<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1999
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _________________
Commission file number 0-12382
-------
Perceptronics, Inc.
-------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-2577731
- -------------------------------------------------------------- ---------------
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification No.)
21010 Erwin Street, Woodland Hills, CA 91367
--------------------------------------------
(Address of principal executive offices)
(818)884-7470
---------------------------
(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 __ ___
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock: $.001 par value, outstanding at November 1, 1999: 5,663,242
Transitional Small Business Disclosure Format (Check one):
Yes ______ No __X__
<PAGE>
INDEX
PERCEPTRONICS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
(a) Consolidated balance sheets, Perceptronics, Inc. and subsidiary,
September 30, 1999 and March 31, 1999.
(b) Consolidated statements of operations, Perceptronics, Inc. and
subsidiary, three and six months ended September 30, 1999 and
1998.
(c) Consolidated statements of cash flows, Perceptronics, Inc. and
subsidiary, six months ended September 30, 1999 and
1998.
(d) Notes to consolidated financial statements.
Item 2. Management's discussion and analysis of financial condition and
results of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in securities.
Item 4. Submission of matters to a vote of security holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS Sept. 30, 1999 March 31, 1999
- ------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments ..................... $ 54,726 $ 150,801
Restricted cash - Note B ............................ - 299,000
Receivables
Billed - Note C .................................. 73,957 133,881
Unbilled - Note C ................................ 81,404 151,580
Other receivables ................................ 11,999 17,854
Inventory - Note D ................................. 172,222 172,222
Pre-contract Costs .................................. 268,178 176,317
Prepaid expenses .................................... 15,926 29,337
---------- ----------
TOTAL CURRENT ASSETS ............................. 678,412 1,130,992
EQUIPMENT & LEASEHOLD IMPROVEMENTS, at cost .............. 822,036 817,963
Less accumulated depreciation and amortization ...... 767,422 747,631
---------- ----------
54,614 70,332
DEFERRED TAXES ........................................... 932,566 932,566
OTHER ASSETS ............................................. 82,930 82,930
---------- ----------
TOTAL ASSETS ..................................... $1,748,522 $2,216,820
========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
Sept. 30, 1999 March 31, 1999
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt - Note E ......................... $ 86,672 $ 96,629
Short term debt .................................................... 54,000 54,000
Accounts payable ................................................... 623,370 528,442
Accrued compensation ............................................... 149,896 148,032
Other accrued liabilities .......................................... 166,258 210,447
------------ ------------
TOTAL CURRENT LIABILITIES ....................................... 1,080,196 1,037,550
LONG TERM DEBT
Long term debt, net of current portion - (Note E) .................. 128,582 157,654
Other long term liabilities ........................................ 92,000 172,500
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - par value $.001; authorized 15,000,000 shares;
5,655,142 and 5,629,930 shares issued and outstanding .............. 5,655 5,630
Additional paid-in capital ......................................... 12,683,727 12,673,643
Accumulated deficit ................................................ (12,241,638) (11,830,157)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ..................................... 447,744 849,116
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY ..................................................... $ 1,748,522 $ 2,216,820
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net sales .................................................... $ 303,419 $ 1,475,150 $ 685,829 $ 2,308,102
Cost of sales ................................................ 310,281 990,273 628,853 1,491,296
------------ ----------- ------------ -----------
Gross profit ................................................. (6,862) 484,877 56,976 816,806
Cost and expenses:
Selling, general and administrative........................... 233,648 305,130 440,958 550,009
Research and development ..................................... - 7,985 - 14,441
------------ ----------- ------------ -----------
Operating income (loss) ...................................... (240,510) 171,762 (383,982) 252,356
Interest expense ............................................. 6,348 92,747 26,699 170,119
------------ ----------- ------------ -----------
Income (loss) before taxes ................................... (246,858) 79,015 (410,681) 82,237
Income tax provision ......................................... 800 800 800 800
------------ ----------- ------------ -----------
Net income (loss) ............................................ $ (247,658) $ 78,215 $ (411,481) $ 81,437
============ =========== ============ ===========
Earnings per share:
Basic:
Net income (loss) .................................... $ (0.04) $ 0.02 $ (0.07) $ 0.02
============ =========== ============ ===========
Diluted:
Net income (loss) .................................... $ (0.04) $ 0.02 $ (0.06) $ 0.02
============ =========== ============ ===========
Weighted average common and common equivalent shares:
Basic - Note F ....................................... 5,655,142 4,996,625 5,642,536 4,938,292
============ =========== ============ ===========
Diluted - Note F ..................................... 6,123,260 5,101,226 6,365,458 5,177,531
============ =========== ============ ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended September 30,
1999 1998
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ...................................... $ (411,481) $ 81,437
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ....................... 19,791 17,383
Changes in assets and liabilities:
Receivables ......................................... 135,955 (664,939)
Inventory ........................................... - 17,141
Prepaid expenses .................................... 13,411 (34,165)
Pre-contract costs .................................. (91,861) -
Other assets ........................................ - -
Accounts payable .................................... 94,928 44,173
Accrued compensation ................................ 1,864 7,311
Advance from customers .............................. - 404,510
Other accrued liabilities ........................... (44,189) (34,478)
----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES ......................... (281,582) (113,225)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions ...................................... (4,073) (614)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ............ (4,073) (614)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants ................. 5,109 16,000
Net proceeds (repayment)- export financing ............. - 434,689
Payment of long term debt .............................. (39,029) (239,050)
Increase (decrease) in other long-term debt ............ (80,500) 48,402
Proceeds from sale of common stock ..................... 5,000 290,440
----------- -----------
NET CASH PROVIDED (USED) IN
FINANCING ACTIVITIES ......................... (109,420) 502,079
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ......................... (395,075) 388,240
CASH AND CASH EQUIVALENTS AT
THE BEGINNING OF THE PERIOD .................. 449,801 377,411
=========== ===========
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD ...................... $ 54,726 $ 765,651
=========== ===========
CASH PAID DURING THE PERIOD
Interest ................................... $ 15,262 $ 147,554
Income taxes ............................... $ 800 $ 800
</TABLE>
<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three and six month period ended September 30, 1999 are not
necessarily indicative of the operating results to be expected for the full
year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements are read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-KSB for the year ended March 31, 1999.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY: Perceptronics, Inc., the "Company" designs,
develops, manufactures and markets computer-based simulation systems and
software for military and commercial training and decision support.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Perceptronics, Inc., (the "Company") and its wholly owned
subsidiary. All significant inter-company transactions and balances have been
eliminated.
BASIS OF PRESENTATION: The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company has sustained
operating losses during the six-month period ended September 30, 1999 and
requires substantial amounts of working capital to support its operations. At
September 30, 1999, current liabilities exceed current assets by $402,000. The
Company continues to have difficulty in meeting its obligations as they become
due. Payments to vendors, totaling approximately $280,000 at September 30, 1999
are past due and certain vendors continue to require cash in advance or on
delivery terms for goods and services. The Company's cash flow during the
six-month period ended September 30, 1999 was not sufficient to meet current
operating requirements and the Company continues to have difficulty making
satisfactory progress toward liquidating its past due obligations. The ability
of the Company to operate its business and generate sufficient positive cash
flows is dependent on raising additional investment capital to fund development
of commercial software products. The Company announced that it seeks to divest
its PGTS training simulator manufacturing operation. Negotiations relating to
its PGTS contract with Egypt continue to be delayed. The Company has taken steps
to significantly reduce the staff at the manufacturing operation to reduce
costs. The Company's consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
CASH EQUIVALENTS: All highly liquid investments maturing in three months or
less when purchased are considered as cash equivalents.
