<PAGE> 1
THIS DOCUMENT IS A COPY OF THE 10-QSB FILED
ON NOVEMBER 15, 1995 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
Quarter Ended September 30, 1995 Commission File No. 0-10385
VOICE CONTROL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1707970
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14140 MIDWAY ROAD, SUITE 100 (214) 386-0300
DALLAS, TEXAS 75244 --------------
------------------- (Registrant's telephone
(Address of principal number, including area code)
executive offices)
__________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
4,226,319 SHARES of Common Stock, $.01 par value
outstanding at September 30, 1995.
<PAGE> 2
VOICE CONTROL SYSTEMS, INC.
FORM 10-QSB QUARTERLY REPORT
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to S.E.C. rules and
regulations although the Company believes the disclosures made are adequate to
make the information presented not misleading, and in the opinion of
management, all adjustments have been reflected which are necessary for a fair
statement of the information shown.
2
<PAGE> 3
VOICE CONTROL SYSTEMS, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
=============================================================================================================
SEPTEMBER 30, 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C>
A S S E T S
CURRENT:
Cash and cash equivalents $ 1,478,024
Accounts receivable (net of $33,800 allowance for doubtful accounts) (Note 6) 1,475,775
Inventory 644,576
Prepaid expenses 207,618
-------------
TOTAL CURRENT ASSETS 3,805,993
NET PROPERTY AND EQUIPMENT 465,100
OTHER ASSETS 19,198
-------------
$ 4,290,291
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable and accrued expenses (Note 4) $ 399,229
Deferred revenue 309,938
Current portion of capital lease obligation 6,971
-------------
TOTAL CURRENT LIABILITIES 716,138
LONG TERM DEBT 1,161,799
-------------
TOTAL LIABILITIES 1,877,937
-------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 300,000 shares
authorized- none issued and outstanding --
Common stock, $.01 par value; 20,000,000 authorized
shares; 4,226,319 issued and outstanding 42,263
Paid-in capital 10,573,689
Receivable from shareholders (79,695)
Deficit (8,123,903)
-------------
TOTAL STOCKHOLDERS' EQUITY 2,412,354
-------------
$ 4,290,291
=============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
VOICE CONTROL SYSTEMS, INC.
INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
=============================================================================================================
Three Months Nine Months
ended September 30, ended September 30,
----------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES (NOTE 5) $ 2,903,105 $ 1,335,605 $ 7,839,898 $ 4,181,601
------------- ------------- ------------- -------------
COST OF SALES 1,016,678 370,480 2,626,238 1,012,891
GROSS PROFIT 1,886,427 965,125 5,213,660 3,168,710
COSTS AND EXPENSES:
Research and development 644,735 489,889 1,878,759 1,279,545
Selling, general and administrative 890,911 1,006,870 2,534,636 2,261,362
Acquired R&D (Note 3) - 3,507,607 - 3,507,607
Interest, to affiliates 33,730 39,815 109,730 108,289
------------- ------------- ------------- -------------
Total Costs and Expenses 1,569,376 5,044,181 4,523,125 7,156,803
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 317,051 (4,079,056) 690,535 (3,988,093)
INCOME TAXES (NOTE 4) 10,000 - 10,000 -
------------- ------------- ------------- -------------
NET INCOME $ 307,051 $ (4,079,056) $ 680,535 $ (3,988,093)
============= ============= ============= =============
NET INCOME (LOSS) PER SHARE:
Primary $ 0.05 $ (1.26) $ 0.11 $ (1.57)
============= ============= ============= =============
Fully diluted $ 0.05 $ (1.26) $ 0.10 $ (1.57)
============= ============= ============= =============
WEIGHTED AVERAGE OUTSTANDING SHARES:
Primary 6,693,083 3,231,735 6,492,906 2,545,299
============= ============= ============= =============
Fully diluted 6,803,800 3,231,735 6,754,263 2,545,299
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
VOICE CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
=======================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994
- --------------------------------------------------------------------------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 680,535 $ (3,988,093)
Adjustments to reconcile net income to net
cash provided by operating activities:
Acquired R&D - 3,507,607
Depreciation and amortization 156,205 225,542
