SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER
ENDED April 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 0-17500
VERSUS TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2283745
(State or other jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
2320 West Aero Park Court
Traverse City, Michigan 49686
(Address of principal executive offices)
616-946-5868
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No .
The aggregate market value of the Common Stock held by
nonaffiliates of the registrant on April 30, 1996 was
approximately $15,649,651.
Number of shares of Common Stock, par value $.01 per share,
outstanding as of April 30, 1996: 18,485,697.
<PAGE>
VERSUS TECHNOLOGY, INC.
Index to
Financial Statements and Schedules
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Balance Sheets as of April 30, 1996
(Unaudited) and October 31, 1995 (Audited)
Statements of Operations for the three
and six months ended April 30, 1996 and
1995 (Unaudited)
Statements of Shareholders' Equity
for the six months ended April 30, 1996
and 1995 (Unaudited)
Statements of Cash Flows for the three
and six months ended April 30, 1996 and
1995 (Unaudited)
Condensed Notes to Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 4 - Submission of Matters to a Vote of
Security Holders
Item 5 - Other Matters
Item 13 - Exhibits and Reports on Form 8-K
Signatures
<PAGE>
VERSUS TECHNOLOGY, INC.
Balance Sheets
April 30, October 31,
1996 1995
Assets (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 527,000 $ 1,998,000
Cash held for appeal (Note 5) 205,000 -
Trade accounts receivable (net
of allowance for doubtful
accounts of $25,000 at
April 30, 1996 and $25,000 at
October 31, 1995) 58,000 88,000
Assets held for sale (Part II
Item 1) 3,000 3,000
Inventories (Note 6) 44,000 11,000
Prepaid expenses and other
current assets 132,000 79,000
Total current assets 969,000 2,179,000
Property and equipment - net
(Note 7) 63,000 3,000
Deferred charges and other
assets (Note 8) 285,000 253,000
$ 1,317,000 $ 2,435,000
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 340,000 508,000
Accrued expenses 371,000 395,000
Deferred revenue - 9,000
Other liabilities (Note 9) 7,000 -
Note payable - current (Note 10) 75,000 110,000
Total current liabilities 793,000 1,022,000
Note payable - long term (Note 10) 339,000 339,000
Total liabilities 1,132,000 1,361,000
Shareholders' equity:
Common stock, $.01 par value,
25,000,000 shares authorized;
18,910,697 shares issued and
outstanding on October 31,
1995; 18,910,697 shares issued
(less 425,000 shares held in
the treasury) 189,000 190,000*
Additional paid-in capital 23,409,000* 23,410,000
Accumulated deficit (23,328,000) (22,526,000)*
Total paid-in capital and
accumulated deficit 270,000 1,074,000
Less cost of treasury stock ( 85,000) -
Total shareholders'
equity 185,000 1,074,000
$ 1,317,000 $ 2,435,000
See accompanying condensed notes to financial statements.
*Rounding differences on audited financial statements: Common
shares 189,000; Accumulated deficit (22,525,000) and on first
quarter financial statements; Additional paid in capital
(22,388,000).
<PAGE>
<TABLE> VERSUS TECHNOLOGY, INC.
Statement of Operations (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Sales $ 58,000 $ 239,000 $ 93,000 $ 560,000
Cost of sales 35,000 214,000 64,000 448,000
Gross margin 23,000 25,000 29,000 112,000
Expenses:
Research and development 131,000 212,000 291,000 330,000
Sales, general, and administrative 313,000 519,000 561,000 1,094,000
444,000 731,000 852,000 1,424,000
Income (Loss) from operations (421,000) (706,000) (823,000) (1,312,000)
Other income (expense):
Interest income 13,000 8,000 36,000 16,000
Interest expense ( 15,000) ( 3,000) ( 16,000) ( 7,000)
Gain on debt settlement 16,000 - 29,000 -
Loss on debt settlement (11,000) - ( 29,000) -
Gain on sale of subsidiary - - - 365,000
Gain on sale of DCX - - - 424,000
3,000 5,000 20,000 798,000
Net income (loss) before
provision for income taxes (418,000) (701,000) (803,000) ( 514,000)
Provision (benefit) for income taxes - - - -
Net income (loss) $(418,000) $(701,000) $(803,000) $( 514,000)
Net income (loss) per common and
common equivalent share (Note 11) ( .02) ( .17) ( .04) ( .12)
See accompanying condensed notes to financial statements.