<PAGE>
RESTRICTED CASH: Represents short term investments that have been pledged as
collateral in conjunction with letters of credit guarantees required by the
foreign contract with the Government of Egypt.
INVENTORY: Inventory is stated at cost, which is not in excess of market. Cost
is determined principally by the first-in, first-out method.
PRE-CONTRACT COSTS: Costs incurred in connection with contracts which have not
been signed at the balance sheet date (but where recoverability is probable)
are accounted for as pre-contract costs. No revenues or profits have been
recognized on these costs. At September 30, 1999 and March 31, 1999 deferred
pre-contract costs were $268,178 and $176,317 respectively.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS: Equipment and leasehold improvements are
stated at cost. Depreciation of equipment is provided for by the straight-line
method over their estimated useful lives, which range from 3 to 5 years.
Amortization of leasehold improvements is provided for by the straight-line
method over the shorter of the useful lives or the terms of the leases.
REVENUE RECOGNITION: All sales were recorded using the percentage-of-completion
(cost to cost) method of accounting. Under this method, sales are recorded as
costs (including general and administrative expenses) are incurred, plus a
portion of the profit expected to be realized on each contract in the ratio that
costs incurred to date bear to total estimated cost at completion. General and
administrative expenses in excess of rates billed on contracts are recorded in
the period incurred. Costs related to anticipated future losses on contracts are
accrued and charged to expense in the period when the losses are identified.
INCOME TAXES: Provisions for federal and state income taxes are calculated on
reported financial statement income based on the current tax law. Such
provisions differ from the amounts currently payable because certain items of
income and expense, known as temporary differences, are recognized in different
tax periods for financial reporting purposes than for income tax purposes.
Deferred income taxes are the result of the recognition of tax benefits that
management expects to realize from the utilization of net operating loss
carry-forwards. The amounts recorded are net of a valuation allowance and
represent management's estimate of the amount that is more likely than not to be
realized.
PER SHARE DATA: Per share data is based upon the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding using
the treasury stock method. Refer to Note F for a reconciliation of the shares
used to compute earnings per share.
USE OF ESTIMATES: Company management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
reported amounts of revenues and expenses, in conformity with generally
accepted accounting principles. Actual amounts could differ from these
estimates.
NOTE C - RECEIVABLES
Billed receivables at March 31, 1999 and September 30, 1999 are $133,881 and
$73,957 respectively. These balances represent amounts that have been invoiced
on commercial and United States Government contracts that remain unpaid at the
end of the respective periods. The Company expects to collect all amounts
within one year.
<PAGE>
Unbilled receivables at March 31, 1999 and September 30, 1999 are $151,580 and
$81,404 respectively. These balances represent amounts recognized under the
percentage-of-completion method of accounting that have not been billed because
of the billing terms of the contracts.
The amount of contract retention included in unbilled receivables was $70,000
at March 31, 1999 and at September 30, 1999.
NOTE D - INVENTORY
A summary of the components of inventory follows:
<TABLE>
<CAPTION>
Sept. 30, March 31,
1999 1999
---------- ----------
<S> <C> <C>
Raw materials and component parts $172,222 $172,222
---------- ----------
$172,222 $172,222
========== ==========
</TABLE>
NOTE E - LONG TERM DEBT
Long-term debt included the following at September 30 and March 31, 1999:
<TABLE>
<CAPTION>
Sept. 30, March 31,
1999 1999
----------- ----------
<S> <C> <C>
Note Payable - Small Business Administration, secured by
Company assets, payable in monthly installments of $782
including interest at 4% per annum, due November 2004. $ 43,014 $ 46,908
Note Payable - Bank guaranteed by Small Business
Administration, secured by Company assets, payable in
monthly installments of $4,364 including interest at
prime rate plus 2.75 percentage points, due November 2002. 132,877 151,259
Note Payable - Consultant issued to resolve open accounts
payable balance. Payable in monthly installments of $4,521
including interest at 8% per annum, due April 2000. 39,363 56,116
---------- ---------
215,254 254,283
Current portion of long-term notes payable 86,672 96,629
---------- ---------
$128,582 $157,654
========== =========
</TABLE>
<PAGE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
September 30,
<S> <C>
2000 $ 86,672
2001 52,307
2002 57,645
2003 8,799
2004 9,158
Thereafter 673
----------
$ 215,254
================
</TABLE>
NOTE F - NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share"
which, when adopted, will replace the current methodology for calculating and
presenting earnings per share. Under SFAS No. 128, primary earnings per share
will be replaced with a presentation of basic earnings per share and fully
diluted earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
per share are computed similarly to fully diluted earnings per share. The
statement became effective beginning in the Company's third quarter ended
December 31, 1997. A reconciliation of shares used to compute earnings per
share for the three-month and six month periods ended September 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Quarter ended Six months
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding ........................ 5,655,142 4,996,625 5,642,536 4,938,292
Diluted stock options and warrants
based on treasury stock method ..... 468,118 104,601 722,922 239,239
--------- --------- --------- ---------
Diluted shares .......................... 6,123,260 5,101,226 6,635,458 5,177,531
========= ========= ========= =========
</TABLE>
<PAGE>
Item 2. Management's discussion and analysis of financial condition and results
of operations.
GENERAL
Perceptronics, Inc., (the "Company"), has historically engaged in the design,
development and manufacture of computer-based simulation systems for training
and decision support. These systems include both hardware and software. The
Company's simulators are used to train personnel in the use of various military
and commercial equipment, including weapons, vehicles and aircraft. In the
decision support area, the Company's computer software systems are used to
enhance command and control operations, for process modeling and simulation, and
for management of concurrent engineering activities in product development and
manufacturing. Much of the Company's simulator business has been in the foreign
defense industry where the Company has built an international reputation. Refer
to the Liquidity and Capital Resources section below for a discussion of the
Company's plans to divest the training simulator system product line.
The Company is currently developing new commercial products in the area of
Internet Collaborative 3D. The product, called IC3D-TM- Framework, is directed
toward the rapidly growing market for multi-person, online, collaborative
interactions in 3D virtual environments accessed over the Internet. The major
market applications for IC3D-TM- Framework are entertainment, education,
e-commerce and business communication.
GOING CONCERN QUALIFICATION
The following discussion is based on the unaudited consolidated financial
statements contained elsewhere in this report. The unaudited financial
statements have been prepared in conformity with generally accepted accounting
principals, which contemplate continuation of the Company as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of the liabilities that may result from the possible
inability of the Company to continue as a going concern. See Note B of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
NET SALES. Net sales for the six-month period ended September 30, 1999 of
$686,000 decreased by $1,622,000 or 70% compared to the comparable six-month
period in the prior fiscal year. Sales of training simulator systems decreased
$1,698,000 or 99% as a result of the completion of a contract with the
Government of Egypt for TOW PGTS simulator systems during the previous fiscal
year ended March 31,1999. This contract had a total contract value of $3.0
million of which $1,622,000 was recognized in the six-month period ended
September 30, 1998. Training simulator system sales during the six-month period
ended September 30, 1999 amounted to only $5,000 consisting of small orders for
parts and maintenance. Simulation network technology sales, which represented
99% of net sales during the six-month period ended September 30, 1999, increased
$152,000 or 29%. This increase is the result of the U.S. Government SBIR Phase
II contract and the State of California contract that have been providing the
funding for the development and commercialization of the IC3D-TM- Framework
network software products for on-line, multi-user applications involving complex
3D environments.