Change in operating assets and liabilities:
Accounts receivable (554,955) 369,595
Inventory (358,304) (400,121)
Prepaids (116,379) (39,064)
Other assets 2,408 (111,542)
Accounts payable and accrued expenses 41,216 12,749
Deferred revenue 253,688 10,079
------------------ -----------------
Net cash provided by (used in) operating activities 104,414 (413,248)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 150,200 -
Capital expenditures (137,206) (233,905)
------------------ -----------------
Net cash provided by (used in) investing activities 12,994 (157,272)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of principal on notes payable and
long-term debt (114,694) (5,111)
Proceeds from exercise of stock options 399,983 66,274
------------------ -----------------
Net cash provided by financing activities 285,289 61,163
------------------ -----------------
Net increase (decrease) in cash and cash equivalents 402,497 (585,990)
Cash and cash equivalents at beginning of year 1,075,527 996,772
------------------ -----------------
Cash and cash equivalents at end of quarter $ 1,478,024 $ 410,782
================== =================
Supplemental disclosures of cash flow information-
Cash paid for interest $ 19,092 $ 35,932
================== =================
Non cash financing activities:
Conversion of debt and accrued interest to
common stock $ 323,787 $ 281,012
================== =================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
VOICE CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
1. BUSINESS
Voice Control Systems, Inc. (the "Company" or "VCS") engages in the
design of speech recognition systems which allow for the voice control of
electronic machines and/or devices. Operating results for the nine months
ending September 30, 1995 are not necessarily indicative of the expected
results for the year. The unaudited financial statements include all
adjustments, consisting primarily of normal recurring accruals, which
management considers necessary for a fair presentation of such information.
2. PER SHARE INFORMATION
Earnings per common and common equivalent share are computed based
upon the weighted average number of outstanding shares of common stock and
common stock equivalents.
3. BUSINESS ACQUISITION
Effective August 11, 1994, the Company acquired all of the stock of
VCS Industries, Inc. in a reverse acquisition (the "Merger") accounted for
using the purchase method of accounting. Each outstanding share of Industries
common stock was converted into and exchanged for 2.61209 (.65302 after giving
effect to the one-for-four reverse stock split) shares of the Company's common
stock. Concurrently, all outstanding shares of common stock were subject to a
one-for-four reverse stock split. As a result of the Merger, the Company
expensed $3,507,607 for acquired research and development, acquired capitalized
software costs, and costs associated with the termination of an officer in the
quarter ended September 30, 1994.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at
September 30, 1995:
<TABLE>
<S> <C>
Accounts payable $ 262,882
Accrued expenses 136,347
---------
$ 399,229
=========
</TABLE>
5. INCOME TAXES
Net operating loss ("NOL") carryforwards expiring from 1996 to 2010
totalling approximately $15,258,000 are available at September 30, 1995 to
offset future periods taxable income. Effective as of August 11, 1994 an
ownership change as defined by the Internal Revenue Code Section 382 occurred.
The effect of such change will be to limit the use of the Company's NOL in
future years to approximately $1,355,000 annually.
The following reconciles income tax expense at the federal statutory
rate to the actual tax expense at September 30:
<TABLE>
<CAPTION>
1995 1994
------------ ---------------
<S> <C> <C>
Federal Income taxes at the statutory rate $ 252,000 $ -
State taxes based on income 35,000 -
Effect on taxes resulting from:
Utilization of NOL carryforwards ( 287,000) -
Federal Alternative Minimum Taxes 10,000 -
------------ ---------------
$ 10,000 $
============ ===============
</TABLE>
6
<PAGE> 7
VOICE CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
The Company has provided an allowance for its entire deferred tax
asset, relating primarily to NOL carryforwards, of approximately $5,188,000 as
its realization is dependent upon future generation of taxable income. Until
such realization can be reasonably determined, management will continue to
provide an allowance for the entire deferred tax asset.
