FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number
November 30, 1996 2-76262-NY
- ------------------------- ----------------------
Laser Master International Inc.
-------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2564587
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 First Street, Harrison, N.J. 07029
-------------------------------------------------------------------
(Address of principal executive Offices) (Zip Code)
(201) 482-7200
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock Par Value $.0l Per Share Nasdaq Bulletin Board
Securities registered pursuant to Section 12(g) of the Act:
None
----
(Title of Class)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - Par Value $.0l 10,374,600
----------------------------- ----------
Class Outstanding Shares
Aggregate Market Value of Non-Affiliate Stock at January 31, 1997
-approximately $6,749,600.
<PAGE>
PART I
Item 1. BUSINESS
(a) General:
The Company was founded in 1981 and prints for the textile industry and
the gift wrap paper industry. The company sells its products and services
nationwide thru its direct sales force and resellers. In addition the company
has a real estate division that owns the factory building in Harrison, New
Jersey. The building 247,000 square feet of which 49% is rented to two
unaffiliated tenants and 51% is rented to Flexo-Craft Prints Inc. Flexo-Craft
Prints Inc. is the printing company and is engaged in the use of a computerized
laser system to accomplish Flexographic printing for industrial and commercial
printing and engraving, and counts among its customers large corporations, some
of which are listed on the NY Stock Exchange.
Flexo-Craft (Process)
The principal operation of Flexo-Craft is to utilize a ZED laser in its
process. A laser is a device which emits a "coherent" wavelength (color). A
large degree of control is thus afforded, and as a consequence, an exceptionally
high density of power can be delivered to a well-defined area by focusing the
light energy. Using a computer driven system the laser beam makes grooves in the
form of designs and patterns onto a rubber material. The rubber material is then
sealed on a steel or aluminum cylinder which is then placed on a printing press.
In the heat transfer printing process the ink is injected into the grooves using
a computer driven process and then the rubber coated cylinder prints on heat
transfer paper. The heat transfer paper is sold to manufacturers who then seal
it onto textile materials. The same process is used for gift wrap paper except
that the paper itself is the final product. One of the six color presses prints
heat transfer paper and the other six color press prints gift wrap paper. The
new eight color press can print either paper and in addition can allow the
company to print for the wallpaper, home furnishings, carpet and other
industries. It also is three times faster than the newest six color press.
The Company either accepts patterns from the customer or can design its own
patterns using a computerized color separating system. In addition the Company
has a extensive supply of rubber coated cylinders with designs already engraved
which can be used numerous times and for many years.
INDUSTRY SEGMENT INFORMATION
During the last three fiscal years ending November 30, 1996 and 1995, the
following is a listing of the percentage of revenue which contributed toward the
total revenue of the Company.
1996 1995
---- ----
Heat Transfer 57% 59%
Gift Wrap 40% 38%
Roll Covering 3% 3%
---- ----
Total % 100% 100%
The Company does not consider itself to be in a seasonal business; however
prior to the Christmas Season, its Christmas gift wrap business tends to
increase in the percentage of volume during the season.
-2-
<PAGE>
COMPETITION
Flexo Craft is subject to competition insofar as the laser engraving application
to industrial and commercial printing engraving is concerned.
There is no assurance that other companies with far greater resources will not
engage in the same business as Flexo Craft. Flexo Craft competes with a major
competitor in the use of the laser in its business. There are three other
companies who engage in a business similar to that of the Company. In addition,
Flexo Craft competes with many other companies who use conventional methods of
processing, which do not include the use of the laser.
The Company presently sells to approximately 150 customers. The Company does not
depend upon one customer or a few that would materially affect its sales,
however, the loss of a certain number of its customers would have a material
effect upon the business of the company.
The Company has approximately three to four competitors in its Heat Transfer
Business; approximately twelve in its Gift Wrap Business; and two to three in
its Roll Covering Business.
The Company competes with its competitors principally with respect to the
quality of its product and the ability of the Company to deliver its product on
a timely basis to its customers. Generally, price is not the most significant
factor with respect to a customer, as the customer is most interested in the
quality of the product delivered to it.
The Company does not have sales representatives and maintains a sales staff of
six individuals who visit the customers of the Company on a national basis.
EMPLOYEES
The Company currently has employed seventy-five people, of which five are in
Management and seventy are Members of Local 1718 of the United Production
Workers. The Company generally enjoys favorable relations with its union
employees, and has not in its history had any strike or any work stoppage.
OTHER INFORMATION
The Company is not dependent on a single customer or a limited number of
customers. No material portion of the Company's business is subject to
government contracts. Compliance with federal, state or local environmental
protection laws has no material affect on the capital expenditures, earnings or
competitive position of the Company.
Backlog of orders:
Dollar amount of backlog and percentage expected
to be filled during the fiscal year.
As of:
November 30, 1996 $2,000,000 100%
November 30, 1995 1,050,000 100%
-3-
<PAGE>
The backlog of orders, as stated, is not affected by the seasonal cycle of
the industry throughout the year. The Company filled all of its backlog orders
during its last fiscal year ended November 30, 1996 and anticipated being able
to fill all it current backlog orders during its fiscal year ending November 30,
1997.
