,000 shares of the Company's Common Stock issuable upon exercise of a warrant issued to Tuschner & Company, Inc. in exchange for Tuschner & Company, Inc.'s agreement to waive its right of first refusal to sell the securities of the Company; (iv) 18,000 shares of the Company's Common Stock issuable upon exercise of a nonqualified stock option issued to Miros, Inc. in conjunction with the Company's strategic alliance agreement with Miros, Inc.; (v) 916,668 shares of the Company's Common Stock issuable to the Shaar Fund upon conversion of a currently outstanding 5% Convertible Debenture of the Company (the "Convertible Debenture") or in payment of any interest on the Convertible Debenture that the Company may pay in shares of its stock; (vi) 100,000 shares of the Company's Common Stock issuable upon exercise of a warrant issued to the Shaar Fund in conjunction with the Convertible Debenture; (vii) 50,000 shares of the Company's Common Stock issuable upon exercise of a warrant issued to Corporate Capital Management in conjunction with the Company's transaction with the Shaar Fund. The warrants listed in (i) and (ii) above were assigned to 19 individuals in March and July of 1998. Tuschner & Company, Inc. still holds residual warrants to purchase 89,575 shares of the Company's Common Stock. The Convertible Debenture and accrued interest would convert into 916,668 shares of the Company's Common Stock at a conversion price of $3.00 per share. On November 23, 1998, the market price of the Company's common stock was $3.375. The securities covered by this Prospectus may be sold from time to time by the Selling Shareholders, and such resales may be effected in one or more transactions that may take place on the NASDAQ SmallCap Market and Boston Stock Exchange, including ordinary brokers' transactions, privately negotiated transactions or through sales to one or more dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Shareholders. The Selling Shareholders and intermediaries through whom such securities are sold may be deemed "underwriters" within the meaning of the Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to the securities offered hereby, and any profits realized or commissions received may be deemed underwriting compensation. The Company has agreed to indemnify the Selling Shareholders against certain liabilities, including liabilities under the Securities Act. The Company will not receive any proceeds from the sale of Common Stock by the Selling Shareholders. The Company would receive an aggregate of approximately $1,773,177 upon the exercise of all of the warrants and stock options by Selling Shareholders. See "Use of Proceeds" and "Selling Shareholders". The Company's Common Stock is currently traded on the Nasdaq SmallCap Market ("NASDAQ") under the symbol SACM and the Boston Stock Exchange under the symbol SAC. 2 THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE RESPECTIVE DATES AS TO WHICH THE INFORMATION HAS BEEN GIVEN HEREIN OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. The date of this Prospectus is August 14, 1998. 3 TABLE OF CONTENTS PURSUANT TO ITEM 502(f) ITEM NUMBER IN FORM S-3 AND TITLE OF ITEM LOCATION IN PROSPECTUS -------------------------- ---------------------- Item 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus ......................... 1,2 Item 2. Inside Front and Outside Back Cover Pages of Prospectus ............................................ 5,22 Item 3. Summary Information and Risk Factors .............................. 6 Item 4. Use of Proceeds................................................... 16 Item 5. Determination of Offering Price ...................... Not applicable Item 6. Dilution ............................................. Not applicable Item 7. Selling Security Holders ........................................ 16 Item 8. Plan of Distribution ............................................. 20 Item 9. Description of Securities to Be Registered ........... Not applicable Item 10 Interests of Named Experts and Counsel ........................... 21 Item 11. Material Changes ..................................... Not applicable Item 12 Incorporation of Certain Information by Reference ........................................................ 21 Item 13 Disclosure of Commission Position on Indemnification for Securities Act Liabilities ................... 22 Item 14 Other Expenses of Issuance and Distribution ...................... 23 Item 15 Indemnification of Directors and Officers ........................ 23 Item 16 Exhibits ......................................................... 24 Item 17 Undertakings...................................................... 25 4 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and in accordance therewith files reports, proxy and information statements and other information with the Securities and Exchange Commission (the "COMMISSION"). Such reports, proxy and information statements and other information filed by the Company can be inspected and copied at the public reference facilities of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the following Regional Offices: 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies can be obtained from the Commission by mail at prescribed rates. Requests should be directed to the Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, DC 20549. The Commission also maintains a web site (http:/www.sec.gov) that contains reports, proxy and information statements and other information regarding the Company. The Company has filed with the Commission a Registration Statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and to the exhibits filed therewith. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. The Registration Statement, together with the exhibits thereto, may be inspected without charge at the offices of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, and copies of all or any part of the Registration Statement may be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549, upon the payment of the fees prescribed by the Commission, and may be viewed at or printed from the Commission's website. The Company will provide, without charge to each person, including any beneficial owner, to whom a prospectus is delivered, upon written or oral request of such person, a copy of any and all information that has been incorporated by reference (other than exhibits to such documents which are not specifically incorporated by reference in such documents). Requests for such documents should be addressed to Ronald A. Burgmeier, Vice President of Finance, 4620 S. Valley View Boulevard, Suite A1, Las Vegas, Nevada 89103, telephone number (702) 798-9777. 5 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE CAPTION "RISK FACTORS." COMPANY ADDRESS AND TELEPHONE NUMBER The Company's principal office is located at 4444 West 76th Street, Suite 600, Edina, Minnesota 55435. Its telephone number is (612) 835-7080. THE OFFERING Common Stock offered by the Company.......................... None Common Stock offered by Selling Shareholders................. 