<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, 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)
<TABLE>
<S> <C>
DELAWARE 95-2577731
- ------------------------------------------------------- --------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
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, 2000:
5,743,242
Transitional Small Business Disclosure Format (Check one):
Yes No X
------ -------
<PAGE>
INDEX
PERCEPTRONICS, INC. AND SUBSIDIARY
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements (unaudited)
(a) Consolidated balance sheets, Perceptronics, Inc. and
subsidiary, December 31, 1999 and March 31, 1999.
(b) Consolidated statements of operations, Perceptronics, Inc. and
subsidiary, three and nine months ended December 31, 1999 and
1998.
(c) Consolidated statements of cash flows, Perceptronics, Inc. and
subsidiary, nine months ended December 31, 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements
</TABLE>
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DEC. 31, 1999 MARCH 31, 1999
- ------ ------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments .............. $ 160,944 $ 150,801
Restricted cash - Note B ..................... -- 299,000
Receivables
Billed - Note C ........................... 21,653 133,881
Unbilled - Note C ......................... 29,136 151,580
Other receivables ......................... 72 17,854
Inventory - Note D .......................... 172,222 172,222
Pre-contract Costs ........................... 268,178 176,317
Prepaid expenses ............................. 19,771 29,337
---------- ----------
TOTAL CURRENT ASSETS ...................... 671,976 1,130,992
EQUIPMENT & LEASEHOLD IMPROVEMENTS, at cost ....... 822,036 817,963
Less accumulated depreciation and amortization 777,318 747,631
---------- ----------
44,718 70,332
DEFERRED TAXES .................................... 932,566 932,566
OTHER ASSETS ...................................... 82,930 82,930
---------- ----------
TOTAL ASSETS .............................. $1,732,190 $2,216,820
========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
DEC. 31, 1999 MARCH 31, 1999
------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Current portion of long term debt - Note E ................. $ 96,133 $ 96,629
Short term debt ............................................ 54,000 54,000
Accounts payable ............................................ 685,121 528,442
Accrued compensation ........................................ 153,785 148,032
Other accrued liabilities ................................... 119,331 210,447
------------ ------------
TOTAL CURRENT LIABILITIES ................................ 1,108,370 1,037,550
LONG TERM DEBT
Long term debt, net of current portion - (Note E) ........... 115,908 157,654
Other long term liabilities ................................. 57,500 172,500
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - par value $.001; authorized 15,000,000 shares;
5,743,242 and 5,629,930 shares issued and outstanding ...... 6,566 5,630
Additional paid-in capital .................................. 12,954,274 12,673,643
Accumulated deficit ......................................... (12,510,428) (11,830,157)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY .............................. 450,412 849,116
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY .............................................. $ 1,732,190 $ 2,216,820
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended December 31, Ended December 31,
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales ........................................... $ 32,123 $ 1,259,782 $ 717,952 $ 3,567,884
Cost of sales ....................................... 82,677 847,374 711,530 2,338,670
----------- ----------- ----------- -----------
Gross profit ........................................ (50,554) 412,408 6,422 1,229,214
Cost and expenses:
Selling, general and administrative ................. 134,214 285,645 575,172 835,654
Research and development ............................ 75,784 (61) 75,784 14,380
----------- ----------- ----------- -----------
Operating income (loss) ............................. (260,552) 126,824 (644,534) 379,180
Interest expense .................................... 8,238 67,015 34,937 237,134
----------- ----------- ----------- -----------
Income (loss) before taxes .......................... (268,790) 59,809 (679,471) 142,046
Income tax provision ................................ -- -- 800 800
----------- ----------- ----------- -----------
Net income (loss) ................................... $ (268,790) $ 59,809 $ (680,271) $ 141,246
=========== =========== =========== ===========
Earnings per share:
Basic:
Net income (loss) ........................... $ (0.04) $ 0.01 $ (0.11) $ 0.03
=========== =========== =========== ===========
Diluted:
Net income (loss) ........................... $ (0.04) $ 0.01 $ (0.10) $ 0.03
=========== =========== =========== ===========
Weighted average common and common equivalent shares:
Basic - Note F ................................ 6,110,303 5,400,987 6,097,697 4,989,126
=========== =========== =========== ===========
Diluted - Note F .............................. 6,538,005 5,604,973 7,088,649 5,240,084
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended December 31,
1999 1998
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................. $(680,271) $ 141,246
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization .............. 29,687 26,074
Changes in assets and liabilities:
Receivables ................................ 252,454 (488,826)
Inventory .................................. -- 17,141
Prepaid expenses ........................... 9,566 59,672
Pre-contract costs ......................... (91,861) --
Other assets ............................... -- --
Accounts payable ........................... 156,679 66,204
Accrued compensation ....................... 5,753 11,277
Advance from customers ..................... -- 285,863
Other accrued liabilities .................. (91,116) (10,446)
--------- ---------
NET CASH PROVIDED (USED) IN
