FORM 10KSB40/A
(AMENDMENT #1)
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995
Exhibit Index
3(a)(i) Certificate of Incorporation dated October 11, 1988
(Filed October 14, 1988)
(a)(ii) Certificate of Amendment of Certificate of
Incorporation dated October 25, 1989 (Filed
October 26, 1989)
(a)(iii) Certificate of Amendment of Certificate of
Incorporation dated December 17, 1993 (Filed
December 20, 1993)
(b) By Laws
10(a) Medical Enterprises International Inc.
Manufacturer's Representative Agreement
(b) Excerpt from Private Placement Memorandum
regarding Merger with Olmsted
(c) Olmsted Consulting Agreement
(d) Registration Rights Agreement dated
September 15, 1995
(e) Registration Rights Agreement dated
July 1, 1995
(f) Registration Rights Agreement dated
September 27, 1994*
(g) Independent Directors' Plan*
13 Annual Report
27(a) Financial Data Schedule
* Incorporated by reference from Exhibits
to a Registration Statement on Form S-3SB
filed January 11, 1994.
Exhibit 13
[VERSUS]
Annual Report 1995
Description: This cover page includes the Versus name as a
graphic centered in the page. The page is bordered by a solid
line on all four sides. The words "Annual Report 1995" in large
print are centered on the bottom of the page.
<PAGE>
C O N T E N T S
Message from the President and CEO
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Statements
Notes to Financial Statements
Independent Auditors' Report
Directors, Officers, and General Information
<PAGE>
Dear Shareholders:
During fiscal 1995, our company accomplished a major transition
in its product lines. We consolidated our cellular product
offerings into three groups: Mobile Alarm Protection System
(MAPS), the Trigger CAT, and the TVX product. We completed
initial development and began marketing of what we believe will
become our flagship product--the Lynx Infrared Personnel and
Equipment Tracking system.
The Mobile Alarm Protection System (MAPS) is a self-supervised,
portable alarm detection system. MAPS can detect motion, sound,
heat, smoke, water level, door and window operation, or pendant
switch operation. Trigger CAT is a trigger alarm reporting
device which is covered by Versus Technology, Inc. patents. The
TVX, a joint venture with TVX, Inc., is a cellular product that
transmits compressed video signals. This cellular product is
targeted for the mass transit industry.
The Company's infrared security system, developed from technology
originally acquired in 1993, can be used to monitor and locate
people and equipment and/or to control access to secured areas.
The system consists of compact badges, sensors, receivers, and a
central processing computer. Badges can be attached to people
and equipment. Each badge transmits a unique identifying code
and up to sixteen status codes. Sensors and receivers,
inconspicuously located in each room or zone, receive and
validate transmitted signals and send them to the central
processing computer. The central processing computer operates on
the signals from the receivers. It locates each badge,
determines its status (i.e., condition, environment, etc.) and
provides users with a graphical display locating people and/or
equipment. Other programmable features include directed pages,
telephone call forwarding, equipment usage logs, and door
openings and closings. 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.
The transition has not been without pain. Sales declined in the
year ended October 31, 1995, to $989,000 from $3,200,000 for the
previous fiscal year. We incurred a loss of $2,497,000 in fiscal
1995 after a loss of $3,176,000 in fiscal 1994.
During the year, however, Versus Technology, Inc.:
1. Moved the firm from Trenton, New Jersey, to
Traverse City, Michigan, sharply reducing occupancy and overhead
costs.
2. Designed and installed an infrared tracking system
at Broward County Chidren's Center.
3. Settled patent litigation involving a portion of
our cellular alarm products business which was consuming
professional fees and management time.
4. Raised net proceeds of $2,428,000 after repayment
of
bridge loans in a successful private placement to accredited
investors of 14,674,917 shares of common stock.
5. Granted an option to merge to Olmsted Engineering,
our principal consultant on infrared systems. This would bring
Versus the technological and software capabilities needed to
reach our goals. This merger could also significantly increase
our sales and profits in the coming years.
6. Developed the MAPS cellular alarm product and
entered into a joint venture for manufacturing and marketing.
In the coming year, our goals are clear. We have succeeded in
developing an infrared tracking product which allows medical
facilities to monitor personnel and equipment in real time, and
to save this information for later use. Our focus now is to put
a meaningful number of systems into place in our core market--
critical care facilities. Very simply, we have the technological
expertise for a guard on the ground floor to know on what floor a
hospital visitor exited; for a hospital administrator to check on
a terminal at home and see where care givers and patients are
located; and for equipment managers to know in real time where
items like a respirator or an IV pump are located when urgently
needed.
The progress we have made to date has depended on a number of
individuals. In particular, we would like to recognize our
departing directors, Owen (Chip) Freeman and John Ross. They
have kept the Company focused during its metamorphosis into a
high-tech, software driven corporation. Their counsel has been
invaluable. We wish them well in future pursuits.
We would like to give special thanks to the investors whose
vision allowed the small acquisition we made in 1993 to become a
reality. Because of you, Versus Technology, Inc. is well on its
way to further accomplishments.
Finally, in a service business, the assets go home every night.
We would like to thank the dedicated employees of Versus
Technology, Inc. and especially Olmsted Engineering, who gave of
their time, energy, and expertise. Olmsted employees made
contributions that paved a solid road for current and future
Versus employees to follow.