/TABLE
<PAGE>
<TABLE>
VERSUS TECHNOLOGY, INC.
Statement of Shareholders' Equity (Unaudited)
Common Common Treasury Add'l
Six Months Ended Stock Shares Shares Paid-In Accumulated
April 30, 1996 Shares Amount Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance, October
31, 1995 18,910,697 *$ 190,000 $ - $23,410,000 *$(22,526,000) $1,074,000
Issuance of common
stock:
Shares purchased as
Treasury Shares ( 425,000) (85,000) - - ( 85,000)
Net loss for the
six months ended
April 30, 1996 ( 803,000) ( 803,000)
Balance,
April 30, 1996 18,485,697 $ 189,000 $(85,000)*$23,409,000 $(23,328,000) $ 185,000
Common Common Treasury Add'l
Six Months Ended Stock Shares Shares Paid-In Accumulated
April 30, 1995 Shares Amount Amount Capital Deficit Total
Balance, October
31, 1994 4,160,780 $ 42,000 $ - $20,834,000 $(20,029,000) $ 847,000
Issuance of common
stock:
Shares issued pursuant
to Incentive Stock
Option Plan - - - - - -
<PAGE>
Net loss for the
six months ended
April 30, 1995 ( 514,000) ( 514,000)
Balance,
April 30, 1995 4,160,780 $ 42,000 $ - $20,834,000 $(20,543,000) $ 333,000
*Rounding differences on audited financial statements: Common shares 189,000; Accumulated
deficit (22,525,000) and on first quarter financial statements; Additional paid-in capital
(22,388,000).
See accompanying condensed notes to financial statements.
/TABLE
<PAGE>
<TABLE> VERSUS TECHNOLOGY, INC.
Statements of Cash Flow
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net Income (loss) $( 403,000) $( 701,000) $( 803,000) $( 514,000)
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Depreciation and amortization 19,000 59,000 32,000 133,000
Loss on disposal of fixed
assets - 14,000 - 15,000
Discontinuance of patent
applications - 58,000 - 58,000
Gain on sale of DCX - - - ( 424,000)
Gain on sale of subsidiary - - - ( 365,000)
Increase and decrease in assets
and liabilities:
(Increase) decrease in accounts
receivable and accounts
receivable - other 51,000 ( 32,000) 75,000 235,000
Increase (decrease) in
inventories ( 7,000) 34,000 ( 26,000) 53,000
Increase (decrease) in prepaid
expenses and other current
assets ( 136,000) ( 22,000) ( 105,000) ( 16,000)
Increase (decrease) in
accounts payable and other
liabilities ( 139,000) 9,000 ( 169,000) ( 462,000)
Increase (decrease) in accrued
expenses 12,000 ( 20,000) ( 23,000) ( 108,000)
Increase (decrease) in deferred
revenues--customer advance
payments ( - ) ( - ) ( 9,000) ( 52,000)
Total adjustments ( 200,000) 100,000 ( 225,000) ( 933,000)
Net cash provided by (used
in) operating activities ( 603,000) ( 601,000) (1,028,000) (1,447,000)
Cash flows from investing activities:
Proceeds from assets held for
sale - - - 1,255,000
Principal received on notes
receivable - - - 698,000
Additions to property and
equipment ( 27,000) ( 2,000) ( 66,000) ( 14,000)
Additions to deferred charges
and other assets ( 60,000) - - -
Additions to prepaid royalties ( 59,000) - ( 59,000) ( 10,000)
Net cash provided by (used
in) investing activities ( 26,000) ( 2,000) ( 125,000) 1,929,000
Cash flows from financing activities:
Payments on obligation under
capital lease - ( 5,000) - ( 9,000)
Issuance of (payments on) notes
payable ( 23,000) ( 3,000) ( 28,000) ( 205,000)
Issuance of treasury stock ( - ) - ( 85,000) -
Net cash provided by (used
in) financing activities ( 23,000) ( 8,000) ( 113,000) ( 214,000)
Net increase (decrease) in cash
and cash equivalents ( 652,000) ( 611,000) (1,266,000) ( 268,000)
Cash and cash equivalents,
beginning of period 1,384,000 943,000 1,998,000 64,000
Cash and cash equivalents,
end of period $ 732,000 $ 332,000 $ 732,000 $ 332,000
Supplemental disclosures of
cash flow information:
Cash paid during the year for
interest $ 15,000 $ 4,000 $ 15,000 $ 7,000
Supplemental disclosures of
non-cash investing and financing
activities:
During fiscal 1995,
approximately $449,000 of accounts
payable were renegotiated to a
note payable.
