U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-13463
SAC TECHNOLOGIES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1741861
--------------------- --------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
1285 CORPORATE CENTER DRIVE, SUITE # 175, EAGAN, MN 55121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(651) 687-0414
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_ No___
Shares of the Registrant's Common Stock, par value $.01 per share,
outstanding as of May 10, 2001: 10,706,967.
SAC TECHNOLOGIES, INC., dba BIO-Key International
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance sheets as of December 31, 2000 and March 31, 2001 ..................3
Statements of operations for the three months ended March 31, 2000 and
2001, and January 7, 1993 (date of inception)
through March 31, 2001 .................................................4
Statements of cash flows for the three months ended March 31, 2000 and
2001, and January 7, 1993 (date of inception)
through March 31, 2001....................................................5
Notes to interim financial statements...........................................6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................9
PART II. OTHER INFORMATION
Item 1 - Legal proceedings........................................................14
Item 2 - Changes in Securities and Use of Proceeds................................14
Item 3 - Defaults Upon Senior Securities..........................................14
Item 4 - Submission of Matters to a Vote of Security Holders......................14
Item 5 - Other Events.............................................................14
Item 6 - Exhibits and Reports on Form 8-K.........................................15
2
SAC TECHNOLOGIES, INC., dba BIO-Key International
(a Corporation in the Development Stage)
BALANCE SHEETS
December 31, March 31,
2000 2001
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 48,830 $ 78,650
Accounts receivable 9,118 6,596
Prepaid expenses 21,745 8,709
------------ ------------
Total current assets 79,693 93,955
EQUIPMENT AND FURNITURE AND FIXTURES - AT COST,
less accumulated depreciation 31,942 23,956
OTHER ASSETS 50,595 41,202
------------ ------------
$ 162,230 $ 159,113
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Note Payable $ 1,400,000 $ 1,900,000
Current Maturities of Convertible Debentures 598,455 508,000
Accounts payable 328,398 307,809
Accrued liabilities 1,121,689 1,264,032
------------ ------------
Total current liabilities 3,448,542 3,979,841
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock - authorized, 5,000,000 shares
of $ .01 par value: 50,000 designated as
Series A 9% Convertible (liquidation
preference of $100 per share); issued and
outstanding, 19,875 and 19,875, respectively 199 199
Common stock - authorized, 20,000,000 shares
of $.01 par value; issued and outstanding,
9,966,724 and 10,706,967 hares, respectively 99,667 107,070
Additional contributed capital 13,133,600 13,339,518
Deficit accumulated during the development stage (16,519,778) (17,267,515)
------------ ------------
(3,286,312) (3,820,728)
------------ ------------
$ 162,230 $ 159,113
============ ============
See accompanying notes to interim financial statements.
3
SAC TECHNOLOGIES, INC., dba BIO-Key International
(a Corporation in the Development Stage)
STATEMENTS OF OPERATIONS
(Unaudited)
January 7,
1993 (date
of inception)
Three months through
ended March 31, March 31,
-------------------------------- ------------
2000 2001 2001
------------ ------------ ------------
Revenues
Product sales $ -- $ -- $ 577,384
Licensing fees -- -- 100,000
Reimbursed research
and development -- -- 284,506
Technical support
and other services -- -- 429,885
------------ ------------ ------------
-- -- 1,391,775
Costs and other expenses
Cost of product sales -- -- 1,736,895
Cost of technical support
and other services -- -- 237,317
Selling, general
and administrative 375,303 414,426 10,527,095
Research, development
and engineering 164,795 279,367 5,137,560
------------ ------------ ------------
540,098 693,793 17,638,867
------------ ------------ ------------
Operating loss (540,098) (693,793) (16,247,092)
Other income (expense)
Interest income and other ( 821) ( 5,836) 503,300
Interest expense (17,996) (48,106) (1,059,624)
------------ ------------ ------------
(18,817) (53,942) (556,324)
------------ ------------ ------------
NET LOSS $ (558,915) $ (747,735) $(16,803,416)
============ ============ ============
Loss applicable to
Common shareholders
Net loss $ (558,915) $ (747,735) $(16,803,416)
Series A convertible preferred
stock dividend
and accretion (141,000) (--) (648,825)
------------ ------------ ------------
Loss applicable to common
stockholders $ (669,915) $ (747,735) $(17,452,241)
============ ============ ============
Basic and diluted loss
Per common share $ (.06) $ (.07) $ (2.61)
Series A convertible preferred
Stock dividend and accretion (.01) (.00) (.10)
------------ ------------ ------------
Loss per
Common share $ (.07) $ (.07) $ (2.71)
============ ============ ============
Weighted average number of
common shares outstanding 9,279,319 10,282,083 6,439,175
============ ============ ============
See accompanying notes to interim financial statements.