6. MAJOR CUSTOMERS
Two customers accounted for 60% and 10% of total sales revenue for the
nine months ended September 30, 1995. Three customers accounted for 44%, 14%,
and 12% respectively of total sales revenue for the nine months ended September
30, 1994.
The Company's largest customer is also the holder of its long term
convertible debt. Accounts receivable from the largest customer was 14% of the
total receivable balance at September 30, 1995.
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 vs. September 30, 1994
Total revenues increased 87% to $7,840,000 from $4,182,000, for an increase of
$3,658,000. Two customers, Dialogic Corporation and Periphonics Corporation,
accounted for 60% and 10%, respectively, of total sales revenue for the first
nine months of 1995. Three customers accounted for 44%, 14%, and 12%
respectively of total sales revenue for the first nine months of 1994.
Product revenues of $5,946,000 were 76% of revenues in the first nine months of
1995. They increased 140% from $2,473,000 in the first nine months of 1994,
accounting for $3,473,000 or 95% of the increase in total revenues. Virtually
all of the increase in product revenues resulted from an increase in telecom
voice recognition board sales to Dialogic Corporation during the first nine
months of 1995.
Royalty, development and license fees of $1,866,000 were 24% of total revenues
for the first nine months of 1995. These revenues increased 9% from $1,709,000
in the first nine months of 1994. This increase resulted primarily from an
increase in revenues from custom vocabulary loads and development revenue from
several new and previous customers.
Gross margin as a percent of sales decreased from 75.8% in the first nine
months of 1994 to 66.5% in the first nine months of 1995, principally as a
result of the revenue mix between hardware sales and royalty revenue and cost
associated with hardware sales.
Total operating expenses, excluding costs of sales, decreased 37% from
$7,157,000 in the first nine months of 1994 to $4,523,000 in the first nine
months of 1995. Selling, general, and administrative expenses increased 12%
from $2,261,000 in the first nine months of 1994 to $2,535,000 in the first
nine months of 1995, research and development expenses increased 47% from
$1,280,000 in the first nine months of 1994 to $1,879,000 in the first nine
months of 1995, and interest expense increased 2% from $108,000 in the first
nine months of 1994 to $110,000 in the first nine months of 1995. In the first
nine months of 1994, the Company recorded a charge of $3,508,000 for acquired
research and development associated with the Merger.
The increase of $274,000 in selling, general, and administrative expenses from
the first nine months of 1994 to the first nine months of 1995 reflects
increases of $230,000 in payroll costs associated with the addition of six
sales, marketing and administrative employees, $59,000 in stock related
expenses, $127,000 in legal and professional, $38,000 in facilities expense,
$34,000 in supplies, printing and postage expenses offset by decreases of
$190,000 in general expenses including bad debt expense of $115,000, and
$24,000 in travel, entertainment, advertising and conference expenses.
The increase in research and development expense of $599,000 from the first
nine months of 1994 to the first nine months of 1995 primarily reflects an
increase in payroll related expenses of $507,000 associated with the addition
of eleven employees since the Merger. The remainder of the increase was
accounted for primarily by a $43,000 increase in supplies, printing and postage
expense, $47,000 in travel expenses and $10,000 in conferences.
8
<PAGE> 9
The slight increase in interest expense of $1,000 from the first nine months of
1994 to the first nine months of 1995 is due primarily to increases in the
floating rates of convertible debt which are tied to the prime interest rate.
The provision for federal and state taxes increased by $10,000 from the first
nine months of 1994 to the first nine months of 1995 as a result of a federal
alternative minimum tax liability. Revenue in the first nine months of 1995
triggered a federal alternative minimum tax liability. Federal income taxes
and state franchise taxes based on income were offset by net operating loss
carryforwards during 1995.
