<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 JUNE 30, 2000
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
------------------ -----------------.
Commission File No: 0-12382
PERCEPTRONICS, INC.
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(Exact name of Registrant as specified in its Charter)
DELAWARE 95-2577731
--------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
21010 ERWIN STREET, WOODLAND HILLS, CA 91367
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(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (818) 884 7470
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK - $.001 PAR VALUE
-------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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: [7,763,760] SHARES OF COMMON
STOCK AS OF JUNE 30, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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<PAGE>
INDEX
PERCEPTRONICS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements 3
Consolidated Balance Sheets, Perceptronics, Inc. and subsidiary, June 30, 2000 and
March 31, 2000. 3
Consolidated Statements of Operations, Perceptronics, Inc. and subsidiary, three
months ended June 30, 2000 and June 30, 1999. 5
Consolidated Statements of Cash Flows, Perceptronics, Inc. and subsidiary, three
months ended June 30, 2000 and June 30, 1999. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds. 15
Item 5. Other Information. 15
Item 6. Exhibits and Reports on Form 8-K. 18
</TABLE>
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PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 2000 MARCH 31, 2000
------------------ ------------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and short term investments $ 59,100 $ 355,781
Receivables-Note C 10,573 10,573
Inventory-Note D 80,620 80,620
Pre-contract Costs 220,000 220,000
Prepaid expenses 16,170 17,620
TOTAL CURRENT ASSETS: 386,463 684,594
EQUIPMENT & LEASEHOLD IMPROVEMENTS, AT COST 825,252 825,252
Less accumulated depreciation and amortization 797,109 787,213
------------------ ------------------
28,143 38,039
Deferred Taxes 932,566 932,566
Other Assets 82,930 82,930
TOTAL ASSETS $ 1,430,102 $ 1,738,129
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long term debt-Note E $ 105,886 $ 105,886
Short term debt 50,000 54,000
Accounts payable 571,955 588,211
Accrued compensation 192,985 172,499
Note to Affiliates 4,000 -
Other accrued liabilities 122,185 121,437
------------------ ------------------
TOTAL CURRENT LIABILITIES: 1,047,011 1,042,033
LONG-TERM LIABILITIES:
Long term debt, net of current portion-Note E 103,029 103,029
Other long term liabilities 57,500 57,500
------------------ ------------------
TOTAL LIABILITIES 1,207,540 1,202,562
</TABLE>
See notes to consolidated financial statements
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PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
COMMITMENTS AND
CONTIGENCIES
SHAREHOLDERS' EQUITY:
COMMON STOCK, par value $.001 per share,
authorized 15,000,000 shares, issued and outstanding
7,732,260 shares at 3/31/2000 and 7,750,760
shares at 6/30/2000 7,751 7,732
Additional paid in capital 13,538,321 13,530,520
Accumulated deficit (13,323,510) (13,002,685)
------------------- -------------------
TOTAL SHAREHOLDERS' EQUITY 222,562 535,567
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,430,102 $ 1,738,129
=================== ===================
</TABLE>
See notes to consolidated financial statements
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PERCEPTRONICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months
Ended June 30
2000 1999
----------------------------------------------
<S> <C> <C>
Net Sales $ - $ 382,410
Cost of Sales 16,509 318,572
------- -------
Gross Profit (16,509) 63,838
Costs and expenses:
Selling, general and administrative 186,031 207,310
Research & development 113,537 -
-------- ---------
Operating income (loss) (316,077) (143,472)
Interest income 1,012
Interest expense (5,760) (20,351)
-------- ---------
Income (loss) before taxes (320,825) (163,823)
Income tax provision - -
Net Income (loss) $ (320,825) $ (163,823)
Earnings per share:
Basic: Net income (loss) $ (0.04) $ (0.03)
Diluted: Net income (loss) N/A N/A
Weighted average common and common equivalent shares:
Basic-Note F 7,741,510 5,642,536
Diluted-Note F N/A N/A
</TABLE>
See notes to consolidated financial statements
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PERCEPTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
------------------------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (320,825) $ (163,823)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 9,896 9,896
Changes in assets and liabilities:
Receivables - 38,672
Inventory - -
Prepaid expenses 1,450 (91,861)
Pre-contract costs - (13,533)
Other assets - (1,887)
Accounts payable (16,256) 79,705
Accrued compensation 20,486 1,360
Notes to affiliates 4,000 -
Other accrued liabilities 748 749