OPERATING ACTIVITIES ................ (409,109) 108,205
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions ............................. (4,073) (7,630)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ... (4,073) (7,630)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants ........ 6,567 18,680
Net proceeds (repayment)- export financing .... -- 164,689
Payment of long term debt ..................... (42,242) (258,471)
Increase (decrease) in other long-term debt ... (115,000) 115,436
Proceeds from sale of common stock ............ 275,000 327,500
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ................ 124,325 367,834
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................ (288,857) 468,409
CASH AND CASH EQUIVALENTS AT
THE BEGINNING OF THE PERIOD ......... 449,801 377,411
========= =========
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD ............. $ 160,944 $ 845,820
========= =========
CASH PAID DURING THE PERIOD
Interest ........................ $ 18,288 $ 203,070
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
nine month periods ended December 31, 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 nine-month period ended December 31, 1999 and
requires substantial amounts of working capital to support its operations. At
December 31, 1999, current liabilities exceed current assets by $436,000. The
Company continues to have difficulty in meeting its obligations as they become
due. Payments to vendors, totaling approximately $368,000 at December 31, 1999
are past due. The Company's cash flow during the nine-month period ended
December 31, 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. Since September 30, 1999, the Company has raised $330,000 of
investment capital, which has been the primary source of funding for continuing
operations.
The Company previously announced that it seeks to divest its PGTS training
simulator manufacturing operations. 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. On December 31,
1999, the Company entered into a Memorandum of Understanding and a Teaming
Agreement with Eidetics Corporation, which could lead to the
<PAGE>
purchase of the PGTS training simulator product line by Eidetics once the
Egypt contract is awarded. Contract negotiations with the Government of Egypt
continue to be delayed.
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.
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 December 31, 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.
<PAGE>
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 December 31, 1999 are $133,881 and
$21,653 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.
Unbilled receivables at March 31, 1999 and December 31, 1999 are $151,580 and
$29,136 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 $29,136 at December 31, 1999.
NOTE D - INVENTORY
A summary of the components of inventory follows:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1999 1999
------- ---------
<S> <C> <C>
Raw materials and component parts $172,222 $172,222
----------- ----------
$172,222 $172,222
=========== ==========
</TABLE>
<PAGE>
NOTE E - LONG TERM DEBT
Long-term debt included the following at December 31 and March 31, 1999:
<TABLE>
<CAPTION>
Dec. 31, 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.
At December 31, 1999 the Company is past due on three
monthly payments. $ 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.
At December 31, 1999 the Company is past due on two
monthly payments. 129,664 151,259
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.
At December 31, 1999 the Company is past due on five
monthly payments. 39,363 56,116
------ ---------
212,041 254,283
Current portion of long-term notes payable 96,133 96,629
-------- --------
$ 115,908 $ 157,654
========= ==========
</TABLE>
The Company is currently in the process of trying to make adjustments to the
repayment terms of the above loans with the lenders and paying past due payments
when cash flow permits.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C>
2000 $ 96,133
2001 53,643
2002 45,802
2003 8,887
2004 7,576
Thereafter -
-------
$ 212,041
------------
------------
</TABLE>
<PAGE>
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. A
reconciliation of shares used to compute earnings per share for the three-month
and nine-month periods ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- -----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding ................................ 6,110,303 5,400,987 6,097,697 4,989,126
Diluted stock options and warrants
based on treasury stock method ............. 427,702 203,986 990,952 250,958
--------- --------- --------- ---------
Diluted shares .................................. 6,538,005 5,604,973 7,088,649 5,240,084
--------- --------- --------- ---------
--------- --------- --------- ---------
</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, and 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 nine-month period ended December 31, 1999 of
$718,000 decreased by $2,850,000 or 80% compared to the comparable nine-month
period in the prior fiscal year. Sales of training simulator systems decreased
$2,499,000 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 $2,423,000 was recognized in the nine-month period ended
December 31, 1998. Training simulator system sales during the nine-month period
ended December 31, 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 nine-month period ended December 31, 1999, decreased
$242,000 or 25%. Simulation network technology sales during the nine-month
period resulted from 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
<PAGE>
IC3D-TM- Framework network software products for on-line, multi-user
applications involving complex 3D environments. The SBIR Phase II and the
State of California contract were completed by September 30, 1999. The
Company was also working on a U.S. Government contract for HLA software
development. This contract was completed in October 1999. The completion of
these contracts accounted for the decline in sales. Refer to the backlog
discussion below for the backlog status at December 31, 1999.
