FORM 10-KSB A
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, 1998 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)
(973) 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 req
uired 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 FEBRUARY 28, 1999 -
APPROXIMATELY $3,184,614.
<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
subsidiary that owns the factory building in Harrison, New Jersey. The building
is 240,000 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 subsidiary 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 o n 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 two 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, 1998 and 1997, the
following is a listing of the percentage of revenue which contributed to ward
the total revenue of the Company.
1998 l997
---- ----
Heat Transfer 45% 55%
Gift Wrap 52% 42%
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. Historically the company sales are
greater in the 2nd half of the year as customers need more gift wrap paper as
Christmas approaches.
-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 employees, of which eight 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, 1998 $4,000,000 100%
November 30, 1997 $2,500,000 100%
-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, 1998 and anticipated being able
to fill all it current backlog orders during its fiscal year ending November 30,
1999.
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, p lant 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 refurbished 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 $1,780,000 as well as a second mortgage for
$560,000. This building is approximately five times larger than the company's
previous facility in Brooklyn. In addition since its business operations are
principally on a single floor the company is able to operate much more
efficiently than in the past.
The Company currently has two tenants who are not affiliated with the Company,
and have executed leases at 1000 First Street. Additional information about the
leases is referred to in Note 1 to the financial statements.
ITEM 3. LITIGATION
There are no material proceedings contemplated or threatened against the Company
or any of its Subsidiaries. The Company is involved in litigation from time to
time in the ordinary course of its business. In the opinion of management there
is no actual or pending litigation that would have a material adverse effect on
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:
-4-
<PAGE>
(1) The quarterly high and low prices of the Company's common stock as
traded were as follows:
1998 1997
High Low High Low
----- ---- ---- ---
First Quarter 5/8 5/16 1-1/2 7/8
Second Quarter 9/16 5/16 3/4 1/2
Third Quarter 1/2 3/16 1/2 3/8
Fourth Quarter 7/16 3/16 11/16 5/16
(2) The Company's common shares are traded on the Nasdaq Bulletin Board.
(3) The approximate number of shareholders of record on November 30, 1998
was 525.
(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 Securities Act of 1933 as amended, he is permitted to sell
144 restricted shares: every 3 months sell in ordinary transactions the
amount of shares that does not exceed the greater of 1% of the
company's outstanding stock or average weekly volume for the preceeding
4 weeks.
ITEM 6. SELECTED FINANCIAL DATA - fiscal year ended
11/30/98 11/30/97 11/30/96 11/30/95 11/30/94
-------- -------- -------- -------- --------
Revenues $14,049,749 12,007,663 11,499,811 8,800,394 8,270,936
Net Income
(Loss) $ 563,438 (573,484) 362,119 (178,957) 276,471
Earnings Per
Share .05 (.06) .04 (.03) .05
Cash Dividend
declared per share -0- -0- -0- -0- -0-
At Year End:
Totl Asset 16,743,567 15,224,075 15,967,150 13,861,245 14,842,777
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRINTING SEGMENT
Net sales for the year ended November 30, 1998 totaled $13,670,258 as compared
to $11,660,251 for the year ended November 30, 1997, for an increase of 17%.
Management attributes the increase in sales to the fact that the company entered
new markets for its printed paper products such as home furnishings. As the 8
color press continues to operate properly 1999 management is expecting to be
able to enter additional markets. The 8 color press was successfully upgraded
and repaired by the manufacturer in January 98. The 8 color press which was
delivered and assembled in 1995 finally impacted sales this year and is
anticipated to make an impact in 1999 which should increase sales in the
future. The new 8 color press was expected to contribute towards sales and
profits in 1998 and for 1999 with management having more experience on the press
it seems likely that sales will be favorably impacted as new markets are
penetrated by the company.
-5-
<PAGE>
Gross profit percentage for 1998 was 25% compared to 22% for the year before.
This was a result of significant improvements in production efficiencies because
of contributions from the multipurpose 8 color press. This press is at least
twice as fast as the other presses and needs less manpower and less time to
complete orders. In addition it enables the company to print on a variety of
different papers that were not possible in previous years.
