<PAGE>
As filed with the Securities and Exchange Commission on May 8, 1997.
Registration No. 333-23363
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO 1 to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VERSUS TECHNOLOGY, INC.
(Name of small business issuer as specified in its charter)
Delaware 3669 22-2283745
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
2600 Miller Creek Road, Traverse City, Michigan 49684
(616) 946-5868
(Address and telephone number of principal executive offices)
2600 Miller Creek Road, Traverse City, Michigan 49684
(616) 946-5868
(Address of principal place of business or
intended principal place of business)
Gary T. Gaisser, Versus Technology, Inc.
2600 Miller Creek Road, Traverse City, Michigan 49684 (616) 946-5868
(Name, address and telephone number of agent for service)
Copies to:
WILLIAM F. CAMPBELL, III
Dillon, Bitar & Luther
53 Maple Avenue
Morristown, New Jersey 07963-0398
(201) 539-3100
Approximate Date of Proposed Sale to the Public: From time to time
after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<PAGE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registra-
tion statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.<PAGE>
<PAGE> 1
Prospectus Subject to Completion Dated May 8, 1997
[Red Herring Legend]
12,648,000 Shares
VERSUS TECHNOLOGY, INC.
Common Stock, $.01 Par Value
This prospectus relates to 12,648,000 shares (the "Shares") of common
stock, $.01 par value (the "Common Stock"), of Versus Technology, Inc., a
Delaware corporation (the "Company"). The Shares are outstanding shares of
Common Stock, or will be outstanding shares of Common Stock acquired upon
exercise of an option, owned by the persons named in this Prospectus under the
caption "Selling Stockholders." The Shares were acquired by the Selling
Stockholders in various transactions, all of which were exempt from the
registration provisions of the Securities Act of 1933, as amended (the "1933
Act"), including sales of the Shares in private placements by the Company, by
the issuance of Shares in a merger, by the issuance of Shares in exchange for
intellectual property and by the issuance of Shares to an existing debt
holder.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 HEREOF FOR A DISCUSSION OF
CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
The Selling Stockholders may from time to time sell the Shares using
the OTC Bulletin Board, on any other national securities exchange or automated
quotation system on which the Common Stock may be listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Shares may be sold
directly or through brokers or dealers. See "Plan of Distribution."
The Company will receive no part of the proceeds of any sales made
hereunder. See "Use of Proceeds." All expenses of registration incurred in
connection with this offering are being borne by the Company, but all selling
and other expenses incurred by the Selling Stockholders will be borne by the
Selling Stockholders. See "Selling Stockholders."
The Selling Stockholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the
meaning of the 1933 Act, and any commissions or discounts given to
any such broker-dealer may be regarded as underwriting commissions or
discounts under the 1933 Act.
The Shares have not been registered for sale by the Selling Stockholders
under the securities laws of any state as of the date of this Prospectus.
Brokers or dealers effecting transactions in the Shares should confirm the
registration thereof under the securities laws of the States in which
transactions occur or the existence of any exemption from registration.
The Common Stock is traded on the OTC Bulletin Board under the
symbol "VSTI." The closing bid and asked prices of the Common Stock as
reported on the OTC Bulletin Board were $.53 and $.56 respectively on April
25, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ______________<PAGE>
<PAGE> 2
[Black Border]
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information including Risk Factors and Financial Statements, including the
Notes thereto, appearing elsewhere in this Prospectus.
The Company
Versus Technology, Inc. ("Versus" or the "Company") is a Delaware
corporation incorporated in 1988. Its principal business is the development
and sale of infrared tracking ("IR Tracking") systems. These systems utilize
infrared "badges" and sensors and a computer interface to monitor and locate
people and equipment and for other security related purposes. Olmsted
Engineering Co. ("Olmsted"), a recently-acquired, wholly-owned subsidiary of
Versus, has acted as a consultant to Versus with respect to IR Tracking, and
markets ACU.CARV(TM), an integrated family of computer aided manufacturing
programs used to operate numerically controlled cutting machines for the tool
and die industries. The Company also manufactures and markets cellular alarm
transport ("CAT") products to provide a cellular communication pathway for
connected alarm panels as a back up or replacement for land-based telephone
alarm lines.
The Company's offices are located at 2600 Miller Creek Road, Traverse
City, Michigan 49684. The telephone number is (616) 946-5868.
The Selling Shareholders
Pursuant to private placements of its securities in 1995 and 1996 the
Company entered into registration rights agreements with these purchasers of
the Company's Common Stock. Additional restricted shares were received by
Olmsted shareholders in the recent merger. Restricted shares were sold to
Precision Tracking FM, Inc. ("PTFM") to acquire certain intellectual property
used in the infrared tracking business. Restricted shares were delivered in
satisfaction of the indebtedness owed to one other person. These shares will
from time to time be offered for resale by the Selling Shareholders (see
"Selling Shareholders"). In addition, the Company has outstanding an employee
stock option held by an affiliate which may be exercised in the future. All
of the net proceeds of the offering will be received by the Selling
Shareholders of these securities. The total number of shares which may be
offered pursuant to this Prospectus is 12,648,000 shares of Common Stock. Of
these shares, 1,600,000 are restricted from sale prior to October 1, 1997.
2<PAGE>
<PAGE> 3
[Black Border]
<TABLE>
Summary Financial Data
Three Months Ended Years Ended
January 31, October 31,
1997 1996 1996 1995
____ ____ ____ ____
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales ................. $ 391,000 $ 35,000 $ 348,000 $ 989,000
Gross Profit............... 201,000 6,000 123,000 489,000
Operating Loss............. (428,000) (402,000) (2,030,000) (3,310,000)
Net Loss................... (394,000) (385,000) (2,006,000) (2,497,000)
Net Loss per Share......... (.01) (.02) (.09) (.46)
Weighted average common
and common equivalent
shares................... 36,550,700 18,910,697 21,860,076 5,450,430
As of As of
January 31, 1997 October 31, 1996
________________ ________________
Balance Sheet Data:
Working Capital............. $3,215,000 $4,076,000
Total Assets................ 9,539,000 8,787,000
Long-Term Debt.............. -- --
Shareholders' Equity........ 8,140,000 7,521,000
</TABLE>
Risk Factors
An investment in the Common Stock offered by this Prospectus involves a
high degree of risk. Risks involved in an investment in the Common Stock
include, without limitation: risks relating to the Company's history of
operating losses; risks relating to the emerging market for infrared tracking
systems and to the Company's dependence upon this area of product
concentration; risks relating to litigation in which the Company is presently
involved; risks involving a class of expired warrants; risks relating to rapid
technological change; risks relating to future capital needs and uncertainty
of additional funding; risks relating to reliance upon third-party re-sellers;
risks relating to dependence upon key personnel; risks relating to the
management of growth; risks relating to limited protection of proprietary
technology; risks relating to control of the Company by its primary
stockholders; risks relating to the anti-takeover provisions contained in the
Certificate of Incorporation; risks relating to the limited market for the
Company's Common Stock and its volatility; risks relating to the fact that the
Company's stock constitutes a low-priced security; risks relating to sales of
the Common Stock issued upon execution of options and warrants and other
shares of restricted common stock; and risks relating to the Company's absence
of dividends.
3 <PAGE>
<PAGE> 4
RISK FACTORS
In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the Shares offered hereby. A
purchase of the Shares offered hereby is speculative in nature and involves
a high degree of risk. No purchase of the Shares should be made by any person
who is not in a position to lose the entire amount of such investment.
Risks Relating to History of Operating Losses
The Company is subject to risks associated with technology companies,
including losses related to new ventures, uncertainty of revenues,
profitability and the need for additional funding. The Company has a history
of operating losses. The Company has incurred a loss of $2,006,000 in the
fiscal year ended October 31, 1996. There can be no assurance that new
product sales will be profitable, that existing product sales will either
continue at historical rates or increase, that the Company will achieve
profitable operations, or that new products introduced by the Company will
achieve market acceptance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Risks Relating to Emerging Market; Product Concentration
The market for infrared tracking systems is emerging. To date, the
demand for infrared tracking systems has been limited to hospital markets and,
in this market, sales to date have been limited. There can be no assurance
that the market for such products will grow at a rate sufficient to support
the Company's business. The Company expects that its revenues will become
dependent upon IR Tracking Systems. A failure to achieve substantial sales of
IR Tracking Systems, as a result of competition, technological change or other
factors, would have a material adverse effect on the Company's results of
operations in the future.
Risks Relating to Litigation
The Company was unsuccessful in defending a claim, brought by a prior
warrantholder, that it had improperly failed to adjust a warrant exercise
price of now-expired warrants and that the warrantholder was damaged thereby.
This warrantholder held 300,000 warrants and recovered a judgment for
$195,000. Two additional actions have been filed as class actions on behalf
of the remaining holders of 1,933,800 warrants. If either of these class
actions were certified and if the plaintiffs were as successful as the first
plaintiff, the Company could have an actual exposure exceeding $1,250,000.
See "Legal Proceedings".
Risks Relating to Rapid Technological Change; Reliance on Continued Product
Development
The infrared technology industry in general is characterized by rapidly
changing technology. The Company must continuously update its existing and
planned products to keep them current with changing technologies and must
develop new products to take advantage of new technologies that could render
the Company's existing products obsolete. The Company's future prospects are
highly dependent on its ability to increase the functionality of its
products in a timely manner and to develop new products that address new
technologies and achieve market acceptance. There can be no assurance that the
Company will be successful in these efforts. If the Company were unable to
develop and introduce such products in a timely manner, due to resource
4<PAGE>
<PAGE> 5
constraints or technological or other reasons, this inability could have a
material adverse effect on the Company's results of operations. Due to the
uncertainties associated with the Company's emerging market, there can be no
assurance that the Company will be able to forecast product demand accurately
or to respond in a timely manner to changing technologies and customer
requirements.
Risks Relating to Future Capital Needs and Uncertainty of Additional Funding
The Company has expended, and will continue to expend in the
future, substantial funds to complete the research, development, manufacturing
and marketing of its products. Based on its current staffing level and
product development schedule, the Company anticipates that its working capital
and funds anticipated to be derived from operations should be adequate to
satisfy its capital and operating requirements during the current fiscal year.
This estimate is based upon the assumptions that sales meet internal
projections. Adequate funds, whether through financial markets or from other
sources, may not be available when needed or on terms acceptable to the
Company. In the event that the Company is not able to obtain additional
funding on a timely basis, the Company may be required to scale back or
eliminate certain or all of its development, manufacturing or marketing
programs or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop, manufacture or
market itself. Any of these actions could have a material adverse effect on
the Company's results of operations, in order to satisfy its capital and
operating requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Risks Relating to Reliance on Third Party Reseller
The Company sells its IR Tracking Systems through a third party.
Accordingly, the Company is dependent on the continued viability and financial
stability of this reseller, Marquette Electronics, Inc. There can be no
assurance that the Company's reseller will continue to purchase the Company's
products or provide them with adequate levels of support. The loss of, or a
significant reduction in sale volume to the Company's reseller could have a
material adverse effect on the Company's results of operations. See "Business
- -- Marketing and Business."
Risks Relating to Dependence on Key Personnel
The Company has a small core management and development team and the
unexpected loss of any of these individuals would have a material adverse
effect on the Company's business and results of operations. Gary T. Gaisser
(President, Chief Executive Officer and Director) has an employment contract
with the Company which contains a non-competition covenant in the event of
voluntary termination. The enforceability and scope of this employment
agreement are subject to judicial interpretation and therefore may not be
enforceable as written. At present, there is no key-man insurance in place
for any members of the Company. See "Management."
Risks Relating to Management of Growth
The Company has recently expanded its core operations. The growth of the
Company's business has placed, and if sustained will continue to place a
substantial burden on its managerial, operational, financial and information
systems. In particular, the growth of the Company's business has required
and, if sustained, will continue to require the employment of additional
engineering personnel. There can be no assurance that the Company will be
5<PAGE>
<PAGE> 6
able to hire employees with the necessary qualifications. The future success
of the Company also depends upon its ability to attract and retain highly
skilled managerial, sales, marketing and operations personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. There can be
no assurance that the Company's management will be able to manage future
expansions, if any, successfully, or that its management, personnel or systems
will be adequate to support the Company's operations or will be implemented in
a cost-effective or timely manner. The Company's success depends, to a
significant extent, on the ability of its executive officers and other members
of senior management to respond to these challenges effectively. The
Company's inability to manage growth effectively could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Management."
Risks Relating to Limited Protection of Proprietary Technology
The Company regards its technology as proprietary and attempts to
protect it under applicable patent, copyright and trade secret laws as well as
through contractual restrictions on disclosure, use and distribution. There
can be no assurance that patents will not be challenged or that trade secrets
will remain undisclosed, that its non-disclosure agreements will not be
breached, that there will be adequate remedies for any such breach, or that
the Company's systems, processes and operations will not be reverse engineered
or independently developed. It may be possible for unauthorized third parties
to copy the Company's products (notwithstanding the existence of any
nondisclosure agreement) or to reverse engineer or obtain and use
information that the Company regards as proprietary. There can be no
assurance that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technologies. Any access to or use by competitors of the Company's technology
could have a material adverse effect on the Company. In addition, the Company
is not aware of any claims that it is infringing intellectual property rights
of third parties, but there can be no assurance that the Company will not face
a claim that it is infringing the intellectual property rights of others.
There can be no assurance that the Company will be successful in any resulting
litigation or obtain a license on commercially reasonable terms, if at all, or
will not be prevented from engaging in certain activities. Defense and
prosecution of infringement claims can be expensive and time consuming,
regardless of outcome, and can result in the diversion of substantial
financial management and other resources of the Company. In addition, the
laws of certain countries in which the Company's products are or may be
distributed do not protect the Company's products and intellectual rights
to the same extent as the laws of the United States.
Risks Relating to Control by Existing Stockholders; Anti-Takeover Provisions
The Company's directors and officers taken as a group beneficially own in
the aggregate approximately 23.9% of the Company's outstanding Common Stock.
Certain principal stockholders are directors or executive officers of the
Company. As a result of such ownership, these stockholders will be able to
exercise a degree of control with respect to matters requiring approval by the
stockholders of the Company, including the election of directors. In
addition, certain provisions of Delaware law could have the effect of making
it more difficult or more expensive for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
6<PAGE>
<PAGE> 7
Risks Relating to Limited Market for Common Stock; Possible Volatility of
Stock Price
The Common Stock is not currently traded on any exchange or quoted on the
NASDAQ National or Small Cap markets. Trading is presently conducted through
broker dealers on the NASDAQ Bulletin Board. No assurance can be given that
an active public market will exist in the future. Factors such as
announcements of the introduction of new or enhanced products by the Company
or its competitors and quarter-to-quarter variations in the Company's results
of operations, as well as market conditions in the technology and emerging
growth company sector, may have a significant impact on the market price of
the Company's shares. Further, the stock market has experienced volatility
that has particularly affected the market prices of equity securities of many
high technology companies and that often has been unrelated or
disproportionate to the operating performance of such companies. These market
fluctuations may adversely affect the price of the Common Stock.
Risks Relating to Investment in Low-Priced Securities
The market for low-priced securities, securities which typically sell for
less than $5.00 per share, has been the subject of a number of regulatory
developments which increase the regulatory compliance obligations of companies
regularly marketing low-priced securities. The Common Stock presently trades
below $1.00 per share. Thus, it is less likely that broker dealers will make
a market and/or otherwise trade in the Company's securities as compared with
securities for which the stock price is in excess of $5.00 per share. This
may affect the breadth of the market for the Common Stock and also affect the
price at which the Common Stock may trade.
Risks Relating to Sales of Common Stock Issuable Upon Exercise of Options and
Warrants and Sales of Other Shares.
The Company currently has outstanding stock options to purchase
1,200,000 shares of Common Stock and warrants to purchase 2,013,969 shares of
Common Stock, none of which are registered hereunder. The Company also has
outstanding 11,477,889 shares issued in September of 1995 and 8,386,076 shares
issued in August of 1996 of restricted common stock not registered hereunder.
Subsequent to the exercise of such options and warrants and to the issuance of
shares of Common Stock thereunder, such shares and these other restricted
shares may be offered and sold by the holders thereof subject to the
provisions of Rule 144 under the Securities Act, or pursuant to an effective
registration statement filed by the Company. The sale or potential sale of
these shares of Common Stock could have the effect of reducing the market
price of the Company's Common Stock. In addition, 1,600,000 of the shares
registered hereunder may not be sold until October 1, 1997.
Risk Relating to No Dividends.
The Company has never declared or paid dividends on its Common Stock
since its formation. The Company currently does not intend to pay dividends
in the foreseeable future. The payment of dividends, if any, in the future
will be at the discretion of the Board of Directors.
7<PAGE>
<PAGE> 8
USE OF PROCEEDS
All of the Shares offered hereby are being offered by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale
of the Shares. See "Selling Stockholders."
SELLING STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
which may be offered for sale from time to time by the Selling Stockholders.
Except as set forth below, none of the Selling Stockholders has held any
position or office with the Company within the last three years. Other than
the relationships described below, none of the Selling Stockholders have any
material relationship with the Company or have had such relationship within
the last three years.
