SECURITIES AND EXCHANGE COMMISSION PRIVATE
Washington, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED April 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-17500
VERSUS TECHNOLOGY, INC.
(Exact name of Small Business Issuer as specified in its
charter)
Delaware 22-2283745
(State or other jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification Number)
2600 Miller Creek Road
Traverse City, Michigan 49684
(Address of principal executive offices)
616-946-5868
Registrant's telephone number
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No .
Number of shares of Common Stock, par value $.01 per share,
outstanding as of June 12, 1997: 38,158,549.
Transitional small business disclosure format:
Yes_____ No __X__
VERSUS TECHNOLOGY, INC.
Index
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
April 30, 1997 (Unaudited) and
October 31, 1996
Consolidated Statements of Operations
for the three and six months ended
April 30, 1997 and 1996 (Unaudited)
Consolidated Statement of Cash Flows for
the six months ended
April 30, 1997 and 1996 (Unaudited)
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 4 - Submission of Matters to a Vote
of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures
VERSUS TECHNOLOGY, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
April 30, October 31,
1997 1996
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 3,188,000 $ 4,931,000
Accounts receivable,
net of allowance for doubtful
accounts of $53,000 at April
30, 1997 and October 31, 1996 289,000 154,000
Notes receivable, net 52,000 32,000
Inventories - purchased parts
and assemblies 136,000 145,000
Prepaid expenses and other
current assets 107,000 80,000
Total Current Assets 3,772,000 5,342,000
Notes Receivable, net - 19,000
Property and Equipment, net
of accumulated depreciation
of $178,000 and $155,000 307,000 270,000
Software Development Costs,
net of accumulated amortization
of $50,000 and $12,000 550,000 588,000
Goodwill, net of accumulated
amortization of $104,000 and
$26,000 2,235,000 2,313,000
Patents and Other Intangible Assets,
net of accumulated amortization
of $237,000 and $170,000 1,729,000 255,000
$ 8,593,000 $ 8,787,000
</TABLE>
<TABLE>
April 30, October 31,
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable $ 418,000 $ 748,000
Accounts payable, PTFM 250,000 -
Accrued expenses 280,000 135,000
Deferred revenue-customer
advance payments 3,000 16,000
Note payable -- current portion 344,000 367,000
Total Current Liabilities 1,295,000 1,266,000
Total Liabilities 1,295,000 1,266,000
Shareholders' Equity
Common stock, $.01 par value;
50,000,000 shares authorized;
38,113,549 and 36,543,573
shares issued and outstanding 381,000 366,000
Additional paid-in capital 32,868,000 31,910,000
Accumulated deficit (25,779,000) (24,532,000)
Unearned compensation (172,000) ( 223,000)
Total Shareholders'
Equity 7,298,000 7,521,000
$ 8,593,000 $ 8,787,000
</TABLE>
See accompanying notes to consolidated financial statements.
VERSUS TECHNOLOGY, INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $295,000 $58,000 $686,000 $ 93,000
Cost of sales 149,000 35,000 339,000 64,000
Gross profit 146,000 23,000 347,000 29,000
Operating Expenses
Research & development 47,000 131,000 145,000 291,000
Sales, general and
administrative 905,000 280,000 1,391,000 520,000
Litigation defense
costs, settlements
and judgments 78,000 33,000 123,000 41,000
1,030,000 444,000 1,659,000 852,000
Loss From Operations (884,000) (421,000) (1,312,000) (823,000)
Other Income (Expense)
Interest income 39,000 13,000 85,000 36,000
Interest expense (9,000) (15,000) (14,000) (16,000)
Other, net 1,000 5,000 ( 6,000) -
31,000 3,000 65,000 20,000
Net Loss $(853,000) $( 418,000)$(1,247,000) $(803,000)
Net Loss Per Share $ (.02) $ (.02) $ (.03) $ (.04)
</TABLE>
See accompanying notes to consolidated financial statements.
VERSUS TECHNOLOGY, INC.