Net sales for the three-months ended September 30, 1999 of $303,000, decreased
by $1,172,000 or 79% compared to the comparable three-month period in the prior
fiscal year. Sales of training simulator systems decreased $1,084,000 or 100%
because there were no sales during the three-month period ended September 30,
1999. During the three-month period ended September 30,
<PAGE>
1998, there were sales of $1,018,000 on the contract with the Government of
Egypt and $65,000 related to the sale of a PGTS simulator system to a foreign
customer. Simulation network technology sales, which represented 100% of net
sales in the three-month period ended September 30, 1999, decreased $18,000 or
6%.
COST OF SALES. Cost of sales for the six-month period ended September 30, 1999
decreased 58% as a result of the 70% decrease in sales discussed above. The
decrease in cost of sales is not proportional to the decrease in net sales
because of certain fixed and semi-fixed expenses. Cost of sales as a percentage
of sales during the six-month period ended September 30, 1999 was 92% compared
to 65% during the six-month period ended September 30, 1998. The higher
component (99%) of simulation network technology sales, which carry lower
margins than training simulator systems sales, and the fixed and semi-fixed
expenses contributed to the higher percentage of cost of sales to net sales
during the six-month period ended September 30, 1999.
Cost of sales for the three-month period ended September 30, 1999 decreased 69%
as a result of the 79% decrease in sales discussed above. Cost of sales as a
percentage of sales during the three-month period ended September 30, 1999 was
102% compared to 67% during the three-month period ended September 30, 1998. The
reason for the change is the same as for the six-month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $109,000 or 20% in the six-month period ended
September 30, 1999 compared to the comparable six-month period in the prior
fiscal year. The decrease was the result of reduced marketing expenses partially
offset by higher indirect payroll expenses which could not be directly absorbed
by contracts due to the lower sales level during the six-month period ended
September 30, 1999. Selling, general and administrative expenses decreased
$71,000 or 23% in the three-month period ended September 30, 1999 compared to
the comparable three-month period in the prior fiscal year. The reason for the
decrease is the same as for the six-month period.
The Company's management continues to pursue cost reduction measures consistent
with the level of business wherever opportunities can be identified. During the
three-month period ended September 30, 1999 the company moved its principal
office into a smaller space which will result in a substantial reduction in rent
expense going forward and the cancellation of the lease that previously existed.
Substantial reductions have also been made in personnel to reduce
payroll-related expenses.
INTEREST EXPENSE. Interest expense decreased 84% or $143,000 in the six-month
period ended September 30, 1999 compared to the comparable six-month period in
the prior fiscal year. Interest expense decreased significantly because of the
completion of the Egypt contract and the resulting repayment of the export
credit facility during the previous fiscal year ended March 31, 1999. In the
three-month period ended September 30, 1999, interest expense decreased 93% or
$86,000. There was no interest expense associated with the export credit
facility during the six-month and three-month periods ended September 30, 1999.
BACKLOG. The Company's firm contract backlog was $46,000 at September 30, 1999,
compared to $2.3 million at September 30, 1998. The term "firm contract backlog"
refers to the aggregate revenue remaining under contracts held by the Company
and includes both funded and unfunded amounts. At September 30, 1999 all backlog
was funded.
LIQUIDITY AND CAPITAL RESOURCES.
The Company is experiencing severe liquidity problems due to a lack of revenues
and cash reserves. The Company's unrestricted cash balances were $55,000 at
September 30, 1999 and $5,000 at November 8, 1999. The Company had negative
working capital of $402,000 at September 30, 1999, compared to positive working
capital of $93,000 at March 31, 1999. The Company continues to have difficulty
in meeting all of its obligations as they come due. At
<PAGE>
September 30, 1999, vendor accounts totaling $280,000 are past due. The
lack of sufficient working capital continues to restrict the Company's ability
to expand its revenue base. See Note B of the Notes to Consolidated Financial
Statements, which is hereby incorporated herein by reference.
Recently the Company announced that it is seeking to divest its PGTS training
simulator development and manufacturing operation, and plans to concentrate its
efforts on the development of technology and total solutions for collaborative
interaction on the Internet and other networks, including its IC3D Framework
and 3Dconnect software. The Company's management believes that while the PGTS
training simulator systems product line has historically been a significant
portion of the Company's business and has provided the majority of the
Company's revenues, the product line offers less potential for future growth
than the Internet related products. There is no assurance that the Company will
be able to divest the PGTS product line or that any divestiture would improve
the Company's viability.
During the six-month period ended September 30, 1999, the Company's SBIR Phase
II software contract and the California Technology Investment Partnership
contract have provided funding that has enabled the Company to use it's defense
related technology in the development of commercial software products
associated with IC3D-TM- Framework. At September 30, 1999, these contracts had
been completed. The Company requires significant financing from external
sources to be able to continue at its reduced level of operations. There is no
assurance that the Company will be able to obtain such financing. The terms of
any financing could be onerous to the Company and dilutive to shareholders.
Even if the Company obtains financing, there is no assurance that the Company
will be able to successfully develop or market any IC3D-based products. The
Company continues to pursue U.S. Government sponsored development contracts
that have provided technical inputs to the commercial software products as well
as providing revenue and income. The Company is also exploring alternative
sources for financing such as strategic business alliances and potential
business combinations.
The Company currently has a $200,000 note payable with a bank that is
guaranteed by the SBA. At September 30,1999, the principal balance outstanding
was $133,000. The note bears interest at prime rate plus 2.75 percentage points
with principal and interest payable monthly amortizing over five years. The
Company also has a 24-month note payable with a starting principal of $100,000
that bears interest at 8% per annum. At September 30, 1999, the outstanding
balance on this note payable was $39,000. The Company is behind two monthly
payments on this note as a result of the cash flow limitations previously
discussed.
The Company's operating activities used cash of $282,000 during the six-month
period ended September 30, 1999 resulting primarily from the operating loss
incurred during the period due to reduced sales levels and offset by the
collection of receivables.
The Company's investing activities used cash of $4,000 during the six-month
period ended September 30, 1999 as a result of the purchase of computer
equipment.
The Company's financing activities used cash of $109,000 during the six-month
period ended September 30, 1999, to reduce long-term debt.
On October 15, 1999 the Company was informed that it has been sued by Balter
Guth Aloni & Co., a law firm in Tel Aviv, Israel, for approximately $75,000 in
connection with amounts and interest allegedly owed for legal work performed
seven years ago. The Company's attorney in Israel has entered into settlement
discussions with the plaintiff; such discussions are continuing at present.
