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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A-1
AMENDMENT NO. 1
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
(Mark One) For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-11933
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LASERTECHNICS, INC.
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(Name of small business issuer in its charter)
Delaware 85-0294536
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5500 Wilshire Avenue, N.E., ALBUQUERQUE, NEW MEXICO 87113
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number. (505) 822-1123
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock. Par Value $.01 Per Share
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(Title of class)
The Company's securities are registered with NASDAQ.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements
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incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenue for the year ended December 31, 1995 was $13,429,731. The
aggregate market value of the issuer's voting stock held by non-affiliates on
March 18, 1996, calculated using the last transaction price was $22,742,325. The
number of shareholders on March 18, 1996 was 1,547.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issurer's classes of
common equity, as of the latest practicable date.
At March 18, 1996, there were 29,603,157 shares of voting Common Stock and
2,249,842 shares of non-voting Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report, or incorporated by reference in Part III
hereof.
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
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Table of Contents
PART I Page
Item 1. Business.................................... 4
Item 2. Properties................................... 12
Item 3. Legal Proceedings............................ 12
Item 4. Submission of Matters to a Vote of
Security Holders............................. 13
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.............. 13
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 14
Item 7. Financial Statements and Supplementary Data.. 22
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... 22
PART III
Item 9. Directors and Executive Officers of the
Registrant................................... 22
Item 10. Executive Compensation....................... 25
Item 11. Security Ownership of Certain Beneficial
Owners and Management........................ 25
Item 12. Certain Relationships and Related
Transactions................................. 25
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................... 26
SIGNATURES.................................................. 30
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Part I
Item 1. Business
GENERAL DEVELOPMENT
Lasertechnics, Inc., a Delaware corporation, was formed in October 1981.
Lasertechnics, Inc., together with its wholly-owned inactive subsidiary,
Quantrad Corporation ("Quantrad"),its 100% owned subsidiary created in 1995.
Lasertechnics Marking Corporation ("LMC"), and its 92% owned subsidiary, Sandia
Imaging Systems Corp. ("SIS"), all Delaware corporations, is hereinafter
referred to as the "Company," unless the context otherwise requires. Quantrad is
currently in the process of dissolution. In early 1995, the Company became a
holding company with two independent operating units. This was accomplished by
placing the Company's marking business into LMC.
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SIS, formed in August 1993, distributes, integrates and sells multi-station card
printers and computer software systems for identification cards. SIS has awarded
options to directors and employees that, if and when vested and exercised, will
reduce the Company's ownership to approximately 85%. SIS also has a 100% French
subsidiary, Sandia Imaging Systems Europe, S.A. ("SISE"). Printis S.A.R.L., a
wholly owned subsidiary of SISE, was merged into SISE in June 1995.
LMC is engaged in the design, manufacture and sale of laser marking systems for
use in marking a variety of products and containers. The Company expects to hold
over 80% of the equity of LMC after granting its management the ability to own a
significant stake in their business, as has been granted management of SIS, and
believes the ownership by the management will further strengthen the focus of
each team.
The Company accounts for its two businesses as separate business segments.
CURRENT PRODUCT LINES
MARKING
Laser marking products, instruments and related service accounted for
approximately 77% of 1995's consolidated sales.
Laser Markers. LMC designs, manufactures and markets laser marking systems that
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are used by manufacturers to place lot numbers, expiration dates and other
information on diverse products and packages. Since inception LMC has steadily
moved toward providing CO/2/ (carbon dioxide) gas laser markers that are easily
integrated into a wide range of sophisticated and demanding high speed product
packaging facilities. The Blazer 6000/TM/ is a water cooled CO/2/ pulsed gas
lasers used in the on-line marking of industrial and consumer products. In 1995,
LMC introduced the BlazerJet/TM/ dot-matrix coders. BlazerJet/TM/ offers a
higher degree of programmability to solve a greater number of packaging
problems. A large number of codes can be stored and called up for use with a few
simple key strokes. BlazerJet/TM/ units were shipped in the third quarter of
1995 and LMC expects to make shipments of production version BlazerJets/TM/
throughout 1996. LMC's marking systems, typically, solve problems related to
four main product identification needs:
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Perishables. Perishables such as food, dairy and beverage products require a
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variety of date information to provide accurate product freshness information.
These products are manufactured in facilities that demand impeccable cleanliness
and are characterized by extremes in temperatures and stringent wash-down
requirements. LMC's products can tolerate a wide range of temperature
conditions. Further, they are enclosed in a rugged stainless steel enclosure
with smooth, easily cleaned surfaces, allowing them to handle the harshest
demands of wash-down routines. Date information is dependably provided with
simple, manually changed stencil systems, automated programmable datecode
changers and special software.
Traceability. Product traceability concerns, especially in the medical and
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pharmaceutical industries, require variable batch information to meet ever-
increasing government regulations, thereby enhancing the producer's ability to
limit and defend its liability in consumer product liability claims. In such
packaging environments, reliability of the marker products is especially
important. Product identification marking in the form of batch numbers,
serialized part numbers, logos or corporate names are easily handled by LMC's
products. In addition, laser marks are permanent because they burn the mark into
a thin surface layer of the product or package.
