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, 1997 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 $.01 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 $.01 10,615,380
----------------------------- ----------
Class Outstanding Shares
Aggregate Market Value of Non-Affiliate Stock at January 31, 1998 -
---------------------------------------------------------------------
approximately $3,485,190.
-------------------------
<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 two fiscal years ending November 30, 1997 and 1996, the
following is a listing of the percentage of revenue which contributed toward the
total revenue of the Company.
1997 l996
---- ----
Heat Transfer 55% 57%
Gift Wrap 42% 40%
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-eight 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, 1997 $2,500,000 100%
November 30, 1996 2,000,000 100%
-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, 1997 and anticipated being able
to fill all it current backlog orders during its fiscal year ending November 30,
1998.
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% utilized by the Company. The building has an
existing mortgage in the sum of $1,895,000 as well as a second mortgage for
$606,667. 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.
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:
1997 1996
High Low High Low
----- ----- ------ ----
First Quarter 1-1/2 7/8 2 3/4
Second Quarter 3/4 1/2 3-1/8 1-1/8
Third Quarter 1/2 3/8 2-1/4 1-1/8
Fourth Quarter 11/16 5/16 1-1/2 21/32
(3) The approximate number of shareholders of record on November 30, 1997
was 585.
(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
11/30/97 11/30/96 11/30/95 11/30/94 11/30/93
----------- ---------- ---------- ---------- ----------
Revenues $12,007,663 $11,499,811 $8,800,394 $8,270,936 $9,347,934
Net Income $ (573,484) $ 362,119 $(178,957) $ 276,471 $ 771,837
Earnings Per
Share (.06) .04 (.03) .05 .13
Cash Dividend declared
per common share -0- -0- -0- -0- -0-
At Year End:
Totl Assets $15,224,075 $15,967,150 $13,861,245 $14,842,777 $8,251,805
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PRINTING SEGMENT
Net sales for the year ended November 30, 1997 totaled $11,660,251 as compared
to $11,118,846 for the year ended November 30, 1996, for an increase of 5%.
Management attributes the increase in sales to the fact that the company began
to enter new markets for its printed paper products such as home furnishings. As
the 8 color press begins to contribute in 1998 management is expecting to be
able to enter additional markets. The 8 color press was finally completely and
successfully upgraded and repaired by the manufacturer in January 98. The 8
color press which was delivered and assembled in 1995 had no impact on sales
this year but is beginning to make an impact in 1998 and will significantly
increase sales in the future. The new 8 color press was expected to contribute
towards sales and profits in 1997 but still needed further modifications and
upgrading which has now been finished. The Company expects to operate more
efficiently in 1998 and management anticipates a solid increase in sales.
-5-
<PAGE>
Gross profit percentage for 1997 was 22% compared to 31% for the year before.
This was a result of disruptions in the printing process due to the repeated
problems from the 8 color press. Selling expenses were 7% of sales compared to
14% in the previous year. The Company EC significantly reduced selling expenses
to control costs as it became apparent that there would be production
limitations due to the problems with the 8 color press.
REAL ESTATE SEGMENT
Rental income for the years 1997 compared to 1996 decreased 8%. During 1997 the
operating (loss) from the real estate division was ($ 28,199) compared to ($
74,489) in 1996. The Company had substantial start up expenses in the new
factory building in Harrison, New Jersey in 1996. 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 1997 were 16% of sales as
compared to 10% 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 non-recurring expenses of professional fees and
consultants. A Interest and finance charges paid by the Company during fiscal
1997 decreased slightly from the previous year due to the fact that the
company's average debt level decreased from the previous year. 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 1.87 compared to 2.34
in the previous year end. Working capital and cash aggregated approximately
2,434,079 and 412,353 respectively at November 30, 1997 as compared to 3,179,239
and 396,777 respectively at November 30, 1996. The Company believes its
financial position at November 30, 1997 will enable it to take advantage of any
new opportunities that may arise.