<PAGE>
YEAR 2000 COMPLIANCE
The year 2000 issue results from computer programs that do not differentiate
between the year 1900 and the year 2000 because they were written using two
digits rather than four to define the applicable year; accordingly computer
systems that have time-sensitive calculations may not properly recognize the
year 2000. The Company has conducted an initial review of its computer system
to identify whether the system is year 2000 compliant. The computer equipment
and software currently used by the Company is an older generation and will be
effected by the year 2000 problem. The Company has purchased a current
generation system and is in the process of replacing the existing computer
system. The implementation of the new system is in process and will be
completed during the third quarter. However, there can be no assurance that
software incompatibility with the year 2000 issue on the part of the Company's
customers and suppliers will not cause an interruption of operations or that
the Company will not have to incur substantial cost to avoid such occurrences.
Due to the Company's reduced level of operation the Company has not instituted
formal contingency plans related to year 2000 issues.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report contains
forward-looking statements (identified by the words "estimate," "project,"
"anticipate," "plan," "expect," "intend," "believe," "hope," "strategy" and
similar expressions) which are based on Management's current expectations and
speak only as of the date made. These forward-looking statements are subject to
various risks, uncertainties and factors, including, without limitation, those
described below, that could cause actual results to differ materially from the
results anticipated in the forward-looking statements.
GOING CONCERN ISSUE AND SEVERE LIQUIDITY PROBLEMS. The Company's unaudited
financial statements for the six month period ended September 30, 1999 have
been prepared in conformity with generally accepted accounting principals,
which contemplate continuation of the Company as a going concern. See Note B
of Notes to Consolidated Financial Statements contained elsewhere herein. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern. The Company's revenue
levels have significantly declined during the six month period ended September
30, 1999 and the backlog at September 30, 1999 is very low, and therefore may
be insufficient to fund continuing operations without the addition of new
contract awards or other forms of capital. The Company has also sustained
operating losses during the six-month period and requires substantial amounts
of working capital in its operations. As a result, the Company suffers from
limited cash resources, which restrict its ability to bid for, obtain and
perform contracts. Even if the Company overcomes its liquidity problems, there
can be no assurance that in the future the Company will be able to increase
revenues or operate profitably.
BUSINESS STRATEGY; IC3D-TM- FRAMEWORK SOFTWARE PRODUCT. The Company's current
business strategy is to focus on the development of commercial products derived
from the Company's defense-related technology and expertise in order to expand
its customer base and reduce its dependence on defense contracts. As part of
this strategy, the Company obtained a U.S. Government Department of Defense
SBIR Phase II Fast Track contract for $750,000 to develop and commercialize
networking software for commercial on-line, multi-player games involving
complex 3D environments ("IC3D-TM- Framework software"). The SBIR Phase II
contract was completed during the three-month period ended September 30, 1999.
The Company will require additional external funds to be able to fully
commercialize, market and exploit the IC3D-TM- Framework software. There can be
no assurance that all future funding requirements will be obtained and at
terms that will be advantageous from an economic standpoint. Furthermore,
<PAGE>
there can be no assurance that the Company will be successful in its
development efforts that the IC3D-TM- Framework software will be a
commercially feasible product, or that the Company will be able to
successfully market the IC3D-TM- Framework software.
PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The simulation and Internet
software markets are characterized by rapid technological change and are highly
competitive. The Company's success is dependent on its ability to develop new
products and product enhancements to keep up with technological advances and to
meet customer needs. Any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could have a
material adverse effect on the Company's financial condition and results of
operations. The Company has limited manufacturing personnel, and marketing
capabilities and financial resources and will be dependent upon establishing
relationships with strategic and marketing partners to be able to fully exploit
the IC3D-TM- Framework software and other commercial products. There can be no
assurance that the IC3D-TM- Framework software or future new products will
achieve market acceptance, result in increased revenues, or be profitable. Such
products could also be subject to technological obsolescence and intense
competition from companies with greater resources than the Company.
DEPENDENCE ON ONE CUSTOMER AND ON FOREIGN SALES. The Company has historically
derived a substantial portion of its revenues from the sale of PGTS Training
Simulator systems primarily to a limited number of foreign customers. During
the six-month period ended September 30, 1999 training simulator sales only
comprised 1% of total sales compared to 74% in the comparable six-month period
of the prior fiscal year. The Company announced that it plans to divest its
training simulator product line. There is no assurance that the Company will be
able to divest the training simulator product line or that any divestiture
would improve the Company viability.
DEPENDENCE ON DEFENSE-RELATED BUSINESS. The Company has historically derived a
substantial portion of its revenues from U.S. and foreign government
defense-related contracts. As a result, the Company's business has been
impacted by reductions in the U.S. federal defense budget and this business
will continue to be subject to risks affecting the defense industry, including
changes in governmental appropriations and changes in national defense policies
and priorities. The Company has sought to reduce its dependence on
defense-related business by developing products with commercial applications,
such as the proposed IC3D-TM- Framework software networking products. As noted
above there can be no assurance that these products will achieve market
acceptance, resulting in increased revenues or be profitable.
MANAGEMENT OF GROWTH. Successful expansion of the Company's operations will
depend on, among other things, the ability to develop and commercialize new
products, to continue to effectively market existing products, to attract and
retain skilled management and other personnel and to secure adequate sources of
capital to finance growth at reasonable terms. To manage growth effectively,
the Company will have to continue to improve its operational, financial and
management information systems, procedures and controls.
COMPETITION. The Company expects to encounter intense competition in the area
of networked on-line computer software products from companies that have
substantially greater financial, manufacturing and marketing capabilities than
the Company. The Company could also experience competition from emerging
companies. There can be no assurance that the Company's products will be
competitive with existing or future products, or that the Company will be able
to establish or maintain a profitable price structure for its products. The
Company also experiences intense competition for U.S. and foreign government
contracts from companies such as SAIC, Litton, Lockheed Martin and TRW, which
have substantially greater resources than the Company. The Company's size and
financial condition impedes its ability to compete in many areas.
<PAGE>
PROTECTION OF INTELLECTUAL PROPERTY. The Company relies on a combination of
trademarks, trade secrets, and other intellectual property law, nondisclosure
agreements and other protective measures to preserve its proprietary rights
pertaining to its technology and products. Such protection, however, may not
preclude competitors from developing products or technology similar or superior
to the Company's. In addition, the laws of certain foreign countries do not
protect intellectual property rights to the same extent as the laws of the
United States. Although the Company continues to implement protective measures
and intends to defend its proprietary rights to the extent it has the financial
resources to do so, there can be no assurance that these efforts will be
successful. Furthermore, there can be no assurance that the Company's products
or technologies are not or will not be in violation of the patent rights of
third parties.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 15, 1999 the Company was informed that it has been sued by
Balter Guth Aloni & Co., a law firm in Tel Aviv, Israel, for
approximately $75,000 in connection with amounts and interest allegedly
owed for legal work performed seven years ago. The Company's attorney
in Israel has entered into settlement discussions with the plaintiff;
such discussions are continuing at present.
Item 2. Change in Securities
In April 1999 and July 1999, the Company issued warrants to purchase
50,000 shares and 200,000 shares of Common Stock, respectively, at an
exercise price of $.85 per share. The warrants were issued to a
marketing consultant pursuant to an agreement for marketing services.
