<PAGE>
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------
For the quarter ended March 31, 1995 Commission File Number 1-8355
HELIONETICS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-2629097
(State of incorporation) (IRS Employer ID No.)
or organization)
2300 Main Street, Irvine, California 92714
(Address of principal executive offices)
(714) 261-8313
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common stock, no par value American Stock Exchange, Inc.
Trading of the common stock was halted by the American Stock Exchange on
November 22, 1994 and such trading halt continues to date. On January 6, 1995,
trading began on the OTC Bulletin Board as a non designated security.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.
YES X NO
---- ----
Shares of common stock outstanding as of April 30, 1995: 40,780,445
(SHOULD TRADING OF HELIONETICS COMMON STOCK BE RESUMED ON THE AMEX
12,926,157 SHARES WOULD BE SUBJECT TO AMEX APPROVAL)
- - --------------------------------------------------------------------------------
<PAGE>
HELIONETICS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE #
------
Item 1. FINANCIAL STATEMENTS
Statements of Operations 1
Balance Sheets 2-4
Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports 14
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands except per share and share data)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
1995 1994
---- ----
<S> <C> <C>
REVENUES $17,427 $16,308
------ ------
COSTS AND EXPENSES
Cost of sales 13,630 12,393
Selling, general and administrative 5,113 2,871
Interest 166 79
------ ------
18,909 15,343
------ ------
OTHER INCOME (EXPENSE) 1 38
------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES (1,481) 1,003
Provision for income tax (Note 5) -- 102
------ ------
NET INCOME (LOSS) $(1,481) $ 901
------ ------
------ ------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (Note 1):
PRIMARY $ (0.06) $ 0.04
------ ------
------ ------
FULLY DILUTED $ (0.06) $ 0.03
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,330 $ 5,464
Accounts receivable, less allowance of $620 in
1995 and $643 in 1994 17,214 11,866
Notes receivable from officers 40 40
Inventories (Note 1) 7,644 8,174
Prepaid expenses and other 1,543 1,714
------ ------
Total current assets 29,771 27,258
------ ------
PROPERTY, PLANT AND EQUIPMENT
at cost:
Leasehold improvements 1,376 1,345
Machinery and equipment 5,090 6,600
------ ------
6,466 7,945
Less--Accumulated depreciation and amortization (3,521) (4,886)
------ ------
2,945 3,059
------ ------
OTHER ASSETS:
Patent costs (Note 1) 319 331
Excess of cost over net assets of acquired companies,
net (Note 1) 11,107 11,367
Notes receivable and other assets (Note 1) 1,383 1,636
------ ------
12,809 13,334
------ ------
$45,525 $43,651
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 3) $ 3,028 $ 3,005
Current maturities of long-term debt (Note 2) 274 254
Current maturities of notes and loans payable to
proponents and shareholders (Note 4) 25 25
Accounts payable 14,920 14,813
Billings in excess of costs and estimated earnings
on uncompleted contracts 2,284 754
Accrued payroll and payroll taxes 1,388 1,612
Accrued liabilities 4,180 2,441
------ ------
Total current liabilities 26,099 22,904
------ ------
LONG-TERM DEBT, net of current maturities (Note 2) 691 735
------ ------
NOTES and LOANS PAYABLE to proponents and shareholder
(Note 4) 4,544 4,520
------ ------
MINORITY INTEREST 4,351 4 171
------ ------
MANDATORILY REDEEMABLE COMMON STOCK 500 500
------ ------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 7):
Preferred stock, no par value
Authorized--2,000,000 shares; none outstanding --- ---
Class A and B convertible preferred stock
No stated value
Authorized--150,000 shares of each
Outstanding --
51,175 shares of Class A in 1995 and 1994 and 57,629
shares of Class B in 1995 and 1994, respectively --- ---
Class C convertible preferred stock,
$3.50 stated value
Authorized--2,800,000 shares
Outstanding--330,944 shares in 1995 and 333,053
shares in 1994 786 793
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
---- ----
(unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY (cont'd)
Class D convertible preferred stock
$10.00 stated value
Authorized--100,000 shares
Outstanding--none --- ---
Class E convertible preferred stock
$10.00 stated value
Authorized--90,000 shares
Outstanding--none --- ---
Class F convertible preferred stock
no stated value
Authorized--2,800,000 shares
Outstanding--93,700 and 52,700 shares in 1995
and 1994, respectively 116 206
Class H convertible preferred stock
1,150,000 shares to be authorized
None outstanding --- ---
Common stock
No par value
Authorized--50,000,000 shares
Outstanding--26,620,000 shares in 1995
and 26,577,000 shares in 1994 70,389 70,292
Common stock subscribed 555 555
Additional paid-in capital 2,674 2,674
Accumulated deficit (65,180) (63,699)