Flexo Craft orders are generally subject to cancelable purchase orders or
contracts. The rate of cancellation of orders has been insignificant. Although
the stated backlog may be used as a guideline in determining the orders which
may be delivered, the backlog is subject to change by reason of several factors,
including possible cancellation, and should not be relied upon as being
necessarily indicative of the company's revenues or profits within the indicated
period, or otherwise.
ITEM 2. PROPERTIES
The Company owns all the issued and outstanding common stock of Harrison Realty
Corp., which is the owner of the real property, plant and office facility of the
Company. The building owned by Harrison Realty Corp. is a single story
industrial building located at 1000 First Street, Harrison, New Jersey. The
building was constructed in 1994 and is fully detached and contains a sprinkler
system and heavy duty electrical wires, required by the Company's Flexo Craft
facilities for use in its printing process. The building area is approximately
240,000 square feet, which is 51% utilize by the Company. The building has an
existing mortgage in the sum of $2,005,000 as well as a second mortgage for
$653,333. This building is approximately five times larger than the company's
previous facility in Brooklyn. In addition since everything is on a single floor
the company will be able to operate much more efficiently in the future.
The Company currently has two tenants who are not affiliated with the Company,
and have executed leases at 1000 First Street. Information about the tenants of
Harrison Realty Corp. can be found in Note 1 to the financial statements.
ITEM 3. LITIGATION
There are no proceedings contemplated or threatened by any Government or agency
against the Company of any of its Subsidiaries. The litigation involving HBE
Leasing has been settled and there is no other material litigation involving the
company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The quarterly high and low prices of the Company's common stock are as follows:
(1) The Company's common shares are quoted on the Nasdaq Bulletin Board.
-4-
<PAGE>
(2) The quarterly high and low prices of the Company's common stock as
traded were as follows:
1996 1995
High Low High Low
----- ----- ----- ---
First Quarter 2 3/4 5/8 1/2
Second Quarter 3-1/8 1-1/8 3/4 1/2
Third Quarter 2-1/4 1-1/8 7/8 5/8
Fourth Quarter 1-1/2 21/32 1-1/4 7/8
(3) The approximate number of shareholders of record on November 30, 1996
was 595.
(4) No cash dividends have ever been declared nor are any expected in the
near future.
(5) Mr. Mendel Klein is the owner of 3,625,000 shares. Pursuant to Rule
144 of the 1933 SEC ACT, he is permitted to sell 7,725 shares in every
six month period. The offering of these shares could have an adverse
effect on the market price of the stock.
ITEM 6. SELECTED FINANCIAL DATA - fiscal year ended
11/30/96 11/30/95 11/30/94 11/30/93 11/30/92
----------- ----------- ---------- ---------- ----------
Revenues $11,499,811 $ 8,800,394 $8,270,936 $9,347,934 $7,374,021
Net Income $ 362,119 $ (178,957) $ 276,471 $ 771,837 $ 521,376
Earnings Per
Share .04 (.03) .05 .13 .09
Cash Dividend declared
per common share -0- -0- -0- -0- -0-
At Year End:
Total Assets $15,967,150 $13,861,245 $14,842,777 $8,251,805 $7,269,019
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PRINTING SEGMENT
Net sales for the year ended November 30, 1996 totaled $11,118,846 as compared
to $8,432,284 for the year ended November 30, 1995, for an increase of 32%.
Management attributes the increase in sales to the fact that the company moved
to a much larger facility in the 3rd quarter of 1995 which enabled the company
to increase its capacity five fold. The 8 color press which was delivered and
assembled in 1995 had no impact on sales that year but is beginning to make an
impact in 1996 and will significantly increase sales in the future. The new 8
color press was expected to contribute towards sales and profits in 1996 but
still needed further modifications and upgrading which has now been
substantially finished although a final upgrade on the drying process is being
worked on. The Company expects to operate more efficiently in 1997 and
management anticipates a solid increase in sales.
-5-
<PAGE>
Gross profit percentage for 1996 was 31% compared to 29% for the year before.
This was a result of efficiencies in the new plant and from decreased raw
material prices. Selling expenses were 14% of sales compared to 19% in the
previous year. The Company hired two sales organizations which began to bring in
significant orders toward the end of the year but which had a great deal of
start up expenses regarding East River Arts but should benefit the company in
1997.
REAL ESTATE SEGMENT
Rental income for the years 1996 compared to 1995 increased 3%. During 1996 the
operating (loss) from the real estate division was ($74,489) compared to
($207,229) in 1995. The Company had substantial start up expenses in the new
factory building in Harrison, New Jersey. The Company has two unaffiliated
tenants with monthly rental income of $28,855. This segment expects to be
profitable in the future now that the start up expenses and renovation period is
over.
CORPORATE EXPENSES
General and administrative expenses for fiscal 1996 were 10% of sales as
compared to 9% of sales for the preceding year. The increase was due to the fact
the company upgraded its computer system which resulted in training costs and
computer software costs and nonrecurring expenses of professional fees and
consultants.
Interest and finance charges paid by the Company during fiscal 1996 decreased
slightly from the previous year due to the fact that the company's average debt
level decreased from the previous year. The company borrowed $700,000 in
November 1995 though a 2nd mortgage on the company's factory building and
increased its line of credit. The Company needed the additional funds to finance
a higher inventory and to help fund the company to move into printing additional
products for new markets. The Company does not expect any significant additional
borrowings for the upcoming year.