During second quarter of 1996,
$18,000 of accounts payable was
renegotiated to an other liability,
a non-interest bearing monthly
installment payment with an initial
down payment of $11,000.
See accompanying condensed notes to financial statements.
/TABLE
<PAGE>
VERSUS TECHNOLOGY, INC.
Condensed Notes to Financial Statements
April 30, 1996
(1) Description of Business
Versus Technology, Inc. (the "Company") has two lines of
business, the infrared (IR) tracking system and a cellular line. The
Company sees its future in the business of IR tracking systems.
These systems permit the instantaneous identification and tracking of
the location of people and equipment and can be used to control
access and permit instantaneous two-way communication. The Company
believes that this technology will have a wide range of applications.
The system is based on the Company's patented proprietary technology
involving the transmission and reception of infrared light for use in
tracking multiple subjects in several areas. During the fiscal year
1995, the Company significantly downsized its manufacturing
operations, moved its headquarters and principal operating
facilities, ceased production and distribution of a significant
product line, and focused development efforts on infrared product
technology. Primary engineering activities include software design,
development, hardware development and integration, testing, system
integration installation, maintenance, support, and training. The
Company commenced formal marketing of its system on August 1, 1995.
The first market being addressed by the Company is the medical
industry. Several demonstration systems, however, were already in
place and operating with high levels of customer satisfaction. There
have been only limited sales to date.
The Company also manufactures and distributes a number of
cellular products for data transmission and cellular alarm transport.
The Company's products can handle the sending of alert notices, such
as alarm reporting for fire, burglar, health, security, and other
alert communication requirements. The Company's CAT products
manufacturing began in late 1993. As a result of the settlement of a
patent infringement suit during the fourth quarter of the 1995 fiscal
year, the greater portion of the CAT products sold by Versus at the
beginning of fiscal 1995 have now been discontinued.
On September 29, 1995, the Company completed a Private
Placement of 14,674,917 shares of its common stock to accredited
investors at $0.20 per share. After payment of bridge loans, the net
proceeds of $2,428,050 are being used to develop the IR tracking
business and for general operating expenses.
(2) Summary of Significant Accounting Policies
In the opinion of the management of the Company, the
accompanying unaudited financial statements of the
Company include all adjustments necessary to present fairly the
financial position of the Company, in all material respects, as
of April 30, 1996, and the results of operations and cash flows
for the three month periods ended April 30, 1996 and 1995. The
results for the three month periods ended April 30, 1996 and 1995,
are not necessarily indicative of the results to be expected for the
full fiscal year.
Inventories:
Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Property and equipment:
Property and equipment are carried at cost and depreciated
over estimated useful lives, principally on the straight-line method
for financial reporting purposes and accelerated methods for income
tax purposes.
The estimated useful lives used for determination of
depreciation and amortization for financial reporting purposes are:
machinery and equipment--3 to 10 years; furniture and fixtures--3 to
10 years.
Revenue recognition:
Revenue from product sales is recognized when the related
goods are shipped and all significant obligations of the Company have
been satisfied. The Company generally offers a 90-day warranty on
its products. Costs incurred to service products under warranty,
which have not been significant, are charged to operations when
incurred.