Shares Owned and
Selling Stockholder Being Offered
Albin, Jonathan & Michelle, JTWROS 14,000
Alan W. Steinberg Limited Partnership 500,000
Barrows, Robert L. 60,000
Barrows, June H. 100,000
Barrows, Donna E. 70,000
Bendix, Richard 10,000
Berg, Sam L. TR 10,000
Bernat, Marcelo 20,000
Boul, David 10,000
Broh, Irwin & Sybil, JTWROS 10,000
Clair, Ron C. 100,000
Cohen, Michael 10,000
Cole, Abby 10,000
Collins Group Trust III 200,000
Couderay Partners 20,000
Coulter, Wallace Living TR DTD 8/2/93 50,000
Daly, Jerome & Susan K. JTWROS 25,000
Devaco, c/o Moira Fahey, LaSalle National Trust 400,000
Donahue, Toni 50,000
Eidelman, David R. 50,000
Eisenberg, Cherie 6,000
Eisenberger Investments 67,000
Esposito, Phyllis M. 100,000
Esposito, Helen R. 50,000
Feldman, Roberta, Dr. 10,000
Finney, Stanford D., Jr. 100,000
Frappier, Robert E. 20,000
Goodman Partners III 20,000
Grammes, Mark R. 50,000
Gray, Ronald 40,000
8<PAGE>
<PAGE> 9
Shares Owned and
Selling Stockholder Being Offered
Hager, Lloyd Revocable Trust 50,000
Harris, William W. Trust 200,000
Harris, Joshua Declar. of Trust 10,000
Herzog I 30,000
Herzog, David 58,000
Herzog, David C/F Mordechi Herzog UGMA NY 5,000
Herzog, Philip & Tova, JTWROS 15,000
Herzog, Rina 10,000
High View Fund, L.P., The 325,000
High View Fund, L.L.C., The 325,000
Irving Harris Foundation B 50,000
Irving Harris Foundation A 50,000
Isaacs, David 10,000
Jones-Hall, Yvonne B. 25,000
Kallis, Rosamond IRA Trust 25,000
Kaplan, William and Pearson, Diane 6,000
Katz, Philip 47,000
Kramer, Neil PS TR 10,000
Kupferberg, Lloyd 10,000
Landau, Howard Trust DTD 12/19/87 10,000
Lewis, B. Franklin & Leona S. TTEES BF&LS 80,000
Lewis Charitable Remainder Untrust
Lieberman, Dorothy Def. Benefit 200,000
Lisco, Lynne TR 5,000
Livingston, Patricia 10,000
Livingston, Frederick III 5,000
Lund, Charles and Jane Ten Cm. 10,000
Mann, Robert, Rev TR DTD 3/13/91 40,000
Marks, John 25,000
McHugh, Fred & Judy JT WROS 20,000
Menoutis, Monique 10,000
Merrill Lynch Special Value Fund, Inc. 4,500,000
Mesnick, Paul S. 20,000
Metzner, Mark J., Trustee 40,000
Miller, Lloyd I. 160,000
Mitchell, Richard Craig TR of 1994 10,000
Nersessian, Edward Dr. MMP 100,000
Nersessian, Gregory 10,000
Nersessian, Mary Luallen PSP 50,000
Nersessian, Mary Luallen MMP 50,000
Nersessian, Caroline 10,000
Nersessian, Anna 10,000
Nersessian, Edward and Mary JTWROS 70,000
Nersessian, Edward M.D., PSP 180,000
Nersessian, Edward M.D., Profit Sharing Plan 50,000
Ollech, Rickie 5,000
9<PAGE>
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Shares Owned and
Selling Stockholder Being Offered
Pelts, James J. 30,000
Penchina, Meira A., Ttee Meira S. Penchina
Revocable Family Trust 20,000
Precision Tracking, FM, Inc.* 1,600,000
Rainbow Trading Partners, Ltd. 100,000
Rainbow Trading Venture Partners, L.P. 100,000
Rakietein, Ellen 20,000
Rosbrow, Patricia J. 30,000
Roskin, Doris De Woskin 40,000
Royal Wine Corp. PSP 25,000
Samore, Richard 10,000
Schlesinger, Valerie Peck 10,000
Schnitzer, Thomas 1992 Declar. of TR 40,000
Schoenbrun, Arnold I. 20,000
Simon, Lori 20,000
Solomon, Gina 50,000
Solomon, Irwin PSP 50,000
Solomon, Irwin & Rebecca JT/WROS 70,000
Strasser, Jonathan 35,000
Teltser, Harold 10,000
Thunen, Garret and Carol, JT 500,000
Tucker, A. Robert & L. Jean TTEES 40,000
Winchester Surgical Clinic
Victor, Joan Berg 20,000
Wark, Mary Ann Barrows 40,000
Wellek, Elizabeth 40,000
Young, Nicholas and Mariann PC Defined Pension Trust 200,000
Young, Nicholas & Marianne JTWROS 150,000
Young, Nicholas and Marianne, JTWROS 100,000
Young, Nicholas and Marianne Defined Benefit Pension Plan 100,000
Zepick, Lyle F. 25,000
Zheutlin, Michael PS Retire Plan 20,000
Zuckerman, Max 10,000
_______________________________
*These shares may not be sold until October 1, 1997 - See "Business -
Intellectual Property"
10<PAGE>
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Pursuant to registration rights agreements entered into when certain
Selling Stockholders acquired their Shares, the Company agreed that after six
months and upon the making of certain demands, to file a registration
statement for the resale of such Shares and to use its best efforts to cause
such registration statement to be declared effective. Pursuant to those
agreements, the Company will pay all expenses in connection with the
registration of the Shares, but will not pay any selling commissions or
discounts allocable to sales of the Shares, fees and disbursements of counsel
and other representatives of the Selling Stockholders, and any stock transfer
taxes payable by reason of any such sale.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common
Stock and does not expect to pay cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain its earnings, if
any, for use in its business. Any dividends declared in the future will be at
the discretion of the Board of Directors.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Previously the Company's Common Stock was traded over the counter on
NASDAQ under the trading symbol "VSTI." Such securities are not currently
listed, as the Company for a period of time did not meet the balance sheet
requirement of the NASD. At present, the Company does not 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 of
the Company's Common Stock during each quarter. Quotations reflect
interdealer prices without retail mark-up, mark-down or commission and may not
represent actual transactions.
1997 1996 1995
Fiscal Quarter Ended: High Low High Low High Low
------ ----- ------ ----- ------ ---
January 31 29/32 1/2 17/32 3/8 7/8 3/8
April 30 7/8 3/8 3/8 1/4
July 31 29/32 21/32 9/16 1/4
October 31 1-1/16 21/32 17/32 3/8
As of April 25, 1997, the Company had 406 shareholders of record of
its Common Stock and the average of the bid and asked prices was $.625.
11<PAGE>
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SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with the Financial Statements and the Notes
thereto and the Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus. The
statement of operations data set forth below with respect to the year ended
October 31, 1995 and the year ended October 31, 1996 and the balance sheet
data at October 31, 1995 and 1996 are derived from, and are qualified by
reference to, the audited financial statements and notes thereto included
elsewhere in this Prospectus. The selected financial data presented below for
the three months ended January 31, 1997 and 1996 was derived from unaudited
financial statements and notes thereto included elsewhere in this Prospectus.
In the opinion of the Company, all unaudited consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information for the unaudited
interim periods presented. The results of operations for the three months
ended January 31, 1997, are not necessarily indicative of the results to be
expected for the full year.
<TABLE>
Three Months Ended Years Ended
January 31, October 31,
------------------ ------------------------------------------
(In Thousands) 1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $ 391 $ 35 $ 348 $ 989 $ 3,200 $ 5,009 $ 5,357
Cost of sales 190 29 225 500 1,928 2,129 2,706
Gross profit 201 6 123 489 1,272 2,880 2,651
Operating Expenses:
Research and development 98 160 432 957 500 154 142
Selling, general and
administrative 486 187 1,526 1,946 3,250 2,596 3,319
Litigation defense costs,
settlements and judgments 45 61 195 896 687 -- --
Total operating expenses 629 408 2,153 3,799 4,437 2,750 3,461
Income (loss) from operations (428) (402) (2,030) (3,310) (3,165) 130 (810)
Other income (expense):
Interest income 46 23 73 17 13 20 1
Interest expense (5) (1) (49) (19) (20) (12) (121)
Other (7) (5) -- 26 (4) -- 32
Gain on sale of subsidiary and
sale of product line -- -- -- 789 -- 490 245
Income (loss) before provision
for income taxes minority
interest and extraordinary
item (394) (385) (2,006) (2,497) (3,176) 628 (653)
Provision for income taxes -- -- -- -- -- (276) (52)
Minority interests -- -- -- -- -- -- (35)
Utilization of net operating
loss carryforward -- -- -- -- -- 276 --
Net income (loss) $ (394) $(385) $(2,006) $(2,497) $(3,176) $ 628 $ (740)
Income (loss) per share (.01) (.02) $ (0.09) $ (0.46) $ (0.76) $ 0.15 $ (0.28)
Shares used in computing
per share amounts 36,551 18,911 21,860 5,450 4,160 5,298 2,650
</TABLE>
<TABLE>
As of As of October 31,
January 31, 1997 1996 1995 1994 1993 1992
---------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $3,215 $ 4,076 $ 1,157 $ 145 $ 3,036 $ 355
Total assets 9,539 8,787 2,435 3,083 5,391 3,763
Total liabilities 1,399 1,266 1,361 2,236 1,376 2,443
Total shareholders' equity 8,140 7,521 1,074 847 4,015 1,320
</TABLE>
12<PAGE>
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section contains forward-looking statements regarding the Company's
business and financial condition. No assurance can be given that actual
results of operations will not differ materially from the forward-looking
statements contained herein. For a discussion of various factors which may
cause actual results to vary, see "RISK FACTORS" commencing at page 4 hereof.
The following discussion and analysis focuses on the significant
factors which affected the Company's consolidated financial statements during
fiscal year 1996 and the first quarter of fiscal year 1997, with comparisons
to fiscal 1995 and the first quarter of fiscal year 1996 where appropriate.
It also discusses the Company's liquidity and capital resources. The
discussion should be read in conjunction with the consolidated financial
statements and related notes thereto included elsewhere in this
Prospectus.
The following table sets forth selected financial data for the Company
for the periods indicated:
(in thousands except per share amounts)
Three Months Ended Year Ended October 31,
January 31,
1997 1996 1996 1995
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 391 $ 35 $ 348 $ 989
Net loss (394) (385) (2,006) (2,497)
Net loss per common share (.01) (.02) (.09) (.46)
Weighted average number of common
shares outstanding 36,551 18,911 21,860 5,450
BALANCE SHEET DATA:
Working capital $ 3,215 $ 4,076 $ 4,076 $ 1,157
Total assets 9,539 8,787 8,787 2,435
Total liabilities 1,399 1,266 1,266 1,361
Shareholders' equity 8,140 7,521 7,521 1,074
RESULTS OF OPERATIONS
Three Months Ended January 31, 1997 and January 31, 1996
- --------------------------------------------------------
Total sales for the first quarter of fiscal 1997 of $391,000 were
$356,000 above sales of $35,000 for the corresponding quarter in fiscal 1996.
This increase is primarily due to significant growth in sales of the infrared
tracking systems and Olmsted sales included in the first quarter 1997 that
were not included in the first quarter of 1996 (part of the acquisition). Of
the total sales in the first quarter of fiscal 1997, approximately 45% were
attributable to infrared tracking sales, 48% to Olmsted sales, and 7% to
cellular Sales. The Company is continuing its development and marketing of
infrared products and expects this product line to be the Company's primary
focus in fiscal 1997. The Company's marketing staff has now been developed,
and a distributor agreement has been established, which provide a foundation
for future marketing and sales efforts.
13<PAGE>
<PAGE> 14
Cost of sales as a percentage of sales in the first quarter of fiscal
1997 decreased to 49% from 83% for the same quarter in fiscal 1996. This
change was attributable to the increase in infrared sales and the inclusion of
Olmsted sales in first quarter fiscal 1997, both of which had a higher gross
profit margin.
The Company's selling, general and administrative expenses for the
first quarter of fiscal 1997 increased $299,000 or 109%, over the first
quarter of fiscal 1996. This increase was primarily due to the Company's
acquisition of Olmsted in August 1996, and the inclusion of the expenses for
Olmsted's operations in the consolidated financial statements in 1997.
Research and development expenses for the first quarter of fiscal 1997 were
$98,000 compared to $160,000 for the first quarter of fiscal 1996. The
Company's acquisition of Olmsted, the Company's primary source of research and
development for the IR Tracking System in the first quarter of fiscal 1996,
resulted in significantly reduced research and development costs in the first
quarter of fiscal 1997.
In the first quarter of fiscal 1997, other income, net increased
$17,000 or 100% from 1996 levels due primarily to the increase in interest
earned on the proceeds from the August 1996 private placement.
Fiscal Years 1996 and 1995
- -------------------------
During fiscal 1996, the Company experienced a net loss of $2,006,000
compared to a net loss of $2,497,000 for 1995. As discussed in more detail
below, the 1996 loss is primarily attributable to low sales levels, combined
with relatively high operating expenses, experienced as the Company
transitioned to its new product line, IR Tracking systems. Net loss per share
decreased from $.46 in 1995 to $.09 in 1996. As indicated by the increased
weighted average number of shares disclosed above, these per share numbers
were significantly impacted by the significant number of additional shares
issued during 1996 and 1995. Outstanding shares at October 31, 1996 totaled
36,543,573. This higher level of outstanding shares will affect future per
share calculations.
On August 26, 1996, the Company acquired Olmsted Engineering Co.
(Olmsted) in exchange for 6,379,889 shares of the Company's common stock,
valued for accounting purposes at $.50 per share, and cash of $65,000,
resulting in a total purchase price of $3,255,000. For accounting purposes,
the price of the acquisition was determined based upon a contemporaneous sale
of restricted common stock at $.50 per share. Olmsted's operating results
14<PAGE>
<PAGE> 15
have been included in the consolidated results of operations since the date of
acquisition and, as such, did not have a significant impact on results for the
year. Olmsted has served as the Company's research and development consultant
since 1994. The Company and its Board of Directors believe the acquisition
was critical to the continued development and success of the IR Tracking
system due to the long-term business relationships that have been developed by
Olmsted over the years, and the knowledge Olmsted gained as a consultant to
the Company when developing the IR Tracking system.
Net sales for fiscal 1996 were $348,000 or 65% below net sales of
$989,000 reported for fiscal 1995. This decrease of $641,000 resulted
primarily from the sale of the DCX product line in fiscal 1995 and to the
discontinuance of sales of certain cellular products during fiscal 1996. Net
sales related to cellular products and services were approximately $157,000 in
fiscal 1996, down approximately $598,000 or 79% from $755,000 reported in
fiscal 1995. Net sales attributable to the DCX product line in 1995, prior to
its sale, amounted to approximately $586,000. The remaining 1996 security
segment sales, amounting to $89,000, were IR Tracking system sales. Fiscal
year 1996 net sales also include approximately $102,000 from sales of software
and related services by the Company's subsidiary, Olmsted Engineering Co.
("Olmsted"), which was acquired by the Company in August 1996. This net sales
amount represented Olmsted's net sales from the acquisition date through year
end. Had all Olmsted net sales for the twelve months ended October 31, 1996,
except intercompany sales to Versus, been included in 1996 net sales, total
Olmsted net sales would have been approximately $522,000.
The Company has continued development of its infrared products during
fiscal 1996, focusing primarily upon infrared tracking systems which the
Company intends initially to market to the health care markets. The Company
markets infrared personnel/equipment tracking systems to health care providers
nationally under its marketing arrangement with Marquette Electronics, Inc.,
as discussed below.
Cost of sales as a percentage of net sales for fiscal 1996 increased to
65% from 51% in fiscal 1995. This increase is primarily due to temporary
changes in product mix concentrations in fiscal 1996. Cost of sales of
infrared product lines, as a percentage of net sales, are expected to be
significantly lower than total cost of sales as a percentage of net sales as
reported for fiscal 1996. Similarly, cost of sales of software and related
services of Olmsted are expected to be significantly less as a percentage of
sales.
Selling, general and administrative expenses were reduced in fiscal 1996
by approximately $420,000 or 22% from fiscal 1995. The decrease was primarily
due to the Company's continued downsizing of its sales, marketing and other
administrative functions during 1996 while it was preparing for market
introduction of its infrared tracking systems in November of 1996. Research
and development expenditures similarly were reduced by approximately $525,000
or 55% from fiscal 1995. That reduction was primarily the result of the
Company's completion of research and development associated with its existing
infrared tracking system product lines. Litigation defense costs, settlements
and judgments were reduced in fiscal 1996 by approximately $701,000 from
fiscal 1995, largely as a result of the settlement of pending litigation in
August 1995. Substantially all costs associated with that pending litigation
were expensed by the Company in fiscal 1995.
Interest income increased to $73,000 in fiscal 1996 from $17,000 in
fiscal 1995, primarily due to the deposit of proceeds from the Company's
private placement of its common stock into interest bearing accounts in late
fiscal 1996. Interest expense increased to $49,000 in fiscal 1996 from
15<PAGE>
<PAGE> 16
$19,000 in fiscal 1995. This increase is primarily attributable to a note
payable executed by the Company in August 1995, which matured in January 1997.
The reduction of $815,000 of other income in fiscal 1996 from fiscal 1995 is
due primarily to the recognition in fiscal 1995 of the last installment of
deferred gain associated with the sale of a Company subsidiary in 1992,
amounting to $365,000, and the gain associated with the sale of the DCX
product line in the amount of $424,000.
For federal income tax purposes, the Company is in a net operating loss
carryforward position. As disclosed in more detail in Note 6 to the
consolidated financial statements, realization of gross deferred income tax
assets at October 31, 1996 is dependent upon generating sufficient taxable
income prior to expiration of the loss carryforwards and such loss
carryforwards are subject to certain tax law limitations. By recording a 100%
valuation allowance against its gross deferred income tax assets, the Company
has not reflected the net operating loss carryforward amounts or other
deferred income tax assets in its consolidated financial statements at October
31, 1996. In addition, no income tax benefit was recorded relating to the
1996 operating loss.
The Company is now positioned to continue marketing infrared tracking
systems to health care providers, beginning in early fiscal 1997, both through
its direct marketing efforts and its Exclusive Marketing Agreement with
Marquette Electronics, Inc. This Agreement gives Marquette exclusive
marketing rights to sell the IR Tracking system to any acute-care hospital in
the United States. It also obligates Marquette to purchase a certain number
of systems over a three-year period (10 systems through June 29, 1997, 100
systems from June 30, 1997 through June 29, 1998 and 200 systems from June 30,
1998 through June 29, 1999) and can be modified or terminated by either party
prior to the beginning of the second and third contract years. This Agreement
is expected to result in significantly more sales during fiscal 1997 and will
be a key determining factor for the initial success of the IR Tracking system.
There can be no assurance the agreement will not be terminated by Marquette,
however, management currently has no reason to believe that the agreement will
be modified or terminated to the detriment of the Company.
Longer term, the Company also intends to market its infrared tracking
products directly to financial institutions, governmental entities,
professional services providers, correctional facilities and manufacturing
markets. Additionally, the Company intends to continue marketing software and
related services through Olmsted. Lastly, the Company has retained two
relatively small product groups from the cellular era in the area of backup
and mobile security. However, these cellular products are not expected to
constitute a significant part of the Company's revenues in the future relative
to infrared sales.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996 and the three months ended January 31, 1997, the
Company relied primarily on cash proceeds generated from private placements of
its common stock in September 1995 and again in August 1996. Those two
private placement offerings generated net proceeds to the Company of
approximately $2.7 million and $5.2 million, respectively. The cash balances
at October 31, 1996 resulted from the proceeds of the most recent private
placement offering. The Company believes the combination of these cash
balances, the cash expected to be generated during fiscal 1997 from sales of
its infrared tracking systems, and continued sales of software and related
services, should be sufficient to meet projected cash needs over the next
twelve months.