LIQUIDITY AND CAPITAL RESOURCES:
The Company ended its fiscal year with a current ration of 2.34 compared to 1.24
in the previous year end. Working capital and cash aggregated approximately
3,179,239 and 396,777 respectively at November 30, 1996 as compared to 852,118
and 808,746 respectively November 30, 1995. The Company believes its financial
position at November 30, 1996 will enable it to take advantage of any new
opportunities that may arise.
In fiscal 1996 cash flow used from operations was $1,237,428 compared to
$579,623 in 1995. The increase in inventory levels is primarily attributable to
increased inventory levels necessary to support longer lead times in obtaining
raw materials. Accounts receivable increased by $281,088 which was because of
the fact that the company's sales increased and accounts receivable increased
proportionately. Accounts payable decrease of $426,152 was because of the
company's ability to obtain better raw material prices by agreeing to shorter
payment terms. Net cash used by investing activities during 1996 was $1,333,150
which was necessitated by the continuing modifications of the 8 color press and
the remaining building improvements needed. Management does not anticipate any
significant capital expenditures in 1997. Net cash generated by financing
activities during 1996 was $2,158,609. This was part of the proceeds from a
private placement needed for the company's expansion.
-6-
<PAGE>
The Company anticipates that its capital resources provided from its cash flow
from operations and anticipated financing will be sufficient to meet its
financing requirements for at least the next 12 month period.
Inflationary Impact:
Since the inception of operation, inflation has not significantly affected the
operating results of the company. However, inflation and changing interest rates
have had a significant effect on the economy in general and therefore could
affect the operating results of the company in the future.
-7-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LASER MASTER INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
------
Report of Independent Auditors ........................................ 10
Consolidated Balance Sheets - November 30, 1996 ....................... 11-12
Consolidated Statements of Operations for the Fiscal Years
ended 1996 & 1995 .................................................... 13
Consolidated Statements of Stockholders Equity for the
Fiscal Years ended 1996 & 1995 ....................................... 14
Consolidated Statements of Cash Flows for the Fiscal Years
ended 1996 & 1995 .................................................... 15
Notes to Consolidated Financial Statements ............................ 16-25
All other schedules called for under Regulation S-X are not submitted because
they are not applicable or not required to because the required information is
included in the financial statements or notes thereto.
-8-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
ANNUAL REPORT
FISCAL YEAR ENDED
NOVEMBER 30, 1996
-9-
<PAGE>
[LETTERHEAD OF GOLDSTEIN AND MORRIS]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
The Board of Directors and Stockholders
Laser Master International, Inc.
and wholly owned subsidiaries
We have audited the accompanying consolidated balance sheet of Laser Master
International, Inc. and subsidiaries as of November 30, 1996 and the related
consolidated statements of operations, stockholders equity and cash flows for
the years ended November 30, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our 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 consolidated financial position of Laser
Master International, Inc. and subsidiaries as of November 30, 1996 and the
consolidated results of its operations and its cash flows for the years ended
November 30, 1996 and 1995 in conformity with generally accepted accounting
principles.
/s/ Goldstein and Morris
New York, New York
February 26, 1997
- 10 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF
NOVEMBER 30
1996
ASSETS
CURRENT ASSETS:
Cash in Bank $ 396,777
Short Term Investments-
Note 24 405,223
Accounts Receivable-Net
Notes 4 2,585,349
Merch. Invent.-Note 2 and 5 2,113,194
Prepaid Expenses 39,727
-----------
TOTAL CURRENT ASSETS $ 5,540,270
-----------
FIXED ASSETS:- Note 2
Factory Building and
Improvements - Note 6 $ 4,938,566
Land - Factory Site 215,000
Mach'y & Equip. - Note 7 8,105,403
Engraving Invent. - Note 9 878,456
Installation Cost 931,057
Furniture & Fixtures 107,524
-----------
Total $15,176,006
Less: Accumulated Depreciation -
Note 8 (5,066,312)
-----------
TOTAL FIXED ASSETS $10,109,694
-----------
OTHER ASSETS:
Deferred Charges - Note 3 $ 90,783
Restricted Cash - Note 25 182,944
Intangible Asset - Note 16 43,459
-----------
TOTAL OTHER ASSETS $ 317,186
-----------
TOTAL ASSETS $15,967,150
===========
The accompanying notes to financial statements are an integral part of this
statement and should be in conjunction herewith.
-11-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF
NOVEMBER 30
1996
LIABILITIES
CURRENT LIABILITIES:
Accounts Payable $ 571,753
Accrued Expenses and Taxes
Payable 49,346
Loan Payable - Note 18 1,112,426
Stockholder Loan - Note 22 65,837
Current Portion of Long Term
Debt - Note 17 561,669
-----------
TOTAL CURRENT LIABILITIES $ 2,361,031
-----------
LONG TERM LIABILITIES:
Long Term Debt, Net of Current
Portion - Note 17 $ 5,481,664
Other Accrued Expenses - Note 16 43,459
Deferred Taxes 38,016
-----------
TOTAL LONG TERM LIABILITIES $ 5,563,139
-----------
TOTAL LIABILITIES $ 7,924,170
-----------
STOCKHOLDERS' EQUITY:
Capital Stock-Authorized
50,000,000 shares - 1 cent par value
Issued & Outstanding - 10,374,600
shares at 11/30/96 $ 103,746
Additional Capital Paid
in Excess of Par 5,276,820
Retained Earnings 2,662,414
-----------
TOTAL STOCKHOLDERS' EQUITY $ 8,042,980
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,967,150
===========
The accompanying notes to financial statements are an integral part of this
statement and should be read in conjunction herewith.
