SECURITIES AND EXCHANGE COMMISSION
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 Quarter Ended July 31, 1998
( ) 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
(Issuer'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 August 20, 1998: 38,354,700.
Transitional small business disclosure format:
Yes_____ No__X__
VERSUS TECHNOLOGY, INC.
Index
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of July 31, 1998
(Unaudited) and October 31, 1997
Consolidated Statements of Operations for the
three and Nine months ended July 31, 1998 and 1997
(Unaudited)
Consolidated Statement of Cash Flows for the Nine
months ended July 31, 1998 and 1997 (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 2 Changes in Securities and Use of Proceeds
Item 6 Exhibits and Reports on Form 8-K
Signatures
VERSUS TECHNOLOGY, INC.
Consolidated Balance Sheets
July 31, 1998 October 31, 1997
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 772,000 $ 1,871,000
Accounts receivable, net of
allowance for doubtful
accounts of $65,000 and
$52,000 at July 31, 1998 and
October 31, 1997 221,000 431,000
Notes receivable, net 20,000 15,000
Inventories - purchased parts
and assemblies 215,000 171,000
Prepaid expenses and other
current assets 110,000 113,000
--------------- ---------------
Total Current Assets 1,338,000 2,601,000
Property and Equipment, net
of accumulated depreciation
of $145,000 and $89,000 264,000 283,000
Software Development Costs,
net of accumulated
amortization of $144,000 and
$87,000 456,000 513,000
Goodwill, net of accumulated
amortization of $299,000 and
$182,000 2,040,000 2,157,000
Patents and Other Intangible
Assets, net of accumulated
amortization of $475,000 and
$344,000 1,516,000 1,621,000
--------------- ---------------
$ 5,614,000 $ 7,175,000
=============== ===============
VERSUS TECHNOLOGY, INC.
Consolidated Balance Sheets
July 31, 1998 October 31, 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts payable $ 168,000 $ 308,000
Accrued expenses 316,000 159,000
Deferred revenue-customer
advance payments 20,000 356,000
Note payable - current
portion 120,000 123,000
--------------- ---------------
Total Current Liabilities 624,000 946,000
Note payable, less current
portion - 83,000
--------------- ---------------
Total Liabilities 624,000 1,029,000
--------------- ---------------
Shareholders' Equity
Common stock, $.01 par value;
50,000,000 shares authorized;
38,354,700 and 38,271,579
shares issued and outstanding 384,000 383,000
Additional paid-in capital 33,210,000 33,074,000
Accumulated deficit ( 28,422,000) ( 27,142,000)
Unearned compensation ( 182,000) ( 169,000)
--------------- ---------------
Total Shareholders' Equity 4,990,000 6,146,000
--------------- ---------------
$ 5,614,000 $ 7,175,000
=============== ===============
See accompanying notes to consolidated financial statements.
VERSUS TECHNOLOGY, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
1998 1997 1998 1997
Revenues $ 840,000 $ 306,000 $ 2,094,000 $ 992,000
Operating expenses:
Cost of revenues 238,000 249,000 914,000 799,000
Research and
development 107,000 168,000 254,000 424,000
Sales and
marketing 267,000 224,000 864,000 615,000
General and
administrative 503,000 495,000 1,386,000 1,296,000
------------ ------------ ------------ ------------
1,115,000 1,136,000 3,418,000 3,134,000
------------ ------------ ------------ ------------
Loss from
operations ( 275,000) ( 830,000) (1,324,000) (2,142,000)
Other Income
(Expense)
Interest income 10,000 34,000 44,000 119,000
Interest expense - ( 6,000) - ( 20,000)
Other, net - 5,000 - ( 1,000)
------------ ------------ ------------ ------------
10,000 33,000 44,000 98,000
------------ ------------ ------------ ------------
Net Loss $( 265,000) $( 797,000) $(1,280,000) $(2,044,000)
============ ============ ============ ============
Basic and Diluted
Net Loss Per Share $( .01 ) $( .02 ) $( .03 ) $( .05 )
See accompanying notes to consolidated financial statements.
VERSUS TECHNOLOGY, INC.