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(1,247,000) $803,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 206,000 32,000
Change in unearned compensation 25,000 -
Loss on sale of equipment 7,000 -
Changes in operating assets and
liabilities:
Accounts receivable (135,000) 75,000
Inventories 9,000 (26,000)
Prepaid expenses and
other current assets (52,000) (105,000)
Accounts payable and
other liabilities (332,000) (169,000)
Accrued expenses 145,000 (23,000)
Deferred revenues- customer
advance payments (13,000) (9,000)
Total adjustments (140,000) (225,000)
Net cash used in operating activities (1,387,000) (1,028,000)
Cash flows from investing activities
Changes in note receivable (1,000) -
Payment for acquisition of license to
intellectual property and associated
costs (265,000) -
Additions to property and equipment (75,000) (66,000)
Proceeds from sale of equipment 8,000 -
Additions to deferred charges and
other assets - (59,000)
Net cash provided by investing activities (333,000) (125,000)
Cash flows from financing activities
Payments on notes payable $(23,000) $(28,000)
Purchase of treasury stock - (85,000)
Net cash used in financing activities (23,000) (113,000)
Net decrease in cash and cash equivalents (1,743,000) (1,266,000)
Cash and cash equivalents,
beginning of period 4,931,000 1,998,000
Cash and cash equivalents,
end of period $3,188,000 $ 732,000
Supplemental disclosures of
cash flow information
Cash paid during the period for interest $7,000 $15,000
</TABLE>
During the first six months of fiscal 1997 the Company
repurchased non-vested Employee Incentive Stock from terminated
employees at par value, pursuant to the 1996 Incentive Restricted
Stock Bonus Plan, canceling the unearned compensation of $26,000
related to these shares.
Effective January 31, 1997 the Company acquired a license to
intellectual property from Precision Tracking, FM, Inc. for
consideration of 1,600,000 shares of common stock, valued for
accounting purposes at $1,000,000, and $500,000 of which $250,000
was paid during the quarter ended April 30, 1997 and $250,000 is
recorded as Accounts Payable, PTFM at April 30,1997. Expenses
related to the acquisition totaling $15,000 were capitalized and
$25,000 of prepaid royalties were re-classified from prepaid
expenses to intellectual properties to be amortized over 10
years.
See accompanying notes to consolidated financial statements.
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
April 30, 1997
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements,
which are for interim periods, 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 contained in the Annual
Report on Form 10-KSB for the year ended October 31, 1996 of
Versus Technology, Inc. and subsidiary (the Company), as filed
with the Securities and Exchange Commission. The October 31,
1996 balance sheet contained herein was derived from audited
consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles
as filed in the Company's Annual Report on Form 10-KSB referenced
above.
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 April 30, 1997, the
results of operations for the three months and six months ended
April 30, 1997 and 1996 and cash flows for the six months ended
April 30, 1997 and 1996. The results of operations for the three
months and six months ended April 30, 1997, are not necessarily
indicative of the results to be expected for the full year.
Note 2 Acquisition
As described more fully in Note 3 to the Consolidated Financial
Statements included in the Form 10-KSB for the year ended October
31, 1996, on August 26, 1996, the Company acquired Olmsted
Engineering, Co. in a transaction accounted for using the
purchase method. While the acquisition occurred on August 26,
1996, the following pro forma information reflects operations for
the three months and six months ended April 30, 1996 as if the
acquisition took place on November 1, 1995.
<TABLE>
<CAPTION>
Three Months Six Months
<S> <C> <C>
Net sales $ 184,000 $ 345,000
Net loss (466,000) (900,000)
Net loss per common share (.02) (.04)
</TABLE>
Note 3 Contingencies
Litigation
The following summarizes changes in material litigation from
that disclosed in the Company's Annual Report on Form 10-KSB for
the year ended October 31, 1996:
In May 1997, the Company filed a malpractice law suit against one
of its former law firms, seeking indemnity against any loss the
Company might incur in connection with the foregoing class action
law suits, and also seeking equitable relief against the claim by
the law firm that the Company is indebted to the law firm for
prior legal services.
Note 4 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.
Olmsted provided a number of resources to the Company for the
period ended April 30, 1996 including research and development,
pass-through billings, use of office space and development of a
business plan. Related party billings for the three months and
six months ended April 30, 1996 totaled $160,000 and $437,000
respectively.
The Company believes that services provided by Olmsted were
negotiated at arms length at the fair value of goods and
services received.
The Company and Olmsted moved 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
$104,000, in accordance with terms of the lease agreements. Rent
expense for the quarter and six months ended April 30, 1997
amounted to $27,750 and $48,750, of which $39,750 applied to the
lease of the new facility from December 20, 1996 to April 30,
1997.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
General
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, and can be used to control access and permit
instantaneous two-way communication. Versus also develops,
markets and integrates cellular products for the security
industry.
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 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.