------ ------
Total shareholders' equity (Note 7) 9,340 10,821
------ ------
$45,525 $43,651
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $(1,481) $ 901
Adjustment to reconcile net income to net cash
provided by (used in) operating activities of
continuing operations--
Depreciation and amortization 474 187
Minority interest 180 49
Interest -- proponent 78 12
Change in operating assets and liabilities (1,495) 149
------ ------
Net cash provided by (used in) operations (2,244) 1,298
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (88) (157)
Cash paid in connection with investment in AccuLase -- (68)
Cash acquired in business acquisition -- 108
Deferred product costs -- (492)
Other assets 253 (385)
------ ------
Net cash provided by (used in) investing activities 165 (994)
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in line of credit $ 23 $ ---
Increase (decrease) in long term debt, net (24) (333)
Increase (decrease) in notes payable to proponents and
shareholders, net (54) (227)
Proceeds from exercise of Series F warrants --- 55
Deferred offering cost --- (195)
Proceeds from offshore sale of common stock, net --- 8,268
------ ------
Net cash provided by (used in) financing activities (55) 7,568
------ ------
Net increase (decrease) in cash and equivalents (2,134) 7,872
Cash and equivalents at beginning of period 5,464 2,969
------ ------
Cash and equivalents at end of period $ 3,330 $10,841
------ ------
------ ------
Interest paid $ 88 $ 67
----- -----
----- -----
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING
AND FINANCING ACTIVITIES (amounts in whole dollars):
- The Company, in 1995, converted Class C and Class F preferred shares
into 2,109 and 41,000 shares of common stock amounting to
$7,381 and $90,200, respectively.
- The Company, in 1995, retired fully depreciated property and equipment
totalling $1,567,000.
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
and are unaudited except for the balance sheet as of December 31, 1994. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. In the opinion of management the
accompanying financial statements contain all adjustments necessary to present
fairly the Company's financial position and the results of operations for the
periods presented. The results of operations for the three months ended March
31, 1995, are not necessarily indicative of the results to be expected for the
full year.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. Upon consolidation all material intercompany
transactions and accounts have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or estimated net realizable value. Costs include direct material, direct labor
and applicable manufacturing and engineering overhead.
OTHER ASSETS
Patent costs are amortized on a straight-line basis over the shorter of
the estimated periods to be benefitted or the term of the patent. Accumulated
amortization at March 31, 1995 and December 31, 1994, amounted to approximately
$125,000 and $111,000, respectively.
Excess of cost over net assets of acquired companies is amortized on a
straight-line basis over five to thirty years.
EARNINGS PER SHARE
Earnings per common share is based upon the weighted average number of
shares outstanding during each period including common equivalent shares.
Earnings per common share, assuming full dilution, is based upon the
weighted average number of shares outstanding plus the common shares issuable
upon conversion in exercise of securities whose exercise conversion as of
January 1 would reduce earnings per common and common equivalent share for that
year.
7
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The weighted average shares used in calculating earnings per share are
summarized as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994
------ ------
<S> <C> <C>
Primary 26,733 23,226
Fully diluted 26,733 25,995
</TABLE>
RECLASSIFICATIONS AND RESTATEMENTS
Certain account reclassifications have been made to the 1994 balances to
conform to the 1995 presentation.
(2) LONG-TERM DEBT AND CREDIT FACILITIES
Notes and long-term debt at March 31, 1995 and December 31, 1994 were as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Convertible unsecured note payable bearing interest at 6%,
with interest payable quarterly beginning March 31, 1994
and principal and remaining accrued interest due on
December 31, 1996. $400 $400
Loan payable; non-interest bearing of
Self-Powered Lighting, Inc. 79 83
Priority tax payable quarterly with interest ranging from
10% to 14% per annum 53 53
Others 433 453
---- ----
965 989
Less: Current maturities (274) (254)
---- ----
$ 691 $ 735
---- ----
---- ----
</TABLE>
8
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(3) LINE OF CREDIT
Tri-Lite, Inc. has a line of credit agreement with a bank which provides
for borrowings of up to $4 million based on 75% of eligible accounts receivable.