Net sales for the three-month period ended December 31, 1999 of $32,000,
decreased by $1,228,000 or 97% compared to the comparable three-month period in
the prior fiscal year. Sales of training simulator systems decreased $802,000 or
100% because there were no sales during the three-month period ended December
31, 1999. During the three-month period ended December 31, 1998, the sales of
$802,000 were on the contract with the Government of Egypt. Simulation network
technology sales, which represented 100% of net sales in the three-month period
ended December 31, 1999, were $32,000 and represented the completion in October
1999 of the U.S. Government contract for HLA software development.
COST OF SALES. Cost of sales for the nine-month period ended December 31, 1999
decreased 70% as a result of the 80% 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 nine-month period ended December 31, 1999 was 99% compared
to 66% during the nine-month period ended December 31, 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 nine-month period ended December 31, 1999.
Cost of sales for the three-month period ended December 31, 1999 decreased 90%
as a result of the 97% decrease in sales discussed above. Cost of sales as a
percentage of sales during the three-month period ended December 31, 1999 was
257% compared to 67% during the three-month period ended December 31, 1998. The
reason for the change is the same as for the nine-month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $260,000 or 31% in the nine-month period ended
December 31, 1999 compared to the comparable nine-month period in the prior
fiscal year. The decrease was the result of reduced marketing expenses and
facilities costs partially offset by higher indirect payroll expenses which
could not be directly absorbed by contracts due to the lower sales level during
the nine-month period ended December 31, 1999. Selling, general and
administrative expenses decreased $151,000 or 53% in the three-month period
ended December 31, 1999 compared to the comparable three-month period in the
prior fiscal year. The reason for the decrease is the same as for the nine-month
period.
The Company's management continues to pursue cost reduction measures consistent
with the level of business wherever opportunities can be identified. During
September 1999, the company moved its principal office into a smaller space,
which resulted in a substantial reduction in rent expense for the three-month
period ended December 31, 1999. Substantial reductions have also been made in
personnel to reduce payroll-related expenses.
INTEREST EXPENSE. Interest expense decreased 85% or $202,000 in the nine-month
period ended December 31, 1999 compared to the comparable nine-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,
<PAGE>
1999. In the three-month period ended December 31, 1999, interest expense
decreased 88% or $59,000. There was no interest expense associated with the
export credit facility during the nine-month and three-month periods ended
December 31, 1999.
BACKLOG. The Company did not have any firm contract backlog at December 31,
1999. At December 31, 1998 firm contract backlog was $999,000. The term "firm
contract backlog" refers to the aggregate revenue remaining under contracts held
by the Company and includes both funded and unfunded amounts.
LIQUIDITY AND CAPITAL RESOURCES.
The Company is experiencing severe liquidity problems due to a lack of revenues
and cash reserves. At December 31, 1999, the Company's unrestricted cash
balances were $161,000 resulting primarily from equity investments made in
December. The Company had negative working capital of $436,000 at December 31,
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 December 31, 1999, vendor accounts totaling $368,000 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.
During the third quarter, the Company announced that it is seeking to divest its
PGTS training simulator development and manufacturing operation. The Company
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. On December 31,
1999, the Company entered into a Memorandum of Understanding and a Teaming
Agreement with Eidetics Corporation, which could lead to the purchase of the
PGTS training simulator product line by Eidetics once a new contract is awarded
to the Company by the Government of Egypt. 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 now requires significant financing from external sources
to be able to fund the development of the commercial software products at its
present reduced level of operations. During the period of October 1999 through
January 2000, the Company received $330,000 from individual investors pursuant
to stock purchase subscription agreements for the purchase of 1,027,618 shares
of common stock. The subscription agreements also provide for the issuance of
warrants to these investors for 963,333 shares of common stock at exercise
prices ranging from $.25 to $.56. There is no assurance that the Company will be
able to continue to raise such financing required to fund operations in the
future and whether the commercial software products will start to generate
revenue and profits. Also, the terms of any financing could be onerous to the
Company and dilutive to its shareholders. In response to its need to conserve
cash resources, the Company has reduced its work force to seven employees
<PAGE>
and reduced some employee work schedules. 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 in order
to meet the short and long-term objectives.
