<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 December 31, 1998
[ ] 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 (IRS Employer Identification No.)
incorporation or organization)
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 January 15, 1999:
5,451,821
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
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INDEX
PERCEPTRONICS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
(a) Consolidated balance sheets, Perceptronics, Inc. and subsidiary,
December 31, 1998 and March 31, 1998.
(b) Consolidated statements of operations, Perceptronics, Inc. and
subsidiary, three and nine months ended December 31, 1998 and 1997.
(c) Consolidated statements of cash flows, Perceptronics, Inc. and
subsidiary, nine months ended December 31, 1998 and 1997.
(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 2. Changes in securities.
Item 6. Exhibits and Reports on Form 8-K.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS Dec. 31, 1998 March 31, 1998
- ------ ------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments ......................... $ 260,957 $ 78,411
Restricted cash - Note B ................................. 584,863 299,000
Receivables
Billed - Note C ....................................... 1,497,931 263,524
Unbilled - Note C ..................................... 429,414 1,160,458
Other receivables ..................................... 17,765 32,302
Inventory - Note D....................................... 172,647 189,788
Prepaid expenses ......................................... 107,310 166,982
----------- ----------
TOTAL CURRENT ASSETS .................................. 3,070,887 2,190,465
EQUIPMENT & LEASEHOLD IMPROVEMENTS, at cost ................. 817,963 810,333
Less accumulated depreciation and amortization ........ 738,940 712,866
----------- ----------
79,023 97,467
DEFERRED TAXES .............................................. 932,566 932,566
OTHER ASSETS ................................................ 23,715 23,715
----------- ----------
TOTAL ASSETS ....................................... $4,106,191 $3,244,213
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements
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PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
Dec. 31, 1998 March 31, 1998
------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt - Note E ................... 94,165 $ 288,778
Short term debt ............................................. 1,450,000 1,285,311
Accounts payable ............................................. 754,301 688,097
Accrued compensation ......................................... 218,623 207,346
Advance from customers ....................................... 285,863 -
Other accrued liabilities .................................... 210,460 220,906
----------- ----------
TOTAL CURRENT LIABILITIES ................................. 3,013,412 2,690,438
LONG TERM DEBT
Notes payable, net of current portion - Note E ................ 186,379 250,237
Other long term liabilities.................................... 115,436 -
COMMITMENTS AND CONTINGENCIES - Note G
SHAREHOLDERS' EQUITY
Common stock - par value $.001; authorized 15,000,000 shares;
5,451,821 and 4,526,430 shares issued and outstanding......... 5,452 4,526
Additional paid-in capital ................................... 12,596,415 12,251,161
Accumulated deficit .......................................... (11,810,903) (11,952,149)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY................................ 790,964 303,538
----------- ----------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY................................................ $ 4,106,191 $ 3,244,213
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements
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PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .......................................... $1,259,782 $1,031,115 $3,567,884 $2,578,524
Cost of sales ...................................... 847,374 706,653 2,338,670 1,752,395
---------- ---------- ---------- ----------
Gross profit 412,408 324,462 1,229,214 826,129
Cost and expenses:
Selling, general and administrative ................ 285,645 211,357 835,654 586,170
Research and development ........................... (61) - 14,380 -
---------- ---------- ---------- ----------
Operating income 126,824 113,105 379,180 239,959
Interest expense.................................... 67,015 59,075 237,134 143,470
---------- ---------- ---------- ----------
Income before taxes................................. 59,809 54,030 142,046 96,489
Income tax provision................................ - (449) 800 1,151
---------- ---------- ---------- ----------
Net income.......................................... $ 59,809 $ 54,479 $ 141,246 $ 95,338
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share:
Basic:
Net income................................. $ .01 $ .01 $ .03 $ .02
-------- -------- -------- --------
-------- -------- -------- --------
Diluted:
Net income................................. $ .01 $ .01 $ .03 $ .02
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and
common equivalent shares:
Basic - Note F............................. 5,400,987 4,469,287 4,989,126 4,469,287
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted - Note F........................... 5,604,973 4,520,177 5,240,084 4,482,313
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated condensed financial statement
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PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended December 31,
1998 1997
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 141,246 $ 95,338
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization ....................... 26,074 15,878
Changes in assets and liabilities:
Receivables ......................................... (488,826) 419,572
Inventory ........................................... 17,141 -