REAL ESTATE SEGMENT
Rental income for the years 1998 compared to 1997 increased 9%. During 1998 the
operating profit from the real estate division was $84,037 compared to $28,045
in 1997. The Com pany 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 1998 were 9% of sales as compared
to 14% of sales for the preceding year. The decrease was due to the fact the
Company upgraded its computer system which resulted in increased efficiencies
and a reduction in payroll. Interest and finance charges paid by the Company
during fiscal 1998 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 finished its 1998 fiscal year with a current ration of 1.53 compared
to 1.87 in the fiscal year 1997. Working capital and cash aggregated
approximately 2,222,637 and 239,216 respectively at November 30 , 1998 as
compared to 2,434,079 and 412,353 respectively at November 30, 1997. The Company
believes its financial position at November 30, 1998 will enable it to take
advantage of any new opportunities that may arise.
In fiscal 1998 cash flow provided from operations was $20,772 compared to
$908,140 in 1997. The increase in accounts receivable of $1,249,933 was the main
reason for the decrease in cash from operations. This was because of significant
increases in sales in the second half of the year which resulted in higher
accounts receivable at year end. Inventory increased because of higher sales
levels. Accounts payable increase of $416,218 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 1998 was $835,407, which was
primarily because of fixed assets acquisitions. Management does not anticipate
any significant capital expenditures in 1998. Net cash provided by financing
activities during 1998 was $641,498. This was primarily because the company
increased 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.
YEAR 2000
The Company recognizes the potential business impact relating to the Year 2000
computer system issue and has implemented a plan to assess and improve the
Company's state of readiness with respect to such issue. The Year 2000 issue is
one where computer systems may recognize the designation "00" as 1900 when it
means 2000, resulting in system failure or miscalculations.
In recognition of the Year 2000 issue, commencing in 1997 the company initiated
a comprehensive review of its information technology systems, which the Company
is dependent upon for the conduct of its business operations, as well as the
computer hardware and software products, components and other equipment supplied
to the Company by third parties in order to determine the adequacy of those
systems in light of the Company's future business requirements. Year 2000
readiness was one of the factors considered in the review of the Company's
systems. Such review included testing and analysis of the Company's systems and
inquiries of third parties supplying information technology systems, computer
hardware and software products and components, and other equipment to the
Company in order to receive assurances from such third parties that these
systems, products and components are Year 2000 compliant. The Company completed
its review in November 1998.
As a result of its review, the Company has determined that its internal
financial software systems are adequate for the company's future business needs,
including Year 2000 compliance, and do not need to be replaced.
The Company has not developed a "worst case" scen ario with respect to Year 2000
issues, but instead has focused its resources on identifying any material,
remediable problems and reducing uncertainties generally, through the review
procedures described above.
The Company has not developed Year 2000 contingency plans, other than the review
described above, and does not believe such plans are merited by the results of
its Year 2000 review. The Company maintains and deploys contingency plans
designed to address various other potential business interruptions. These plans
may be applicable to address the possible interruption of support provided by
third parties resulting from their failure to be Year 2000 compliant.
If the Company or the third parties with which it has relationships were to not
successfully meet its or their Year 2000 compliance requirements, the Company
would likely encounter disruptions to its business that could have a material
adverse effect on its business, financial position and results of operations.
The Company could be materially and adversely impacted by widespread economic or
financial market disruption or by Year 2000 computer system failures of third
parties with which it has relationships.
- 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, 1998 ...........................11-12
Consolidated Statements of Operations for the Fiscal Years
ended 1998 & 1997 ......................................................... 13
Consolidated Statements of Stockholders Equity for the
Fiscal Years ended 1998 & 1997 ............................................ 14
Consolidated Statements of Cash Flows for the Fiscal Years
ended 1998 & 1997 ......................................................... 15
Notes to Consolidated Financial Statements ................................16-27
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 finan cial statements or notes thereto.
- 8 -
<PAGE>
LASER MASTER INTERNATIONAL, INC.