We look forward to serving you and continuing to develop these
products for the Company. We are encouraged with the markets we
see emerging for wireless technologies such as ours. Our plan is
to take the steps needed to increase sales and return the Company
to profitability. We are available to our shareholders,
associates, and customers and welcome your input, suggestions,
and comments as we move toward the future.
Sincerely,
VERSUS TECHNOLOGY, INC.
Gary T. Gaisser
President and CEO
<PAGE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparative Financial Data:
The following table sets forth selected financial data for the
Company and should be read in conjunction with the financial
statements and related notes and management's discussion and
analysis of financial condition and results of operations
included elsewhere in this Form 10-KSB or from prior audited
financial statements of the Company. This selected financial
data is not covered by the Independent Accountant's Report.
<PAGE>
<TABLE>(in thousands except per share amounts)
<CAPTION>
Years ended October 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 989 $ 3,200 $ 5,009 $ 5,357 $ 8,413
Net income (loss) $(2,497) $(3,176) $ 628 (740) $(3,363)
Net income (loss) per common
and common equivalent
share(1),(2),(3)
Primary $ (.46) $ (.76) $ .15 $ (.28) $ (1.34)
Fully diluted (.46) $ (.76) $ .15 $ (.28) $ (1.34)
Weighted average number of
shares outstanding(1),(2),(3)
Primary 5,450 4,160 5,298 2,650 2,511
Fully diluted 5,450 4,160 5,298 2,650 2,511
Balance Sheet Data:
Working capital $ 1,157 $ 145 $ 3,036 $ 355 $ (207)
Total assets $ 2,435 $ 3,083 $ 5,391 $ 3,763 $ 5,209
Total liabilities $ 1,361 $ 2,236 $ 1,376 $ 2,443 $ 3,354
Shareholders' equity(2) $ 1,074 $ 847 $ 4,015 $ 1,320 $ 1,827
(1) The Company has not paid any dividends and does not expect to pay dividends with
respect to its common stock in the foreseeable future.
(2) Refer to the "Statements of Shareholders' Equity" in the Audited Financial Statements
of the Company for the fiscal years ended October 31, 1995 and 1994.
(3) See note 10 to the Audited Financial Statements of the Company for the fiscal years
ended October 31, 1995 and 1994.
</TABLE>
<PAGE>
Results of Operations
Fiscal year 1995 compared with 1994:
Revenues for the fiscal year ended October 31, 1995 were $989,000
or, 69% below the corresponding revenues for the previous fiscal
year. This decrease of $2,211,000 resulted primarily from the
sale of the DCX product line and the settlement with Telular
involving certain cellular products. Revenues attributable to
these events included in the 1995 and 1994 revenues amounted to
approximately $586,000, and $3,000,000, respectively. 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 for fiscal 1995
decreased to 50% from 60% in fiscal 1994. This change was
primarily due to continuing change in product mix. As the
infrared product line begins to expand, the cost of sales is
targeted to be considerably less than that of the cellular
product.
Selling, general and administrative expenses for fiscal 1995 were
40% lower than in fiscal 1994. This decrease was primarily due
to the Company's downsizing of its sales and marketing efforts
in addition to cost reductions associated with the move of its
headquarters and principal operations to Michigan. Research and
development expenditures increased $457,000 from fiscal 1994 and
were attributable primarily to the development of the Company's
infrared product line and new product development with cellular
technology. Patent defense settlements and judgment costs
exceeded 1994 levels by $209,000. The legal matters associated
with these costs have been substantially completed and accrued
for in the accompanying financial statements.
Other income and expense increased $824,000 from 1994 levels due
primarily to the recognition of the last installment of deferred
gain associated with the sale of the Company's subsidiary in 1992
and the gain associated with the sale of the DCX product line in
the amount of $424,000.
In connection with the move of the Company's headquarters and
principal operations, the Company has now refocused itself as a
manufacturer of infrared tracking systems and specialty 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 and exploit 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.
Fiscal Year 1994 Compared with Fiscal Year 1993:
Revenues for the fiscal year ended October 31, 1994 were
$1,809,000, or 36%, below the corresponding revenues for the
previous fiscal year. However fiscal 1993 revenues included
$1,189,000 for shipments to Versus Technology, Ltd. ("VTL"), the
Company's majority owned subsidiary which was sold June 13, 1992
(Note 2 of Notes to Financial Statements). On a comparable
basis, revenues for fiscal 1994 were $620,000, or 16%, below
domestic revenues of $3,820,000 reported for fiscal 1993. The
Company anticipates no further sales to VTL. The Company's
backlog of $1,022,000 at October 31, 1994 was above the
comparable backlog of $337,000 at October 31, 1993. $344,000 of
the backlog was included as part of the sale of the Company's DCX
product line on November 30, 1994. Of the balance,
approximately $396,000 represents a contractual commitment to
purchase products during 1995.
Cost of sales as a percentage of revenues for fiscal 1994
increased to 60% from 43% in fiscal 1993. This change was
primarily due to a change in product mix with increasing emphasis
on the Company's cellular product line with associated lower
margins.
