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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
Commission File No. 0-17500
VERSUS TECHNOLOGY, INC.
(Name of Small Business Issuer in its charter)
Delaware 22-2283745
(State of Incorporation) (I.R.S. Employer Identification Number)
2600 Miller Creek Road, Traverse City, Michigan 49684
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (616) 946-5868
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 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 ( )
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements included in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. ( )
The issuer's revenues for its most recent fiscal year were $1,524,000
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock was $25,851,752
as of January 15, 1998.
As of January 15, 1998, the issuer had outstanding 38,362,875 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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VERSUS TECHNOLOGY, INC.
Index to Form 10-KSB
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PART I PAGE
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Item 1 Description of the Business.................................................................. 3
Item 2 Description of Property...................................................................... 10
Item 3 Legal Proceedings............................................................................ 11
Item 4 Submission of Matters to a Vote of Security Holders.......................................... 12
PART II
Item 5 Market for Common Equity and Related Stockholder Matters..................................... 12
Item 6 Management's Discussion and Analysis or Plan of Operation.................................... 13
Item 7 Financial Statements......................................................................... 19
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 40
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act.......................................................................... 40
Item 10 Executive Compensation....................................................................... 41
Item 11 Security Ownership of Certain Beneficial Owners and Management............................... 42
Item 12 Certain Relationships and Related Transactions............................................... 44
Item 13 Exhibits and Reports on Form 8-K............................................................. 45
Signatures 46
Exhibit Index 47
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PART I
ITEM 1 - DESCRIPTION OF THE BUSINESS
(a) Business Development and Principal Products.
Versus Technology, Inc. ("Versus" or the "Company") is a Delaware
corporation originally formed in October 1988 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.
Intellectual property and assets (patents, trademarks, etc.) relating to
infrared locating ("IR Locating") systems and technology were acquired in 1993,
marking the Company's first entry into this leading edge wireless data
collection system technology. The DCX business was sold in November 1994 and
company resources were directed at developing the potential of the IR Locating
technology.
The Company also manufactures and distributes cellular products for data
transmission and cellular alarm transport.
On September 29, 1995, the Company completed a private placement of
14,674,917 shares of its common stock at $0.20 per share with $2,428,000 of the
net proceeds used to refine the IR Locating business and for general corporate
purposes.
In 1996 the Company continued development of the IR Locating technology and
acquired Olmsted Engineering Co. The Company and its Board of Directors
believes this acquisition was critical to the continued development and success
of the IR Locating system due to the long-term business relationships that had
been developed over the years, the solid name recognition of Olmsted in the
industry and the knowledge Olmsted gained as a consultant to the Company when
developing the IR Locating system. Olmsted was acquired 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. Further development of the
IR Locating technology and working capital requirements were funded from the
$5,201,000 net proceeds of a private placement of 11,335,000 shares at $.50 per
share completed on August 26, 1996.
Effective January 31, 1997, the Company entered into a license agreement
("License Agreement") with Precision Tracking FM, Inc. ("PTFM") for the Company
to become the exclusive licensee of PTFM's patents and other intellectual
property rights related to the IR Technology. The Company and its Board of
Directors believe the exclusive license of PTFM's patents and other
intellectual property is critical to the continued development and success of
the IR Locating system. Concurrent with entering the License Agreement, the
Company also entered into a short term (one year) Engineering and License
Agreement with "PTFM" to assist the Company in the technology transfer and the
further development of the technology. Throughout the remainder of the year,
the Company spent significant efforts and dollars in enhancing the new IR
products made available under the exclusive License Agreement. To ensure the
highest quality and reliability in these and other IR products, much effort was
also incurred in developing new supplier relationships (primarily contract
manufacturing). With the exclusive License Agreement, the enhanced products
and new suppliers in place, management is in a position to further develop its
sales and distribution network. By far the most important aspect of the PTFM
transaction is that it included access to an international network of resellers
that the Company has cultivated over the last six months. This network helped
Versus end fiscal 1997 with an order backlog of $736,000 for IR systems - more
than the sales of its premier product for all of fiscal 1997. The backlog
amount includes $350,000 paid in advance by Marquette Medical Systems pursuant
to an agreement discussed further under material customers below. The product
related to this advance payment will be shipped in fiscal 1998 and recorded as
revenue at that time.
The Company currently operates in two business segments: data collection and
processing (previously
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referred to as security) and systems design and engineering. The Company's IR
Locating system and cellular line products constitute its data collection and
processing business and the systems design and engineering business incorporates
Olmsted's line of Computer Aided Design/Computer Aided Manufacturing ("CAD/CAM")
products.
During fiscal 1998 the Company's primary focus will continue to be
improvement and expansion of the IR Locating systems business. These systems
permit the real time identification and location of people and equipment, can
be used to control access, and permit two-way communication to the appropriate
location. 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 volumes 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 locating multiple
subjects in several areas. A significant number of systems have been installed
in various locations and are operating with high levels of customer
satisfaction. During fiscal year 1997, the Company's sales of IR Locating
systems totaled $644,000. See Section 6 of Item 1, and Item 6, for a
discussion of recent trends in reseller sales that are expected to result in
increased sales in the coming fiscal year.
The Company also continues to manufacture and distribute cellular products
for data transmission and cellular alarm transport.
Olmsted, a wholly owned subsidiary of Versus, has been in business for 20
years and is a recognized name in a narrow segment of the complex machining
market. Its trademark product, ACU-CARV(R), a family of Computer Aided
Manufacturing software programs, has attained significant market recognition
in the precision machining industry. ACU-CARV(R), along with other similar
products, will continue to be sold and maintained under the Olmsted name.
(b) Business of the Issuer
(1) Principal Products and Services
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 "Year 2000 issue" and has identified no problem areas. The
Company presently believes that, with no modifications to existing software,
the "Year 2000 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.
Data Collection and Processing Segment
Infrared Locating System and Technology ("IR Locating")
Infrared locating systems are the primary product of the Company. The IR
Locating system can be used to monitor and locate people and equipment and/or
control access to secured areas. The technology owned or licensed by Versus is
incorporated in various forms from components to entire assemblies under the
following partial list of trade names:
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OWNER OF TRADEMARK TRADEMARK
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Versus Technology, Inc. Nightingale Resource Management System
Traverse Tracking System
PhoneVision
Marquette Medical Systems IntelliMotion Resource Management System
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OWNER OF TRADEMARK TRADEMARK
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Rauland Borg Responder IV
Responder III+
Dukane Corporation ProCare 6000
Zettler Sentinel 500
Southwestern Bell PALS - Personnel and Asset Location System
TRL Systems Entouch
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The intellectual property licensed from PTFM in January 1997 included a
product known as "PhoneVision", a system that uses the IR Locating system to
locate a person and then forward a phone call to that location over existing
phone lines without human intervention. The IR Locating 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 is capable of transmitting multiple status codes. Sensors
located in each room or zone receive and validate transmitted signals and send
them to the central processing computer. The computer locates each badge,
determines its status (i.e., condition, environment, etc.) and provides users
with a graphical display of people and equipment locations 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 proprietary technology
involving the transmission and reception of infrared light for use in locating
multiple subjects in several areas.
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. 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.
Systems Design and Engineering Segment
Underlying Olmsted's ACU-CARV(R) software programs and other programming
capabilities is a "source code" library that consists of over five million
lines of code containing the underlying algorithms from which software products
are generated. The Company's IR Locating system was based partially on
developments taken from this source code library during the time in which
Olmsted was performing consulting services for the Company. The Company
believes that it is critical to the future of its IR Locating system product
line that it has continued access to this source code library along with
Olmsted's experienced engineering staff. The ownership of Olmsted ensures this
continuity and provides the Company with a competitive advantage equivalent to
much larger corporations.
Under the Olmsted name, the Company sells and maintains the ACU-CARV(R)
product line, which consists of a wide range of manufacturing solutions
including software, hardware, support and shop floor communications networks.
ACU-CARV(R) is an integrated family of Computer Aided Manufacturing ("CAM")
software programs used to operate computer numerically controlled machines,
mainly in the mold, die and
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pattern making industries. ACU-CARV's(R) focus is to allow the end user to
machine efficiently and economically. The ACU-CARV(R) 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:
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- Milling
- Wire EDM (Electronic Discharge Machining)
- Turning
- CAD/CAM (Computer Aided Design/Computer Aided Manufacturing)
- Programming services
- DNC (Direct Numerical Control)
- Design
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Olmsted is an authorized dealer of the following third party software, which
it utilizes in conjunction with its own software offerings:
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MANUFACTURER PRODUCT
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Baystate Technologies CadKey(R)
DraftPAK(R)
FastSurf FastSurf(R)
FastSolids(R)
FastSurf/Sterling Numerical Technologies FastNurbs(R)
Autodesk AutoCAD(R)
Microcompatibles NSEE(R)
LiCom AlphaCAM(R)
</TABLE>
As part of this third party software network, Olmsted has access to over
600,000 architects and contractors worldwide. It is significant to note that
Olmsted's product helps create a floor plan layout for the sensory network
which is the backbone of the Versus IR Locating system. The dealer network
relationship of Olmsted could provide additional marketing opportunities for
the Company's IR products.
In addition to revenues from the sale of ACU-CARV(R) products, the Company
also receives monthly maintenance and enhancement fees from its customers who,
in turn, receive technical support and periodic update releases. Olmsted also
provides programming services, hardware and software integration, complete
turnkey systems and contract software consulting and development.
(2) Marketing and Distribution
Infrared Locating System and Technology
As part of the PTFM transaction referenced earlier, the Company gained
access to an international reseller network that has significantly increased
the Company's infrared marketing capabilities. The Company expects sales from
this distribution channel to outpace the sales originally expected from
Marquette Medical Systems
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("Marquette"), formerly Marquette Electronics, based on the Exclusive
Marketing Agreement ("Agreement") entered into in June 1996. The anticipated
sales, and more importantly, product exposure, contemplated in the agreement
with Marquette have not materialized. As a result, Marquette's exclusive
rights under the agreement have been terminated.
With the access to a new distribution channel, the Company's primary method
of distribution of the IR product is through resellers who install the product.
Although the Company still intends to sell directly to end users, reseller
sales are expected to contribute the majority of the Company's future IR
revenues.
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. In addition to the health care market, applications being explored
include high security facilities (military, governmental, etc.), correctional
institutions (prisons, guard security, etc.) and commercial security (visitor
locating, institutional access control, etc.). In September 1997 the Company
announced one such pilot project in a high security governmental lab
application.
Cellular Alarm Transport
The Company's remaining cellular products are marketed through independent
distributors.
Systems Design and Engineering Segment
The ACU-CARV(R) product line is marketed to both existing users of the
products and potential new customers through direct sales efforts. The Company
also markets CAD/CAM software for third parties. This marketing relationship
gives Olmsted (and thus Versus) access to over 600,000 architects and
contractors worldwide which could provide additional marketing opportunities
for the Company's IR products.
(3) New Products or Services
During the past year the Company expended considerable dollars and efforts
to successfully introduce product improvements particularly in the installation
of its IR Locating system components. As a result, the end user can now
install an IR Locating system with its own maintenance personnel. The Company
also corrected the manufacturing problems relating to the components previously
supplied by PTFM and established a supplier network that consistently provides
the high quality demanded by the IR market. Resources were also directed at
completing the development of the Windows(R) version
of ACU-CARV(R), which was released in January 1998.