High Throughput. High speed packaging lines cannot use the slower contact
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methods for identifying products. The Company's Blazer 6000/TM/ can operate at
speeds exceeding 1800 marks per minute and easily provide legible information on
fragile and/or thin materials with irregular surfaces or limited space. The
Blazer marks so fast (about one-millionth of a second per mark) that it has
proved possible to mark at the highest speeds required by packaging equipment
manufacturers with which the Company has integrated the Blazer system. High line
speeds are accommodated by the Blazer's simple computer-based controller that
interfaces easily with the most modern packaging line control equipment. Low
speed lines are more ideal for the company's BlazerJet/TM/ product.
Environmental Concerns. Packagers seeking a product identification system that
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must eliminate the problems inherent with expensive and hazardous inks and
solvents are increasingly using lasers. The solvents used in many industrial ink
jet coders are potentially harmful to the environment as well as the health of
personnel who handle them. In addition, many inks used
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in marking contain solvents which are classified as hazardous substances by the
EPA and, as such, are becoming more and more expensive to handle as government
regulations become more stringent. The Company's products neither use nor
produce hazardous waste substances as they consume nothing but electricity,
water and non-toxic laser gas. Thus the Blazer and BlazerJet/TM/ offer a safe,
environmentally clean and highly reliable product marking alternative to ink jet
coding.
The Company believes that a worldwide move by packagers to laser marking places
it in a unique position to leverage its position as the largest U.S.
manufacturer of high speed, laser-based product coding equipment.
Dependence on Sales. In 1994, the Company sold $7,296,000 of Blazer products and
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service to Anheuser-Busch as a result of a single large order received in 1993.
While the Company continues to provide parts and service to Anheuser-Busch, the
completion of this major order in the first quarter of 1995 resulted in a
decrease of approximately $5,125,000 in overall sales to Anheuser-Busch of laser
marking products for the year 1995.
IMAGING
Photo Quality Plastic Card Printers. SIS offers a family of plastic card
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printers. During 1995, SIS added four-, five-, six-and seven-station models to
its line of Mono and Multi-station plastic card printer line. SIS has the
ability to offer customized printers for identification and credit card
applications. In the fourth quarter of 1993 SIS shipped the first production
product in the plastic card printer family. Plastic card products accounted for
approximately 55% and 80% of SIS's sales in 1994 and 1995 respectively. These
sales occurred in over 18 countries around the world. These printers were sold
to organizations that need to instantly generate or batch process
photographically-customized ID/security and credit cards, such as health care
providers, credit card companies, banks, government agencies and immigration
authorities. The plastic card printers accommodate cards of any size and shape
defined by the ISO (International Standards Organization) card standard. These
can be any kind of PVC-based card available today, including plain, magnetic
striped, smart (i.e., with on-card microprocessors) or optical storage.
DataGlyphs. The newest product offering from SIS is DataGlyphs. SIS has the sole
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worldwide rights granted by Xerox Corporation
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for the sale of DataGlyphs, a portable database symbology that can be used on
pocket sized media, including identification cards. SIS has developed a total
card security system called the "Chipless"/TM/ Smart Card Verification System,
that combines DataGlyph encryption and encoding technology together with
Biometric verification software (the BioGlyph software system), which the
company offers through re-seller arrangements. SIS has also developed a
customized DataGlyph reader called GlyphScan/TM/ to serve as the scanning device
for DataGlyph applications. The DataGlyph system sold together with the plastic
card printer family, form a unique total solution for the printing, encoding,
securing and verifying functions of card identification applications. The
"Chipless"/TM/ Smart Card Verification System can address a variety of
applications for financial, immigration and customs, visas, passports, drivers
licenses, national identification programs, government entitlement programs,
health-care industry and other ID badge applications.
Digital Image Recorder (DIR). The DIR is a high resolution laser based, gray-
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scaled printer. During 1994 and 1995 the markets for DIR were not materializing
as the Company expected. As a result, sales of DIR printers decreased
substantially from approximately $825,000 in 1993 to $194,000 in 1994. There
were no significant DIR printer sales in 1995. At the end of 1994 SIS determined
that the DIR printer had reached the end of its product life cycle and wrote
down the value of DIR inventory at December 31, 1994 by approximately $552,000.
In November 1995 the Company sold the DIR line of printers for $325,000 and a
10% royalty for two years. The 10% royalty will extend an additional year if the
total royalty received during the two-year period is less than $200,000.
SNAPSHOT. SnapShot is a multi-function software package for IBM PCs which
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supports reception, transmission storage and manipulation of photographic-
quality images. During 1994 the market for SnapShot did not materialize as
expected by SIS. As a result, SIS wrote down the value of capitalized software
costs and inventory by approximately $587,000 at the end of 1994. In 1995 there
were no sales of this product line and as a result, SIS informed all of its
customers in the fourth quarter of 1995 that it will no longer support this
product line.
PRODUCT DEVELOPMENT
Marking. In October 1993 the Company's distribution agreement
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8
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with Lumonics Hull terminated. Under the terms of the contract, LMC was free to
develop products that might replace those formerly purchased from Lumonics hull.
LMC developed the BlazerJet/TM/ to replace the Xymark laser marking system. This
new marker emulates the action of an ink jet system by forming dot matrix
characters on moving product. BlazerJet/TM/ utilizes technology licensed from
United Technology Optical Systems and DeMaria Electropic Systems and is the
first single-laser system of this type to bring the laser tube to the mark
point. LMC introduced a prototype of its new BlazerJet/TM/ laser marking system
in November 1994. The initial shipments of BlazerJet/TM/ began to select
customers in the fourth quarter of 1995.