16<PAGE>
<PAGE> 17
As of January 31, 1997, the Company purchased from Precision Tracking FM,
Inc. (PTFM"), previously the principal supplier of certain of the Company's
infrared tracking component parts, PTFM's intellectual property, including
patents related to infrared tracking. In the future, the Company intends to
contract for the manufacture of these component parts and assemble the final
components. As part of this purchase, the Company also acquired all of PTFM's
trademarks and trade names. The purchase was in consideration of $500,000 and
1,600,000 restricted shares of the Company's Common Stock (which are subject
to resale hereunder after October 1, 1997). A one-year Engineering and
License Agreement was entered into by the parties to assist Versus in the
technology transfer and to support Versus in use and development of the
technology. Under the Engineering Agreement, expense reimbursement payments
are estimated at $40,000 per month.
SIGNIFICANT LIQUIDITY FACTORS:
January 31, October 31,
----------- -----------
1997 1996 1995
---- ---- ----
Current ratio 3.30:1 4.2:1 2.1:1
Quick ratio 3.18:1 4.0:1 2.0:1
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The new statement, effective November 1, 1996 for the Company, requires
the Company to review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has occurred
based on expected future cash flows, the loss should be recognized in the
statement of operations and certain disclosures regarding the impairment
should be made in the financial statements. The Company's adoption of SFAS
No. 121, during the three months ended January 31, 1997, had no material
impact on the Company's financial position or results of operations.
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued. SFAS No. 123 allows companies to continue to
account for their stock option plans in accordance with APB Opinion 25 but
encourages the adoption of a new accounting method to record compensation
expense based on the estimated fair value of employee stock options.
Companies electing not to follow the new fair value based method are required
to provide expanded footnote disclosures, including pro forma net income and
earnings per share, determined as if the company had applied the new method.
The Company was required to adopt SFAS No. 123 prospectively beginning
November 1, 1996. Management has continued to account for its stock option
plans in accordance with APB Opinion No. 25 and will provide supplemental
disclosures as required by SFAS No. 123, beginning in 1997. No additional
disclosures are required on an interim basis.
17<PAGE>
<PAGE> 18
BUSINESS
This section contains forward-looking statements regarding the
Company's business and financial condition. No assurance can be given that
actual results of operations will not differ materially from the
forward-looking statements contained herein. For a discussion of various
factors which may cause actual results to vary, see "RISK FACTORS" commencing
at page 4 hereof.
(a) Business Development and Principal Products.
Versus Technology, Inc. ("Versus" or the "Company") is a Delaware
corporation incorporated in October 1988 and was originally formed to be
principally engaged in the business of manufacturing and marketing Derived
Channel Multiplex ("DCX") alarm systems which used existing telephone lines
without the necessity of a dial tone. The Company had also developed a line
of cellular alarm transport ("CAT") systems.
On September 15, 1993, the Company completed a private placement of one
million shares of its common stock to a group of accredited investors at $2.05
per share. Of the net proceeds of $1,774,000, approximately $400,000 was used
to purchase certain intellectual property and assets (patents, trademarks,
etc.) relating to infrared tracking ("IR Tracking") systems and technology.
The balance of the proceeds was used to provide additional capital resources
to further develop and extend the IR Tracking technology systems, and to fund
the growth of the Company's cellular alarm technology.
In 1994, Versus experienced significant losses which led its Board of
Directors to take substantial steps to restructure the Company. The Company
implemented a plan to reduce overhead and sell the DCX business. In November
1994, the DCX business was sold and in early January 1995, John Mischak was
replaced as President and Chief Executive Officer. The Board appointed Gary
T. Gaisser as President and Chief Executive Officer, who was then the
President of Olmsted Engineering Co. ("Olmsted"), the Company's principal
development consultant in the area of IR Tracking. In September 1995, the
Company's employment levels and other expenses were sharply reduced, and the
business headquarters were relocated from Trenton, New Jersey to Traverse
City, Michigan, the principal executive offices of Olmsted.
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 $2,428,000 were
used to develop the IR Tracking business and for general operating expenses.
On August 26, 1996, the Company completed a private placement of
11,335,000 shares of its common stock at $.50 per share, with net proceeds
totaling approximately $5,201,000. The proceeds will be used for working
capital and further development of the IR Tracking technology. Concurrent
with this private placement, the Company acquired Olmsted in exchange for
6,379,889 shares of Versus common stock, plus cash of $65,000, amounting to a
purchase price of $3,255,000, net of related costs.
Olmsted, a wholly-owned subsidiary of Versus, will continue to do
business under the Olmsted Engineering Co. name. The Company and its Board of
Directors believe this acquisition was critical to the continued development
and success of the IR Tracking system due to the long-term business
relationships that had been developed over the years, and the knowledge
Olmsted gained as a consultant to the Company when developing the IR Tracking
system.
18<PAGE>
<PAGE> 19
The Company currently operates in two business segments: security; and
systems design and engineering. The Company's IR Tracking system and cellular
line products constitute its security business and the systems design and
engineering business incorporates Olmsted's line of business. Olmsted has
been in business for nearly 20 years and is a recognized name in a narrow
segment of the complex machining market. Its trademark product, ACU.CARV(TM),
a family of Computer Aided Manufacturing software programs, has enjoyed
considerable success in the precision machining industry. ACU.CARV(TM), along
with other similar products, will continue to be sold and maintained under the
Olmsted name.
In addition to the continuing Olmsted business, the Company's primary
focus will be directed to the development and expansion of IR Tracking
systems. These systems permit the instantaneous identification and tracking of
the location of people and equipment, 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 first market being
addressed by the Company is the health care industry. Near term enhancement
and expansion of this technology that will permit the transmission of
increased data is also underway. 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.
Several demonstration systems were put into place over the past year and have
been operating with high levels of customer satisfaction. In fiscal year
1996, the Company's sales of IR Tracking systems totaled $89,000. See
"Business of the Issuer -- Material Customers" for a discussion of an
exclusive marketing agreement with a large medical equipment supplier that
should significantly increase sales in the coming fiscal year.
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. However, a large
portion of the CAT products have since been discontinued due to the settlement
of a patent infringement suit in the fourth quarter of the 1995 fiscal year.
(b) Business of the Issuer
(1) Principal Products and Services
Security Segment
Infrared Security System and Technology ("IR Tracking")
The Company's tracking and security system is the primary product of the
Company. 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. This technology was acquired in fiscal
1993. With the assistance of Olmsted, functioning in a consulting capacity,
this technology was further developed and enhanced. In 1997 additional
intellectual property held by a component supplier was acquired.
This IR Tracking system (which the Company refers to as its Nightingale
System when sold in a medical setting) 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 and 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
19<PAGE>
<PAGE> 20
its status (i.e., condition, environment, etc.) and provides users with a
graphical display locating people and equipment. Other programmable features
include directed pages, telephone call forwarding, equipment usage logs, and
door openings and closings. In addition, two way communication is possible.
Cellular Alarm Transport ("CAT")
The principal function of the Company's CAT products is to provide a
connected alarm panel with a communication pathway through the cellular
communications network. The cellular communications network is functionally
identical to the switched telephone network (land line) service commonly
employed in alarm monitoring. Additionally, the Company's cellular alarm
products provide security reporting protection in applications where land line
based security is not feasible or practical. Generally, the CAT is used as a
cellular backup alarm product, in which alarm messages are transmitted over
the cellular network to a telephone switch network used by the alarm
monitoring agency to receive such data and signals. The Company's cellular
product is comprised of a cellular radio transceiver and an interface printed
wiring assembly mounted within a steel enclosure.
Systems Design and Engineering Segment
As discussed earlier, the Company's acquisition of Olmsted added this
line of business. Under the Olmsted name, the Company sells and maintains the
ACU.CARV(TM) product line which consists of a wide range of manufacturing
solutions including software, hardware, support and shop floor communications
networks. ACU.CARV(TM) is an integrated family of Computer Aided Manufacturing
(CAM) software programs used to operate computer numerically controlled
machines, mainly in the mold, die and pattern making industries.
ACU.CARV(TM)'s focus is to allow the end user to machine efficiently and
economically. The ACU.CARV(TM) family of products provides instructions to
control the movement of a stationary robot. This is a mature product line with
a wide range of existing applications and provides the basis for future
product development. Application areas include:
- Milling
- Wire EDM (Electronic Discharge Machining)
- Turning
- CAD/CAM (Computer Aided Design/Computer Aided Manufacturing)
- Programming services
- DNC (Direct Numerical Control)
- Design
Olmsted is an Autodesk registered developer which gives it access to the
AutoCad (the largest CAD system in the world) dealer network. This network
allows access to over 600,000 architects and contractors worldwide with a
product that will help create a floor plan layout for the sensory net, which,
as discussed below, is the backbone of the Versus IR Tracking system.
In addition to revenues from the sale of ACU.CARV(TM) products, the
Company also receives monthly maintenance and enhancement fees from the
customer who, in turn, receives technical support and semi-annual update
releases.
Olmsted also provides a programming service, hardware and software
integration, complete turn-key systems and contract software consulting and
development.
Underlying Olmsted's ACU.CARV(TM) software programs and other programming
capabilities is a "source code" library which consists of approximately five
million lines of code containing the underlying algorithms from which software
products are generated. The Company's IR Tracking system was based on
20<PAGE>
<PAGE> 21
developments taken from this source code library during the time in which
Olmsted was performing consulting services for the Company. The Company
believed that it was critical to the future of its IR Tracking system product
line that it have continued access to this source code library along with
Olmsted's developed engineering staff. The acquisition of Olmsted ensures
this continuity and provides the Company with a competitive advantage
equivalent to much larger corporations.
(2) Marketing and Distribution
Infrared Security System and Technology
Prior to its acquisition by the Company in 1993, this infrared security
product had been sold and installed in three working environments, all in the
health care industry. Additionally, two demonstration systems were sold for
use in governmental high security facilities. Enhancements made to this
technology over the past year will permit the transmission of increased data.
Currently, the health care market is primarily targeted for penetration due to
the technology's initial success there, and the existing interest that has
developed. At present, the Company has entered into an exclusive marketing
agreement with Marquette Electronics, Inc., a major medical equipment
supplier, relating to the tracking of heart monitor equipment, as further
discussed in "Material Customers" below. In addition to the health care
market, applications being explored include high security facilities
(military, governmental), correctional institutions (prisons, house arrest
monitoring programs), and commercial security (visitor tracking, institutional
access control).
In the future, the Company also intends to market its IR Tracking
products directly to office and manufacturing markets, such as professional
offices, financial institutions, governmental institutions, correctional
facilities, and manufacturing facilities, for the purpose of security,
personal equipment and document tracking, time and attendance monitoring, and
ingress/egress control.
Cellular Alarm Transport
The Company's remaining cellular products are marketed both through
direct sales and distributors.
Systems Design and Engineering Segment
The ACU.CARV(TM) product line is marketed to both existing users of the
products and potential new customers through direct sales efforts. Most of
the revenues from these products consist of recurring maintenance and
enhancement fees.
(3) New Products or Services
During fiscal 1995 the Company formally introduced its IR Tracking
system, currently marketed primarily to the health care industry. Additional
enhancements have been made to the IR Tracking system during the past year to
permit the transmission of increased data and thereby accommodate a larger
number of customers.
(4) Competitive Business Conditions
There are many products directly competitive with the Company's infrared
technology. Also, there are numerous products that perform functions similar
to this technology, including radio frequency ("RF") paging and communication
systems, ultrasound and RF badges, magnetic strip systems and hardwired
21<PAGE>
<PAGE> 22
communication systems. The Company believes that its infrared technology is
competitive with RF based and other similar systems and that in many
applications it may be a superior and cost-effective alternative.
Competition for the Company's remaining CAT products comes primarily from
only a few companies. Expected growth of the market, however, may attract
entry by additional organizations with more significant resources. In
addition, there are competing technologies which perform similar functions.
While competition is extensive in the overall CAD/CAM market, competition
within Olmsted's relatively narrow market is more limited due to serving a
specialized and highly technical niche group. As discussed earlier, Olmsted
is considered a very well-respected name in this market. Management believes
this market is mature and no significant changes are expected to occur over
the next 10-15 years.
In each of its markets, the Company seeks to compete primarily on the
basis of the technological features of its products, their cost effectiveness,
system performance, field experience and service support.
(5) Sources and Availability of Raw Materials
The Company's manufacturing operations for the IR Tracking systems and
remaining cellular products consist primarily of the assembly and testing of
final products and subassemblies purchased from other manufacturers. The
Company performs quality tests and checks on components and subassemblies at
various stages of manufacturing. Finished products are thoroughly tested for
all functions.
Olmsted's business in not dependent upon the availability of raw
materials.
In fiscal year 1996, the Company purchased over 40% of its inventory
requirements from one supplier. This percentage is expected to decrease in
the future based on the anticipated sales product mix and the integration of
Olmsted for an entire year. Generally, there are multiple suppliers available
for most components purchased by the Company.
(6) Material Customers
Approximately 30% of the Company's revenues for the fiscal year ended
October 31, 1996 were attributable to software sales and maintenance and
enhancement fees from Olmsted's business since the August 1996 acquisition.
These revenues resulted from a large number of customers, none of which are
considered to be a material customer. The remaining revenues were derived
from the security business segment, and although none of the sales by
individual customer were material, there were sales to a customer that has
recently signed an exclusive marketing contract with the Company, as described
in the following paragraph. Revenues in the 1995 fiscal year were
substantially all from the Company's ten largest customers.
In July 1996, the Company entered into an Exclusive Marketing Agreement
(the "Agreement") with Marquette Electronics, Inc. ("Marquette"), which gives
Marquette exclusive marketing rights to sell the IR Tracking system to any
acute-care hospital in the United States. This agreement obligates Marquette
to purchase over a three-year period a certain number of systems and can be
modified or terminated by either party prior to the beginning of the second
and third contract years. This agreement is expected to result in
significantly more sales in the coming fiscal year and will be a key
22<PAGE>
<PAGE> 23
determining factor in the initial success of the IR Tracking system. There
can be no assurance the agreement will not be terminated by Marquette;
management currently has no reason to believe, however, that the agreement
will be modified or terminated to the detriment of the Company.
The Company generally does not offer extended payment terms to its
customers and normally adheres to its warranty policy of 90 days, except for
the Marquette agreement mentioned above in which the Company has a limited
liability warranty on its product for one year from the date of acceptance or
installation, whichever comes first. Consistent with industry practice, the
Company maintains inventory of both components and finished products that it
believes to be sufficient to satisfy foreseeable short-term customer
requirements.
At October 31, 1996, the Company had approximately $98,000 of IR Tracking
system orders on hand.
No material portion of the business of the Company is seasonal. No
material portion of the Company's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
government.
During the last two years, inflation has not had any significant impact
on the Company's business.
(7) Patents, Trademarks, Licenses and Franchises
The Company holds several United States patents and/or trademarks
covering IR Tracking technologies, ACU.CARV(TM) software products and certain
cellular technologies. The Company also holds patents in other countries for
these products.
As a result of patent infringement litigation settled in fiscal 1995, the
Company has agreed to cease production and marketing of certain cellular
products, and accordingly, wrote off the remaining unamortized cost of these
patents during the year ended October 31, 1995.
There can be no assurance that the Company's patents will provide the
Company with significant competitive advantages, or that further challenges
will not be instituted against the validity or enforceability of any patent
owned by the Company or, if instituted, that any such challenge will not be
successful. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate the Company's
technology or design around the patented aspects of the Company's technology.
There can be no assurance that trade secrets will be established, that secrecy
obligations will be honored, or that others will not independently develop
similar or superior technology.
In August 1995, the Company granted a security interest in essentially
all its then patents and intellectual properties to a law firm, which was at
that time the Company's legal counsel, to secure payment of fees billed by
that firm. The firm has asserted that they are entitled to monthly payments in
fiscal year 1996 and a balloon payment on January 1, 1997. The Company has
disputed these fees, as well as the validity of the note and grant of the
security interest. The Company has attempted to negotiate an accord, but
presently expects it will need to engage in litigation with its former law
firm to resolve the dispute.
23<PAGE>
<PAGE> 24
As of January 31, 1997, the Company purchased from Precision Tracking FM,
Inc. (PTFM"), previously the principal supplier of certain of the Company's
infrared tracking component parts, PTFM's intellectual property, including
patents related to infrared tracking. In the future, the Company intends to
contract for the manufacture of these component parts and assemble the final
components. As part of this purchase, the Company also acquired all of PTFM's
trademarks and trade names. The purchase was in consideration of $500,000 and
1,600,000 restricted shares of the Company's Common Stock (which are subject
to resale hereunder after October 1, 1997).
(8) Government Approvals
The Company's IR Tracking systems technology and its Olmsted product
lines do not require government approvals. The Company's CAT products are
registered under FCC regulations and comply with all relevant FCC regulations
for commercial and residential premises.
(9) Government Regulation
The Company does not believe that existing or reasonably foreseeable
governmental regulations will have a material adverse effect upon the
Company's business.
(10) Research and Development
The Company's expenditures for research and development during fiscal
1996 were $432,000. This compares with $957,000 which was expended during
fiscal 1995. In both years, the expenditures were primarily in connection
with Olmsted's previous consulting contract to complete development of the IR
Tracking systems with Versus prior to the August 1996 acquisition. To the
extent it can afford to do so, the Company intends to continue to fund
research and development expenditures to maintain and enhance its
technological position.
(11) Environmental Compliance
Compliance with Federal, state and local provisions which have been
enacted or adopted to regulate the protection of the environment should not
have a material effect upon the capital expenditures, earnings and competitive
position of the Company. The Company does not expect to make any material
expenditures for environmental control facilities in either the current fiscal
year (fiscal 1997) or the succeeding fiscal year (fiscal 1998).
(12) Number of Employees
At October 31, 1996, after the acquisition of Olmsted and expansion of
the business, the Company had 31 full-time employees. Of its full-time
employees, 13 were engaged in systems design and engineering relating to both
business segments, 13 in marketing, sales and sales administration, and 5 in
management and administration.
None of the Company's employees are covered by a collective bargaining
agreement. The Company has never experienced any labor disruptions or work
stoppages, and considers its employee relations to be good.
DESCRIPTION OF PROPERTY
In December 1996, the Company moved its principal operating facilities to
a building that is owned by Traverse Software Investment, LLC ("TSI"), a
limited liability company controlled by Gary T. Gaisser, the President and
Chief Executive Officer of the Company. Versus and Olmsted are obligated
under two separate five-year lease agreements, which require aggregate total
annual rents of $111,000, increasing 4% annually after the first year.
24<PAGE>
<PAGE> 25
LEGAL PROCEEDINGS
The following is a summary of the material litigation in which the
Company is currently engaged.
1. Versus Technology, Inc. v. Satellite 2000 Corporation and
Charlie Barnum.