Selling, general and administrative expenses for fiscal 1994 were
25% higher than in fiscal 1993. This increase was primarily due
to the Company's increased sales and marketing efforts pertaining
to its cellular and infrared product lines. Development
expenditures increased to $500,000 for fiscal 1994 from $154,000
in fiscal 1993 and were attributable primarily to new and
improved product development. On an absolute basis, SG&A
expenses increased from fiscal 1993 compared to fiscal 1994
primarily because of patent litigation costs associated with the
cellular product line.
Operating loss for fiscal 1994 was $3,165,000, compared to an
operating income of $130,000 for fiscal year ended 1993. In
addition to this operating loss, the net loss of $3,176,000 or
$.76 loss per share, included net interest and miscellaneous
expenses of $11,000. Fiscal 1993 net income of $628,000, or $.15
per share, included a gain of $490,000, or $.09 per share, on the
sale of VTL.
The Company has identified two of its proprietary product lines
that present what the Company believes to be favorable
opportunity markets for the next two to five years. These
product lines are the cellular alarm products and the infrared
products described above. The Company plans to focus efforts on
developing the markets, sales channels and additional products to
properly address the opportunities that these markets offer.
Liquidity and Capital Resources:
During the twelve (12) months ended October 31, 1995, the Company
relied primarily on cash generated from operations, cash proceeds
generated from the sale of assets, 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. The Company believes that the
combination of the above working capital and cash generated from
operations, should be sufficient to meet projected cash needs
over the next twelve (12) months. 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:
October 31,
1995 1994
Current ratio 2.1:1 1.1:1
Quick ratio 2.0:1 0.5:1
Other Matters:
The Company plans to evaluate a merger option with Olmsted. The
Company believes the basis of the merger is sound and expects to
conclude negotiations in fiscal 1996. (See "Certain
Relationships and Related Transactions".) <PAGE>
VERSUS TECHNOLOGY, INC.
Balance Sheets
October 31, 1995 and 1994
ASSETS
1995 1994
Current Assets:
Cash and cash equivalents $ 1,998,000 $ 64,000
Trade accounts receivable
(net of allowance for
doubtful accounts of $25,000
and $45,000 as of October 31,
1995 and 1994) 88,000 376,000
Notes receivable - current (note 2) - 698,000
Assets held for sale 3,000 872,000
Inventories (note 3) 11,000 295,000
Prepaid expenses and other current
assets 79,000 47,000
Total current assets 2,179,000 2,352,000
Property and equipment - net (note 4) 3,000 214,000
Deferred charges and other
assets - net (note 5) 253,000 517,000
$ 2,435,000 $ 3,083,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Obligations under capital leases,
current - 9,000
Accounts payable 508,000 1,197,000
Accrued expenses 395,000 375,000
Deferred revenue - customer
advance payments 9,000 52,000
Deferred gain - current (note 2) - 365,000
Notes payable, current portion (note 8) 110,000 209,000
Total current liabilities 1,022,000 2,207,000
Notes payable, long-term (note 8) 339,000 29,000
Total liabilities 1,361,000 2,236,000
Shareholders' equity (notes 11, 12,
13, 15, and 17):
Common stock, $.01 par value
25,000,000 shares authorized
18,910,697 and 4,160,780 shares
issued and outstanding in 1995
and 1994, respectively 190,000 42,000
Additional paid-in capital 23,410,000 20,834,000
Accumulated deficit (22,526,000) (20,029,000)
Total shareholders' equity 1,074,000 847,000
Commitments and contingencies
(notes 13 and 15) $ 2,435,000 $ 3,083,000
See accompanying notes to financial statements.<PAGE>
VERSUS TECHNOLOGY, INC.
Statements of Operations
For the years ended October 31, 1995 and 1994
1995 1994
Revenues:
Sales (notes 2 and 7) $ 989,000 $ 3,200,000
989,000 3,200,000
Cost of sales 500,000 1,928,000
Gross margin 489,000 1,272,000
Cost and expenses:
Research and development (note 18) 957,000 500,000
Sales, general and administrative
(notes 16 and 18) 1,946,000 3,250,000
Patent defense costs, settlements
and judgments (note 6) 896,000 687,000
3,799,000 4,437,000
Loss from operations (3,310,000) (3,165,000)
Other income (expense):
Interest income 17,000 13,000
Interest expense (note 8) (19,000) (20,000)
Other 26,000 (4,000)
Gain on sale of subsidiary and sale of
product line (note 2) 789,000 -
813,000 (11,000)
Loss before provision for income
taxes (2,497,000) (3,176,000)
Provision for income taxes (note 9) - -
Net loss $(2,497,000) $(3,176,000)
Net loss per common and common
equivalent share: (note 10)
Primary $ (.46) $ (.76)
Fully diluted $ (.46) $ (.76)
See accompanying notes to financial statements.
<PAGE>
<TABLE> VERSUS TECHNOLOGY, INC.