In fiscal 1997 cash flow provided from operations was $ 818,809 compared to
$(1,237,428) in 1996. The decrease in inventory levels is primarily attributable
to decreased inventory levels necessary to support shorter lead times in
obtaining raw materials. Accounts receivable decreased by $347,845 which was
because of the fact that the company is collecting faster and is stricter on
giving credit terms. Accounts payable increase of $125,475 was because of the
company's ability to obtain better credit terms because of its improved payment
history. Net cash used by investing activities during 1997 was $176,964 which
was primarily because of fixed assets acquisitions. Management does not
anticipate any significant capital expenditures in 1998. Net cash used by
financing activities during 1997 was $626,269. This was primarily because the
company reduced debt levels.
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.
- 6 -
<PAGE>
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, 1997 ------------ 11-12
Consolidated Statements of Operations for the Fiscal Years
ended 1997 & 1996 ----------------------------------------- 13
Consolidated Statements of Stockholders Equity for the
Fiscal Years ended 1997 & 1996 ---------------------------- 14
Consolidated Statements of Cash Flows for the Fiscal Years
ended 1997 & 1996 ----------------------------------------- 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, 1997
-9-
<PAGE>
GOLDSTEIN AND MORRIS
CERTIFIED PUBLIC ACCOUNTANTS, P.C.
36 WEST 44TH STREET
NEW YORK, NEW YORK 10036
EDWARD B. MORRIS TELEPHONE (212) 789-9800
ALAN J. GOLDBERG FACSIMILE (212) 789-8090
- ---------------
ALBERT M. GOLDSTEIN
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, 1997 and the related
consolidated statements of operations, stockholders equity and cash flows for
the two years ended November 30, 1997. 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 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 consolidated financial position of Laser
Master International, Inc. and subsidiaries as of November 30, 1997 and the
consolidated results of its operations and its cash flows for the two years
ended November 30, 1997 in conformity with generally accepted accounting
principles.
New York, New York
February 26, 1998 /s/ Goldstein and Morris
- 10 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF
NOVEMBER 30
1997
----
ASSETS
CURRENT ASSETS:
Cash in Bank $ 412,353
Short Term Investments-
Note 23 462,625
Accounts Receivable-Net
Notes 4 2,237,504
Merch. Invent.-Note 2 and 5 1,947,440
Prepaid Expenses 64,722
Loans Receivable 127,347
-----------
TOTAL CURRENT ASSETS 5,251,991
-----------
FIXED ASSETS:- Note 2
Factory Building and
Improvements - Note 6 4,976,808
Land - Factory Site 215,000
Mach'y & Equip. - Note 7 8,124,395
Engraving Invent. - Note 9 878,456
Installation Cost 942,797
Furniture & Fixtures 131,956
-----------
Total 15,269,412
Less: Accumulated Depreciation -
Note 8 5,558,589
-----------
TOTAL FIXED ASSETS 9,710,823
-----------
OTHER ASSETS:
Deferred Charges - Note 3 80,177
Restricted Cash - Note 25 181,084
-----------
TOTAL OTHER ASSETS 261,261
-----------
TOTAL ASSETS $15,224,075
===========
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
1997
----
LIABILITIES
CURRENT LIABILITIES:
Accounts Payable $ 941,222
Accrued Expenses and Taxes
Payable 208,029
Loan Payable - Note 18 1,113,660
Current Portion of Long Term
Debt - Note 17 555,001
-----------
TOTAL CURRENT LIABILITIES 2,817,912
-----------
LONG TERM LIABILITIES:
Long Term Debt, Net of Current
Portion - Note 17 4,776,666
-----------
TOTAL LONG TERM LIABILITIES 4,776,666
-----------
TOTAL LIABILITIES 7,594,578
-----------
COMMITTMENTS & CONTINGENCIES - Notes 9&10
STOCKHOLDERS' EQUITY:
Capital Stock-Authorized
50,000,000 shares - $.01 par value
Issued & Outstanding - 10,615,380
shares 106,154
Additional Capital Paid
in Excess of Par 5,424,412
Unrealized Gain on Securities 10,000
Retained Earnings 2,088,931