The first nine months reflected net income of $681,000 compared to a $3,988,000
loss in the first nine months of 1994. The loss in the first nine months of
1994 included an expense for acquired research and development associated with
the Merger. Because of VCS's volatile history of earnings and losses, the
earnings in the first nine months of 1995 should not be relied upon as an
indicator of earnings in future quarters or for the year.
Three Months Ended September 30, 1995 vs. September 30, 1994
Total revenues increased 117% to $2,903,000 from $1,336,000, for an increase of
$1,567,000. Two customers, Dialogic Corporation and Periphonics Corporation,
accounted for 58% and 15%, respectively, of total sales revenue for the quarter
ended September 30, 1995. Three customers accounted for 45%, 12%, and 11%
respectively of total sales revenue for the quarter ended September 30, 1994.
Product revenues of $2,327,000 were 80% of revenues in the third quarter of
1995. They increased 239% from $686,000 in the third quarter of 1994,
accounting for $1,641,000 or 104% of the increase in total revenues. Virtually
all of the increase in product revenues resulted from an increase in telecom
voice recognition board sales to Dialogic Corporation and Periphonics during
the third quarter of 1995.
Royalty, development and license fees of $576,000 were 20% of total revenues
for the third quarter of 1995. These revenues decreased 12% from $650,000 in
the third quarter of 1994. This decrease resulted primarily from a decrease in
revenues from custom vocabulary loads and development revenue.
Gross margin as a percent of sales decreased from 72% in the third quarter of
1994 to 65% in the third quarter of 1995, principally as a result of the
revenue mix between hardware sales and royalty revenue and cost associated with
hardware sales.
Total operating expenses, excluding costs of sales, decreased 69% from
$5,044,000 in the third quarter of 1994 to $1,569,000 in the third quarter of
1995. Selling, general, and administrative expenses decreased 13% from
$1,007,000 in the third quarter of 1994 to $891,000 in the third quarter of
1995, research and development expenses increased 32% from $490,000 in the
third quarter of 1994 to $645,000 in the third quarter of 1995, and interest
expense decreased 17% from $40,000 in the third quarter of 1994 to $34,000 in
the third quarter of 1995. In the third quarter of 1994, the Company recorded
a charge of $3,508,000 for acquired research and development associated with
the Merger.
The decrease of 116,000 in selling, general, and administrative expenses from
the third quarter of 1994 to the third quarter of 1995 reflects increases of
$18,000 in facilities costs, $14,000 in travel and entertainment, $54,000 in
legal and professional, $25,000 in supplies, printing, and postage and $5,000
in conferences and advertising offset by a decrease of $6,000 in payroll costs,
9
<PAGE> 10
$107,000 in amortization related to the goodwill acquired in the Merger,
$115,000 in bad debt, and $6,000 in miscellaneous expenses.
The increase in research and development expense of $155,000 from the third
quarter of 1994 to the third quarter of 1995 primarily reflects an increase of
$130,000 associated with an increase in payroll and related expenses and the
addition of eleven employees since the Merger. The remainder of the increase
was accounted for primarily by a $14,000 in supplies, equipment rental/repairs
and maintenance expenses, $21,000 in travel expenses associated with vocabulary
development travel, $3,000 in miscellaneous expenses offset by a decrease of
$13,000 in legal and professional fees.
The decrease in interest expense of $6,000 from the third quarter of 1994 to
the third quarter of 1995 is due primarily to the conversion of $180,000 of
debt into shares of common stock in August of 1994.
The provision for federal and state taxes increased by $10,000 from the third
quarter of 1994 to the third quarter of 1995. Federal income taxes and state
franchise taxes based on income were offset by net operating loss carryforwards
during 1995.