Statements of Shareholders' Equity
For the years ended October 31, 1995 and 1994
<CAPTION>
Additional
Common Stock paid-in Accumulated
Shares Amount capital deficit Total
<S> <C> <C> <C> <C> <C>
Balance,
October 31, 1993 4,155,598 $42,000 $20,826,000 $(16,853,000) $ 4,015,000
Issuance of common
stock:
Incentive stock
option (note 11) 3,982 - 4,000 - 4,000
Exercise of
warrants (note 11) 1,200 - 4,000 - 4,000
Net loss - - - (3,176,000) (3,176,000)
Balance,
October 31, 1994 4,160,780 42,000 20,834,000 (20,029,000) 847,000
Issuance of
common stock:
Sale of common
stock, net
of issuance
costs (note 11) 14,674,917 147,000 2,539,000 - 2,686,000
Directors fees 75,000 1,000 37,000 - 38,000
Net loss - - - (2,497,000) (2,497,000)
Balance,
October 31, 1995 18,910,697 $190,000 $23,410,000 $(22,526,000) $ 1,074,000
See accompanying notes to financial statements. /TABLE
<PAGE>
VERSUS TECHNOLOGY, INC.
Statements of Cash Flows
For the years ended October 31, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net income (loss) $(2,497,000) $(3,176,000)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 245,000 346,000
Loss on disposal of assets
(note 6) 260,000 23,000
Bad debt expense - 21,000
Gain on sale of subsidiary (365,000) -
Gain on sale of product line (424,000) -
Directors' compensation expense 38,000 -
Increase and decrease in assets
and liabilities:
(Increase) decrease in accounts
receivable 308,000 465,000
(Decrease) in allowance for bad debts (20,000) -
(Increase) decrease in inventories 284,000 (162,000)
(Increase) in prepaid expenses and
other current assets (32,000) (10,000)
Increase (decrease) in accounts
payable and other liabilities (240,000) 717,000
Increase (decrease) in accrued
expenses 20,000 16,000
Increase (decrease) in deferred
revenues - customer advance
payments (43,000) 34,000
Total adjustments 31,000 1,450,000
Net cash used in operating
activities (2,466,000) (1,726,000)
Cash flows from investing activities:
Principal received on note
receivable 698,000 73,000
Additions to property and equipment (19,000) (68,000)
Additions to deferred charges and
other assets (11,000) (54,000)
Proceeds on sale of assets held
for sale 1,293,000 -
(continued)
<PAGE>
VERSUS TECHNOLOGY, INC.
Statements of Cash Flows (Cont.)
For the years ended October 31, 1995 and 1994
1995 1994
Net cash provided by (used in)
investing activities 1,961,000 (49,000)
Cash flows from financing activities:
Payments on obligation under
capital lease (9,000) (13,000)
Proceeds from issuance of
note payable - 200,000
Payments on note payable (238,000) (8,000)
Sale and issuance of common stock
(note 11) 2,686,000 8,000
Net cash provided by financing
activities 2,439,000 187,000
Net increase (decrease) in cash
and cash equivalents 1,934,000 (1,588,000)
Cash and cash equivalents,
beginning of year 64,000 1,652,000
Cash and cash equivalents,
end of year $ 1,998,000 $ 64,000
Supplemental disclosures of cash
flow information:
Cash paid during the year for
interest $ 21,000 $ 19,000
Supplemental schedule of noncash investing and financing
activities:
During 1994, the Company had classified certain of its assets and
liabilities related to the Derived Channel Multiplex (DCX)
product line as assets held for sale.
These items were sold for cash of $1,293,000 in November of 1994.
The components of those items sold are as follows, as of October
31, 1994:
Inventory $ 882,000
Property, plant and
equipment, net 47,000
Accounts payable (57,000)
Assets held for sale $ 872,000
During 1994, the Company disposed of certain fixed assets with
original costs of $197,000 and accumulated depreciation of
$174,000. A loss on disposal of $23,000 was recognized as part
of this transaction.
During 1994, the Company wrote-off $29,000 of uncollectible
amounts due from VTL.
Such amounts reduced the related deferred gain generated from the
sale of VTL in 1992 (note 2).
During 1995, approximately $449,000 of accounts payable were
renegotiated to a note payable.
See accompanying notes to financial statements.<PAGE>
VERSUS TECHNOLOGY, INC.
Notes to Financial Statements October 31,
1995 and 1994
(1) Organization and Summary of Significant Accounting
Policies
Versus Technology, Inc. (Versus) develops infrared products for
the health care industry and other markets. Versus also develops
and integrates cellular products for the security industry.
Primary engineering activities include software design,
development, debugging, hardware integration, testing, system
integration, installation, maintenance, support and training.
During the year the Company significantly downsized its
manufacturing operation, moved its headquarters and principal
operating facilities, ceased production and distribution of a
significant product line and focused development efforts on
infrared product technology.
Credit Risk:
The Company maintains its funds in national banks and does not
consider there to be a credit risk rising from cash deposits in
excess of federally insured limits. The Company's customer base
is diverse and the Company does not believe it has a significant
credit risk related to its accounts receivable.
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.
Income taxes:
Income taxes are accounted for in accordance with Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Statement 109 requires a change from the deferred method of
accounting for income taxes under APB Opinion No. 11 to the asset
and liability method of accounting for income taxes. Under the
asset and liability method of Statement No. 109, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement No. 109,
the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
Effective November 1, 1993, the Company adopted Statement No.
109.
Income tax credits are accounted for as a reduction of income tax
expense in the year realized.