Consolidated Statements of Cash Flow
(Unaudited)
Nine Months Ended July 31,
1998 1997
Cash flows from operating
activities:
Net Loss $(1,280,000) $(2,044,000)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 360,000 344,000
Amortization of unearned
compensation 86,000 35,000
Director compensation 37,000 26,000
Loss on sale of equipment - 2,000
Changes in operating assets
and liabilities:
Accounts receivable 210,000 ( 111,000)
Inventories ( 44,000) ( 9,000)
Prepaid expenses and other
current assets 3,000 ( 27,000)
Accounts payable and other
liabilities ( 140,000) ( 391,000)
Accrued expenses 157,000 139,000
Deferred revenues - customer
advance payments ( 336,000) 353,000
------------ ------------
Net cash used in operating
activities ( 947,000) (1,683,000)
------------ ------------
Cash flows from investing
activities:
Changes in notes receivable ( 5,000) 4,000
Payment for acquisition of
license to intellectual
property and associated costs - ( 265,000)
Additions to property and
equipment ( 37,000) ( 95,000)
Proceeds from sale of
equipment - 15,000
Additions to patents and
other intangible assets ( 25,000) -
Net cash provided by ------------ ------------
investing activities ( 67,000) ( 341,000)
------------ ------------
Cash flows from financing
activities:
Issuance of Common Stock 1,000 -
Payments on notes payable ( 86,000) ( 23,000)
------------ ------------
Net cash used in financing
activities ( 85,000) ( 23,000)
------------ ------------
Net decrease in cash and cash
equivalents (1,099,000) (2,047,000)
Cash and cash equivalents,
beginning of period 1,871,000 4,931,000
------------ ------------
Cash and cash equivalents,
end of period $ 772,000 $ 2,884,000
============ ============
Supplemental disclosures of
cash flow information
Cash paid during the period
for interest $ - $ 7,000
============ ============
During the first nine months of fiscal 1998:
The Company issued additional non-vested Employee Incentive
Restricted Stock and repurchased similar stock from terminated
employees, all at par value, pursuant to the 1996 Incentive
Restricted Stock Bonus Plan. Unearned compensation of $104,000
was recorded for the stock issued and unearned compensation of
$5,000 related to the repurchased shares was cancelled.
On April 24, 1998 the Company issued Non Qualified Stock Options
to directors valued at $0.36 per option for accounting purposes.
The options vest after one year and are exercisable at $0.515 per
share. During the nine months ended July 31, 1998, $27,000 was
recorded as earned compensation for the grant of these options.
On June 16, 1998, the Company issued additional Non Qualified
Stock Options to Mr. Samuel Davis, the Chairman of the Board of
Directors, valued at $0.36 per option for accounting purposes.
The options vest on April 30, 1999 or the date of the next annual
shareholders' meeting, whichever comes first, or earlier in the
event of death or disability or change of control of the company
and are exercisable at $0.500 per share. During the nine months
ended July 31, 1998, $10,000 was recorded as earned compensation
for the grant of these options.
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
July 31, 1998
(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 of
Versus Technology, Inc. ("Versus") and subsidiary (collectively
referred to as the "Company") contained in the Annual Report on
Form 10-KSB for the fiscal year ended October 31, 1997, as filed
with the Securities and Exchange Commission. The October 31,
1997 balance sheet contained herein was derived from audited
consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles
as found in the Company's Annual Report on Form 10-KSB referenced
above.
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to
present fairly the financial position as of July 31, 1998, the
results of operations for the three months and nine months ended
July 31, 1998 and 1997 and cash flows for the nine months ended
July 31, 1998 and 1997. The results of operations for the three
and nine months ended July 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
Note 2 Principles of Consolidation
The consolidated financial statements include the accounts
of Versus and the accounts of Olmsted Engineering Co., its wholly
owned subsidiary. Upon consolidation, all significant
intercompany accounts and transactions are eliminated.
Note 3 Basic and Diluted Earnings (Loss) Per Share
In February 1997, the FASB issued SFAS No. 128, Earnings Per
Share. SFAS No. 128 simplifies the standards for computing
earnings per share ("EPS") and makes them comparable to
international EPS standards. The statement requires the
presentation of both "basic" and "diluted" EPS on the face of the
statement of operations with a supplementary reconciliation of
the numerators and denominators used in the calculations. SFAS
No. 128 is effective for financial statements issued for periods
ended after December 15, 1997, including interim periods; earlier
application was not permitted. Implementation of SFAS No. 128
had no effect on EPS for the three and nine months ended July 31,
1998 and 1997.
Basic 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, warrants and the
outstanding shares under its Employee Incentive Restricted Stock
Bonus Plan in its calculation of diluted earnings (loss) per
share due to their anti-dilutive effect. The resulting weighted
average shares outstanding were 38,025,106 and 37,905,758 for the
three months ended July 31, 1998 and 1997 respectively and
38,025,106 and 37,362,047 for the nine months ended July 31, 1998
and 1997, respectively.
Note 4 New Accounting Standards
In June 1997, the FASB issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which
supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 establishes standards for the
way that public companies report information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also establishes
standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines
operating segments as components of a company about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. SFAS No. 131
is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for
earlier years to be restated. Management has not fully evaluated
the impact, if any, this standard may have on future financial
statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of this
standard.
In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 requires companies to recognize
all derivatives contracts as either assets or liabilities
in the balance sheet and to measure them at fair value.
If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that
are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the
gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives
contracts either to hedge existing risks or for
speculative purposes. Accordingly, the Company does not
expect adoption of the new standard on November 1, 1999 to
affect its financial statements.
Note 5 Reclassifications
Certain reclassifications have been made to 1997 balances to
conform to classifications used in 1998.
Note 6 Acquisition of Intellectual Property
As of January 31, 1997, the Company and Precision Tracking
FM, Inc. ("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
locating technology for ten years, and nonexclusive thereafter.
Concurrent with executing the License Agreement, a short-term
(one-year) Engineering Services 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.
Under the Engineering Agreement, the Company was required to
reimburse PTFM up to $480,000 for expenses incurred in providing
the services covered by the agreement. The Company's obligation
under the agreement ended in January 1998, and at July 31, 1998,
the Consolidated Financial Statements include $30,000 in accrued
amounts payable on this contract. The balance will be paid to
PTFM upon delivery of certain documentation related to services
provided under the agreement.