Imaging. SIS made several technological enhancements of its current generation
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plastic card printer, which increased functionality and reduced manufacturing
costs. Because of the specialized requirement of two significant customers, SIS
has delayed development of its new generation of plastic card printers. The
development efforts employed on these two major contracts will be incorporated
into its new generation. SIS will continue the development of its new generation
in the second quarter of 1996 which will further enhance the Company's position
as an innovator in this emerging market. In addition, the Company will continue
to develop the DataGlyph product line which complements the plastic card printer
line.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures were $2,910,346, $3,577,209, and $844,339
for the years 1995, 1994, and 1993 respectively.
COMPETITION
Laser Marking. The laser marking business is very competitive because LMC's
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laser marking products compete with conventional ink and embossing marking
equipment. Many of LMC's competitors (both laser and ink jet companies) have
considerably greater financial, technical and marketing resources than the
Company. LMC's competitors include Videojet Systems Int'l., Alltec GmbH, Image,
Domino, Willett and Lumonics, among others.
Imaging. SIS competes with a number of large hardware and software companies.
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The plastic card printers compete with similar products from DataCard, Atlantek,
Toppan, Dai Nippon Printing and others.
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Competition is expected to intensify in both the laser marking and imaging
industries as technological advances in both industries are made and become more
widely known.
MANUFACTURING AND SUPPLIERS
Approximately one-half of the LMC employees are engaged in manufacturing
activities. Both companies depend upon a number of outside suppliers for
components for their products.
In the second half of 1994 SIS signed a manufacturing agreement with Singapore
Precision Industries, PTE. LTD (SPI). During 1995 SPI manufactured several
plastic card printers and print modules. However, because of a market shift from
Mono stations to Multi-stations, SIS discontinued all production in Singapore in
the third quarter of 1995 and SIS is in negotiations with SPI to terminate the
manufacturing agreement. All manufacturing is currently done by PolyPrint in
Besancon, France.
MARKETING
Laser Marking: LMC derives the major portion of its revenues from the sale of
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laser marking systems. LMC currently markets its products in the Americas,
Western Europe, and the Pacific Rim countries through independent sales
representatives, who are paid on a commission basis, and distributors who have
OEM pricing arrangements. LMC advertises its products by direct mailings of
sales brochures, advertising in trade journals, and demonstrations at trade
shows and conventions.
Imaging: SIS markets in several parts of the world. In addition to the normal
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marketing channels through the use of OEMs, Value Added Resellers (VARs) and
systems integrators, SIS is also marketing directly to the high volume card
printing market. SIS believes it has a competitive advantage in the Multi-
station high volume card printing market.
EXPORT SALES
Refer to Note 15 of the Notes to the Consolidated Financial Statements of
December 1995, 1994, and 1993.
BACKLOG
The company had the following backlog of firm orders:
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<TABLE>
<CAPTION>
Year End Year End Year End
1995 1994 1993
<S> <C> <C> <C>
Total $3,442,000 $3,886,000 $8,094,000
</TABLE>
The booked backlog at year-end 1995 will be liquidated during 1996.
PATENTS
The Company is licensed under certain patents related to the lasers used by it
in its markers. These patents expire at various dates through 2005. The Company
also owns and has the worldwide distribution rights to three French patents
covering the mechanical parts and assembly of the plastic card printer family of
dye sublimation photo-ID printers. In 1995 the Company registered the trade
names "Chipless"/TM/ Smart Card and "GlyphScan"/TM/. "The Clean Ones"/TM/ and
"Inkless InkJet"/TM/ were registered in 1994. None of the Company products,
however, is covered by exclusive controlling patent rights so as to preclude the
manufacture of competitive products by others.
EXECUTIVE OFFICERS, DIRECTORS AND OTHER PERSONNEL
As of December 31, 1995, the Company employed 108 people. SIS employed 27, SIS-
Europe employed 17, LMC employed 62 and the holding company employed 2. For
information with respect to the executive officers and directors of
Lasertechnics, reference is made to Item 9 herein.
Because of the specialized nature of their businesses, both LMC and SIS are
dependent upon the efforts of their current officers and key employees and upon
their ability to attract and retain technologically qualified personnel,
particularly highly qualified engineers in the areas of laser and imaging
technology. There is intense competition for qualified personnel in the laser
marking and imaging industries, including competition from companies with
substantially greater resources than the Company. There can be no assurance that
LMC and SIS will be successful in recruiting or retaining personnel of the
requisite caliber or in the requisite numbers to enable them to conduct their
businesses as proposed. To do so, LMC and SIS may have to pay such personnel
higher salaries or provide more lucrative incentives than their competitors.
GOVERNMENT REGULATION
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All laser manufacturers in the United States, including LMC are subject to the
Laser Radiation Safety Regulations of the Center for Devices and Radiological
Health ("CDRH") of the United States Food and Drug Administration. These
regulations have not had, nor are they expected to have, a material effect on
the Company's financial condition, results of operations or competitive
position.
ENVIRONMENTAL FACTORS
There has been, and it is anticipated that there will continue to be, no
material effect upon the capital expenditures, earnings, or competitive position
of LMC or SIS due to compliance with existing provisions of federal, state and
local law regulating the discharge of material into, or otherwise relating to
the protection of, the environment.