Deferred revenue--customer advance payments:
Revenue from advanced payments received from customers is
deferred until all revenue recognition criteria are satisfied.
Intangible assets:
Patents and trademarks are recorded at cost and are amortized
using the straight-line method over seven years.
Statements of cash flows:
For the purpose of the statements of cash flows, the Company
considers all investments with a maturity of three months or less at
date of purchase to be cash equivalents.
(3) Sale of Majority-Owned Subsidiary
On July 13, 1992, the Company completed the sale of all of
its capital stock of VTL, and certain other patented technology
owned by the Company, to a newly formed organization headed by
the management of VTL and other investors. The purchase price
was approximately $1,653,000 plus repayment of indebtedness from
VTL to the Company of approximately $647,000. The Company
received $500,000 at closing with the balance deferred in
periodic payments over the next 22 months. Of these deferred
payments $1,250,000 were collateralized by a subordinated lien on
the assets of VTL. In addition, as part of this transaction, the
Company was released from its guarantee obligation under an
$800,000 principal amount term loan obtained by VTL in 1992 and
was obligated to pay closing fees of approximately $260,000 of
which approximately $200,000 was to be paid over a period of
22 months. VTL also licensed to the Company, rights in the United
States and certain other countries to use the technology sold to VTL.
The Company has realized a net gain from this transaction
of approximately $1,100,000 (adjusted to reflect actual amount of
cash received). Due to the fact that the common stock and
certain other patented technology was sold to a highly leveraged
group of investors, the gain was deferred and recognized ratably
as cash was collected. The Company recognized the balance,
$365,000, of this gain in the first quarter of 1995 and none in
1994.
(4) Sale of DCX Product Line
On November 30, 1994, the Company sold the assets, and certain
liabilities related to its derived channel multiplex product line
(DCX). The purchase price was approximately $1,255,000, all of which
was received at closing. The Company realized a gain of $424,000 on
this transaction, in the first quarter fiscal 1995.
In addition, as part of the terms of the transaction, the
Company received payment of $600,000 which was due to the Company
from the sale of outstanding amounts due the Company ($698,000 as of
October 31, 1994) offset by obligations of the Company for closing
fees ($98,000 as of October 31, 1994).
(5) Cash Held for Appeal
On March 22, 1996, $205,000 was moved to a court held
interest-bearing account to provide for settlement of a judgment on
appeal. See Part II, Item 1- Legal Proceedings.
(6) Inventories
Inventories are summarized as follows:
April 30, October 31,
1996 1995
Raw Materials $ 39,000 $ 11,000
Work in progress - 41,000
Finished goods 25,000 65,000
Inventory reserve ( 20,000) -
$ 44,000 $ 11,000
(7) Property and Equipment
Property and equipment are summarized as follows:
April 30, October 31,
1996 1995
Machinery, equipment and
vehicle $ 180,000 $ 114,000
Furniture and fixtures 25,000 25,000
205,000 139,000
Less accumulated
depreciation 142,000 136,000
$ 63,000 $ 3,000
Substantially all of the Company's property and equipment
related to the discontinued cellular activities were sold or written
down to net realizable value as a result of the Telular litigation
settlement on fiscal year ended 1995 (see Part II, Item 1) and the
move of headquarters and principal operations to Michigan. Additions
made to equipment in second quarter 1996 were primarily comprised of
computer equipment.
(8) Deferred Charges and Other Assets
Deferred charges and other assets are summarized as follows:
April 30, October 31,
1996 1995
Patents and trademarks $ 365,000 $ 365,000
Deferred computer
software costs 59,000 -
425,000 365,000
Less accumulated
amortization 139,000 112,000
$ 285,000 $ 253,000
(9) Other Liabilities
On April 17, 1996, the Company entered an agreement
renegotiating accounts payable to one of its law firms for $18,000,
to be paid with an initial payment of $11,000 and seven monthly non-
interest bearing installments of $1,000 each commencing May 17, 1996,
and continuing until $7,000 has been paid in full.
The future amounts due under the aforementioned agreement are
as follows:
1996 $7,000
(10) Note Payable
On August 1, 1995, the Company signed a note payable,
renegotiating accounts payable to one of its law firms for $449,000.