In May 1999, the Company issued a warrant for 5,000 shares of Common
Stock at an exercise price of $.95 per share to a financial consultant
for services rendered. Each of these issuance's was made pursuant to
Section 4(2) of the Securities Act of 1933 as a transaction not
involving a public offering and each purchaser represented that he was
acquiring the securities for his own account and not with the view
towards the distribution thereof. The certificates representing the
securities have a restrictive legend endorsed thereon reflecting the
restrictions on transferability arising out of the Securities Act.
Item 4. Submission of matters to a vote of security holders
The Annual Meeting of Shareholders of Perceptronics, Inc. was held on
September 14, 1999. All of management's nominees for director as listed
in the proxy statement were elected. The Vote count for and withheld
are summarized below.
<TABLE>
<CAPTION>
Shares voted Shares voted
"For" "Withheld"
------------ ------------
<S> <C> <C>
Dr. Gershon Weltman 3,780,285 56,525
Steven P. Corda 3,780,285 56,525
Dr. Amos Freedy 3,780,285 56,525
Dr. John Lyman 3,779,985 56,825
Robert Parker 3,779,985 56,825
Stanley Schneider 3,780,285 56,528
</TABLE>
The shareholders also voted to approve the 1999 Stock Option Plan and
the 1999 Stock Option Plan for Non-Employee Directors. The vote count
"yes" and "no" and "abstain" for the two plans are summarized below.
<TABLE>
<CAPTION>
Yes No Abstain
--------- ------- --------
<S> <C> <C> <C>
The 1999 Stock Option Plan 1,478,811 120,017 19,371
The 1999 Stock Option Plan for Non-
Employee Directors 1,468,580 125,726 23,893
</TABLE>
<PAGE>
Item 5. Other information
Effective September 27, 1999 Steven P. Corda resigned his position as a
Director of the Company. Effective October 15, 1999 Thomas J.
Lubaczewski resigned his position as Senior Vice President Training
Systems and Chief Operating Officer and he may be involved in the
acquisition of the training system operation. Effective October 22,
1999 Robert E. Anderson resigned his position as Senior Vice President
and Chief Financial Officer. Dr. Gershon Weltman has assumed the
position of Secretary and Chief Financial Officer.
Item 6. Exhibits and reports on Form 8-K
(a) The following exhibits are filed herewith:
10.1 1999 Stock Option Plan
10.2 1999 Stock Option Plan for Non-Employee Directors
27 Financial Data Schedules.
(b) The Registrant filed no reports on Form 8-K during the
quarter ended September 30, 1999.
<PAGE>
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.
Perceptronics, Inc.
----------------------------
Registrant
Date: November 15, 1999 /S/ Gershon Weltman
--------------------- ----------------------------
Dr. Gershon Weltman
Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
10.1 1999 Stock Option Plan
10.2 1999 Stock Option Plan for Non-Employee Directors
27 Financial Data Schedules - on Edgar filing only.
<PAGE>
Exhibit 10.1
PERCEPTRONICS, INC.
1999 STOCK OPTION PLAN
I. . PURPOSE
The purpose of the Perceptronics, Inc. 1999 Stock Option Plan (the
"Plan") is to further the interests of Perceptronics, Inc. (the "Company")
and its Subsidiaries by strengthening the desire of Employees to continue
their relationship with the Company and its Subsidiaries and by inducing
individuals to become Employees of the Company and its Subsidiaries through
stock options to be granted hereunder. Options granted under the Plan are
either options intending to qualify as "incentive stock options" within the
meaning of Section 422 of the Code or non-qualified stock options.
I. . DEFINITIONS
Whenever used herein the following terms shall have the following
meanings, respectively:
A. "Board" shall mean the Board of Directors of the Company.
A. "Code" shall mean the Internal Revenue Code of 1986, as amended.
A. "Committee" shall mean a Committee of at least two directors
appointed by the Board, or if no such committee has been appointed reference to
"Committee" shall be deemed to refer to the Board.
A. "Common Stock" shall mean the Company's Common Stock as
described in the Company's Certificate of Incorporation, as amended from time
to time.
A. "Company" shall mean Perceptronics, Inc., a Delaware
corporation.
A. "Employee" shall mean in connection with Non-Qualified Options,
any officer, employee, consultant or advisor of the Company or any Subsidiary
or Parent Corporation of the Company, and any director of the Company who is
not an employee of the Company or any Subsidiary or Parent Corporation of the
Company and which director is not otherwise eligible to participate in any
Company stock options plan available only to non-employee directors of the
Company, it being understood that the Committee may in its
<PAGE>
discretion also grant Options to induce individuals to become and remain as
Employees and that such persons, for purposes of receiving Non-Qualified
Options hereunder, shall be deemed "Employees." In connection with Incentive
Options under this Plan, the term Employee shall mean any individual who is
employed, within the meaning of Section 3401 of the Code, by the Company or any
Subsidiary or Parent Corporation of the Company.
B. "Fair Market Value Per Share" of the Company's Common Stock
shall mean if the Company's Common Stock is publicly traded the mean between
the highest and lowest quoted selling prices of the Common Stock on the date of
the grant of the Option or, if not available, the mean between the bona fide
bid and asked prices of the Common Stock on the date of the grant of the
Option. In any situation not covered above or if there were no sales on the
date of the grant of an Option, the Fair Market Value Per Share shall be
determined by the Committee in good faith based on uniform principles
consistently applied.
A. "Incentive Option" shall mean an Option granted under the Plan
which is designated as and qualifies as an incentive stock option within the
meaning of Section 422 of the Code.
A. "Non-Qualified Option" shall mean an Option granted under the
Plan which is designated as a non-qualified stock option or which does not
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
A. "Option" shall mean an Incentive Option or a Non-Qualified
Option. Each Option shall be evidenced by a written agreement executed by the
Company which shall set forth the terms and conditions of such Option.
A. "Optionee" shall mean any Employee who has been granted an
Option under the Plan.
A. "Parent Corporation" shall have the meaning set forth in Section
424(e) of the Code.
A. "Permanent Disability" shall mean termination of employment with
the Company or any Subsidiary or Parent Corporation of the Company with the
consent of the Company or such Subsidiary by reason of permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
A. "Plan" shall mean the Perceptronics, Inc. 1999 Stock Option
Plan, as from time to time amended.
A. "Subsidiary", in the case of Incentive Options, shall have the
meaning set forth in Section 424(f) of the Code (generally, 50% or more owned
subsidiaries), and in the case of Non-Qualified Options, shall have the meaning
of "subsidiary" in Rule 405 of Regulation C under the Securities Act of 1933,
as amended (generally, a controlled affiliate).
<PAGE>
I. . ADMINISTRATION
A. The Plan shall be administered either by the Board or, in the
discretion of the Board, by a Committee; provided, however, that if a Committee
has been appointed by the Board, the Board may in its discretion, take any
action permitted to be taken by the Committee with respect to grants or other
actions under the Plan. The Board may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed
and may fill vacancies.
A. Any action of the Committee with respect to the administration
of the Plan shall be taken by majority vote or by unanimous written consent of
its members.
A. Subject to the provisions of the Plan, the Committee shall have
the authority to construe and interpret the Plan, to define the terms used
herein, to determine the Optionees, the time or times an Option may be
exercised and the number of shares which may be exercised at any one time, to
determine the other terms and conditions of Options granted hereunder, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
approve and determine the duration of leaves of absence which may be granted to
participants without constituting a termination of their employment for
purposes of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's authority shall
include, without limitation, the right, in its discretion, to accelerate the
exercisability of Options or reprice or exchange Options with the consent of
the Optionee. All determinations and interpretations made by the Committee
shall be conclusive and binding on all Employees and on their guardians, legal
representatives and beneficiaries.