Prepaid expenses .................................... 59,672 95,741
Other assets ........................................ - 15,330
Accounts payable .................................... 66,204 (86,119)
Accrued compensation ................................ 11,277 70,187
Advance from customers .............................. 285,863 (35,742)
Other accrued liabilities ........................... (10,446) (21,565)
Other long term liability............................ 115,436 -
------- -------
NET CASH PROVIDED
IN OPERATING ACTIVITIES ..................... 223,641 568,620
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions....................................... (7,630) (48,014)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES............ (7,630) (48,014)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock for options/warrants exercised ....... 18,680 -
Net proceeds (repayment) - export financing ............ 164,689 (443,505)
Payment of long term debt .............................. (258,471) (13,975)
Proceeds from sale of common stock ..................... 327,500 -
Settlement of note payable.............................. - (500,000)
Proceeds from new long term debt........................ - 400,000
--------- -------
NET CASH PROVIDED (USED) IN
FINANCING ACTIVITIES ........................ 252,398 (557,480)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ........................ 468,409 (36,874)
CASH AND CASH EQUIVALENTS AT
THE BEGINNING OF THE PERIOD ................. 377,411 171,060
------------- ----------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD ..................... $ 845,820 $ 134,186
------------- ----------
------------- ----------
CASH PAID DURING THE PERIOD
Interest ................................. $ 203,070 $ 232,927
Income taxes ............................. $ 800 $ 1,151
</TABLE>
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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 nine month period ended December 31, 1998 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 be 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, 1998.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY: Perceptronics, Inc., the "Company" designs,
develops and manufactures computer-based simulation systems for 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 intercompany 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 in recent years and requires substantial amounts
of working capital in its operations. At December 31,1998, current assets
exceed current liabilities by $57,000. The Company continues to have
difficulty in meeting its obligations as they become due, however, this
condition has continued to improve from previous quarters and years. Payments
to vendors, totaling approximately $300,000 at December 31, 1998 are past due
and some vendors continue to require cash in advance or on delivery terms for
goods and services. The Company's cash flow during the first nine months of
fiscal 1999 was sufficient to meet current operating requirements but the
Company continues to have difficulty making satisfactory progress toward
liquidating its past due obligations. In order to conserve cash, management
continues to control staffing levels consistent with contract backlog, and
has reduced employee benefits and other operating expenditures. Even if the
Company overcomes its short term liquidity problems, the ability of the
Company to operate profitably and generate sufficient positive cash flows
cannot be predicted. 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.
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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.
PRECONTRACT 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 precontract costs. No revenues or profits have been
recognized on these costs. There were no precontract costs deferred at
December 31, 1998 and March 31, 1998.
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 carryforwards. 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, 1998 and December 31, 1998 are $263,524 and
$1,497,931 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.
Unbilled receivables at March 31, 1998 and December 31, 1998 are $1,160,458
and $429,414 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.
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The amount of contract retention included in unbilled receivables was
$147,000 at March 31, 1998 and $70,000 at December 31, 1998.
NOTE D - INVENTORY
A summary of the components of inventory follows:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1998 1998
-------- ---------
<S> <C> <C>
Raw materials and component parts $172,647 $189,788
----------- ----------
$172,647 $189,788
----------- ----------
----------- ----------
</TABLE>
NOTE E - LONG TERM DEBT
Long-term debt included the following at December 31 and March 31, 1998:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1998 1998
----------- -----------
<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. $ 48,952 $ 54,362
Note Payable - Bank guaranteed by Small Business
Administration, secured by Company assets, payable in
monthly installments of $4,329 including interest at
prime rate plus 2.75 percentage points, due November 2002. 163,200 184,653
Note Payable - Export customer bearing interest
at 12% annually payable in monthly installments.
Principal to be repaid as described in the paragraph
that follows. - 200,000
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. 68,392 100,000
------ ----------
280,544 539,015
Current portion of long-term notes payable 94,165 288,778
------ -------
$ 186,379 $ 250,237
------------- -----------
------------- -----------
</TABLE>
In September 1997, the Company entered into a $200,000 note with an export
customer that bears interest at 12 percent. On April 21, 1998, the Company
repaid $51,032 of the outstanding balance. On August 19, 1998, the Company
repaid the remaining outstanding balance of $148,968.