Note 7 Contingencies
Litigation
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
plaintiffs held and that the plaintiffs were 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. Plaintiffs further
allege their claims are substantially identical to the claims
made by the plaintiff in the Special Situations Fund III
litigation which was concluded in fiscal 1996. In that action,
which involved only 300,000 of the 2,233,800 Class A warrants at
issue, a judgment of approximately $195,000 was awarded against
the Company by the trial court and upheld on appeal. Apparently
the plaintiffs in this action believe the Company has a liability
for each of the remaining warrants identical to the per warrant
liability the Company was found to have for the 300,000 warrants
relating to the Special Situations Fund III litigation. The
court has consolidated the two cases. The Company disputes the
material allegations of the complaints. The Company's legal
counsel filed a motion to dismiss the complaints on the grounds
that the plaintiffs were not warrant holders on the date of the
alleged breach of the warrant agreement and to dismiss the action
as being without merit because the plaintiffs have not alleged
and cannot prove that they or other warrant holders suffered any
damages. On July 2, 1998, the court denied these motions,
without prejudice to their being resubmitted by the Company at a
later date, if necessary, after, and if, the plaintiffs have
first met their burden of convincing the Court that their alleged
action should be certified as a class action. In addition, and
separate from the foregoing, the Company is continuing to pursue
on appeal its assertion that the Court does not have jurisdiction
over the Company in this matter. Management and legal counsel
believe the Company's defenses will be found to have merit thus
resulting in no liability of the Company to the plaintiffs.
Note 8 Restricted Stock Bonus Plan
During the nine months ended July 31, 1998, the Company
issued an additional 105,000 and re-purchased 5,724 shares of the
Company's common stock issued pursuant to the 1996 Employee
Incentive Restricted Stock Bonus Plan. Net earned compensation
for the three and nine months ended July 31, 1998 amounted to
$31,000 and $86,000 respectively.
Note 9 Related Party Transactions
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
nonrefundable contributions to leasehold improvements amounting
to $130,000, in accordance with terms of the lease agreements.
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:
data collection and processing; and systems design and
engineering. All Company operations are located in one facility
in Traverse City, Michigan.
Infrared locating ("IR Locating") systems are the primary
products of the Company. These products permit the automatic,
accurate registry of essential management and business processes
and can be used to monitor and locate people and equipment,
provide hands-free voice communication, forward telephone calls
without human intervention and control access to secured areas.
The associated software also passively (i.e. automatically)
records events associated with these activities. The system
consists of compact badges, sensors, receivers, a central
processing computer and software. Badges can be attached to
people and equipment. Each badge transmits a unique identifying
code, which is received and validated by sensors located in each
room or zone, sent to the central processing computer which
locates each badge, determines its status (i.e., condition,
environment, etc.) and provides users with a graphical display on
an ordinary computer monitor. Other user programmable features
include directed pages, sequenced and time dictated "hunting" of
substitute individuals, telephone call forwarding, equipment
usage logs, and door openings/closings. Two-way communication is
possible by the addition of ordinary speaker components. The
entire system is based on the Company's patented technology
involving the transmission and reception of infrared light for
use in locating multiple subjects in several areas.
The Company's primary method of distribution of the IR
product is through resellers who install the product. Currently,
the healthcare market is primarily targeted for penetration due
to the technology's initial success there and the existing
interest that has developed.
Under the Olmsted name, the Company sells and maintains the
ACUCARV product line, which consists of a wide range of
manufacturing software. Versus also develops, markets and
integrates cellular products for the security industry.
The following discussion and analysis focuses on the
significant factors which affected the Company's consolidated
financial statements during the three- and nine-month periods
ended July 31, 1998, with comparisons to 1997 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.
Results of Operations
Three Months Ended July 31, 1998 and 1997
During the third quarter of fiscal 1998 the Company added
four IR Reseller/Sales Managers to service and maximize the
potential of its reseller channel. The Company also received GSA
approval enabling it to pursue the Federal Government supply
market. Lower manufacturing costs resulting from larger volume
runs and product improvements contributed to reduced losses for
the quarter. The Company is continuing to make progress on its
plan (started in early 1998) to obtain ISO certification.
Development of the next generation locating badges also continued
during the quarter.
Third quarter revenues were $840,000 or 175% above the
fiscal 1997 level of $306,000. Infrared sales of $664,000 were
521% above the same period fiscal 1997 level of $107,000. The
increased revenues resulted primarily from the Marquette Medical
Systems ("MMS") sales efforts. CAD/CAM revenues were $176,000 or
12% below the $199,000 revenues generated for the same three-
month period in fiscal 1997.
Cost of revenues as a percentage of revenues in the third
quarter of fiscal 1998 decreased to 28% from 81% for the same
quarter in fiscal 1997. This decrease is attributable to the
increased revenue levels, lower IR component manufacturing costs
and an increase in the full system sales which generate higher
margins than component sales.
Research and development expenses at $107,000 were $61,000
lower than the three months ended July 31, 1997. 1997 expenses
reflect additional costs expended in the technology transfer from
PTFM while 1998 expenditures are for the development of the next
generation locating badges.