-12-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
FOR THE YEARS ENDING
NOVEMBER 30 NOVEMBER 30
1996 1995
REVENUES
Product Revenues $11,118,846 $ 8,432,284
Rental Income 380,966 368,110
----------- -----------
TOTAL REVENUES $11,499,812 $ 8,800,394
COST OF SALES
Cost of Product Revenues $ 7,646,450 $ 5,906,042
Cost of Rental Income 276,050 383,708
----------- -----------
TOTAL COST OF SALES $ 7,922,500 $ 6,289,750
----------- -----------
GROSS PROFIT $ 3,577,312 $ 2,510,644
OPERATING EXPENSES
Selling Expenses $ 1,662,596 $ 1,657,626
Gen'l & Adm Expenses 1,164,100 827,018
Non-recurring exp-moving 33,554 1,122,237
----------- -----------
TOTAL OPERATING EXPENSES $ 2,860,250 $ 3,606,881
----------- -----------
OPERATING INCOME $ 717,062 $(1,096,237)
----------- -----------
Interest Expense $ 455,050 $ 509,136
Interest Income & Other Net (138,123) (53,764)
----------- -----------
Income Before Inc. Tax Exp. $ 400,135 $(l,551,609)
Provision for Income Taxes 38,016 -
----------- -----------
Income (loss) before
extraordinary gain $ 362,119 $(1,551,609)
Extraordinary Gain - 1,372,652
----------- -----------
NET INCOME (LOSS) $ 362,119 (178,957)
=========== ========
Earnings Per Share
before extraordinary gain $ .04 $ (.26)
Extraordinary Gain - $ .23
----------- -----------
Earnings Per Share - Primary $ .04 $ (.03)
=========== ===========
Weighted Average Number of
Common Shares Outstanding 8,166,468 5,958,335
=========== ===========
The accompanying notes to financial statements are an integral part of this
statement and should be read in conjunction herewith.
-13-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT
OF STOCKHOLDER'S EQUITY
FOR EACH OF THE TWO YEARS IN
THE PERIOD ENDED
NOVEMBER 30, 1996
Common Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
Bal.
11/30/94 5,958,335 $59,583 $2,141,984 $2,479,252 $4,680,819
Net
Income (178,957) (178,957)
- -----------------------------------------------------------------------------
Bal.
11/30/95 5,958,335 $59,583 $2,141,984 $2,300,295 $4,501,862
Issuance of Common Stock at $1 per
share in private placement net of
costs 4,416,265 44,163 $3,134,836 $3,178,999
Net Income 362,119 362,119
- -----------------------------------------------------------------------------
Bal.
11/96 10,374,600 $103,746 $5,276,820 $2,662,414 $8,042,980
=============================================================================
The accompanying notes to financial statements are an integral part of this
statement and should be read in conjunction herewith.
-14-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
NOVEMBER 30 NOVEMBER 30
1996 1995
Cash flows from
operating activities:
Net Income $ 362,119 $ (178,957)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities
Depreciation & Amortization 481,182 643,391
Increase (Decrease) in cash flows
from operations resulting from
changes in:
Accounts Receivable (281,088) (873,811)
Inventories (1,407,229) (302,315)
Prepaid Expenses 50,381 (32,038)
Sundry Receivable - 12,437
Accounts Payable (426,152) 679,744
Accrued Expenses (16,641) (528,074)
----------- -----------
Net cash provided by
Operations $(1,237,428) (579,623)
----------- -----------
Cash flows from investing
activities:
Net (Purchase) of short
term investments $ (49,839) $ 3,541,592
Fixed Assets (1,299,303) (3,906,770)
Other Assets (22,024) 678,334
Deferred Taxes 38,016 -
----------- -----------
Net Cash used in Investing $(1,333,150) $ 313,156
----------- -----------
Cash flow provided from (used
for) financing activities:
Proceeds from Capital $ 3,178,999 $ -
Proceeds from Debt 150,000 1,431,774
Repayments of Debt (1,170,390) (2,373,278)
----------- -----------
Net cash provided by
financing activities $ 2,158,609 $ (941,504)
----------- -----------
Net increase (decrease) in
cash $ (411,969) $(1,207,971)
Cash at beginning of year 808,746 2,016,717
----------- -----------
Cash at end of year $ 396,777 $ 808,746
=========== ===========
The accompanying notes to financial statements are an integral part of this
statement and should be read in conjunction herewith.
-15-
<PAGE>
NOTE 1. GENERAL
The company was founded in 1981 and prints for the textile industry and
the gift wrap paper industry. The company sells its products and services
nationwide through its direct sales force and resellers. In addition the
Company has a real estate division that rents space in the factory
buildings owned by the Company.
Name and brief description of companies under common control:
a. FLEXO-CRAFT PRINTS INC.
The company has for approximately 15 years been engaged in the
business of commercial printing and engraving, utilizing a laser
technique. The company principally prints an extensive line of
patterns and designs which are sold to industrial customers engaged
in the manufacture of textile products and gift wrap paper.
b. PASSPORT PAPERS INC. & EAST RIVER ARTS INC.