4
SAC TECHNOLOGIES, INC., dba BIO-Key International
(a Corporation in the Development Stage)
STATEMENTS OF CASH FLOWS
(Unaudited)
January 7,
1993 (date
of inception)
Three Months through
ended March 31, March 31,
----------------------------- ------------
2000 2001 2001
------------ ------------ ------------
Increase (Decrease) in Cash
and Cash Equivalents
Cash flows from operating activities
Net loss $ (558,915) $ (747,735) $(16,803,416)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation 14,662 7,986 218,957
Amortization
Unearned compensation -- -- 181,809
The intrinsic value of the
beneficial conversion feature
of the convertible debenture -- -- 561,701
Deferred financing costs 18,501 21,069 447,466
Allowance for doubtful receivables -- -- --
Write-down of inventory -- -- 916,015
Write-down of deferred
financing costs -- -- 132,977
Gain on sale of
Inter-Con/PC stock -- -- (190,000)
Revenues realized due to offset
of billings against a stock purchase -- -- (170,174)
Acquired research and development -- -- 117,000
options and warrants issued for
services and other 83,300 13,320 1,343,554
Other -- -- 34,684
Change in assets and liabilities:
Accounts receivable 10,331 2,522 (6,956)
Inventories -- -- (916,015)
Prepaid expenses 16,062 13,036 (8,709)
Accounts payable (110,924) (20,589) 307,809
Accrued liabilities 131,842 242,343 1,374,992
------------ ------------ ------------
163,774 279,687 4,345,470
------------ ------------ ------------
Net cash used in operating activities (395,141) (468,048) (12,457,946)
Cash flows from investing activities
Capital expenditures -- -- (242,913)
Proceeds from sales
of Inter-Con/PC stock -- -- 190,000
Other (1,123) (2,132) (41,203)
------------ ------------ ------------
Net cash used in
investing activities (1,123) (2,132) (94,116)
Cash flows from
financing activities
Net proceeds under
short-term borrowing
agreements 150,000 500,000 2,133,000
Issuance of convertible
Bridge note -- -- 175,000
Issuance of convertible debenture -- -- 1,775,000
Issuance of warrants and
convertible debentures discount -- -- 830,000
Deferred financing costs -- -- (312,977)
Exercise of stock options -- -- 190,799
Sales of common stock -- -- 7,093,832
Sale of preferred stock and assigned
Value of warrant 433,519 -- 884,058
Redemption of common
Stock issuance of
convertible debentures -- -- (138,000)
------------ ------------ ------------
Net cash provided by
financing activities 583,519 500,000 12,630,712
------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents 187,255 29,820 78,650
Cash and cash equivalents,
at beginning of period 101,152 48,830 --
------------ ------------ ------------
Cash and cash equivalents,
at end of period $ 288,407 $ 78,650 $ 78,650
============ ============ ============
See accompanying notes to interim financial statements.
5
SAC TECHNOLOGIES, INC., dba BIO-Key International
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2000, and March 31, 2001 (Unaudited)
1. Unaudited Statements
The accompanying unaudited interim financial statements have been
prepared by SAC Technologies, Inc., dba BIO-Key International (the
"Company") in accordance with accounting principles generally accepted
in the United States, pursuant to the rules and regulations of the
Securities and Exchange Commission. Pursuant to such rules and
regulations, certain financial information and footnote disclosures
normally included in the financial statements have been condensed or
omitted.
In the opinion of management, the accompanying unaudited interim
financial statements contain all necessary adjustments, consisting only
of those of a recurring nature, and disclosures to present fairly the
financial position and the results of its operations and cash flows for
the periods presented. It is suggested that these interim financial
statements are read in conjunction with the financial statements and
the related notes thereto included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2000.