The Company currently has a $200,000 note payable with a bank that is guaranteed
by the Small Business Administration (SBA). At December 31,1999, the principal
balance outstanding was $130,000. The note bears interest at prime rate plus
2.75 percentage points with principal and interest payable monthly amortizing
over five years. At December 31, 1999, the Company is past due on two of the
scheduled monthly payments. 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, 1999, the outstanding balance on this note payable was $39,000. The Company
is past due on five scheduled monthly payments on this note as a result of the
cash flow limitations previously discussed. The Company also has a loan with the
SBA with a balance of $43,000 at an interest rate of 4%. The Company is past due
three monthly payments on this loan.
The Company's operating activities used cash of $409,000 during the nine-month
period ended December 31, 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 nine-month
period ended December 31, 1999 as a result of the purchase of computer
equipment.
The Company's financing activities provided cash of $124,000 during the
nine-month period ended December 31, 1999 as a result of the sale of common
stock offset by reductions in long term debt.
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 that was previously used by the Company was an older generation
and would be affected by the year 2000 problem. The Company purchased a
current generation system to replace the existing computer system. The
implementation of the new system was completed prior to December 31, 1999.
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. To date the Company has not
experienced any problems or incurred any costs associated with year 2000
compliance 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
<PAGE>
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 nine month period ended December 31, 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 nine-month period ended December 31, 1999 and
there is no backlog at December 31, 1999. The Company has also sustained
operating losses during the nine-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 on certain 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, 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.
<PAGE>
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
nine-month period ended December 31, 1999 training simulator sales only
comprised 1% of total sales compared to 71% in the comparable nine-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.
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
The Company had previously reported that 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 reached an agreement in
principle to settle the matter. The settlement would involve cash and
securities and discussions are continuing.
Item 2. Change in Securities
During the period of October 1999 through January 2000, the Company
issued 1,027,618 shares of common stock for a purchase price of
$330,000, in conjunction with stock purchase subscription agreements
with seven sophisticated investors. The subscription agreements also
provide for the issuance of warrants to these investors for 963,333
shares of common stock at exercise prices ranging from $.25 to $.56.
In November 1999, the Company issued warrants for 60,000 shares of
Common Stock at an exercise price of $0.44 per share to several
financial consultants 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 5. Other information
Richard Moskowitz has been appointed Chief Executive Officer of the
Company pursuant to an employment agreement with the Company for a term
of three years. The employment agreement provides for a base salary of
$150,000 and includes potential annual bonuses related to gross
receipts of the Company and the profitability of the underlying revenue
producing items. The agreement also provides for an annual grant of
240,000 options to purchase common stock at the market price at time of
such grant. Such options vest on a quarterly basis over a three-year
period. The Company has a right to terminate the agreement for cause if
Mr. Moskowitz fails to meet certain performance criteria related to
revenues and external investment, or if he resigns. If Mr. Moskowitz
is terminated without cause, depending on whether or not he has met
certain performance criteria related to overall return to shareholders,
he will be entitled to (a) payment of his annual salary for periods
between one year and the remaining term of the agreement, (b) bonuses
due up to the point of termination, and (c) options between one year's
grant and
<PAGE>
all those remaining under the agreement. During the term of his
employment, Mr. Moskowitz may not directly or indirectly engage or
participate in any business that is in competition with the Company.
Dr. Gershon Weltman's existing employment agreement is being amended to
reflect his change in position from Chief Executive Officer to
President, with a corresponding change in duties, and with other terms
and conditions of the agreement remaining the same.
Item 6. Exhibits and reports on Form 8-K
(a) The following exhibits are filed herewith:
10.1 Employment Agreement with Richard Moskowitz dated
January 3, 2000 and Memorandum of Agreement dated
November 19, 1999.