Selling and marketing expenses for the third quarter of
fiscal 1998 increased to $267,000 or 19% higher than the three
months ended July 31, 1997. The increased expenses reflect
increased sales staff and stepped up marketing efforts in
preparation for the launch of the next generation badges.
General and administrative expenses of $503,000 were 2%
above the $495,000 level for the three months ended July 31,
1997.
In the third quarter of fiscal 1998, other income, net
decreased $23,000, or 70%, from 1997 levels due primarily to the
decrease in interest earned on lower cash levels.
Nine Months Ended July 31, 1998 and 1997
Revenues for the first nine months of fiscal 1998 were
$2,094,000 or 111% above the fiscal 1997 level of $992,000.
Infrared sales of $1,466,000 were 330% above the same period
fiscal 1997 level of $341,000. IR revenues for 1998 already
exceed the entire year 1997 level of $644,000 by 128%. Revenues
came equally from the reseller network and the MMS sales efforts.
CAD/CAM revenues were $628,000, 3.5% below the $651,000 revenues
generated for the same nine-month period in fiscal 1997.
Cost of revenues as a percentage of revenues in the first
nine months of fiscal 1998 decreased to 44% from 81% for the same
period in fiscal 1997. This decrease is attributable to the
increased revenue levels, lower IR component manufacturing costs
and an increase in full system sales which generate higher
margins than component sales.
Research and development expenses of $254,000 were $170,000
lower than the first nine months of fiscal 1997. 1997 expenses
included additional costs expended in the technology transfer
from PTFM. 1998 expenditures are attributable to the development
of the next generation badges for the locating system.
Selling and marketing expenses for the nine months ended
July 31, 1998 increased to $864,000 or 40% higher than the same
period in fiscal 1997. The increased expenses reflect increased
sales staff and stepped up marketing efforts.
General and administrative expenses of $1,386,000 were 7%
higher than the $1,296,000 level for the same period in fiscal
1997.
In the first nine months of fiscal 1998, other income, net
decreased $54,000, or 55%, from 1997 levels due to the decrease
in interest earned on lower cash levels.
Liquidity and Capital Resources
In May 1998 the Company and MMS entered into an amended
marketing agreement. MMS agreed to purchase 50 IR Locating
systems from the Company in exchange for non-exclusive marketing
status. Payments under the contract are non-refundable and
systems are being shipped and billed at the minimum rate of 4
systems ($140,000) per month. The total amount to be billed
under the agreement is $1,750,000. During the three months ended
July 31, 1998, the total billed and received on the agreement was
$420,000. An additional $420,000 will be billed and received in
the fourth quarter of 1998.
During the first six months of fiscal 1998, the Company
relied on cash balances from the 1996 private placement offering
resulting in a cash decrease of $943,000. The decrease for the
three months ended July 31, 1998 was $156,000. The negative cash
flow in the most recent three-month period is attributable
primarily to developmental activities and expenses related to the
Company's recently adopted more aggressive market penetration
strategy. During this period the Company's cash flow from
operations improved and management believes cash flow from
operations is now sufficient to support current normal operating
activities of the Company assuming there are no material adverse
changes in operations or extraordinary development costs. The
Company believes that the combination of its existing working
capital and cash generated from operations should be sufficient
to meet projected normal operating cash needs over the next
twelve (12) months. The Company is reviewing additional funding
alternatives to support its more aggressive market approach and
higher developmental costs associated with the next generation of
badges.
Year 2000 Issue
The Company has conducted a comprehensive review of its
internal computer systems and its products to identify the
systems that could be affected by the Y2K issue and has
identified no problem areas. The Company believes there are no
material problems if any, in its infrastructure and facilities
but will assess embedded systems contained in the Company's
facilities and other infrastructure to determine the potential
for Y2K problems. The Company presently believes that, with no
modifications to existing software, the Y2K issue will not pose
any operational problems for the Company's computer systems or
those of its customers relating to the use of its products.
The Company has not contacted nor received any assurances
from vendors, suppliers or customers as to their state of
readiness for Y2K. The Company believes that current material
vendors and suppliers will become Y2K compliant or that qualified
replacement vendors and suppliers can be easily located. The
Company is not currently aware of any Y2K issues facing its major
customers. Management has not fully evaluated the impact, if
any, Y2K problems of its major customers may have on the
Company's future operational results or financial condition.
Because no problems have been identified to date, the
Company has not found it necessary to expend any cash resources
on the Y2K issue. No estimate of the potential costs can be made
until a full evaluation of possible third party issues, if any,
has been made.
Safe Harbor Provision
This report may contain forward-looking statements relating
to future events, such as the development of new products, the
commencement of production or the future financial performance of
the Company. These statements fall within the meaning of forward
looking information as defined in the Private Securities
Litigation Reform Act of 1995. These statements are subject to a
number of important risks and uncertainties that could cause
actual results to differ materially including, but not limited
to, economic, competitive, governmental and technological factors
affecting the Company's markets and market growth rates, products
and their rate of commercialization, services, prices and
adequacy of financing and other factors described in the
Company's most recent annual report on Form 10-KSB filed with the
Securities and Exchange Commission, which can be reviewed at
http://www.sec.gov. The Company undertakes no obligation to
update, amend or clarify forward-looking statements, whether as a
result of new information, future events or otherwise.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
1. Theodore London, et al v. Versus Technology, Inc.
Complaint filed: November 22, 1996
Court: Supreme Court of the State of New
York
Index No.: 96-120758
Principal Parties: Plaintiff, Theodore London,
purportedly on behalf of himself
and others similarly situated;
Defendant, Versus Technology, Inc.