-------------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: (300,501) (140,722)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions - -
Net cash (used) in investing activities - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants 480 5,109
Net proceeds-export financing - 99,701
Payment of long-term debt (4,000) (23,049)
Decrease in other long-term debt - (34,500)
Proceeds from sale of common stock 7,340 5,000
Net cash provided in financing activities 3,820 52,261
NET (DECREASE) IN CASH (296,681) (88,461)
Cash, beginning of period 355,781 449,801
-------------------- -----------------
Cash, end of period $ 59,100 $ 361,340
==================== =================
Cash paid during period for income taxes $ - $ -
Cash paid during period for interest expense $ 5,760 $ 10,037
</TABLE>
See notes to consolidated financial statements
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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 fair presentation of the
results for the interim periods presented. All such adjustments are, in opinion
of management, of a normal recurring nature. Results for the three-month period
ended June 30, 2000 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, 2000.
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.
PRINCIPALS 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 consolidated 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 June 30, 2000, current liabilities exceed current
assets by $660,548. The Company continues to have difficulty in meeting its
obligations as they become due. Payments to vendors, totaling approximately
$571,955 at June 30, 2000 are past due and certain vendors continue to require
cash in advance to delivery terms for goods and services. The Company's cash
flow during the three months period ended June 30, 2000 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 profitably and generate sufficient positive
cash flows is dependent on the award of new contracts and raising additional
investment capital to fund development of commercial software products. 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.
SALE OF PGTS TRAINING SYSTEM ASSETS: On December 27, 1999, the Company and
Eidetics Corporation executed a Memorandum of Understanding regarding the sale
of the PGTS product line to Eidetics Corporation. In March 2000, the Company
commenced significant discussions with Eidetics Corporation leading to the sale
of substantially all of the inventory, leaseholds, equipment and certain
identifiable intangible assets of it's PGTS Training System product line. The
sale was completed on July 20, 2000. The book value of the assets sold was
$319,687. The equipment is fully depreciated and has been valued at $10,000 and
the identifiable intangible assets, which are not capitalized, are valued at
approximately $140,000 for a total purchase of $470,627.
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In consideration for the purchase of the product line assets, Eidetics
Corporation is paying off a bank loan of the Company's valued at $126,538 and a
loan with the Small Business Administration valued at $43,014. Eidetics is also
assuming the Company's account payable liability of $293,095 with a foreign
support services representative.
The Company will also be entitled to royalty payments under the agreement on
future PGTS Training System sales by Eidetics for a four-year period from the
date of sale.
Operating results of the PGTS Training System product line were as follows:
2000 1999
---- ----
Net sales $ - $2,827,000
Net income (loss) $ (451,000) $ 33,000
As of March 31, 2000, inventories being sold were written down $140,000
consistent with the agreed upon fair market value. Upon completion of the sale,
the Company will report a gain of approximately $150,000, applicable to the
fully depreciated equipment and the identifiable intangible assets.
CASH EQUIVALENTS: All highly liquid investments maturing in three months or less
when purchased are considered cash equivalents.
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. At June 30, 2000 and March 31, 2000 deferred precontract costs
were $220,000 and $220,000 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 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 at
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 valuation allowance and represent
management's estimate of the amount that is more likely than not to be realized.
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<PAGE>
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
Unbilled receivables at March 31, 2000 and June 30, 2000 are $10,501 and $10,501
respectively. These balances recognized under the percentage-of-completion
method of accounting and have not been billed because of the billing terms of
the contracts.
The amount of contract retention included in unbilled receivables was $10,501 at
March 31, 2000 and June 30, 2000.
NOTE D - INVENTORY
Inventory was $80,620 at March 31, 2000 and June 30, 2000. Inventory consists of
raw materials and components parts.