27 Financial Data Schedules.
(b) The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 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: February 14, 2000 /s/ Gershon Weltman
------------------ ----------------------------------
Dr. Gershon Weltman
Chairman (Principle Financial Officer)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
10.1 Employment agreement with Richard Moskowitz dated January 3, 2000 and
Memorandum of Agreement dated November 19, 1999.
27 Financial Data Schedules - on Edgar filing only.
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT OF RICHARD MOSKOWITZ
This Employment Agreement of Richard Moskowitz (this "Agreement") is made
and entered into as of the 3rd day of January 2000 by and between Perceptronics,
Inc. ("Company") and Richard Moskowitz ("Employee") with respect to the
following facts:
A. Company believes that Employee can contribute significantly to the
overall success of Company's IC3D business.
B. Company wishes to employ Employee and the Employee wishes to be
employed by Company.
C. Company and Employee wish to incorporate in part into this Agreement
a memorandum agreement attached hereto as Exhibit A, concerning the
terms of Employee's investment in Company and certain other matters
(the "Investment Memorandum").
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and conditions herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. SERVICES TO BE PERFORMED BY THE EMPLOYEE. Employee shall provide to
Company such services of managerial and operational nature as the Board of
Directors shall determine from time to time to be reasonably necessary or
advisable and in the best interests of Company in the course of its business.
Employee shall hold the title of Chief Executive Officer. The Employee agrees
that, to the best of his ability and experience, he will, at all times, loyally
and conscientiously perform all of the duties and obligations either expressly
or implicitly required of him by the terms of this Agreement.
2. OTHER ACTIVITIES. At all times during the term of this Agreement,
Employee may not engage or participate for his own account, whether directly or
indirectly, as an employee, employer, consultant, agent, principal, partner,
stockholder, or in any other capacity in any business which is competitive with
Company.
3. TERM OF THE AGREEMENT. Unless terminated earlier pursuant to the
terms hereof, the term of this Agreement shall be three (3) years beginning on
the date hereof and terminating on December 31, 2002. The parties shall consult
on or before July 1, 2002 regarding whether this Agreement shall be renewed or
extended.
1
<PAGE>
4. COMPENSATION. In consideration for the services to be performed by
Employee hereunder, Employee shall receive an annual salary of one hundred fifty
thousand dollars ($150,000), payable in accordance with Company's established
payroll procedures, but not less often than monthly. Notwithstanding the
foregoing, Employee's annual salary shall not be paid to Employee but shall be
accrued until the earlier to occur of the following: (a) the Board of Directors
in consultation with Employee determines that Company has the ability to pay
such compensation on a cash basis to Employee or (b) Company raises $1,000,000
of capital investment, commencing as of November 19, 1999, including any
investment made pursuant to the Investment Memorandum.
5. BONUSES.
(a) In addition to the compensation set forth in paragraph 4 above,
during the term of this agreement Employee shall be entitled to receive an
annual bonus ("Bonus") equal to 5% of the annual gross receipts up to $5,000,000
collected from any new contracts, licensing agreements, royalties, partnerships
or joint ventures obtained or generated by Company in the areas of its IC3D
technology and services, PGTS and other training simulation systems, HLA
research and development and related business activities (collectively, "New
Business"), and 7 1/2 % of the annual gross receipts in excess of $5,000,000
collected from New Business, provided, however, that in no case shall the Bonus
with respect to any item of New Business for the relevant accounting period ever
exceed the amount of Gross Profits of such item of New Business for such period.
(b) For purposes of the above calculation, the term "Gross Profits"
shall mean gross revenue from the relevant New Business minus direct costs, but
without any deduction for the Bonus paid or to be paid to Employee or for
indirect costs or overhead as shown in the audited annual financial statements
prepared by Company's independent accountants.
(c) At the end of each of the first, second and third quarters of each
calendar year, the Bonus shall be estimated on a year-to-date basis and 75% of
the estimated Bonus due, if any, shall be paid within 45 days of the end of each
such quarter. At the end of the fourth quarter of each calendar year, the Bonus
for the year just completed, less any estimated Bonus payments already made to
Employee, shall be paid within 30 days following completion of the audited
annual financial statements and acceptance thereof by the Board.
6. BENEFITS. Employee shall be entitled to receive such benefits as
Company may provide for its employees from time to time. Employee shall receive
four (4) weeks of vacation each year.