Jack Lazarus, et al v. Versus Technology, Inc.
Complaint filed: January 21, 1997
Court: Supreme Court of the State of New
York
Index No.: 97-600295
Principal Parties: Plaintiff, Jack Lazarus,
purportedly on behalf of himself
and others similarly situated;
Defendant, Versus Technology,Inc.
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
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 which was settled in fiscal 1996. In that action,
which involved only 300,000 of the 2,233,800 Class A warrants at
issue, a judgment of approximately $195,000 was awarded against
the Company by the trial court and upheld on appeal. Apparently
the plaintiffs in this action believe the Company has a liability
for each of the remaining warrants identical to the per warrant
liability the Company was found to have for the 300,000 warrants
relating to the Special Situations Fund III litigation. The
court has consolidated the two cases. The Company disputes the
material allegations of the Complaints and intends to vigorously
defend itself against this matter. The Company's legal counsel
filed a motion to dismiss the complaint on the grounds that the
plaintiffs were not warrant holders on the date of the alleged
breach of the warrant agreement and on the further grounds that
the plaintiffs have not alleged, and cannot prove, that they or
other warrant holders suffered any damages. On July 2, 1998, the
court denied these motions, without prejudice to their being
resubmitted by the Company at a later date, if necessary, after,
and if, the plaintiffs have first met their burden of convincing
the Court that their alleged action should be certified as a
class action. In addition, and separate from the foregoing, the
Company is continuing to pursue on appeal its assertion that the
Court does not have jurisdiction over the Company in this matter.
Management and legal counsel believe the Company's defenses will
be found to have merit thus resulting in no liability of the
Company to the plaintiffs.
Item 2 - Changes in Securities and Use of Proceeds
(a) The Shareholders of the Company approved an Amendment to the
Certificate of Incorporation to increase the authorized common
stock from 50,000,000 to 75,000,000 shares and to authorize
15,000,000 shares of undesignated shares of preferred stock. At
its July 14, 1998 meeting the Company's Board of Directors
adopted a resolution to proceed with the Amendment to the
Certificate of Incorporation as approved by the Shareholders.
(b) The issuance in the future of shares of preferred stock
having rights and preferences different from the common stock may
effect the rights of common shareholders, when and if issued.
(c) On April 24, 1998, the Board of Directors approved the sale
of 8,000 shares of the Company's common stock to two employees
under the 1996 Incentive Restricted Stock Bonus Plan (the "Plan")
at a price of $.01 per share. Under the Plan, if, on or before
three years from the date the shares were issued, the employment
of the employee by the Company terminates, the employee must
resell all or a percentage of the shares transferred to the
Company for $0.01 per share. These sales were made pursuant to
the exemption afforded by Section 4(2) - Transactions by an
issuer not involving a public offering.
On April 24, 1998, the Board of Directors awarded
incentive stock options to purchase 403,605 shares of
the Company's common stock to six managers under the
1996 Employee Incentive Stock Option Plan. The options
vest on April 24, 1999 and are exercisable for ten
years from the date of the grant at $0.629 per share,
which was the then current fair market value. These
awards were made pursuant to the exemption afforded by
Section 4(2) - Transactions by an issuer not involving
a public offering.
Included in the options granted to the managers were
options granted to officers of the company to purchase
269,115 shares of the Company's common stock. These
options were granted to the following officers:
Andrea Beadle Corporate Secretary 58,580 shares
Robert Butler Chief Accounting Officer 101,955 shares
Henry Tenarvitz Executive Vice President 108,580 shares
The Company's by-laws provide that directors may be
compensated as the Board of Directors may from time to
time determine. At its July 14, 1998 meeting, the
Board of Directors awarded Mr. Samuel Davis an option
to purchase 200,000 shares of the Company's common
stock for his services as Chairman of the Board. The
options vest on April 30, 1999 or the date of the next
annual shareholders' meeting, whichever comes first, or
earlier in the event of a change of control of the
Company and are exercisable for five years from the
date of grant at $0.500 per share, which is the average
bid and asked price upon the date of grant.
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
Exhibit 99 (a) Press Release - Versus Technology, Inc. Second
Quarter Results Release
Exhibit 99 (b) Press Release - Versus Technology, Inc. Expands
and Strengthens Sales and Marketing Team
Exhibit 99 (c) Press Release - Versus Technology Reports Third
Quarter Results
There were no reports on Form 8-K during the nine months
ended July 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VERSUS TECHNOLOGY, INC.