The third quarter of 1995 reflected net income of $681,000 compared to a
$4,079,000 loss in the third quarter of 1994. The loss in the third quarter of
1994 included an expense for acquired research and development associated with
the Merger. Because of VCS's volatile history of earnings and losses, the
earnings in the third quarter of 1995 should not be relied upon as an indicator
of earnings in future quarters or for the year.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $3,090,000 and $1,300,000 at September 30, 1995 and
1994, respectively. Net cash flows provided by operating activities were
$104,000 in the first nine months of 1995 as compared to cash flows used by
operating activities of $413,000 in the first nine months of 1994. In
addition to the activities described in "Results of Operations", cash flows
were primarily impacted by increases of $358,000 in inventory, $555,000 in
accounts receivable and $116,000 in prepaid expenses partially offset by a
$254,000 increase in deferred revenue.
VCS's primary source of liquidity is the timely collection of its accounts
receivable. At September 30, 1995, 14% of accounts receivable are due from a
major customer and holder of a long term convertible debt. Such amounts are
generally paid within 30 days.
As of September 30, 1995, VCS had $1,478,000 in cash and cash equivalents,
compared to $411,000 at September 30, 1994. VCS's only debt consists of the
$1,162,000 convertible promissory note due to a major customer in 1997. VCS
paid $19,092 in interest to officers and affiliates in the first nine months of
1995.
VCS believes that its existing sources of liquidity and future funds generated
by operations will be sufficient to provide the capital resources necessary to
support increased operating needs and to finance continued growth in the
foreseeable future.
10
<PAGE> 11
CAPITAL EXPENDITURES
Capital expenditures amounted to $137,000 and $234,000, respectively, in each
of the first nine months of 1995 and 1994. The capital expenditures are
principally related to the expansion and upgrading of VCS's research and
development capabilities. VCS currently rents, on a short term basis, any
additional equipment required to enhance its research and development
capabilities. VCS believes that this approach is and will be sufficient for
the Company's future needs. Capital expenditures include purchased software
and computer equipment and office furniture. As of the date of this filing,
VCS had no material commitments for additional capital expenditures.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Addendum to Office Lease Agreement between the Company and
Laborers National Pension Fund dated September 8, 1995.
10.2 Amendment #1 to Employment Agreement between the Company and
Dr. Thomas B. Schalk dated July 20, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter covered by this report.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VOICE CONTROL SYSTEMS, INC.
Dated: November 14, 1995 By: /s/ Peter J. Foster
-------------------
Peter J. Foster
Chief Executive Officer and President
/s/ Kim S. Terry
----------------
Kim S. Terry
Principal Financial and Accounting Officer
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Addendum to Office Lease Agreement between the Company and
Laborers National Pension Fund dated September 8, 1995.
10.2 Amendment #1 to Employment Agreement between the Company and
Dr. Thomas B. Schalk dated July 20, 1995.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
13
<PAGE> 2
ADDENDUM TO LEASE AGREEMENT
State of Texas
County of Dallas
Witnesseth:
Lessor and Lessee hereby confirm and ratify, except as modified below, all of
the terms, conditions and covenants in that certain Lease Agreement dated July
17, 1986 and all subsequent modifications to that Lease Agreement, between
Lessor and Lessee, for the rental of the described property:
A. The leased premises shall be increased to include 4, 196
square feet on the second floor, adjacent to Suite 205,
currently occupied by Tenant. This will bring total square
footage leased to 20, 581 square feet.
B. The "Lease term" in 1(d) shall be a period of 60 months,
commencing on October 1, 1995 and ending on September 30,
2000.
C. The "Basic rental" in 1(e) shall be increased to $10.00 per
square foot for a total of $1,029,050.
D. The "Monthly rental installment" in 1(f) shall be $17,150.83.
E. "Base expense rate" in Exhibit B for 1996 through 2000 is
changed to actual operating expense for 1995. Tenant's
proportionate share increases to 45%.