The outstanding borrowings under this agreement bear interest at 2% over the
bank's prime rate (9% at March 31, 1995) and are collateralized by substantially
all of the assets of Tri-Lite, Inc. In February 1995, the Company was advised
by the bank that the Company was in technical violation of certain provisions of
the loan and that the bank was demanding repayment of the loan. Tri-Lite, Inc.
and the bank negotiated a forbearance agreement which provides for a termination
of the loan on May 31, 1995. Tri-Lite, Inc. has received two loan proposals for
a new line of credit to enable them to replace the existing line. The two
proposals are essentially similar in terms as the existing line of credit.
(4) NOTES AND LOANS PAYABLE TO PROPONENTS AND SHAREHOLDERS
At March 31, 1995 and December 31, 1994, the Company had notes and loans
payable to proponents and shareholders totaling $4,569,000 and $4,545,000,
respectively. The notes and loans bear interest at rates ranging from 7.5
percent to 10 percent per annum. The notes and loans represent advances between
the Company and the proponents. All other notes and loans are secured by the
appropriate UCC-1 filings.
As of March 31, 1995, notes and loans of $4,569,000 payable to Ms. Barnes
will be extinguished through the issuance of common stock subject to approval by
regulatory agencies. (See Note 7).
(5) INCOME TAXES
No provision for federal and state income taxes was provided for the period
as a result of the taxable losses incurred. Through December 31, 1992, the
Company accounted for income taxes under Statement of Financial Accounting
Standards No. 96, `Accounting for Income Taxes'. This standard required income
taxes to be provided based upon a liability approach, under which deferred taxes
were recorded at the rates to be in effect when such taxes were due.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, `Accounting for Income Taxes.' Under Statement
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. As permitted by Statement 109, the Company
has elected not to restate the consolidated financial statements of any prior
years. The effect of the change was not material to the consolidated financial
statements.
At March 31, 1995, the Company believes it has significant net operating
loss carryforwards for federal and state income tax purposes. Such amounts
would be available to reduce future federal and state income tax liabilities as
appropriate and, to the extent not used, would expire through 2009. As a result
of various stock transactions during the past two years, certain of these net
operating loss carryforwards are subject to annual limitations of approximately
$1,400,000 to be used in future periods.
(6) ACQUISITIONS
Effective December 1, 1994, the Company purchased an additional 68.7% of
the outstanding stock of AccuLase, Inc. for $2,055,000 in notes. The Company
now owns 76.1% of AccuLase's outstanding common stock. The Company accounted
for this transaction using the purchase method of accounting. The excess of
approximately $2,599,000 of the purchase price over the net assets acquired has
been capitalized as goodwill. The results of operations from December 1, 1994
was included in the consolidated statement of operations for 1994.
9
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The U.S. Bankruptcy Court, on May 15, 1995, confirmed the plan of
reorganization of Laser Photonics, Inc. (`LPI'), a Florida company, in which the
Company received 75% of the common stock of LPI in exchange for capital infusion
of $1 million and the transfer to LPI of all of the common stock of AccuLase,
Inc. owned by the Company. LPI is a publicly-traded company with the symbol
LAZR, and will continue to trade separately. LPI reported unaudited sales for
the calendar year 1994 of $5.3 million and a pre-tax loss of $611 thousand.
See Press Release as Exhibit A attached hereto.