ANNUAL REPORT
FISCAL YEAR ENDED
NOVEMBER 30, 1998
-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. GOLDBERGER FACSIMILE (212) 789-8090
------- E-mail: [email protected]
ALBERT M. GOLDSTEIN
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders of
Laser Master International, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Laser Master
International, Inc. and subsidiaries as of November 30, 1998 and 1997 and the
related consolidated statements of operations, stockholders equity and cash
flows for the years ended November 30, 1998 and 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, 1998 and 1997 and
the consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
New York, New York /s/ GOLDSTEIN AND MORRIS
February 10, 1999 ------------------------
Goldstein and Morris
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<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
Current assets
<S> <C> <C>
Cash $ 239,216 $ 412,353
Short-term investments 476,085 462,625
Accounts receivable, net of allowance for
doubtful accounts of $254,500 3,487,437 2,237,504
Inventories 2,052,356 1,947,440
Prepaid expenses and other 75,506 64,722
Loans receivable -- 127,347
Current portion of notes receivable 107,761 --
----------- -----------
Total current assets 6,438,361 5,251,991
----------- -----------
Property, plant and equipment
Factory building and improvements $ 5,059,708 4,976,808
Land - factory site 215,000 215,000
Machinery and equipment 8,507,395 8,124,395
Engraving inventory 878,456 878,456
Installation cost 953,524 942,797
Furniture & fixtures 134,849 131,956
----------- -----------
Total 15,748,932 15,269,412
Less: Accumulated depreciation 6,075,330 5,558,589
----------- -----------
Net property, plant, and equipment 9,673,602 9,710,823
----------- -----------
Other Assets
Notes receivable, net of current portion 323,282 --
Deferred charges and other 109,635 80,177
Restricted cash 198,687 181,084
----------- -----------
Total other assets 631,604 261,261
----------- -----------
$16,743,567 $15,224,075
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
-11-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES 1998 1997
- ----------- ---- ----
Current liabilities
<S> <C> <C>
Accounts payable $ 1,357,440 $ 941,222
Accrued expenses and taxes payable 87,429 208,029
Note payable 2,142,144 1,113,660
Current portion of long term debt 628,711 555,001
------------ ------------
Total current liabilities 4,215,724 2,817,912
------------ ------------
Long term liabilities
Long term debt, net of current portion 4,315,970 4,776,666
Other 40,065 --
------------ ------------
Total long term liabilities 4,356,035 4,776,666
------------ ------------
Total liabilities 8,571,759 7,594,578
------------ ------------
COMMITMENTS & CONTINGENCIES
- ---------------------------
Notes 5, 6 and 9
STOCKHOLDERS' EQUITY
- --------------------
Common stock - authorized 50,000,000 shares
$.01 par value issued and outstanding -
10,615,380 shares 106,154 106,154
Additional capital paid in excess of par 5,424,412 5,424,412
Unrealized gain (loss) on securities (11,127) 10,000
Retained earnings 2,652,369 2,088,931
------------ ------------
Total stockholders' equity 8,171,808 7,629,497
------------ ------------
$ 16,743,567 $ 15,224,075
============ ============
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997*
---- -----
Revenues
<S> <C> <C>
Product revenues $ 13,670,258 $ 11,660,251
Rental income 379,491 347,412
------------ ------------
Total revenues 14,049,749 12,007,663
------------ ------------
Cost of revenues
Cost of product revenues 10,218,974 9,017,036
Cost of rental Income 295,174 315,458
------------ ------------
10,514,148 9,332,494
------------ ------------
Gross profit 3,535,601 2,675,169
------------ ------------
Operating expenses
Selling expenses 1,349,502 1,313,455
General and administrative expenses 1,300,041 1,623,704
------------ ------------
Total operating expenses 2,649,543 2,937,159
------------ ------------
Operating income (loss) 886,058 (261,990)
Interest expense 375,238 421,337
Investment and other income (52,618) (71,827)
------------ ------------
Income (loss) before income taxes 563,438 (611,500)
Income taxes (benefit) -- (38,016)
------------ ------------
Net income (loss) $ 563,438 $ (573,484)
============ ============
Earnings (loss) per common share:
Basic and diluted earnings (loss) per share $ .05 $ (.06)
============ ============
<FN>
* Reclassified for comparative purposes
</FN>
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Common Additional Other
Common Stock Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