The following discussion and analysis focuses on the significant
factors which affected the Company's consolidated financial
statements during the three months and six months ended April 30,
1997, with comparisons to similar periods in 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
included elsewhere in this Form 10-QSB and the consolidated
financial statements and footnotes thereto contained in the
Annual Report on Form 10-KSB for the year ended October 31, 1996.
The following table sets forth selected financial data for the
Company:
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Three Months Ended Six Months Ended
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Statement of Operations
Data
Net sales $295 $ 58 $686 $ 93
Net loss (853) (418) (1,247) (803)
Net loss per common share (.02) (.02) (.03) (.04)
Weighted average number
of common shares
outstanding 38,120,387 18,485,697 37,322,535 18,697,197
</TABLE>
<TABLE>
Balance Sheet Data: April 30,1997 October 31,1996
<S> <C> <C>
Working capital $2,477,000 $4,076,000
Total assets 8,593,000 8,787,000
Total liabilities 1,295,000 1,266,000
Shareholders' equity 7,298,000 7,521,000
</TABLE>
Results of Operations
Three Months Ended April 30, 1997 and April 30, 1996
Net sales for the second quarter of fiscal 1997 of $295,000 were
$237,000 above sales of $ 58,000 for the corresponding quarter in
fiscal 1996. This increase is primarily due to the addition of
Olmsted sales and growth in sales of the infrared tracking
systems with sales generated from the PTFM relationship. Of the
total sales in the second quarter of fiscal 1997, approximately
22% were attributable to infrared tracking system sales, 68% to
Olmsted sales, and 10% 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.
Cost of sales as a percentage of sales in the second quarter of
fiscal 1997 decreased to 51% from 60% for the same quarter in
fiscal 1996. This change was largely attributable to the increase
in infrared sales and the inclusion of Olmsted sales in second
quarter fiscal 1997, both of which had higher gross profit
margins.
The Company's selling, general and administrative expenses for
the second quarter of fiscal 1997 increased $625,000, or 223%,
over the second 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 second quarter of fiscal 1997 were
$47,000 compared to $131,000 for the second 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 reduced research
and development costs in the second quarter of fiscal 1997.
In the second quarter of fiscal 1997, other income, net increased
$28,000, or 10 times the 1996 level due primarily to the increase
in interest earned on the proceeds from the August 1996 private
placement.
Six Months Ended April 30, 1997 and April 30, 1996
Net sales for the six months ended April 30, 1997 were $686,000
or 7 times the 1996 level of $93,000. Infrared tracking sales,
which totaled $235,000 are up significantly from the 1996 levels.
Sales for 1997 reflect $235,000 of infrared sales and $391,000 in
Olmsted sales. The sales mix for the first six months of 1997
was 34% infrared, 9% cellular and 57% Olmsted services and
products. The Company continued development of its marketing and
distribution channels. The January agreement with Precision
Tracking added significantly to its infrared tracking
distribution network.
Cost of sales as a percentage of sales decreased 20% from the
1996 level of 69% to 49% in the first six months of 1997. This
decrease was attributable to the inclusion of sales generated
from the PTFM relationship and Olmsted sales in the 1997 results.
The Olmsted sales are relatively high margin sales. The
Precision Tracking agreements resulted in Versus not expending
royalty payments (previously included in inventory and cost of
sales) to PTFM as was the case in 1996.
The Company's selling, general and administrative expenses
increased from $520,000 in the first six months of 1996 to
$1,391,000 for the similar period in 1997. The increase was
primarily due to the inclusion of Olmsted Engineering expenses in
1997 and Precision Tracking costs associated with the Precision
Tracking Engineering Agreement. Research and development costs
decreased $146,000 (50%) from the 1996 level. As mentioned
earlier, the Company's acquisition of Olmsted Engineering reduced
research and development costs for the first six months of 1997.
Other income, net increased $45,000 or 225% over the first six
months of 1996. Interest earned on funds from the August 1996
private placement was the primary cause of the increase.
Liquidity and Capital Resources
During the three months ended April 30, 1997, the Company relied
on cash balances from the most recent private placement offering
in August 1996, which generated net proceeds of $5.2 million. The
Company believes that current working capital should be
sufficient to meet projected cash needs over the next six months.
As discussed in prior filings, 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 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.
During the quarter ended April 30, 1997, $250,000 of the $500,000
obligation was paid. The remaining $250,000 is required to be
paid on the completed transfer date, defined in the contract as
the date PTFM certifies all knowledge has been transferred.