(4) Competitive Business Conditions
There are many products directly competitive with the Company's IR
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
communication systems. The Company believes that its infrared technology is
competitive with RF-based and other similar systems and that in many
applications these competitive systems may be a superior and cost-effective
alternative. In some cases such as when the customer only wants to do one
particular thing such as locating personnel, the competitor may offer the best
solution. However, when the customer then considers adding equipment location,
accounting capability and access control all in one system, competition
virtually dissipates.
Competition for the Company's remaining CAT products comes 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 that perform similar functions.
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While competition is extensive in the overall CAD/CAM market, competition
within Olmsted's relatively narrow market segment is more limited due to
serving a specialized and highly technical niche group. As discussed earlier,
Olmsted is 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 to 15 years that the Company is not prepared to take advantage of.
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 IR and 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.
There are multiple suppliers available for most IR components purchased by
the Company. During fiscal 1997 the Company purchased a significant portion of
its components from one supplier (Ember Industries). Toward the end of fiscal
1997, alternate suppliers were developed to accommodate larger volumes. The
Company has eliminated manufacturing inconsistencies and is now well positioned
to fully exploit its advantages and large volume cost efficiencies. The
Company does not expect to encounter any component shortages over the next
year.
Olmsted's business in not dependent upon the availability of raw materials.
(6) Material Customers
Versus' customers for IR Locating are resellers who install infrared
locating components as an adjunct to, e.g. nurse call systems, for the end user
(such as hospitals) and end users for complete infrared locating systems
serviced through Versus' own direct sales efforts. The Company believes this
two - pronged market approach provides wide coverage and user feedback on
product performance and requirements.
The reseller network accessed through the PTFM agreement accounted for 52%
of the Company's existing $736,000 backlog at October 31, 1997. The network
was not fully developed until the fourth quarter of fiscal 1997 but still
generated $445,000 or 69% of fiscal 1997 IR revenues. One customer in this
group accounted for 17% of the total fiscal 1997 gross sales of the Company.
Once the reseller network is fully developed, the sales to this one customer
will not likely represent such a large percentage of the total. The reseller
network is presently composed of a number of major nurse call suppliers to the
healthcare industry that have signed agreements with the Company to acquire its
products for use in their nurse call systems. Conventional button nurse call
systems allow the locating of the healthcare provider. The use of IR Locating
in nurse call systems with added features such as "PhoneVision" and two - way
speakers, also allows quick and (as in the case of the speaker option) hands
free two-way communication. The reseller's pricing level has three tiers, and
is based on the volume achieved over periods of time. Revenues in fiscal 1996
came from a variety of customers, none of which was individually material.
In July 1996, the Company entered into an Exclusive Marketing Agreement
("Agreement") with Marquette Electronics, Inc. now Marquette Medical Systems
("Marquette"), which gave Marquette exclusive marketing rights to sell the IR
Locating system to any acute-care hospital in the United States. This
Agreement obligated Marquette to purchase a certain number of systems during
the second year of the contract. Expected purchases from Marquette were not
made. As a result, Marquette's exclusive status to market Versus' complete
infrared location systems to the United States acute care hospital market is no
longer effective.
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The Company generally does not offer extended payment terms to its customers
and normally adheres to its warranty policy of 90 days (one year for
resellers). 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, 1997 and 1996 respectively, the Company had approximately
$736,000 and $98,000 of IR Locating system orders on hand.
Approximately 50% of the Company's revenues for the fiscal year ended
October 31, 1997 were attributable to software sales and maintenance and
enhancement fees from Olmsted's business. These revenues resulted from a large
number of customers, none of which is considered to be a material customer.
No material portion of the business of the Company is seasonal. No material
portion of the Company's business is subject to re-negotiation 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 and licenses several United States patents and/or
trademarks covering IR Locating technologies, ACU-CARV(R) software products and
certain cellular technologies. The Company also holds patents in other
countries for these products.
In August 1995, the Company granted a security interest in essentially all
its 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 had previously asserted that they were entitled to monthly payments in
fiscal year 1996 and a balloon payment on January 1, 1997. The Company
disputed these fees, as well as the validity of the note and grant of the
security interest. In May 1997, the Company filed a malpractice lawsuit
against the law firm, seeking indemnity against losses the Company might incur
as a result of a lawsuit previously litigated by the law firm and also seeking
equitable relief against the claim by the law firm that the Company was
indebted for prior legal services. In late fiscal 1997, the Company and the
law firm settled the dispute according to terms more fully outlined in Note 6
to the Financial Statements. The law firm's security interest in the patents
and intellectual properties referenced above will continue until all payments
on the agreed upon obligation have been made.
In January 1997, the Company acquired a 10-year exclusive license to patents
and other intellectual property rights related to the IR business line from
Precision Tracking FM, Inc. ("PTFM"). Concurrent with this transaction, the
Company also entered into a short term (one year) Engineering Services and
License Agreement to assist the Company in the technology transfer and to
support its use and development of the technology.
There can be no assurance that the Company's patents will provide the
Company with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent owned or
licensed 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
superior technology.
(8) Government Approvals
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The Company's IR Locating 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 1997
were $440,000. This compares with $432,000 that was expended during fiscal
1996. The fiscal 1997 expenditures were for technology transfer from PTFM and
further development of the IR technology. During fiscal 1996, the expenditures
were primarily in connection with Olmsted's previous consulting contract to
complete development of the IR Locating 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 that 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
expenditure for environmental control facilities in either the current fiscal
year (fiscal 1998) or the succeeding fiscal year (fiscal 1999).
(12) Number of Employees
At October 31, 1997, the Company had 33 full-time employees. Of its
full-time employees, 8 were engaged in systems design, manufacturing and
engineering relating to both business segments, 18 in marketing, sales and sales
administration, and 7 in management and administration.
None of the Company's employees is 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.
ITEM 2 - DESCRIPTION OF PROPERTY
In December 1996, the Company moved its principal operating facilities to a
building that is owned by Traverse Software Investment, L.L.C. ("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.
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ITEM 3 - LEGAL PROCEEDINGS
The following is a summary of the material litigation in which the Company
is currently engaged, or which was settled during the fourth quarter of fiscal
1997:
1. 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
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 has 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. Management and legal counsel believe the Company's defense will be
found to have merit thus resulting in no liability of the Company to the
plaintiffs.
2. Versus Technology, Inc. v. Duane, Morris & Heckscher
Complaint filed: May 23, 1997
Court: United States District Court for the Southern
District of New York
Civil Action No. 97 Civ. 3798
Principal Parties: Plaintiff, Versus Technology, Inc.;
Defendant, Duane, Morris and Heckscher
The Company filed a malpractice suit against one of its former law
firms, seeking indemnity against any loss the Company might incur in the class
action suits referenced above, and also seeking equitable relief against the
claim that the Company was indebted to the law firm for prior legal services
billed in the amount of $505,000. A resolution of the matter was reached in
principle prior to October 31, 1997 and confirmed with an executed
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Allonge to Promissory Note and Patent and Trademark Security Assignment
in December 1997. The Parties have agreed to settle the action by its dismissal
with prejudice and without admission of liability or damages as set forth in a
Stipulation of Dismissal filed in the action. The Parties also exchanged
releases of all claims other than under the original note and assignment, both
as amended by the Allonge. In the settlement, the Company agreed to pay the
law firm the sum of $206,000 over the next 20 months in installments with no
interest. The gain of $299,000 on the settlement has been reflected in the
October 31, 1997 consolidated financial statements.
3. Josaphat Plater-Zyberk, 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
Principal parties: Plaintiff, Josaphat Plater-Zyberk, Jr.;
Defendant, Versus Technology, Inc.
A former employee of the Company filed this action alleging wrongful
discharge. The Company disputed the central allegations of the complaint. The
action was settled in October 1997 when the Company agreed to pay the plaintiff
an amount that was calculated to be approximately the anticipated costs to the
Company of bringing the matter to trial. The lawsuit was then dismissed, with
prejudice. The settlement amount was accrued in the October 31, 1997
consolidated financial statements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY 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
NASD. At present, the Company does not meet the NASD's minimum per-share price
requirements for new listings and therefore has not been re-listed. The Company
intends to apply for NASDAQ re-listing of its common stock as soon as all of the
NASD requirements are again met. The common stock is currently traded over the
counter by several market makers through the OTC 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, markdown or commission and may not represent
actual transactions.
<TABLE>
<CAPTION>
1997 1996
Fiscal Quarter Ended: High Low High Low
------------ ------------ ------------- ---------
<S> <C> <C> <C> <C>
January 31 29/32 1/2 17/32 3/8
April 30 7/8 7/16 7/8 3/8
July 31 17/32 7/16 29/32 21/32
October 31 1-1/8 15/32 1-1/16 21/32
</TABLE>
As of January 15, 1998, the Company had 371 shareholders of record of its
common stock and the average
12
<PAGE> 13
of the bid and asked prices was $1.00.
To date, the Company has not declared or paid any dividends with respect to
its common stock, and the current policy of the Board of Directors is to retain
any earnings to provide for the growth of the Company. Consequently, no cash
dividends are expected to be paid on the common stock in the foreseeable future.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis focuses on the significant factors
which affected the Company's consolidated financial statements during fiscal
year 1997, with comparisons to fiscal 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 Form 10-KSB.
The following table sets forth selected financial data for the Company for
the past two fiscal years:
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended October 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Net sales $ 1,524 $ 348
Net loss (2,610) (2,006)
Net loss per common share (.07) (.09)
Weighted average number of common shares
outstanding
BALANCE SHEET DATA:
Working capital $ 1,655 $ 4,076
Total assets 7,175 8,787
Total liabilities 1,029 1,266
Shareholders' equity 6,146 7,521
</TABLE>
OPERATING RESULTS
Fiscal 1997 was a significant year for the Company. Much was accomplished
throughout the year in further developing the Company's main product, IR
Locating systems. The most significant event was the signing of an agreement
("License Agreement") with Precision Tracking FM, Inc. ("PTFM") in January 1997
to license certain patents and other intellectual property rights related to IR
technology. This transaction is discussed in more detail in Note 4 to the
accompanying consolidated financial statements. Throughout the remainder of
the year, the Company spent significant efforts and dollars in enhancing the
new IR products now available to the Company. To ensure the highest quality
and reliability in these and other IR products, much effort was also incurred
in developing new supplier relationships (primarily contract manufacturing).
With the new License Agreement with PTFM, the enhanced products and new
supplier relationships in place, management was in a position to further
develop its sales and distribution network. The focus for the year continued
to be on the health care industry, particularly integrating the IR Locating
technology into the nurse call systems products
13
<PAGE> 14
sold by the Company's resellers accessed through the PTFM transaction
and developed in the third and fourth quarters of fiscal 1997. After laying
the groundwork to assure product quality, the various resellers were invited to
tour Versus' operations and meet the actual individuals involved in assuring
their quality product requirements would be met. Considerable costs were
incurred in establishing the Company as a reputable and reliable supplier
resulting in the placing orders that built to a closing backlog of $736,000 at
October 31, 1997 or 7.5 times the $98,000 backlog that existed on October 31,
1996.
Concurrent with entering the License Agreement with PTFM, the Company also
entered into a short - term (one year) Engineering Services and License
Agreement with PTFM to assist the Company in the technology transfer and the
further development of the IR technology. During fiscal 1997 the Company
expended $379,000 on this contract and is committed to another $101,000 worth
of services under the agreement. The Company anticipates fulfilling its
obligation by mid-January 1998. After fulfilling its contracted obligation,
the Company may contract with PTFM on an as-needed basis for technological and
developmental assistance. The Company believes that, although the dedication
of resources to these matters contributed to the low IR sales level for fiscal
1997, it is now in a position to more effectively exploit its sales potential.