These Companies are Sales Corporations which sell products printed
by Flexo Craft Prints Inc. They each sell under their own labels and
in their respective markets.
c. HARRISON REALTY CORP.
This company owns and operates a 240,000 sq. ft. factory building in
Harrison, New Jersey. There are two unaffiliated tenants currently
occupying 49% of the space. One tenant occupies 62,600 sq. ft. and
pays $14,338 per month plus utilities and water with the lease
expiring June 30, 1999. The other tenant occupies 53,600 sq. ft. an
pays $14,517 per month plus utilities and water with the lease
expiring January 1, 2000. Each of these two tenants are responsible
for their percentage of real estate tax increases for the terms of
their leases.
The cost of the building and land is $4,773,388 and the accumulated
depreciation is $309,931 at November 30, 1996. There is no
contingent rental income for any of the periods in which an income
statement is presented.
The minimum rental income expected from noncancellable leases:
At November 30,
--------------------------------------------------------------------
1997 $ 346,260
1998 346,260
1999 274,570
Subsequent years 14,517
--------------------------------------------------------------------
Minimum Rental Payments $ 981,607
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
(a) The consolidated financial statements include the accounts of Laser
Master International Inc. and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
-16-
<PAGE>
(b) Revenue Recognition:
Sales are recorded when title passes (either at shipment or customer
acceptance). Rental Income is earned based on tenant occupancy per
leases on the accrual basis.
(c) Inventory valuation:
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(d) Depreciation of fixed assets is calculated on the straight line
method based on estimated useful lives of 31-1/2 years for buildings
and improvements and 10 years for machinery, equipment and
furniture.
(e) Income Taxes:
Effective December 1, 1993 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". This statement requires the use of the asset and
liability approach or financial accounting and reporting of income
taxes. Under this method, deferred tax assets and liabilities are
recognized on temporary differences between the carrying amounts of
assets and liabilities for financial statement purposes and income
tax purposes using enacted rates expected to be in effect when such
amounts are realized or settled. The Company previously accounted
for income taxes in conformity with SFAS No. 96. The adoption of
this statement did not have a material effect on the Company's 1994
financial statements and prior years financial statements were not
restated.
NOTE 3. DEFERRED CHARGES
The above account consists principally of costs that were incurred upon
the financing of the Company's factory building in Harrison, New Jersey
and the new 8 color printing press. The financing was done through a tax
exempt bond issue through the New Jersey Economic Development Authority.
These costs include EDA fees, legal fees, other professional fees and
other closing costs. The costs are being amortized over the length of the
loans based on using a straight line method of amortization.
NOTE 4. ACCOUNTS RECEIVABLE
The account on the balance sheet of Laser Master International Inc.
referred to as "Accounts Receivable-Net" represents amounts due from
customers for goods sold and delivered on a current basis. An allowance
for doubtful accounts has been established in the amount of $130,000.
NOTE 5. INVENTORIES
Inventories at November 30th summarized by major classification were as
follows:
1996 1995
---------- ---------
Raw material & components $1,753,951 $ 586,001
Work-in-process 253,583 84,716
Finished goods 105,660 35,248
---------- ---------
$2,113,194 $ 705,965
Work in process and finished goods inventories consist of material, direct
labor and overhead associated with the manufacturing process.
-17-
<PAGE>
NOTE 6. FACTORY BUILDING AND IMPROVEMENTS
One of the wholly owned subsidiaries of the company, Harrison Realty Corp.
owns the factory building in Harrison, New Jersey. The factory building is
240,000 sq. ft. of which 49% is rented to unaffiliated tenants. The
building has a 1st mortgage on it from Fleet Bank and the New Jersey EDA
as well as a 2nd mortgage from Fleet Bank.
NOTE 7. MACHINERY AND EQUIPMENT
The machinery and equipment is owned by the wholly owned subsidiary
Flexo-Craft Prints Inc. It consists of various pieces of heavy equipment,
the acquisition of which has been financed on an individual basis at the
time of purchases and installation. For details of these encumbrances,
reference is made to the consolidated schedule of total debt.
NOTE 8. DEPRECIATION
Fixed Assets are stated at cost. Depreciation is computed by applying the
straight-line method to individual items. Where accelerated depreciation
methods are used for tax purposes, deferred income taxes may be recorded.
Maintenance and repairs were charged to expenses as incurred.
11/30/96 11/30/95
-------- --------
Depreciation charged to
Cost of Sales $470,574 $627,630
The annual depreciation rates used are as follows:
Building and Improvements 3%
Machinery and Equipment 6.67% - 10%
Furniture and Fixtures 10%
NOTE 9. ENGRAVING INVENTORY
The company's principal operating subsidiary, Flexo-Craft Prints Inc. is
engaged in the printing of designs and patterns which by means of a laser
engraving process grooves are engraved on a rubber sleeve which is coated
on a metal cylinder which is then attached to the printing machine. Ink is
then placed in the groove portions and printed on paper currently up to 8
colors.
In order to present to the trade a wide selection of proprietary patterns
and designs, the company maintains a constant library of approximately
5,000 sleeves. In case of obsolete or discontinued designs, sleeves become
reusable after mechanically grinding flat the old pattern and vulcanizing
the surface.