1,455,170 shares* Trading Symbols for Common Stock Nasdaq SmallCap Market....................................... SACM Boston Stock Exchange........................................ SAC *The amount to registered also includes an indeterminate number of additional shares of Common Stock that may be issuable upon conversion of the convertible debenture. RISK FACTORS An investment in the shares of Common Stock offered hereby is highly speculative, involves a high degree of risk and should only be purchased by persons who can afford to lose their entire investment. See "Risk Factors" for a discussion of risk factors that should be considered in connection with an investment in the shares of Common Stock offered hereby. 6 RISK FACTORS THE SHARES OF COMMON STOCK OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND, ACCORDINGLY, THEY ARE NOT AN APPROPRIATE INVESTMENT FOR PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD BE AWARE OF THE FOLLOWING RISK FACTORS AND SHOULD REVIEW CAREFULLY THE FINANCIAL AND OTHER INFORMATION PROVIDED BY THE COMPANY. THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING WITHOUT LIMITATION STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT OR INCORPORATED BY REFERENCE HEREIN ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. DEVELOPMENT STAGE COMPANY, LIMITED OPERATING HISTORY AND OPERATING LOSSES. The Company is a development stage enterprise, formed in 1993, which has yet to generate any significant revenues or profits and, since inception through June 30, 1998, has had accumulated losses of $6,638,863 and negative cash flow from operations of $5,971,489. In addition, the Company has never successfully marketed a product and its officers have limited experience in the operation and development of a business like the Company's. The Company anticipates net losses will continue for the foreseeable future. There can be no assurance that the Company will ever be able to generate significant revenues or operate successfully. TECHNOLOGY. The success of the Company, among many other factors, will depend upon the success of the Company's technology which has been utilized to complete the development of its initial automated fingerprint identification products including SACMan (a developer toolkit), SACcat and SAC_Remote. The biometric solution and optic technology are owned by the Company, subject to an exclusive worldwide license which has been granted to Jasper Consulting, Inc. ("Jasper") to use and sell products incorporating the Company's technology and Jasper's FIDS technology in certain markets. Accordingly, the Company does not exclusively own all of the technology incorporated into its products, including SACcat(TM) and SAC_Remote(TM). The Company has had ongoing discussions with Jasper regarding possible amendments of the Company's world-wide license agreement with Jasper. Such discussions have been precipitated by the perceived need of each company to seek additional assurances that the other company can and will perform its obligations under the existing agreement. No discussions have occurred since early 1998 and no assurance of how these conversations will conclude can be given. In addition, there can be no assurance of that the Company won't lose a portion of the technology currently necessary for manufacturing of its products or that the Company won't continue to be required to pay Jasper royalties which could prohibit the Company's products from being profitable. While the Company has developed its own vector segment algorithms with print classification code and is presently utilizing this code exclusively, there can be no assurance that such software will ultimately serve as an adequate substitute for the FIDS technology in the Company's products. This is particularly true with respect to products previously developed which incorporate FIDS technology. 7 INTELLECTUAL PROPERTY PROTECTION. The Company has applied for a patent directed to the optic technology and biometric solution; however, none of the mentioned technologies are patented by the Company. There can be no assurances given that any patents will ever issue, or that, if issued, the Company would have the resources to protect any such issued patent. The Company believes that its technology described does not infringe upon patents held by others, but the Company cannot give any assurances that such infringements do not exist. The Company currently has two patents pending, one for fingerprint imaging which was filed by the Company, and one for FIDS Technology which was filed by Jasper. PRODUCT DEFECTS. New products or enhancements, when first released by the Company, may contain undetected design faults and software errors, or "bugs" that, despite testing by the Company, are discovered only after a product has been installed and used by customers. There can be no assurance that faults or errors in the Company's existing products or in new products introduced by the Company will not be discovered in the future, causing delays in product introductions and shipments or requiring design modifications that could adversely affect the Company's competitive position and results of operations. In addition, there can be no assurance that new products or product enhancements developed by the Company will achieve market acceptance or, if successful, will not adversely impact sales of the Company's existing products. On occasion, the Company has discovered minor design defects in its products that have caused delays in the introduction of products. To date, however, the Company has not experienced any significant problems in this regard and has not recalled products as a result of a product defect. LIMITED SALES AND MARKETING; MARKET ACCEPTANCE. The Company has recently begun marketing its products, including SACMan (a developer's toolkit), SACcat and SAC_Remote, principally through agreements with distributors, VAR's, ISO's and system integrators whereby others are responsible for sales of the Company's products, and has yet to make any significant sales of such products. The Company's employees have limited experience in marketing such products and no effective distribution channel has been developed. While the Company has plans for developing a significant marketing and sales effort, along with accessing various distribution channels, there is no significant internal sales force within the Company and there can be no assurance that the Company will be successful in attracting and retaining qualified marketing and sales expertise. The Company's future success will depend, among other factors, upon the extent to which consumers in the new markets acquire, adopt, and continue to use the Company's products as well as the extent to which distributors, VAR's, ISO's and system integrators are able to effectively market products on behalf of the Company. There can be no assurance that the Company's products will gain wide acceptance in these markets or that any of the Company's current sales and marketing activities and strategies will prove effective. 