------ ------ ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
December 1, 1996 10,374,600 $ 103,746 $ 5,276,820 $ 2,662,415 $ -- $ 8,042,981
Comprehensive income
Net (loss) -- -- -- (573,484) -- (573,484)
Unrealized gains on
securities net of tax -- -- -- -- 10,000 10,000
------------
Total comprehensive income (563,484)
------------
Proceeds from sale of common
stock 240,780 2,408 147,592 -- -- 150,000
------------ ------------ ------------ ------------ ------------ ------------
November 30, 1997 $ 10,615,380 $ 106,154 $ 5,424,412 $ 2,088,931 $ 10,000 $ 7,629,497
Comprehensive income
Net income -- -- -- 563,438 -- 563,438
Unrealized loss on securities,
net of tax -- -- -- -- (21,127) (21,127)
------------ ------------
Total comprehensive income 542,311
------------ ------------ ------------ ------------ ------------ ------------
November 30, 1998 $ 10,615,380 $ 106,154 $ 5,424,412 $ 2,652,369 $ (11,127) $ 8,171,808
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
-14-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997*
---- -----
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 563,438 $ (573,484)
Adjustments to reconcile to net cash
provided by operating activities
Depreciation 516,741 492,277
Amortization 10,607 10,607
Increase (decrease) in cash flows from
operating activities resulting from
changes in:
Accounts receivable (1,249,933) 347,845
Inventories (104,916) 165,754
Prepaid expenses and other (10,784) (24,995)
Other assets (40,065) --
Accounts payable 416,218 125,475
Accrued expenses and taxes payable (120,599) 402,677
Other liabilities 40,065 --
Deferred taxes -- (38,016)
----------- -----------
Net cash provided by operations 20,772 908,140
----------- -----------
Cash flows from investing activities:
Net purchase of short term investments (13,460) (57,402)
Purchase of property plants and equipment (479,520) (93,406)
Notes and loans receivable (303,696) (127,347)
Other assets (17,604) 1,860
Unrealized gain (loss) (21,127) 10,000
----------- -----------
Net cash used in investing (835,407) (266,295)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock -- 150,000
Proceeds from debt 1,239,484 1,234
Repayments of long term debt (597,986) (777,503)
----------- -----------
Net cash flow provided by (used in)
financing activities 641,498 (626,269)
----------- -----------
Net increase (decrease) in cash (173,137) 15,576
Cash, beginning of year 412,353 396,777
----------- -----------
Cash, end of year $ 239,216 $ 412,353
=========== ===========
<FN>
*Reclassified for comparative purposes.
</FN>
</TABLE>
See accompanying notes to the financial statements.
-15-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
- ----------------
The Company was founded in 1981 and prints for the textile and the gift wrap
paper industries. The Company sells its products nationwide through its direct
sales force and resellers. In addition the Company has a real estate division
that rents space in the factory building owned by the Company.
Name and brief description of the companies are as follows:
a. FLEXO-CRAFT PRINTS INC.
The Company is 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 APTS. INC.
These companies sell the products printed by Flexo Craft Prints Inc. They
each sell under their own labels and in their respective markets.
c. HARRISON REALTY CORP.
The 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.
The leases expire on June 30, 1999 and January 1, 2000, with options to
renew.
The minimum rental income from unaffiliated noncancelable leases are as
follows:
At November 30,
---------------
1999 $ 274,570
2000 14,517
---------
Minimum Rental Payments $ 289,087
=========
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<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Basis of Consolidation
----------------------
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.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Depreciation
------------
Depreciation of property plant and equipment is calculated on the
straight line method based on estimated useful lives of 31-1/2 years for
buildings and improvements and 10 to 40 years for machinery, equipment
and furniture. Maintenance and repairs are charged to expenses as
incurred.
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.
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 net change in the deferred
tax assets or liabilities.
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. Actual results could
differ from these estimates.
Concentrations of Credit Risk
-----------------------------
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.