For accounting purposes, an obsolescence factor is charged based on the
entire cost of discontinued patterns, exclusive of the extended life of
the reusable rubber sleeves. Historically this method results in a
provision for depreciation of 10% per year of the total library inventory
of complete patterns on sleeves.
-18-
<PAGE>
NOTE 10. INCOME TAXES
The Financial Accounting Standards Board has issued Statement No. 109,
"Accounting for Income Taxes", effective for fiscal years beginning at
December 1992. Effective December 1, 1993 the Company adopted the
statement which requires an asset and liability approach to financial
accounting and reporting of income taxes. The difference between the
financial and tax basis of assets and liabilities is determined annually.
Deferred income taxes and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax laws and
rates that apply to the periods in which they are expected to effect
taxable income. Valuation allowances are established, if necessary, to
reduce the deferred tax asset that will, more likely than not, be
realized. Income tax expense is the current tax payable or refundable for
the period plus or minus the net change in the deferred tax assets or
liabilities.
The components of the deferred tax asset (liability) are summarized as
follows:
1996
---------
Tax credit carryforwards .................................... $ 83,787
Net operating loss carryforwards ............................ 7,296
Allowance for doubtful accounts ............................. 9,180
---------
Net deferred tax assets ..................................... $ 100,263
---------
Deferred Tax Liabilities:
Accelerated depreciation .................................... $ 138,279
---------
Total net deferred tax assets ............................... $ (38,016)
=========
NOTE 11. ACCRUED EXPENSES
Accrued Expenses consist of the following:
1996
Payroll Taxes ................. 21,359
Pension ....................... 27,987
-------
Total ......................... $49,346
NOTE 12. EMPLOYMENT CONTRACTS
The Company has entered into a five year employment agreement with the
company's Chairman of the Board, President and Treasurer commencing May
1996. Under the agreement, Mr. Klein's annual salary will be $125,000. In
addition he has the right to purchase 240,000 shares of common stock each
year at $1 per share for a five year period.
The Company has also entered into employment contracts for the services of
three key employees for a period of five years from May 1996, each for an
annual salary of $50,000.
-19-
<PAGE>
NOTE 13. CONTINGENT LIABILITIES
The Company is contingently liable to Fleet Bank for letters of credit in
the amount of $5,351,979 issued in conjunction with the New Jersey Tax
Exempt Bonds which financed the company's new factory building and 8 color
press (See Note #19). Fleet Bank has a 1st lien on the assets of Harrison
Realty and 2nd and 3rd liens on the assets of Flexo-Craft. Per the loan
agreement the company is prohibited from paying cash dividends. The loan
agreement to Fleet Bank contains various covenants. The Company was not in
compliance with one of these covenants, however a waiver from the bank was
received.
NOTE 14. EARNINGS PER SHARE - 10,374,600 SHARES COMMON STOCK -PAR VALUE $0.01
Earnings per common and common equivalent share have been computed using
the weighted average share of common stock and common stock equivalents
outstanding during the periods.
Earnings Per Share 11/30/96 11/30/95
Primary & Diluted
Earnings Per Share $ .04 $(.26)
Extraordinary Gain -- .23
Net Income (Loss) .04 (.03)
Book value per share -
Primary 77 .76
Fully diluted .71 .76
Primary Earnings Per Share is calculated based on a weighted average of
8,166,468 shares. Fully diluted earnings per share is calculated based on
8,596,468 weighted shares. Book value primary is calculated on 10,374,600
shares and book value fully diluted is calculated based on 11,234,600
shares. All calculations for 1995 are based on 5,958,335 shares.
NOTE 15. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are written off as they occur. An allowance for doubtful
accounts has been established in the amount of $130,000.
NOTE 16. PENSION PLAN
The Company has a non contributory defined benefit pension plan covering
all eligible employees begun in 1993. The plan provides for normal
retirement at age 65, or at least age 62 with 30 years of service, and
optional early retirement. The benefits payable under the plan are
generally determined on the basis of an employees length of service and
earnings. The Company's funding policy is to make annual contributions to
the extent such contributions are actuarially determined and tax
deductible.
The plan covers all salaried and hourly employees of the Company except
those covered under a collective bargaining agreement. Eligible employees
participate in the plan after completing one year of service and attaining
age 21. The benefit formula is 22.75% of average pay plus 22.75% average
pay in excess of covered compensation reduced proportionately for years of
service less than 35. Pension Plan Assets are primarily invested in short
and intermediate term cash investments.