During fiscal 1997, Olmsted developmental activity centered on the
completion of a Windows(R) version of the ACU-CARV(R) product. As a result,
much of the sales and marketing efforts for Olmsted related products was
focused on developing third party software relationships that have provided
access to over 600,000 architects and contractors worldwide. The introduction
of the Windows(R) version of the ACU-CARV(R) product line is expected to
restore the revenue mix for this line of products to a more traditional
composition. Fiscal 1997 operating results include a full year of Olmsted's
revenues and expenses while fiscal 1996 included only two months.
For fiscal 1997, the Company experienced a net loss of $2,610,000 compared
to a net loss of $2,006,000 for fiscal 1996. The loss for fiscal 1997 was
primarily attributable to low revenue levels combined with high operating
expense levels experienced as the Company further developed its IR Locating
product line and the Windows(R) version of ACU-CARV(R) as discussed above. The
fiscal 1996 net loss was largely attributable to low revenues and high
operating expenses as the Company transitioned to its new IR Locating systems
product line.
The Consolidated Statements of Operations for fiscal 1997 and fiscal 1996
included in Item 8 - Financial Statements and Supplementary Data utilize a new
format that presents the results of operations in a manner consistent with
comparable companies in the industry.
Revenues for fiscal 1997 were $1,524,000 or 338% higher than the fiscal 1996
level of $348,000. Infrared revenues were $644,000 compared to $89,000 in
fiscal 1996. The reseller network accessed through the PTFM agreement was not
fully developed until the fourth quarter of fiscal 1997 but still generated
$445,000 or 69% of fiscal 1997 IR revenues. The balance of IR revenues was
generated from direct sales efforts. In July 1996, the Company had entered
into an Exclusive Marketing Agreement with Marquette Electronics, Inc. now
Marquette Medical Systems ("Marquette"), which gave Marquette exclusive
marketing rights to sell the IR Locating system to any acute-care hospital in
the United States. This agreement obligated Marquette to purchase, over a
three-year period, a certain number of systems. During fiscal 1997 no actual
sales materialized under this agreement, although Marquette did fulfill its
obligation to remit payment for the minimum required number of systems. (That
payment is recorded as deferred revenue in the Company's consolidated financial
statements for fiscal 1997.) As a result of the shortfall in past and
anticipated future sales through Marquette, the Company has informed Marquette
that it is in breach of contract, and no longer has the exclusive rights
previously granted under the Exclusive Marketing Agreement. During fiscal 1997
the direct sales and reseller distribution channels combined succeeded in
producing sales revenues for the Company in spite of the slow sales response
from Marquette. Of the Company's existing $736,000 backlog at October 31,
1997, the reseller network accounted
14
<PAGE> 15
for 52% of the total, with the balance being composed of the Marquette
advanced payment referenced above. During fiscal 1997, the Company continued
development of its infrared products, focusing primarily upon infrared locating
systems which the Company has aggressively marketed to the health care markets.
Cellular revenues were $127,000 and $157,000 in fiscal 1997 and fiscal 1996
respectively. Olmsted revenues for fiscal 1997 were $753,000 reflecting a full
year's operations compared to $102,000 for two months in fiscal 1996.
Adjusting the Olmsted revenues for fiscal 1996 to reflect 12 months at the same
rate as the two months experienced would result in an approximate annual
revenue amount of $612,000. The increase in Olmsted's effective rate of annual
revenues is attributable to third party software sales increases discussed
above.
Total cost of revenues as a percentage of revenues for fiscal 1997
increased to 78% from 65% in fiscal 1996. The Company had higher fixed
overhead as a result of acquiring Olmsted and the PTFM transaction, both
of which contributed to an increased breakeven point for the Company. Infrared
cost of revenues, as a percentage of revenues, was 100% for fiscal 1997 compared
to 58% in fiscal 1996. The increased IR costs reflect the impact of low volume
production runs. The fiscal 1997 costs include an adjustment of $18,000 to
devalue inventory that is not considered readily marketable. Cost of revenues
of software and related services of Olmsted as a percentage of revenues
increased from 47% in fiscal 1996 to 59% in fiscal 1997 reflecting a lower
margin on the third party software sales. The recent introduction of the
Windows(R) version of the ACU-CARV(R) product is expected to restore the
revenue mix for this line of products to a more traditional composition
resulting in improved margins for CAD/CAM products. Cellular cost of revenues
was 84% in fiscal 1997 compared to 80% in fiscal 1996.
Research and development expenditures increased by approximately $8,000 or
2% from fiscal 1996 levels. The majority of the Company's research and
development efforts for fiscal 1997 related to the transfer of technology from
PTFM and improvements in the installation methods of the IR system. A portion
of the fiscal 1997 expenditures was directed to the development of the
Windows(R) versions of the CAD/CAM products.
Sales and marketing expense for fiscal 1997 was $1,225,000 compared to the
fiscal 1996 level of $372,000. The fiscal 1997 expenditures reflect increased
activity, particularly in the IR product line. Attendance at major trade shows
was emphasized, coordinated with other increased marketing efforts as the
Company continued to develop its market presence. Effective with the start of
the 1998 fiscal year, the Company re-aligned its organization to more
effectively service the IR reseller network developed through the PTFM
transaction. As a result, a separate IR sales force is now positioned to
maximize the potential of this channel as well as service the direct sales
market for IR. Longer term, the Company also intends to directly market its
infrared locating products to financial institutions, governmental entities,
professional services providers, correctional facilities and manufacturing
markets. As part of this re-alignment, the CAD/CAM line of products from the
Olmsted acquisition in August 1996 was established as a separate sales group.
These re-alignments will allow both groups to better focus on their primary
products.
Fiscal 1997 general and administrative costs were $1,431,000 compared to
$1,349,000 for fiscal 1996. Expenses for fiscal 1997 include a full year of
Olmsted Engineering costs. Major factors in the fiscal 1997 general and
administrative costs were:
- $32,000 associated with the PTFM Engineering Agreement for technology
transfer.
- $203,000 in amortization expense compared to $96,000 in fiscal 1996. The
fiscal 1997 increase resulted from a full year of amortization of
goodwill related to the Olmsted acquisition.
- $148,000 of directors' expenses compared to $2,000 in fiscal 1996. Actual
director compensation for fiscal 1997 is $121,000 reflecting the
addition of one director, an increase in common stock awarded to
outside directors for services rendered and stock options valued at
$69,000 awarded to a director for
15
<PAGE> 16
services rendered. The balance of director expense was for expenses
related to director activities.
- Professional fees were $283,000 in fiscal 1997 compared to $429,000 in
fiscal 1996. The fiscal 1997 expense includes a $299,000 gain on the
settlement of the Duane Morris lawsuit. The unadjusted expense
increase reflects legal fees for handling the lawsuits the Company was
engaged in at the end of fiscal 1996 and those initiated in fiscal
1997.
- $50,000 in shareholder expense compared to $19,000 in fiscal 1996.
Concurrent with private placement issues of the Company's common stock
in 1995 and 1996, the Company entered into Registration Rights
agreements. Fiscal 1997 expenses reflect added costs incurred in the
preparation for registration of a portion of that common stock.
- $58,000 in miscellaneous taxes compared to $7,000 in fiscal 1996.
Additional franchise taxes were due to the State of Michigan as a
result of the increase in authorized shares of common stock.
Interest income increased to $150,000 in fiscal 1997 from $73,000 in fiscal
1996, due to the interest earned on the proceeds from the Company's private
placement of its common stock in late fiscal 1996. Interest expense decreased
to $5,000 in fiscal 1997 from $49,000 in fiscal 1996. The interest expense for
fiscal 1996 reflects a full year's payments on the original Duane Morris note
while fiscal 1997 reflects only two payments.
For federal income tax purposes, the Company has net operating loss
carryforwards. As disclosed in more detail in Note 7 to the consolidated
financial statements, realization of gross deferred income tax assets at
October 31, 1997 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
benefit of net operating loss carryforward amounts or other deferred income tax
assets in its consolidated financial statements at October 31, 1997.
The Company is now positioned to continue aggressively marketing infrared
locating systems and components to health care providers in fiscal 1998, both
through its direct marketing efforts and its reseller network. Product quality
and reliability have been established and multiple reliable key component
suppliers have been identified and relationships established. During fiscal
1997, the CAD/CAM group emphasized third party sales establishing it as an
effective dealer and gaining access to a wide variety of customers that can also
benefit from the ACU-CARV(R) family of products. These activities combined with
the development of the Windows(R) versions of the ACU-CARV(R) product line
provide this group with an effective array of product offerings as fiscal 1998
unfolds.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, the Company relied primarily on cash proceeds generated
from a private placement of its common stock in August 1996 which generated net
proceeds to the Company of approximately $5.2 million. The cash balances at
October 31, 1997 resulted from those proceeds. During fiscal 1997, the Company
expended $515,000 relating to the licensing of the PTFM technology and $379,000
in engineering services to help transfer and further develop the technology.
These engineering services expenditures are expected to be reduced to $101,000
in fiscal 1998. Professional fees for fiscal 1997, before the adjustment for
the Duane Morris settlement, totaled $582,000 compared to $429,000 for fiscal
1996. Fiscal 1997 reflects additional expenditures for fees related to the
settlement of the majority of lawsuits the Company was engaged in at the end of
fiscal 1996 and those commenced in fiscal 1997. Expenditures related to the
registration of certain shares of stock in accordance with registration rights
agreements entered into pursuant to the 1995 and 1996 private placements of the
Company's stock, amounting to $71,000, are also included in fiscal 1997
results. Although in recent years the Company has experienced high levels of
professional fees, management believes fiscal 1997 results include a number of
charges that will not continue in future years or will continue at lower levels
than those recently experienced. The Company believes the combination of cash
balances remaining
16
<PAGE> 17
from the 1996 private placement, the cash expected to be generated during fiscal
1998 from reseller sales of its infrared locating systems and continued sales of
software and related services, should be sufficient to meet projected cash needs
over the next twelve months.
SIGNIFICANT LIQUIDITY FACTORS:
<TABLE>
<CAPTION>
October 31
----------
1997 1996
---- ----
<S> <C> <C>
Current ratio 2.8:1 4.2:1
Quick ratio 2.4:1 4.0:1
</TABLE>
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
"Year 2000 issue" and has identified no problem areas. The Company presently
believes that, with no modifications to existing software, the "Year 2000
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.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) 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 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
year ended October 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 employee stock option plans in
accordance with APB Opinion No. 25 and has provided supplemental disclosures as
required by SFAS No. 123, beginning in 1997. The SFAS No. 123 expense
recognition provisions have been adopted relative to the Company's non-employee
director stock options.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS
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 ending after December 15, 1997, including interim
periods; earlier application is not permitted. Had SFAS No. 128 been required
to be implemented for the years ended October 31, 1997 and 1996 there would
have been no effect on EPS.
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".
17
<PAGE> 18
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 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 yet 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.
SAFE HARBOR PROVISION
This report contains forward-looking statements within the meaning of 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, products, services and prices. The Company undertakes no obligation
to update, amend or clarify forward-looking statements, whether as a result of
new information, future events or otherwise.