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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
- ----------------------------------------------------
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 using the straight line method.
Earning (loss) per common share
-------------------------------
The consolidated financial statements are presented in accordance with
SFAS No. 128, "Earnings Per share." Basic earnings per common share are
computed using the weighted average number of common shares outstanding
during the period. Diluted earnings per common share incorporate the
incremental shares issuable upon the assumed exercise of stock options
and warrants.
NOTE 3 - INVENTORIES
- --------------------
Inventories as of November 30, 1998 and 1997
are summarized as follows:
1998 1997
---- ----
Raw materials $ 883,313 $ 606,762
Work-in-process 403,438 203,340
Finished goods 765,605 1,137,338
------------ ------------
$ 2,052,356 $ 1,947,440
============ ============
-18-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - INCOME TAXES
- ---------------------
The components of the deferred tax asset as of November 30, 1998 and 1997 are
summarized as follows:
1998 1997
---- ----
Tax credit carryforwards $ 83,787 $ 83,787
Net operating loss carryforwards 227,460 352,706
Allowance for doubtful accounts 86,530 86,530
----------- -----------
Gross deferred tax assets 397,777 523,023
Deferred tax liabilities:
Accelerated depreciation 192,422 183,621
----------- -----------
Total net deferred tax assets 205,355 339,402
Less: valuation allowance (205,355) (339,402)
----------- -----------
Net deferred tax assets $ - $ -
=========== ============
As of November 30, 1998, there are loss carryforwards for Federal income tax
purposes of approximately $669,000 available to offset future taxable income.
The carryforwards expire in various years through November 30, 2012. In
addition, there are investment tax credits of approximately $84,000 which expire
November 30, 1999.
Reconciliation between statutory tax rate and effective tax rate for the years
ended November 30, 1998 and 1997 is as follows:
1998 1997
---- ----
Income taxes computed at statutory rate $ 191,569 $ -
Utilization of loss carryforwards (191,569) -
Deferred Income Tax - (38,016)
--------- ----------
Provision for (Benefit) Inc. Taxes $ - $ (38,016)
========= ==========
-19-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5 - 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 400,000 shares of common stock each year at fair market value
per share for three years commencing November 30, 1998.
The Company has also entered into employment contracts for the services of three
key employees for a period of five years from May 1996, for an annual salary of
$50,000 each. The three key employees received options to purchase 200,000
shares each year for two years and 175,000 shares in the third year at fair
market value per share. The total number of options for each employee is
575,000.
NOTE 6 - 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 Jersey Tax Exempt Bonds which financed the
company's new factory building and 8 color press. Fleet Bank has a 1st lien on
the assets of Harrison Realty and 2nd and 3rd liens on 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 for the year ended November 30, 1997,
however a waiver from the bank was received.
NOTE 7 - 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>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7 - PENSION PLAN (continued)
- ---------------------------------
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 Years Ended November 30, 1998 and 1997:
- ---------------------------------------------------------------------
1998 1997
---- ----
1. Service cost $ 5,361 $ 13,983
2. Interest cost 18,536 15,037
3. Return on assets (1,664) 29,788
4. Net Amort. & deferral (13,747) 22,046
----------- ----------
Net pension cost $ 11,814 $ 21,278
=========== ==========
Reconciliation of Funding Status:
- ---------------------------------
1. Projected benefit obligation $ (271,043) $ (229,916)
2. Assets at fair value 238,854 215,000
---------- ----------
3. Funding status (32,189) (14,516)
4. Unrecognized net transition obligation 67,010 71,618
5. Unrecognized prior service cost - -
6. Unrecognized net (gain)/loss as of November 30 3,768 32,217
---------- ----------
7. Prepaid/(accrued) pension expense $ (1,476) $ 24,885
========== ==========
Additional Liability as of November 30, 1998 and 1997:
- ------------------------------------------------------