The note bears interest at a floating annual rate and requires 13
monthly installments of $10,000 which commenced on December 1, 1995,
and a balloon payment for the entire remaining principal balance on
January 1, 1997. The note is secured by certain patents of the
Company. The future amounts due under the aforementioned loan are as
follows:
1996 $ 60,000
1997 339,000
399,000
On September 29, 1994, the Company borrowed $200,000 from five
individuals (including three Directors of the Company totaling
$120,000) for operational cash flow purposes. The notes bore
interest at a rate of 8%, payable semi-annually and were due on
December 31, 1995. Such amounts were paid in full as of October 31,
1995.
(11) Net Income (Loss) per Share
Net income (loss) per share is based upon the weighted
average number of shares outstanding of 18,485,697 and 4,160,780 for
the three months ended April 30, 1996, and April 30, 1995,
respectively, and 18,697,197 and 4,160,780 for the six months ended
April 30, 1996, and April 30, 1995, respectively. The effect of the
Company's common stock equivalents (options and warrants) was
antidilutive for both periods.
(12) Relocation
The Company closed its New Jersey location in September, 1995,
and moved all operations of the Company to the Traverse City,
Michigan, office location. All related costs of this relocation,
including the write down of non-essential fixed assets to net
realizable value, have been recognized in the accompanying financial
statements.
(13) Related Parties
The President and Chief Executive Officer of the Company is
also a member of the Board of Directors and a stockholder of Olmsted
Engineering.
Olmsted Engineering provided a number of resources to Versus
Technology, Inc. for the fiscal year ended October 31, 1995,
including research and development, pass-through billings, use of
office space and development of a business plan, and marketing
support.
The Company believes services provided by Olmsted have been
negotiated at arm's length at the fair value of goods and services
received. The Company is currently maintaining its headquarters and
principal operating facilities at the business location of Olmsted,
free of rent charges through February, 1996, and began paying rent of
$3,000 per month under a Rental Agreement with Olmsted Engineering.
Olmsted is the principal consultant to Versus on IR Tracking.
On April 20, 1995, the Corporation entered into a Consultancy
Agreement with Olmsted, which is principally owned by the Company's
President and Chief Executive Officer, Gary T. Gaisser. The
Agreement ran for a one-year period, commencing on April 20, 1995.
Under this Agreement, the consultant received an annual fee of
$144,000, payable monthly. They were further entitled to a fee at
the rate of $90 an hour for man hours in excess of 100 hours each
month.
The Consultancy Agreement made effective as of April 20, 1995,
between the Company and Olmsted Engineering Company had an initial
term of one year, from April 20, 1995, to April 20, 1996. Effective
November 1, 1995, the contract was amended to provide significant
savings to the Company.
On May 9, 1996, Olmsted Engineering Co. agreed to extend the
term of the consultancy Agreement, as amended November 1, 1995, from
April 20, 1996, to April 19, 1997.
Additionally, Olmsted has the option to merge into Versus at
$.25 a share based upon the Olmsted book value, provided the book
value of Olmsted shall be no greater than $1.5 million dollars. The
right to merge is further conditioned upon the receipt of a fairness
opinion that the fair market value of Olmsted is greater than or
equal to its book value and the shareholders of Versus approve the
merger. The Company is moving forward to negotiate this option to
merge. No letter of intent has been signed to date, and the merger
option is also subject to the consent of Gary T. Gaisser and Olmsted
shareholders.
(14) Loss/Gain on Debt Settlement
Loss on debt settlement for first quarter fiscal 1996
consisted of the final tender of payment to Telular on a judgment
related to patent infringement (see Part II, Item 1) and negotiated
payment and resolution of a disputed lease obligation for lease of a
copier.
Gain on debt settlement for second quarter fiscal 1996
consisted of a renegotiation of a payable to a reduced monthly
installment agreement, gains on debt settlement, and an adjustment to
accounts receivable for an amount already written off. Losses in
second quarter of fiscal 1996 included an adjustment for advanced
payments earned.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
General
The Registrant, Versus Technology, Inc. (the "Company")
designs, manufactures, and markets data and security transport
equipment.