NOTE E - LONG TERM DEBT
Long-term debt included the following at June 30 and March 31, 2000:
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
---- ----
<S> <C> <C>
Note Payable-Small Business Administration, secured by
Company assets, payable in monthly installments of $782
Including interest at 4% per annum, due November 2004. $ 43,014 $ 43,014
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. $126,538 $126,538
Note Payable-Consultant issued to resolve open accounts
Payable balance. Payable in monthly installments of $4,521
Including interest at 8% per annum, due April 2000. $ 39,363 $ 39,363
-------- --------
208,915 208,915
Current portion of long-term notes payable 105,886 105,886
======== ========
$103,029 $103,029
</TABLE>
With respect to the note payable with the SBA ($43,014) and the note payable
with the bank ($126,538) these loans are to be paid off by Eidetics Corporation
under the terms of the agreement to purchase the PGTS Training Systems assets.
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<PAGE>
Maturities of long-term debt are as follows:
JUNE 30,
--------
2001 $105,886
2002 55,015
2003 33,740
2004 8,977
2005 5,297
---------
$208,915
Short-term debt included the following at June 30, 2000 and March 31, 2000:
As of June 30, 2000 and March 31, 2000, there is a loan outstanding of $50,000
with a foreign customer and a note with a former employee of $4,000. The notes
bear interest at 6% per year. The terms of the note required repayment by March
1, 1996 and December 31, 1995 respectively; however, the Company was unable to
repay the notes because of cash flow problems. The Company intends to pay off
the notes, as cash flow is available to do so.
NOTE F - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No.128, "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 of became effective beginning in the
Company's third quarter ended December 31, 1997. A reconciliation of shares used
to compute earnings per share for the three-month periods ended June 30, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Weighted average common shares
Outstanding 7,741,510 5,642,536
Diluted stock options and warrants
Based on treasury stock method N/A 838,392
--------- ---------
Diluted shares N/A 6,480,928
========= =========
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company has focused entirely on developing new commercial products in the
area of Internet Collaboration during the past fiscal year. The product, called
the IC3Dtm Framework, is directed toward the rapidly growing market for
multi-person, online, collaborative interactions in 3D virtual environments,
animation and streaming media accessed over the Internet. The major market
applications for the IC3D Framework are entertainment, education, e-commerce and
business communication. 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.
RESULTS OF OPERATIONS
NET SALES. Net sales for the three-month period ended June 30, 2000, decreased
by $ 382,410 or 100% compared to the comparable three-month period in the prior
fiscal year. Sales of training simulator systems and components decreased $5,000
or 100% because there were no sales during the three-month period ended June 30,
2000. During the three-month period ended June 30, 1999, the sales of $5,000
consisted of small orders for parts and maintenance simulation. Simulation
network technology sales decreased $377,410 or 100% because there were no sales
during the three-month period ended June 30, 2000. During the three-month period
ended June 30, 1999, the sales of $377,410 consisted of work on a U.S.
Government SBIR Phase II contract and a State of California contract related to
initial development of the Company's new IC3D Framework for collaborative
interaction on the Internet.
COST OF SALES. Cost of sales for the three-month period ended June 30, 2000
decreased 100% as a result of the 100% 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $15,114 or 7% in the three-month period ended
June 30, 2000 compared to the comparable three-month period in the prior fiscal
year. The Company's management continues to pursue cost reduction measures
consistent with the level of business wherever opportunities can be identified.
As previously reported, during the third quarter of fiscal 2000 the Company
moved its principal office into a smaller space, which resulted in a substantial
reduction in rent expense for the balance of the year. The Company also moved
from a rented storage facility during the forth quarter of the 2000 fiscal year.
In addition, the Company stopped paying rent on its PGTS manufacturing
facilities as of May 30, 2000 in accordance with its PGTS Asset Sale Agreement
with Eidetics Corp. Also during the 2000 fiscal year and the quarter ended June
30, 2000 reductions were made in personnel to reduce payroll related expenses.