-----------
TOTAL STOCKHOLDERS' EQUITY 7,629,497
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,224,075
===========
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 STATEMENTS OF OPERATIONS
FOR THE YEARS ENDING
NOVEMBER 30 NOVEMBER 30
1997 1996
---- ----
REVENUES
Product Revenues $11,660,251 $11,118,846
Rental Income 347,412 380,966
----------- -----------
TOTAL REVENUES 12,007,663 11,499,812
COST OF SALES
Cost of Product Revenues 9,017,036 7,646,450
Cost of Rental Income 315,458 276,050
----------- -----------
TOTAL COST OF SALES 9,332,494 7,922,500
----------- -----------
GROSS PROFIT 2,675,169 3,577,312
OPERATING EXPENSES
Selling Expenses 946,437 1,662,596
Gen'l & Adm Expenses 1,990,722 1,164,100
Non-recurring exp-moving - 33,554
----------- -----------
TOTAL OPERATING EXPENSES 2,937,159 2,860,250
----------- -----------
OPERATING INCOME (261,990) 717,062
----------- -----------
Interest Expense 421,337 455,050
Investment and Other Income (71,827) (138,123)
----------- -----------
Income Before Inc. Tax Exp. (611,500) 400,135
Provision for Income Taxes (38,016) 38,016
----------- -----------
NET INCOME (LOSS) (573,484) 362,119
=========== ===========
Earnings (Loss) Per Share $ (.06) $ .04
=========== ===========
Weighted Average Number of
Common Shares Outstanding 10,494,990 8,166,468
=========== ===========
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 STATEMENTS'
OF STOCKHOLDER'S EQUITY
THE YEAR ENDED
NOVEMBER 30, 1997 & 1996
Common Additional
Common Stock Paid-In Retained Unrealized
Shares Amount Capital Earnings Gain Total
------ ------ ------- -------- ---- -----
Balance
12/1/95 5,958,335 59,583 $2,141,984 2,300,296 $4,501,863
- ----------------------------------------------------------------------
* 4,416,265 44,163 $3,134,836 $3,178,999
Year ended
11/30/96 362,119 362,119
- ----------------------------------------------------------------------
Bal.
11/96 10,374,600 $103,746 $5,276,820 $2,662,415 $8,042,981
- ----------------------------------------------------------------------
Year ended
11/30/97 *240,780 *2,408 *147,592 (573,484) 10,000 (413,484)
- ----------------------------------------------------------------------
Bal.
11/97 10,615,380 $106,154 $5,424,412 $2,088,931 $10,000 $7,629,497
* Issuance of common stock at $1 per share in private placement net of costs.
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 STATEMENTS' OF CASH FLOWS
FOR THE YEARS ENDED
NOVEMBER 30 NOVEMBER 30
1997 1996
---- ----
Cash flows from
operating activities:
Net Income $ (573,484) $ 362,119
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities
Depreciation Expense 492,277 470,574
Amortization Expense 10,607 10,508
Increase (Decrease) in cash flows
from operations resulting from
changes in:
Accounts Receivable 347,845 (281,088)
Inventories 165,754 (1,407,229)
Prepaid Expenses (24,995) 50,381
Sundry Receivable (127,347) -
Accounts Payable 125,475 (426,152)
Accrued Expenses 402,677 (16,641)
----------- -----------
Net cash provided by
Operations 818,809 (1,237,428)
----------- -----------
Cash flows from investing activities:
Net (Purchase) of short
term investments (57,402) (49,839)
Fixed Assets (93,406) (1,299,303)
Other Assets 1,860 (22,024)
Deferred Taxes (38,016) 38,016
Unrealized Gain 10,000 -
------------ -----------
Net Cash used in Investing (176,964) (1,333,150)
----------- -----------
Cash flow provided from (used
for) financing activities:
Proceeds from Capital 150,000 3,178,999
Proceeds from Debt 1,234 150,000
Repayments of Debt (777,503) (1,170,390)
----------- -----------
Net cash provided by
financing activities (626,269) 2,158,609
----------- -----------
Net increase (decrease) in
cash 15,576 (411,969)
Cash at beginning of year 396,777 808,746
----------- -----------
Cash at end of year $ 412,353 $ 396,777
=========== ===========
The accompanying notes to financial statements are an integral part of this
statement and should be read in conjunction herewith.