-20-
<PAGE>
Assumptions:
The present value of benefits used to determine the net periodic pension
cost, the projected benefit obligation and the accumulated benefit
obligation are based on the following actuarial information:
1. Mortality 1983-A
2. Discount Rate: 7.50% Compounded Annually
3. Withdrawal Not used
4. Salary Projection: 3% per year
5. Return on Plan Assets: 7.50% Compounded Annually
6. Increase in 415 Limit: 3.0%
Asset Valuation Method: Fair Market Value
Net Periodic Pension Cost for Fiscal Year Ended:
1996 1995
-------- --------
1. Service Cost $ 11,458 $ 10,321
2. Interest Cost 12,769 11,239
3. Return on assets 14,454 11,504
4. Net Amort. & deferral 10,277 10,764
-------- --------
Net Pension Cost $ 20,050 $ 20,820
======== ========
Reconciliation of Funding Status:
1996 1995
--------- ---------
1. Projected Benefit Obligation $(194,484) $(171,418)
2. Assets at Fair Value 155,210 105,563
3. Funding Status (39,274) (65,855)
4. Unrecognized Net Transition
Obligation 76,226 80,834
5. Unrecognized Prior Service Cost -- --
6. Unrecognized Net (Gain)/Loss as
of November 30 (20,791) (13,961)
7. Prepaid/(Accrued) Pension Expense 16,161 1,018
Additional Liability as of November 30,
1996 1995
--------- ---------
1. Projected Accumulated Benefit
Obligation $ 182,508 $ 158,049
2. Fair Value of Assets 155,210 105,563
3. Projected Funded Status 27,298 52,486
4. Prepaid/(Accrued) Pension Exp. 16,161 1,018
5. Additional Liability 43,459 53,504
For financial reporting purposes a pension plan is considered unfunded
when the fair value of the plan assets is less than the accumulated
benefit obligation. When that is the case a minimum pension liability must
be recognized for the sum of the unfunded amount plus any prepaid pension
cost. An intangible asset can be recorded as an offset to the extent of
unrecognized prior service cost and unrecognized transitional obligation.
-21-
<PAGE>
NOTE 17. LONG TERM DEBT
1996
-----------
Convertible Note Payable - 5%
Due 6/30/98 150,000
Mortgage Payable - Fleet Bank - 9% - Monthly
principal payments of $3,889 maturing 11/30/02
Collateralized by 2nd mortgage on factory bldg. 653,333
NJ EDA Tax Exempt Bond - 72% of Libor Rate-
Effect. rate 5.6% - Monthly principal payments
begin 8/1/96 thru 7/31/04 at $33,750 per month-
Collateralized by the 8 color printing press 3,235,000
NJ EDA Tax Exempt Bond - 72% of Libor Rate-
Monthly principal payments begin 8/1/95
thru 7/31/14 approx. $9,000 per month -
Effective rate 5.6% - Collateralized by
factory building Harrison, New Jersey 2,005,000
-----------
Total $ 6,043,333
Less current portion 561,669
-----------
Total $ 5,481,664
===========
NOTE 18. LOAN PAYABLE
The Company has a line of credit with Merrill Lynch in the amount of
$1,500,000. The interest rate is at 30 day commercial paper plus 2.6% with
a effective rate at 7.8%. The loan is collateralized by accounts
receivable.
NOTE 19. CARRYFORWARD OF NET OPERATING LOSSES
The company has available as benefits to reduce future Federal income
taxes, subject to applicable limitations, the following net operating loss
carry-forwards and tax credits:
Tax Net
Year Operating Loss Investment
Expires Carryforward Tax Credit
------- -------------- ----------
1996 -- --
1997 -- --
1998 -- --
1999 -- 83,787
2000 -- --
2001 -- --
2011 21,459 --
-------- --------
Total $ 21,459 $ 83,787
======== ========
-22-
<PAGE>
NOTE 20. RECONCILIATION BETWEEN STATUTORY TAX RATE AND EFFECTIVE TAX RATE
Fiscal Year Ended
11/30/96 11/30/95
--------- ---------
Prov. computed at statutory rate $ 136,046 $ (60,845)
Tax effect of loss carryforward $(136,046) --
Deferred Income Tax $ 38,016 --
--------- ---------
Provision for Income Taxes $ 38,016 $ --
NOTE 21. DEBT MATURITIES IN THE FIVE YEAR PERIOD FOLLOWING NOVEMBER 30, 1996
11/30/97 $ 1,674,095
11/30/98 $ 666,668
11/30/99 $ 561,668
11/30/00 $ 561,668
11/30/01 $ 561,668
Thereafter $ 3,129,992
NOTE 22. STOCKHOLDER LOAN
The principal stockholder extended the company a loan of $65,837 at a rate
of 8% in order to help secure an addition to the already existing line of
credit from Merrill Lynch. The loan is payable on demand.
NOTE 23. INDUSTRY SEGMENT INFORMATION
1996 1995
----------- -----------
Sales to Unaffiliated Customers:
Printing $11,118,846 $ 8,432,284
Real Estate 380,966 368,110
----------- -----------
Total $11,499,812 $ 8,800,394
Earnings (loss) from Operations:
Printing $ 436,608 $(1,344,380)
Real Estate (74,489) (207,229)
----------- -----------
Total $ 362,119 $(1,551,609)
Identifiable Assets:
Printing $10,002,677 $ 9,189,712
Real Estate 5,105,329 4,671,533
----------- -----------
Total $15,108,006 $13,861,245
Capital Expenditures:
Printing $ 812,965 $ 3,354,855
Real Estate 433,796 66,521
----------- -----------
Total $ 1,246,761 $ 3,421,376
Depreciation & Amortization Exp.
Printing $ 325,863 476,791
Real Estate 144,711 150,839
----------- -----------
Total $ 470,574 $ 627,630
-23-
<PAGE>
NOTE 24. SHORT TERM INVESTMENTS
In 1995 the company adopted Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. The statement requires that investments in such securities be
designated as trading, held-to-maturity or available-for-sale. The
adoption did not have a material impact on the company. The fair market
value of the investments at year end equaled the cost.