2. Liquidity and Capital Resource Matters
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 accumulated
losses since inception of $16,803,416 of which $747,735 was incurred
during the quarter ended March 31, 2001. The Company believes operating
losses will continue for the foreseeable future.
Between March 31, 2000 and May 15, 2001 the Company has obtained a
series of unsecured short term loans from the Shaar Fund Ltd, an
international investment fund (the "Fund") in the aggregate principal
amount of $2,100,000. The loans bear interest at the rate of 10% per
annum and are due on the earlier of December 31, 2001, or the Company
completing a private equity financing resulting in gross proceeds of at
least $5,000,000.
As of the date of this filing, the Company has minimal cash resources
and is in need of substantial additional capital to maintain operations
beyond the end of the second quarter of 2001. The Company is seeking to
obtain additional financing through the issuance of debt or equity
securities of the Company on a negotiated private placement basis with
institutional and accredited investors. As of the date of this filing,
the Company has not reached any definitive agreement with any such
investor regarding the specific terms of an investment in the Company.
No assurance can be given that any form of additional financing will be
available on terms acceptable to the Company, that adequate financing
will be obtained to meet its needs, or that such financing would not be
dilutive to existing stockholders. Management believes it will need
$4,000,000 to $6,000,000 to support its operations through the next
twelve months.
3. Loss Per Common Share
Basic loss per share is calculated by dividing the net loss
attributable to common stockholders by the number of weighted average
common shares outstanding. Diluted earnings per share are calculated by
dividing the net loss attributable to common stockholders by the
weighted average common shares, and when dilutive, by including
options, warrants and convertible securities outstanding using the
treasury stock method. There was no difference between basic and
diluted loss per share for all periods presented, because the impact of
including options, warrants and convertible securities would be
antidilutive.
6
SAC TECHNOLOGIES, INC., dba BIO-Key International
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2000, and March 31, 2001 (Unaudited)
4. Other Assets
December 31, March 31,
2000 2001
Deferred financing costs, less
accumulated amortization $ 11,524 $ 0
Security deposits 16,123 16,688
Patents pending 22,948 24,514
------ ------
$ 50,595 $ 41,202
5. Accrued Liabilities
December 31, March 31,
2000 2001
---- ----
Compensation $ 85,860 $ 85,680
Interest 256,071 204,177
Shaar Fund Penalty 763,625 942,500
Other 16,313 31,675
------ ------
$ 1,121,689 $ 1,264,032
6. Convertible Debentures
During January 2001, the Fund converted $100,000 of convertible
debentures into 432,077 shares of common stock. The balance outstanding
under the convertible debentures is due June 2001. In addition, during
March 2001, the Fund converted $100,000 of interest due under the
convertible debenture into 308,166 shares of common stock.
7
SAC TECHNOLOGIES, INC., dba BIO-Key International
(a Corporation in the Development Stage)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2000, and March 31, 2001 (Unaudited)
7. Stockholders Equity
The following summarizes option and warrant activity since
December 31, 2000:
Number of Shares
-------------------------------------------------------------------------------------------------------------------------------
1996 1999 Non-
Plan Plan Plan Warrants Total
------------ ----------- ----------- ----------- -----------
Balance, December 31, 2000 114,380 616,669 1,481,000 1,515,966 3,728,015
Granted -- -- 90,000 -- 90,000
Exercised -- -- -- -- --
Cancelled -- -- -- -- --
--------- ----------- ----------- ----------- -----------
Balance, March 31, 2001 114,380 616,669 1,571,000 1,515,966 3,818,015
--------- ----------- ----------- ----------- -----------
Available for future grants,
March 31, 2001 542,620 1,383,331 -- -- 1,925,951
========= =========== =========== =========== ===========
Series A Convertible Preferred Stock
On March 17, 2000 the Company completed a private placement of $675,000
face amount of its Series A Convertible Preferred Stock and a 5-year
warrant to purchase 67,500 shares of Common Stock exercisable at $1.196
per share to the Fund. The Company received net proceeds of $185,000
after giving effect to a 33% discount ($225,000) to the face amount of
the preferred stock, offering costs of $15,000 and the repayment of
$250,000 in notes outstanding to the Fund. On July 9, 1999, the Company
issued $1,312,500 face amount of its Series A Convertible Preferred
Stock realizing gross proceeds of $875,000.