Complaint Filed: November 1, 1993
Court: United States District Court for the Middle District of
Florida, Orlando Division
Civil Action No.: 93-970-CIV-ORL-22
Principal Parties: Plaintiff, Versus Technology, Inc.; Defendants,
Satellite 2000 Corporation, Charlie Barnum
Versus charged Satellite 2000 (a corporation) and Charlie Barnum (an
individual) with infringement of three of its patents directed to the Versus
cellular technology. Satellite 2000 Corporation has executed a consent
decree, which has been entered by the court, admitting validity and
infringement of those patents. In addition, the Company has obtained a
default judgment against Charlie Barnum, holding Mr. Barnum liable for patent
infringement of the three Versus patents-in-suit, infringement of Versus
copyrights, infringement of Versus trademarks, and for unfair competition and
trade libel. The amount of the judgment against Mr. Barnum was $106,000.
Versus cannot predict whether all or any of the sums it seeks from the
defendants are recoverable or collectable.
2. Special Situations Fund III, L.P. v. Versus Technology, Inc.
Complaint filed: September 27, 1994
Court: Supreme Court of the State of New York
Index No.: 127519/94
Principal Parties: Plaintiff, Special Situations Fund III, L.P.;
Defendants, Versus Technology, Inc.
Special Situations Fund III, L.P. ("Special Situations") filed a
complaint alleging that Versus allowed 300,000 warrants to expire which the
Fund held, and that the Fund was damaged by the warrants' expiration. Special
Situations also alleged that the Company breached the Warrant Agreement
pursuant to which the warrants were issued to Special Situations, and claims
that the sale by the Company of restricted stock in late 1993 required a
downward adjustment of the exercise price of the warrants under the Warrant
Agreement. A judgment against the Company for $195,000, which has now been
satisfied, was entered by the trial court and upheld on appeal.
3. Calvert et al v. Olmsted Engineering Co. et al
Complaint filed: May, 1996
Court: Grand Traverse County, Michigan Circuit Court
Civil Action No.: 96-14861-CZ
Principal Parties: Plaintiffs, Richard E. Calvert, H. Terry
Snowday, Jr., Michael and Stephanie Calvert, Thomas and Ida
Calvert, and Bank of Alma, as Trustee for Richard E. Calvert;
Defendants, Olmsted Engineering Co. and Gary T. Gaisser.
25<PAGE>
<PAGE> 26
A suit was filed against Olmsted and its Chairman alleging that in
connection with a private offering of Olmsted common stock in 1994 Olmsted and
its Chairman breached an oral promise that the holders of Olmsted preferred
stock would cancel their preferred stock in consideration of the Plaintiffs'
investment in Olmsted. A settlement agreement has been reached, and the suit
has been dismissed.
4. Theodore London et al v. Versus Technology, Inc.
Complaint filed: November, 1996
Court: Supreme Court of the State of New York
Index No.: 96-120758
Jack Lazarus, et al. v. Versus Technology, Inc.
Complaint filed: January 21, 1997
Court: Supreme Court of the State of New York
Index NO. 97600295
Plaintiffs in these nearly identical actions allege that Versus allowed
certain warrants to expire which the Plaintiffs held and that the Plaintiffs
were damaged by the warrants' expiration. Plaintiffs also allege that the
Company breached the Warrant Agreement pursuant to which the warrants were
issued to Plaintiffs and claim that the sale by the Company of restricted
stock in late 1993 required a downward adjustment of the exercise price of the
warrants under the Warrant Agreement. The Plaintiffs allege this action should
be tried as a class action, and allege that they are appropriate
representatives of the class. Plaintiffs further allege their claims are
substantially identical to the claims made by the plaintiff in the Special
Situations Fund III litigation discussed in #2 above, which involved only
300,000 of the 2,233,800 Class A warrants. Apparently, the plaintiffs believe
the Company has a liability for each of the remaining warrants identical to
the per warrant liability the Company had for the 300,000 warrants relating to
the Special Situations Fund III litigation. Each plaintiff seeks
certification as a class action. The Company disputes the material
allegations of the Complaints and intends to vigorously defend itself against
this matter.
5. Josaphat Plater-Zybeck, Jr. v. Versus Technology, Inc.
Complaint filed: January 24, 1997
Court: United States District Court for the Eastern District of
Pennsylvania
Civil Action No.: 97-CV-519
This action was filed by a former employee of the Company alleging
wrongful discharge. The termination occurred prior to the Company's current
President and Chief Executive Officer assuming that position. The Company
disputes the central allegations of the Complaint. The Company believes that
should any judgment be rendered against the Company in this matter, it will be
less than $200,000.
26<PAGE>
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MANAGEMENT
Executive Officers and Directors
Management Age Position(s) with the Company
------------ --- ----------------------------
Gary T. Gaisser 45 Director, President and Chief Executive Officer
Julian C. Schroeder 49 Director
Elliot G. Eisenberg 48 Director
Henry J. Tenarvitz 45 Executive Vice President of Operations
Robert Butler 49 Controller
Andrea Beadle 35 Secretary
Gary T. Gaisser has served as President and Chief Executive Officer of
the Company since January 1995. Prior to that, he was President of Olmsted
Engineering Co. ("Olmsted"), now a wholly-owned subsidiary of the Company.
Mr. Gaisser had been with Olmsted since 1988.
Julian C. Schroeder has served as a director of the Company since
August 1994. As of March 1997, Mr. Schroeder became a financial analyst with
Schroder Wertheim & Co. He previously served with BDS Securities, L.L.C. (a
registered broker-dealer) and its predecessor, BDS Securities Corporation,
since 1989 and from 1995 to March 1997 served as its President. Mr. Schroeder
is also a director of Optical Coating Laboratories, a manufacturer of
thin-film products.
Elliot G. Eisenberg has served as a director of the Company since May
1996. He is currently employed full-time by the Company as Director of
Corporate Accounts and Regional Sales. He served as Managing Director of
Dabney/Resnick/Imperial, L.L.C. (a registered broker-dealer) from November
1996 to April 1997. From 1989 to November 1996 he served as Vice President of
BDS Securities, L.L.C. (a registered broker-dealer) and its predecessor, BDS
Securities Corporation.
Henry J. Tenarvitz has served as Executive Vice President of Operations
since September 1996. Prior to that, and for more than five years, he has
served in a series of positions of increasing responsibility with Olmsted.
Robert Butler has served as Controller of the Company since April 1997.
He previously served as District Controller with Allied Waste Industries, Inc.
Mr. Butler has also operated his own consulting firm since 1989.
Andrea Beadle has served as Secretary of the Company since February 1997.
Since February of 1996, she has served as an Executive Assistant to the
President. Before that, and for more than five years, she had served as
Records Manager of a law enforcement related agency of government.
Each director serves an annual term of office until the next annual
meeting of shareholders.
27<PAGE>
<PAGE> 28
Executive Compensation
The following table sets forth the annual compensation paid to the Chief
Executive Officer of the Corporation during the fiscal years ended October 31,
1996 and 1995. There were no other executive officers of the Company who
received combined salary and bonuses for the fiscal year ended October 31,
1996 equaling or exceeding $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------- ------------
Name & Principal Position Fiscal Year Salary Bonus Other Option Awards
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gary T. Gaisser 1996 $ 78,000 $ - $ 400(1) $1,000,000
President, Chief Executive Officer 1995 52,000 - - -
and Director 1994 - - - -
- --------------------------
(1) Represents compensation received during fiscal 1996 for meetings of
the Board of Directors at the rate of $100 per meeting.
</TABLE>
OPTIONS
The only options granted during the year were options to purchase
1,000,000 shares, granted to Mr. Gaisser, exercisable at $.375 a share, the
fair value of the stock at grant date. These were the only employee stock
options outstanding at October 31, 1996. Twenty-five percent of these options
became exercisable on December 4, 1996, and an additional twenty-five percent
become exercisable on each subsequent anniversary thereof. The options expire
on June 4, 2001. No options have been exercised by Mr. Gaisser. These
options had an estimated value of $468,750 at October 31, 1996. No options
were exercised during fiscal 1996 by any Executive Officers.
EMPLOYMENT AGREEMENT
As of July 1, 1996, the Company and Mr. Gaisser entered into an
Employment Agreement for a term of six years. Mr. Gaisser is employed at a
base salary of $130,000 per year and will receive a 10% annual increase during
the term of the Employment Agreement. Mr. Gaisser is entitled to such further
increases as shall be determined by the Board of Directors, and is entitled to
participate in other compensation and benefit plans of the Company.
This Employment Agreement may be terminated by the Company for "just
cause," which is defined as "willful misconduct, embezzlement, conviction of a
felony, habitual drunkenness or excessive absenteeism not related to illness."
The Employment Agreement provides that if Mr. Gaisser is not elected or
appointed as President and Chief Executive Officer or as a member of the Board
of Directors, is removed from any such office, the ownership and control of
the Company changes, or if the principal place of the business is changed to a
location more than 20 miles from Traverse City, Michigan without Mr. Gaisser's
consent, then Mr. Gaisser may give notice of termination, effective at the end
of the month in which notice is given. In addition, if Mr. Gaisser concludes
that because of changes in the composition in the Board of Directors or
material changes in its policies because of other events or occurrences of
material fact, he feels he can no longer properly and effectively discharge
his responsibilities, then Mr. Gaisser may resign from his position upon the
28<PAGE>
<PAGE> 29
giving of sixty (60) days' prior written notice. In each case, such
resignation shall be deemed constructive termination of Mr. Gaisser's
employment by the Company, and Mr. Gaisser shall be entitled to payment of the
remaining amounts payable to him under the Employment Agreement without any
requirement of mitigation of damages.
Except in the event of constructive termination, Mr. Gaisser has agreed
that during the term of the Employment Agreement and for two years thereafter,
he is not to compete with the Company. Upon any termination, Mr. Gaisser has
agreed not to disclose the Company's confidential information or to solicit
any employee of the Company for a two-year period.
COMPENSATION OF DIRECTORS
Each Director of the Company receives a basic fee of 15,000 shares of the
Company's Common Stock annually for service on the Board, plus a $100 per
meeting attendance fee. The Company has no other standard or other
arrangement whereby Directors are compensated for their services to the
Company. The Company's by-laws provide that Directors may be compensated as
the Board of Directors may from time to time determine, and be reimbursed for
the reasonable expenses incurred in connection with the performance of their
duties. All Directors receive $100 for attending each committee meeting of
the Board when such meeting is held on a date other than the date of a Board
meeting.
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to the Common Stock
beneficially owned (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended), by any person who, as of April 25, 1997 to
the knowledge of the Board of Directors of the Company, owned beneficially
more than 5% of the outstanding Common Stock of the Company, the only class
authorized:
Amount and Nature
of Beneficial Percentage of Class
Name & Address of Beneficial Owner Ownership Outstanding
- ----------------------------------- ------------------ -------------------
Gary T. Gaisser 5,985,123 (1) 15.7%
c/o Versus Technology, Inc.
2600 Miller Creek Road
Traverse City, MI 49686
Anthony Low-Beer 5,554,000 (2) 14.6%
c/o Mitchell Securities
100 Park Avenue
New York, NY 10017
Merrill Lynch & Co. Inc. and 4,500,000 (3) 11.8%
Merrill Lynch Group, Inc.
250 Vesey Street
World Financial Center North Tower
New York, NY 10281-1334
Princeton Services, Inc.,
Fund Asset Management, L.P. and
Merrill Lynch Special Value Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
William Harris Investors 3,025,000 (4) 7.9%
2 North LaSalle Street, Suite 400
Chicago, IL 60602
- ---------------------------
29<PAGE>
<PAGE> 30
(1) This total includes 250,000 shares that became acquirable by Mr. Gaisser
on December 4, 1996 upon exercise of an outstanding option issued by the
Company. See "Executive Compensation" above and "Certain Relationships
and Related Transactions" below.
(2) As reported on Schedule 13D filed March 21, 1997 as adjusted for a
subsequent acquisition. Of these shares, 2,639,000 are held in managed
accounts over which Mr. Low-Beer shares dispositive power.
(3) As reported on Schedule 13G filed September 4, 1996. Merrill Lynch &
Co., Inc., Merrill Lynch Group, Inc., Princeton Services, Inc., Fund
Asset Management, L.P. and Merrill Lynch Special Value Fund, Inc., each
claimed shared voting power and shared dispositive power with respect
to 4,500,000 shares. Each of such entities declaimed beneficial
ownership of such shares. Merrill Lynch Special Value Fund, Inc. is the
record owner of these shares.
(4) As reported on Schedule 13G filed February 3, 1997, as adjusted for a
subsequent acquisition.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 25, 1997, the beneficial
ownership of the Company's Common Stock by all directors and by all the
directors and executive officers of the Company as a group:
<TABLE>
Approximate Number
Position(s) with the of Common Shares
Name of Beneficial Owner Company (1) Beneficially Owned (1) Percent of Class
- ------------------------- ---------------------- ---------------------- ----------------
<S> <S> <C> <C>
Gary T. Gaisser President, Chief Executive 5,985,123 (2) 15.7%
Officer & Director
Julian C. Schroeder Director 522,582 (3) 1.4%
Elliot G. Eisenberg Director 1,615,728 (4) 4.2%
All executive officers
and directors as a
group (6 persons) 8,240,168 (5) 21.3%
- ---------------------------
</TABLE>
(1) Each director has sole voting and investment power as to all shares
reflected as beneficially owned by him, except as otherwise noted.
Messrs. Gaisser, Eisenberg and Schroeder are all of the Company's present
directors.
(2) This total includes 250,000 shares that became acquirable by Mr. Gaisser
on December 4, 1996 upon exercise of an outstanding option issued by the
Company. See "Executive Compensation" above and "Certain Relationships
and Related Transactions" below.
(3) This total includes 50,000 shares currently acquirable under the terms
of the warrants issued by the Company to Mr. Schroeder and 167,582
shares currently acquirable under the terms of warrants beneficially
owned by Mr. Schroeder and owed of record by an affiliate of BDS
Securities, L.L.C., of which Mr. Schroeder was formerly president.
(4) As reported on Schedule 13D filed on October 10, 1995 as adjusted. Of
these shares, 100,000 may be acquired upon the exercise of warrants held.
(5) This total includes 567,582 shares acquirable under outstanding
warrants and options.
30<PAGE>
<PAGE> 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 26, 1996, Olmsted was acquired by the Company in exchange for
6,379,889 shares of the Company's Common Stock and cash of $65,000. Pursuant
to the acquisition, Gary T. Gaisser, the President, Chief Executive Officer
and a Director of the Company, and the controlling shareholder of Olmsted,
received 5,705,123 shares of the Company's Common Stock in exchange for his
ownership interest in Olmsted.
Olmsted had been the principal consultant to the Company in relation to
the IR Tracking System. On April 20, 1995, the Company entered into a
Consulting Agreement with Olmsted. The Agreement was for a one-year period
from April 20, 1995 to April 20, 1996. Effective November 1, 1995, the
Agreement was amended. Under the Agreement and until the consummation of the
acquisition, Olmsted received an annual fee of $144,000 payable monthly as
well as a fee at an hourly rate for man-hours in excess of a fixed number of
hours each month.
As of August 26, 1996, the Company completed a private placement of
11,335,000 shares of its Common Stock at $.50 per share. At that time, Julian
C. Schroeder was the President, and Elliot G. Eisenberg was Vice President, of
BDS Securities, L.L.C., the placement agent for this private placement. In
connection with this private placement, BDS Securities, L.L.C. received a
placement fee of $396,725 together with five-year warrants to purchase 396,725
shares of the Company's Common Stock at $.50 per share.
As of September 29, 1995, the Company completed a private placement for
14,674,917 shares of its Common Stock at $.20 per share. At that time, Julian
C. Schroeder was the President, and Elliot G. Eisenberg was Vice President, of
BDS Securities, L.L.C., the placement agent for this private placement. In
connection with this private placement, BDS Securities, L.L.C. received a
placement fee of $205,449 together with five-year warrants to purchase
1,027,244 shares of the Company's Common Stock at $.20 per share.
In December 1996, the Company moved its principal operating facilities to
a building that is owned by Traverse Software Investment, LLC ("TSI"), a
limited liability company controlled by Gary T. Gaisser, the President and
Chief Executive Officer of the Company. Versus and Olmsted are obligated
under two separate five-year lease agreements, which require aggregate total
annual rents of $111,000, increasing 4% annually after the first year.
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock and of
certain provisions of the Certificate of Incorporation and By-Laws are
summaries and do not purport to be complete and are subject to and qualified
in their entirety by reference to the Certificate of Incorporation and By-Laws,
copies of which are filed as exhibits to the Registration Statement of
which this Prospectus is a part. Reference is made to such exhibits for a
detailed description of the provisions summarized below.
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $0.01 par value per share.
As of April 25, 1997, there were 38,158,549 shares of Common Stock held
of record by a total of 406 shareholders (excluding shares issuable upon
exercise of outstanding options and warrants of the Company).
31<PAGE>
<PAGE> 32
Common Stock
General. Holders of Common Stock are entitled to one vote per share on
all matters to be voted on by the stockholders. There are no cumulative
voting rights. Accordingly, the holders of a majority of the shares of Common
Stock voting for the election of directors can elect all the directors if they
choose to do so. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of the liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of the Company's liabilities. Holders of Common Stock have no
preemptive rights and the Common Stock is neither redeemable nor convertible
into any other securities. All of the issued and outstanding common stock is
fully paid and nonassessable.
Warrants and Options
The Company has outstanding 2,013,969 Warrants to purchase shares of the
Company's Common Stock. Of these shares, 295,000 are exercisable at $2.05 a
share and expire in 1998; 95,000 Warrants are exercisable at $1.00 a share and
expire in 1999; 200,000 Warrants are exercisable at $.50 a share and expire in
the year 2000; 396,725 Warrants are exercisable at $.50 a share and expire in
the year 2001; and, 1,027,244 Warrants are exercisable at $.20 a share and
expire in the year 2000. In addition, the Company has outstanding options to
purchase 1,000,000 shares of Common Stock expiring in 2006, exercisable at
$.38 a share, pursuant to the Company's Incentive Stock Option Plan. One
million additional shares may be granted under this Plan. The Company also
has outstanding other options to purchase 200,000 shares at $.50 a share,
expiring in the year 2000.
Antitakeover Provisions
Section 203 of the Delaware General Corporation Law generally prohibits a
Delaware corporation from engaging in any "business combination" (defined to
include, among other things, most merger, consolidation, asset sale, stock
issuance or loan transactions) with any "interested stockholder" (defined to
include, in general, persons owning 15% or more of the outstanding voting
stock of the corporation) during the three years after such person becomes an
interested stockholder unless at least 66 2/3% of the outstanding voting stock
not owned by the interested stockholder approved of the transaction. This
provision could have the effect of prohibiting or making more difficult
certain hostile takeover transactions involving the Company.