INTEREST EXPENSE. Interest expense decreased $14,591 or 71% in the three-month
period ended June 30, 2000 compared to the comparable three-month period in the
prior fiscal year. There was no interest expense associated with any export
credit facility during the twelve-month period ended March 31, 2000 and the
three-month period ended June 30, 2000.
BACKLOG. The Company's firm contract backlog at June 30, 2000 was $3,290,047.
This included a new $2,998,000 contract from the Government of Egypt for
Improved TOW PGTS training simulator systems and a new $292,047 contract from
the U.S. Simulation, Training and Instrumentation Command (STRICOM) for R&D
in the area of High Level Architecture for networked simulation. At June 30,
1999, firm contract backlog was $350,000. The term "firm contract backlog"
refers to the aggregate revenue remaining under contracts held by the
Company. The Egypt contract was transferred to Eidetics corporation as part
of the sale of the PGTS product line. The company will receive a royalty on
this contract under the terms of the sale agreement.
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LIQUIDITY AND CAPITAL RESOURCES. The Company is experiencing severe liquidity
problems due to a lack of revenues and the absence of cash reserves. At June 30,
2000, the Company's unrestricted cash balances of $59,100 were the result of
equity investments made during the third and forth quarter of fiscal 2000. The
Company had negative working capital of $660,548 at June 30, 2000, compared to
negative working capital of $103,000 at June 30, 1999. The Company continues to
have difficulty in meeting all of its obligations as they come due. At June 30,
2000, vendor accounts totaling $571,955 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 first quarter, the Company signed an agreement with Eidetics
Corporation to sell its PGTS training simulator development and manufacturing
operation. This Sale Agreement was consummated July 20, 2000. 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 IC3D/Wyth 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 offered less potential for future
growth than the Internet related products. There is no assurance that the
divestiture of the PGTS product line will improve the Company's viability.
The Company has reduced its level of operations and still requires significant
financing from external sources to be able to fund the development of the IC3D
Framework commercial software products. There is no assurance that the Company
will be able to continue to raise the 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 unfavorable 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 nine
employees 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 new STRICOM contract mentioned above will provide some
revenues and cash for Company operations. 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.
At June 30, 2000, the Company had a note payable with a bank that is guaranteed
by the Small Business Administration (SBA). At June 30, 2000, the principal
balance outstanding was $126,538. The note bore interest at prime rate plus 2.75
percentage points with principal and interest payable monthly amortizing over
five years. At June 30, 2000, the Company was past due on four of the scheduled
monthly payments. The Company also had a note payable directly with the SBA,
which had a principal balance of $43,000 at March 31, 2000. Both of the above
mentioned notes payable were paid off in full on July 20, 2000 by Eidetics
Corporation under the terms of the agreement to purchase the PGTS Training
System product line assets.
The Company also has a 24-month note payable with a starting principal of
$100,000 that bears interest at 8% per annum. At June 30, 2000, the outstanding
balance on this note payable was $39,363. At June 30, 2000, the Company is past
due on scheduled monthly payments on this note as a result of the cash flow
limitations previously discussed. The Company intends to address this past due
note once there is sufficient operating cash flow.
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The Company's operating activities used cash of $300,501 during the quarter
ended June, 30, 2000 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 no cash during the quarter ended June
30, 2000. The Company is primarily a developer of computer software and
therefore not capital intensive. The Company does not currently have any
material commitments for the purchase of capital assets.
The Company's financing activities provided cash of $3,820 during the
three-month period ended June 30, 2000.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report contains
forward-looking statements (identified by the words "estimate," "project,"
"anticipate," "plan," "expect," "intend," "believe," "hope," "strategy" and
similar expressions) which are based on Management's current expectations and
speak only as of the date made. These forward-looking statements are subject to
various risks, uncertainties and factors, including, without limitation, those
described below, that could cause actual results to differ materially from the
results anticipated in the forward-looking statements.