The unaudited pro-forma effects of LPI's results of operations on the
consolidated results of operations as though the acquisitions had occurred
January 1, 1994, are as follows (in thousands except share data):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $18,612 $18,089
Net Income (loss) (1,756) 1,261
Income (loss) per share (0.07) 0.05
Weighted average shares 26,734,000 23,226,000
</TABLE>
(7) SUBSEQUENT EVENT
On April 13, 1995, Ms. Susan Barnes, wife of the Company's chairman,
committed to infuse up to $1,500,000 in cash to support the operations of the
Company. Effective April 21, 1995, the Company agreed to exchange 8,209,176
shares of its common stock for amount owed to Ms. Barnes of $2,610,518. The
rate used to exchange the amount owed represents 60% of the market value of the
Company's common stock of $0.53 per share. The discount was in recognition of
the restriction in transferability of the shares. The loan of $1,500,000 will
be exchanged for shares of common stock of the Company at the same conversion
formula above. After the consummation of the exchanges above, the Company will
be owing Ms. Barnes approximately $2,054,500 which represent the consideration
for the acquisition of 68.7% of AccuLase as a result of the inability of the
Company to issue its common stock due to AMEX not approving listing of such
common stock. Ms. Barnes, however, agreed to either be paid in cash or convert
the debt to shares of the Company's common stock at no more than the original
number of shares the Company had previously agreed to issue as consideration for
the AccuLase shares.
The following is a proforma effect on the Company's shareholders' equity
section of the consolidated balance sheet had the above exchange occurred at
March 31, 1995 (in thousands):
<TABLE>
<S> <C>
Class C convertible preferred stock $786
Class F convertible preferred stock 116
Common Stock 74,500
Common stock subscribed 555
Additional paid-in-capital 2,674
Accumulated deficit (65,180)
-------
$13,451
-------
-------
</TABLE>
The Company has received a letter of intent and draft agreement from a very
significant NYSE Company as potential partner participating in the
Helionetics\AccuLase technology for TMR (transmyocardial revascularization).
The proposal contains among other things a front end cash payment and royalties
on certain patented `disposables' technology.
10
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased to $3,672,000 at March 31, 1995 from $4,354,000
at December 31, 1994, or a decline of $682,000. Cash and equivalents decreased
by $2,134,000 whereas receivables and inventories increased by a combined total
of $4,818,000; trade payables and accrued liabilities increased by $1,622,000
and billings in excess of costs and estimated earnings on uncompleted contracts
increased by $1,530,000. Capital expenditures are minimal and totalled $88,000
for the three months period.
KSWI and Tri-Lite combined accounted for an approximate 95% of the
consolidated revenues, and each is being funded primarily from cash generated by
its operations. Tri-Lite's line of credit which served as its primary source of
credit was called by the bank in February 1995 and is to terminate on May 31,
1995. Tri-Lite has received two loan proposals from two lending institutions to
replace its existing line. There is no assurance that either proposal will
result in a new line of credit. Tri-Lite's inventory requirements continue to
be financed by its credit facilities with its offshore suppliers. KSWI funds
its operations internally and expects to fund similarly its 1995 operations.
Moreover, KSWI can obtain additional funds through borrowings, if needed, to
fund desirable expansion. KSWI believes it has significant borrowing
capability due to absence of any long-term obligations in its balance sheet.
The Company's AccuLase subsidiary became part of the recently consummated
acquisition of 75% of Laser Photonics, Inc., (`LPI') a Florida based company
(see Note 6 to Consolidated Financial Statements for details). The funding of
AccuLase programs, combined with Laser Photonics working capital requirements
will be provided by the Company. Additionally, the Company is also seeking a
suitable partner for its laser technology (See Note 7 to Consolidated Financial
Statements). The acquisition of LPI required payment of court approved costs
approximating $305,000. LPI may also obtain, if needed, financing of its
programs from the equity marketplace. (See Exhibit `A' attached).
The remaining operations of the Company, primarily, Sentinel and the DECC
Division will rely on loans provided and to be provided by Ms. Susan Barnes and
possibly the sale of the Company's Tri-Lite holding, if necessary.
As approved by the Board of Directors of the Company, loans totalling
$2,610,518 of Ms. Barnes will be exchanged, at April 21, 1995, for shares of the
Company's common stock at the discount rate of 60% of $0.53 per share, the fair
market value, as of that date, of the Company's common stock. The discount
(40%) is in recognition of the restriction in transferability of the stock and
20% lower than previous similar exchanges regarding transactions previously
approved by AMEX calling for a 40% to 60% discount from market price.