2
<PAGE>
7. STOCK OPTIONS.
(a) As additional compensation for services rendered, the Company shall
grant to Employee, at the beginning of each year of services hereunder, stock
options ("Options") giving the Employee the right to purchase, during the first
year hereunder, 240,000 shares of the common stock of Company and, during each
of the second and third years hereunder, 240,000 shares of the common stock of
the Company.
(b) The Options shall vest as follows: 60,000 shares immediately
following the end of the first calendar quarter hereunder and, thereafter, at
the rate of 60,000 shares immediately following the end of each subsequent
calendar quarter during which Employee is faithfully carrying out his duties
hereunder. The rights under the Options shall remain exercisable for a period
of three (3) years from the date of vesting, subject to the terms and conditions
of this Agreement. The exercise price of the Options shall be the market price
of the common stock upon the date of grant, which, in the case of the first
year, shall be deemed to be 54 cents per share.
(c) The Options shall contain customary anti-dilution protections. If
the Company should at anytime register its common stock, then Employee shall
have piggyback registration rights exercisable within thirty (30) days of
notice. Employee shall be entitled to customary indemnification in any
registration. In the event of a sale, merger, acquisition, dissolution,
conveyance, transfer or other disposition or series of transactions resulting in
a change of control of Company, or a sale by Company of all or substantially all
its assets, all remaining Options shall be granted to Employee and all
outstanding unvested rights to purchase shares under the Options shall vest
immediately.
(d) The Options shall be qualified under the Company's 1999 Stock Option
Plan for Employees and Consultants (the "Plan"). The parties understand that
while the Plan was approved at the September 1999 shareholders meeting, no Form
S-8 Registration Statement has been filed covering this plan in order to obtain
an exemption under Section 25102(f) nor has the Plan been qualified with the
State of California, and no options can be granted under this plan unless there
is an applicable exemption under California law or until the Plan has been
qualified with the State of California. The Company will use its best efforts to
obtain an exemption or to qualify the plan as quickly as possible. The parties
further understand that a sufficient number of options for the full term of the
Agreement are not being authorized under the Plan. Company will use its best
efforts to amend the Plan to increase the number of options authorized.
(e) In the event that a sufficient number of qualified options are not
available to meet the requirements of this agreement as described in 7(a) above,
non-qualified options will be granted in sufficient quantity to make up the
shortfall, and such non-qualified options shall all
3
<PAGE>
vest at the time of grant.
8. TERMINATION.
8.1 Termination for Cause. Company shall have the right (but not the
obligation) to terminate this Agreement at any time during the term
hereof by written notice for the following causes:
(a) Upon 20 days notice and right to cure, if cure is possible, for
conduct that is detrimental to Company's reputation, goodwill or business
operations;
(b) Employee's death or disability, or such other condition as shall
prevent Employee from the performance of his duties hereunder for a period in
excess of six (6) months;
(c) Upon 20 days notice and right to cure, if cure is possible, for
gross neglect or breach of Employee's duties or misconduct in discharging such
duties and without notice and a right to cure for habitual neglect or breach of
Employee's duties and misconduct in discharging such duties;
(d) Upon 20 days notice and right to cure, if cure is possible, for
Employee's failure or refusal to comply with the directions of the Board of
Directors, and without notice and a right to cure for habitual failure or
refusal to comply with the reasonable directions of the Board of Directors.
(e) In the event that Employee resigns his position as Chief Executive
Officer.
f) In the event that in the period commencing November 19, 1999 and
continuing through December 31, 2000, Company does not either (i) raise at least
$1,500,000 of capital or, alternatively, (ii) generate sales revenue from the
IC3D project of at least $500,000, or in the event that in the calendar year
2001 Company does not generate sales revenue from the IC3D project of at least
$1,500,000.
(g) Upon termination for cause, payment of all unearned compensation
shall cease immediately and any unvested Options shall be terminated
immediately.
8.2 Termination Without Cause
(a) Company shall have the right to terminate this Agreement without
cause at any time upon 30 days written notice, in which case Employee shall
receive the following benefits:
(i) The immediate vesting (or granting and vesting) of the equivalent of
one year's
4
<PAGE>
worth of rights to purchase common stock under the Options,
specifically, the rights to purchase 240,000 shares of common
stock if the termination occurs before the end of the first
calendar quarter hereunder, or the rights to purchase 240,000
shares of common stock if the termination occurs after the end of
the first calendar quarter hereunder, or the rights to purchase
such lesser amount of shares to the extent that such rights
remain unvested during the third year of this Agreement;
(ii) Annual salary for a period of one year ($150,000), to be
paid to Employee on the same terms as if no termination had
occurred; and
(iii) The Bonus that is due or would be due for the original term
of this Agreement, based on New Business obtained or generated by
Company up to the date of termination, which Bonus shall be
calculated and paid to Employee as if no termination had occurred.