NOTE 25. RESTRICTED CASH
Restricted cash consists of short term United States Treasury Bill Fund
with 30 day maturities. The account is restricted for the purpose of
funding a sinking fund toward the payment of NJ EDA obligations.
NOTE 26. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
1996 1995
--------- ---------
Interest $ 453,164 $ 503,614
NOTE 27. DIVIDEND RESTRICTIONS
The Company's credit agreement with Fleet Bank prohibits the payment of
cash dividends without the prior consent of the bank.
NOTE 28. INTEREST INCOME & OTHER NET
The following is a schedule of the items in this account:
11/30/96 11/30/95
-------- --------
Interest Income $ 48,122 $ 22,268
Dividend Income 50,230 31,496
Misc. Income 39,771 --
-------- --------
Total $138,123 $ 53,764
NOTE 29. EXTRAORDINARY GAIN
The company in 1995 settled the mortgage on the factory building in
Brooklyn and sold the building to an unrelated third party resulting in a
capital gain of $1,372,652. The transaction needed the approval of the RTC
which was received in July 1995.
-24-
<PAGE>
NOTE 30. STOCK OPTIONS
In 1995, the Financial Accounting Standard Board issued Statements of
Financial Accounting Standards No. 123 (SFAS 123). "Accounting for
Stock-Based Compensation" SFAS 123 provides companies with the option of
expensing the "fair value" of stock options granted. With regard to the
Company's stock options, no accounting is made until such time as the
options are exercised unless the option price is less than the fair value
of Company stock on the grant date. The Company does not intend to change
it current accounting method regarding stock options. Therefore, SFAS 123
will not impact future operating results. The Company will adopt the
expanded stock option disclosure requirements of SFAS 123 in its 1997
fiscal year.
Shares under option Shares Price/Share
on:
11/30/96 3,300,000 $1.00 - $2.00
Options exercisable
on:
11/30/96 860,000 $1.00
11/30/97 685,000 $1.00 - $2.00
11/30/98 585,000 $1.00 - $2.00
11/30/99 585,000 $1.00
11/30/00 585,000 $1.00
-25-
<PAGE>
ITEM 9. DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURES
NONE
-26-
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Name Age Position Term
Mendel Klein 64 President, Treasurer 1 Year
Chairman of the Board
Leah Klein 61 Vice-President, 1 Year
Secretary, Director
Mirel Spitz 38 Vice-President, 1 Year
Director
Mendel Klein and Leah Klein are spouses.
Mirel Spitz is their daughter.
ITEM 11. REMUNERATION OF DIRECTORS AND OFFICERS
Capacity in which remuneration
Name was received Annual Salary
Mendel Klein President, Treasurer, Chairman $100,000
of the Board
Leah Klein Vice-President, Secretary, Director -0-
Mirel Spitz Vice president, Director, -0-
Office Manager
Mr. Mendel Klein, pursuant to an employment contract entered into with the
company, which became effective upon completion of the public offering, is
entitled to receive an annual salary of $125,000. Additionally, Mr. Klein will
participate in group life, accident and hospitalization insurance, provided for
all key employees and he will have the use of a company owned automobile. No
other officer or director has a contract of employment with the company. There
are no consulting agreements in existence between the company and any officers.
-27-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Name and Address Number of Percent
Title of Class of Beneficial Owner Shares Owned of Class
Common Stock Mendel Klein 3,625,000 34%
$0.01 Par Value 38 Harrison Avenue
Brooklyn, N.Y. 11211
Palomar Medical
Technologies, Inc. 1,000,000 10%
Set forth above is certain information concerning persons or firms who are known
by the Company to own beneficially more than 5% of the Company's common stock
and voting shares on January 17, 1997.
(b) Security Ownership of Management
None, other than Mendel Klein, listed above.
(C) Changes in Control
The Company knows of no contractual arrangements which may at a subsequent
date result in a change in control of the company.
-28-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Financial Statements, Financial Statement Schedules, and Exhibits
1. Financial Statements. See Item 8 for the Financial Statements of the
Company filed as a part hereof (Exhibits omitted)
2. Financial Statement Schedules. See Item 8 for the Financial
Statement Schedules of the Company filed as a part hereof.
3. Supplementary Data - See Exhibits
-29-
<PAGE>
OFFICERS:
Mendel Klein, President, Treasurer
Leah Klein, Vice President & Secretary
Mirel Spitz, Vice President
DIRECTORS:
Mendel Klein, Chairman
Leah Klein, Director
Muriel Klein, Director
AUDITORS:
Goldstein and Morris, Certified Public Accountants, P.C.
COUNSEL:
Baratta & Goldstein, P.C.
TRANSFER AGENT:
American Stock Transfer Company
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, Laser Master International Inc. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LASER MASTER INTERNATIONAL INC.
BY /s/ Mendel Klein
---------------------------
Mendel Klein, President and
Chief Financial Officer
Dated: February 28, 1997
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant, and in the capacities and on the dates indicated.
/s/ Mendel Klein
- ----------------------
Mendel Klein, Director
March 10, 1997
/s/ Leah Klein
- ----------------------
Leah Klein, Director
March 10, 1997
/s/ Mirel Spitz
- ----------------------
Mirel Spitz, Director
March 10, 1997
-31-