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.
Significant liquidity factors are as follows:
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
<S> <C> <C>
Current ratio 2.9:1 4.2:1
Quick ratio 2.7:1 4.0:1
</TABLE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The following summarizes changes in material litigation from
that disclosed in the Company's Annual Report on Form 10-KSB for
the year ended October 31, 1996:
Versus Technology, Inc. v. Duane, Morris & Hecksher:
Complaint filed: May 23, 1997
Court: United States District Court for the Southern
District of New York
Civil Action No. 97 Civ. 3798
The Company has filed a malpractice law suit against one of
its former law firms, seeking indemnity against any loss the
Company might incur in connection with the class action law suits
(referenced in the Company's October 31, 1996 Annual Report on
Form 10-KSB) and also seeking equitable relief against the claim
that the Company is indebted to the law firm for prior legal
services.
Item 4 - Submission of Matters to a Vote of Security Holders
The following directors, which comprised all of the current
directors of the Company, were elected at the 1997 Annual Meeting
of Shareholders of Versus Technology, Inc. held on Friday May 9,
1997: Julian C. Schroeder, Gary T. Gaisser and Elliot G.
Eisenberg.
Total shares voted were 23,297,208 (61%). The tabulation of
votes was as follows:
<TABLE>
<CAPTION>
FOR WITHHELD/AGAINST
<S> <C> <C>
Julian C. Schroeder 23,221,958 75,250
Gary T. Gaisser 23,221,958 75,250
Elliot G. Eisenberg 23,221,958 75,250
</TABLE>
Item 5 - OTHER INFORMATION
Registration on Form SB-2
Pursuant to private placements of its securities in 1995 and 1996
the Company entered into registration rights agreements with the
purchasers of the Company's Common Stock. Additional restricted
shares were received by Olmsted shareholders in the August 26,
1996 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. During the second quarter the Company has registered for
resale a portion of these shares. All of the net proceeds from
the offering registered will be received by the Selling
Shareholders of the securities. The total number of shares which
may be offered pursuant to the Prospectus filed is 12,648,000
shares of common stock. Of these shares, 1,600,000 are
restricted from sale prior to October 1, 1997 (the PTFM shares).
During the second quarter of fiscal year 1997 the Company
expended $48,000 in professional fees for preparation of the
required Prospectus for registration of the shares referenced
above.
Item 6 (a) Exhibits
Exhibit 11 - Statement re Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
Item 6 (b) Reports on Form 8-k
There were no reports on Form 8-K during the 3 months ended
April 30, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VERSUS TECHNOLOGY, INC.
(Registrant)
By: GARY T. GAISSER
Gary T. Gaisser
President and
Chief Executive Officer
By: ROBERT BUTLER
Robert Butler
Controller and
Principal Accounting Officer
June 16, 1997
Exhibit 11 - Statement re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, _ __ April 30, ____
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net loss $(853,000) $(418,000) $(1,247,000) $(803,000)
Calculation of weighted
average common shares
outstanding:
Outstanding common shares
at beginning of period 38,123,674 18,485,697 36,543,573 18,910,697
Impact of repurchase of
Former Chairman of the
Board and CFO's shares (221,840)
Impact of January 31, 1997
Precision Tracking issue 795,580
Other ( 3,287) ( 16,618) 8,340
Total weighted average
common shares 38,120,387 18,485,697 37,322,535 18,697,197
Primary and Fully Diluted
Loss per Share $(.02) $(.02) $(.03) $(.04)
NOTE: The weighted average effect of common stock equivalents was anti-
dilutive for 1996 and 1997 and, therefore, was not considered in the above
calculation.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<CASH> 3,188,000
<SECURITIES> 0
<RECEIVABLES> 341,000
<ALLOWANCES> 53,000
<INVENTORY> 136,000
<CURRENT-ASSETS> 3,772,000
<PP&E> 485,000
<DEPRECIATION> 178,000
<TOTAL-ASSETS> 8,593,000
<CURRENT-LIABILITIES> 1,295,000
<BONDS> 0
0
0
<COMMON> 381,000
<OTHER-SE> 6,917,000
<TOTAL-LIABILITY-AND-EQUITY> 8,593,000
<SALES> 686,000
<TOTAL-REVENUES> 686,000
<CGS> 339,000
<TOTAL-COSTS> 339,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,000
<INCOME-PRETAX> (1,247,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,247,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,247,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