Item 2. Properties
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LMC manufactures laser markers in a 20,000 square foot facility in Albuquerque,
New Mexico, which it occupies under a long-term capital-lease agreement. For
further information with respect to commitments on the properties of the
Company, reference is made to Notes 5 and 6 to the Consolidated Financial
Statements contained in Item 7 herein. LMC manufactured DIR printers for SIS in
a 2,100 square foot facility in Albuquerque, New Mexico which it occupied under
a rental agreement, which ended in April, 1995.
SIS leases a 14,508 square foot facility in Carrollton, Texas used for
administrative, engineering and sales offices. This facility is rented under a
three year agreement. In addition, SIS rents two facilities in Paris, France and
sales offices in Singapore, and Oxford, England. The approximately 2,700 square
feet of French facilities under two and three year agreements, are used to house
the administrative, engineering and sales functions of SIS-Europe. The Singapore
and Oxford, England sales offices are each a single office with shared support
services such as secretarial, telephones and conferencing. These offices are
under short term (six month or less) rental agreements.
Item 3. Legal Proceedings
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Refer to Note 12 of the Notes to the Consolidated Financial
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Statements of December 1995, 1994, and 1993.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
The Company held a special meeting of stockholders at its office at 5500
Wilshire Avenue, NE, Albuquerque, New Mexico on July 28, 1995. The purpose of
the meeting was to amend the Company's Certificate of Incorporation so as to (i)
authorize the issuance of up to 10,000,000 shares of preferred stock,
convertible to Common Stock on a one-share to one-share basis, with such
designations, preferences, rights and limitations as are permitted in the
amendment and as are approved, from time to time, by the Board of Directors, and
(ii) to increase the number of authorized shares of Non-Voting Common Stock from
5,000,000 to 8,500,000 and (iii) to decrease the number of authorized shares of
voting Common Stock from 45,000,000 to 41,500,000. The amendment was approved.
Also see Note 17 of the Notes to the Consolidated Financial Statements of
December 1995, 1994, and 1993.
Part II
Item 5. Market for Lasertechnics Common Equity and Related
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Stockholder Matters.
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The table below sets forth high and low bid prices for the Common Stock during
each of the periods indicated, as reported by the National Association of
Securities Dealer Automated Quotation System. Such quotations reflect inter-
dealer prices, without retail mark-up, markdown, or commission, and may not
necessarily represent actual transactions. The Company's stock trades under the
symbol LASX.
<TABLE>
<CAPTION>
1994 Bid Prices 1995 Bid Prices
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Calendar Period Low High Low High
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<S> <C> <C> <C> <C>
First Quarter $ 31/32 1-17/32 31/32 1-5/8
Second Quarter $ 15/16 2-17/32 1-1/16 1-5/8
Third Quarter $ 1-3/8 2-5/8 1-13/16 2-3/8
Fourth Quarter $ 1-1/8 2-1/32 1-9/16 1-7/8
</TABLE>
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The Company has not paid any dividends on its Common Stock. While there are no
explicit restrictions in debt instruments or otherwise on the Company's ability
to declare dividends, the Company's obligation to repay interest on and
principal of indebtedness limits the cash available to pay dividends. See
"Liabilities and Stockholders' Equity" section in the Consolidated Financial
Statements Consolidated Balance Sheets. In addition, the payment of dividends is
also limited by certain financial covenants by the Company contained in bonds
issued in connection with the 25 year capital lease of the Company's
headquarters, which requires the Company to maintain a current ratio of at least
1 to 1 and a debt-to-equity ratio of less than 3 to 1. The Company failed to
meet the debt-to-equity ratio at December 31, 1995 and is not now in compliance
with this ratio. The payment of any dividends would further reduce the Company's
ability to comply with such ratios. For the foreseeable future, it is
anticipated that cash dividends will not be paid to holders of Common Stock.
Item 6. Management's Discussion and Analysis of Financial
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Condition and Results of Operations.
-----------------------------------
OVERVIEW
SEPARATE BUSINESS UNITS. Late in 1993 the Company announced that it would try to
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be in a position to arrange for the initial public offering of its imaging
business segment, Sandia Imaging Systems Corp. (SIS) during the second half of
1994. While it is still the Company's intention to separate the two businesses,
the timing will be dictated by the operating and financial performance of the
two units. It is expected that the separation should be possible within the next
12 to 24 months. The summarized financial data for the two businesses appears in
Note 17 of the Notes to the Consolidated Financial Statements as of December 31,
1995, 1994, and 1993.
NET RESULTS
The consolidated net loss for 1995 was $9,094,503 a 24.8% increase over the 1994
consolidated net loss of $7,286,956. The 1994 net loss was an increase of
$5,241,886 over the 1993 net loss of $2,045,070. Sales decreased from
$15,856,209 in 1994 to $13,429,731 in 1995. In 1993 sales totalled $8,028,010.
The gross profit percentage decreased to 31.8% in 1995 from 32.7% in 1994 and
35.2% in 1993.
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The loss from operations increased from $2,109,769 in 1993, to $7,192,809 in
1994 and $8,130,213 in 1995. Other income (expense) declined from a net income
of $64,699 in 1993 to a net expense of $94,147 in 1994 and $964,290 in 1995.
The increase in the net loss for 1995 resulted from a reduction in sales and
gross profit amounts. Expenses in 1995 remained essentially unchanged from the
1994 expenses; however, 1994 expenses included a $1,148,275 restructuring
charge.