-15-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
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. and
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 land, buildings and improvements is $4,773,388 and
the accumulated depreciation is $455,031 at November 30, 1997. 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,
-----------------------------------------------------------
1998 $ 346,260
1999 274,570
Subsequent years 14,517
-----------------------------------------------------------
Minimum Rental Payments $ 635,347
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>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(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 to 30 years for machinery, equipment and
furniture. Maintenance and repairs are charged to expenses as
incurred.
(e) Income Taxes:
Income taxes are computed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
This statement requires the use of the asset and liability approach
for 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.
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 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 next change in the deferred tax assets or liabilities.
(f) Use of Estimates:
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, The disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
(g) Concentrations of Credit Risk for Cash
The company's cash balances, including restricted cash, which are
maintained in various banks are insured up to $100,000 for each bank
by the Federal Deposit Insurance Corporation. The balances at
times, may exceed these limits.
(h) Fair Value of Financial Instruments
The carrying value amounts of cash, prepaid expenses, accrued
expenses and loans payable approximate fair value because of the
short maturity of these items. It is not practical to estimate the
fair value of long term debt because quoted market prices do not
exist and estimates could not be made through other means.
- 17 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
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 eight 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 - NET
The allowance for doubtful accounts is $254,500 for the year ended
November 30, 1997.
NOTE 5. INVENTORIES
Inventories are summarized as follows:
1997
----------
Raw material & components $ 606,762
Work-in-process 203,340
Finished goods 1,137,338
----------
$1,947,440
==========
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 lst 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. INCOME TAXES
The components of the deferred tax asset (liability) are summarized as
follows:
1997
----------
Tax credit carryforwards ---------------- $ 83,787
Net operating loss carryforwards--------- 174,018
Allowance for doubtful accounts---------- 86,530
----------
Gross deferred tax assets---------------- 344,335
----------
Deferred Tax Liabilities:
Accelerated depreciation ---------------- 183,621
----------
Total net deferred tax assets ----------- 160,714
Less: Valuation Allowance (160,714)
----------
Net deferred tax assets ----------------- $ -
==========
- 18 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
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
------- -------------- ---------------
1998 $ - $ -
1999 - 83,787
2000 - -
2001 - -
2011 21,459 -
2013 511,818 -
-------- -------------- ---------------
Total $ 533,277 $ 83,787
============== ===============
RECONCILIATION BETWEEN STATUTORY TAX RATE AND EFFECTIVE TAX RATE
Fiscal Year Ended
11/30/97 11/30/96
-------- --------
Prov. computed at statutory rate $ - $ 136,046
Tax effect of loss carryforward - (136,046)
Deferred Income Tax (38,016) 38,016
--------- ----------
Provision for Income Taxes $ (38,016) $ 38,016
========= =========
NOTE 9. 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.
Each of the three key employees received options to purchase 115,000
shares each year for five years at $1.00 per share. The total number of
options for each employee is 575,000.
NOTE 10. CONTINGENT LIABILITIES
The Company is contingently liable to Fleet Bank for letters of credit
in the amount of $4,825,972 issued in conjunction with the New Jersey
Tax Exempt Bonds which financed the company's new factory building and
8 color press. Fleet Bank has a lst 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.