Limitation of Liability and Indemnification
Article 6 of the Company's Certificate of Incorporation limits to the
full extent permitted by Delaware law the personal liability of directors to
the Company or its stockholders for monetary damages for conduct as a
director. The Certificate of Incorporation and Section 145 of the Delaware
General Corporation Law do not permit limitations on a director's liability in
circumstances involving intentional misconduct or a knowing violation of law,
illegal corporate distributions, or any transaction from which the director
personally receives an improper benefit or transactions in breach of the
director's duty of loyalty. Article 6 of the Certificate of Incorporation
provides that the Company shall, to the full extent permitted by Delaware law,
indemnify any person for whom indemnification is proper under Delaware law.
32<PAGE>
<PAGE> 33
In addition, Article 8 of the By-Laws permits the Company's Board of Directors
to indemnify the Company's officers, employees and agents to the full extent
permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company, pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 6201 15th Avenue, 3rd Floor, Brooklyn, New York,
11219.
33<PAGE>
<PAGE> 34
PLAN OF DISTRIBUTION
The Selling Stockholders may from time to time sell all or a portion
of the Shares in the over-the-counter market, on any other national securities
exchange on which the Common Stock is listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or related to the then
current market price or at negotiated prices. The 1,600,000 shares held by
PTFM may not be sold prior to October 1, 1997. The Shares will not be sold in
an underwritten public offering. The Shares may be sold directly or through
brokers or dealers. The methods by which the Shares may be sold include: (a)
a block trade (which may involve crosses) in which the broker or dealer so
engaged will attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
privately negotiated transactions. In effecting sales, brokers and dealers
engaged by Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from
Selling Stockholders (or, if any such broker-dealer acts as agent for the
purchaser of such shares, from such purchaser) in amounts to be negotiated
which are not expected to exceed those customary in the types of transactions
involved. Broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a Selling
Stockholder, to purchase as principal any unsold shares at the price required
to fulfill the broker-dealer commitment to such Selling Stockholder.
Broker-dealers who acquire shares as principal may thereafter resell such
shares from time to time in transactions (which may involve crosses and block
transactions and sales to and through other broker-dealers, including
transactions of the nature described above) in the over-the-counter market or
otherwise at prices and on terms then prevailing at the time of sale, at
prices then related to the then-current market price or in negotiated
transactions and, in connection with such resales, may pay to or receive from
the purchasers of such shares commissions as described above.
In connection with the distribution of the Shares, the Selling
Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares in the course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders may also sell the Shares short and
redeliver the Shares to close out the short positions. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares.
The Selling Stockholders may also loan or pledge the Shares to a broker-dealer
and the broker-dealer may sell the Shares so loaned or upon a default the
broker-dealer may effect sales of the pledged shares. In addition to the
foregoing, the Selling Stockholders may enter into, from time to time, other
types of hedging transactions.
The Selling Stockholders and any broker-dealers participating in the
distributions of the Shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any profit on the sale of
Shares by the Selling Stockholders and any commissions or discounts given to
any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act.
34<PAGE>
<PAGE> 35
The Shares may also be sold pursuant to Rule 144 under the Securities Act
beginning one year after the Shares were issued, provided such date is at
least 90 days after the date of this Prospectus.
The Company has filed the Registration Statement, of which this
Prospectus forms a part, with respect to the sale of the Shares. The Company
has agreed to use its best efforts to keep the Registration Statement current
and effective for a period commencing on the effective date of the
Registration Statement and terminating at such time as all such Shares (except
for the option Shares) may be sold under Rule 144(k), which at present would
be in April of 1998. There can be no assurance that the Selling Stockholders
will sell any or all of the Shares offered hereunder.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling
Stockholders.
The Company will pay all of the expenses incident to the offering and
sale of the Shares, other than commissions, discounts and fees of
underwriters, dealers or agents.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
has been passed upon for the Company by Dillon, Bitar & Luther, Morristown,
New Jersey.
EXPERTS
The financial statements of Versus Technology Inc. at October 31, 1996,
and for the year then ended, appearing in this Prospectus have been audited by
BDO Seidman, LLP, independent auditors, and at October 31, 1995 and for the
year ended and financial statements of Olmsted Engineering Co. at September
30, 1995 and for the year then ended by KPMG Peat Marwick, LLP, independent
auditors, as set forth in their respective reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits to the
Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is made to the Registration
Statement and the exhibits filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete, and
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits thereto, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from such office after
payment of fees prescribed by the Securities and Exchange Commission and is
available on the Internet from the SEC home page at http://www.sec.gov.
35<PAGE>
<PAGE> 36
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of Versus Technology, Inc.: Page
- ------------------------------------------------------------ ----
Successor Independent Auditors' Report . . . . . . . . . . . . . . . . . F1
Predecessor Independent Auditors' Report . . . . . . . . . . . . . . . . F2
Consolidated Balance Sheets as of October 31, 1996 and 1995 and
January 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . F3
Consolidated Statements of Operations for the years ended
October 31, 1996 and 1995 and the three months ended
January 31, 1997 (unaudited) and January 31, 1996 (unaudited). . . . . . F5
Consolidated Statements of Shareholders' Equity for the
years ended October 31, 1996 . . . . . . . . . . . . . . . . . . . . . . F6
Consolidated Statements of Cash Flows for the years ended
October 31, 1996 and 1995 and the three months ended
January 31, 1997 (unaudited) and January 31, 1996 (unaudited). . . . . . F7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F8
Financial Statements of Olmsted Engineering Co.:
- ------------------------------------------------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . F22
Balance Sheet as of September 30, 1995 . . . . . . . . . . . . . . . . . F23
Statement of Operations for the Year Ended September 30, 1995. . . . . . F24
Statement of Stockholders Equity for the Year Ended
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F25
Statement of Cash Flows for the Year Ended September 30, 1995. . . . . . F26
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F27
Versus Technology, Inc. and Olmsted Engineering Co. Financial Statements:
- ------------------------------------------------------------------------
Pro Forma Condensed Consolidated Statement of Operations for the
Fiscal Year ended October 31, 1996 . . . . . . . . . . . . . . . . . . . F35
36<PAGE>
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Versus Technology, Inc. and Subsidiary
We have audited the consolidated balance sheet of Versus Technology, Inc.
and subsidiary as of October 31, 1996, and the related consolidated statements
of operations, shareholders' equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Versus
Technology, Inc. and subsidiary at October 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
- - --------------------
BDO Seidman, LLP
Grand Rapids, Michigan
December 9, 1996
F1<PAGE>
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Versus Technology, Inc.
We have audited the balance sheet of Versus Technology, Inc. as of
October 31, 1995, and the related statements of operations, shareholders'
equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1995 financial statements referred to above present
fairly, in all material respects, the financial position of Versus Technology,
Inc. as of October 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
- - -------------------------
KPMG Peat Marwick LLP
Princeton, New Jersey
February 9, 1996, except as to Note 2
which is as of December 9, 1996
F2<PAGE>
<PAGE> 39
<TABLE>
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------
As of As of
January 31, October 31,
1997 1996 1995
(Unaudited)
------------- ---------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $4,069,000 $4,931,000 $1,998,000
Accounts receivable (net of allowance for
doubtful accounts of $53,000, $53,000 and
$25,000) 323,000 154,000 88,000
Notes receivable, net (Note 4) 52,000 32,000 -
Inventories - purchased parts and assemblies 137,000 145,000 11,000
Prepaid expenses and other assets 33,000 80,000 82,000
---------- ------------------------
TOTAL CURRENT ASSETS 4,614,000 5,342,000 2,179,000
---------- ------------------------
NOTES RECEIVABLE, net (Note 4) - 19,000 -
---------- ------------------------
PROPERTY AND EQUIPMENT
Machinery, equipment and vehicles 295,000 293,000 114,000
Furniture and fixtures 69,000 47,000 25,000
Leasehold improvements 104,000 85,000 -
---------- ------------------------
468,000 425,000 139,000
Less accumulated depreciation 167,000 155,000 136,000
---------- ------------------------
NET PROPERTY AND EQUIPMENT 301,000 270,000 3,000
---------- ------------------------
SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $31,000, $12,000 and $0 569,000 588,000 -
GOODWILL, net of accumulated amortization
of $65,000, $26,000 and $0 2,274,000 2,313,000 -
PATENTS AND OTHER INTANGIBLE ASSETS, net of
accumulated amortization of $185,000, $170,000
and $112,000 (Notes 5 and 13) 1,781,000 255,000 253,000
---------- ------------------------
$9,539,000 $8,787,000 $2,435,000
========== ========================
</TABLE>
F3<PAGE>
<PAGE> 40
<TABLE>
----------------------------------------------------------------------------------------------
January 31,
1997 October 31,
(Unaudited) 1996 1995
----------- ------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 5) $ 465,000 $ 748,000 $ 508,000
Accounts payable, PTFM 500,000 -- --
Accrued expenses 89,000 135,000 395,000
Deferred revenue - customer advance payments 1,000 16,000 9,000
Note payable, current portion (Note 5) 344,000 367,000 110,000
---------- --------------------------
TOTAL CURRENT LIABILITIES 1,399,000 1,266,000 1,022,000
NOTE PAYABLE, less current portion (Note 5) - - 339,000
---------- --------------------------
TOTAL LIABILITIES 1,399,000 1,266,000 1,361,000
---------- --------------------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 9 and 10)
SHAREHOLDERS' EQUITY (Notes 2, 3, 5 and 8)
Common stock, $.01 par value;
50,000,000, 50,000,000 and 25,000,000 shares
authorized; 38,123,674, 36,543,573 and
18,910,697 shares issued and outstanding 382,000 366,000 190,000
Additional paid-in capital 32,876,000 31,910,000 23,410,000
Accumulated deficit (24,926,000) (24,532,000) (22,526,000)
Unearned compensation (Note 8) (192,000) (223,000) -
---------- --------------------------
TOTAL SHAREHOLDERS' EQUITY 8,140,000 7,521,000 1,074,000
---------- --------------------------
$ 9,539,000 $ 8,787,000 $ 2,435,000
=========== ==========================
See accompanying notes to consolidated financial statements.
</TABLE>
F4<PAGE>
<PAGE> 41
<TABLE>
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
===========================================================================================
Three Months Ended
January 31,
(Unaudited) Year ended October 31,
1997 1996 1996 1995
------------------- ---------------------------
<S> <C> <C> <C> <C>
NET SALES (Note 12) $ 391,000 $ 35,000 $ 348,000 $ 989,000
COST OF SALES 190,000 29,000 225,000 500,000
------------------- ---------------------------
GROSS PROFIT 201,000 6,000 123,000 489,000
------------------- ---------------------------
OPERATING EXPENSES
Research and development (Note 9) 98,000 160,000 432,000 957,000
Selling, general and administrative
(Note 9) 486,000 187,000 1,526,000 1,946,000
Litigation defense costs, settlements
and judgments (Note 7) 45,000 61,000 195,000 896,000
------------------- ---------------------------
629,000 408,000 2,153,000 3,799,000
------------------- ---------------------------
LOSS FROM OPERATIONS (428,000) (402,000) (2,030,000) (3,310,000)
------------------- ---------------------------
OTHER INCOME (EXPENSE)
Interest income 46,000 23,000 73,000 17,000
Interest expense (Note 5) (5,000) (1,000) (49,000) (19,000)
Gain on sale of subsidiary and
sale of product line (Note 3) - - 789,000
Other, net (7,000) (5,000) - 26,000
------------------- ---------------------------
34,000 17,000 24,000 813,000
------------------- ---------------------------
NET LOSS $(394,000) (385,000) $ (2,006,000) $ (2,497,000)
=================== ===========================
NET LOSS PER SHARE $ (.01) (.02) $ (.09) $ (.46)
================== ============================
See accompanying notes to consolidated financial statements.
</TABLE>
F5<PAGE>
<PAGE> 42
<TABLE>
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended October 31, 1996 and 1995
========================================================================================================
Additional Unearned
Paid-in Accumulated Compensation
Shares Amount Capital Deficit (Note 8) Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, November 1, 1994 4,160,780 $ 42,000 $20,834,000 $(20,029,000) $ - $ 847,000
Sale of common stock, net
of issuance costs (Note 8) 14,674,917 147,000 2,539,000 - - 2,686,000
Directors fees (Note 8) 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
Sale of common stock, net
of issuance costs (Note 8) 11,335,000 113,000 5,088,000 - - 5,201,000
Sale of common stock to
shareholder (Note 8) 425,000 4,000 155,000 - - 159,000
Shares issued in
acquisition of Olmsted
Engineering Co., net of
dissenting shares (Note 3) 6,379,889 64,000 3,126,000 - - 3,190,000
Shares issued for restricted
stock bonus plan (Note 8) 253,467 3,000 223,000 - (223,000) 3,000
Extinguishment of demand
note payable through issuance
of common stock (Note 5) 174,408 1,000 86,000 - - 87,000
Repurchase and retirement of
shares (934,888) (9,000) (178,000) - - (187,000)
Net loss - - - (2,006,000) - (2,006,000)
-------------------------------------------------------------------------
BALANCE, October 31, 1996 36,543,573 $366,000 $31,910,000 $(24,532,000) $(223,000) $7,521,000
=========================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F6<PAGE>
<PAGE> 43
<TABLE>
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
=================================================================================================
Three Months Ended Year Ended
January 31, October 31,
1997 1996 1996 1995
------------------------- ------------------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (394,000) $ (385,000) $(2,006,000) $(2,497,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 12,000 2,000 32,000 121,000
Amortization of intangibles 73,000 13,000 96,000 124,000
Change in unearned compensation 13,000 - - -
Loss on disposal of assets 7,000 - - 260,000
Gain on sale of subsidiary - - - (365,000)
Gain on sale of product line - - - (424,000)
Directors' compensation expense - - - 38,000
Changes in operating assets
and liabilities, net of
effects of 1996 purchase of
Olmsted Engineering Co.:
Accounts receivable, net (169,000) 24,000 45,000 288,000
Inventories 8,000 (19,000) (132,000) 284,000
Prepaid expenses and
other current assets 22,000 31,000 7,000 (32,000)
Accounts payable (288,000) (30,000) 194,000 (240,000)
Accrued expenses (47,000) (37,000) (293,000) 20,000
Deferred revenues
- customer advance payments (15,000) (9,000) 7,000 (43,000)
--------------------------- ----------------------
Net cash used in operating activities (778,000) (410,000) (2,050,000) (2,466,000)
--------------------------- ----------------------
INVESTING ACTIVITIES
Principal received on note receivable (1,000) - 2,000 698,000
Additions to property and equipment (58,000) (39,000) (114,000) (19,000)
Proceeds from sale of equipment 8,000 - - -
Additions to patents and other
intangible assets (10,000) - (60,000) (11,000)
Proceeds on sale of assets
held for sale - - - 1,293,000
Additions to deferred charges and
other assets - (60,000) - -
Cash paid to dissenting shareholders
in acquisition of Olmsted Engineering
Co., net of cash acquired - - (38,000) -
--------------------------- ----------------------
Net cash provided by (used in)
investing activities (61,000) (99,000) (210,000) 1,961,000
--------------------------- ----------------------
FINANCING ACTIVITIES
Payments on obligation under
capital lease - - - (9,000)
Payments on note payable (23,000) (20,000) (82,000) (238,000)
Repurchase of common stock - (85,000) (85,000) -
Sale of common stock - - 5,360,000 2,686,000
--------------------------- ----------------------
Net cash provided by
(used in) financing activities (23,000) (105,000) 5,193,000 2,439,000
--------------------------- ----------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (862,000) 614,000 2,933,000 1,934,000
CASH AND CASH EQUIVALENTS,
at the beginning of the period 4,931,000 1,998,000 1,998,000 64,000
--------------------------- ----------------------
CASH AND CASH EQUIVALENTS,
at the end of the period $4,069,000 $1,384,000 $4,931,000 $ 1,998,000
=========================== ======================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 5,000 $ 782 $ 46,000 $ 21,000
=========================== ======================
See accompanying notes to consolidated financial statements.
</TABLE>
F7<PAGE>
<PAGE> 44
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for January 31, 1997 and 1996 is unaudited)
==============================================================================
1. SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS
Versus Technology, Inc. (Versus) and its wholly-owned subsidiary,
Olmsted Engineering Co. (Olmsted), collectively referred to as "the Company,"
operate in two business segments: security; and systems design and
engineering. All Company operations are located in one facility in Traverse
City, Michigan.
Versus develops and markets products using infrared technology for the
health care industry and other markets located throughout North America.
These products permit the instantaneous identification and tracking of the
location of people and equipment, can be used to control access and permit
instantaneous two-way communication. Versus also develops, markets and
integrates cellular products for the security industry.
As discussed more fully in Note 3, Versus acquired Olmsted in August
1996. Olmsted writes and maintains complex software programs for the
computer-aided design and computer-aided manufacturing (CAD/CAM) industry.
It sells its own software under the ACU.CARV(TM) name, resells third party
software, and provides systems support services throughout North America.
It receives monthly maintenance and enhancement fees from customers in order
to receive technical support and semi-annual releases. Olmsted also
provides software programming services to Versus.
During 1995, Versus 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. All related costs of
this relocation, including the write-down of nonessential property and
equipment to net realizable value, were recognized in fiscal year 1995.
The Company maintains its cash accounts in national banks and does not
consider there to be a credit risk arising 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Versus
and the accounts of Olmsted since the date of acquisition. Upon
consolidation, all significant intercompany accounts and transactions are
eliminated.
BASIS OF PRESENTATION -- INTERIM PERIOD FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of
January 31, 1997 and for the three months ended January 31, 1997 and 1996, do
not include all disclosures provided in the annual consolidated financial
statements. They should be read in conjunction with the consolidated
financial statements and the footnotes thereto included herein.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position as
of January 31, 1997 and 1996. The results of operations for the three months
ended January 31, 1997, are not necessarily indicative of the results to be
expected for the full year.
F8<PAGE>
<PAGE> 45
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
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.
Revenue from software product sales is recognized when the related
goods are shipped and the obligations of the Company have been satisfied.
Revenue from software maintenance and service contracts is recognized pro
rata over the life of the individual contracts. Revenue from programming
services is recognized as services are provided.
Revenue from advance payments received from customers is deferred until
all revenue recognition criteria are satisfied.
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, less accumulated
depreciation. Depreciation is computed principally on the straight-line
method for financial reporting purposes and accelerated methods for income
tax purposes over the following estimated useful lives:
Machinery, equipment and vehicles 3 to 10 years
Furniture and fixtures 3 to 10 years
Leasehold improvements 5 years
SOFTWARE DEVELOPMENT COSTS
Software development costs recorded at October 31, 1996, represent the
estimated fair value of Olmsted's ACU.CARV(TM) and related software as of the
August 1996 acquisition date, less amortization through the fiscal year-end.