A. The Company will indemnify and hold harmless the members of the
Board and the Committee from and against any and all liabilities, costs and
expenses incurred by such persons as a result of any act, or omission to act,
in connection with the performance of such persons' duties, responsibilities
and obligations under the Plan, other than such liabilities, costs and expenses
as may result from the gross negligence, bad faith, willful misconduct and/or
criminal acts of such persons.
I. . NUMBER OF SHARES SUBJECT TO PLAN
The stock to be offered under the Plan shall consist of up to 500,000
shares of the Company's Common Stock. If any Option granted hereunder shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for purposes of
this Plan.
<PAGE>
I. . ELIGIBILITY AND PARTICIPATION
A. The Committee shall determine the Employees to whom Options
shall be granted, the time or times at which such Options shall be granted
and the number of shares to be subject to each Option. An Employee who has
been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options if the Committee shall so determine. An
Employee may be granted Incentive Options or Non-Qualified Options or both
under the Plan.
A. In no event shall the aggregate fair market value (determined as
of the time an Incentive Option is granted) of shares subject to Incentive
Options held by an Optionee (granted under the Plan or under any other plan of
the Company) that first become exercisable in any calendar year exceed
$100,000. The portion of any purported Incentive Option which exceeds such
limitation shall be deemed to be a Non-Qualified Option.
I. . PURCHASE PRICE
The purchase price of each share covered by an Option shall be determined
by the Committee on the date of grant; provided, however, that (i) the purchase
price of each share covered by a Non-Qualified Option shall not be less than
85% of the Fair Market Value of the Common Stock on the date of grant and (ii)
the purchase price of each share covered by an Incentive Option shall not be
less than 100% of the Fair Market Value Per Share of the Common Stock on the
date of grant; and provided, further, that if at the time an Incentive Option
is granted the Optionee owns or would be considered to own by reason of Section
424(d) of the Code more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent Corporation of the
Company, the purchase price of the shares covered by such Incentive Option
shall not be less than 110% of the Fair Market Value Per Share of the Common
Stock on the date the Incentive Option is granted.
I. . DURATION OF OPTIONS
The expiration date of an Option shall not exceed 10 years from the date
on which the Option was granted, and shall be subject to earlier termination as
provided herein; provided, however, that if at the time an Incentive Option is
granted the Optionee owns or would be considered to own by reason of Section
424(d) of the Code more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent Corporation of the
Company, such Incentive Option shall expire not more than 5 years from the date
the Incentive Option is granted.
<PAGE>
I. . EXERCISE OF OPTIONS
An Option shall be exercisable in installments or otherwise upon such
terms as the Committee shall in its discretion determine; provided, however,
that each Option shall be exercisable in installments of at least 20% per
year beginning one year after the grant date. An Optionee may purchase less
than the total number of shares for which the Option is exercisable, provided
that the exercise of an Option shall not include any fractional shares. As a
condition to the exercise, in whole or in part, of any Option, the Committee
may in its sole discretion require the Optionee to pay, in addition to the
purchase price of the shares covered by the Option, an amount equal to any
federal, state and local taxes that the Committee has determined are required
to be paid in connection with the exercise of such Option in order to enable
the Company to claim a deduction or otherwise. Furthermore, if any Optionee
disposes of any shares of stock acquired by exercise of an Incentive Option
prior to the expiration of either of the holding periods specified in Section
422(a)(1) of the Code, the Optionee shall pay to the Company, or the Company
shall have the right to withhold from any payments to be made to the Optionee,
an amount equal to any federal, state and local taxes that the Committee has
determined are required to be paid in connection with the exercise of such
Option in order to enable the Company to claim a deduction or otherwise.
I. . METHOD OF EXERCISE
A. To the extent that the right to purchase shares has accrued,
Options may be exercised from time to time by giving written notice to the
Company stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full of the purchase price for the number
of shares being purchased and, if applicable, any federal, state or local taxes
required to be paid in accordance with the provisions of Section hereof.
A. Payment of the purchase price for any shares pursuant to the
exercise of an Option may be made in cash or by check or, in connection with
subparagraphs (i) through (iv) where expressly approved by the Committee in
advance, in its discretion, and where permitted by law:
1. by cancellation of indebtedness of the Company to the Optionee;
1. by surrender of shares of Common Stock that have been owned by the
Optionee for at least six months;
1. by tender of a full recourse promissory note, which note shall be
secured by the shares being purchased, contain such terms as may be approved by
the Committee and bear interest at a rate sufficient to avoid imputation of
income under Sections 483 and 1274 of the Code;
<PAGE>
1. by waiver of compensation due or accrued to the Optionee for
services rendered;
1. provided that a public market for the Company's Common Stock
exists:
a) through a "same day sale" commitment from the Optionee and a
broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the shares so purchased to pay for the
purchase price, and whereby the NASD Dealer irrevocably commits to forward the
purchase price directly to the Company; or
a) through a "margin" commitment from the Optionee and a NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the purchase price,
and whereby the NASD Dealer irrevocably commits to forward the purchase price
directly to the Company; or
1. by any combination of the foregoing.
If payment is made with shares of Common Stock, the Optionee, or other
person entitled to exercise the Option, shall deliver to the Company
certificates representing the number of shares of Common Stock in payment for
the shares being purchased, duly endorsed for transfer to the Company and, if
requested by the Committee, a representation and warranty in writing that he
has good and marketable title to the shares represented by the certificate(s),
free and clear of all liens and encumbrances. The value of the shares of
Common Stock tendered in payment for the shares being purchased shall be their
Fair Market Value Per Share on the date of the Optionee's exercise.
A. Notwithstanding the foregoing, the Company shall have the right
to postpone the time of delivery of the shares for such period as may be
required for it to comply, with reasonable diligence, with any applicable
listing requirements of any national securities exchange or any federal, state
or local law. If an Optionee, or other person entitled to exercise an Option,
fails to accept delivery of or fails to pay for all or any portion of the
shares requested in the notice of exercise, upon tender of delivery thereof,
the Committee shall have the right to terminate his Option with respect to such
shares.
<PAGE>
I. . NON-TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be assignable or transferable by
the Optionee, either voluntarily or by operation of law, otherwise than by will
or the laws of descent and distribution, and shall be exercisable during his
lifetime only by the Optionee.
I. . CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any Optionee any rights with respect to the continuation of
his status as an Employee of the Company or any Subsidiary or Parent
Corporation of the Company or interfere in any way with the right of the
Company or any Subsidiary or Parent Corporation of the Company at any time to
terminate such relationship or to increase or decrease the compensation of the
Optionee from the rate in existence at the time of the grant of an Option.