8 NO EXPERIENCE IN RETAIL MARKET. While the Company is not currently distributing its products through available retail sales channels, it may ultimately attempt to enter such markets. However, the Company anticipates entering into strategic alliances or using private label distributorships to penetrate the retail market. The Company has no prior experience in the retail marketplace and any such sales would be subject to customary risks related thereto including, without limitation, product returns, price protection, inability to control promotional credit fluctuations, inability to effectively establish retail penetration, and other customary retail risks. Given its lack of retail experience, there can be no assurance that the Company would be able to effectively manage these risks. CHANGES IN TECHNOLOGY. The access control market is subject to rapid technological change and intense competition. There can be no assurance that the Company will be able to keep pace with this change. The Company's products could become subject to technological obsolescence and there can be no assurance that the Company will be able to adapt to rapidly changing technology. If the Company is unable for technological or other reasons to develop products on a timely basis in response to technological changes, or if the Company's products or product enhancements do not achieve market acceptance, the Company's business would be materially and adversely affected. DEPENDENCE ON SUCCESS OF STRATEGIC ALLIANCES. During the fourth quarter of 1997 and the first quarter of 1998, the Company entered into various strategic alliances which are designed to allow the Company to integrate voice and facial recognition, encryption, desktop configuration, security and video conferencing capabilities for utilization with its core product. As a stand alone product, the Company believes that its technology provides significant utility in the area of computer desk top security. The Company believes that its technology could be sold in the marketplace without being integrated with the technology of the Company's strategic partners. However, by integrating the technology of the Company's strategic partners with the Company's technology, the Company is attempting to produce more functional products at a consumer accepted price. While the Company anticipates that integrated products would be more marketable and accepted in the marketplace, the Company does not believe that its inability to successfully integrate its technology with the technology of the Company's strategic partners would have a material adverse effect on the Company's ability to successfully market its products. The success in integrating these technologies and the integrated products and applications will not only depend on the Company's efforts and technologies but also the efforts and technologies of others. No assurance can be made that the companies providing these technologies will remain in business and continue to provide technological support to the Company, that these technologies will be incorporated in a manner acceptable to potential customers, that the integration will be timely implemented, that the cost of the end products will be acceptable to the marketplace, that the end products will be priced such that they will be profitable to the Company or that the Company will have the resources to complete these efforts. In addition, no assurance can be given that the technologies will effectively compete with new or existing technologies in all of these markets or that superior technologies will not be developed which would obsolete an integrated component or components of the Company's anticipated layered biometric solution. By integrating other companies' technologies into the Company's products, the Company may also expose itself to intellectual property infringement claims because the Company is not in control of all of the technology in its products. The actual timing of the integration of these technologies will be subject to a variety of factors including without limitation, technology and development issues as well as developing an effective marketing approach. The Company has entered into a letter of intent with ImEdge Technologies, Inc. If the Company executes an agreement with ImEdge Technologies, Inc., the nature of the optic component of the Company's technology may change as the Company would attempt to integrate holographic technology into its technology and products. The Company anticipates that the integration of holographic technology would reduce the size and cost of production of its products. No assurance can be given that the Company will execute an agreement with ImEdge Technologies, Inc. or that the Company will be able to successfully integrate ImEdge Technologies, Inc.'s holographic technology into the Company's technology and products. NEED FOR ADDITIONAL FUNDS. The Company expects that it may need to raise substantial additional capital to fund the ongoing development and expansion of its business, including its research, development, marketing and sales efforts, and to attain profitability. There is no assurance that any additional funds needed will be available to the Company on favorable terms, or at all. Although based on assumptions that the Company considers reasonable, there is also no assurance that the Company's estimate of its anticipated liquidity needs is accurate or that new business 9 developments or other unforeseen events will not occur, resulting in the need to raise additional funds. In addition, it is probable that raising additional funds would result in a substantial additional dilution and reduction in returns, if any, to investors. COMPETITION. The Company is engaged in a rapidly evolving field. 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. Competition from other companies is intense and expected to increase. Some of these companies include Computer Research Labs, Digital Biometric, Inc., PRINTRAK International, Indenticator, Indentix, Fingermatrix, Inc., Mytec Technologies, Inc., the National Registry, Sandia Labs, Fujitsu, Biometric Identification, Inc., Ultrascan, Inc., I/O Software, Mission Data Systems and Hi-Key Technologies. Many of the Company's competitors have substantially greater resources, research and development staffs, sales and marketing staffs, and facilities than does the Company. In addition, the integration of the Company's products with those of its strategic partners will likely subject the integrated products to competition with a variety of other competitors in varying industries. Many of these competitors have substantially greater resources and experience in marketing biometric products. Other recently developed technologies are, or may in the future be, the basis of competitive products. There can be no assurance that the Company's competitors will not develop technologies and products that are more effective than those being developed by the Company or that would render the Company's technology and products obsolete or noncompetitive. PRODUCT LIABILITY; INSURANCE. The Company faces an inherent business risk of exposure to product liability