(b) Notwithstanding the foregoing, if Company terminates this Agreement
at any time through and including June 30, 2000, regardless of the overall
return to shareholders or at any time thereafter and the overall return to
shareholders on an annualized basis is 100% or more utilizing a share price of
54 cents as of January 1, 2000 as a baseline (which price represents an
approximate weighted average of the prices at which the Company's common stock
traded in December 1999), then Employee shall receive the following benefits:
(i) The immediate grant and vesting of all Options (described in Section
7 above) that remain outstanding under this Agreement;
(ii) Annual salary (described in Section 4 above) for the remaining term
of this Agreement, to be paid to Employee on the same terms as if no
termination had occurred; and
(iii) The Bonuses (described in Section 5 above) that are due or would be
due for the original term of this Agreement, which Bonus shall be
calculated and paid to Employee as if no termination had occurred
For purposes of this paragraph, the overall return to shareholders
shall be calculated taking into account any dividends or other
distributions and based on the average prices at which the common
stock has traded in the public marketplace during the previous
thirty (30) days prior to the termination. The annualized rate of
return shall be calculated on a compounded monthly basis.
8.3 Accrued Salary. In the event that Employee is terminated either for
cause or without cause prior to payment to him of the accrued salary, such
salary shall be paid to him on the same terms set forth in Section 4 above, that
is, when the Board of Directors has determined that Company has the ability to
pay such compensation or Company has raised $1,000,000 of capital investment.
5
<PAGE>
9. BOARD OF DIRECTORS. Company shall appoint Employee to Company's
Board of Directors.
10. INDEMNIFICATION. Company shall save and hold harmless Employee from
and against any claim of liability or loss (including reasonable attorney's
fees) arising as a result of Employee's activities or services hereunder to the
fullest extent permitted by law.
11. CONFIDENTIALITY. Employee shall, at no time, either during his
employment or following the termination of his employment for any reason, use or
disclose to any person, directly or indirectly, any business secret, customer
list or other confidential information concerning the business or policies of
Company, except to the extent that such use or disclosure is (i) necessary to
the performance of Employee's duties hereunder, (ii) required by applicable law;
(iii) authorized by the Company; or (iv) lawfully obtainable from other sources.
Upon the termination of his employment, Employee shall return to Company all
memoranda, notes and other documents in his possession that relate to the
business secrets, customer lists and other confidential information of Company.
12. INTEGRATION. This Agreement is the entire agreement between the
parties hereto with respect to the subject hereof and supersedes all prior
agreements between the parties with respect to the matters expressly contained
herein. The parties affirm and ratify the agreement set forth in the Investment
Memorandum, and it is hereby incorporated into this Agreement, but, to the
extent any conflict exists between the Investment Memorandum and this Agreement,
this Agreement shall be controlling. Any waiver or modification of any
provision of this Agreement shall only be effective if in writing and duly
executed by all parties hereto.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same agreement.
14. NOTICES. Any communication, notice or demand a party may be
required or may desire to give hereunder shall be in writing and delivered by
personal service, telecopied (with oral confirmation of receipt from the office
of the addressee) or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Company: Perceptronics, Inc.
21010 Erwin Street
Woodland Hills, CA 91367
Facsimile (818) 348-3485
Attn: Gershon Weltman
6
<PAGE>
If to the Employee: Richard Moskowitz
1 Hickory Drive
Westport, Conn. 06880
Facsimile (203) 226-8086
Any party may change its address or fax number for notice by written
notice given to the other in the manner provided in this section. Any such
communication, notice or demand shall be deemed to have been duly given or
served on the date personally served or telecopied, if by personal service or
telecopied, and on the date shown on the return receipt or other evidence of
delivery if mailed.
15. FURTHER ASSURANCES. The parties agree to execute such instructions
and such other instruments and agree to do such further acts as may be
reasonably necessary to carry out the provisions of this Agreement.