18
<PAGE> 19
ITEM 7 - FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Consolidated Financial Statements: Page
---------------------------------- ----
<S> <C>
Independent Auditors' Report 20
Consolidated Balance Sheets as of October 31, 1997 and 1996 21
Consolidated Statements of Operations for the years ended October 31, 1997 And 1996 23
Consolidated Statements of Shareholders' Equity for the years ended October 31, 1997 and 1996 24
Consolidated Statements of Cash Flows for the years ended October 31, 1997 And 1996 25
Notes to Consolidated Financial Statements 26
</TABLE>
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Versus Technology, Inc. and Subsidiary
We have audited the consolidated balance sheets of Versus Technology, Inc. and
subsidiary as of October 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Versus Technology,
Inc. and subsidiary at October 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
December 5, 1997
20
<PAGE> 21
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
October 31, 1997 and 1996
<TABLE>
<CAPTION>
October 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,871,000 $4,931,000
Accounts receivable (net of allowance for
doubtful accounts of $52,000 and $53,000) 431,000 154,000
Notes receivable, net (Note 5) 15,000 32,000
Inventories - purchased parts and assemblies 171,000 145,000
Prepaid expenses and other assets 113,000 80,000
----------------------------
TOTAL CURRENT ASSETS 2,601,000 5,342,000
----------------------------
NOTES RECEIVABLE, net (Note 5) - 19,000
----------------------------
PROPERTY AND EQUIPMENT
Machinery, equipment and vehicles 202,000 293,000
Furniture and fixtures 49,000 47,000
Leasehold improvements 121,000 85,000
----------------------------
372,000 425,000
Less accumulated depreciation 89,000 155,000
----------------------------
NET PROPERTY AND EQUIPMENT 283,000 270,000
----------------------------
SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of
$87,000 and $12,000 513,000 588,000
GOODWILL, net of accumulated amortization of
$182,000 and $26,000 2,157,000 2,313,000
PATENTS AND OTHER INTANGIBLE ASSETS, net of
accumulated amortization of $344,000 and
$170,000 (Notes 4 and 6) 1,621,000 255,000
----------------------------
$7,175,000 $ 8,787,000
============================
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
October 31,
1997 1996
------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 6) $ 308,000 $ 748,000
Accrued expenses 159,000 135,000
Deferred revenue - customer advance payments 356,000 16,000
Note payable, current portion (Note 6) 123,000 367,000
--------------------------------
TOTAL CURRENT LIABILITIES 946,000 1,266,000
NOTE PAYABLE, less current portion (Note 6) 83,000 -
--------------------------------
TOTAL LIABILITIES 1,029,000 1,266,000
--------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)
SHAREHOLDERS' EQUITY (Notes 2, 3, 4 and 9)
Common stock, $.01 par value; 50,000,000
shares authorized; 38,271,579 and 36,543,573
shares issued and outstanding 383,000 366,000
Additional paid-in capital 33,074,000 31,910,000
Accumulated deficit (27,142,000) (24,532,000)
Unearned compensation (169,000) (223,000)
--------------------------------
TOTAL SHAREHOLDERS' EQUITY 6,146,000 7,521,000
--------------------------------
$ 7,175,000 $ 8,787,000
================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
Year ended October 31,
1997 1996
REVENUES -------------------------------------
<S> <C> <C>
$ 1,524,000 $ 348,000
OPERATING EXPENSES (Note 10)
Cost of revenues 1,191,000 225,000
Research and development 440,000 432,000
Sales and marketing 1,225,000 372,000
General and administrative (Note 6) 1,431,000 1,349,000
-------------------------------------
4,287,000 2,378,000
-------------------------------------
LOSS FROM OPERATIONS (2,763,000) (2,030,000)
-------------------------------------
OTHER INCOME (EXPENSE)
Interest income 150,000 73,000
Interest expense (5,000) (49,000)
Other, net 8,000 -
-------------------------------------
153,000 24,000
-------------------------------------
NET LOSS $ (2,610,000) $ (2,006,000)
=====================================
NET LOSS PER SHARE $ (.07) $ (.09)
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional Unearned
Paid-in Accumulated Compensation
Shares Amount Capital Deficit (Note 8) Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, November 1, 1995 18,910,697 $ 190,000 $ 23,410,000 $ (22,526,000) $ - $ 1,074,000
Sale of common stock, net of
issuance costs (Note 9) 11,335,000 113,000 5,088,000 - - 5,201,000
Sale of common stock to
shareholder (Note 9) 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 9) 253,467 3,000 223,000 - (223,000) 3,000
Extinguishment of demand note
payable through issuance of
common stock (Note 6) 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
Shares issued for license of
patents and other intellectual
property (Note 4) 1,600,000 16,000 984,000 - - 1,000,000
Net shares issued (repurchased)
for restricted stock bonus plan
(Note 9) (6,994) - (7,000) - 7,000 -
Earned compensation relating to
restricted stock bonus plan
(Note 9) - - - - 47,000 47,000
Directors' compensation (Note 9) 135,000 1,000 187,000 - - 188,000
Net loss - - - (2,610,000) - (2,610,000)
-------------------------------------------------------------------------------------------------
BALANCE, October 31, 1997 38,271,579 $ 383,000 $ 33,074,000 $ (27,142,000) $ (169,000) $ 6,146,000
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
Year ended October 31,
1997 1996
--------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (2,610,000) $ (2,006,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 72,000 32,000
Amortization of intangibles 405,000 96,000
Loss on disposal of equipment 1,000 -
Gain on settlement of disputed accounts and note
payable (299,000) -
Change in unearned compensation 47,000 -
Directors' compensation 140,000 -
Changes in operating assets and liabilities, net of
effects of 1996 purchase of Olmsted Engineering Co.:
Accounts receivable, net (277,000) 45,000
Inventories (26,000) (132,000)
Prepaid expenses and other current assets (10,000
Accounts payable (289,000) 194,000
Accrued expenses 24,000 (293,000)
Deferred revenues - customer advance payments 340,000 7,000
-------------------------------------
Net cash used in operating activities (2,482,000) (2,050,000)
-------------------------------------
INVESTING ACTIVITIES
Change in note receivable 36,000 2,000
Additions to property and equipment (102,000) (114,000)
Proceeds on sale of equipment 16,000 -
Additions to patents and other intangible assets - (60,000)
Payment for acquisition of license to intellectual
property and associated costs (515,000) -
Cash paid to dissenting shareholders in acquisition of
Olmsted Engineering Co., net of cash acquired - (38,000)
-------------------------------------
Net cash used in investing activities (565,000) (210,000)
-------------------------------------
FINANCING ACTIVITIES
Payments on note payable $ (13,000) $ (82,000)
Repurchase of common stock - (85,000)
Sale of common stock - 5,360,000
-------------------------------------
Net cash provided by (used in) financing activities (13,000) 5,193,000
-------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,060,000) 2,933,000
CASH AND CASH EQUIVALENTS, at the beginning of the year 4,931,000 1,998,000
-------------------------------------
CASH AND CASH EQUIVALENTS, at the end of the year $ 1,871,000 $ 4,931,000
=====================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 8,000 $ 46,000
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
VERSUS TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 31, 1997 and 1996
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: data collection and processing (previously
referred to as 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 (IR) for the
health care industry and other markets located throughout North America.
These products permit the instantaneous identification and locating 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.
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(R) name, resells third party
software, and provides systems support services throughout North America.
Olmsted receives monthly maintenance and enhancement fees from customers and
in turn provides technical support and semi-annual releases.
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 (see Note 13).
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.
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.
26
<PAGE> 27
REVENUE RECOGNITION
Revenue from IR 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 are not significant, are
charged to operations when incurred.
Revenue from CAD/CAM product sales is recognized when the related goods are
shipped and all significant obligations of the Company have been satisfied.
Revenue from CAD/CAM 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 includes $513,000 and $588,000 at October 31,
1997 and 1996, respectively, representing the estimated fair value of
Olmsted's ACU-CARV(R) and related software acquired in August 1996, less
accumulated amortization computed on a straight-line basis over eight years.
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 is capitalized. Such
capitalized costs are 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 are expensed as incurred.
PATENTS AND OTHER INTANGIBLE ASSETS
Patents and other intangible assets are recorded at cost, less amortization
computed on a straight-line basis over seven to ten years. Other intangible
assets are comprised primarily of the exclusive right to license PTFM's
patents and other intellectual property rights (Note 4); trademarks; and
supplier royalty agreements.
27
<PAGE> 28
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 are measured based on the
projected discounted cash flows related to those operations. Amortization
of $156,000 and $26,000 has been recorded for the years ended October 31,
1997 and 1996, respectively.
ADVERTISING COSTS
All advertising costs, amounting to $72,000 and $33,000 for the years ended
October 31, 1997 and 1996, 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 37,737,284 and 21,860,076 for 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 (FASB) 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 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 year ended October 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
28
<PAGE> 29
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. The SFAS No. 123 expense
recognition provisions have been adopted for the Company's non-employee
director stock options. Management has continued to account for its
employee stock option plans in accordance with APB Opinion 25. See Note 9
for the effect on operations and the supplemental disclosures as required by
SFAS No. 123.
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 ending after December
15, 1997, including interim periods; earlier application is not permitted.
Had SFAS No. 128 been required to be implemented for the years ended October
31 1997 and 1996, there would have been no effect on EPS.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to 1996 balances to conform with
classifications used in 1997.
2. OPERATIONS AND LIQUIDITY
Losses incurred during 1997 and 1996 and accumulated losses to date have had
a significant adverse impact on the Company's financial position. During
fiscal 1997 and 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, 1997 and 1996 resulted from
the proceeds of the most recent private placement offering. The Company
believes the combination of these cash balances and the cash expected to be
generated during fiscal 1998 from the sales of its infrared locating systems
and continued sales of CAD/CAM and related services, should be sufficient to
meet projected cash needs over the next twelve months.
29
<PAGE> 30
3. ACQUISITION OF OLMSTED ENGINEERING CO.
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 continues to do business as a wholly-owned subsidiary under
the name "Olmsted Engineering Co.," is in the business of developing,
marketing and maintaining various CAD/CAM 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 leased office space to Versus on a temporary basis through December
1996 (see Note 10).
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 9. 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.
The acquisition was accounted for using the purchase method of accounting,
and accordingly, the purchase price was 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, amounting to $2,339,000, was 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 significant limitations under the Internal Revenue Code rules relating to
ownership change, which expire through 2011, if not previously utilized. As
discussed in Note 7, 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 on November 1, 1995, the beginning of the 1996
fiscal year. 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 November 1, 1995.
Pro forma results for Year ended October 31, 1996
-----------
Net sales $ 768,000
Net loss (2,168,000)
Net loss per common share (.08)
30
<PAGE> 31
Olmsted's operating results have been included in the consolidated statement
of operations since the date of acquisition.
4. 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. PTFM has previously been a supplier of infrared components to
the Company. The Company contracts for the manufacture of these component
parts and assembly of final components.
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 (valued at $1.0 million for
accounting purposes; the restrictions on these shares lapsed on October 1,
1997).
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. Total expenses reimbursed during the year ended
October 31, 1997, amounted to $379,000, of which $237,000 is included in
research and development, $110,000 is included in sales and marketing and
$32,000 is included in general and administrative expenses in the
accompanying 1997 statement of operations.
The total amount capitalized at January 31, 1997, and being amortized over
the 10-year exclusivity period of the agreement, amounted to $1,540,000,
including costs of the transaction.
5. NOTES RECEIVABLE
The Company has notes receivable of $36,000 and $59,000 at October 31, 1997
and 1996, respectively, in connection with certain sales of software, net of
an allowance for doubtful accounts of $21,000 and $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.