I. . TERMINATION OF EMPLOYEE STATUS OTHER THAN BY DEATH OR PERMANENT
DISABILITY
If an Optionee ceases to be an Employee for any reason other than his
death or Permanent Disability, any Option granted to him under the Plan shall
terminate three months from the date on which such Optionee ceases to be an
Employee unless such Optionee has been rehired by the Company and is an
Employee on such date. Until the termination of the Option, the Optionee may
exercise any Option granted to him but only to the extent such Option was
exercisable on the date he ceased to be an Employee and provided that such
Option has not expired or otherwise terminated as provided herein. A leave of
absence approved in writing by the Committee shall not be deemed a termination
for purposes of this Section, but no Option may be exercised during any such
leave of absence, except during the first 90 days thereof. The fact that the
Optionee may receive payment from the Company or any Subsidiary of the Company
after termination of Employee status for vacation pay, for services rendered
prior to termination, for salary in lieu of notice, or for other benefits shall
not affect the termination date.
<PAGE>
I. . DEATH OR PERMANENT DISABILITY OF OPTIONEE
If an Optionee shall die at a time when he is an Employee or if the
Optionee shall cease to be an Employee by reason of Permanent Disability, any
Option granted to him under this Plan shall terminate one year after the date
of his death or termination of Employee status due to Permanent Disability
unless by its terms the Option expires before such date or otherwise
terminates as provided herein, and such Option shall only be exercisable to
the extent that it would have been exercisable on the date of the Optionee's
death or termination due to Permanent Disability. In the case of death, the
Option may be exercised by the person or persons to whom the Optionee's
rights under the Option shall pass by will or by the laws of descent and
distribution.
I. . STOCK PURCHASE NOT FOR DISTRIBUTION
Each Optionee shall, by accepting the grant of an Option under the Plan,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon exercise of
the Option will be received and held without a view to distribution except as
may be permitted by the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. After each notice of exercise of any
portion of an Option, if requested by the Committee, the person entitled to
exercise the Option must agree in writing that the shares of stock are being
acquired in good faith without a view to distribution.
I. . NO PRIVILEGES OF STOCK OWNERSHIP; REPORTS
The Company shall deliver annual financial statements to each Optionee.
No person entitled to exercise any Option granted under the Plan shall have
any of the rights or privileges of a shareholder of the Company with respect
to any shares of Common Stock issuable upon exercise of such Option until
such person has become the holder of record of such shares. No adjustment
shall be made for dividends or distributions of rights in respect of such
shares if the record date is prior to the date on which such person becomes
the holder of record, except as provided in Section hereof.
<PAGE>
I. . ADJUSTMENTS
A. If the number of outstanding shares of Common Stock of the
Company are increased or decreased, or if such shares are exchanged for a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization, reclassification, stock dividend,
stock split, combination of shares, or other similar transaction, the
aggregate number of shares of Common Stock subject to the Plan as provided in
Section hereof and the shares of Common Stock subject to issued and
outstanding Options under the Plan shall be appropriately and proportionately
adjusted by the Committee. Any such adjustment in the outstanding Options
shall be made without change in the aggregate purchase price applicable to
the unexercised portion of the Option but with an appropriate adjustment in
the price for each share or other unit of any security covered by the Option.
A. Notwithstanding the provisions of subsection (a) of this
Section, each outstanding Option shall terminate on the effective date of the
dissolution or liquidation of the Company or any reorganization, merger or
consolidation with one or more corporations or entities as a result of which
the Company is not the surviving corporation, or any sale of all or
substantially all the assets of the Company, or the sale (by merger or
otherwise) of more than 80% of the then outstanding Common Stock; provided,
however, that unless the surviving or acquiring corporation or other entity
agrees to assume, or substitute equivalent awards for, all outstanding
Options, each Option shall become fully exercisable subject to the provisions
of Sections 12 and 13 during the 30-day period immediately preceding the
effective date of such event.
A. Adjustments under this Section shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan or in connection with any such adjustment.
I. . AMENDMENT AND TERMINATION OF PLAN
1. The Board of Directors of the Company may from time to time,
with respect to any shares at the time not subject to Options, suspend or
terminate the Plan or amend or revise the terms of the Plan; provided that
any amendment of the Plan shall be approved by the shareholders of the
Company if the amendment would increase the number of shares of Common Stock
which may be issued under the Plan, except as permitted under the provisions
of Section hereof, or materially modify the requirements as to eligibility
for participation in the Plan.
A. No amendment, suspension or termination of the Plan shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option theretofore granted to such Optionee under the Plan.
<PAGE>
A. The terms and conditions of any Option granted to an Optionee
under the Plan may be modified or amended only by a written agreement executed
by the Optionee and the Company.
I. . EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board of Directors
of the Company and approval by the Company's shareholders; provided, however,
that shareholder approval must occur no later than 12 months after the date
of adoption of the Plan by the Board of Directors.
I. . TERM OF PLAN
No Option shall be granted pursuant to the Plan after 10 years from the
earlier of the date of adoption of the Plan by the Board of Directors of the
Company or the date of approval of the Plan by the Company's shareholders.
The Plan was adopted by the Board on June 29, 1999. The Plan was approved
by the shareholders on September 14, 1999.
<PAGE>
Exhibit 10.2
PERCEPTRONICS, INC.
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of the Perceptronics, Inc. 1999 Stock Option Plan for
Non-Employee Directors (the "Plan") is to assist the Company in attracting,
motivating and retaining qualified non-employee directors by providing for or
increasing their proprietary interest in the Company through the grant of
options to acquire shares of Company Common Stock. The Plan provides for the
grant of options which do not qualify as "incentive stock options" within the
meaning of Section 422A of the Code (e.g. non-qualified stock options).
1. DEFINITIONS
Whenever used herein the following terms shall have the following meanings,
respectively:
a) "Board" shall mean the Board of Directors of the Company.
a) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
a) "Common Stock" shall mean the Company's Common Stock, $.001
par value per share, as described in the Company's Certificate of
Incorporation, as amended.
a) "Company" shall mean Perceptronics, Inc., a Delaware
corporation.
a) "Fair Market Value Per Share" of the Company's Common Stock
shall mean the closing price of the Company's Common Stock or, if not
available, the mean between the bona fide bid and asked prices of the Common
Stock on the date of the grant of the Option. If there were no sales on the
date of the grant of an Option, the Fair Market Value Per Share shall be
determined on the immediately preceding date on which there were sales.
a) "Option" shall mean a non-qualified option granted pursuant to
the Plan.
<PAGE>
a) "Optionee" shall mean any non-employee director who has been
granted an Option to purchase shares of Common Stock under the Plan.
a) "Plan" shall mean the Perceptronics, Inc. 1999 Stock Option Plan
for Non-Employee Directors, as amended from time to time.
a) "Subsidiary" shall have the meaning set forth in Section 425(f)
of the Code.
1. ADMINISTRATION
Subject to the provisions of the Plan, the Board shall have the authority
to construe, interpret and administer the Plan, and to make all determinations
necessary or advisable for the administration of the Plan. All determinations
and interpretations made by the Board shall be final, conclusive and binding on
all Optionees and on their guardians, legal representatives and beneficiaries.
1. SHARES SUBJECT TO THE PLAN
Submit to adjustments in accordance herewith, the stock to be offered
under the Plan shall consist of up to 250,000 shares of the Company's Common
Stock. If any Option granted hereunder shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for purposes of this Plan.