Intangible assets:
Patents and trademarks are recorded at cost and are amortized
using the straight-line method over seven years.
Deferred charges:
Costs incurred to ready software products for sale from the point
in time that technological feasibility has been established, as
evidenced by a detailed working program design, to the point in
time that the product is available for general release to
customers are capitalized. Such capitalized costs are amortized
using the straight-line method over the estimated useful lives of
the products, which range from two to three years for product
enhancements and new base software products. Costs incurred
prior to establishing technological feasibility and costs
incurred subsequent to general product release to customers are
expensed as incurred.
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.
Reclassifications:
Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 presentation.
(2) Acquisitions and Dispositions
Sale of majority-owned subsidiary:
On July 13, 1992, the Company completed the sale of all of its
capital stock of Versus Technology Ltd. (VTL), a wholly-owned
subsidiary located in the United Kingdom, 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 twenty-two 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 the Company was obligated to pay closing fees
of approximately $260,000, of which approximately $200,000 was to
be paid over a period of twenty-two months. Such closing fees
have been accrued in the accompanying financial statements. VTL
also licensed to the Company rights in the United States and
certain other countries to use the technology sold to VTL.
The Company realized a net gain from this transaction of
approximately $1,129,000. 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 was
recognized ratably as cash was collected. The Company recognized
the balance of this deferred gain in the amount of $365,000 in
1995 (none in 1994).
Acquisition:
On August 3, 1993, the Company purchased substantially all of
the tangible and intangible assets, and none of the liabilities,
of United Identification Systems Corporation (UIS) for
approximately $400,000. UIS technology is used to develop and
manufacture security, identification and tracking systems based
on an infrared communication system. The purchase was funded
with the proceeds of a private placement which occurred on
September 2, 1993 (note 11). The purchase price has been
allocated as follows:
Patents and trademarks $365,000
Inventory 15,000
Equipment and tooling 20,000
$400,000
(3) Inventories
Inventories as of October 31, 1995 and 1994 are as follows:
1995 1994
Raw Materials $11,000 $189,000
Work in progress - 41,000
Finished goods - $ 65,000
$11,000 $295,000
(4) Property and Equipment
Property and equipment as of October 31, 1995 and 1994 are as
follows:
1995 1994
Machinery,
equipment and
vehicles $114,000 $ 916,000
Furniture
and fixtures 25,000 124,000
139,000 1,040,000
Less accumulated
depreciation 136,000 826,000
$ 3,000 $ 214,000
Depreciation expense was $121,000 and $221,000 in 1995 and 1994,
respectively. Substantially all of the Company's property and
equipment were sold or written down to net realizable value as a
result of the Telular litigation settlement (see note 17) and the
move of the headquarters and principal operations to Michigan
(see note 16).
(5) Deferred Charges and Other Assets
Deferred charges and other assets as of October 31, 1995 and 1994
are as follows:
1995 1994
Patents $365,000 $571,000
Deferred computer
software costs - 118,000
365,000 689,000
Less accumulated
amortization 112,000 172,000
$253,000 $517,000
(6) Patent Defense Costs
During fiscal years ended October 31, 1995 and 1994, the Company
incurred legal fees and other associated costs of approximately
$896,000 and $687,000, respectively, to defend its proprietary
patents related to certain of its cellular products. Such costs
have been charged to operations in the accompanying financial
statements. The Company was unsuccessful in its defense of these
patents (see note 17).
(7) Major Customers, Geographic Segment Information and Export
Revenues
Revenues in excess of 10% of the Company's total revenues were
attributable to sales to four and two major customers for the
years ended October 31, 1995 and 1994,respectively. These
individual major customers accounted for sales of approximately
$286,000 (29%), $144,000 (15%), $134,000 (14%) and $103,000 (11%)
in fiscal year 1995 and $1,233,000 (38%) and $369,000 (11%) in
fiscal year 1994.
All revenues, operating profit (loss), assets and depreciation
expense are generated by operations located in the United States.
Financial information relating to export revenues for the years
ended October 31, 1995 and 1994 are as follows:
Geographic Segment Information
Export Revenues: 1995 1994
Brazil - $78,000
Canada - $ 3,000
Total - $81,000
(8) Notes Payable
On August 1, 1995, the Company signed a note 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 commence 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 principal amounts due under the aforementioned loan are as
follows:
1996 $110,000
1997 339,000
$449,000
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.
(9) Income Taxes
As discussed in note 1, the Company adopted Statement No. 109 as
of November 1, 1993. There was no cumulative effect of this
change in accounting for income taxes as of November 1, 1993.
There was no provision for income taxes for 1995 and 1994.