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Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C>
1999 $ 94,165
2000 65,917
2001 53,221
2002 50,494
2003 8,887
Thereafter 7,860
----------
$ 280,544
----------
----------
</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 is 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 and nine month periods ended December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Quarter ended Nine months
December 31, December 31,
1998 1997 1998 1997
---- ------ ----- -----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding ................................. 5,400,987 4,469,287 4,989,126 4,469,287
Diluted stock options and warrants
based on treasury stock method .............. 203,986 50,890 250,958 13,026
---------- ----------- ------- ------
Diluted shares ................................... 5,604,973 4,520,177 5,240,084 4,482,313
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
NOTE G - CONTINGENCIES
On October 30, 1998, a California Limited Partnership reasserted its claim
that the Company is liable for material monetary amounts in connection with a
real estate lease. In August 1993, the Company forfeited the lease and
returned possession to the Partnership, but the Company was not released from
its obligations, if any, for money damages or rent. The Company disputes
their claim and believes that legal defenses exist should the Partnership
decide to litigate. A committee has been formed consisting of two officers
and two directors of the Company to handle this matter. The Company's
Chairman and a director each has an ownership interest in the Limited
Partnership.
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<PAGE>
Item 2. Management's discussion and analysis of financial condition and
results of operations.
GENERAL
Perceptronics , Inc., (the "Company") designs, develops and manufactures
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 business is in the foreign defense industry where the
Company has built an international reputation. 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 nine months ended December 31, 1998 increased by
$989,000 or 38% compared to the comparable nine-month period in the prior
fiscal year. Sales of training simulator systems increased $661,000 or 36% as
a result of the current contract in process with the Government of Egypt for
TOW PGTS simulator systems. The Egyptian contract represented 68% of the
sales for the 1998 nine month period. This contract will be completed by
March 31, 1999. During the nine months ended December 31, 1997, the Company
had completed an export contract during the first three months and in the
second three months started another subcontract for TOW PGTS simulator
systems, being built for a foreign customer. Net sales on those contracts
during the 1997 nine-month period were not as strong as this fiscal year.
Simulation network technology sales increased $374,000 or 64% as a result of
U.S. Government contracts that are providing the funding for the development
and commercialization of network software products for on-line, multi-user
applications involving complex 3D environments.
Net sales for the three months ended December 31, 1998 increased by $228,000
or 22% compared to the comparable three-month period in the prior fiscal
year. Sales of training simulator systems increased $45,000 or 6% as a result
of the current contract in process with the Government of Egypt for TOW PGTS
simulator systems. Simulation network technology sales increased $212,000 or
98% as a result of the U.S. Government contracts described in the previous
paragraph.
COST OF SALES. Cost of sales for the nine months ended December 31, 1998
increased 34% as a result of the 38% increase in sales discussed above and
improved profit margins on the TOW PGTS simulator system sales. Cost of sales
as a percentage of sales during the nine months ended December 31, 1998 was
66% compared to 68% during the nine-month period ended December 31, 1997.
Cost of sales for the three months ended December 31, 1998 increased 20% as a
result of the 22% increase in sales discussed above and improved profit
margins on the TOW PGTS simulator system sales. Cost of sales as a percentage
of sales during the three months ended December 31, 1998 was 67% compared to
69% during the three-month period ended December 31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $249,000 or 43% in the nine-month period
ended December 31, 1998 compared to the comparable nine-month period in the
prior fiscal year. This increase was primarily due to the cost of
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the year-end audit, financial consulting fees associated with the development
of commercialized networking software products for on-line multi-user 3D
applications and increased foreign marketing expense. The Company's
management continues to pursue cost reduction measures consistent with the
level of business wherever opportunities can be identified.
Selling, general and administrative expenses increased $74,000 or 35% in the
three-month period ended December 31, 1998 compared to the comparable
three-month period in the prior fiscal year. The increase was primarily due
to increased foreign marketing expense.
RESEARCH AND DEVELOPMENT EXPENSES. During the current fiscal year, the
Company plans to incur research and development expenses associated with the
development and commercialization of network software products for on-line,
multi-user applications involving complex 3D environments. During the nine
month period ended December 31, 1998, the Company incurred $14,000 of
internally funded research and development costs.
INTEREST EXPENSE. Interest expense increased 65% or $94,000 in the nine-month
period ended December 31, 1998 compared to the comparable nine-month period
in the prior fiscal year due to increased usage of the export credit
facility. In the three month period ended December 31, 1998, interest expense
increased $8,000 or 13% compared to the comparable three-month period in the
prior fiscal year.