6. 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.
31
<PAGE> 32
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 bore interest at a
specified bank's prime rate, 8.25% at October 31, 1996, and required 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, was secured by
certain patents and intellectual property of the Company. Additional fees
to the same law firm, amounting to $151,000, were included in accounts
payable at October 31, 1996.
In May 1997, the Company filed a malpractice lawsuit against the law firm,
seeking indemnity against any loss the Company might incur in connection
with certain law suits previously litigated by the law firm, 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. In late fiscal 1997,
a resolution in principal was reached by the parties and a document
evidencing this resolution was executed by both parties in December 1997.
Under the terms of the agreement, the law firm agreed to reduce the current
balance of its claim from $505,000 to $206,000, to be paid in 20 monthly
installments with no interest. The law firm's security interest in certain
patents and intellectual properties of the Company will continue until all
installment payments have been made. The Company has recorded its remaining
obligation at $206,000 at December 31, 1997, without imputing interest,
which is not material. The resulting gain on settlement, amounting to
$299,000, is included in general and administrative expenses in the
accompanying 1997 consolidated statement of operations.
7. 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, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net operating loss carryforwards $ 6,829,000 $ 6,052,000
Receivables - allowance for
doubtful accounts 25,000 21,000
Inventory 8,000 -
Accumulated depreciation (12,000) 3,000
Intangible assets 50,000 2,000
Accruals and reserves 53,000 25,000
------------------------------
Gross deferred income tax assets 6,953,000 6,103,000
Less valuation allowance (6,953,000) (6,103,000)
------------------------------
Net deferred income tax assets
recorded in the consolidated
financial statements $ - $ -
==============================
</TABLE>
At October 31, 1997, the Company had available net operating loss
carryforwards for federal income tax reporting purposes of approximately
$20,085,000 which expire through 2012, if not previously utilized.
32
<PAGE> 33
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 net operating loss carryforward amounts. The
utilization of the total operating loss carryforwards of Versus and Olmsted
are subject to significant 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, 1997, 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:
<TABLE>
<S> <C>
Income tax benefit that would be
reported in the consolidated
statement of operations as a
reduction of income tax expense $ 6,341,000
Recognized as a reduction of goodwill 612,000
------------
$ 6,953,000
============
</TABLE>
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.
For the years ended October 31, 1997 and 1996, income taxes differed from
the amounts computed by applying the federal statutory rate of 34% to losses
before income taxes as follows:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Computed "expected" tax benefit $ (887,000) $ (682,000)
Increase in tax resulting from:
Adjustment to valuation
allowance for deferred income
tax assets relating to current
year losses 805,000 677,000
Nondeductible expenses 82,000 5,000
----------- ----------
$ - $ -
=========== ==========
</TABLE>
33
<PAGE> 34
8. 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 fringe benefits during the
term of the agreement.
LITIGATION
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 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. 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. The
Company disputes the material allegations of the complaints. The Company's
legal counsel has 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. Management and legal counsel
believe the Company's defense will be found to have merit thus resulting in
no liability of the Company to the plaintiffs.
9. SHAREHOLDERS' EQUITY
STOCK OFFERINGS AND ISSUANCES
As discussed in Note 4, as of January 31, 1997, the Company acquired the
exclusive license to use PTFM's intellectual property, including patents,
related to infrared locating. A portion of the consideration was 1.6
million restricted shares of the Company's common stock. The shares issued
contained certain registration rights.
During fiscal 1997, the Company issued 135,000 shares of common stock to its
Directors in lieu of cash for their annual director fees. Of the total
$120,000 value assigned to the shares, $71,000 was charged to expense in
1997 with the balance deferred until fiscal 1998.
34
<PAGE> 35
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 are being used to fund the development and marketing of infrared
locating products and to meet anticipated cash flow needs. These shares
contained certain registration rights.
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.
STOCK REGISTRATION
In accordance with private placements of its common stock in 1996 (as
discussed above) and 1995 the Company entered into registration rights
agreements with the purchasers of the stock. Additional restricted common
stock was received by Olmsted shareholders as part of the August 26, 1996
acquisition of Olmsted, as discussed in Note 3. As discussed above and in
Note 4, restricted common stock was issued to PTFM to acquire the exclusive
license to use PTFM's intellectual property, including patents, related to
infrared tracking. Restricted common stock was also issued in settlement of
the indebtedness owed to the holder of a demand note, as discussed in Note
6. During the second quarter of 1997, the Company registered for resale a
portion of these common shares. All of the net proceeds from the offering
registered will be received by selling shareholders. A total of 12,048,000
common shares currently may be offered pursuant to the prospectus.
STOCK WARRANTS
At October 31, 1997, the Company has outstanding warrants in the following
amounts exercisable through the following dates:
1. Warrants to purchase 225,000 shares at an exercise price of $2.05,
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.
35
<PAGE> 36
STOCK OPTIONS
The Company's 1996 Employee Incentive Stock Option Plan grants key 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.
During 1997, under a separate agreement, the Company awarded a five-year
stock option to a non-employee Director to purchase 100,000 shares of the
Company's common stock at $1.031 per share, the fair value of the common
stock at the date of grant. The options were awarded for services rendered,
become excercisable six months after date of grant and may be exercised
up to five years from date of grant.
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 during fiscal 1997. All of the outstanding options under these
agreements were exercisable at October 31, 1997.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," relating to its employee stock
option plans. Accordingly, no compensation cost has been recognized
relating to the Company's employee stock option plans. Had compensation
cost for the Company's employee stock options been determined based on their
fair values at the grant dates for awards in 1996 (no awards to employees
were made in 1997) consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------------------------------
<S> <C> <C>
Net loss - as reported $ 2,610,000 $ 2,006,000
Net loss - pro forma 2,688,000 2,115,000
Net loss per share - as reported 0.07 0.09
Net loss per share - pro forma 0.07 0.10
===============================
</TABLE>
The fair values of the option awards were estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
dividend yield of 0.0%; expected volatility of 78.85%; risk-free interest
rate of 8.72% and expected life of 9.6 years.
Compensation cost of $69,000 was recognized in 1997 relating to the
non-employee Director stock option award based on the estimated fair value
of the option at the date of grant. The fair value of the option award was
estimated using the Black-Scholes option-pricing model with the following
average assumptions: dividend yield of 0.0%; expected volatility of 78.85%;
risk-free interest rate of 5.72% and expected life of 5 years.
36
<PAGE> 37
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 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.
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 presented as a separate component of shareholders' equity.
Unearned compensation is considered earned and is amortized to expense over
the three-year vesting period. During 1997, 37,450 additional shares were
issued and 44,444 shares were repurchased upon termination of participating
employees. Earned compensation amounted to $47,000 for the year ended
October 31, 1997.
10.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 from November 1, 1995
through August 26, 1996, 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 were as follows:
1996
---------
Programming $ 548,000
Engineering pass-through billings 167,000
Business plan and materials 21,000
Rent 19,000
----------
Total Olmsted billings $ 755,000
==========
37
<PAGE> 38
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
maintained its headquarters and principal operating facilities at the former
business location of Olmsted through December 1996.
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
$121,000, in accordance with terms of the lease agreements. Rent expense
for the year ended October 31, 1997 amounted to $106,000.
11.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 (subject to Internal Revenue Code limitations) to a retirement
savings account in any year. 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 $30,000 and
$1,460 for the years ended October 31, 1997 and 1996, respectively.
12.NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 6, in late fiscal 1997, the Company reached an
agreement, in principle, with a former law firm to settle a claim regarding
amounts due the law firm. The Company's recorded obligation in the form of
accounts and notes payable totaling $505,000 were replaced with a new note
payable for $206,000, resulting in a $299,000 gain.
As discussed in Note 4, as of January 31, 1997, 1.6 million restricted
shares of common stock, valued for accounting purposes at $1,000,000, were
issued to PTFM in partial 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.
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 6, 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.
13.BUSINESS SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates in two business segments: data collection and
processing (previously referred to as security); and systems design and
engineering. Prior to August 1996, when Olmsted was acquired, the Company
operated only in the data collection and processing segment. The data
collection and processing 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.
38
<PAGE> 39
Net sales, operating income (loss), identifiable assets, capital
expenditures and depreciation and amortization pertaining to the business
segments, as of and for the years ended October 31, 1997 and 1996, are
presented below.
<TABLE>
<CAPTION>
1997 1996
-------------------------------
NET SALES
<S> <C> <C>
Data collection and processing $ 769,000 $ 246,000
Systems design and engineering 755,000 102,000
-------------------------------
$ 1,524,000 $ 348,000
===============================
OPERATING LOSS
Data collection and processing $ (1,986,000) $ (1,927,000)
Systems design and engineering (487,000) (53,000)
-------------------------------
Total operating loss (2,473,000) (1,980,000)
General corporate expenses (290,000) (50,000)
Interest income, net 145,000 24,000
Other income, net 8,000 -
-------------------------------
Net loss $ (2,610,000) $ (2,006,000)
===============================
IDENTIFIABLE ASSETS
Data collection and processing $ 4,418,000 $ 2,855,000
Systems design and engineering 785,000 921,000
Corporate 1,972,000 5,011,000
-------------------------------
$ 7,175,000 $ 8,787,000
===============================
CAPITAL EXPENDITURES
Data collection and processing $ 102,000 $ 111,000
Systems design and engineering - 3,000
-------------------------------
$ 102,000 $ 114,000
===============================
DEPRECIATION AND AMORTIZATION
Data collection and processing $ 372,000 $ 75,000
Systems design and engineering 105,000 53,000
-------------------------------
$ 477,000 $ 128,000
===============================
</TABLE>
Net sales in excess of 10% of the Company's total net sales were
attributable to sales to one and three major customers for the years ended
October 31, 1997 and 1996, respectively. These individual customers
accounted for net sales of approximately $260,000 (17%) in fiscal year 1997
and $56,000 (16%), $37,000 (11%) and $34,000 (10%) in fiscal year 1996.
39
<PAGE> 40
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
<TABLE>
<CAPTION>
Management Age Position(s) with the Company
---------- ---- ----------------------------
<S> <C> <C>
Gary T. Gaisser 46 Director, President and Chief Executive Officer
Julian C. Schroeder 50 Director
Elliot G. Eisenberg 49 Director, IR Reseller and Sales Manager
Samuel Davis 66 Director
Henry J. Tenarvitz 45 Executive Vice President of Operations
Robert Butler 50 Controller and Chief Accounting Officer
Andrea Beadle 36 Secretary
</TABLE>
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 IR Reseller and Sales
Manager. 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.
Samuel Davis has served as a Director of the Company since August of 1997.
He is Senior Director of Delta Consulting Group, Inc., specializing in the
management of strategic organizational change in health care organizations and
has served in this position since 1990. Mr. Davis is a Clinical Professor at
the School of Public Health at Columbia University and a Distinguished Service
Professor at the Mount Sinai School of Medicine.
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 and Chief Accounting Officer of the
Company since April 1997. He previously served as District Controller with
Allied Waste Industries, Inc. from August 1996 to April 1997. From June 1994
until August 1996 he served as Operations and Marketing Manager for City
Environmental Services of Northern Michigan. From June 1990 to June 1994 Mr.
Butler served as Division Manager and CFO of Tay-Ban Corporation a subsidiary
of Republic Waste Industries, Inc.
40
<PAGE> 41
Andrea Beadle has served as Secretary of the Company since February 1997.
Since February 1996 she has served as Executive Assistant to the President and
since August 1996 she has also served as Human Resources Manager. 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.