16. NO ASSIGNMENT. This Agreement is a personal service contract and
may not be assigned by either party.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
18. ARBITRATION. All controversies, claims or disputes between Employee
and Company or any of its officers, directors or shareholders, including without
limitation, contract, tort or other controversies, claims or disputes, shall be
arbitrated in accordance with the California Employment Dispute Resolution rules
of the American Arbitration Association. All arbitration proceedings shall be
held in Los Angeles, California. The award of the arbitrators in any
arbitration proceeding shall be final and may be enforced in any court of
competent jurisdiction. The unsuccessful party to such arbitration proceeding
shall pay to the successful party all costs and expenses, including without
limitation, reasonable attorney's fees incurred therein by the successful party,
all of which shall be included in and as part of the award or judgment rendered
in such proceeding.
19. SEVERABILITY. If any provision or portion of this Agreement shall
be or become illegal, invalid or unenforceable in whole or in part, for any
reason, such provision shall be ineffective only to the extent of such
illegality or invalidity without invalidating the remainder of such provision or
the remaining provisions of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY" - PERCEPTRONICS, INC.
by:
--------------------------------- -------------------
Gershon Weltman Date
Chairman of the Board
"EMPLOYEE"
- ------------------------------------ -------------------
Richard Moskowitz Date
8
<PAGE>
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement is entered into as of November 19, 1999 by
Perceptronics, Inc. (the "Company") and Richard Moskowitz (also referred to as
"you" in the following).
1. On January 3, 2000, or sooner by mutual agreement of the parties, you will
become an active employee of the Company and shall have the title of Chief
Executive Officer, with primary responsibility for managing and growing the IC3D
business, which shall include without limitation guiding the design of
demonstration applications, marketing and selling the technology, managing
operational and personnel issues for the IC3D business and ensuring that the
Company has the funding required to implement the foregoing.
2. Initially, you will not be paid a salary. However, as soon as the
parties agree that it is warranted the amount of the salary and other terms
of employment shall be established as part of an employment agreement to be
negotiated in good faith between you and the Board of Directors. The Company
shall reimburse you for reasonable out-of-pocket expenses.
3. The Company is relying on you and has the confidence that you will be
able to accomplish three key immediate objectives:
a) Obtaining, adequate working capital for the Company, which the
parties estimate to be in the range of $500,000 to $1,000,000 over
the next six months, and which includes a minimum of $100,000 that
need to be invested over the next 45 days and another $100,000 that
will need to be invested within the following 45 days;
b) Completing development of the IC3D demonstration applications that
will be necessary to accomplish the Company's short term sales
goals; and
c) Securing for the Company, one or more initial customers for its
technology.
4. In return for your services, and to show its confidence in your ability to
meet the above objectives, the Company shall grant to you, as of November 19,
1999 warrants to purchase 100,000 shares of the Company's common stock at an
exercise price of $0.25 for a period of three years.
5. Within the next 45 days you shall make an investment of $100,000 into the
Company (including $26,000 of which shall be invested on or before November 19,
1999) and in return you shall receive 400,000 shares of the Company's common
stock. Upon making the entire $100,000 investment you shall also be granted
warrants to purchase 400,000 shares of the Company's common stock at an exercise
price of $0.25 for a period of three years.
6. You shall be appointed to the Company's Board of Directors.
7. The parties understand that the terms of this agreement and the terms of
any subsequent employment agreement and financing agreements must be approved by
the Board of Directors of Perceptronics.
1
<PAGE>
This Memorandum of Agreement shall be effective as of the date first set forth
above.
_______________________________________
Gershon Weltman
CEO and Chairman of the Board
Perceptronics, Inc.
_______________________________________
Richard Moskowitz
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 160,944
<SECURITIES> 0
<RECEIVABLES> 50,861
<ALLOWANCES> 0
<INVENTORY> 172,222
<CURRENT-ASSETS> 671,976
<PP&E> 822,036
<DEPRECIATION> 777,318
<TOTAL-ASSETS> 1,732,190
<CURRENT-LIABILITIES> 1,108,370
<BONDS> 115,908
0
0
<COMMON> 6,566
<OTHER-SE> 443,846
<TOTAL-LIABILITY-AND-EQUITY> 1,732,190
<SALES> 717,952
<TOTAL-REVENUES> 717,952
<CGS> 711,530
<TOTAL-COSTS> 1,362,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,937
<INCOME-PRETAX> (679,471)
<INCOME-TAX> 800
<INCOME-CONTINUING> (680,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (680,271)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.10)
</TABLE>