If the number of outstanding shares of Common Stock of the Company are
increased or decreased, or if such shares are exchanged for a different
number or kind of shares or securities of the Company through reorganization,
merger, recapitalization, reclassification, stock dividend, stock split,
combination of shares, or other similar transaction, the aggregate number of
shares of Common Stock subject to the Plan as provided herein and the shares
of Common Stock subject to issued and outstanding Options under the Plan
shall be appropriately and proportionately adjusted by the Board. Any such
adjustment in the outstanding Options shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option
but with an appropriate adjustment in the price for each share or other unit
of any security covered by the Option.
Adjustments under this Section shall be made by the Board, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares of stock shall be
issued under the Plan or in connection with any such adjustment.
1. ELIGIBILITY AND PARTICIPATION
<PAGE>
Options may be granted only to non-employee directors of the Company.
Employees of the Company or any Subsidiary of the Company are not eligible to
receive Options under the Plan. For purposes of the Plan, directors who
perform consulting services for the Company or any Subsidiary are not deemed
to be "employees" of the Company.
1. ANNUAL OPTION GRANTS
On the date this Plan is first approved by the Company's shareholders
and on April 1 of each year thereafter, each non-employee director on such
date who was a non-employee director of the Company for the entire
immediately preceding year shall automatically be granted an Option to
purchase 12,500 shares of Common Stock. Any person who is a non-employee
director of the Company on the applicable Option grant date but who was not a
non-employee director during the entire immediately preceding year shall be
granted Options for a number of shares determined by multiplying 12,500 by a
fraction, the numerator of which is the full number of months such person was
a non-employee director during the preceding year and the denominator of
which is 12. Each Option shall be evidenced by an Option Agreement duly
executed on behalf of the Company and by the Optionee. Each Option Agreement
shall comply with and be subject to the terms and conditions of the Plan.
Any Agreement may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board.
1. PURCHASE PRICE
The purchase price of each share covered by each Option shall be equal to
100% of the Fair Market Value Per Share of the Common Stock of the Company on
the date of Grant.
1. DURATION OF OPTIONS
Subject to prior termination in accordance with Section 12 hereof, the
expiration date of each Option shall be the first to occur of (i) five (5)
years from the date on which the Option was granted or (ii) on the effective
date of the dissolution or liquidation of the Company, or any reorganization,
merger or consolidation with one or more corporations or entities as a result
of which the Company is not the surviving corporation, or the sale of all or
substantially all of the assets of the Company or the sale (by merger or
otherwise) of more than 80% of the then outstanding Common Stock.
1. EXERCISE OF OPTIONS
<PAGE>
a) Options shall be fully vested and immediately exercisable. An
Optionee may purchase less than the total number of shares for which the
Option is exercisable, provided that a partial exercise of an Option may not
be for less than 50 shares, unless the exercise is during the final year of
the Option, and shall not include any fractional shares. As a condition to
the exercise, in whole or in part, of any Option, the Board may in its sole
discretion require the Optionee to pay, in addition to the purchase price of
the shares covered by the Option, an amount equal to any federal, state and
local taxes that the Board has determined are required to be paid in
connection with the exercise of such Option in order to enable the Company to
claim a deduction or otherwise.
a) Options may be exercised from time to time by giving written
notice to the Company stating the number of shares with respect to which the
Option is being exercised, accompanied by payment in full, by cash or check
payable to the order of the Company or the equivalent thereof acceptable to the
Company, of the purchase price for the number of shares being purchased and, if
applicable, any federal, state or local taxes required to be paid in accordance
with the provisions of Subsection (a) hereof.
a) Payment of the purchase price for the shares with respect to
which the Option is being exercised may be made in whole or in part by the
surrender of shares of Common Stock of the Company which have been owned by
the Optionee for at least six months. If payment is made with shares of
Common Stock, the Optionee, or other person entitled to exercise the Option,
shall deliver to the Company certificates representing the number of shares
of Common Stock in payment for the shares being purchased, duly endorsed for
transfer to the Company. If requested by the Board, prior to the acceptance
of such certificates in payment for such shares, the Optionee, or any other
person entitled to exercise the Option, shall supply the Board with a
representation and warranty in writing that he has good and marketable title
to the shares represented by the certificate(s), free and clear of all liens
and encumbrances. The value of the shares of Common Stock tendered in payment
for the shares being purchased shall be their Fair Market Value Per Share on
the date of exercise of the Option.
a) Notwithstanding the foregoing, the Company shall have the right
to postpone the time of delivery of the shares for such period as may be
required for it to comply, with reasonable diligence, with any applicable
listing requirements of any national securities exchange or any registration or
qualification requirements of any federal or state securities laws.
1. NON-TRANSFERABILITY OF OPTIONS
<PAGE>
No Option granted under the Plan shall be assignable or transferable by
the Optionee, either voluntarily or by operation of law, otherwise than by
will or the laws of descent and distribution, and shall be exercisable during
his lifetime only by the Optionee.
1. STOCK PURCHASE NOT FOR DISTRIBUTION
Each Optionee shall, by accepting the grant of an Option under the Plan,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon exercise of
the Option will be received and held without a view to distribution except as
may be permitted by the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. After each notice of exercise of any
portion of an Option, if requested by the Committee, the person entitled to
exercise the Option must agree in writing that the shares of stock are being
acquired in good faith without a view to distribution.
1. TERMINATION
Subject to the limitation stated in the last sentence of this Section 12,
Options shall terminate prior to the expiration of their term as follows:
(i) if an Optionee ceases to be a director of the Company for any reason other
than death or pursuant to Subsection (iii) hereof, he may at any time within
three months after such termination exercise his Option(s); (ii) if an Optionee
dies while serving as a director of the Company, or within three months after
termination of such status (other than termination pursuant to Subsection (iii)
hereof), his Option(s) may be exercised by the person or persons to whom his
rights under the Option shall pass by will or by the laws of descent and
distribution, for a period of one year after the date of death; and (iii) an
Optionee's Options shall immediately terminate on the date his directorship is
terminated on account of any act of (a) fraud or intentional misrepresentation,
or (b) embezzlement, misappropriation or conversion of assets or opportunities
of the Company or any direct or indirect majority owned subsidiary of the
Company. In no event may an Option be exercised to any extent by anyone after
the expiration of its term.
1. AMENDMENT AND TERMINATION OF PLAN
a) The Board may from time to time, with respect to any shares at
the time not subject to Options, suspend or terminate the Plan or amend or
revise the terms of the Plan; provided that any amendment to the Plan shall be
approved by the Company's shareholders if the amendment would (i) increase the
number of shares of Common Stock which may be issued under the Plan; or (ii)
materially modify the requirements as to eligibility for participation in the
Plan.
<PAGE>
a) No amendment, suspension or termination of the Plan shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option theretofore granted to such Optionee under the Plan.
a) The terms and conditions of any Option granted to an Optionee
under the Plan may be modified or amended only by a written agreement executed
by the Optionee and the Company.
1. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board of Directors
of the Company and approval by the Company's shareholders and no Options may
be granted under the Plan until such shareholder approval has been obtained.
1. TERM OF PLAN
No Option shall be granted pursuant to the Plan after 10 years from the
earlier of the date of adoption of the Plan by the Board of Directors of the
Company or the date of approval of the Plan by the Company's shareholders.
The date of adoption of the Plan by the Board was June 29, 1999. The date
of the approval of the Plan by the shareholders was September 14, 1999.
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<PAGE>
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