Based solely upon a review of Forms 3 and 4 furnished to the Company
pursuant to Rule 16a-3(e) and written statements from directors and executive
officers that no report on Form 5 is due, no reporting person failed to file
reports required under Section 16(a) of the Securities and Exchange Act of 1934
with respect to the Company's securities, except that a Form 3 was filed late
with respect to Mr. Davis' initial ownership of shares.
ITEM 10 - 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,
1997, 1996 and 1995. There were no other executive officers of the Company who
received combined salary and bonuses for the periods presented equaling or
exceeding $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Fiscal
Name & Principal Position Year Salary Bonus Other Option Awards
------------------------- ------ ----- ------ ----- --------------
<S> <C> <C> <C> <C> <C>
Gary T. Gaisser 1997 $ 134,500 $ - $ 200 (1) -
President, Chief Executive Officer 1996 78,000 - 400 (2) 1,000,000
and Director 1995 52,000 - - -
</TABLE>
(1) Represents two meetings of directors at $100 per meeting during
fiscal 1997. The directors voted to forego the fee for the
October 31, 1997 meeting and all future meetings.
(2) Represents $100 per meeting of directors held during fiscal 1996.
OPTION AWARDS
The options to purchase 1,000,000 shares, granted to Mr. Gaisser in 1996,
are exercisable at $.375 a share, the fair value of the stock at the grant
date. Twenty-five percent of these options became exercisable on December 4,
1996, and an additional twenty-five percent became exercisable on December 4,
1997. The balance becomes exercisable on each subsequent anniversary thereof.
The options expire on June 4, 2001. Mr. Gaisser has exercised no options.
These options had an estimated value of $656,000 at October 31, 1997 based upon
the difference between the option exercise price and the fair market value of
the Company's common stock at October 31, 1997.
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 an initial base
salary of $130,000 per year and receives a 10% annual
41
<PAGE> 42
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.
Mr. Gaisser's 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 giving of sixty (60) days' prior written notice. In each
case, the Company shall deem such resignation constructive termination of Mr.
Gaisser's employment, 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
Previously, each Director of the Company received 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'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. At its October 31, 1997 meeting, the Board
unanimously agreed to alter the compensation arrangements. The $100 per
meeting attendance fee was eliminated and each outside director was awarded
30,000 shares of the Company's Common Stock. Inside directors (i.e., those
employed by the Company) continue to receive 15,000 shares. Also at its
October 31, 1997 meeting, the Board awarded Samuel Davis a five-year option to
purchase 100,000 shares of the Company's common stock at $1.031 per share, the
market price at the date of grant.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 January 19, 1998,
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:
<TABLE>
<CAPTION>
Amount and Nature of Percentage of Class
Name & Address of Beneficial Owner Beneficial Ownership Outstanding
---------------------------------- -------------------- -----------
<S> <C> <C>
Anthony Low-Beer 6,261,000 (1) 16.3%
c/o Mitchell Securities
100 Park Avenue
New York, NY 10017
</TABLE>
42
<PAGE> 43
<TABLE>
<S><C>
Gary T. Gaisser 6,250,123 (2) 16.1%
c/o Versus Technology, Inc.
2600 Miller Creek Road,
Traverse City, MI 49684
William Harris Investors 3,025,000 (3) 7.9%
2 North LaSalle Street, Suite 400
Chicago, IL 60602
</TABLE>
(1) As reported on Schedule 13D amendment filed November 19, 1997. Of
these shares, 2,921,000 are reported as being held in managed accounts
over which Mr. Low - Beer shares dispositive power.
(2) This total includes 250,000 shares that became acquirable by Mr.
Gaisser on December 4, 1996 and an additional 250,000 shares that
became acquirable by Mr. Gaisser on December 4, 1997 upon exercise of
an outstanding option issued by the Company. See "Executive
Compensation" above and "Certain Relationships and Related
Transactions" below.
(3) 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 January 19, 1998, 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>
<CAPTION>
Approximate Number
Position(s) with the of Common Shares
Name of Beneficial Owner Company Beneficially Owned Percent of Class
------------------------- ------- ------------------ ----------------
(1)
<S> <C> <C> <C>
Gary T. Gaisser President, Chief Executive 6,250,123 (2) 16.1%
Officer & Director
Julian C. Schroeder Director 552,582 (3) 1.4%
Elliot G. Eisenberg Director, IR Reseller and 1,688,192 (4) 4.4%
Sales Manager 1.0%
Samuel Davis Director 365,000 23.0%
All executive officers and
directors as a group (7 persons) 9,032,157 (5)
</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, Schroeder, Eisenberg and Davis 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 and an additional 250,000 shares that
became acquirable by Mr. Gaisser on December 4, 1997 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
43
<PAGE> 44
allocated by BDS Holdings, L.L.C., an affiliate of BDS Securities,
L.L.C., to its members, including Mr. Schroeder.
(4) This total includes 100,000 shares currently acquirable under the
terms of warrants issued by the Company to Mr. Eisenberg and 57,464
shares currently acquirable under the terms of warrants allocated by
BDS Holdings, L.L.C., an affiliate of BDS Securities, L.L.C., to its
members, including Mr. Eisenberg.
(5) This total includes 875,046 shares acquirable under outstanding
warrants and options.
ITEM 12 - 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 Locating 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.
In addition to programming and engineering services and related materials,
Olmsted provided business planning services and related materials, and
operating facilities for a period of time in fiscal 1996, until the Company
moved to new facilities in December 1996. The total Olmsted billings to Versus
during 1996 for these services prior to the acquisition totaled $755,000.
The Company believes that services provided by Olmsted were negotiated at
arms length at the fair market value of goods and services received.
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. A portion of these
warrants was allocated to Messrs. Schroeder and Eisenberg as of July 21, 1997.
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. A portion of
these warrants was allocated to Messrs. Schroeder and Eisenberg as of July 21,
1997.
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
44
<PAGE> 45
after the first year.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial statements included in Part II of this report.
(2) Exhibits included in the Exhibit Index on Page 45.
(b) There were no reports on Form 8-K during the fourth fiscal quarter.
45
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the issuer has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VERSUS TECHNOLOGY, INC.
<TABLE>
<S> <C>
By: /s/ Robert Butler By: /s/ Gary T. Gaisser
------------------- -------------------
Robert Butler Gary T. Gaisser
Controller and Chief Accounting Officer President and Chief Executive Officer
(Principal Executive Officer) (Principal Accounting Officer)
</TABLE>
Dated: January 26, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the issuer and in the capacities and on the
dates indicated:
/s/ Gary T. Gaisser January 26, 1998
- ---------------------------
Gary T. Gaisser
Director
/s/ Elliot G. Eisenberg January 26, 1998
- ---------------------------
Elliot G. Eisenberg
Director
/s/ Julian C. Schroeder January 26, 1998
- ----------------------------
Julian C. Schroeder
Director
/s/ Samuel Davis January 26, 1998
- ----------------------------
Samuel Davis
Director
46
<PAGE> 47
EXHIBIT INDEX
2 Agreement and Plan of Merger between Versus Technology, Inc.
and Olmsted Engineering, Inc. (Incorporated by reference to
Exhibit 2 of the Company's Form 8-K dated August 26, 1996)
3(a)(i) Certificate of Incorporation dated October 11, 1988 (Incorporated by
reference to 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 to 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 to 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 to Exhibit 3 of the Company's Form
10-QSB for the quarter ended July 31, 1996)
3(b) By-laws (Incorporated by reference to 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 (Incorporated by
reference to Exhibit 4(a) of the Company's Form 10-KSB for the
year ended October 31, 1996)
4(b) Stock Option Agreement with Gary T. Gaisser (Incorporated by
reference to Exhibit 4(b) of the Company's Form 10-KSB for the
year ended October 31, 1996)
4(c) Incentive Stock Option Plan (Incorporated by reference to the
Company's 1996 Proxy Statement)
4(d) Stock Option Agreement with Samuel Davis.
10(a) Lease Agreement between Versus Technology, Inc. and Traverse
Software Investment, LLC (Incorporated by reference to
Exhibit 10(a) of the Company's Form 10-KSB for the year ended
October 31, 1996)
10(b) Lease Agreement between Olmsted Engineering, Co. and Traverse
Software Investment, LLC (Incorporated by reference to Exhibit
10(b) of the Company's Form 10-KSB for the year ended
October 31, 1996)
10(c) Exclusive Marketing Agreement between Versus Technology, Inc. and
Marquette Electronics, Inc. (redacted) (Incorporated by reference
to Exhibit 10(c) of the Company's Form 10-KSB for the year ended
October 31, 1996)
10(d) Employment Agreement with Gary T. Gaisser (Incorporated by
reference to Exhibit 10(d) of the Company's Form 10-KSB for the
year ended October 31, 1996)
10(e) Registration Rights Agreement dated August 26, 1996 (Incorporated
by reference to Exhibit
47
<PAGE> 48
10(e) of the Company's Form 10-KSB for the year ended October 31, 1996)
10(f) Registration Rights Agreement dated September 15, 1995
(Incorporated by reference to 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 to Exhibit 10 (e) of the
Company's Form 10-KSB for the year ended October 31, 1995)
10(h) Agreement with Precision Tracking FM, Inc. ("The License
Agreement") effective January 31, 1997 (Incorporated by reference to
Exhibit 10.1 of the Company's Form 8-K filed February 18, 1997)
10(i) Engineering and License Agreement with Precision Tracking FM,
Inc. ("The Engineering Agreement") effective January 31, 1997
(Incorporated by reference to Exhibit 10.2 of the Company's Form 8-K
filed February 18, 1997)
11 Statement Re: Computation of Per Share Earnings
21 Subsidiary of the Registrant
27 Financial Data Schedule
99 News Releases
48
<PAGE> 1
EXHIBIT 4(d)
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of October 31, 1997, is
entered into between VERSUS TECHNOLOGY, INC., a Delaware Corporation (the
"Corporation"), and Samuel Davis, a Director of the Corporation (herein
"Director").
W I T N E S S E T H:
The Corporation desires, by affording the Director an
opportunity to purchase shares of its Common Stock, $.01 par value, to provide
the Director with an added incentive to join or to continue in his capacity as
a Director of the Corporation and to continue and increase his supplemental
efforts as described below.
In consideration of the mutual covenants hereinafter set forth
and for other good and valuable consideration, the parties hereto hereby agree
as follows:
1. Grant. The Corporation irrevocably grants to the
Director the right and option (the "Option") to purchase all or any part of an
aggregate of 100,000 shares of Common Stock on the terms and conditions herein
set forth.
2. Price. The purchase price of the shares of Common
Stock covered by the Option shall be $1.031 per share, being equal to or in
excess of the fair market value of the Common Stock on the date hereof.
3. Time of Exercise. The term of the Option shall be for
a period of five (5) years from the date hereof, subject to earlier termination
as provided in this Agreement. Except as provided in Paragraphs 5 and 6
hereof, the Option may not be exercised unless the
49
<PAGE> 2
Director shall at the time of exercise be a Director of the Corporation.
Neither the Option nor any rights related to the Option shall be exercisable
for a period of six months from the date hereof.
4. No Transfer. The Option shall not be transferable by the Director
otherwise than by Will or the laws of descent and distribution, except to one or
more family members of the Director or one or more trusts for the benefit of
family members of the Director. The Option may not be assigned, transferred
(except as aforesaid), pledged or hypothecated in any way (whether by operation
of law or otherwise) and shall not be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of the Option contrary to the provisions hereof and the levy
of any attachment or similar process upon the Option shall be null and void ab
initio and without effect.