BACKLOG. The Company's firm contract backlog was $999,000 at December 31,
1998, compared to $3.8 million at December 31, 1997. 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 December 31,
1998 all backlog was funded. The backlog at December 31, 1997 included the
$3.0 million contract with the Government of Egypt for TOW PGTS training
systems. The contract was awarded and signed in July 1997, but was subject to
review by the U. S. Government who is involved with funding the contract;
therefore at December 31, 1997 the contract was classified as unfunded
backlog.
Certain of the Company's contracts extend to customers the option to buy
additional products and services at specified prices over a specified period
of time. There is no assurance that any contract option will be exercised. At
December 31, 1998, the option backlog was $ 4.3 million.
CONTINGENCIES. On October 30, 1998, a California Limited Partnership
reasserted its claim that the Company is liable for material monetary amounts
in connection with a real estate lease. In August 1993, the Company forfeited
the lease and returned possession to the Partnership, but the Company was not
released from its obligation, if any, for money damages or rent. The Company
disputes their claim and believes that legal defenses exist should the
Partnership decide to litigate. A committee has been formed consisting of two
officers and two directors of the Company to handle the matter. The Company's
Chairman and a director each has an ownership interest in the Limited
Partnership.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's unrestricted cash balances were $261,000 at December 31, 1998,
resulting from the collection of receivables applicable to the TOW PGTS
contract with the Government of Egypt and increased billings on U.S.
Government development contracts. The Company's principal source of liquidity
continues to be the Company's export credit facility, vendor credit and cash
flow generated from operations. The Company had positive working capital of
$57,000 at December 31, 1998, compared to negative working capital of
$500,000 at March 31, 1998. In the past the Company has experienced severe
liquidity problems and continues to have difficulty in meeting all of its
obligations as they come due. With respect to foreign contracts for TOW PGTS
simulator systems, an export credit facility is in place to provide the cash
flow required to perform on these contracts. Payment terms with vendors for
materials needed for the contracts are generally in advance or on delivery
terms
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and are being funded through the credit facility. At December 31, 1998,
vendor accounts totaling $300,000 are past due and are being liquidated as
positive cash flow permits. The Company is making good progress in reducing
this balance, however 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.
The Company's short-term strategy is to increase its domestic and foreign
defense contract revenue base in order to generate sufficient cash flow from
operations and to reduce current liabilities. A major part of the Company's
long-term strategy will be to focus on the development of commercial products
derived from the Company's defense related technology and expertise in order
to reduce the Company's dependence on defense contracts. The SBIR InterGame
software contract, and the recently awarded California Technology Investment
Partnership contract will enable the Company to use it's defense related
technology to develop commercial software products. The Company was
successful in obtaining commitments for the required equity funding of
approximately $375,000, of which $346,000 has been funded, to satisfy the
self funding requirements of the SBIR contract. The Company's ability to
pursue its long-term strategy will depend on generating sufficient cash flow
from operations to finance new product development. There can be no assurance
that this strategy will be successful. The Company is exploring alternative
sources for financing as well as potential business combinations in order to
meet the short and long-term objectives.
The export credit facility mentioned above was obtained in October 1997 from
a commercial lender and enables the Company to borrow up to $1,666,000 to be
used in conjunction with it's export contracts. The credit facility is
guaranteed by the U.S. Small Business Administration (SBA) and the California
Export Finance Office (CEFO). The borrowings bear interest at 3.0 points
above prime rate and are secured by a lien placed on the Company's general
assets. Borrowings occur on the credit facility as work progresses on the
contract. The borrowings are repaid with proceeds received from the delivery
of finished units. At December 31, 1998, borrowings outstanding against the
line totaled $1,396,000. On January 8, 1999 the company repaid $930,000 of
export debt leaving a current balance owed of $466,000, which the Company
plans to repay in March 1999. The Company is currently using the export
credit facility and funds generated from operations to finance the production
of TOW PGTS simulator systems for the Government of Egypt. The final shipment
against the contract was made on January 22, 1999.
The Company currently has a $200,000 note payable with a bank that is
guaranteed by SBA. At December 31, 1998 the principal balance outstanding was
$163,000. 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 had a $200,000 note payable with an export customer. In April
1998, the Company repaid $51,032 of the outstanding balance and in August
1998 the Company paid the remaining balance of $148,968 off using proceeds
from the final payment on a $1.5 million TOW PGTS export contract. The
Company also has a 24-month note payable with a starting principal of
$100,000 that bears interest at 8% per annum. At December 31, 1998, the
outstanding balance on this note payable was $68,000.