The preferred shares provide for a 9% dividend payable semi-annually in
arrears. At the option of the Company, the dividends are payable in
kind through the issuance of additional shares of Company common stock.
As of March 31, 2001, dividends in arrears totaled approximately
$223,000. The preferred shares are immediately convertible into
shares of common stock at a conversion price equal to the lesser of (a)
110% of the closing bid of the Company's common stock on the date of
issuance or (b) a 22% discount to the average closing bid prices of the
Company's common stock during the five trading day period prior to
conversion. The preferred shares are redeemable, in whole or in part,
at the option of the Company at 100% of face value ($100 per share).
In connection with these financings, the Company was obligated to file
a registration statement with the SEC covering the resale of the shares
of common stock issuable upon conversion of the preferred shares or the
exercise of the warrant issued to the Fund. As of the date of this
filing the Company has not filed the registration statement, has
accrued a penalty of $942,500 related thereto, and the Fund has not
demanded payment of these amounts.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT
The information contained in this Report on Form 10-QSB and in other
public statements by the Company and Company officers include or may
contain certain forward-looking statements. When used in this Report or
in such statements, the words "estimate," "project," "intends,"
"expects," "believes" and similar expressions are intended to identify
forward-looking statements regarding events and financial trends which
may affect the Company's future operating results and financial
position. Such statements are not guarantees of future performance and
are subject to risks and uncertainties that could cause the Company's
actual results and financial position to differ materially from those
included within the forward-looking statements. Such factors are
described in detail in the Company's Annual Report on Form 10-KSB under
the caption "RISK FACTORS." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of
the date made. The Company undertakes no obligation to publicly release
the results of any revision to these forward-looking statements to
reflect events or circumstances after the date made or to reflect the
occurrence of unanticipated events.
OVERVIEW
The Company is in the business of developing and marketing proprietary
biometric technology and software solutions. Biometric technology, the
science of analyzing specific human characteristics which are unique to
each individual in order to identify a specific person from a broader
population, is an emerging technology. Examples of the unique
biological characteristics that can be used to identify an individual
include fingerprints, iris patterns, hand geometry, voice recognition
and facial structure. Fingerprint analysis is an accurate and reliable
method to distinguish one individual from another and is viewed as less
intrusive than many other biometric identification methods. As a
result, fingerprint analysis has gained the most widespread use for
biometric identification. Biometric technology represents a novel
approach to identity verification which has only been used in limited
applications and has not gained widespread acceptance in any commercial
or consumer markets.
The Company's proprietary biometric technology scans a person's
fingerprint and identifies a person typically within a few seconds
without the use of a password, key card, personal identification number
(PIN) or other identifying data. The Company believes that its
fingerprint identification technology will have a broad range of
possible applications relating to information security and access
control, including:
* Securing Internet sites and Web pages
* Securing access to corporate intranets and extranets
* General access control, i.e., facility access control
Over the past 18 months, recognizing the growth in electronic commerce,
corporate intranets and ethernets and related security concerns, the
Company has been actively positioning its technology for the licensing
of a Web based biometric authentication software solution to e-commerce
and other companies conducting business over the Internet. This
integrated solution will involve the licensing of client and server
based software to provide for reliable and cost effective user
authentication in connection with the processing of e-commerce
transactions or securing access to private networks. This solution is
also intended to be available to secure e-commerce and other general
purpose Web site applications. During the past year, the Company has
completed the development of enhanced software to provide an effective
interface between client and server-based software. The Company's
current business plan, which continues to evolve, consists of a
threefold strategy of (i) continued development of technology; (ii)
marketing its technologies through licensing agreements with OEMs and
private labelers addressing industry-specific applications; and (iii)
the development and licensing of a Web-based biometric authentication
software solution to e-commerce and Internet content companies to
secure Web based transactions and corporations to secure private
networks.
Although the Company has developed significant identification
technology and readers, neither has gained any meaningful commercial
acceptance and the Company has only generated minimal revenue since
inception. The Company does not intend to distribute readers, but
rather intends to license its core technology. The Company's business
model, particularly the Web authentication initiative, represents a
unique approach to Internet security. As of the date of this report,
the Web authentication initiative has not been adopted by any company
conducting business over the Internet and there can be no assurance
that there will be a demand for such a solution or that the Company
will have the financial or other resources necessary to successfully
market such a software solution.