GOING CONCERN ISSUE AND SEVERE LIQUIDITY PROBLEMS. The Company's financial
statements for the fiscal year ended March 31, 2000 have been prepared in
conformity with generally accepted accounting principals, which contemplate
continuation of the Company as a going concern. See the Independent Auditors'
Report and Note A 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 fiscal
year ended March 31, 2000. The Company has also sustained operating losses in
recent years and requires substantial amounts of working capital in its
operations. As a result, the Company suffers from limited cash resources that
restrict its ability to bid for, obtain and perform larger 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. A major part of the
Company's long term 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 has obtained a U.S.
Government Department of Defense SBIR Phase II Fast Track contract for
$750,000to develop and commercialize networking software for commercial on-line,
multi-player games involving complex 3D environments ("IC3D-TM- Framework
software"). The Company has succeeded in obtaining equity funding of $390,000 to
satisfy self-funding requirements under the SBIR contract. The Company will also
require additional equity funding 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, or 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
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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 and marketing capabilities and financial resources and
will be dependent upon establishing relationships with strategic and marketing
partners to be able to fully exploit the IC3D-TM- Framework software and other
commercial products. There can be no assurance that the IC3D-TM- Framework
software or future new products will achieve market acceptance, result in
increased revenues, or be profitable. Such products could also be subject to
technological obsolescence and intense competition from companies with greater
resources than the Company.
DEPENDENCE ON ONE CUSTOMER AND ON FOREIGN SALES. The Company has historically
derived a substantial portion of its revenues from the sale of PGTS Training
Simulator systems primarily to a limited number of foreign customers. During the
fiscal year ended March 31, 2000 there were no training simulator sales to
foreign customers compared to 65% in the prior fiscal year. The Company
announced that it plans to divest its training simulator product line. There is
no assurance that the divestiture will 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 and profitability.
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. As the Company expands,
it may from time to time experience constraints that will adversely effect its
ability to satisfy customer demand in a timely fashion. Failure to manage growth
effectively could adversely effect the Company's financial condition and results
of operations.
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
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<PAGE>
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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the three-month period ended June 30, 2000, the Company issued
18,500 shares of common stock for a purchase price of $ 7,820 in conjunction
with a stock purchase subscription agreement. The common shares and warrants are
not registered under the Securities Act in reliance on Section 4(2) thereof.
ITEM 5. OTHER INFORMATION.
(a) On July 20, 2000, the Company completed the sale of its Precision
Gunnery Training System (PGTS) and training simulator operation to Eidetics
Corporation, a Torrance, CA based manufacturer of aircraft simulators and other
simulation systems. The transaction included, among other things: (1) transfer
to Eidetics of the PGTS Assets; (2) payment or assumption by Eidetics of certain
liabilities of the Company associated with the PGTS Business; (3) transfer by
the Company to Eidetics active contracts and/or proposals in the area of PGTS
and training simulator operations including; and (4) payment by Eidetics to the
Company for four years of a royalty on all Eidetics business involving the PGTS
Assets and/or transfer of the PGTS contracts and proposals.
The transaction will be recorded as a gain on sale of discontinued
operations, with assets and liabilities sold at their fair values.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition ("pro forma") on the Company's financial position and
results of operations. The condensed consolidated balance sheet as of June 30,
2000 is based on the historical balance sheet of the Company as of that date and
assumes the acquisition took place on that date. The condensed consolidated
statement of income for the three months ended June 30, 2000 are based on
historical statements of income of the Company for that period. The pro forma
condensed consolidated statement of income assumes the acquisition took place on
April 1, 2000.
The pro forma condensed consolidated financial statements may not be
indicative of the actual results of the sale. In particular, the pro forma
financial statements are based on management's current estimate of the sale
price, the actual sale price may differ.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical statements of the Company and
subsidiary.
(b) Pro forma financial information.
(1) Perceptronics, Inc. pro forma condensed consolidated balance
sheet as of June 30, 2000 (Unaudited).
(2) Perceptronics, Inc. pro forma condensed consolidated
statement of operations for the three month period ended June 30, 2000
(Unaudited).