Income tax benefit for the years ended October 31, 1995 and 1994
differed from the amounts computed by applying the U.S. Federal
income tax rate of 34% to pretax loss as a result of the
following:
1995 1994
Computed tax
benefit at 34% $ (849,000) $(1,080,000)
Increase in income
taxes resulting
from:
Meals and
entertainment
expense 4,000 4,000
Increase in beginning
of the year balance
of the valuation
allowance for
deferred tax
assets 827,000 1,076,000
Other 18,000 -
$ - $ -
The significant components of deferred income tax expense for the
year ended October 31, 1995 and 1994 are as follows:
1995 1994
Increase in net
operating loss
carryforwards $(1,181,000) $(1,126,000)
(Increase) decrease
in inventory
capitalization
for tax purposes 119,000 (17,000)
(Increase) decrease
in reserve for
obsolete inventory 118,000 -
(Increase) decrease
in reserves for
inventory valuation 25,000 (9,000)
(Increase) decrease
in allowance for
doubtful accounts 8,000 (9,000)
Increase (decrease)
in various accruals
and reserves (55,000) 57,000
Increase in beginning
of the year balance
of the valuation
allowance for
deferred tax assets 972,000 1,160,000
(Increase) decrease
in difference
between book vs.
tax accumulated
depreciation 19,000 (32,000)
Difference in tax
vs. book treatment
of software
development costs (47,000) (12,000)
Other 22,000 (12,000)
- -
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at October 31, 1995 and 1994 are presented below:
1995 1994
Deferred tax assets:
Net operating
loss carry-
forwards $ 6,040,000 $ 4,860,000
Inventory
capitalization
for tax purposes - 119,000
Reserves for
inventory 8,000 163,000
Tax basis of software
development costs - 21,000
Allowance for
doubtful accounts 10,000 18,000
Amortization of
intangible assets 24,000 12,000
Book vs. tax basis
accumulated
depreciation - 19,000
Accruals and reserves 62,000 7,000
Other - 5,000
Total gross deferred
tax assets 6,144,000 5,224,000
Less valuation
allowance (6,144,000) (5,172,000)
Net deferred tax
assets - 52,000
Deferred tax
liabilities:
Tax basis of note
payable to VTL - (5,000)
Book vs. tax
treatment of
software
development
costs - $ (47,000)
Total gross deferred
tax liabilities - (52,000)
Net deferred tax
liability $ - $ -
At October 31, 1995, net operating loss carryforwards of
approximately $15,000,000 are available for future reduction of
any Federal taxable income for income tax reporting purposes.
Such carryforwards expire in the years 2005 through 2011 and may
be subject to annual limitations which may be imposed under
Section 382 of the Internal Revenue Code of 1986.
(10) Net Loss Per Share
Net loss per common and common equivalent share for the years
ended October 31, 1995 and 1994 is based upon the weighted
average number of shares outstanding and the equivalent shares
from stock options and warrants. In 1995 and 1994, the Company
has not included options and warrants in its calculation of
weighted average number of shares outstanding due to the anti-
dilutive effect of this calculation. The determination of such
shares used in computation of per share data is as follows:
Twelve
months Weighted Equivalent
ending ave. no. shares from
October shares dilutive Total
31, 1995 outstanding stock opt. shares
Primary 5,450,430 - 5,450,430
Fully
diluted 5,450,430 - 5,450,430
Twelve
months
ending
October
31, 1994:
Primary 4,160,060 - 4,160,060
Fully
diluted 4,160,060 - 4,160,060
(11) Stock Offerings
On September 29, 1995, the Company completed a private placement
of 14,674,917 restricted shares of unregistered common stock. The
closing price of $.20 per share represented the fair value of the
restricted common stock at that time. The Company received
$2,935,000, less placement agent commissions of approximately
$205,000 and certain other professional fees of $19,000. In
addition, the placement agent was granted five year warrants to
purchase 1,027,244 shares of the Company's common stock at a
price of $.20 per share. The proceeds were used to repay bridge
loan financing extended to the Company, fund completion of
development of a Company product, and to meet anticipated cash
flow needs. These shares also contain certain registration rights
which include, generally: (i) that the investors, as a class,
will have the right to demand registration to be implemented by
notice to the Company by a majority interest of the investors of
their desire to sell their shares; (ii) the right will continue
until public sale under Rule 144(k) under the Securities Act of
1933, as amended, and is available to all investors who are not
affiliates of the Company, for three years from closing; and
(iii) during this period, investors will have the right to
participate in a public offering by the Company of its shares of
common stock, subject to underwriter's cut back.
During 1995, the Company issued 75,000 shares of common stock to
its directors in lieu of cash for their annual director fees.
The shares were issued at $.50 per share, and the related
director fee expense has been recognized in the accompanying
financial statements.
On February 15, 1994, the Company adopted the first amendment to
the Class A warrant agreement. This amendment extended the life
of the Class A warrants to February 15, 1995.
During fiscal year 1993, the Company completed a private
placement of 1,000,000 restricted shares of unregistered common
stock. The closing price was $2.05 per share which represented
the estimated fair value of the restricted common stock at that
time. The Company received $2,050,000, less placement agent's
commission of approximately $137,000 and certain other
professional fees of $139,000. In addition, the placement agent
was granted five year warrants to purchase 70,000 shares of the
Company's common stock at a price of $2.05. The proceeds were
used to fund the purchase of the tangible and intangible property
of United Identification Systems Corporation (see note 2), reduce
current liabilities and increase working capital. These shares
also contain certain registration rights which include,
generally: (i) that the investors as a class will have the right
to demand registration to be implemented by notice to the Company
by a majority interest of the investors of their desire to sell
their shares; (ii) the right will continue until unrestricted
public sale is available to all investors, three years from
closing; and (iii) during this period, investors will have the
right to participate in a public offering by the Company of its
shares of common stock, subject to underwriter's cut back.