The Company believes its existing cash will only last through June
2001. Due to these and other uncertainties, the Company's independent
auditors have included an explanatory paragraph in their opinion for
the year ended December 31, 2000 as to the substantial doubt about the
Company's ability to continue as a going concern. The Company's
long-term viability and growth will depend upon the successful
commercialization of its technologies and its ability to obtain
adequate financing, among other matters, as to which there can be no
assurances.
9
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 2000
Revenues
The Company is a development stage corporation. Accordingly, the
Company does not have significant sales revenue and generated no
revenue during the quarters ended March 31, 2000 and March 31, 2001.
The Company continues to deploy substantially all human and capital
resources to executing its revised business plan targeted at Internet,
intranet and electronic commerce security. As a result the Company's
limited resources were used to refine its technology to develop the
applications needed to execute against the Company's revised business
plan.
10
Costs and Other Expenses
The Company did not generate any revenue during the three month periods
ended March 31, 2001 and 2000 and, therefore, did not incur any cost of
sales.
Selling, general and administrative expenses increased $39,123 to
$414,426 during the three months ended March 31, 2001 as compared to
$375,303 for the corresponding period in 2000. Of the decrease, $38,846
was due to a decrease in salaries and wages for administrative
personnel, $41,830 was due to a reduction in professional services
costs, $115,557 was due to a reduction for the fair marked value of
options issued, and $13,459 was due to a reduction in general operating
expenses. These were offset by a increase of $65,622 in selling costs
as the Company focused on marketing its web based biometric
authentication software solution, an increase of $4,320 in
administrative consulting services and $178,875 for non-cash accrual of
penalties incurred for failing to file a registration statement for the
Company's Series A Convertible Preferred Stock.
Research, development, and engineering expenses increased $114,572 to
$279,367 during the three months ended March 31, 2001 as compared to
$164,795 for the corresponding period in 2000. Of the increase, $22,108
was due to additional development personnel and $137,699 was due to an
increase in software sub-contracting costs. The increase in software
subcontracting costs during 2001 relates to the development of the Web
authentication solution. These were offset by a decrease of $45,235 in
general operating costs of this department.
Other income and (expense) increased $39,228 to $58,045 during the
three months ended March 31, 2001 as compared to $18,817 for the
corresponding period in 2000 due primarily to the interest costs
associated with the increase in short term notes payable to the Fund.
11
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three months ended
March 31, 2001 was $468,048 compared to $395,141 during the same period
in 2000. The primary use of cash for both years was to fund the net
loss. Net cash used by investing activities for the three months ended
March 31, 2001 was $2,132 compared to a net use of cash of $1,123 for
the same period in 2000. Net cash provided by financing activities
during the three months of 2001 was $500,000 compared to $583,519 in
the same period in 2000 and was principally from cash received from net
short term borrowing activities of $500,000 in 2001.
Working capital deficit increased $534,416 during the three months
ended March 31, 2001 to $3,820,728 as compared to $3,286,312 as of
December 31, 2000.
The Company's capital needs have been principally met through proceeds
from the sale of debt and equity securities.
The Company does not currently maintain a line of credit or term loan
with any commercial bank or other financial institution.
On June 30, 1998, the Company sold to Shaar Fund, Ltd., an
international investment fund and principal stockholder of the Company
(the "Fund") $2,500,000 of 5% Convertible Debenture due June 30, 2001
(the "Convertible Debenture"). The Convertible Debenture is convertible
into shares of the Company's Common Stock at a conversion price equal
to the lesser of (i) $7.15; or (ii) the average closing bid price of
the Company's Common Stock for a five-day period ending the day prior
to the notice of conversion multiplied by a discount factor of 22%. The
Convertible Debenture is redeemable at the option of the Company under
certain circumstances. Interest is payable quarterly in arrears, and at
the option of the Company, is payable in-kind through the issuance of
additional shares of the Company's Common Stock at the conversion
price. As of the date of this filing, $1,992,000 principal amount and
$100,000 of accrued interest due under the Convertible Debenture has
been converted into an aggregate of 3,170,000 shares of Common Stock.