(Registrant)
By: /S/ Gary T. Gaisser
Gary T. Gaisser
President and Chief Executive Officer
By: /S/ Robert Butler
Robert Butler
Controller and Chief Accounting Officer
September 14, 1998
Exhibit 99 (a) Press Release - Versus Technology, Inc. Second
Quarter Results Release
VERSUS TECHNOLOGY REPORTS SECOND QUARTER RESULTS
Increased Revenues, Profit Improvement Highlight Quarter
TRAVERSE CITY, Michigan, June 16, 1998 -- Versus Technology,
Inc. (OTC:VSTI) today announced the results of its second quarter
ended April 30, 1998, highlighted by its second consecutive
quarter of record sales and a narrowed net loss.
The Traverse City, Michigan-based developer and manufacturer
of infrared (IR) locating systems for hospitals, government
facilities and other organizations reported a net loss of
$457,000, or $0.01 per share, on revenues of $655,000 in the
fiscal 1998 second quarter, compared with a net loss of $853,000,
or $0.02 per share, on revenues of $295,000 in the same period
last year. The 122% increase in revenues reflects increased
penetration of the Company's IR locating products.
"We are on a strong path forward, as evidenced by our revenue
growth and movement closer to profitability in the second
quarter," said Gary Gaisser, Versus Technology president and
chief executive officer. "Our expanded network of resellers
and marketing efforts are an essential part of this growth,
allowing us to reach a broader base of customers and further
establish the Versus infrared locating system as the industry
standard."
The Company recently announced it entered into a new
marketing agreement with Marquette Medical Systems to sell
Versus' infrared locating systems to the acute care hospital
market. The one-year agreement will provide $1.75 million in
revenue for Versus, $840,000 of which will be shipped in the
remaining two quarters of fiscal 1998. Versus Technology's
patented infrared locating systems identify the precise location
of personnel and equipment and provide two-way wireless
communications throughout a facility.
For the second quarter ended April 30, 1998, Versus
Technology's cost of revenues as a percentage of revenues
decreased to 51%, compared with 80% in the prior year period.
The Company attributed the improvement to its significant growth
in revenues and a more modest increase in cost of revenues.
"The energy and resources devoted to R&D are paying off with
sales increases and new product introductions," said Henry J.
Tenarvitz, executive vice president of operations for Versus
Technology. "An important milestone is our planned
introduction this summer of a new application for our IR
locating system that will expand our capabilities and move us
closer to our goal of providing comprehensive, facility-wide
information, location and communications solutions to
healthcare providers."
For the six months ended April 30, 1998, Versus posted
revenues of $1.3 million, compared with $686,000 for the same
period a year ago. The Company posted a net loss of $1.0
million, or $0.03 per share, through the first half of fiscal
1998, compared with a loss of $1.2 million, or $0.03 per share,
for the same period in fiscal 1997.
The Company's significant revenue gains contributed to its
strong advances in the first half of fiscal 1998. Cost of
revenues as a percentage of sales decreased to 54% in the first
half of 1998, compared with 80% in the same period last year.
The Company's revenue growth, combined with its efficiency and
cost-containment efforts, contributed to a lower operating loss
in the 1998 six-month period versus the same period last year.
Versus said its increase in revenues is due to its expanded
sales and marketing efforts to healthcare providers, led by a
number of key reseller customers. Versus Technology's network of
resellers includes Marquette Medical Systems (Nasdaq:MARQ),
Rauland-Borg Corporation, Zettler Systems, Inc. and Dukane
Corporation, which market Versus' products throughout the United
States within their existing monitoring and nurse call registry
systems.
Versus also announced recently it expanded its number of
resellers with a new marketing agreement with Canadian healthcare
systems supplier Cleocom, Inc. to sell Versus' products in
Canada. Versus said the first international installation of its
infrared locating system was completed by Cleocom last month at
the Enfant Jesus Hospital in Quebec City, establishing a system
that provides real-time information for locating people and
equipment in certain areas of this hospital.
Versus Technology's infrared locating systems are currently
in use in a variety of other installations in North America,
including Cedars-Sinai Medical Center in Los Angeles, Baylor
University Medical Center in Dallas, Foote Memorial Hospital in
Jackson, Mich., VA Medical Center in Ann Arbor, Mich. and Los
Alamos National Laboratories, a high security government facility
in New Mexico.
Versus Technology, Inc. (http://www.versustech.com) is a
leading innovator in infrared locating technology, which offers
real-time locating and two-way communication capabilities. The
systems, which are currently installed in hospitals, corporate
facilities, government facilities and other complexes, permit the
automatic, accurate registry of essential management and business
processes and can be used to monitor the precise location of
personnel or equipment for health and safety purposes, control
access to secured areas and automatically record events
associated with these activities.
Safe Harbor Statement:
The information provided in this press release may include
forward-looking statements relating to future events, such as the
development of new products, the commencement of production, or
the future financial performance of the Company. Actual results
may differ from such projections and are subject to certain risks
including, without limitation, risks arising from: changes in
the rate of growth of the infrared location industry, increased
competition in the industry, delays in developing and
commercializing new products, adequacy of financing and other
factors described in the Company's most recent annual report on
Form 10-K filed with the Securities and Exchange Commission,
which can be reviewed at http://www.sec.gov.
Exhibit 99 (b) Press Release - Versus Technology, Inc. Expands
and Strengthens Sales and Marketing Team
VERSUS TECHNOLOGY EXPANDS AND STRENGTHENS
SALES AND MARKETING TEAM
TRAVERSE CITY, Michigan, June 18, 1998 - Versus Technology,
Inc. (OTC:VSTI) today announced it more than doubled its sales
force with the addition of four sales and marketing managers to
oversee its continued penetration into the $18 billion healthcare
information technology market.