Amortization is computed on a straight-line base over eight years. With
respect to future software development, costs incurred to ready software
products for sale from the time that technological feasibility has been
established, as evidenced by a detailed working program design, to the time
that the product is available for general release to customers will be
capitalized. Such capitalized costs will be amortized based on current and
future revenue for each product with an annual minimum equal to the
straight-line amortization over the remaining estimated economic lives of
the products. Costs incurred prior to establishing technological
feasibility and costs incurred subsequent to general product release to
customers will be expensed as incurred.
F9<PAGE>
<PAGE> 46
PATENTS AND OTHER INTANGIBLE ASSETS
Patents and trademarks are recorded at cost, less amortization computed
on a straight line basis over a period of seven to ten years. Other
intangible assets, comprised primarily of supplier royalty agreements, are
recorded at cost, less amortization computed on a straight line basis over
ten years.
GOODWILL AND AMORTIZATION
Goodwill, representing the cost in excess of net assets acquired in the
August 1996 acquisition of Olmsted, which was accounted for using the
purchase method of accounting, is being amortized on a straight line basis
over 15 years. Management periodically reviews goodwill for impairment based
upon the projected undiscounted cash flows from operations to which the
goodwill relates. Identified impairments will be measured based on the
projected discounted cash flows related to those operations. Amortization of
$26,000 has been recorded for the year ended October 31, 1996.
ADVERTISING COSTS
All advertising costs, amounting to $33,000 and $26,000 for the years
ended October 31, 1996 and 1995, respectively, are expensed in the period in
which they are incurred.
INCOME TAXES
Deferred income taxes are recognized for the future tax consequences
attributable to "temporary" differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income 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. The effect on
deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. To the
extent that available evidence about the future raises doubt about the
realization of a deferred income tax asset, a valuation allowance is
established.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is based on the weighted average number of
shares of common stock outstanding. The Company has not included the effects
of options and warrants in its calculation of weighted average shares
outstanding due to their anti-dilutive effect. The resulting weighted average
shares outstanding were 21,860,076 and 5,450,430 for years ended October 31,
1996 and 1995, respectively, and 36,550,700 and 18,910,697 for the three
months ended January 31, 1997 and 1996, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all investments with original maturities of three
months or less to be cash equivalents.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This new statement, effective November 1, 1996 for the Company, requires the
Company to review long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an impairment loss has occurred based
on expected future cash flows, the loss
F10<PAGE>
<PAGE> 47
should be recognized in the statement of operations and certain disclosures
regarding the impairment should be made in the financial statements. The
Company's adoption of SFAS No. 121, during the three months ended January 31,
1997, had no material impact on the Company's financial position or results of
operations.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation,"
was issued. SFAS No. 123 allows companies to continue to account for their
stock option plans in accordance with APB Opinion 25 but encourages the
adoption of a new accounting method to record compensation expense based on
the estimated fair value of employee stock options. Companies electing not
to follow the new fair value based method are required to provide expanded
footnote disclosures, including pro forma net income and earnings per share,
determined as if the company had applied the new method. The Company was
required to adopt SFAS No. 123 prospectively beginning November 1, 1996.
Management has continued to account for its stock option plans in accordance
with APB Opinion No. 25 and will provide supplemental disclosures as required
by SFAS No. 123, beginning in 1997. No additional disclosures are required on
an interim basis.
2. OPERATIONS AND LIQUIDITY
Losses incurred during 1996 and accumulated losses to date have had a
significant adverse impact on the Company's financial position. During
fiscal 1996, the Company relied primarily on cash proceeds generated from
private placements of its common stock in September 1995 and again in August
1996. Those two private placement offerings generated net proceeds to the
Company of approximately $2.7 million and $5.4 million, respectively. The
cash balances at October 31, 1996 resulted from the proceeds of the most
recent private placement offering. The Company believes the combination of
these cash balances, the cash expected to be generated during fiscal 1997
from the market introduction of its infrared tracking systems, and continued
sales of software and related services related to its recent acquisition of
Olmsted, should be sufficient to meet projected cash needs over the next
twelve months.
3. ACQUISITION AND DISPOSITION
ACQUISITION
On August 26, 1996, Versus issued 6,379,889 shares of its common stock,
valued for accounting purposes at $.50 per share, and paid $65,000 in cash,
in exchange for all of the outstanding common stock and preferred stock of
Olmsted Engineering Co. The purchase price amounted to $3,255,000. For
accounting purposes, the price of the acquisition was determined based upon
a contemporaneous sale of restricted common stock at $.50 per share.
Olmsted, which will continue to do business as a wholly-owned subsidiary
under the name "Olmsted Engineering Co.," is in the business of developing,
marketing and maintaining various software products used primarily in the
mold, die and pattern making industries. Prior to the acquisition, the
President of Versus owned a majority of all classes of stock of Olmsted.
Olmsted has served as a research and development consultant to Versus since
1994 and has leased office space to Versus on a temporary basis since 1995.
The occurrence of the acquisition was conditioned upon Versus raising
at least $4.5 million, net of commissions, through a private placement of
its common stock, as discussed in Note 8. On August 26, 1996, the date of
the acquisition, Versus sold 11,335,000 shares of its common stock in a
private offering to accredited investors at a price of $.50 per share, with
proceeds totaling $5,201,000, net of issuance costs.
F11<PAGE>
<PAGE> 48
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the estimated fair
values at the acquisition date. The excess of the purchase price over the
fair values of the net assets acquired was $2,339,000 and has been recorded
as goodwill, which is being amortized on a straight-line basis over 15 years.
The purchase price was allocated as follows:
Working capital $ 145,000
Property and equipment 171,000
Software development costs 600,000
Goodwill 2,339,000
------------
Total purchase price $ 3,255,000
============
As of the acquisition date, Olmsted had net operating loss carryforwards
for federal income tax purposes amounting to approximately $1,800,000, subject
to certain tax law limitations, which expire through 2011, if not previously
utilized. As discussed in Note 6, the Company has recorded a 100% valuation
allowance relating to the tax effects of these net operating loss
carryforwards. The following unaudited pro forma information has been
prepared assuming the acquisition had taken place at the beginning of the
respective periods. The pro forma information includes adjustments for
depreciation based on the fair value of the property and equipment acquired,
intercompany transactions, the amortization of intangibles arising from the
transaction and the shares issued in the acquisition. The pro forma financial
information is not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been effected on
the assumed dates.
Pro forma results for
Three months ended Year ended October 31,
January 31, 1996 1996 1995
---------------- ------------------------
Net sales $ 126,000 $ 768,000 $ 1,756,000
Net loss (434,000) (2,168,000) (2,489,000)
Net loss per common share (.02) (.08) (.22)
Olmsted's operating results have been included in the consolidated
statement of operations since the date of acquisition.
SALE OF MAJORITY-OWNED SUBSIDIARY
During 1992, the Company completed the sale of all of its capital stock
in a wholly-owned subsidiary to a newly-formed organization headed by the
management of the former subsidiary. The purchase price was approximately
$1,653,000 plus repayment of certain indebtedness from the former subsidiary
to the Company.
The Company realized a net gain from this transaction of approximately
$1,129,000. Due to the fact that the purchaser was 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 during the year ended October 31, 1995.
F12<PAGE>
<PAGE> 49
4. NOTES RECEIVABLE
The Company has notes receivable of $60,000 in connection with certain
sales of software which have been reduced by an allowance for doubtful
accounts of $9,000. The notes are due in various payment terms, carry
interest at rates ranging from 7.5% to 8.5% and mature at various dates
through March 2000.
5. NOTES PAYABLE
DEMAND NOTE
As part of the Olmsted acquisition, the Company assumed a liability for a
6% demand note payable to a former Olmsted shareholder. Effective October 30,
1996, the note ($74,745) and accrued interest ($12,459) were settled, at no
gain or loss, by the issuance of 174,408 shares of the Company's common stock.
TERM NOTE
On August 1, 1995, the Company signed a note payable to one of its law
firms for $449,000 as partial payment of fees billed. The note bears interest
at a specified bank's prime rate, 8.25% at October 31, 1996, and requires
monthly installments of $10,000 each, including interest, commencing on
December 1, 1995, with a balloon payment for the remaining balance due on
January 1, 1997. The note, amounting to $367,000 at October 31, 1996, is
secured by the Company's patents and intellectual property. Approximately
$150,000 of additional fees to the same law firm are included in accounts
payable at October 31, 1996 and 1995. Management intends to dispute the
amount and terms of payment of the remaining unpaid balances. Any adjustment
of the unpaid balance will be recognized in the period in which it is made.
6. INCOME TAXES
Deferred income taxes result from temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The tax effects of temporary differences that
give rise to deferred tax assets at October 31, 1996 and 1995 are as follows:
1996 1995
------------------------------
Net operating loss carryforwards $ 6,052,000 $ 6,040,000
Inventory reserves - 8,000
Receivables - allowance for
doubtful accounts 21,000 10,000
Accumulated depreciation 3,000 -
Intangible asset amortization 2,000 24,000
Accruals and reserves 25,000 62,000
------------------------------
Gross deferred income tax assets 6,103,000 6,144,000
Less valuation allowance (6,103,000) (6,144,000)
------------------------------
Net deferred income tax assets
recorded in the consolidated
financial statements $ - $ -
==============================
At October 31, 1996, the Company had available net operating loss
carryforwards for federal income tax reporting purposes of approximately
$17,800,000 which expire through 2011, if not previously utilized.
F13<PAGE>
<PAGE> 50
The above net operating loss carryforward amounts include amounts
attributable to Olmsted which were carried over to the consolidated group as
part of the August 1996 acquisition. State net operating loss carryforwards
of Versus attributable to a state in which the Company no longer operates are
not included in the October 31, 1996, net operating loss carryforward amounts.
The utilization of the total operating loss carryforwards of Versus and
Olmsted are subject to limitations under the Internal Revenue Code rules
relating to change of ownership.
Due to the recording of the valuation allowance for deferred income tax
assets at October 31, 1996, actual related tax benefits recognized in the
future will be reflected as either a reduction of future income tax expense or
goodwill related to the acquisition of Olmsted. Those tax benefits will be
allocated as follows:
Income tax benefit that would be reported in the
consolidated statement of operations as a
reduction of income tax expense $ 5,491,000
Recognized as a reduction of goodwill 612,000
------------
$ 6,103,000
============
Realization of the gross deferred income tax assets is dependent upon
generating sufficient taxable income prior to expiration of the loss
carryforwards and, as discussed above, the loss carryforwards are subject to
tax law limitations. In assessing the realizability of deferred income tax
assets, management follows the guidance contained within SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred income tax assets
be reduced by a valuation allowance if, based on the weight of available
evidence, it is "more likely than not" that some portion or all of the
deferred income tax assets will not be realized. Under the provisions of SFAS
No. 109, forming a conclusion that a valuation allowance is not needed is
difficult when there is negative evidence such as cumulative losses in recent
years and tax law limitations, as discussed above. While it believes the
Company will be profitable in the future, management has concluded that,
following the guidance of SFAS No. 109, it is "more likely than not" that
these deferred income tax assets will not be realized. The net reduction in
the valuation allowance during the year ended October 31, 1996, amounting to
$41,000, is attributable to additional losses incurred during the year and the
carry over losses of Olmsted relating to the August 1996 acquisition, reduced
by the state net operating carryforwards, as discussed above, and an
adjustment for the difference between the prior year estimated and actual net
operating loss carryforward amount.
For the years ended October 31, 1996 and 1995, income taxes differed from
the amounts computed by applying the federal statutory rate of 34% to losses
before income taxes as follows:
1996 1995
----------------------------
Computed "expected" tax benefit $ (682,000) $ (849,000)
Increase (decrease) in tax
resulting from:
Adjustment to valuation
allowance for deferred income
tax assets relating to current
year losses 677,000 827,000
Nondeductible expenses 5,000 22,000
----------------------------
$ - $ -
============================
F14 <PAGE>
<PAGE> 51
7. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACT
On July 1, 1996, the Company entered into an employment agreement with
its President, which expires on June 30, 2002. The agreement provides for
payment of specified compensation amounts and specified fringe benefits during
the term of the agreement.
LITIGATION
In January 1995, the Company settled litigation pending with a former
employee of the Company. As part of the settlement, the employee agreed to
forego all his prior stock options, and was issued 100,000 new stock
options immediately exercisable at $.50 per share, expiring five years from
the date of issuance. The additional costs of the settlement were
recognized in the Company's 1995 financial statements.
A judgment in the amount of approximately $132,000 was entered against
the Company in 1995 in connection with a patent infringement suit. This
judgment was settled by transferring $121,000 in inventory to the Plaintiff.
The remainder of the judgment was settled by an approximate $11,000 payment in
1996. All amounts of the settlements were accrued in the 1995 financial
statements. During 1995, in connection with the patent infringement judgment,
the Company wrote down all inventory, intangible assets, and fixed assets
related to the product line named in the lawsuit to net realizable value.
A judgment was entered against the Company during 1995 in connection with
litigation relating to the exercise of certain warrants. The judgment of
approximately $195,000 was accrued in the Company's 1995 financial statements.
The judgment was upheld on appeal during 1996 and was paid by the Company plus
interest and costs which were not material.
A suit was filed in November 1996, and a nearly identical suit was filed
in January, 1997, against the Company alleging that the Company allowed
certain warrants to expire which the plaintiff held and that the plaintiff was
damaged by the warrants' expiration. The plaintiffs also allege that the
Company breached the warrant agreement pursuant to which the warrants were
issued to the plaintiffs and claim that the sale by the Company of restricted
stock in late 1993 required a downward adjustment of the exercise price of the
warrants under the warrant agreement. Each sole named plaintiff alleges this
action should be tried as a class action, and alleges he is an appropriate
representative of the class. The plaintiffs further allege their claims are
substantially identical to the claims made by the plaintiff in the litigation
discussed in the preceding paragraph, which involved only 300,000 of the
2,233,800 Class A warrants at issue. Apparently, the plaintiffs believe the
Company has a liability for each of the remaining warrants identical to the
per warrant liability the Company had for the 300,000 warrants discussed in
the preceding paragraph. Due to the recent filing of this suit, any loss
potential is not determinable at this time. However, the Company disputes the
material allegations of the complaint and intends to vigorously defend itself
against this matter.
A suit was filed in May 1996 against Olmsted and its Chairman (the
current President of the Company) alleging that in connection with a private
offering in 1994, Olmsted and its Chairman breached an oral promise allegedly
made in connection with the plaintiffs' purchase of common stock. The
plaintiffs alleged that Olmsted's Chairman promised that the holders of
Olmsted preferred stock would cancel all of their preferred stock in
consideration of the plaintiffs' contemplated investment in Olmsted, so that
the plaintiffs would own approximately 19% of Olmsted after their investment
(and have options to purchase an equal amount of shares). Olmsted and its
F15<PAGE>
<PAGE> 52
Chairman denied that any such representation was ever made. Subsequent to
year end, a settlement agreement was entered into and the suit was dismissed.
The settlement amount, which was not material, was accrued in the 1996
consolidated financial statements.
In January 1997, a suit was filed by a former employee of the Company
alleging wrongful discharge. The termination occurred prior to the Company's
current President and Chief Executive Officer assuming that position. The
Company disputes the central allegations of the Complaint. The Company
believes that should any judgment be rendered against the Company in this
matter, it will be less than $200,000.
Total legal fees and other associated costs incurred in connection with
the above settlements amounted to $195,000 and $896,000 for the years ended
October 31, 1996 and 1995, respectively.
8. SHAREHOLDERS' EQUITY
STOCK OFFERINGS
On August 26, 1996, the Company completed a private placement of
11,335,000 restricted shares of common stock concurrently with the Olmsted
acquisition discussed in Note 3. The purchase price was $.50 per share. The
Company received $5,667,500, less placement agent commissions of approximately
$397,000 and other professional fees of approximately $70,000. In addition,
the placement agent was granted five-year warrants to purchase 396,725 shares
of the Company's common stock at a price of $.50 per share. The proceeds will
be used to fund the development and marketing of infrared tracking products
and to meet anticipated cash flow needs. These shares also contain certain
registration rights which generally include (1) that the investors, as a
class, will have the right to demand registration to be implemented by notice
to the Company by a 25% interest of the investors of their desire to sell
their shares; (2) 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 (under current rules three
years from closing); and (3) 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 1996, the Company sold 425,000 shares of common stock to a present
shareholder for $.375 per share, which represented the fair value of the
common stock at that time.
On September 29, 1995, the Company completed a private placement of
14,674,917 restricted shares of common stock. The purchase price was $.20 per
share. The Company received $2,935,000, less placement agent commissions of
approximately $205,000 and 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 infrared tracking products, and to meet
anticipated cash flow needs. These shares also are subject to certain
registration rights which generally are identical to those set forth in the
August 26, 1996 registration rights agreement discussed above, except that a
majority in interests of shares is required to demand registration under this
agreement.
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 was recognized
in the accompanying 1995 financial statements.
STOCK WARRANTS
At October 31, 1996, the Company has outstanding warrants in the
following amounts exercisable through the following dates:
F16<PAGE>
<PAGE> 53
1. Warrants to purchase 225,000 shares at an exercise price of $2.05,
expiring in September 1998, issued relative to a 1993 private placement;
2. Warrants to purchase 70,000 shares at an exercise price of $2.05,
expiring in September 1998, issued relative to a 1993 private placement;
3. Warrants to purchase 95,000 shares at an exercise price of $1.00,
expiring in September 1999, issued to lenders with respect to a bridge loan
extended to the Company in September of 1994;
4. Warrants to purchase 200,000 shares at an exercise price of $0.50,
expiring in June 2000, issued to lenders with respect to a bridge loan
extended to the Company in July of 1995;
5. Warrants to purchase 1,027,244 shares at an exercise price of $0.20,
expiring in September 2000, issued to the private placement agent in September
1995; and
6. Warrants to purchase 396,725 shares at an exercise price of $.50,
expiring in August 2001, issued to the private placement agent in August 1996.
STOCK OPTIONS
The Company's 1996 Employee Incentive Stock Option Plan grants key
management employees options to purchase shares of common stock. A total of
2,000,000 shares are available for grant under the plan. During 1996,
1,000,000 options were granted to the Company's President at $.375 per share,
which represented the fair value of the common stock at the grant date. The
options may be exercised from six months to ten years after the date of the
grant, based on a vesting schedule. Under the vesting schedule, 250,000
options became exercisable in December 1996 and an additional 250,000 are
exercisable each December for the next three years. No options were
exercisable under the plan at October 31, 1996.