The Convertible Debenture contains certain anti dilution and conversion
price adjustment provisions if certain events occur. In the event of
repayment, the Company is subject to certain repayment costs of up to
24% of the principal amount repaid.
On July 9, 1999 the Company completed a private placement of 13,125
shares of its Series A Convertible Preferred Stock and 5-year warrants
to purchase 131,250 shares of Common Stock exercisable at $1.196 per
share to the Fund. The Company realized net proceeds of $700,539 from
the sale of these securities after giving effect to the repayment of
$100,000 note payable to the Fund. On March 17, 2000 the Company
completed a private placement of 6,750 shares of its Series A
Convertible Preferred Stock and 5-year warrants to purchase 67,500
shares of common stock with the Fund. The Company realized net proceeds
of $183,519 after giving effect to the repayment of $250,000 of notes
payable to the Fund.
12
The preferred shares provide for a 9% dividend payable semi-annually in
arrears. At the option of the Company, the dividends are payable in
kind through the issuance of additional shares of Company common stock.
The preferred shares are immediately convertible into shares of common
stock at a conversion price equal to the lesser of (a) 110% of the
closing bid of the Company's common stock on the date of issuance or
(b) a 22% discount to the average closing bid prices of the Company's
common stock during the five trading day period prior to conversion.
The preferred shares are redeemable, in whole or in part, at the option
of the Company at 100% of face value ($100 per share). The Company is
obligated to file a registration statement with the Securities and
Exchange Commission covering the resale of the shares of common stock
issuable upon conversion of the preferred shares or exercise of the
warrants. As of the date of this filing, the Company has not filed the
registration statement, has accrued penalties of $942,500 payable to
the Fund and will continue to accrue a penalty until such a
registration statement is filed. The Fund has not demanded payment of
these amounts. As of March 31, 2001 cumulative undeclared dividends
were $223,000.
Between March 31, 2000 and May 15, 2001, the Company has obtained a
series of unsecured short term loans from the Fund in the aggregate
principal amount of $2,100,000. The loans bear interest at the rate of
10% per annum and are due on the earlier of December 31, 2001, or the
Company completing a private equity financing resulting in gross
proceeds of at least $5,000,000. There can be no assurance that the
Fund will continue to provide any additional loans to the Company.
As of the date of this filing the Company has minimal cash resources
and is in need of substantial additional capital to maintain operations
beyond the second quarter of 2001. Management is seeking to obtain
additional financing through the issuance of additional debt or equity
securities of the Company on a negotiated private placement basis to
institutional and accredited investors. In this regard, the Company has
been engaged in discussions with certain investors, however, as of the
date of this filing, the Company has not reached any definitive
agreement with any such investor regarding the specific terms of an
investment in the Company. Given the number of shares of common stock
reserved for issuance upon conversion or exercise, as applicable, of
outstanding options, warrants, preferred stock and the Convertible
Debenture, in order to raise the necessary funds through the issuance
of equity securities or securities convertible into equity securities,
the Company will likely be required to amend its Articles of
Incorporation to authorize the issuance of additional shares of common
stock. This will result in increased costs associated with calling and
convening a shareholder meeting and could delay the timing of any
financing. No assurance can be given that any form of additional
financing will be available on terms acceptable to the Company, that
adequate financing will be obtained to meet its needs, or that such
financing would not be dilutive to existing stockholders. Management
believes it will need $4,000,000 to $6,000,000 to execute its business
plan and support operations through 2001.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
1. On March 31, April 15 and April 30, 2001 the Company issued options
to purchase 15,000 shares of Common stock at strike prices equal to the
closing market price of the Company's common stock on the dates of
grant to Bruce Nordin, an executive management consultant to the
Company. The options were issued in a private placement transaction
exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Section 4(2) thereunder without payment
of underwriting discounts or commissions to any person.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of the date of this Report, the Company has cumulative undeclared
dividends on its Series A 9% Convertible Preferred stock in the amount
of $223,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER EVENTS
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ITEM 6. EXHIBITS
(a) Exhibits
None
(b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May 15, 2001 SAC Technologies, Inc.
/s/ Barry Wendt
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Barry Wendt, Chief Executive Officer
/s/ Gary Wendt
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Gary Wendt, Chief Financial Officer
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