In connection with the move of the Company's headquarters and
principal operations to Traverse City, Michigan, the Company has now
refocused itself as a manufacturer of infrared tracking systems and
specifically cellular products. The Company's strategy going forward
will be to meaningfully expand sales of medical tracking and
monitoring systems, develop a portfolio of service contracts with
third parties, develop sales in the medical and health fields, and to
pursue other markets. The Company intends to enter the governmental,
professional, and manufacturing markets with its infrared technology
products.
Results of Operations
Three Months Ended April 30, 1996 and April 30, 1995
Total revenues for the second quarter of fiscal 1996 of
$58,000 were $181,000 or 76% below the corresponding quarter in
fiscal 1995. This decrease in revenues is primarily due to the
discontinuance of certain cellular product sales. The Company is
continuing its development of infrared products and expects this
product line to be the Company's primary focus in fiscal 1996.
Cost of sales as a percentage of revenues in the second
quarter of fiscal 1996 decreased to 60% from 89% for the same quarter
in fiscal 1995. As the infrared product line begins to expand, the
cost of sales is considerably less than that of the cellular product.
The Company's selling, general, and administrative expenses
for the second quarter of fiscal 1996 were $313,000 or 40% lower than
in the second quarter of fiscal 1995. This decrease was primarily
due to the Company's downsizing of its operations in addition to cost
reductions associated with the move of its headquarters and principal
operations to Michigan. Research and development expenses for the
second quarter of fiscal 1996 were $131,000 or 38% below these same
expenses of $212,000 for the second quarter in fiscal 1995. The
completion of initial development of the infrared product accounts
for the decrease in these expenditures.
In the second quarter of fiscal 1996, other income and expense
increased $13,000 or 260% from 1995 levels. This increase was due to
increase in interest income of $5,000, decrease in interest expense
of $3,000, and a net gain on debt settlement in fiscal 1996 of
$5,000.
The Company's second quarter of fiscal 1996 net loss of
$(418,000) or (.02) per share reflects a decrease in revenues due to
the change in the product mix from primarily cellular to development
of the infrared system and the move from Trenton, New Jersey, to
Traverse City, Michigan.
Comparable net loss from operations of $(418,000) in the
second quarter of fiscal 1996 versus the net loss from operations of
$(701,000) in the second quarter of fiscal 1995 is primarily due to
the general reduction of selling and administrative expenses, a
change in product mix, and the move to Traverse City, Michigan.
Six Months Ended April 30, 1996 and April 30, 1995
Revenues for the six months ended April 30, 1996, of fiscal
1996 were $93,000 or 80% or $467,000 below the corresponding period
of fiscal 1995, with revenues of $560,000. This decrease in revenues
is due primarily to recognition of revenues in the six months ended
April 30, 1995, from the sale of DCX, six months' fiscal 1996
revenues reflecting non-DCX revenues, discontinuation of the CAT
product line, and change in product mix including beginning stage
revenues for sale of infrared products.
Cost of sales as a percentage of revenues in the six months
ended April 30, 1996, decreased to 69% from 80% for the same period
in fiscal 1995. The gross margin increase in this period is a result
in shift in product mix caused by the sale of the DCX product line,
which lowered during the six months ended April 30, 1995, due to
fixed costs which had not yet been fully eliminated, and the shift to
infrared sales with a higher margin than the prior years' cellular
lines.
The Company's selling, general, and administrative expenses
for the six months ended April 30, 1996, were $560,000 or
approximately 48% or $534,000 below such expenses for the same period
in fiscal 1995. This decrease in expenses is a result of the move
from Trenton, New Jersey, to Traverse City, Michigan, as well as an
overall downsizing of operations and the shift from manufacturing to
assembly of product.
Research and development expenditures during the six months
ended April 30, 1996, were $291,000 or 13% or $39,000 below such
expenses in the same period of fiscal 1995. The completion of
initial development of infrared technology primarily accounts for the
decrease in these expenditures.