RESULTS OF OPERATIONS
The Company had approximately $17.4 million in revenues for the three
months ended March 31, 1995, compared with $16.3 million for the corresponding
period in the prior year, or a net increase of $1.1 million or 6.7%. $5.0
million of the increase was attributed to Tri-Lite; $2.4 million of which was
the revenue contribution of NL Industries, a subsidiary of Tri-Lite acquired
effective March 1, 1994. The balance of the Tri-Lite revenue increase ($2.6
million) represents internal growth from its core lighting business, reflecting
the results of the growth-oriented efforts undertaken by Tri-Lite in 1994.
KSWI's revenues in the first quarter of 1995 declined by $3.6 million as
compared with the similar period in 1994. KSWI's management believes that the
decline is temporary and was due largely to the winding down of the JWP
subcontract ($1.6 million) in 1995 and the completion of existing major projects
(e.g. Kennedy Airport) in the fourth quarter of 1994. Although new projects,
which are part of the $75 million record backlog of KSWI at the end of 1994,
started slowly KSWI's management anticipates that these projects will provide
revenue growth in the following quarters.
The profitability of the Company was negatively affected by the temporary
decline in KSWI's revenue. KSWI,
11
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
having reported $1 million in income in 1994, incurred a pre-tax loss of
approximately $200,000 in 1995 after adjustment for the amortization of goodwill
in connection with its acquisition. Income contribution by Tri-Lite ($220,000),
after minority interest, was offset by the combined expenses from AccuLase and
Sentinel ($477,000).
Cost of sales was 78% and 76% for 1995 and 1994, respectively. The decline
in margin was attributed to KSWI which in 1995 does not have the same favorable
revenues mix as it had in its 1994 results. This decline was offset by
improvement in the Tri-Lite's margin for 1995.
Selling, general and administrative expenses were $5,113,000 and
$2,871,000, and as a percent of revenue, were 29% and 18% for 1995 and 1994,
respectively. Tri-Lite contributed $1.3 million, of which $677,000 was NL
Industries expenses, acquired March 1, 1994. The balance of the increase was
principally the expenses of AccuLase ($221,000) and Sentinel ($255,000). The
percent increase relates to decreased revenue in KSWI with no significant
decrease in expenses.
OUTLOOK
The Company recently acquired a 75% interest in Laser Photonics, Inc., a
laser products company based in Florida, through Chapter 11 of the U.S.
Bankruptcy Code. The acquisition is consistent with the Company's over-all plan
of complementing the Company's existing technologies either internally or
through acquisitions. Laser Photonics' products and manufacturing facilities
and expertise will supplement the AccuLase laser programs and provide
manufacturing capability thereby facilitating the entrance in the marketplace
of TMR excimer laser for medical applications.
In a statement to the U.S. Bankruptcy Court, LPI projected 1995 sales of
approximately $7.2 million, income before taxes of about $300,000 and a post-
confirmation net worth of approximately $4.7 million excluding the effect of the
combination with AccuLase (See attached Exhibit A).
The Company's estimate of reaching profitability for the whole of 1995 is,
in management's view, attainable based on Tri-Lite's performance to date and
the record backlog of KSWI. AccuLase operating costs may be absorbed, in part,
by the acquisition of Laser Photonics' operations and the possible completion of
negotiation with a major NYSE Company in the health care field who will fund the
various phases of human clinical trials (Phase I has been granted by the FDA).
Sentinel Systems' activities are being monitored to minimize their impact on
the Company's operating results. Although no assurance can be given, the
Company at the present time believes that Sentinel may have minimal revenues in
1995. The operations of the power conversion products group, including AIM, is
growing in backlog. The Company is looking at the possibility of a separate
initial public offering for its AIM\DECC operations to fund this steadily
increasing backlog.
12
<PAGE>
HELIONETICS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 1, 1992, Definicon International Corporation (DIC) filed a
Complaint in Los Angeles Superior Court (Case No. LC 016711) against a former
officer of the corporation, Dr. Vincent P. Williams, alleging that Williams had
embezzled $270,000 from the corporation. DIC was acquired by Helionetics, Inc.
in June 1990. On October 23, 1992, Williams, who had also served for a short
time as an officer of Helionetics, and members of his family filed a complaint
in Orange County Superior Court (Case No. 698 766) against Helionetics, Inc.,
DIC and others. A first amended complaint was filed on February 17, 1993,
seeking unspecified monetary damages, including punitive damages, for breach of
Williams' employment contract; indemnification with respect to several personal
guarantees Williams made of Helionetics and/or Definicon loans; slander;
conversion; and infliction of emotional distress. This action is still in the
midst of discovery and no trial date has been set. According to Helionetics'
trial counsel, although attempts are underway to settle this matter with funds
from Helionetics' insurance carriers, should this matter proceed to trial there
is the potential for a significant adverse judgment.