1. Projected accumulated benefit obligation $ 240,330 $ 212,204
2. Fair value of assets 238,854 215,000
----------- ----------
3. Projected funded status 1,476 (2,796)
4. Prepaid pension exp. 38,589 24,885
----------- ----------
5. Additional liability $ 40,065 $ 22,089
=========== ==========
-21-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8 - LONG TERM DEBT
- -----------------------
Long Term debt as of November 30, 1998 and 1997 is as follows:
1998 1997
---- ----
NJ EDA Tax Exempt Bond -
Interest at 72% of LIBOR rate -
(3.3% average rate) -
requires annual principal
payment of $400,000 or $405,000
on August, through maturity on
August 1, 2004 collateralized
by an 8 color printing press $2,425,000 $2,830,000
NJ EDA Tax Exempt Bond -
Interest at 72% of LIBOR rate
(3.3% average rate) - annual principal
payment of $110,000 or $115,000 2014 -
secured by a first mortgage on the
factory building 1,780,000 1,895,000
Mortgage Payable - Requires monthly
principal payments of $3,889 plus
interest at 9% and matures on November
30, 2002 - secured by a second
mortgage on the factory building 559,999 606,667
Capitalized lease - requires
monthly payments of $6,717 including
interest at 9%; matures June, 2001 -
secured by specific equipment 179,682 --
----------- ----------
Total 4,944,681 5,331,667
Less: current portion 628,711 555,001
----------- ----------
$4,315,970 $4,776,666
=========== ==========
Escrow accounts have been established for accumulating the annual principal
payments of the NJ EDA obligations as defined. These fund have been classified
as restricted cash on the balance sheet.
-22-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8 - LONG TERM DEBT (continued)
- -----------------------------------
Debt principal maturities for the next five years are approximately as follows:
Year Ending
November 30,
------------
1999 $ 629,000
2000 635,000
2001 601,000
2002 940,000
2003 510,000
Thereafter 1,630,000
------------
$ 4,945,000
============
NOTE 9 - LEASING ARRANGEMENTS
- -----------------------------
The Company and its subsidiaries lease equipment under various non-cancelable
operating leases.
Future minimum payments under these lease obligations for subsequent years are
approximately as follows:
Year Ending
November 30, Amount
------------ ------
1999 $ 192,000
2000 125,000
2001 81,000
2002 35,000
2003 26,000
---------
$ 459,000
=========
NOTE 10 - NOTE PAYABLE
- ----------------------
The Company has a $2,500,000 line of credit, of which $2,142,144 has been drawn
as of November 30, 1998. The Company may borrow up to 80% of its qualified
accounts receivable and 50% of raw materials inventory.
The note is secured by the accounts receivable and short-investments of
$400,000. Interest is computed at 2.6% above the 30 day commercial paper rate.
-23-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - INDUSTRY SEGMENT INFORMATION
- --------------------------------------
Industry segment information for the years ended November 30, 1998 and 1997 is
as follows:
Sales to unaffiliated customers: 1998 1997
------------ ------------
Printing $ 13,670,258 $ 11,660,251
Real estate 379,491 347,412
------------ ------------
Total $ 14,049,749 $ 12,007,663
============ ============
Operating income (loss)
Printing $ 802,021 $ (290,035)
Real estate 84,037 28,045
------------ ------------
Total $ 886,058 $ (261,990)
============ ============
Identifiable property, plant and equipment:
Printing $ 10,474,224 $ 10,077,604
Real estate 5,274,708 5,191,808
------------ ------------
Total $ 15,748,932 $ 15,269,412
============ ============
Capital expenditures:
Printing $ 396,620 $ 6,927
Real estate 82,900 86,479
------------ ------------
Total $ 479,520 $ 93,406
============ ============
Depreciation
Printing $ 369,853 $ 347,177
Real estate 146,888 145,100
------------ ------------
Total $ 516,741 $ 492,277
============ ============
-24-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND WHOLLY OWNED SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 12 - SHORT TERM INVESTMENTS
- --------------------------------
The company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management determines the appropriate clarification
of its investments at the time of purchase and reevaluates such determination at
each balance sheet date.
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 debt
securities are reported at amortized cost. Realized gains and losses are
included in other income (expense). The cost of securities sold is based on the
specific identification method.