The Company has issued additional stock options under a variety of
agreements over the past few years. Under two agreements, the Company has
issued options expiring in 2000 and 2001, respectively, to purchase a total of
200,000 shares at $.50 per share to former employees. As part of the Olmsted
acquisition, options held by Olmsted shareholders to acquire additional
Olmsted common shares were converted to options to acquire 266,870 of the
Company's shares at an exercise price of $.637 per share. These options
expired unexercised on December 1, 1996. The Company also had options
outstanding to a former employee to purchase 3,334 shares at $.84 per share,
and 1,000 shares at $1.56 per share, which options expired unexercised. All
of the outstanding options under these agreements are exercisable at October
31, 1996.
RESTRICTED STOCK BONUS PLAN
During 1996, the Company established the 1996 Incentive Restricted Stock
Bonus Plan and reserved 500,000 common shares for issuance under the plan.
Under the terms of the plan, any salaried employee of the Company or any
subsidiary, except the President and directors, are eligible to receive an
allocation of bonus shares. Allocations of bonus shares are recommended by
the President and approved and adjusted, if necessary, by the Board of
Directors. Within fifteen days of the allocation, the employee shall, if he
desires to accept the allocation, pay to the Company an amount equal to the
par value of the allocated bonus shares.
F17<PAGE>
<PAGE> 54
Upon issuance of bonus shares to the employee, he or she will have all
the rights of a shareholder with respect to such shares, including the right
to vote them and to receive all dividends and other related distributions.
Bonus shares may not, however, be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of within three years after the date of
issuance unless they are first offered by written notice back to the Company.
If a recipient's employment is terminated for any reason during the three-year
period, the termination will be deemed as an offer to the Company to
repurchase the shares at par value as follows: 100% if termination occurs
within one year from date of issuance; 75% if termination occurs within two
years, and 50% if the termination occurs within three years.
Effective October 30, 1996, 253,467 shares were granted and issued in
conjunction with the bonus plan. The market value of the shares awarded was
$226,000. The difference between the market value and the sales price ($.01
per share) of the shares, amounting to $223,000, was recorded as unearned
compensation and is presented as a separate component of shareholders' equity.
Beginning November 1, 1996, unearned compensation will be amortized to expense
over the three-year vesting period.
STOCK ISSUANCE
As of January 31, 1997, 1,600,000 restricted shares of common stock,
valued for accounting purposes at $1,000,000, were issued to Precision
Tracking FM, Inc. (PTFM) in consideration of a License Agreement for the
Company to become a licensee of PTFM's patents and other intellectual property
rights related to infrared tracking technology. The Company has entered into
a Registration Rights Agreement with PTFM with respect to these shares (see
Note 13).
9. RELATED PARTY TRANSACTIONS
The President and Chief Executive Officer of the Company was also the
Chief Executive Officer, a member of the Board of Directors and a stockholder
of Olmsted which was acquired by the Company effective August 26, 1996, as
discussed in Note 3.
Olmsted provided a number of resources to the Company for the period
ended August 26, 1996 and for the year ended October 31, 1995, including
research and development, pass-through billings, use of office space and
development of a business plan. Related party billings for the period ended
August 26, 1996 and the year ended October 31, 1995 were as follows:
1996 1995
-------------------------
Programming $ 548,000 $ 666,000
Engineering pass-through billings 167,000 143,000
Business plan and materials 21,000 39,000
Rent 19,000 -
------------------------
Total Olmsted billings $ 755,000 $ 848,000
========================
Related party billings for the three months ended January 31, 1996
totaled $277,000.
The Company believes that services provided by Olmsted were 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 former business location of Olmsted.
The Company and Olmsted intend to move their principal operating
facilities in December 1996 to a building which is beneficially owned by the
Company's President. The Company and Olmsted have entered into separate
five-year lease agreements calling for aggregate annual rents of $111,000,
increasing 4% annually after the first year. The Company and Olmsted have
made combined non refundable contributions to leasehold improvements amounting
to $85,000, in accordance with terms of the lease agreements.
F18<PAGE>
<PAGE> 55
10. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan for all of its employees. Under the
plan, the Company contributes $.50 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). Company contributions
are 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 vest over a six-year
period for Company contributions. The Company's contributions to the plan
were $1,460 and $8,000 for the years ended October 31, 1996 and 1995,
respectively.
11. NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 3, on August 26, 1996, Versus issued 6,379,889
shares of its common stock, valued for accounting purposes at $.50 per share,
and paid $65,000 in cash in exchange for all of the outstanding common stock
and preferred stock of Olmsted. The purchase price amounted to $3,255,000.
As discussed in Note 5, effective October 30, 1996, the Company settled
a note payable of $74,745 and accrued interest of $12,459 by issuance of
174,408 shares of the Company's common stock.
As discussed in Note 13, as of January 31, 1997, 1,600,000 restricted
shares of common stock, valued for accounting purposes at $1,000,000, were
issued to PTFM in consideration of a License Agreement for the Company to
become a licensee of PTFM's patents and other intellectual property rights
related to infrared technology.
During 1994, the Company classified certain of its assets and
liabilities related to a particular product line as assets held for sale.
Those items were sold for cash of $1,293,000 in November 1994. The
components of those items sold were as follows, as of November 1, 1994:
Inventory, property,
plant and equipment,
net $929,000
Accounts payable (57,000)
--------
Net assets held for sale $872,000
========
During 1995, approximately $449,000 of accounts payable were renegotiated
to a note payable as discussed in Note 5.
12. BUSINESS SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates in two business segments: security; and systems
design and engineering. During fiscal 1995 and through August 1996, when
Olmsted was acquired, the Company operated only in the security segment. The
security segment includes the Company's infrared products marketed to the
health care industry and other markets and its cellular products for the
security industry. The systems design and engineering segment, operated under
the Olmsted name, develops, sells and maintains programs for use in operating
complex machinery.
Net sales, operating income (loss), identifiable assets, capital
expenditures and depreciation and amortization pertaining to the business
segments are presented below.
F19<PAGE>
<PAGE> 56
NET SALES
Security $ 246,000
Systems design and engineering 102,000
-----------
$ 348,000
===========
OPERATING LOSS
Security $(1,927,000)
Systems design and engineering (53,000)
-----------
Total operating loss (1,980,000)
General corporate expenses (50,000)
Interest income, net 24,000
-----------
Net loss $(2,006,000)
===========
IDENTIFIABLE ASSETS
Security $ 542,000
Systems design and engineering 3,234,000
Corporate 5,011,000
-----------
$ 8,787,000
===========
CAPITAL EXPENDITURES
Security $ 111,000
Systems design and engineering 3,000
-----------
$ 114,000
===========
DEPRECIATION AND AMORTIZATION
Security $ 75,000
Systems design and engineering 53,000
-----------
$ 128,000
===========
Net sales in excess of 10% of the Company's total net sales were
attributable to sales to three and four major customers for the years ended
October 31, 1996 and 1995, respectively. These individual customers accounted
for net sales of approximately $56,000 (16%), $37,000 (11%) and $34,000 (10%)
in fiscal year 1996 and $286,000 (29%), $144,000 (15%), $134,000 (14%) and
$103,000 (11%) in fiscal year 1995.
13. ACQUISITION OF INTELLECTUAL PROPERTY
As of January 31, 1997, the Company and PTFM signed an Agreement (License
Agreement) for the Company to become the exclusive licensee of PTFM's patents
and other intellectual property rights related to infrared tracking technology
for ten years, and non-exclusive thereafter. PTFM has previously been a
supplier of infrared components to the Company.
Concurrent with executing the License Agreement, a short-term (one year)
Engineering and License Agreement (Engineering Agreement) was entered into by
the parties to assist the Company in the technology transfer and to support
the Company in use and development of the technology.
In consideration of the License Agreement, based on negotiations between
the parties, the Company agreed to pay $500,000 in cash and 1.6 million
restricted shares of the Company's common stock.
Under the Engineering Agreement, the Company is required to reimburse
PTFM for expenses incurred in providing the services covered by the agreement.
Such expense reimbursement payments are estimated at $40,000 per month during
the one year term, with additional reimbursement of authorized expenses as
applicable.
The total amount capitalized at January 31, 1997, to be amortized over
the 10-year exclusivity period of the agreement, amounted to $1,540,000,
including costs of the transaction. This includes prepaid PTFM royalty costs
of $25,000 which were reclassified to "patents and other intangible assets".
F20<PAGE>
<PAGE> 57
OLMSTED ENGINEERING CO.
Financial Statements
September 30, 1995
(With Independent Auditors' Report Thereon)
F21<PAGE>
<PAGE> 58
Independent Auditors' Report
The Board of Directors and Stockholders
Olmsted Engineering Co.:
We have audited the accompanying balance sheet of Olmsted
Engineering Co. as of September 30, 1995, and the related
statements of operations, stockholders' equity, and cash flows
for the year ended September 30, 1995. 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 audit.
We conducted our audit 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 audit provides 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 Olmsted Engineering Co. as of September 30, 1995, and the
results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting
principles.
/S/ KMPG PEAT MARWICK LLP
__________________________
KPMG Peat Marwick LLP
August 16, 1996
Princeton, New Jersey
F22<PAGE>
<PAGE> 59
OLMSTED ENGINEERING CO.
Balance Sheet
September 30, 1995
============================================================
Assets
____________________________________________________________
Current assets:
Cash and cash equivalents $ 59,393
Trade accounts receivable, net of allowance
for doubtful accounts of $10,772
(note 9) 269,923
Notes receivable, net (note 1) 17,537
Prepaid expenses and other assets 6,199
____________________________________________________________
Total current assets 353,052
____________________________________________________________
Property and equipment (note 2) 317,986
Accumulated depreciation and amortization 206,882
____________________________________________________________
Net property and equipment 111,104
____________________________________________________________
Other assets:
Notes receivable, net (note 1) 22,989
Investment in affiliate (note 9) 101,978
Software development costs, net of accumulated
amortization of $868,974 (note 1) 372,363
____________________________________________________________
$ 961,486
============================================================
============================================================
Liabilities and Stockholders' Equity
____________________________________________________________
Current liabilities:
Accounts payable $ 77,361
Accrued expenses 49,790
Line-of-credit (note 3) 142,098
Notes payable (note 4) 78,139
____________________________________________________________
Total current liabilities 347,388
____________________________________________________________
Commitments and contingencies
Stockholders' equity (note 5):
Common stock, $.01 par value, authorized
500,000 shares issued 412,944 shares 4,129
Preferred stock, $100 par value, authorized
30,000 shares: issued 24,096 shares 2,409,600
Preferred stock Series A, $100 par value,
authorized 10,000 shares: issued
1,500 shares 150,000
Additional paid-in capital 359,549
Accumulated deficit (2,309,180)
____________________________________________________________
Total stockholders' equity 614,098
____________________________________________________________
Commitments and contingencies (notes 7, 10 and 12)
$ 961,486
============================================================
See accompanying notes to financial statements.
F23<PAGE>
<PAGE> 60
OLMSTED ENGINEERING CO.
Statement of Operations
Year ended September 30, 1995
============================================================
Net sales $ 1,540,659
Costs of sales 680,764
____________________________________________________________
Gross profit 859,895
Selling and administrative expenses 689,971
____________________________________________________________
Operating income 169,924
Gain from sale of equipment 916
Interest income 3,877
Interest expense (24,781)
____________________________________________________________
Income before income taxes 149,936
Income taxes (note 8) 68,614
____________________________________________________________
Net income $ 81,322
============================================================
See accompanying notes to financial statements
F24<PAGE>
<PAGE> 61
<TABLE>
OLMSTED ENGINEERING CO.
Statement of Stockholders' Equity
Year ended September 30, 1995
===============================================================================================
Preferred Additional
Common Preferred Stock paid-in Accumulated
Shares Stock Shares Stock Shares Series A capital deficit Total
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1994 343,333 $ 3,433 24,096 $ 2,409,600 1,500 $ 150,000 304,849 (2,390,502) 477,380
Issuance of
common stock 69,611 696 - - - - 54,700 - 55,396
Net income - - - - - - - 81,322 81,322
________________________________________________________________________________________________________________
Balance at
September 30, 1995 412,944 $ 4,129 24,096 $ 2,409,600 1,500 $ 150,000 359,549 (2,309,180) 614,098
===============================================================================================
See accompanying notes to financial statements
</TABLE>
F25<PAGE>
<PAGE> 62
OLMSTED ENGINEERING CO.
Statement of Cash Flows
Year ended September 30, 1995
===========================================================================
Cash flows from operating activities:
Net income $ 81,322
Adjustments to reconcile net income to net cash provided
by operating activities:
Bad debts 54,801
Depreciation and amortization 151,444
Deferred income taxes 50,550
Gain on sale of equipment (916)
Stock issued as compensation 25,000
Changes in operating assets and liabilities:
Increase in accounts receivable (223,804)
Increase in notes receivable (13,012)
Decrease in prepaid expenses and other assets 3,602
Increase in accounts payable 34,517
Increase in accrued expenses 39,937
___________________________________________________________________________
Net cash provided by operating activities 203,441
___________________________________________________________________________
Cash flows from investing activities:
Purchases of property and equipment (74,683)
Proceeds from sale of equipment 5,132
Investment in affiliate (101,978)
__________________________________________________________________________
Net cash used in investing activities (171,529)
__________________________________________________________________________
Cash flows from financing activities:
Proceeds from issuance of stock 30,396
Net repayments on line-of-credit (50,009)
Repayments of notes payable (18,990)
__________________________________________________________________________
Net cash used in financing activities (38,603)
__________________________________________________________________________
Net decrease in cash and cash equivalents (6,691)
Cash and cash equivalents, beginning of year 66,084
__________________________________________________________________________
Cash and cash equivalents, end of year $ 59,393
==========================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 20,564
Cash paid during the year for income taxes 2,800
==========================================================================
See accompanying notes to financial statements.
F26<PAGE>
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Description of Business
Olmsted Engineering Co. (the Company) was incorporated in
1976, in the State of Michigan, and writes complex software
programs for the computer-aided design and computer-aided
manufacturing (CAD/CAM) industry. The Company resells its
own and third party software, and services system needs
throughout North America. The Company also provides
software programming services to an affiliated Company.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits. For
the purpose of the Statement of Cash Flows, the Company
classifies all highly liquid investments with maturity of
three months or less at the time of purchase as cash
equivalents.
Investment in Affiliate
Investment in affiliate consists of marketable securities
of a company affiliated through common ownership and control
and is accounted for under the equity method. See note 9.
Trade Accounts Receivable
Trade accounts receivable arise from the Company's sales of
its own and third party software and the performance of
programming services and are stated net of allowance for
doubtful accounts of $10,772 as of September 30, 1995.
Notes Receivable
In connection with certain sales of software, the Company
has installment notes receivable totaling $40,526 at
September 30, 1995, which has been reduced by an allowance
of for doubtful accounts of $9,397. The notes are due in
various payment terms, carry interest at rates of
approximately 8.0 percent, and mature at various dates
through June 1999.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the assets which range from 5 to 7 years.
The costs of leasehold improvements are amortized using the
straight-line method over the shorter of their estimated
useful lives or the lease term.
F27<PAGE>
<PAGE> 64
(1) Continued
Revenue Recognition
Revenue from software product sales is recognized when the
related goods are shipped and the obligations of the
Company have been satisfied. Revenues from maintenance
agreements and programming services are recognized as
earned.
Software Development Costs
During the year ended September 30, 1989, the Company
capitalized certain costs related to the development of the
Company's ACU.CARV(TM) software. The costs were capitalized
after the Company established commercial and technical
feasibility for the product in accordance with Statement of
Financial Accounting Standard No. 86, Accounting for
Software Development Costs. Amortization of these costs
commenced when the product was made available for general
release to customers and is being computed using the
straight-line method over a period of ten years.
Income Taxes
The Company is subject to federal and state income taxes on
its net annual earnings.
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is
recognized in income during the period that includes the
enactment date.
Concentration of Risks
Financial instruments that potentially expose the Company
to concentration of credit risk consist primarily of trade
accounts receivable and notes receivable. The Company
extends uncollateralized credit to customers, substantially
all of whom are in businesses in the trade area.
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual
results could differ from those estimates.
F28<PAGE>
<PAGE> 65
(2) Property and Equipment
Property and equipment consisted of the following:
Computer equipment $ 193,857
Office equipment 36,412
Shop equipment 22,274
Vehicles 24,724
Leasehold improvements 40,719
- ----------------------------------------------------------------------
317,986
Accumulated depreciation and amortization (206,882)
- ----------------------------------------------------------------------
Net property and equipment $ 111,104
======================================================================
(3) Line-of-Credit
The Company has an outstanding balance of $142,098 at
September 30, 1995 on a $250,000 line-of-credit facility
from a bank. The line-of-credit bears interest at prime
plus 1.5 percent (9.0 percent as of September 30, 1995),
payable monthly. The line-of-credit is secured by all the
assets of the Company and by certain marketable securities
and bonds owned by a former stockholder.
(4) Notes Payable
Notes payable consisted of:
Notes payable - individual:
$1,400 per month which includes interest at 8.9%
per annum, unsecured $ 3,394
Note payable - stockholder:
Demand note bearing interest at 6% per annum,
unsecured 74,745
- ------------------------------------------------------------------------
$ 78,139
- ------------------------------------------------------------------------
(5) Capital Stock
The outstanding capital stock of the Company at September
30, 1995 consisted of 1,500 shares of preferred stock
Series A, 24,906 shares of preferred stock, and 412,944
shares of common stock.
F29<PAGE>
<PAGE> 66
(5) Continued
Each share of preferred stock Series A is: (1)entitled to
an annual dividend of 10 percent, non-cumulative,
(2)entitled to liquidation preferences above all other
classes of stock, (3)not entitled to vote, except in
certain circumstances, and (4)redeemable in whole or part
by the Company through cash equal to the par value of such
shares plus an amount equal to all dividends thereon
declared but unpaid as of the date fixed for redemption.
Each share of preferred stock is: (1)Entitled to an annual
dividend of 5 percent, non-cumulative, (2)Entitled to
liquidation preferences above the class of common stock,
(3)not entitled to vote, except in certain circumstances,
and (4)redeemable in whole or part by the Company through
cash equal to the par value of such shares plus an amount
equal to all dividends thereon declared but unpaid as of
the date fixed for redemption.
As of September 30, 1995, the Company has granted to
stockholders, options to purchase 85,000 shares of its
common stock at price of $2.00 per share. These options
may be exercised at any time and expire on December 1,
1996.
(6) Defined Contribution Plan
The Company sponsors a defined contribution plan, available
to substantially all employees. Participants may
contribute from 1 percent to 15 percent of their annual
compensation to the plan subject to IRS limitations. The
Company does not make any matching contributions to the
plan.