The net loss of $7,286,956 for 1994 increased $5,241,886 from the net loss of
$2,045,070 reported in 1993. This increased loss resulted from a $7,439,483
increase in expenses, including the 1994 restructuring charge, compared to the
1993 expense level, partially offset by an increase in the gross profit of
$2,356,443.
Expense figures for the 12 months ended December 31, 1995 include for the
Lasertechnics Marking Corporation $270,000 of allocated corporate expenses, and
for SIS $630,000 of allocated corporate expenses.
At the end of 1994, the Company recorded a restructuring charge totalling
$1,148,275 to reflect adjustments to the DIR, SnapShot and plastic card printer
inventories. In November 1995 the Company sold the DIR product line.
At December 31, 1995 the Company's backlog was $3,442,000, a 12.9% decrease from
year end 1994.
SEGMENT RESULTS
MARKING
The segment operating loss improved 53% in 1995 to $195,374 compared to the
operating loss of $416,016 in 1994. The 1994 operating loss reflected a 41%
improvement from the 1993 operating loss of $710,029.
Segment sales of $10,308,154 in 1995 declined 14% or $1,655,245 from 1994 sales.
This reduction was primarily due to a decrease in the domestic systems sales due
to the completion of the $7.5 million order from Anheuser-Busch.
Marking sales in 1994 surpassed 1993 sales by 94% due to a
significant number of shipments made on the large Anheuser-Busch
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order.
In 1995 the marking segment gross profit dollars decreased from 1994 by 8% while
the gross profit percentage increased from 34% in 1994 to 37% in 1995. The gross
profit changes resulted primarily from the completion of a significant lower
margin system order in 1994 and an increase in the higher margin service sales
in 1995.
In 1994 the marking segment gross profit increased by 86% from 1993, while the
gross profit percentage declined from 36% to 34%. Accounting for these changes
was the shipment during 1994 a large lower margin single order, the significant
reduction in the low margin Xymark sales and recall costs related to the
Anheuser-Busch order.
Segment operating expenses totalled $3,979,055, $4,540,085 and $2,925,597 in
1995, 1994 and 1993 respectively.
The 12% decrease in operating expenses from 1994 to 1995 resulted from the
reduction in commissions due to the lower sales and from the completion in the
prior year of the major research and development efforts on the new
BlazerJet/TM/ system.
The significant prototype development costs of the BlazerJetTM laser marking
system combined with the commissions paid on the significantly higher sales of
laser markers, the increase in international sales efforts for the entire year
and the costs for the implementation of a Total Quality Management Program,
increased the total segment operating expenses by $1,614,488 in 1994 over the
1993 expense of $2,925,597.
IMAGING
The imaging segment loss from operations increased 17% to $7,934,839 in 1995,
following a $5,376,909 increase in the operating loss in 1994 compared to 1993.
These changes are a result of a 54% decrease in the gross profit level in 1995
and more importantly, a significant increase in the amount of operating expenses
from 1994 to 1995 and from 1993 to 1994.
Imaging segment sales decreased 20% in 1995 compared to 1994 primarily because
of the discontinuation of production of Digital Imaging Recorder (DIR) printers
at the end of 1994. An increase in the plastic card printer sales partially
offset the effects of the DIR sales reduction.
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The imaging sales increased $2,041,141 in 1994 over sales of imaging products in
1993 due to the availability of the dye sublimation plastic card printers for
the full 1994 year.
The imaging segment gross profit decreased from 27% in 1994 to 16% in 1995 due
to the larger than expected OEM sales of plastic card printers which carry a
lower selling price, and also because of the sale of specific designed plastic
card printers which have a higher cost than standard models.
The gross profit percentage for the imaging segment declined from 33% in 1993 to
27% in 1994 because of lower sales prices on DIR's as a result of competitive
pricing and also due to a larger portion of plastic card printer sales being
made to OEMs, which carry a lower selling price.
Segment operating expense increased 26% in 1995 to $8,444,511 from the
$6,690,461 operating expense in 1994. This increase of $1,754,050 was the result
of the continuing support of the expanded sales and marketing efforts, which
included the opening of several offices, the establishment of a customer service
department, and the absorption of a portion of the costs to form and operate the
Lasertechnics holding company structure.
Research and development expenses declined 5% from the 1994 level. Additional R
& D costs were incurred in 1995 for overall manufacturing development efforts
and for specific customer applications relating to plastic card printer sales.
These increased R & D costs however, were more than offset by the termination of
the development for the SnapShot and DIR product lines.
Imaging operating expenses increased 232% in 1994 compared the 1993. The
increased expenses were due to the full year effect in 1994 of the creation of
SIS Europe compared to three months of 1993 and the full year effect of the
imaging G & A expenses compared to five months of 1993. Increased expenses also
resulted from the establishment of sales offices in Singapore, England and the
U.S. and the addition of personnel related to the new sales offices. Research
and development expense increased in 1994 due to the ongoing development
activities for the plastic card printers and the write-off of the SnapShot
capitalized software development costs. Printis development activity was also
included for nine months of 1994 when it became a 100% owned subsidiary.