In the Orange County Superior Court (Case No. 698766), an action was
recently filed for declaratory relief by Commerce and Industry Insurance Company
(`Commerce'), an insurer of Helionetics and its officers, seeking a declaration
that Commerce does not owe a duty to defend or indemnify Helionetics in the
Williams' litigation. Commerce has been paying, and continues to pay, for
defense of Helionetics in the Williams' litigation under a reservation of
rights. Commerce has agreed to stay its declaratory relief action, pending
resolution of the Williams litigation.
In March 1995, an action was instituted by Bo B. Sramek and Hevka H. Sramek
against Helionetics and Bernard B. Katz in the Superior Court of California,
Central Orange County District (Case No. 743947) alleging that about June 15,
1994, plaintiffs sold and delivered to Helionetics 2,404,333 shares of the
common stock of Cardio Dynamics, Inc. in exchange for 665,800 shares of
Helionetics' common stock which Helionetics has failed to deliver. The
defendants intend to vigorously defend this action and have filed related cross
claims for fraud and deceit by both Srameks.
Five class action lawsuits have been filed against Helionetics and others,
arising out of the trading halt in Helionetics' stock. The Court has ordered
that all but the first filed complaint of Nancy Grodin, et al. v. Bernard B.
Katz, et al.; in U.S. District Court, (Case No. SA 94-1069 LHM (EEx)), be
dismissed without prejudice and that the plaintiffs all proceed under the Grodin
action. TO ASSIST THE COURT IN THE POSSIBLE SETTLEMENT OF THE CLASS ACTION
LAWSUITS, THE COURT HAS DIRECTED THE PARTIES TO PARTICIPATE IN THE NOMINATION OF
A MUTUALLY ACCEPTABLE SETTLEMENT OFFICER. To date no responsive pleading has
been filed by Helionetics, and no meaningful discovery has been exchanged.
Helionetics intends to vigorously defend itself in this action.
Helionetics and its subsidiaries are also the defendants in lawsuits
involving trade creditors and others which may be deemed, separately or
collectively, immaterial and ordinary routine litigation incidental to its
business. Some of these lawsuits have proceeded to judgment. As of December
31, 1994, the Company had unpaid judgments and unresolved claims against it
totaling approximately $500,000. The Company believes that these amounts can be
resolved for significantly less than originally claimed.
On March 31, 1993, the Company's subsidiary, Definicon International
Corporation, and its wholly owned subsidiary TrueTech, Inc. filed for relief
under Chapter 7 of the Bankruptcy Code. In April 1995, the Chapter 7 Trustee in
the U.S. Bankruptcy Court, Central District of California, brought several
adversary proceedings against certain officers and directors and other
subsidiaries to avoid and recover alleged preferential and/or fraudulent
transfers. Helionetics believes the adversary proceedings have no merit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit `A' press release on Laser Photonics acquisition.
Form 8-K, dated April 10, 1995, with respect to the acquisition of
AccuLase, Inc. stock.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HELIONETICS, INC.