The Company's six month 1996 net loss of $(803,000) compares
to a net loss of $(514,000) for the same period in 1995. However,
the fiscal 1995 loss includes gains of $424,000 from the sale of the
DCX product line and the final gain of $365,000 from the sale of the
Company's foreign subsidiary.
Liquidity and Capital Resources
During the three (3) months ended April 30, 1996, the Company
relied primarily on cash generated from operations and a private
placement of common stock. On September 29, 1995, the Company
completed a Private Placement which generated net proceeds to the
Company of approximately $2.7 million dollars. The Company used
$550,000 of the proceeds to repay certain notes payable, and the
remainder will be used for working capital. There can, however, be
no assurance that the Company will be successful in generating
sufficient operating revenue during fiscal 1996 which will be
sufficient for all projected and/or unforeseen cash needs.
Significant liquidity factors are as follows:
April 30, October 31,
1996 1995
Current ratio 1.4:1 2.1:1
Quick ratio 1.1:1 2.0:1
The foregoing ratios at April 30, 1996, are primarily the
result of operating results. As of April 30, 1996, accounts
receivable were lower by $30,000 or 34% than at October 31, 1995.
Inventories reflect an increase of $33,000 or 34% since October 31,
1995. Current liabilities were reduced by $244,000 or 24% from
October 31, 1995. The Company also has Federal tax loss
carryforwards available although limited as to amount.
Miscellaneous
The Company believes that new accounting pronouncements,
which have yet to be implemented, will not materially affect the
financial condition or results of operations of the Company.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company's defense in a patent infringement suit proved
unsuccessful. A judgment in the amount of approximately $132,000 was
entered against the Company. This judgment was settled by
transferring $121,000 in inventory to the Plaintiff. On January 11,
1996, the Company tendered final payment relating to the satisfaction
of a judgment for patent infringement against the Company.
In connection with the patent infringement judgment, the
Company has written down all inventory, intangible assets, and fixed
assets related to the product line named in the lawsuit to net
realizable value during fiscal 1995.
On January 26, 1996, the Company entered into an agreement to
lease building space from an officer of the Company. The term of the
lease commitment is 5 years, at an amount of $4,750 per month. The
start date of the lease term has not been determined, as the building
construction has not been completed.
On May 1, 1996, the Company entered into an agreement to rent
current corporate offices from Olmsted Engineering Co. at a rate of
$3,000 per month.
Reference is made to the description of litigation captioned
Special Situations Fund III, L.P. vs. Versus Technology, Inc., in the
Registrant's report on Form 10-KSB for the year ended October 31,
1995. After the close of the quarter covered by this quarterly
report, but before the filing of this report, the New York Appellate
Division denied the appeal of the Registrant in this matter. This
matter had resulted in the judgment of approximately $195,000 against
the Registrant. The Registrant continues to believe that this
decision was in error. The Company has determined to seek leave to
appeal to the New York Court of Appeals. The amount of the judgment
had been accrued against in the fourth quarter of 1995; however,
there will be additional interest and costs which will be accrued
against earnings in the third quarter.
The warrants at issue in the proceeding were 300,000 of the
2,233,800 Class A Warrants that had been outstanding but expired by
their terms in February of 1994. The Company believes that the
verdict at trial was substantially dependent upon proof that this
particular warrantholder, a professionally managed speculative
investment fund, had the actual intent to exercise its warrants prior
to the date of expiration. Even assuming the adjustment that the
plaintiff claims, the warrants had become worthless as of the date of
their expiration. The Company has not been advised of claims by any
other warrantholders. Nevertheless, it is possible that some or all
of the remaining warrantholders could seek similar relief on the
basis of the outcome of this case.
Item 2 - Changes in Securities
In February, 1995, the Board of Directors amended the Class A
Warrants to provide for limited additional exercise rights after
their scheduled expiration date (February 15, 1995) through the close
of business (New York Time) on February 15, 1996, as follows: After
February 15, 1995, upon exercise and payment of $1.75 cash, holders
of Class A Warrants will be issued one share of Versus common stock
for each four Class A Warrants owned of record on the exercise date.