17
<PAGE>
OTHER INCOME AND EXPENSE
Other income/(expense) was $64,699 in 1993, ($94,147) in 1994, and ($964,290) in
1995. There was virtually no interest expense in 1993 due to the existing debt
being converted to equity. Other expense in 1994 was comprised of interest
expense and a nominal amount of interest income. Expenses related to the sale of
debentures and short term debt account for the majority of other expenses in
1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has utilized the proceeds from a number of public
and private sales of its equity securities, the exercise of options and warrants
and more recently, convertible debt from shareholders to meet its working
capital requirements. An increase of $465,299 in the cash and cash equivalents
at December 31, 1995 from December 31,1994 was the result of the sale of
preferred stock and the sale of convertible debentures. The majority of the
$12,879,323 proceeds from financing activities was raised from the sale of
$7,000,000 in debentures and other private borrowings. Operating activities used
net cash of $10,898,506 primarily for the increase in inventory, amortization of
financing discount and issuance costs, and prepaid expenses. The increase in
accounts receivable at December 31, 1995 compared to December 31, 1994 is due to
a disputed balance with a customer and heavy shipments during the last month of
1995. Inventory at December 31, 1995 increased by $1,149,528 from December 31,
1994 due to a buildup in the new BlazerJet/TM/ inventory for LMC plus SIS
inventory for planned sales increase in 1996. Investing activities used net cash
of $995,518 for capital expenditures.
The Company's operations in 1995 continued to generate losses as the result of
continued research and development. Looking for long-term growth and
profitability, the Company has either sold or discontinued certain product lines
which were not profitable.
The Company's business plan for 1996 is based principally upon significant
increases in existing imaging products and the successful introduction of new
products in both of its business segments, significant manufacturing cost
reductions and reductions in research and development expenditures, and an
improvement in gross margin. Because of the anticipated timing of new product
introductions and manufacturing cost reductions,
18
<PAGE>
together with the necessity to prepay all or a portion of the balance of, and
achieve compliance with, the covenants included in its lease obligation
financing, the Company will require additional external financing to meet its
1996 requirements. The Company's 1996 business plan forecasts cash needs in
excess of results from operations for 1996. The Company projects a positive cash
flow after the first quarter of 1996 due to an increase in sales. Such forecast
is predicated on a number of assumptions and decisions that are subject to
continuing review by management, and may change at any time.
As of March 22, 1996, management has raised cash from the sale of $5.5 million
in 10% convertible debentures. These debentures are convertible into common
stock at $2.00 per share, or at 85% of the average 5 day closing bid price for
the five trading days immediately prior to the conversion date. Debentures are
placed in denominations of at least $50,000 and integral multiples of at least
$50,000 in excess thereof. Debenture coupon accrues at a rate of 10% per annum
and is payable in stock upon conversion. Debentures can be converted into common
stock in increments of 1/4, 1/4/, 1/4, and 1/4 beginning the 60th, 90th, 120th
and 150th days after the final closing. At the end or 3 years from the closing
date, all debentures will automatically be converted into common stock.
Debenture holders shall receive warrants equal to 20% of position held in shares
at a strike price of $2.00, 5 year term.
Lasertechnics may force conversion of any or all of the debentures at a price
that would give the investor the same return as it would have received had it
converted on the day the redemption occurs or may call any or all of the
debentures in increments of no less than $1.5 million at the following prices
and times:
130% of stated value 12 months & 1 day to 18 months
125% of stated value 18 months & 1 day to 24 months
120% of stated value 24 months & 1 day to 30 months
115% of stated value 30 months & 1 day to 36 months
The shares of common stock issuable upon their conversion have not been
registered under the Securities Act of 1933 as amended and may not be offered or
sold in the United States during the restricted period.
Based on cash flow projections, the money will allow the Company to operate
through the first quarter when sales are expected to
19
<PAGE>
increase. If the Company's performance over the next 12 months is significantly
below management's business plan, it may be necessary to either reduce or stop
certain product development programs, reduce its sales and marketing efforts,
dispose of assets or undertake other actions as may be appropriate. The
existence of such uncertainties creates substantial doubt about the Company's
ability to continue as a going concern.
In 1983, the City of Albuquerque issued 8% tax-exempt industrial development
revenue bonds in connection with a 25-year capital lease of the Company's
headquarters facility. The principal amount outstanding as of December 31, 1995
was $1,113,768 which is shown as a current liability. Pursuant to its agreement
with the City of Albuquerque, Lasertechnics is required to maintain a current
ratio of at least 1 to 1 and a debt to equity ratio of not more than 3 to 1. At
December 31, 1995, the Company's current ratio was 1.5 to 1, and its debt to
equity ratio was 4.0 to 1 which put the Company in violation of the agreement.
The Company is not now in compliance with such requirements and management
believes that absent an additional equity investment, it will not be able to
come into compliance. The Company has a prepayment agreement with the bondholder
whereby the bondholder agreed to waive its right to call the bond for redemption
through April 1, 1996, provided the leasee timely pays the base prepayment and
an additional prepayment amount of $8000 per month. All such payments were made
on a timely basis. The leasee has met with the bondholder and anticipates an
extension or similar agreement for a future period. If the Company is not able
to come into compliance, it will be necessary to obtain additional equity
financing or refinance the capital lease obligation amounting to $1,113,768 as
of December 31,1995. While management believes that if required it will be able
to obtain such refinancing, there can be no assurances that the Company will be
able to do so. Failure to comply with such requirements could result in
relocating to other facilities and the associated disruption of the business, as
well as increased difficulty in obtaining financing and credit, and could affect
the Company's ability to continue as a going concern. (See note 6 to the
Consolidated Financial Statements.)