NOTE 13 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -----------------------------------------------------------
Cash paid during the years ended November 30, 1998 and 1997 is as follows:
1998 1997
---- ----
Interest $ 313,150 $ 423,219
========= =========
NOTE 14 - NOTES AND LOANS RECEIVABLE
- ------------------------------------
Loans receivables as of November 30, 1997 consists of amounts due from officers
which were due on demand with interest at the prime lending rate. These loans
were repaid in 1998 except for $17,000.
Notes receivables as of November 30, 1998 consists of amounts due from officers
which are repayable in four annual installments of $103,510 plus interest at 8%
per annum commencing November 20, 1999.
NOTE 15 - 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:
-25-
<PAGE>
LASER MASTER INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15 - STOCK OPTIONS (continued)
Option Weighted Average
Shares Exercise Price
------ --------------
Outstanding, December 1, 1996 1,920,000 $ 1.05
Granted 345,000 1.05
Exercised -- --
Canceled (100,000) (1.00)
--------- --------
Outstanding, November 30, 1997 2,165,000 1.05
Granted 3,100,000 .31
Exercised -- --
Canceled (2,165,000) (1.05)
---------- --------
Outstanding, November 30, 1998 3,100,000 $ .31
========== ========
A summary of options outstanding as of November 30, 1998 is as follows:
Weighted Average
Exercise Remaining Number of Shares
Number Outstanding Price Contractual Life Exercisable
- ------------------ ----- ---------------- -----------
3,100,000 $ .31 4.7 1,175,000
========= ====== ==== =========
Warrants to Purchase Common Stock
- ---------------------------------
At November 30, 1998, the Company had outstanding warrants as follows:
Exercise Expiration
Number 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. (See Note 5).
-26-
<PAGE>
LASER MASTER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 16 - EARNINGS (LOSS) PER SHARE INFORMATION
- -----------------------------------------------
The calculation of basic and diluted earnings (loss) per share for the years
ended November 30, 1998 and 1997 is as follows:
1998 1997
---- ----
Net income (loss) available to
common share owners $ 563,438 $ (573,484)
============= =============
Average shares outstanding (a) 10,615,380 10,494,990
Dilutive securities
Stock options 65,069 -
Warrants (b) - -
------------- -------------
Average shares outstanding
assuming dilution (c) $ 10,680,449 $ 10,494,990
============= =============
(a) Used to compute basic earnings (loss) per share.
(b) Excluded because exercise price exceeds market value.
(c) Used to compute diluted earnings per share.
Excluded from 1997 computation was 2,165,000 of stock options and 800,000 of
warrants which would be antidilutive.
-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, thereu nto duly authorized.
LASER MASTER INTERNATIONAL INC.
BY /S/ MENDEL KLEIN
__________________________
Mendel Klein, President and
Chief Financial Officer
Dated: March 11, 1999
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 t he dates indicated.
/S/ MENDEL KLEIN
- ----------------------
Mendel Klein, Director
March 11, 1999
/S/ LEAH KLEIN
- --------------------
Leah Klein, Director
March 11, 1999
/S/ MIREL SPITZ
- ---------------------
Mirel Spitz, Director
March 11, 1999
- 30 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 239,216
<SECURITIES> 476,085
<RECEIVABLES> 3,741,937
<ALLOWANCES> 254,500
<INVENTORY> 2,052,356
<CURRENT-ASSETS> 6,438,361
<PP&E> 15,748,932
<DEPRECIATION> 6,075,330
<TOTAL-ASSETS> 16,743,567
<CURRENT-LIABILITIES> 4,215,724
<BONDS> 4,315,970
<COMMON> 5,530,566
0
0
<OTHER-SE> 2,641,242
<TOTAL-LIABILITY-AND-EQUITY> 16,743,567
<SALES> 13,670,258
<TOTAL-REVENUES> 14,049,749
<CGS> 10,218,974
<TOTAL-COSTS> 10,514,148
<OTHER-EXPENSES> 2,649,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 375,238
<INCOME-PRETAX> 563,438
<INCOME-TAX> 0
<INCOME-CONTINUING> 563,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563,438
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