5. Termination. In the event the Director's service as a Director
of the Corporation shall be terminated for any reason other than death, the
Option may be exercised by the Director at any time within six months after such
date (or one year after such date if the Director is disabled), but in no event
after the expiration of five years from the date hereof. Disability, for the
purposes of this Agreement, shall constitute four consecutive quarters of being
unable to render services as a director of the Company as a result of a physical
or mental incapacity.
6. Death of Director. If the Director shall die while entitled to exercise
the Option, the Option may be exercised by the legatee or legatees of the Option
under the Director's Will, the personal representative or distributees of the
Director to the extent that the
50
<PAGE> 3
Option would otherwise have been exercisable by the Director at any time within
a period of one year after the date of the Director's death, but this provision
shall not otherwise extend the five (5) year duration of the Option.
7. Anti-Dilution Adjustments. In the event of any change in the
outstanding Common Stock of the Corporation by reason of stock dividends, stock
splits, recapitalizations, mergers, consolidations, combinations or exchanges of
shares, split-ups, split-offs, liquidations or other similar changes in
capitalization, or any distributions to common stockholders other than cash
dividends, the numbers, class and prices of shares covered by this Option shall
be equitably and appropriately adjusted by the remaining members of the Board of
Directors, whose determination shall be conclusive; provided, however, that no
such adjustment shall give the Director any additional benefits under the
Option.
8. Corporate Transactions. Notwithstanding the provisions of
Paragraph 7, if any "corporate transaction" as defined in Section 1.425-1 of the
Treasury Regulations promulgated under the Internal Revenue Code of 1986 occurs
after the date of this Agreement, and in connection with such corporate
transaction, the Corporation and another corporation enter into an agreement
providing for the issuance of substitute stock options in exchange for the
Option or the assumption of the Option, in either case giving the Director the
right to purchase the largest whole number of shares of Common Stock of the
Corporation or of any other corporation at the lowest option price permitted by
said Section 1.425-1, the Option shall be deemed to provide for the purchase of
such number of shares of
51
<PAGE> 4
Common Stock at such option price as shall be agreed upon by the Corporation and
such other corporation, and the term "Corporation" herein shall mean the issuer
of the stock then covered by the Option and the term "Common Stock" shall mean
such stock.
9. No Agreement for Continued Service. This Agreement does not
confer upon the Director any right to continue as a Director of the Corporation
nor does it interfere in any way with the right of the Corporation to remove the
Director, or the right of the Director to resign, at any time.
10. Restrictions. The obligation of the Corporation to sell and
deliver shares of Common Stock with respect to the Option shall be subject to
(i) all applicable laws, rules, regulations and such approvals by any
governmental agencies as may be required, including the effectiveness of a
registration statement under the Securities Act of 1933, as amended and (ii) the
condition that the shares of Common Stock to be received upon exercise of the
Option shall have been duly listed, upon official notice of issuance, on a stock
exchange (to the extent that the Common Stock of the Corporation is then listed
on any such stock exchange). The Company will include the shares to be issued
pursuant to this option in any registration it files on Form S-8 and will use
its best efforts to properly file any Additional Listing Application which may
be required for listing of the shares to be issued upon the exercise of this
option. In the event that the shares shall be delivered otherwise than in
accordance with an applicable registration statement, the Corporation's
obligation to deliver the shares is subject to the further condition that the
Director will execute and deliver to the Corporation an undertaking in
52
<PAGE> 5
form and substance satisfactory to the Corporation that (i) it is the Director's
intention to acquire and hold such shares for investment and not for resale or
distribution, (ii) the shares will not be sold without registration or exemption
from the requirement of registration under the Securities Act and (iii) the
Director will indemnify the Corporation for any costs, liabilities and expenses
which it may sustain by reason of any violation of the Securities Act or any
other law regulating the sale or purchase of securities occasioned by any act on
his part with respect to such shares. The Corporation may require that any
certificate or certificates evidencing shares issued pursuant to this Agreement
bear a restrictive legend intended to effect compliance with the Securities Act
or any other applicable regulatory measures, and stop transfer instructions with
respect to the certificates representing the shares may be given to the transfer
agent.
11. Exercise. Subject to the terms and conditions of this Agreement, the
Option may be exercised only by written notice delivered to the Corporation at
2600 Miller Creek Road, Traverse City, MI 49684, attention: President, of
intention to exercise such Option and by making payment of the purchase price of
such shares against delivery of a certificate or certificates therefor as
hereinafter provided. Such written notice shall:
(a) state the election to exercise the Option and the
number of shares in respect of which it is being
exercised;
(b) fix a date not less than seven (7) business days
from the date such notice is received by the
Corporation for delivery of the certificate or
certificates for said shares and the payment of the
purchase price therefor, and
53
<PAGE> 6
(c) be signed by the person or persons so
exercising the Option and in the event the
Option is being exercised by any person or
persons other than the Director, be
accompanied by appropriate proof of the right
of such person or persons to exercise the
Option.
On the date fixed in said written notice, a certificate or
certificates for the shares as to which the Option shall have been so
exercised, registered in the name of the person or persons so exercising the
Option, shall be issued by the Corporation and delivered to or upon the order
of such person or persons against payment in full at the above-mentioned
address of the purchase price of said shares in cash, by check or by surrender
or delivery to the Corporation of shares of the Corporation's Common Stock with
a fair market value equal to or less than the Option price, plus cash equal to
any difference. All shares issued as provided herein will be fully paid and
nonassessable. The Director shall not have any of the rights of the
stockholder with respect to the shares of Common Stock subject to the Option
until the certificate evidencing such shares shall be issued to him upon the
due exercise of the Option.
12. Availability of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Agreement, shall pay all original issue taxes with respect to the issue of
shares pursuant hereto and all other fees and expenses necessarily incurred by
the Corporation in connection therewith and will from time to time use its best
efforts to comply with all laws and regulations which in the opinion of counsel
for the Corporation shall be applicable thereto.
54
<PAGE> 7
13. Fair Market Value. As used herein, the "fair market value" of a share
of Common Stock shall be:
(a) if the Common Stock is listed on a national
securities exchange, the closing price of the Common
Stock on the Composite Tape on the trading day
immediately preceding such given date;
(b) if the Common Stock is traded on the
over-the-counter market, the average of the bid
and the asked price for the Common Stock or, if
there is last sale reporting, the closing price
as reported by the Wall Street Journal at the
close of trading on the trading day immediately
preceding such given date, and
(c) if the Common Stock is neither listed on a national
securities exchange or traded on the over-the-
counter market, such value as the remaining
members of the Board of Directors in good faith
shall determine.
14. Governing Law. This Agreement has been entered into and
shall be construed in accordance with the substantive laws of the State of
Michigan.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly
executed and sealed by its duly authorized officers and the Director has
hereunder set his hand, all as of the day and year first above written.
ATTEST: THE CORPORATION:
VERSUS TECHNOLOGY, INC.
_____________________________ By: _____________________________
Name: Andrea Beadle Name: Gary T. Gaisser
Title: Secretary Title: President, Chief Executive
Officer and Director
WITNESS: THE DIRECTOR:
55
<PAGE> 8
_________________________ _______________________________
SAMUEL DAVIS
56
<PAGE> 1
EXHIBIT 11
VERSUS TECHNOLOGY, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
PRIMARY AND FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Net loss $ (2,610,000) $ (2,006,000)
====================================
Calculation of weighted average common shares outstanding:
Outstanding common shares at beginning of year 36,543,573 18,910,697
Impact of private placement offerings:
August 26, 1996 - 11,335,000 shares - 2,044,016
September 29, 1995 - 14,674,917 shares _ _
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 issuance of shares to acquire intellectual
property from Precision Tracking FM, Inc. 1,201,096
Other (7,385) (153,162)
Total weighted average common shares (A) 37,737,284 21,860,076
====================================
Primary and Fully Diluted Loss Per Share $ (.07) $ (.09)
====================================
</TABLE>
NOTE:
(A) The weighted average effect of common stock equivalents was
anti-dilutive for both fiscal 1997 and fiscal 1996 and,
therefore, was not considered in the above calculation.
57
<PAGE> 1
EXHIBIT 21
VERSUS TECHNOLOGY, INC.
SUBSIDIARY OF THE REGISTRANT
JURISDICTION OF PERCENTAGE OF
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
- ------------------ ----------------- -------------
Olmsted Engineering Co. Michigan 100%
58
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE VERSUS
TECHNOLOGY, INC. AND SUBSIDIARY FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 1,871,000
<SECURITIES> 0
<RECEIVABLES> 446,000
<ALLOWANCES> 52,000
<INVENTORY> 171,000
<CURRENT-ASSETS> 2,601,000
<PP&E> 372,000
<DEPRECIATION> 89,000
<TOTAL-ASSETS> 7,175,000
<CURRENT-LIABILITIES> 946,000
<BONDS> 206,000
0
0
<COMMON> 383,000
<OTHER-SE> 5,763,000
<TOTAL-LIABILITY-AND-EQUITY> 7,175,000
<SALES> 1,524,000
<TOTAL-REVENUES> 1,524,000
<CGS> 788,000
<TOTAL-COSTS> 788,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 39,000
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (2,610,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,610,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,610,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
<PAGE> 1
EXHIBIT 99 (1) - PRESS RELEASE - VA MEDICAL CENTER IN ANN ARBOR INSTALLS
NIGHTINGALE INFRARED TRACKING SYSTEM
- --------------------------------------------------------------------------------
NEWS RELEASE
- --------------------------------------------------------------------------------
VA MEDICAL CENTER IN ANN ARBOR INSTALLS NIGHTINGALE - AN IR TRACKING SYSTEM FOR
PATIENT FLOW ANALYSIS AND EQUIPMENT TRACKING
TRAVERSE CITY, Mich., February 5/PRNewswire/--Versus Technology, Inc. (Nasdaq
Bulletin Board: VSTI) announced:
The VA Medical Center in Ann Arbor, Michigan has installed the Nightingale
infrared (IR) tracking system from Versus Technology, Inc.
"Patient flow, as well as the location and movement of equipment, will be
monitored by the system", according to Mr. Chuck Brown, Chief of Information
Resources Management for the VA in Ann Arbor. Mr. Brown has taken the
initiative to add the very latest in infrared technology to the VA's Ambulatory
Care Unit. Mr. Brown was searching for new technology to analyze the
efficiencies within the hospital and needed specific data to support positive
changes in ambulatory care. Using Versus' Nightingale tracking system, he will
be able to look at the unit's floorplan on his computer screen and see where
every important piece of equipment is located and at which care center a
patient is currently being treated.
For analysis, the tracking system's Report Generation Package will produce all
the critical information needed in the form of pie graphs and detailed charts
to empower the Medical Center with the tools to increase efficiency and provide
better patient care.
Based in Traverse City, Versus Technology is an acknowledged leader in infrared
tracking systems and related wireless products. For additional information,
please call (616) 946-5868 or FAX (616) 946-6775.
- -0- 2/5/97
/CONTACT: Gary T. Wittbrodt, 616-946-5868, of Versus Technology, Inc./(VSTI)
60
<PAGE> 2
EXHIBIT 99 (2) - PRESS RELEASE - FOOTE HOSPITAL UPGRADES INFRARED TRACKING
SYSTEM
- ----------------------------------------------------------------------------
NEWS RELEASE
- ----------------------------------------------------------------------------
INCREASED EFFICIENCY GENERATED BY THE NIGHTINGALE(TM) 228 \F "SYMBOL" \S 14
INFRARED (IR) LOCATING SYSTEM LEADS FOOTE HOSPITAL TO UPGRADE THEIR SYSTEM.