claims in the event that the use of its products are alleged to have resulted in injuries or losses related to their manufacture and use. Although the Company hopes to employ provisions limiting liability in contractual relationships with customers, there can be no assurance that the Company will be able to effectively avoid significant liability exposure. The Company does not own any product liability insurance. The Company may attempt to obtain insurance to minimize the impact of any potential product liability; however, there can be no assurance that the Company will be able to obtain such insurance on acceptable terms, or at all. Consequently, a product liability claim or recall or other claims with respect to any uninsured liabilities could have a material adverse effect on the business or financial condition of the Company. ABSENCE OF DIVIDENDS. The Company has never declared or paid a cash dividend on its common stock. The Company intends to retain earnings, if any, for use in the operation and expansion of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future, including on the Shares offered hereby. DEPENDENCE ON KEY PERSONNEL. The Company's operations are materially dependent upon the services of Barry M. Wendt, the Chief Executive Officer of the Company and the co-inventor of SACMan(TM) and its underlying components, Richard T. Fiskum, the President of the Company and the co-inventor of the optics technology, Gary E. Wendt, the Chief Financial Officer of the Company, 10 and Benedict A. Wittig, Director of Systems Software and co-inventor of SACMan(TM) and the Biometric Solution. The loss of the services of any of these individuals would materially and adversely affect the Company's business. The Company has agreements with these individuals prohibiting competition with the Company for a period of three years if the Company terminates an individual's employment for "cause" (as defined in the agreements), and a period of two years if an individual voluntarily terminates employment. There can be no assurance that the Company will retain these individuals, or that it will successfully attract and retain additional or replacement personnel with the requisite experience and capabilities to enable the Company to profitably and effectively evaluate, develop, and market the Company's product line. The Company holds key man insurance policies each in the amount of $500,000 on Barry M. Wendt, the Chief Executive Officer, Richard T. Fiskum, President, and Benedict A. Wittig, Director of Systems Software and Secretary. No assurance can be given that the amount of the key man insurance policies is adequate. MANAGEMENT OF EXPECTED GROWTH. The Company hopes to significantly expand its business. Such anticipated expansion will likely place further demands on the Company's existing management and operations. The Company's future growth and profitability will depend, in part, on its ability to successfully manage a growing sales force and implement management and operating systems which react efficiently and timely to short and long-term trends or changes in its business. There can be no assurance that the Company will be able to effectively manage the anticipated expansion of its business. CONTROL BY EXISTING MANAGEMENT. The Company's directors and officers will continue to own, after this offering, a significant amount of the Company's outstanding capital stock and may be able to control the Company's business and affairs, including electing directors, appointing officers and determining officers' compensation. LIMITATIONS OF LIABILITY. The Company's Articles of Incorporation provide, as permitted by Minnesota law, that a director of the Company shall not be personally liable to its shareholders for monetary damages for breach of his or her fiduciary duty of care as a director, with certain exceptions. In addition, the Company's bylaws provide for mandatory indemnification of directors and officers to the fullest extent permitted by Minnesota law. VOLATILITY OF STOCK PRICE. The trading price of the Common Stock has from time to time fluctuated widely and in the future may be subject to similar fluctuations in response to quarter-to- quarter variations in the Company's operating results, announcements of innovations or new products by the Company or its competitors, general conditions in the biometric and access control industries and other events or factors. The Company only has one market maker, Tuschner & Company, Inc., in its Common Stock. No assurance can be given that Tuschner & Company, Inc. has or will have the financial capability to stabilize or continue to support the Company's Common Stock. In addition, in recent years broad stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations. Such broad market fluctuations may adversely affect the future trading price of the Common Stock. 11 POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE DEBENTURES. As of August 1, 1998, there were 1,087,382 shares of Common Stock reserved for issuance upon exercise of stock options and warrants that have been granted or issued. Additional shares of the Company's Common Stock are reserved for issuance upon the exercise of options available for future grant under the Company's 1996 Stock Option Plan. The Company is registering 18,000 shares of the Company's common stock underlying vested options which provided the holders with registration rights. The Company is also registering 538,502 shares of the Company's common stock underlying warrants which provided the holders with registration rights. The Company issued the Shaar Fund a 5% Convertible Debenture in the amount of $2,500,000 on June 30, 1998. Pursuant to its agreements with the Shaar Fund, the Company may issue the Shaar Fund a 5% Convertible Debenture in the amount of $1,000,000 in the future. The terms of the Convertible Debenture are such that if the price of the Company's Common Stock decreases dramatically the number of shares issuable to the Shaar Fund upon conversion would increase thereby further diluting the Company's Common Stock. The Convertible Debenture and accrued interest would convert into 916,668 shares of the Company's Common Stock at a conversion price of $3.00 per share. Because the holder of the Convertible Debenture has registration rights, the Company is registering these 916,668 shares of the Company's common stock. Upon exercise of the stock options or warrants or upon conversion of the convertible debentures, a significant number of freely tradeable shares of Common Stock could enter into the public marketplace. The issuance of the freely tradeable shares underlying the stock options, warrants and convertible debentures would have a dilutive effect on the Company's shareholders as well as a commensurate negative impact on the price of the Company's Common Stock. QUOTATION BY NASDAQ AND THE BOSTON STOCK EXCHANGE; APPLICABILITY OF "PENNY STOCK RULES;" POSSIBLE IMPACT ON LIQUIDITY OF STOCK. The Common Stock is traded on Nasdaq and the Boston Stock Exchange. There can be no assurance that such listings will be maintained. To maintain its listing on Nasdaq, the Company must, in addition to other requirements, have total assets of at least $2 million or a market capitalization of at least $35 million or net income of at least $500,000, a minimum bid price of at least $1.00 and a market value for its publicly held shares of at least $1,000,000. To maintain its listing on the Boston Stock Exchange, the Company must, in addition to other requirements, have total assets of at least $1 million and a market value for its publicly held shares of at least $500,000. If the Company fails to satisfy the Nasdaq or Boston Stock Exchange requirements to maintain listing on Nasdaq or the Boston Stock Exchange in the future, the Common Stock will likely be quoted only 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 or Boston Stock Exchange maintenance requirements, the Common Stock would be subject to the rules promulgated under the Securities Exchange Act of 1934 relating to "penny stocks." 