(7) Leases
The Company is obligated under a non-cancelable operating
lease for office space. The lease is for a three-year term
and expires in March 1996. Rental expense under this lease
was $48,000 for fiscal year 1995. Future minimum lease
payments under operating leases as of September 30, 1995
are $24,000 which is due in the year ending September 30,
1996.
(8) Income Taxes
Income taxes for the year ended September 30, 1995
consisted of:
Current Deferred Total
U.S. Federal $ - 50,550 50,550
State 18,064 18,064
- ------------------------------------------------------------------------
$ 18,064 50,550 68,614
========================================================================
F30<PAGE>
<PAGE> 67
Income tax expense for the year ended September 30, 1995
differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income
primarily due to the impact of state taxes and meals and
entertainment expense disallowances.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and
deferred tax liabilities at September 30, 1995 are as
follows:
Deferred tax
asset:
Net operating loss carryforwards $ 823,000
Less valuation allowance (692,000)
- ----------------------------------------------------------------------
Deferred tax assets, net of valuation allowance 131,000
- ----------------------------------------------------------------------
Deferred tax
liabilities:
Furniture and equipment 5,000
Software development costs 126,000
- ----------------------------------------------------------------------
Total deferred
liabilities 131,000
- ----------------------------------------------------------------------
Net deferred tax
assets $ --
======================================================================
As of October 1, 1994, the Company had recorded
approximately $50,550 as a net deferred tax asset arising
primarily from net operating losses which the Company
believed were more-likely-than not to be recoverable. This
net deferred tax asset was composed of deferred tax assets
in excess of deferred liabilities of approximately $741,000
less a valuation allowance of approximately $690,450. The
full amount of this deferred tax asset was realized during
the year ended September 30, 1995 as a reduction of the
current income tax liability.
As of September 30, 1995, the Company has recorded a
valuation allowance of $692,000 against its deferred tax
assets. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets
will not be realized. As of September 30, 1995, management
of the Company believes that it is more likely than not
that these deferred tax assets will not be realized.
At September 30, 1995, the Company has net operating loss
carryforwards for federal income tax purposes of
approximately $2,243,000 which are available to offset
future federal taxable income, if any, through 2010.
F31<PAGE>
<PAGE> 68
(9) Related Party Transactions
The Company obtains a substantial portion of its sales from
Versus Technology, Inc. (Versus) which is affiliated
through common ownership and management control. During
the year ended September 30, 1995, the Company made sales
to Versus of $709,000 and had related receivables at year-
end of $198,000.
In July 1995, the Company made a loan of $100,000 to Versus
secured by a promissory note bearing interest of 8 percent
due in semi-annual installments. The Company also received
warrants to purchase 50,000 shares of the common stock of
Versus at a price of $0.50 per share. The warrants are
exercisable on January 1, 1996 and expire on June 30, 2000.
On September 29, 1995, the Company converted its $100,000
promissory note and related accrued interest of $1,978 into
509,889 shares of the common stock of the Versus.
The Company accounts for its investment in Versus common
stock under the equity method of accounting as the Company
has the ability to significantly influence the operations
of Versus through common management and members of the
board of directors. As the shares were acquired on
September 29, 1995, the earnings/losses from this
investment for the year ended September 30, 1995 were not
significant.
(10) Litigation
The Company is subject to legal proceedings and claims
which arise in the ordinary course of its business. In the
opinion of management, the amount of ultimate liability
with respect to these actions will not materially affect
the financial position of the Company.
The Company is a co-defendant with one of the Company`s
officers in stockholder litigation pending in Michigan
Circuit Court, wherein the plaintiffs alleged that the
Company and the officers reneged on oral promises made in
connection with a private placement of the Company`s common
stock to the plaintiffs. Damages have not been specified.
The Company and the Company`s officer deny the allegations
and intend to defend against the claim.
(11) Fair Value of Financial Instruments
The following table represents the carrying amounts and the
estimated fair values of the Company`s financial
instruments at December 31, 1995 in accordance with
Statement of Financial Accounting Standards No. 107,
Disclosure About Fair Value of Financial Instruments.
F32<PAGE>
<PAGE> 69
1995
--------------------------
Carrying Fair
Amounts Value
- --------------------------------------------------------------------
Financial
assets:
Cash and cash equivalents $ 59,393 59,393
Trade accounts receivable 269,923 269,923
Notes receivable 40,526 40,526
Investment in affiliate 101,978 245,000
Financial
liabilities:
Accounts payable 77,361 77,361
Accrued expenses 49,790 49,790
Line-of-credit 142,098 142,098
Notes payable 78,139 78,139
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
Cash and cash equivalents, trade accounts
receivable, accounts payable, line-of-credit, and
notes payable: the carrying amounts approximate
fair values because of the relatively short
duration of those instruments.
Notes Receivable: The fair value is estimated as
the future expected cash flows discounted by a
market rate of interest.
Investment in affiliate: The fair value is
estimated based upon the quoted market price of
the Versus common stock.
(12) Pending Business Combination
In August 1995, the Company entered into an agreement
with Versus, wherein the Company has the right to merge
into Versus in exchange for Versus common stock. The
Company`s right to merge into Versus expires on July 31,
1997, or within a sixty days of quarterly filings made
with the Securities and Exchange Commission, in which
Versus meets certain financial goals. The merger is
subject to certain conditions, including the receipt of
an independent valuation of the Company and approval from
the majority stockholder.
F33<PAGE>
<PAGE> 70
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Versus Technology, Inc. and Olmsted Engineering Co.
Fiscal Year Ended October 31, 1996
On August 26, 1996, the Registrant issued 6,379,889 shares of its common
stock, valued for accounting purposes at $.50 per share, and paid $65,000 in
cash, in exchange for all of the outstanding common stock and preferred stock
of Olmsted Engineering Co. ("Olmsted"). The purchase price amounted to
$3,255,000. For accounting purposes, the price of the acquisition was
determined based upon a contemporaneous sale of restricted common stock at
$.50 per share.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the estimated fair
values at the acquisition date, and the results of Olmsted's operations have
been included in the Registrant's financial statements from the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired was $2,339,000 and has been recorded as goodwill, which is
being amortized on a straight-line basis over 15 years.
The purchase price was allocated as follows:
Working capital $ 145,000
Property and equipment 171,000
Software development costs 600,000
Goodwill 2,339,000
_________
Total purchase price $3,255,000
=========
The accompanying condensed consolidated statement of operations illustrates
the effect of the acquisition ("Pro Forma") on the Registrant's results of
operations. While the acquisition occurred on August 26, 1996, the pro forma
condensed consolidated statement of operations is presented as if the
acquisition took place on November 1, 1995.
The pro forma condensed consolidated statement of operations may not be
indicative of the actual results of operations.
The pro forma condensed consolidated statement of operations should be read in
connection with the historical financial statements of the Registrant and
Olmsted.
F34<PAGE>
<PAGE> 71
<TABLE>
VERSUS TECHNOLOGY, INC. and OLMSTED ENGINEERING CO.
Pro Forma Condensed Consolidated Statement of Operations
For the Fiscal Year ended October 31, 1996
=========================================================================================================
Debit Credit Pro Forma
Versus Olmsted Adjusting Entries Consolidated
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Revenues $348,000 $1,175,000 $755,000(1) $ 768,000
Cost of Sales (225,000) ( 308,000) (533,000)
_________________________________________________________________________________________________________
Gross Margin 123,000 867,000 755,000 235,000
Operating expenses (2,153,000) (930,000) 93,000(2) 755,000(1) (2,421,000)
Other income (expense) 24,000 ( 6,000) 18,000
_______________________________________________________________________________________________________
Net income (loss) $(2,006,000) $(69,000) $848,000 $755,000 $(2,168,000)
=======================================================================================================
Weighted average
shares outstanding 21,860,076 26,671,226
Net loss per common and
common equivalent share:
Primary ($.09) ($.08)
Fully diluted ($.09) ($.08)
(1) Eliminating entry to adjust for inter-company revenues and expenses.
(2) Adjustments for depreciation based on the fair value of the property and equipment acquired and
amortization of intangibles arising from the transaction.
</TABLE>
F35<PAGE>
<PAGE> 72
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful.
TABLE OF CONTENTS
Page
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 4
Use of Proceeds........................................................... 8
Selling Stockholders...................................................... 8
Dividend Policy........................................................... 11
Market for Common Stock and Related Stockholder Matters.................. 11
Selected Financial Data................................................... 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 13
Business.................................................................. 18
Management................................................................ 27
Principal Stockholders.................................................... 29
Certain Relationships and Related Transactions............................ 31
Description of Securities................................................. 31
Plan of Distribution...................................................... 34
Legal Matters............................................................. 35
Experts................................................................... 35
Additional Information.................................................... 35
Index to Consolidated Financial Statements................................ 36
12,648,000 SHARES
VERSUS
TECHNOLOGY, INC.
Common Stock
---------------
PROSPECTUS
---------------
---------------
<PAGE>
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145(a) of the Delaware General Corporation Law empowers a
Delaware corporation, generally, to indemnify its directors, officers,
employees or agents (or persons serving at the request of such persons)
against any expenses (including attorneys' fees), judgments, fines and amounts
paid pending on completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, arising from such person's service to the
corporation where such person acted in good faith and a manner reasonably
believed by such person to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such conduct was unlawful. Section 145(b)
similarly empowers a Delaware corporation with respect to suits brought by or
in the right of the corporation, except that indemnification is not available
if such person is found liable to the corporation unless the court in which
the action was brought determines that, in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity despite
the adjudication of liability.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the Common Stock offered hereby.
Securities and Exchange Commission Registration . . . . . . . . . . $ 6,000
Blue Sky Filing Fees. . . . . . . . . . . . . . . . . . . . . . . . $ 6,000
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . $ 0
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . $25,000
Accounting Fees and Expenses. . . . . . . . . . . . . . . . . . . . $20,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62,000
- -------------------
II-1
<PAGE>
<PAGE> 74
Item 26. Recent Sales of Unregistered Securities.
Since March 1, 1994 and to the date hereof the Company has issued the
following securities:
<TABLE>
Securities
Date of Issuance Identity Sold Consideration Exemption
<S> <S> <S> <S> <S>
July 1, 1994 Five lenders Warrants to (1) Section 4(2)
(including officers purchase 100,000
and directors) shares of Common
Stock, 5,000 of
which were
reacquired
July 1, 1995 Seven lenders Warrants to (1) Section 4(2)
(including officers purchase 295,000
and directors) shares Common Stock,
75,000 of which
were reacquired
September 29, 1995 Accredited 14,674,917 $2,934,983 Regulation D
Investors shares of (gross)
(74 persons) Common Stock (2)
June 14, 1996 One Investor 425,000 $159,375 Section 4(2)
(a 5% Holder) shares of
Common Stock
August 26, 1996 Accredited 11,335,000 $5,667,500 Regulation D
Investors shares of (gross)
(100 persons) Common Stock (3)
August 26, 1996 30 Shareholders 6,379,889 All outstanding Regulation D
of Olmsted shares of shares of
Engineering Co. Common Stock Olmsted Engineer-
ing Co.
October 30, 1996 One Lender 174,048 shares of Satisfaction of Section 4(2)
Common Stock $74,745(4)
of Indebtedness
January 31, 1997 One Investor 1,600,000 (4) Section 4(2)
shares of
Common Stock
___________________________________
(1) Paid as additional consideration for Bridge Loan.
(2) As part of its compensation for acting as placement agent for this
transaction, BDS Securities Corporation also received warrants to
purchase 1,027,244 shares of Common Stock.
(3) As part of its compensation for acting as placement agent for this
transaction, BDS Securities L.L.C. also received warrants to purchase
396,725 shares of Common Stock.
(4) Part of the Purchase Price paid to a supplier for its Intellectual
Property.
</TABLE>
In addition, on June 4, 1996 an option to purchase 1,000,000 shares of
Common Stock was issued to Gary Gaisser, the Company's Chief Executive Officer
at $.375 per share, the market value of the Common Stock on the date of grant.
Also, effective October 30, 1996, 253,467 shares of Common Stock were sold to
29 employees at the par value of $.01 per share pursuant to the Company's
Incentive Restricted Stock Bonus Plan. Directors receive shares of Common
Stock each year as compensation and 75,000 shares were so issued in 1995 and
45,000 shares so issued in 1997, all pursuant to the Section 4(2) exemption.
In August of 1995 and again in January of 1996 the Company issued an option to
purchase 100,000 shares to the Company's former Chief Executive Officer and
then the Company's former Chief Financial Officer, both exercisable at $.50
and both expiring in August of 2000 and both pursuant to Section 4(2).
II-2<PAGE>
<PAGE> 75
Item 27. Exhibits.
See Index of Exhibits.
Item 28. Undertakings.
(a) The undersigned Registrant will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) Include any additional or changed information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling
person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of
such issue.
II-3 <PAGE>
<PAGE> 76
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in
Traverse City, Michigan on May 7, 1997.
VERSUS TECHNOLOGY, INC.
By: GARY T. GAISSER
____________________
Gary T. Gaisser
President
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
DATE
GARY T. GAISSER 5/7/97
------------------------------
Gary T. Gaisser
President and Director
(Principal Executive Officer)
ROBERT BUTLER 5/7/97
------------------------------
Robert Butler
Chief Financial Officer
(Principal Accounting Officer)
JULIAN C. SCHROEDER 5/7/97
------------------------------
Julian C. Schroeder
Director
ELLIOT G. EISENBERG 5/7/97
------------------------------
Elliot G. Eisenberg
Director
II-4<PAGE>
<PAGE> 77
Unless otherwise specified, each exhibit is incorporated by reference from the
Issuer's Report on Form 10-KSB for the year ended October 31, 1996.
EXHIBIT INDEX
3(a)(i) Certificate of Incorporation dated October 11, 1988 (Incorporated
by reference from Exhibit 3(a)(i) of the Company's Form 10-KSB
for the year ended October 31, 1995)
3(a)(ii) Certificate of Amendment of Certificate of Incorporation dated
October 25, 1989 (Incorporated by reference from Exhibit 3(a)(ii)
of the Company's Form 10-KSB for the year ended October 31, 1995)
3(a)(iii) Certificate of Amendment of Certificate of Incorporation dated
December 17, 1993 (Incorporated by reference from Exhibit
3(a)(iii) of the Company's Form 10-KSB for the year ended October
31, 1995)
3(a)(iv) Certificate of Amendment of Certificate of Incorporation
(Incorporated by reference from Exhibit 3 of the Company's Form
10-QSB for the quarter ended July 31, 1996)
3(b) By-laws (Incorporated by reference from Exhibit 3(b) of the
Company's Form 10-KSB for the year ended October 31, 1995)
4(a) 1996 Incentive Restricted Stock Bonus Plan
4(b) Stock Option Agreement with Gary T. Gaisser
4(c) Incentive Stock Option Plan (Incorporated by reference from the
Company's 1996 Proxy Statement)
5 Opinion of Dillon, Bitar & Luther (Previously filed as an
exhibit to this Registration Statement) (Previously Filed)
10(a) Lease Agreement between Versus Technology, Inc. and Traverse
Software Investment, LLC
10(b) Lease Agreement between Olmsted Engineering Co. and Traverse
Software Investment, LLC
10(c) Exclusive Marketing Agreement between Versus Technology, Inc. and
Marquette Electronics, Inc.
10(d) Employment Agreement with Gary T. Gaisser
10(e) Registration Rights Agreement dated August 26, 1996
10(f) Registration Rights Agreement dated September 15, 1995
(Incorporated by reference from Exhibit 10(d) of the Company's
Form 10-KSB for the year ended October 31, 1995)
10(g) Registration Rights Agreement dated July 1, 1995 (Incorporated by
reference from Exhibit 10(e) of the Company's Form 10-KSB for
the year ended October 31, 1995)
10(h) Precision Tracking FM, Inc. Agreement (Incorporated by reference
to Report on Form 8-K filed on February 18, 1997)
10(i) Engineering Services and Licensing Agreement with Precision
Tracking FM, Inc. (Incorporated by reference to Report on Form
8-K filed on February 18, 1997)<PAGE>
<PAGE> 78
10(j) Form of Registration Rights Agreement with Precision Tracking FM,
Inc. (Incorporated by reference to Report on Form 8-K filed on
February 18, 1997)
11 Statement Re: Computation of Per Share Earnings (Included herein)
16 Letter on Change in Certifying Accountant (Incorporated by
reference from Exhibit 16 of the Company's Form 8-K dated October
24, 1996)
21 Subsidiary of the Registrant (Previously Filed)
23(a) Consent of BDO Seidman, LLP (Included herein)
23(b) Consent of KPMG Peat Marwick LLP (Previously Filed)
27 Financial Data Schedule (Incorporated by reference from
Exhibit 27 of the Company's Form-QSB for the quarter ended
January 31, 1997)
Exhibit 11
<TABLE>
Versus Technology, Inc.
Statement Re: Computation of Per Share Earnings
Year Ended Three Months Ended
October 31, January 31,
1996 1995 1997 1996
----------------- --------------------
<S> <C> <C> <C> <C>
Primary and Fully Diluted Earnings (Loss)
Per Share:
Net Loss (2,006,000) (2,497,000) (394,000) (385,000)
Calculation of weighted average common
shares outstanding:
Outstanding common shares at beginning
of period: 18,910,697 4,160,780 36,543,573 18,910,697
Impact of repurchase of H. Terry
Snowday shares: January 26, 1996 -
425,000 shares (32,337)
Impact of private placement offerings:
August 26, 1996-11,335,000 shares 2,044,016
September 29, 1995-14,674,917 shares 1,286,568
Impact of August 26, 1996 Olmsted
Engineering Co. acquisition and
issuance of 6,379,889 shares less
510,000 subsequently retired shares 1,058,525
Impact of January 31, 1997 Precision
Tracking Issue 17,391
Other (153,162) 3,082 (10,324)
--------- --------- --------- ----------
Total weighted average common shares (A) 21,860,076 5,450,430 36,550,640 18,878,360
========== ========= ========== ==========
Primary and Fully Diluted Loss Per Share $ (0.09) $ (0.46) $ (0.01) $ (0.02)
---------- --------- ---------- ----------
Note:
(A) The weighted average effect of common stock equivalents was anti-dilutive for 1995, 1996
and 1997 and, therefore, was not considered in the above calculation.
</TABLE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Versus Technology, Inc.
Traverse City, Michigan
We hereby consent to the use in the Prospectus constituting a
part of this Registration Statement, Amendment No. 1, of our
report dated December 9, 1996, relating to the consolidated
financial statements of Versus Technology, Inc., as of and for
the year ended October 31, 1996, which is contained in that
Prospectus.
We also consent to the reference of us under the caption
"Experts" in the Prospectus.
/s/ BDO SEIDMAN, LLP
_______________________
BDO Seidman, LLP
Grand Rapids, Michigan
May 7, 1997