TRAVERSE CITY, Mich., February 24/PRNewswire/--Versus Technology, Inc. (NASDAQ
Bulletin Board: VSTI) announced:
Pleased with its increase in efficiency since the installation of the
NIGHTINGALE (TM) locating system, Foote Memorial Hospital, in Jackson,
Michigan, has upgraded their system to the latest WINDOWS (R) Version.
Dr. Anderson, Director of Radiology at Foote, saw the need for implementing the
Nightingale system primarily for phone call forwarding in the Radiology
department. "I can't imagine how we functioned before," stated Dr. Anderson.
"Part of quality is availability." The Radiology department handles a daily
average of 950 incoming phone calls for doctors and technicians, many
concerning test results which need to be communicated immediately to the
appropriate staff person. By using the Nightingale system, the phone operator
can immediately determine the location of a doctor or technician in the
facility and forward the call directly to that location.
Quick response to customer calls and increased communication among hospital
staff have been the primary benefits from the Nightingale system. "It's a
matter of efficiency to be there to handle customer service calls; otherwise,
they will take their business some place else," confirmed Dr. Anderson.
Staff personnel wear COM badges that emit an infrared signal to sensors
installed throughout the facility. The sensors gather the location
information and display the "real time" location of all badged personnel onto a
display monitor and corresponding room list.
The Nightingale system can be used to track key facility assets and resources
including: personnel, patients, equipment, and patient equipment alarms. The
system is designed to accomplish two major functions: the first is to increase
communication, thus allowing patients and staff more freedom while receiving
and administering treatment, and the second is to help facilities manage their
equipment and other resources.
Versus Technology, Inc. markets infrared tracking systems and portable security
systems. For additional information, please call (616) 946-5868 OR FAX (616)
946-6775.
- -0- 2/24/97
/CONTACT: Gary T. Wittbrodt, 616-946-5868, of Versus Technology, Inc./(VSTI)
61
<PAGE> 3
EXHIBIT 99 (3) PRESS RELEASE - VERSION 2.5 of NIGHTINGALE INFRARED TRACKING
SYSTEM RELEASED
- -------------------------------------------------------------------------------
NEWS RELEASE
- -------------------------------------------------------------------------------
VERSUS TECHNOLOGY RELEASES VERSION 2.5 OF THE NIGHTINGALE (TM) INFRARED
TRACKING SYSTEM
TRAVERSE CITY, Mich., March 3/PRNewswire/-- Versus Technology, Inc. (NASDAQ
Bulletin Board: VSTI) announced:
Versus Technology, Inc. is pleased to announce that it has released Version 2.5
of its Nightingale system, an infrared (IR) based resource management and asset
tracking system.
The Nightingale system is used to locate and track key facility assets and
resources, including: personnel, patients, equipment, and patient equipment
alarms. The system is designed to accomplish two major functions: the first is
to allow patients and staff more freedom while receiving and administering
treatment, and the second is to help facilities manage their equipment and
other resources.
Nightingale Version 2.5 runs in Windows 95 and has been designed with an open
architecture for easy integration. The system has been enhanced to allow
customizable communication (COM) badges that provide users the ability to
easily configure the interaction between badges. This increases the
communication options among employees, thus increasing their efficiency. A
Phone list option has been added to the interactive floorplan which gives an
alphabetical listing of all badges (COM and equipment) and their position for
ease of transferring calls.
Versus Technology, Inc. markets infrared tracking systems for all industries
and portable security systems. For additional information, please call
616-946-5868 or FAX 616-946-6775.
- -0- 3/3/97
/CONTACT: GARY T. WITTBRODT, 616-946-5868, OF VERSUS TECHNOLOGY, INC./(VSTI)
62
<PAGE> 4
EXHIBIT 99(4) - PHONEvISION USES IR tRACKING TO PROVIDE SIGHT TO THE TELEPHONE
- -------------------------------------------------------------------------------
NEWS RELEASE
- -------------------------------------------------------------------------------
PHONEVISION(TM) USES IR TRACKING TO PROVIDE SIGHT TO THE TELEPHONE
TRAVERSE CITY, Mich., JULY22/PRNewswire/--Versus Technology, Inc. (NASDAQ
Bulletin Board: VSTI) announced:
Versus Technology, Inc. recently announced the addition of PhoneVision(TM) to
their high-tech infrared product line. PhoneVision, using IR technology as its
platform, allows someone to use a telephone to locate a person or a piece of
equipment simply by dialing the appropriate extension number. The PhoneVision
system automatically locates the person and rings the phone nearest to him so
all calls are answered minimizing phone-tag. PhoneVision provides time saving
benefits to a broad range of professions that operate in a fast-paced
environment- from business offices to healthcare facilities.
PhoneVision provides an IR (infrared) communication solution to the frustrating
problem of locating a person or piece of equipment in seconds. In the
fast-paced, time is money world of today, Phone Vision offers a viable solution
to anyone who knows how to use a telephone. PhoneVision allows a facility to
use its existing phone system as a means to locate key resources. Notes
Vice-President of Versus, Henry Tenarvitz, "What we have done is to simply
Merge Versus' infrared tracking system with our customers' telephone
equipment."
People and Equipment wear a lightweight infrared badge that identifies their
real-time location to the system. As the system searches for an extension
number programmed to an individual's badge, it is smart enough to 'look' for
that person throughout the entire facility. As the system locates the person
associated with that extension number, it will inform the caller where the
person is located (i.e. in the Conference Room). PhoneVision then allows the
caller to select from two options: 1) to ring the extension number where the
person is now located and/or 2) to identify who or what else is in the room.
In a typical office environment, a receptionist no longer needs to search
office after office trying to locate a person expecting an urgent phone call;
he/she only needs to enter the person's extension number and PhoneVision will
find the employee. "I can be in the Laboratory after switchboard Hours,"
states Versus' President Gary T. Gaisser, "and if phone mail is not an
acceptable choice for the caller, I have the comfort of knowing the call can
reach me by way of PhoneVision." Valuable time is easily saved, customer
service is enhanced, and returned phone call costs are nearly eliminated.
Management personnel are excited by the time saving benefits PhoneVision
provides to their organizations.
Equipment can also be easily located via the telephone. By assigning the
equipment
63
<PAGE> 5
an ID number and affixing the equipment with an infrared tag, the
location of the equipment can be determined quickly. PhoneVision can identify
the location of the item and also identify other tagged items in the room.
Knowledge of specific equipment location can be a critical issue. Real-Time
Location eliminates the need to guess where an item was last placed and can
increase staff efficiency.
Versus Technology, Inc. (publicly traded on NASDAQ Bulletin Board: VSTI)
manufactures and markets IR (infrared) locating and communication systems and
phone forwarding integration systems. Their headquarters are located in
Traverse City, MI. Additional information is available at the company's
website, http://www.versustech.com or by calling (616) 946-5868 or FAX (616)
946-6775.
- -0- 7/22/97
/CONTACT: GARY T. WITTBRODT, 616-946-5868, OF VERSUS TECHNOLOGY, INC./(VSTI)
64
<PAGE> 6
EXHIBIT 99(5) - VERSUS TECHNOLOGY, INC. APPOINTS SAMUEL DAVIS AS DIRECTOR
NEWS RELEASE
Versus Technology, Inc. Appoints Samuel Davis as Director
TRAVERSE CITY, Mich., August 15/PRNewswire/--Versus Technology, Inc. (NASDAQ
Bulletin Board: VSTI) announced:
Sam Davis, Former President and CEO of the Mt. Sinai Hospital, has been named
to the Board of Directors of Versus Technology, Inc., effective August 14,
1997.
Mr. Davis is a Clinical Professor at the School of Public Health at Columbia
University and a Distinguished Service Professor at the Mount Sinai School of
Medicine. He is a Senior Director of Delta Consulting Group, Inc. specializing
in the management of strategic organizational change in health care
organizations. Mr. Davis has a distinguished academic and professional
background in the health care profession and has authored numerous published
articles.
"We are gratified that Samuel Davis, with his distinguished background, is
Joining the Versus Board," noted Gary Gaisser, President and CEO of Versus
Technology. "His Expertise in the health care industry will be of particular
assistance to the Company, and he will be a valuable asset in helping us
achieve our strategies. We look forward to his contributions."
As the former President and CEO of the Mount Sinai Hospital, Mr. Davis was
responsible for the acknowledged financial and managerial turnaround of one of
the largest academic medical centers in New York City. "With his knowledge of
the financial and managerial needs of health care organizations, Mr. Davis is
in a unique position to aid Versus in the penetration of the health care
market," Gaisser commented.
Based in Traverse City, Michigan, Versus Technology manufactures and markets
infrared locating and communication systems and phone forwarding integration
systems. For additional information, please call (616) 946-5868 or FAX (616)
946-6775 or visit the company's website: www.versustech.com
- -0- 8/15/97
/CONTACT: GARY T. GAISSER, 616-946-5868, OF VERSUS TECHNOLOGY, INC./(VSTI)
VERSUS TECHNOLOGY, INC. 2600 MILLER CREEK RD., TRAVERSE CITY, MI 49684
616-946-5868 FAX 616-946-6775
65
<PAGE> 7
Exhibit 99(6) - Los Alamos National Laboratories Purchases Nightingale Infrared
(IR) Tracking System
- -------------------------------------------------------------------------------
NEWS RELEASE
- -------------------------------------------------------------------------------
LOS ALAMOS NATIONAL LABORATORIES PURCHASES NIGHTINGALE (TM)
INFRARED (IR) TRACKING SYSTEM
TRAVERSE CITY, Mich., September 5/PRNewswire/--Versus Technology, Inc. (NASDAQ
Bulletin Board: VSTI) announced:
Versus Technology Inc. announced today that it has received an order from Los
Alamos National Laboratories to implement a pilot installation of its
Nightingale (TM) Resource Management System at their laboratory in New Mexico.
Los Alamos will be using this pilot as an enhancement to
their security protocol.
The Nightingale system uses small digital infrared (IR) transmitters that
uniquely identify people and equipment moving around in secure areas. Paul
Argo of Los Alamos stated, "We consider this infrared technology to be a key
component in AMISS (Adaptive Multi-Integrated Security System), a next
generation security system we are developing." The Nightingale tracking system
will provide a continuous stream of information detailing routine movements in
a nuclear facility. This "real-time" collected data allows events to be
evaluated as they occur. Mr. Argo also added, "As its name implies, AMISS
will look for conditions that are out of the norm and call upon multiple
security technologies to verify and respond to any anomalies."
Gary Gaisser, President of Versus Technology, Inc., commented, "We are
continuously pursuing leading edge concepts like AMISS and have participated in
several similar projects. For example, we just participated in installing a
high-tech hospital floor that includes patient monitoring and two-way
communication. We are very excited that Los Alamos has selected us to be part
of an effort towards creating a high-tech security system.
Based in Traverse City, Michigan, Versus Technology manufactures and markets
infrared locating and communication systems and phone forwarding integration
systems. For additional information, please call 616-946-5868 or FAX
616-946-6775 or visit the company's website: www.versustech.com
-0- 9/05/97)
/CONTACT: GARY T. WITTBRODT, 616-946-5868, OF VERSUS TECHNOLOGY, INC./(VSTI)
66