Class A Warrants expired on February 15, 1996.
On January 26, 1996, the Chairman of the Board of Directors
and Chief Financial Officer resigned from the Company. In connection
with his resignation, the individual signed a Stock Redemption
Agreement and a Nonqualified Stock Option Agreement with the Company.
The Company repurchased 425,000 shares from the individual, which
were placed into treasury stock. The options issued to the
individual are for the purchase of 100,000 shares at an exercise
price of $.50 per share, at any time for a period of 5 years from the
date of issuance.
Item 4 - Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Shareholders of Versus Technology,
Inc. was held on Friday, May 10. The following directors were
elected at the meeting: Julian C. Schroeder, Gary T. Gaisser, and
Elliot G. Eisenberg.
Julian C. Schroeder and Gary T. Gaisser's term of office
continued after the meeting; Elliot G. Eisenberg, a nominee, was
elected for an initial term.
Other matters submitted to a vote at the Annual Meeting of
Shareholders included:
Vote to adopt the 1996 Incentive Stock Option Plan
(Proposition 2) and the approval of an Amendment to the Company's
Certificate of Incorporation to increase the number of authorized
common shares from 25,000,000 to 50,00,000 shares (Proposition 3).
Total shares voted were 11,176,767. The tabulation of votes
was as follows:
Total shares voted: 11,176,767
Total percentage voted: 59.100
Votes for pct Votes Votes Unvoted
Against Abstained
Director #1 10,978,267 58 198,500
Director #2 10,978,267 58 198,500
Director #3 10,978,267 58 198,500
Proposition #2 9,189,482 48 318,040 27,800 1,641,445
Proposition #3 10,882,147 57 257,170 34,050 3,400
All directors and nominees up for election were elected, and
Proposition 2 and Proposition 3 were passed.
Item 5 - Other Matters
Subsequent to the end of the second quarter of fiscal 1996,
the Company sold its 425,000 shares of treasury stock to a private
investor at $.375 per share.
Pursuant to the Employee Stock Option Plan which was approved
by the Company's shareholders on May 10, 1996, and which was adopted,
ratified, and confirmed by the Company's Board of Directors, Gary T.
Gaisser was granted an option to acquire from the Company 1,000,000
shares of the common stock of the Company, $.01 par value per share,
at a price of $.375 per share, which price was, as of the time of the
grant of the option, the current fair market value of such shares.
Item 13 - Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial statements included in Part II of this
report.
(2) Exhibit--Certificate of Amendment of Certificate of
Incorporation.
(b) Reports on Form 8-K during the fourth fiscal quarter: none.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VERSUS TECHNOLOGY, INC.
(Registrant)
By: /S/
Gary T. Gaisser
President and Chief Executive Officer
By: /S/
Debra A. Boyer
Chief Financial Officer, Treasurer,
and Principal Accounting Officer
June 19, 1996
<PAGE>
EXHIBIT - 3.(i)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATION OF INCORPORATION
VERSUS TECHNOLOGY, INC., a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by
the vote of a majority of the Directors present at a meeting held on
January 26, 1996, at which a quorum was present, adopted resolutions
proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation and directed its
consideration by the stockholders:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by changing Article 4, thereof so that, as
amended, said Article shall be and read as follows:
4. Number of Shares. The aggregate number of shares is
50,000,000 shares, par value $.01 per share. The stated value
applicable thereto is five hundred thousand dollars ($500,000.00).
SECOND: That the aforesaid amendment was adopted by the
affirmative vote of a majority of the votes cast by all stockholders
of said corporation entitled to vote thereon at a meeting of the
stockholders of the corporation duly called and held upon notice in
accordance with the provisions of Section 222 of the General
Corporation Law of the State of Delaware, at which a quorum was
present, on May 10, 1996.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this
certificate to be signed by Gary T. Gaisser, its President, and
attested by Debra Boyer, its Secretary, this 3rd day of June, 1996.
VERSUS TECHNOLOGY, INC.
By:
Gary T. Gaisser
ATTEST:
By:
Debra Boyer
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