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. 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. MANUFACTURE OF PRODUCTS. The Company intends to have other companies manufacture its products in the future rather than producing its own products. The Company has not entered into 12 any agreement to have another company manufacture the Company's products. The Company is also exploring having its products manufactured by overseas manufacturers in order to attempt to lower production costs. Possible overseas manufacturing, if attempted, could lead to risks associated therewith, including, without limitation, foreign currency and economic fluctuations and import/export related restrictions. No assurance can be given that the Company will be able to enter into a manufacturing agreement on terms favorable to the Company, or that having another company manufacture the Company's products would reduce the Company's cost of manufacturing. In addition, no assurance can be given that the company manufacturing the Company's products will do so in a timely manner or in a manner consistent with quality standards of the Company and its customers. YEAR 2000. The Company is currently working to minimize the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year, which could result in miscalculation or system failures. All of the Company's products are believed to be Year 2000 compliant. Any software used by the Company for internal operations that is not Year 2000 compliant is expected to be exchanged for Year 2000 compliant software prior to the occurrence of any internal problems. Based on preliminary information, costs of addressing potential problems are currently not expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. However, if the Company, its customers, strategic partners or vendors are unable to resolve any processing issues in a timely manner, it could result in material financial risk to the Company. Accordingly, the Company plans to devote the necessary resources to resolve all potential significant year 2000 issues in a timely manner. Specifically, the Company has also contacted its customers, strategic partners and suppliers to identify any Year 2000 problems which might impact the Company. The Company has only received a response from one of its strategic partners, Pinnacle Technology, Inc., which stated that it believed that its products are Year 2000 compliant. 13 THE COMPANY 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 biometric technology developed by the Company for Jasper Consulting, Inc. ("Jasper"), with other technologies developed by the Company, along with the integration of technology developed by recently identified strategic partners. 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 some medical patient identification applications. 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"); and (iii) a license to the FIDS Technology, which is software which classifies the fingerprint. Utilizing these technologies, the Company has continued the development of its initial automated fingerprint identification products. Its products, SACMan(TM) (a developer toolkit), SACcat(TM), and SAC_Remote(TM) are principally targeted to control access to information resources and facilities, such that only individuals comprising an approved fingerprint database are allowed access. The Company's current plan is to develop and market products which address industry- specific security applications. The Company has developed some limited manufacturing and product assembly capability and is contracting for outside manufacturing and assembly of its products, as needed. The Company's SACMan is a developer toolkit (DTK) for a biometrics database application generator. The DTK includes all required hardware and software components to evaluate the integration of the Company's biometric technology into an original equipment manufacture ("OEM") or system integrator application. The Company's SACcat product is a biometrics information access control solution that provides for workstation log-on, screen saver, and security at one single location or across several networked workstations. SACcat creates a computer model code (Bio-Key (TM)) of a fingerprint to identify a live scan of a fingerprint without the use of a key, password card or token. The SACcat product is intended for the information security marketplace and currently supports a Windows N/T environment, Windows 95 and a Novel environment. The SACcat product also runs on a unix environment for identification purposes. 14 The Company's SAC_Remote product is a personal computer ("PC") programmable finger print identification product package in a stand-alone central processing unit. The SAC_Remote is designed to interface with a wide range of OEM product applications such as: facility access, gate control, time and attendance, vending/kiosk applications, ATM/credit card transactions, and point-of-sale terminals. As currently produced, 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 1,000 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. The Company has entered into a letter of intent with ImEdge Technologies, Inc. If the Company executes an agreement with ImEdge Technologies, Inc., the nature of the optic component of the Company's technology may change as the Company would attempt to integrate holographic technology into its technology and products. The Company anticipates that the integration of holographic technology would reduce the size and cost of production of its products. No assurance can be given that the Company will execute an agreement with ImEdge Technologies, Inc. or that the Company will be able to successfully integrate ImEdge Technologies, Inc.'s holographic technology into the Company's technology and products. Each SACMan product 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 can verify the identity of a computer user desiring access and can be used to allow or disallow 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 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 $1.4 billion market in the United States during 1997. 