In addition, the Company granted to the purchasers of the
aforementioned shares of unregistered stock, escrow warrants
which entitle the holders to purchase 225,000 shares of common
stock for $2.05 per share for a period of five years if: (i) the
final maturity of the redeemable Class A or Class B warrants is
extended beyond February 15, 1994; or (ii) any of the outstanding
redeemable Class A warrants are exercised, in which case the
escrow warrants will be released, thereby becoming exercisable,
in the same proportion which the number of redeemable Class A
warrants exercised years to the total number of redeemable Class
A warrants outstanding.
At October 31, 1995, the Company has outstanding warrants in the
following amounts exercisable through the following dates:
1. Warrants to purchase 225,000 shares at an exercise price
of $2.05 and expiring in 1998;
2. Warrants to purchase 70,000 shares at an exercise price of
$2.05 and expiring in 1998;
3. Warrants to purchase 100,000 shares at an exercise price
of $1.00 and expiring in 1999, issued to lenders with
respect to a bridge loan extended to the Company in
September of 1994;
4. Warrants to purchase 275,000 shares at an exercise price
of $0.50 and expiring in 2000, issued to lenders with
respect to a bridge loan extended to the Company in July of
1995;
5. Warrants to purchase 2,233,800 shares of common stock (the
"Class A warrants"). The Class A Warrants by the terms of
the original warrant agreements and first amendment have
expired.
The warrant agreement has been amended a second time by the
Company to extend, but change the exercise terms of Class A
warrants. The Class A warrants are exercisable as follows:
for four warrants and $1.75, the holder can obtain one share
of common stock; 558,450 shares are therefore issuable with
respect to the Class A warrants. The Class A Warrants
expire in February of 1996; and
6. Warrants to purchase 1,027,244 shares exercisable at $0.20
have been issued to the 1995 Private Placement Agent and
expire in September of 2000.
(12) Stock Options
The Company has outstanding options pursuant to its Incentive and
Executive Stock Option Programs to purchase a total of 462,001
shares, including options to purchase 143,333 shares at prices
ranging from $0.84 to $1.44 which expired in October 1995,
options to purchase 268,668 shares at $0.84 to $2.56 and expiring
between 1996 and 1998, and options to purchase 50,000 shares at
$1.44 and expiring in 2008. There are also outstanding three
options to acquire a total of 300,000 shares held by directors at
prices ranging from $2.62 to $2.69 and expiring by 2000. In
addition, the Company has issued an option expiring in 2000 to
purchase 100,000 shares at $0.50 per share to a former employee.
There are 195,000 other options presently outstanding with
exercise prices ranging between $2.00 and $2.63 and expiring by
1999. All options outstanding at October 31, 1995 are
exercisable.
(13) Going Concern and Liquidity
Losses accumulated during the fiscal year and accumulated losses
to date have had a significant adverse impact on the Company's
financial position. The Company believes that internally
generated funds from anticipated sales, continuing cost
reductions and the capital generated from the sale of a product
line in addition to funds raised in the 1995 private placement
(note 11) should be sufficient to supply the working capital
needed to carry on its operations throughout fiscal 1996. The
Company is continuing to pursue additional revenues to supplement
its current working capital, including possible joint ventures
and the placement of debt and/or equity securities. There can,
however, be no assurance that the Company will be successful in
generating sufficient capital and/or obtaining a credit facility
or obtaining additional equity funds during fiscal 1996 which
will be sufficient for all projected and/or unforeseen cash
needs.
(14) Benefit Plans
401(k) Plan:
The Company maintains a 401(k) plan for all of its employees.
Under the 401(k) plan, for each dollar contributed by an employee
to a retirement savings account in any year (which may not be
less than 2% nor more than 17% of the employee's annual
compensation), the Company contributes $.50. Such amount is
limited to a maximum of 3% of the employee's direct compensation
for that year. Participants are fully vested in the 401(k) plan
at all times for those amounts attributable to their own
contributions and Company contributions. The Company's
contribution to the plan was $8,000 and $27,000 for the years
ended October 31, 1995 and 1994, respectively.
(15) Commitments and Contingencies
On November 1, 1993, the Company entered into employment
agreements with two officers of the Company which run through
December 31, 1995. The agreements provide for: (i) compensation
at a specified rate; (ii) incentive compensation upon meeting
specified revenues and cash flow levels; and (iii) participation
in the Company's Restated Executive Plan.
In 1991, the Company extended employment contracts to selected
employees which run through December 31, 1995. These contracts
provide for minimum base salaries plus additional amounts based
upon attaining specific fiscal year performance levels. In
addition, each employment contract contains "change in control"
provisions (as defined) that would entitle the employee to
receive predetermined pay benefits if there is a "change in
control" in the Company and a termination of employment. Such
contracts have expired as of October 31, 1995 or have been
renegotiated in connection with terminations.
(16) 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.
(17) Litigation
In January 1995, the Company settled litigation pending with a
former employee of the Company (See note 12). As part of the
settlement, this employee agreed to forego all his prior options,
and was issued 100,000 new options immediately exercisable at
$.50 per share, expiring five years from the date of issuance.
The additional costs of this settlement have been recognized in
the Company's financial statements.