DATE: May 16, 1994 /s/E. Maxwell Malone
--------------------------- --------------------------------
E. Maxwell Malone
Chief Executive Officer
DATE: May 16, 1994 /s/Chaim Markheim
--------------------------- --------------------------------
Chaim Markheim
Vice-President
DATE: May 16, 1994 /s/Adrian Cayetano
--------------------------- --------------------------------
Adrian Cayetano
Controller
14
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<PAGE>
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<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 3,330
<SECURITIES> 0
<RECEIVABLES> 17,894
<ALLOWANCES> (620)
<INVENTORY> 7,644
<CURRENT-ASSETS> 29,771
<PP&E> 6,466
<DEPRECIATION> (3,521)
<TOTAL-ASSETS> 45,525
<CURRENT-LIABILITIES> 26,099
<BONDS> 0
<COMMON> 70,389
0
902
<OTHER-SE> (61,951)
<TOTAL-LIABILITY-AND-EQUITY> 45,525
<SALES> 17,427
<TOTAL-REVENUES> 17,427
<CGS> 13,630
<TOTAL-COSTS> 13,630
<OTHER-EXPENSES> 5,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166
<INCOME-PRETAX> (1,481)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,481)
<EPS-PRIMARY> (0.06)
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</TABLE>
<PAGE>
EXHIBIT 99
(BW)(HELIONETICS/LSR-PHOTNCS)(ZAPP)(ZAP)(LAZR) Helionetics acquires control of
public, Florida-based laser company
Business Editors & Medical Writers
ORLANDO, Fla. -- (BUSINESS WIRE) -- May 15, 1995 -- The U.S. Bankruptcy
Court (Middle District of Florida) has confirmed the plan of reorganization of
Laser Photonics, Inc. (NASDAQ:LAZR), Orlando, by which Helionetics Inc. (AMEX:
ZAP; NASDAQ:ZAPP), Irvine, Calif. received 75% of the common stock of
Laser Photonics (LPI) in exchange for a $1 million capital infusion and the
transfer to LPI of all of its common shares of AccuLase Inc., a Helionetics
subsidiary, representing 76% ownership of AccuLase.
The remaining 25% of LPI's common stock will be owned by LPI bondholders,
unsecured creditors and existing stockholders.
As part of the agreement, Helionetics will continue to provide ongoing
funding for AccuLase's research, development and operational activities.
Helionetics' Chairman Bernard B. Katz will assume the additional role of
chairman and chief executive of Laser Photonics (LPI). Steven Qualls will
continue as general manager and assume the additional duties of chief operating
officer. Gordon A. Murray, Ph.D., an Orlando-based laser design consultant and
an internationally-known expert on excimer laser technology and medical laser
systems, has been named chief scientific advisor and, together with Katz and
Qualls, to Laser Photonics' new board of directors.
Other new board members include E. Maxwell Malone, president and chief
executive of Helionetics, and Chaim Markheim, Helionetics chief operating
officer and executive vice president of Helionetics' computer subsidiary,
Sentinel Systems Inc.
LPI designs, manufactures and markets solid state, diode and gas laser
systems and accessories for applications in the medical and scientific markets.
The company reported sales (unaudited) for fiscal/calendar 1994 of $5.3 million
and a loss of about $600,000. In a statement to the court, the company projected
1995 sales of approximately $7.2 million, a profit of about $300,000 and a post-
confirmation net worth of approximately $4.7 million, without taking into
consideration the combination with AccuLase.
Katz said Helionetics' interest in acquiring LPI stemmed from what he
characterized as "the very obvious scientific and technical synergism" that
exists between the two companies. "It is, in fact," he said, "a merger of
technological skills."
He said LPI's ability to manufacture AccuLase's excimer lasers could prove
of "great economic value" to the combined companies as AccuLase's excimer laser
technologies enter the international marketplace, "quite possibly later this
year or early 1996."
He said LPI also has designed and produced a "relatively small excimer
laser prototype for medical and industrial applications that LPI scientists
believe could play a significant role in several important emerging
technologies, such as photorefractive keratectomy (PRK), a promising new
technique in the field of eye surgery."
Katz also said he believes that LPI's laser manufacturing capabilities
could expedite AccuLase's commercialization of two techniques, transmyocardial
revascularization (TMR) and laser angioplasty. AccuLase has received FDA
approval to commence Phase One Clinical Trials of its laser angioplasty
technology at Yale University under the direction of Dr. John Elefteriades, and
expects to begin Phase One Clinical Trials of its TMR technology at Loma Linda
University Medical Center later this year following completion of animal studies
being conducted at Yale and Loma Linda.
<PAGE>
Katz said that if clinical trials demonstrate the requisite safety and
efficacy of AccuLase's TMR technology, then AccuLase should be able to offer a
less expensive, safer and more comfortable adjunct or alternative to traditional
coronary artery bypass grafting, adding "the production capabilities of LPI
would be invaluable in meeting the anticipated demand for AccuLase's TMR
technology."
-- 30 --MAS/np*
CONTACT: Helionetics, Irvine, Calif.
Paul Keil or Andy Malone
800/421-7915