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<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
STATEMENTS ADJUSTMENTS RESULTS
--------------- ------------ ---------------
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and short term investments $ 59,100 $ 59,100
Restricted cash - -
Receivables
Billed - -
Unbilled 10,501 10,501
Other receivables 72 72
Inventory 80,620 (80,620)(1) -
Pre-contract Costs 220,000 (220,000)(1) -
Prepaid expenses 16,170 16,170
--------------- ---------------
TOTAL CURRENT ASSETS: 386,463 85,843
Equipment & Leasehold Improvements, at cost less
accumulated depreciation 28,143 (12,367)(1) 15,776
Deferred Taxes 932,566 932,566
Other Assets 82,930 (6,700)(1) 76,230
TOTAL ASSETS $ 1,430,102 $ 1,110,415
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long term debt $ 105,886 66,523(1) $ 39,363
Short term debt 50,000 50,000
Accounts payable 571,955 235,595(1) 336,360
Accrued compensation 192,985 192,985
Notes to Affiliates 4,000 4,000
Other accrued liabilities 122,185 7,980(1) 114,205
--------------- ---------------
TOTAL CURRENT LIABILITIES: 1,047,011 736,913
LONG-TERM LIABILITIES:
Long term debt, net of current portion 103,029 103,029(1) -
Other long term liabilities 57,500 57,500(1) -
---------------
TOTAL LIABILITIES $ 1,207,540 $ 736,913
=============== ===============
SHAREHOLDERS' EQUITY:
COMMON STOCK, par value $.001 per share,
authorized 15,000,000 shares; 5,629,930 shares
issued and outstanding 7,751 - 7,751
Additional paid in capital 13,538,321 - 13,538,321
Accumulated deficit (13,323,510) - (13,323,510)
TOTAL SHAREHOLDERS' EQUITY 222,562 (150,940)(1) 373,502
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,430,102 $ 1,110,415
=============== ===============
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited)
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<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
statements adjustments results
------------------ ----------------- -------------------
<S> <C> <C> <C>
Net Sales $ - $ -
Cost of Sales 16,509 16,509
Gross Profit (16,509) (16,509)
------------------ -------------------
Costs and expenses:
Selling, general and administrative 186,031 186,031
Research & development 113,537 113,537
------------------ -------------------
Operating income (loss) (316,077) (316,077)
Interest income 1,012 1,012
Interest expense 5,760 5,760
Gain on sale of assets - 150,940(2) 150,940
Income (loss) before taxes (320,825) (169,885)
Income tax provision - -
Net Income (loss) (320,825) (169,885)
================== ===================
EARNINGS PER SHARE:
Basic: (0.04) 0.02
================== ===================
Net (loss)
Diluted: N/A N/A
================== ===================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES:
Basic 7,741,510 7,741,510
================== ===================
Diluted N/A N/A
================== =================
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited)
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<PAGE>
PERCEPTRONICS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - THE PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED BALANCE SHEET
ARE AS FOLLOWS:
(1) To reflect the sale to Eidetics, a California corporation, of all assets of
Perceptronics related to PGTS product line and technologies on the basis of the
fair values of the assets sold and liabilities assumed by Eidetics. The
components of the purchase agreement (Eidetics purchase of the assets and
assumption liabilities) are as follows:
Components of assets purchased:
Inventory ...............................................$ 80,620
Precontract costs ....................................... 220,000
Equipment & Leaseholds .................................. 12,367
Other Assets ......................................... 6,700
Total of assets purchased $ 319,687
Components of liabilities assumed:
Current portion of long term debt .......................$ 66,523
Accounts payable ........................................ 235,595
Other accrued liabilities ............................... 7,980
Long-Term debt .......................................... 103,029
Other long term liabilities ............................. 57,500
---------
Total of liabilities assumed.............................$ 470,627
Gain in excess of net assets sold........................$ 150,940
=========
NOTE B -THE PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED STATEMENTS OF
INCOME ARE AS FOLLOWS:
(2) To report gain on sale of assets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed herewith:
27. Financial Data Schedules
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to the signed on its behalf by the
undersigned hereunto duly authorized.
PERCEPTRONICS, INC.
(Registrant)
Date: AUGUST 17, 2000 By: /s/ GERSHON WELTMAN
-------------------- --------------------------------------
Dr. Gershon Weltman
Chief Executive Officer
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