NASDAQ LISTING: Lasertechnics' Common Stock is listed on the NASDAQ small-
capitalization over-the-counter market, which requires a minimum $1,000,000 net
capital and surplus for continued listing. Because Lasertechnics' net capital
and surplus fell below this limit at September 30, 1995, NASDAQ temporarily put
the Company on a "conditional" listing until a
20
<PAGE>
new minimum of $2,450,000 in equity was met on December 31, 1995. This was
accomplished by debenture owners converting $1,045,342, which includes accrued
interest, of debt into common stock and the sale of Series C convertible
preferred stock. On January 2, 1996, NASDAQ removed the conditional listing of
Lasertechnics' Common Stock and lowered the equity requirement back to
$1,000,000. Management forecasts that net capital and surplus will remain in
excess of $1,000,000 for 1996.
Restructuring Charge.
- --------------------
At the end of 1994, the Company's imaging business, SIS, evaluated their product
lines with an eye towards focusing on the long term revenue and profit potential
of each one. As a result of that evaluation, it was determined that the DIR was
at the end of its product life cycle and that the niche markets SIS had
attempted to exploit to extend the product's life did not materialize.
Conditionally, SIS was unable to develop the expected market for the SnapShot
product, and there were significant components of the initial plastic card
printer product that were made obsolete by technological enhancements. The end
result of the evaluation was a restructuring charge totalling $1,148,275 made up
of inventory adjustments to the various product lines. Finally, capitalized
software development costs for the SnapShot product line of approximately
$553,000 were charged to research and development expense. The DIR was sold in
1995. The SnapShot product line was discontinued.
OTHER
Inflation has not had nor is expected to have a material impact on the
operations and financial condition of the Company.
In March 1995, FASB issued SFAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires
that long-lived assets and certain intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
In October 1995, FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 permits companies to retain the current approach set
forth in APB Opinion 25, "Accounting for Stock Issued to Employees," for
recognizing stock-based compensation. However, companies are encouraged to adopt
a new
21
<PAGE>
accounting method based on estimated fair values. Companies that do not follow
the new fair value based method will be required to provide expanded disclosures
in their 1996 financial statements.
Management believes that adopting SFAS 121 and SFAS 123 in 1996 will not have a
material effect on the Company's consolidated financial position or results of
operations.
Item 7. Financial Statements and Supplementary Data.
-------------------------------------------
Page
Consolidated Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1995
and 1994 F-2
Consolidated Statements of Operations - Years Ended
December 31, 1995, 1994 and 1993
F-3
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements -
December 31, 1995, 1994 and 1993 F-7
Item 8. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
None.
Part III
Item 9. Directors and Executive Officers of the Registrant.
--------------------------------------------------
Information with respect to directors and with respect to compliance
with Section 16 (a) of the Securities Exchange Act of 1934 is hereby
incorporated by reference to Lasertechnics' definitive proxy statement pursuant
to Regulation 14A, which statement will be filed not later than 120 days after
the end of the fiscal year covered by this Report. The names and ages of the
executive officers of Lasertechnics and the year of commencement of their
positions with Lasertechnics are as
22
<PAGE>
follows:
Positions and Offices
with Lasertechnics and when
Name Age Term of Office Commenced
---- --- ------------------------
Richard C. E. Morgan ... 51 Chairman of the Board (1994) and
Chief Executive Officer (1994)
Chairman of the Board (LMC
1995 & SIS 1993)
Ronald Bencke .......... 56 Vice President and Chief
Financial Officer (1994)
Vice President and Chief
Financial Officer (LMC 1995)
Eugene A. Bourque ...... 50 Director(1993)President & CEO
(LMC 1995)
Jean-Pierre Arnuado..... 51 Director(1995) President & CEO
(SIS 1995)
E.A. Milo Mattorano..... 50 Vice President and Chief
Financial Officer &
Controller(SIS 1995)
The following is a brief description of the business experience and occupations
for the officers of Lasertechnics, for at least the last five years:
Richard C. E. Morgan, 51, joined the Board in 1985 and was elected Chairman and
CEO in December 1994. Since 1986 he has been a General Partner of Wolfensohn
Partners L.P. (the managing general partner of Wolfensohn Associates L.P., a
venture capital partnership). Between 1984 and 1986 he was a Partner of James D.
Wolfensohn, Inc. (an investment banking and advisory firm). Prior to joining
Wolfensohn, Mr. Morgan was a Director of J. Henry Schroder Wagg & Co. Ltd. (a
British merchant bank) and was the former President of the Schroder Strategy
Group (a strategic consulting group) and former Chairman of the Investment
Committee of J. Henry Schroder Wagg. Mr. Morgan is Chairman and a Director of
MediSense Inc. (a supplier of biosensor blood glucose measurement devices to
people with diabetes),Chairman and Director of Quidel Corporation (a supplier of
a wide range of rapid diagnostic tests to physicians and consumers), a Director
of Celgene Corporation and SEQUUS Pharmaceuticals, Inc.