F. Balance of $29,892.39 remaining on prior construction costs
shall be offset by increase in basic rental of $14,746.50, and
a check payable by Tenant to Landlord prior to October 1, 1995
in the amount of $15,149.89.
G. Landlord shall provide an allowance of up to $6.00 per square
foot to be used toward refurbishment (i.e. carpet, vinyl,
paint) of the downstairs premises.
H. Landlord shall provide a construction allowance of up to
$10.00 per square foot for the remodeling of the upstairs
premises.
I. Tenant may construct a monument sign(s) at either drive
entering the property. Landlord shall approve any sign(s)
prior to construction of such sign(s). All costs for sign(s)
shall be born by Tenant.
LANDLORD: TENANT:
LABORERS NATIONAL PENSION FUND VOICE CONTROL SYSTEMS, INC.
BY:/s/ Ann Sizemore BY: /s/ Peter J. Foster
--------------------------- -----------------------------
ITS: Fund Administrator ITS: Chief Executive Officer
DATE: 9/8/95 DATE: 9/8/95
14
<PAGE> 1
EXHIBIT 10.2
15
<PAGE> 2
AMENDMENT #1 TO
EMPLOYMENT AGREEMENT
Pursuant to a Resolution of the Board of Directors of Voice Control
Systems, Inc., a Delaware corporation ("Company"), the Employment Agreement
dated June 18, 1993 between Dr. Thomas B. Schalk ("Employee") and the Company
(the "Agreement") is hereby amended effective the 20th day of July, 1995 as
follows.
ARTICLE I of the Agreement shall be replaced in its entirety with the
following:
ARTICLE I
Term of Employment
Subject to the provisions hereof, the term of Employee's employment by
Company under this Agreement shall extend through June 18, 1997; provided,
however, that the term of employment shall be extended for an additional one-
year period unless, on or prior to the date thirty calendar days prior to the
end of such period either Company or Employee shall give notice to the other of
an intention to terminate this Agreement, in which case the term of employment
shall comprise only the original period.
ARTICLE III of the Agreement shall be amended by adding the following
sections:
ARTICLE III
Compensation
3.01.A In lieu of the provisions of 3.0.1, from and after August 1,
1995, as compensation for services rendered under the Agreement, Company shall
pay Employee a salary of one hundred forty-five thousand dollars ($145,000) per
year, payable, less applicable FICA and withholding taxes, in semi-monthly
installments. After June 18, 1997, such salary shall be reviewed annually by
the Board of Directors, after which review the salary may be raised but not
lowered.
3.02.A In lieu of the provisions of 3.0.2, from and after August 1,
1995, Employee shall be eligible to receive a bonus of up to five thousand
dollars ($5,000) per calendar quarter, less applicable FICA and withholding
taxes. The dollar amount of the bonus shall be determined at the sole
discretion of the Compensation Committee of the Board of Directors based upon
exceptional achievements during the quarter.
EMPLOYEE: COMPANY:
/s/ Dr. Thomas B. Schalk /s/ Peter J. Foster
- ------------------------------- ------------------------------------
By Its President/CEO, Pursuant to a
Resolution of the Board of Directors
DR. THOMAS B. SCHALK AMENDMENT #1 TO
EMPLOYMENT AGREEMENT 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,478,024
<SECURITIES> 0
<RECEIVABLES> 1,475,775
<ALLOWANCES> 33,800
<INVENTORY> 644,576
<CURRENT-ASSETS> 3,805,993
<PP&E> 1,476,383
<DEPRECIATION> 1,011,283
<TOTAL-ASSETS> 4,290,291
<CURRENT-LIABILITIES> 716,138
<BONDS> 0
<COMMON> 42,263
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,290,291
<SALES> 7,839,898
<TOTAL-REVENUES> 7,839,898
<CGS> 2,626,238
<TOTAL-COSTS> 2,626,238
<OTHER-EXPENSES> 4,523,125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,730
<INCOME-PRETAX> 690,535
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 680,535
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