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 the Company believes could provide a cost-effective method for securing information resources. 15 During the past year, the Company has entered into strategic alliance agreements with various biometric and security control companies including Miros, Inc., Keyware Technologies, Certicom Corporation, Pinnacle Technology, Inc., and Baraka IntraCom, Inc. The Company has also entered into a letter of intent to enter into a strategic alliance agreement with ImEdge Technology, Inc. The Company's goal is to integrate the technologies of its strategic partners into the Company's technology and products. No assurance can be given that the companies providing these technologies will remain in business and continue to provide technical support to the Company, that these technologies will be incorporated in a manner acceptable to potential customers, that the integration will be timely implemented, that the cost of the end products will be acceptable to the marketplace, that the end products will be priced such that they will be profitable to the Company or that Company will have the resources to complete these efforts. In addition, no assurance can be given that the technologies will effectively compete with new or existing technologies in all of these markets or that superior technologies will not be developed which would obsolete an integrated component or components of the Company's anticipated layered biometric solution. The Company is currently working to minimize the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year, which could result in miscalculation or system failures. All of the Company's products are believed to be Year 2000 compliant. Any software used by the Company for internal operations that is not Year 2000 compliant is expected to be exchanged for Year 2000 compliant software prior to the occurrence of any internal problems. Based on preliminary information, costs of addressing potential problems are currently not expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. However, if the Company, its customers, strategic partners or vendors are unable to resolve any processing issues in a timely manner, it could result in material financial risk to the Company. Accordingly, the Company plans to devote the necessary resources to resolve all potential significant year 2000 issues in a timely manner. Specifically, the Company has also contacted its customers, strategic partners and suppliers to identify any Year 2000 problems which might impact the Company. The Company has only received a response from of its strategic partners, Pinnacle Technology, Inc., which stated that it believed that its products are Year 2000 compliant. USE OF PROCEEDS The Company will receive no proceeds from the sale of the Common Stock offered hereby. The Company will receive at most an aggregate of approximately $1,773,177 upon the exercise of all of the warrants and stock options by Selling Shareholders. SELLING SHAREHOLDERS The following table sets forth certain information with respect to each Selling Shareholder for whom the Company is registering Shares of Common Stock (underlying warrants, stock options and convertible debentures issued to the Selling Shareholders) for resale to the public. The securities covered by this Prospectus consist of (i) 83,278 shares of the Company's Common Stock issuable upon exercise of a warrant issued to Tuschner & Company, Inc. as partial compensation for acting as the Company's agent in the Company's 1996 Private Placement; (ii) 87,224 shares of the Company's Common Stock issuable upon exercise of a warrant issued to Tuschner & Company, Inc. as partial compensation for serving as the Company's underwriter in the Company's initial public offering; (iii) 200,000 shares of the Company's Common Stock issuable upon exercise of a warrant 16 issued to Tuschner & Company, Inc. in exchange for Tuschner & Company, Inc.'s agreement to waive its right of first refusal to sell the securities of the Company; (iv) 18,000 shares of the Company's Common Stock issuable upon exercise of a nonqualified stock option issued to Miros, Inc. in conjunction with the Company's strategic alliance agreement with Miros, Inc.; (v) 916,668 shares of the Company's Common Stock issuable to the Shaar Fund upon conversion of a currently outstanding 5% Convertible Debenture of the Company (the "Convertible Debenture") or in payment of any interest on the Convertible Debenture that the Company may pay in shares of its stock; (vi) 100,000 shares of the Company's Common Stock issuable upon exercise of a warrant issued to the Shaar Fund in conjunction with the Convertible Debenture; (vii) 50,000 shares of the Company's Common Stock issuable upon exercise of a warrant issued to Corporate Capital Management in conjunction with the Company's transaction with the Shaar Fund. The warrants listed in (i) and (ii) above were assigned to a number of individuals in March and July of 1998. The Convertible Debenture and accrued interest would convert into 916,668 shares of the Company's Common Stock at a conversion price of $3.00 per share. The Company issued warrants to Selling Shareholders to purchase 520,340 shares of the Company's Common Stock at exercise prices ranging from $3.00 to $7.50 per share. The Company issued options to Miros, Inc. to purchase 48,000 shares of the Company's Common Stock at an exercise price of $6.42 per share. The Company issued the Shaar Fund a 5% Convertible Debenture in the amount of $2,500,000 due on June 30, 2001. The conversion price is the lesser of $7.15 per share or the market price of the Company's Common Stock multiplied by a discount ranging between 85% and 78% of the market price of the Company's Common Stock during the period of conversion. The amount of the discount depends upon when the Convertible Debenture is converted into the Company's Common Stock. The Convertible Debenture may be converted anytime during the period October 29, 1998 to June 30, 2001. The Company may also issue the Shaar Fund an additional 5% Convertible Debenture in the amount of $1,000,000. Except as indicated, no material relationships exist between any of the Selling Shareholders and the Company nor have any such material relationships existed within the past three years, except as set forth below. The sale of the Selling Shareholders' Common Stock may be effected from time to time in transactions (which may include block transactions by or for the account of the Selling Shareholders) on the Nasdaq SmallCap Market, Boston Stock Exchange or in negotiated transactions, a combination of such methods of sale or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. 17 Names of Amount Before Amount Percentage After Security Holders Offering Amount Offered After Offering Offering ---------------- -------- -------------- -------------- -------- (1) (2) (2) The Shaar Fund 1,021,668(6) 1,016,668 5,000 * Corporate Capital 50,000(7) 50,000 0 * Management L.L.C. Miros, Inc.