- 19 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 11. EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share have been
computed using the weighted average share of common stock and common
stock equivalents outstanding provided that the effect is not
anti-dilutive.
NOTE 12. 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.
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:
11/30/97 11/30/96
---------- ----------
1. Service Cost $ 13,983 $ 11,458
2. Interest Cost 15,037 12,769
3. Return on assets 29,788 14,454
4. Net Amort. & deferral 22,046 10,277
--------- ----------
Net Pension Cost $ 21,278 $ 20,050
========= ==========
- 20 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Reconciliation of Funding Status:
11/30/97 11/30/96
--------- ---------
1. Projected Benefit Obligation $(229,916) $(194,484)
2. Assets at Fair Value 215,000 155,210
3. Funding Status (14,516) (39,274)
4. Unrecognized Net Transition
Obligation 71,618 76,226
5. Unrecognized Prior Service Cost - -
6. Unrecognized Net (Gain)/Loss as
of November 30 32,217 (20,791)
7. Prepaid/(Accrued) Pension Expense 24,885 16,161
Additional Liability as of November 30,
11/30/97 11/30/96
--------- ---------
1. Projected Accumulated Benefit
Obligation $ 212,204 $ 182,508
2. Fair Value of Assets 215,000 155,210
3. Projected Funded Status (2,796) 27,298
4. Prepaid/(Accrued) Pension Exp. 24,885 16,161
5. Additional Liability - 43,459
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.
NOTE 13. LONG TERM DEBT
11/30/97
-----------
Mortgage Payable - Fleet Bank - Requires monthly
principal payments of $3,889 plus interest at
9% per annun. maturing 11/30/02 - Collateralized
by 2nd mortgage on factory bldg. 606,667
NJ EDA Tax Exempt Bond - 72% of Libor Rate-
Effect. rate 5.5% -Monthly principal payments
begin 8/1/96 thru 7/31/04 at $33,750 per month-
Collateralized by the 8 color printing press 2,830,000
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 5.5% - Collateralized by
factory building Harrison, New Jersey 1,895,000
-----------
Total 5,331,667
Less current portion 555,001
-----------
Total $ 4,776,666
===========
- 21 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
DEBT MATURITIES IN THE FIVE YEAR PERIOD FOLLOWING
NOVEMBER 30, 1997
11/30/98 $ 1,663,660
11/30/99 561,668
11/30/00 561,668
11/30/01 561,668
11/30/02 561,668
Thereafter $ 2,559,995
NOTE 14. LOAN PAYABLE
The Company has a line of credit with Merrill Lynch in the
amount of $2,500,000. The interest rate is at 30 day
commercial paper plus 2.6% with a rate at 8.2% at 11/30/97.
The loan is collateralized by accounts receivable.
NOTE 15. INDUSTRY SEGMENT INFORMATION
11/30/97 11/30/96
Sales to Unaffiliated Customers: ----------- -----------
Printing $11,660,251 $11,118,846
Real Estate 347,412 380,966
----------- -----------
Total 12,007,663 11,499,812
Earnings (loss) from Operations:
Printing (545,285) 436,608
Real Estate (28,199) (74,489)
----------- -----------
Total (573,484) 362,119
Identifiable Assets:
Printing 9,870,234 10,002,677
Real Estate 5,191,808 5,105,329
----------- -----------
Total 15,062,042 15,108,006
Capital Expenditures:
Printing 6,927 812,965
Real Estate 86,479 433,796
----------- -----------
Total 93,406 1,246,761
Depreciation & Amortization Exp.
Printing 347,177 325,863
Real Estate 145,100 144,711
----------- -----------
Total $ 492,277 $ 470,574
=========== ===========
NOTE 16. 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 cumulative effect of the adoption of SFAS 115 did not
have a material impact on the company.
The company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are stated at fair
value with unrealized gains and losses included in shareholders equity.