The Company's operating activities provided cash of $224,000 during the
nine-month period ended December 31, 1998. During the nine months ended
December 31, 1998, the cash provided was primarily the result of
profitability resulting from increased sales of TOW PGTS simulator systems to
the Government of Egypt and increased sales of simulation network technology
as previously discussed. During the nine-month period ended December 31,
1997, the Company completed a large foreign contract and was paid by the
customer resulting in a net cash inflow of $569,000.
The Company's investing activities used cash of $8,000 during the nine-month
period ended December 31, 1998 associated with capital expenditures for
equipment. Capital expenditures during the nine-month period ended December
31, 1997 was $48,000 for leasehold improvements associated with the move to a
new manufacturing facility.
13 of 17
<PAGE>
The Company's financing activities provided cash of $252,000 during the
nine-month period ended December 31, 1998. A warrant holder exercised a
warrant for 50,000 shares of common stock for an exercise price of $16,000
and employee stock options were exercised contributing $3,000. The sale of
common stock brought in $328,000. Net proceeds from the export credit
facility provided $165,000 of cash and the Company used $258,000 to repay
debt. During the nine months ended December 31, 1997, the Company's financing
activities used $557,000 to repay the export credit facility, settle a note
payable and repay long term debt.
During June 1998, the Company entered into stock purchase subscription
agreements with several investors for the purchase of up to 979,445 shares of
common stock for a purchase price of $375,000 and the release from a $20,050
liability. The subscription agreements also provide for the issuance of
warrants to the investors for the purchase of up to 873,056 shares of common
stock at exercise prices that range from $.50 to $.75. The subscription
agreements provide for the payment for the common shares over several months
starting in July 1998. During the period of July 1998 through January 1999,
the Company received payments from investors of $330,000.
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 plans to replace the existing computer system. The
implementation of the new system will start in February 1999 and will be
completed in several months. The cost of the new system is not a material
expense. 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.
FORWARD LOOKING STATEMENTS
The Company hereby incorporates by reference "Forward Looking Statements"
contained in the "Management's Discussion And Analysis Of Financial Condition
And Results Of Operations" of the Company's Form 10-KSB dated March 31, 1998.
14 of 17
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in securities
During the three month period ended December 31, 1998, the Company issued
91,667 shares of common stock for a purchase price of $37,500 in conjunction
with stock purchase subscription agreements dated in June 1998 with four
accredited investors. Certain of the subscription agreements provide for
payments for the shares over several months starting in July 1998. At
December 31, 1998, there were stock subscription amounts due the Company of
$77,500 for the purchase of 179,168 shares of common stock. The subscription
agreements also provide for the issuance of warrants to the investors. During
the three month period ended December 31, 1998, the Company issued a warrant
to it's landlord for 60,000 shares of common stock at an exercise price of
$.34, expiring in August 2000. Also, the Company issued a warrant to it's
export lender for 50,000 shares of common stock at an exercise price of $.32,
expiring in December 2000. These securities were sold in reliance on section
4 (2) or Rule 506 of Regulation D under the Securities Act of 1933.
Item 6. Exhibits and reports on Form 8-K
(a) The following exhibits are filed herewith:
27 Financial Data Schedules.
(b) The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1998.
15 of 17
<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: February 12, 1999 /s/ Robert E. Anderson
---------------------- -------------------------
Robert E. Anderson
Senior Vice President Finance
(Principal Financial & Accounting
Officer)
16 of 17
<PAGE>
INDEX TO EXHIBITS
27 Financial Data Schedules - on Edgar filing only.
17 of 17
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 260,957
<SECURITIES> 584,863
<RECEIVABLES> 1,945,110
<ALLOWANCES> 0
<INVENTORY> 172,647
<CURRENT-ASSETS> 3,070,887
<PP&E> 817,963
<DEPRECIATION> 738,940
<TOTAL-ASSETS> 4,106,191
<CURRENT-LIABILITIES> 3,013,412
<BONDS> 186,379
0
0
<COMMON> 5,452
<OTHER-SE> 785,512
<TOTAL-LIABILITY-AND-EQUITY> 4,106,191
<SALES> 3,567,884
<TOTAL-REVENUES> 3,567,884
<CGS> 2,338,670
<TOTAL-COSTS> 3,188,704
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,134
<INCOME-PRETAX> 142,046
<INCOME-TAX> 800
<INCOME-CONTINUING> 141,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,246
<EPS-PRIMARY> 0.03
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