The Traverse City, Michigan-based developer and manufacturer
of infrared (IR) locating systems for hospitals, government
facilities and other organizations named Peter T. Taylor, Ernest
Stathakis, Patrick R. Flannery and Charles M. Clark as IR
(Infrared) Reseller and Sales Managers, strengthening its
leadership in the infrared locating systems market. The four new
hires will report to Henry Tenarvitz, executive vice president of
operations for Versus Technology.
"We are excited to welcome these qualified and experienced
managers to Versus as we continue to capitalize on the growth
and increased acceptance of our IR locating technology," said
Gary Gaisser, Versus Technology president and CEO. "All these
individuals have strong backgrounds in medical-related
industries with a wealth of experience in sales and marketing,
which should prove instrumental in gaining additional
customers and sales."
The managers will be responsible for Versus' continued
market penetration of its IR locating products, which identify
the precise location of personnel and equipment and provide two-
way wireless communications throughout a facility. Versus
products are sold directly to hospitals under the Nightingale O
brand and are marketed to the medical industry through its
recently expanded network of healthcare resellers.
Peter T. Taylor most recently served as director of sales,
marketing and public relations of Michigan Medical Supply.
Mr. Taylor also offers Versus a background in governmental
affairs, having served on the city commission and two terms as
mayor of Traverse City, Michigan. Mr. Taylor, a graduate of
Michigan State University, has also held positions as a
political consultant and legislative aide.
Ernest Stathakis has an extensive background in sales in the
medical industry, including experience as a marketing
representative for NHL/Laboratory Corporation of America. Mr.
Stathakis has held similar positions with other medical
technology providers, such as Detroit Bio-Medical and
CBC/Metpath. Prior to his sales career, Mr. Stathakis was a
medical technologist and lab manager. Mr. Stathakis holds a
degree in medical technology from the Professional Business
Institute in Minneapolis.
Patrick R. Flannery brings to Versus 20 years of sales experience
in the health field, the last 14 in senior sales positions at
Rugby Laboratories. During his tenure at Rugby, Mr. Flannery
managed sales of the company's products to hospitals, health
maintenance organizations and the federal government,
including Veterans Administration Hospitals, the Department of
Defense and correctional facilities. Mr. Flannery has a
bachelor's degree from the University of Michigan.
Charles M. Clark has 20 years experience as a registered
professional nurse, including 13 years as staff nurse at
Munson Medical Center in Traverse City, Mich. His knowledge
will be integral in the continued integration of Versus'
products into nurse call registry systems, which are sold by
the Company's network of resellers. Mr. Clark has a B.S.N.
from Montana State University and also shares his expertise as
a clinical nursing instructor at Northwestern Michigan College
in Traverse City, Mich.
"We look forward to the contribution of our four new managers,
whose skills, knowledge and backgrounds will strengthen our
sales and marketing efforts," said Henry J. Tenarvitz,
executive vice president of operations for Versus Technology.
"By expanding our sales force in conjunction with our network
of resellers, we are taking the steps to substantially
increase sales of our existing infrared locating products.
The expanded distribution channels will also be vital when we
unveil our next generation IR locating system, which has an
anticipated launch later this year."
Versus Technology, Inc. (http://www.versustech.com) is a
leading innovator in infrared locating technology, which offers
real-time locating and two-way communication capabilities. The
systems, which are currently installed in hospitals, corporate
facilities, government facilities and other complexes, permit the
automatic, accurate registry of essential management and business
processes and can be used to monitor the precise location of
personnel or equipment for health and safety purposes, control
access to secured areas and automatically record events
associated with these activities.
Safe Harbor Statement:
The information provided in this press release may include
forward-looking statements relating to future events, such as the
development of new products, the commencement of production, or
the future financial performance of the Company. Actual results
may differ from such projections and are subject to certain risks
including, without limitation, risks arising from: changes in
the rate of growth of the infrared location industry, increased
competition in the industry, delays in developing and
commercializing new products, adequacy of financing and other
factors described in the Company's most recent annual report on
Form 10-K filed with the Securities and Exchange Commission,
which can be reviewed at http://www.sec.gov.
Exhibit 99 (c) Press Release - Versus Technology Reports Third
Quarter Results
VERSUS TECHNOLOGY REPORTS THIRD QUARTER RESULTS
Best-Ever Revenues, Narrowed Net Loss Highlight Quarter
TRAVERSE CITY, Michigan, August 31, 1998 -- Versus
Technology, Inc. (OTC BB: VSTI) today announced the results of
its third quarter ended July 31, 1998, highlighted by significant
profit improvement on a 175% increase in revenues.
The Traverse City, Michigan-based developer and manufacturer
of infrared (IR) location, data collection and communications
products reported net revenues of $840,000 in the fiscal 1998
third quarter, compared with net revenues of $306,000 in the same
period last year. Versus attributed the dramatic growth to
continued penetration of its Versus Information System (VIS)
technology into the healthcare market and the impact of the
Company's recent marketing agreement with Marquette Medical
Systems, Inc. The fiscal 1998 third quarter marked Versus' third
consecutive quarter of record revenues since focusing on its IR
technology in 1996.