The amortized cost of debt securities is adjusted for amortization of
premiums and accrection of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses are included in
other income (expense). The cost of securities sold is based on the
specific identification method.
- 22 -
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 17. 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 18. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
1997 1996
--------- ---------
Interest $ 423,219 $ 453,164
NOTE 19. LOANS RECEIVABLE
Consists of amounts due from officers which are due on demand with
interest at the prime lending rate.
NOTE 20. 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 its current accounting method regarding stock options.
Therefore, SFAS 123 will not impact future operating results. In
addition the quoted market price was below the option price on the
grant date so no expense would have been recorded.
A summary of option transactions, including those options granted
pursuant to the terms of certain employment and other agreements, is as
follows:
Option Weighted Average
Shares Exercise Price
------------ -----------------
Balance, Dec. 1, 1995 - -
Granted 1,920,000 1.05
Exercised - -
Cancelled - -
------------ ----------------
Balance, Nov. 30, 1996 1,920,000 1.05
Granted 345,000 1.00
Exercised - -
Cancelled (100,000) (1.00)
------------ ----------------
Balance, Nov. 30, 1997 2,165,000 1.05
============ ================
-23-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
A summary of options outstanding as of November 30, 1997 is as follows:
Weighted Average
Exercise Remaining Number of Shares
Number Outstanding Price Contractual Life Exercisable
- ------------------ ----- ---------------- -----------
100,000 2.00 .4 Years 100,000
2,065,000 1.00 3.4 Years 1,345,000
--------- ---------
2,165,000 1,445,000
========= =========
Warrants to Purchase Common Stock
- ---------------------------------
At November 30, 1997, the Company had outstanding warrants as
follows:
Number Exercise Expiration
of Shares Price Date
--------- -------- ------------
300,000 $1.00 May 10, 1999
500,000 $2.00 May 10, 1999
The company has stock plans approved by the shareholders, which provide for the
granting of options and restricted stock to officers, key employees and
consultants. Options are granted at no less than fair market value on the date
of grant and become exercisable in increments, in some instances partially
conditioned on the attainment of specific performance objectives, and expire
five years from the date of grant.
-24-
<PAGE>
ITEM 9. DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURES
-----------------------------------------------------
NONE
- 25 -
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Name Age Position Term
- ---- --- -------- ----
Mendel Klein 65 President, Treasurer 1 Year
Chairman of the Board
Leah Klein 62 Vice-President, 1 Year
Secretary, Director
Mirel Spitz 39 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 $125,000
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.
- 26 -
<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 35%
$0.01 Par Value 38 Harrison Avenue
Brooklyn, N.Y. 11211
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 March 6, 1998.
(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.
- 27 -
<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.
-28-
<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
- 29 -
<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: March 9, 1998
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 9, 1998
/s/ Leah Klein
- ----------------------
Leah Klein, Director
March 9, 1998
Mirel Spitz
- ----------------------
Mirel Spitz, Director
March 9, 1998
- 30 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 412,353
<SECURITIES> 462,625
<RECEIVABLES> 2,492,004
<ALLOWANCES> 254,500
<INVENTORY> 1,947,440
<CURRENT-ASSETS> 5,251,991
<PP&E> 15,269,412
<DEPRECIATION> 5,558,589
<TOTAL-ASSETS> 15,224,075
<CURRENT-LIABILITIES> 2,817,912
<BONDS> 4,776,666
0
0
<COMMON> 5,530,566
<OTHER-SE> 2,098,931
<TOTAL-LIABILITY-AND-EQUITY> 15,224,075
<SALES> 11,660,251
<TOTAL-REVENUES> 12,007,663
<CGS> 9,332,494
<TOTAL-COSTS> 12,269,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421,337
<INCOME-PRETAX> (611,500)
<INCOME-TAX> (38,016)
<INCOME-CONTINUING> (573,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573,484)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