(3) 48,000(3) 18,000 30,000 * John Anderson 921(8) 921 0 * Francis Dahlberg(4) 2,819(8) 2,819 0 * Rick Geislinger 4,385(8) 2,885 1,500 * Joseph A. Geraci II 2,753(8) 2,753 0 * Don M. Hedlund 1,120(8) 1,120 0 * Kerry Hiben(5) 1,566(8) 1,566 0 * Sam Johnson 2,844(8) 2,844 0 * W. Larry Keene 1,310(8) 1,310 0 * Darrel Kluge(5) 38,343(8) 38,743 0 * Eric J. Overvig(5) 14,793(8) 8,293 6,500 * John E. Penshorn 979(8) 979 0 * Dennis B. Reiter(4) 719(8) 719 0 * Patrick Schrantz 162(8) 162 0 * Estate of Jerome H. 9,915(8) 9,915 0 * Shapiro (5) V. Chad Smolik 1,155(8) 1,155 0 * Tuschner & 289,575(8)(9) 289,575 (9) (9) Company, Inc. (4) John Tuschner (4) 921(8) 921 0 * Ron Webster 1,662(8) 1,662 0 * Jerry Wolinski 2,160(8) 2,160 0 * TOTAL.................... 1,498,170 1,455,170 43,000 * - -------------------------- * Less than one percent. 18 (1) Includes shares of Common Stock issuable upon exercise of warrants and options and conversion of convertible debentures all of which are exercisable or convertible within 90 days from the date hereof. (2) Assumes that the Selling Shareholders will dispose of all shares owned or issuable of them that are being registered for sale by this Prospectus. (3) The Company entered into a Strategic Alliance, Bundling & Authorization to Replace Agreement for the Integration of SAC Technologies Fingerprint Technology and Miros Trueface Software Products with Miros, Inc. on February 13, 1998. As part of that agreement, the Company granted Miros, Inc. a nonqualified stock option to purchase 48,000 shares of Common Stock with an exercise price $6.42 per share. Eighteen thousand (18,000) shares underlying the nonqualified stock option are currently vested. (4) Tuschner & Company, Inc. served as the selling agent for the Company in its 1996 Private Placement and underwriter for the Company in its initial public offering effective February 14, 1997. Francis Dahlberg, Dennis B. Reiter and John Tuschner are all officers or owners of Tuschner & Company, Inc. (5) Kerry Hiben, Darrel Kluge, Eric J. Overvig and the Estate of Jerome H. Shapiro are all officers, directors or owners of Aultimate Technology Marketing, Inc. ("ATM") which entered into a Purchase, Supply and Distributor Agreement with the Company on March 13, 1998. As part of that agreement, the Company granted to ATM a nonqualified stock option to purchase 100,000 shares of Common Stock with an exercise price of $8.46 per share. (6) The Company issued the Shaar Fund a 5% Convertible Debenture in the amount of $2,500,000 due on June 30, 2001. The conversion price is the lesser of $7.15 per share or the market price of the Company's Common Stock multiplied by a discount ranging between 85% and 78% of the market price of the Company's Common Stock on during the period of conversion. The amount of the discount depends upon when the Convertible Debenture is converted into the Company's Common Stock. The Convertible Debenture may be converted anytime during the period October 29, 1998 to June 30, 2001. The Company may also issue the Shaar Fund an additional 5% Convertible Debenture in the amount of $1,000,000. At a conversion rate of $3.00 per share, the Convertible Debenture and accrued interest would convert into 916,668 shares of the Company's Common Stock. The Company also issued the Shaar Fund a warrant to purchase 100,000 shares of the Company's Common Stock at a exercise price of $6.725 per share. (7) Corporate Capital Management acted as an agent for the transaction with the Shaar Fund. As compensation for serving as its agent, the Company issued Corporate Capital Management a warrant to purchase 50,000 shares of the Company's Common Stock. The warrant has an exercise price of $6.725 per share. (8) Tuschner & Company, Inc. was issued a warrant to purchase 83,278 shares of the Company's Common Stock at an exercise price of $3.00 per share as partial compensation for acting as the Company's agent in the Company's 1996 Private Placement. Tuschner & Company, Inc. was also issued a warrant to purchase 88,938 shares of the Company's Common Stock at an exercise price of $3.60 per share as partial compensation for serving as the Company's underwriter in the Company's initial public offering. During March and July 1998, Tuschner 19 & Company, Inc. assigned warrants to purchase 82,641 shares of the Company's Common Stock to some of the other Selling Shareholders. The Company also issued Tuschner & Company, Inc. a warrant to purchase 200,000 shares of the Company's Common Stock at an exercise price of $7.50 per share in exchange for Tuschner & Company, Inc.'s agreement to waive its right of first refusal to sell the securities of the Company. (9) Tuschner & Company, Inc. is the only market maker in the Company's Common Stock. In its role as market maker, Tuschner & Company, Inc. holds a different number of shares of the Company's Common Stock at different times. Selling Shareholders may effect such transactions by selling their Common Stock directly to purchasers, through broker-dealers acting as agents for the Selling Shareholders or to broker-dealers who may purchase Common Stock as principals and thereafter sell the Common Stock from time to time in the over-the-counter market in negotiated transactions or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers for whom such broker-dealers may act as agents or to whom they may sell as principals or otherwise (which compensation as to a particular broker-dealer may exceed customary commissions). The Selling Shareholders and broker-dealers, if any, acting in connection with such sales might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them any profit on the resale of the Common Stock might be deemed to be underwriting discounts and commissions under the Securities Act. PLAN OF DISTRIBUTION The shares offered by the Selling Shareholders may be sold from time to time by the Selling Shareholders, or by pledgees, donees, transferees or other successors in interest of the Selling Shareholders, at their sole discretion. Such sales may be made in the Nasdaq SmallCap Market, Boston Stock Exchange or otherwise at prices and at terms then prevailing or at prices related to the then current market price, or in negotiated transactions. The shares of Common Stock offered by the Selling Shareholders are not being underwritten except as described below. The Company will not receive any proceeds from the sale of any Common Stock by the Selling Shareholders. In general, the shares may be sold by one or more of the following means: (a) a block trade in which the broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (c) an exchange distribution in accordance with the rules of such exchange (if the securities are then listed on an exchange); and (d) ordinary brokerage transactions and transaction in which the broker solicits purchasers. In effecting sales, brokers or dealers engaged by the Selling Shareholders may arrange for other brokers or dealers to participate. Brokers or dealers will receive commissions or 20 discounts from the Selling Shareholders in amounts to be negotiated immediately prior to the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed "underwriters" within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In addition, any securities covered by this Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this Prospectus. INTERESTS OF NAMED EXPERTS AND COUNSEL The financial statements contained in the Company's Annual Report on Form 10-KSB for year ended December 31, 1997 and incorporated by reference into this Prospectus have been audited by Divine, Scherzer & Brody, Ltd., independent certified public accountants, to the extent and for the periods set forth in their report thereon. These financial statements are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Doherty, Rumble & Butler Professional Association, Minneapolis, Minnesota. Neither Divine, Scherzer & Brody, Ltd. nor Doherty Rumble & Butler Professional Association has or will receive a direct or indirect interest in the Company. INCORPORATION OF DOCUMENTS BY REFERENCE The following documents previously filed with the Commission by SAC Technologies, Inc. (the "Company") are incorporated herein by reference: (a) The Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997. (b) The Company's Quarterly Reports on Form 10-QSB for the periods ended March 31, 1998, and June 30, 1998. (c) The Company's Current Report on Form 8-K dated July 7, 1998. (d) The description of the Company's securities contained in the Company's Registration Statement under Section 12 of the Exchange Act, and any and all amendments and reports filed for the purpose of updating such description. All documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14, and 15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior to the termination of the offering of the Shares hereby offered shall be deemed to be incorporated by reference into this Prospectus and to be a part of this Prospectus from the date of filing such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein 21 modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES The Minnesota Business Corporation Act provides that Officers and Directors of the Company have the right to indemnification by the Company for liability arising out of certain actions. Such indemnification may be available for liabilities arising in connection with the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company, pursuant to such indemnification provisions, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable. The Company has adopted, in its Articles of Incorporation, a provision which limits personal liability for breach of the fiduciary duty of its Directors, to the extent provided by Section 302A of the Minnesota Business Corporation Act. Such provision eliminates the personal liability of directors, for damages occasioned by breach of fiduciary duty, except based on the director's duty of loyalty to the Company, liability for acts or omissions not made in good faith, liability for acts or omissions involving intentional misconduct, liability based on payments of improper dividends, liability based on violations of state securities laws, and liability for acts occurring prior to the date such provision was added. 22 PART II INFORMATION NOT REQUIRED IN PROSPECTUS OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses of the offering, which are to be borne by the Company, are estimated as follows: Securities and Exchange Commission registration fee $ 2,360 NASD registration fee 7,500 Legal services 30,000 Accounting services 7,500 Blue Sky fees and expenses 0 Transfer Agent Fees 0 Printing 1,500 Miscellaneous 0 Total $48,860 All of the above expenses except the registration fee are estimated. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under Section 302A.521, Minnesota Statutes, the Company is required to indemnify its directors, officers, employees and agents against liability under certain circumstances, including liability under the Securities Act of 1933, as amended (the "Act"). Article XI of the Company's Articles of Incorporation contains substantially similar provisions. The general effect of such provisions is to relieve the directors and officers of the Company from personal liability which may be imposed for certain acts performed in their capacity as directors or officers of the Company, except where such persons have not acted in good faith. As permitted under Minnesota Statutes, the Articles of Incorporation of the Company provide that directors shall have no personal liability to the Company or to its shareholders for monetary damages arising from breach of the director's duty of care in the affairs of the Company. Minnesota Statutes do not permit elimination of liability for breach of a director's duty of loyalty to the Company or with respect to certain enumerated matters, including payment of illegal dividends, acts not in good faith, and acts resulting in an improper personal benefit to the director. 23 EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1* Amended and Restated Articles of Incorporation of Small Business Issuer 4.1* Specimen of Common Stock Certificate 5.1 Opinion re: legality 24.1 Consent of Independent Certified Public Accountants 24.2 Consent of Legal Counsel (included in Exhibit 5.1) 25.1 Power of Attorney (included in the signature page to the Registration Statement) *Previously filed as an exhibit to the Company's Registration Statement on Form SB-2, filed February 14, 1997 (File No. 333-16451). 24 UNDERTAKINGS (a) Rule 415 Offering. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration or any material change to such information in the Registration Statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in the post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 25 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing Form S-3 and has authorized this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Minneapolis, State of Minnesota, on August 14, 1998. SAC TECHNOLOGIES, INC. REGISTRANT By /s/ Barry M. Wendt ------------------------------------ Name: Barry M. Wendt Title: Chief Executive Officer By /s/ Gary E. Wendt ------------------------------------ Name: Gary E. Wendt Title: Chief Financial Officer POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Barry M. Wendt and Gary E. Wendt, each or either of them, his true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement 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 agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof. 26 In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed below on August 14, 1998, by the following persons in the capacities indicated: Name Title ---- ----- * Chairman of the Board, Chief - ------------------------- Executive Officer, Director (PRINCIPAL Barry M. Wendt EXECUTIVE OFFICER) * Chief Financial Officer (PRINCIPAL - ------------------------- FINANCIAL AND ACCOUNTING OFFICER) Gary E. Wendt * Director - ------------------------- Richard A. Fiskum * Director - ------------------------- Benedict A. Wittig * Director - ------------------------- Thomas J. Schrade * Director - ------------------------- Lars T. Carlson *By /s/ Barry M. Wendt ------------------------------------ Barry M. Wendt, as Attorney-in-Fact 27