"Our commitment of resources toward product development and
sales and marketing is fueling our significant top-line growth
and will continue to be a priority as we work to build on this
progress," said Gary Gaisser, Versus Technology president and
chief executive officer. "Versus has the leading-edge
technology and a growing network of distribution channels and
relationships that will be key to sustaining our momentum."
For the fiscal 1998 third quarter, Versus reported a
narrowed net loss of $265,000, or $0.01 per share, compared with
a net loss of $797,000, or $0.02 per share, in fiscal 1997.
"We expect to continue to increase both sales and
profitability in the coming quarters. Versus Technology's
growing revenue stream and new products coming online support
this target, and we are dedicated to making it happen in the
near-term," said Gaisser.
Gaisser said a key contributor to this optimism is the
planned launch in the fiscal 1999 first quarter of Versus' new
generation locating system. The innovations will propel the
Company's VIS product into the leadership role in providing
location information and communications solutions to end-users.
Versus Technology's patented infrared locating systems identify
the precise location of personnel and equipment, provide two-way
wireless communications throughout a facility and can enable the
control of ingress and egress to restricted areas.
For the third quarter ended July 31, 1998, Versus Technology's
gross profit as a percentage of revenues increased to 71.7%,
compared with 18.6% in the prior year same period. In addition,
the Company's total operating expenses declined both in pure
dollars and as a percentage of revenues. Versus attributed the
margin improvements to its significant growth in revenues and its
ability to implement operating and production efficiencies.
"We have eclipsed the market acceptance stage with our IR
location products, and we are now seeing the distribution and
demand that attest to our emerging market leadership in the
healthcare field," said Henry J. Tenarvitz, executive vice
president of operations for Versus Technology. "We are
committed to expanding the market coverage of our VIS
technology both within the healthcare industry and in other
segments as we look to diversify our customer base and
maximize our potential. We believe this strategy is integral
to sustainable growth for Versus and increased value for our
shareholders."
For the nine months ended July 31, 1998, Versus posted a net
loss of $1.3 million, or $0.03 per share, on net revenues of $2.1
million, compared with a net loss of $2.0 million, or $0.05 per
share, on net revenues of $992,000 for the same period a year
ago. Versus' nine-month revenue results represent a 111%
increase over the prior year nine-month period and a 37% increase
over the Company's net revenues for all of fiscal 1997.
Versus said its strong revenue increase was due to its
expanded sales and marketing efforts to healthcare providers, led
by a number of new initiatives. In the third quarter 1998, the
Company announced a new marketing agreement with Marquette
Medical Systems to sell Versus' infrared locating systems to the
acute care hospital market. The one-year agreement will provide
$1.75 million in revenue for Versus, approximately $420,000 of
which is expected in the fourth quarter of fiscal 1998. Versus
also expanded its reseller network in the quarter with a new
marketing agreement with Canadian healthcare systems supplier
Cleocom, Inc. The agreement to sell Versus' IR locating products
in Canada marks the Company's first international marketing and
distribution agreement.
Through the first nine months of fiscal 1998, Versus
reported its gross profit as a percentage of revenues increased
to 56.4%, compared with 19.5% in the same period in the prior
year. The Company's strong revenue growth, combined with
improved production efficiencies, contributed to the gross margin
increase, as well as Versus' narrowed operating loss in the 1998
nine-month period. Versus posted an operating loss of $1.3
million for the nine months ended July 31, 1998, compared with an
operating loss of $2.1 million in the same period in fiscal 1997
Versus Technology's infrared locating systems are currently
used in a variety of installations throughout North America,
including Cedars-Sinai Medical Center in Los Angeles, CA, Baylor
University Medical Center in Dallas, TX, VA Medical Center in Ann
Arbor, MI and Los Alamos National Laboratories, a high security
government facility in New Mexico. Versus' proprietary IR
location and information systems are sold through an expanding
network of resellers including Cleocom, Dukane Corporation,
Marquette (Nasdaq:MARQ), Rauland-Borg Corporation and Zettler
Systems, Inc., which market the products within their existing
monitoring and nurse call registry systems.
Versus Technology, Inc. (http://www.versustech.com) is a
leading innovator in infrared locating technology, which offers
real-time locating/data collection and two-way communication
capabilities. The systems, which are currently installed in
hospitals, corporate facilities, government facilities and other
complexes, permit the automatic, accurate registry of essential
management and business processes and can be used to monitor the
precise location of personnel or equipment for health and safety
purposes, control access to secured areas and automatically
record events associated with these activities.
Safe Harbor Statement:
The information provided in this press release may include
forward-looking statements relating to future events, such as the
development of new products, the commencement of production, or
the future financial performance of the Company. Actual results
may differ from such projections and are subject to certain risks
including, without limitation, risks arising from: changes in
the rate of growth of the infrared location industry, increased
competition in the industry, delays in developing and
commercializing new products, adequacy of financing and other
factors described in the Company's most recent annual report on
Form 10-K filed with the Securities and Exchange Commission,
which can be reviewed at http://www.sec.gov.
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