A judgment has been entered against the Company in the current
fiscal year in connection with litigation relating to the
exercise of warrants. The judgment of approximately $195,000 has
been accrued in the Company's financial statements. The Company
is currently appealing this decision.
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 has been settled
by transferring $121,000 in inventory to the Plaintiff. The
remainder of the judgment was settled by a cash payment
subsequent to year end. All amounts of the settlements have been
fully accrued in the accompanying financial statements.
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.
(18) 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. The breakdown
of related party billings for the year ended October 31, 1995 is
as follows:
Programming
Engineering $666,000
Pass-through
Billings:
Legal $14,000
Hardware 80,000
UPS 2,000
Travel 47,000
Total 143,000
Business Plan
& Materials 39,000
Total Olmsted Billings $848,000
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.
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. 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.
(19) Subsequent Events
On November 11, 1995 a judgment relating to pending litigation
was entered against the Company in an amount of approximately
$195,000 (see note 17). The Company was required to segregate
and restrict funds in an amount sufficient to cover this
judgment, and has done so subsequent to October 31, 1995. The
Company has filed an appeal in this matter (see note 17).
On January 11, 1996 the Company tendered final payment relating
to the satisfaction of a judgment for patent infringement against
the Company (see note 17).
On January 26, 1996 the Company entered into an agreement to
lease building space from an officer of the Company (see note
18). The term of the lease commitment is five 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 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, and designated
for issuance to employees for future incentive plans. 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 five years from the date of issuance.
Item 8 - Changes in and Disagreement with Accountants on
Accounting and Financial Disclosure
None.<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders Versus Technology, Inc.:
We have audited the financial statements of Versus Technology,
Inc. as listed in the accompanying index. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Versus Technology, Inc. as of October 31, 1995 and 1994, and
the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting
principals.
As discussed in note 1 to the financial statements, as of
November 1, 1994, the Company adopted the provisions of Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes".
The accompanying financial statements have been prepared assuming
that Versus Technology, Inc. will continue as a going concern.
As discussed in note 13 to the financial statements, the Company
has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in note 13. These financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Princeton, New Jersey
February 9, 1996
<PAGE>
Market for Issuer's Common Equity and Related Stockholder
Matters:
Until recently, the Company's Common Stock was traded over the
counter on NASDAQ under the trading symbol "VSTI." These
securities are not currently listed, as the Company for a period
of time did not meet the balance sheet requirement of NASD. At
present, the Company does not currently meet the NASD's minimum
per-share price requirements for new listings and therefore has
not been relisted. The Company intends to apply for NASDAQ
relisting of its common stock as soon as all of the NASD
requirements are again met. The common stock is traded over the
counter by several market makers through the NASDAQ Bulletin
Board.
The price ranges presented below represent the high and low bid
prices during each quarter. Quotations reflect interdealer
prices without retail mark-up, mark-down or commission and may
not represent actual transactions.
Fiscal quarter ended:
Bid Information
Common Stock
High Low
January 31, 1995 $ 7/8 $ 3/8
April 30, 1995 3/8 1/4
July 31, 1995 9/16 1/4
October 31, 1995 17/32 3/8
January 31, 1994 $3 $2 5/16
April 30, 1994 2 11/16 1 3/8
July 31, 1994 1 7/8 1 1/8
October 31, 1994 1 3/8 3/4
As of January 31, 1996, the Company had 254 holders of records of
its common stock and its bid price was 3/8.
To date, the Company has not declared or paid any dividends with
respect to its common stock, and the current policy of the board
of Directors is to retain any earnings to provide for the growth
of the Company. Consequently, no cash dividends are expected to
be paid on the common stock in the foreseeable future.
The Class A warrants, as last extended by the Board of Directors,
expired on February 15, 1996.
<PAGE>
Versus Technology, Inc.
Board of Directors
Owen O. Freeman, Jr.(1),(2)
Chairman of the Board
Commonwealth State Bank
Julian C. Schroeder(1),(2)
President and
Director of Research
BDS Securities Corporation
Gary T. Gaisser
CEO and President
Versus Technology, Inc.
John G. Ross(1),(2)
Member New York Stock Exchange
Retired Vice President
Paine Webber Specialists, Inc.
(1) Compensation Committee Member
(2) Audit Committee Member
Officers
Gary T. Gaisser
President and CEO
Debra A. Boyer
Treasurer, Secretary, and
Chief Financial Officer
Stock Trading
The Company's Common Stock is traded
over the counter by several market
makers through the NASDAQ Bulletin
Board.
Transfer Agent and Registrar
American Stock Transfer
and Trust Company
New York, New York
Independent Auditors
KPMG Peat Marwick LLP
Princeton, New Jersey
Annual Report/Form 10-KSB
<PAGE>
A copy of the Company's Annual
Report (Form 10-KSB) as filed with
the Securities and Exchange
Commission is available by
submitting your written request to:
Versus Technology, Inc.
Attn: Debra A. Boyer
Chief Financial Officer
2320 West Aero Park Court
Traverse City, MI 49686
<PAGE>
Versus Technology, Inc.
2320 W. Aero Park Court
Traverse City, MI 49686
Phone (616) 946-5868
Fax (616) 946-6775