23
<PAGE>
(companies developing and marketing pharmaceutical products). Mr. Morgan is also
the Chairman of ONTOS, Inc., a company developing advanced object oriented
software. During the last fifteen years Mr. Morgan has been closely involved in
the development of several high technology and medical technology companies,
including Authorware Inc., a predecessor company to Macromedia Inc., now a
public company and one of the leading companies in the multi-media software
tools business. Mr. Morgan also was a founder and until it was sold to Eastman
Kodak, the Chairman of Vortech Data Inc., a leading systems company in the
medical image management field. Mr. Morgan was awarded a BE in Engineering
Science (First Class Honors) from the University of Auckland, New Zealand and
has completed the Advanced Management Program at the Harvard Business School.
Eugene Bourque, 50, was named President and Chief Executive Officer of LMC in
May 1995. Prior to his appointment as President of Lasertechnics, Inc. in
January, 1993, Mr. Bourque served as Vice President and Chief Financial Officer
of Lasertechnics since 1988. Before joining Lasertechnics, Mr. Bourque was the
financial and business service manager for the Cynara Co. from 1985 to 1987, a
partnership owned largely by The Dow Chemical Co., that operated natural gas
processing plants. Prior to that, he spent 5 years as Treasurer of Production
Operators, Inc., an oil field service company. Mr. Bourque holds a B.B.A degree
in General Business from The University of Texas at El Paso and a M.B.A degree
in finance from The University of Chicago.
Ronald Bencke, 56, was named Vice President and Chief Financial Officer of
Lasertechnics, Inc. in September 1994. He was also appointed Vice President and
Chief Financial Officer of LMC in May 1995. He served as Chief Financial Officer
for QED Communications, a large public broadcasting television station in
Pittsburgh, Pennsylvania from 1992 to mid-1994. Prior to that assignment, Mr.
Bencke spent 23 years with Westinghouse Electric Corporation in a variety of
progressively responsible financial and executive positions including President
of Westinghouse Evaluation Services Group and Chief Financial Officer of
Westinghouse Financial Services, Inc. prior to his retirement from Westinghouse
in 1992. Mr. Bencke is a graduate of the Executive Program for Management
Development at the Harvard Graduate School of Business and holds a B.A. degree
in Economics from Wartburg College.
Jean-Pierre Arnaudo, 51, was named President and Chief Executive Officer of
Sandia Imaging Systems in June 1995. Prior to his
24
<PAGE>
appointment as President, Jean-Pierre Arnaudo served as the President and
General Manager of Sandia Imaging Systems Europe, S. A. since 1993. Before
joining Sandia Imaging Systems, Mr. Arnaudo was General Manager of Terminal
Computer Systems from 1990 to 1992, a distribution company for communication
equipment for mainframe computers. Prior to that, he spent 12 years as President
of Jacquard Systems and Director of AM International France, an office
automation and corporate publication company. Mr. Arnaudo holds a Ph.D. in
Electronics from the French Naval Academy and studied management at the Ecole
d'Administration des Enterpreises from Lausanne.
E.A. Milo Mattorano, 50, was named Controller of Sandia Imaging Systems in
January 1995. Before joining Sandia Imaging Systems, Mr. Mattorano was the Vice
President of Finance of Insilco Corporation from 1988 to 1994, a manufacturing
company crossing several industries in high-tech, heavy metals and consumer
products. Prior to that, he spent 7 years as Vice President and Controller of
Coseka Resources and Ensource Inc., oil and gas exploration and production
companies. Mr. Mattorano spent 6 years with Deloitte & Touche, a public
accounting firm and holds a BS degree in Accounting from Adams State College.
Item 10. Executive Compensation.
----------------------
Information with respect to executive compensation is hereby incorporated by
reference to the Lasertechnics' definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120 days after the
end of the fiscal year covered by this Report.
Item 11. Security Ownership of Certain
-----------------------------
Beneficial Owners and Management.
--------------------------------
Information with respect to security ownership is hereby incorporated by
reference to Lasertechnics' definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report.
Item 12. Certain Relationships and Related Transactions.
----------------------------------------------
Information with respect to certain relationships and related transactions is
hereby incorporated by reference to Lasertechnics' definitive proxy statement
pursuant to Regulation
25
<PAGE>
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report.
Item 13. Exhibits, Financial Statement Schedules and Reports on
------------------------------------------------------
Form 8-K.
--------
Page
----
(a) (1) Consolidated Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1995
and 1994 F-2
Consolidated Statements of Operations - Years
Ended December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements -
December 31, 1995, 1994 and 1993 F-7
(2) Financial Statement Schedules:
Independent Auditors' Report on Financial Statement Schedule
S-1
(3) Exhibits:
3.1 -- Articles of Incorporation of Lasertechnics.
Incorporated herein by reference to Exhibit
3.1 to Lasertechnics' Registration Statement
on Form S-1 (Registration No. 2-80946).
3.2 -- By-laws of Lasertechnics. Incorporated
herein by reference to Exhibit 3.2 to
Lasertechnics' Registration Statement on Form
S-1 (Registration No. 2-80946).
3.3 -- First Amendment to Certificate of
Incorporation of Lasertechnics, Inc. dated
June 6, 1986. Incorporated herein by
reference to Exhibit 3.3 to Lasertechnics'
Form 10-K for the year ended December 31,
1987.
3.4 -- Second Amendment to Certificate of
Incorporation of Lasertechnics, Inc. dated
May 27, 1987. Incorporated herein by
26
<PAGE>
reference to Exhibit 3.4 to Lasertechnics'
Form 10-K for the year ended December 31,
1987.
10.1 -- License Agreement, dated November 10, 1981,
between Lasertechnics and National Technical
Information Service. Incorporated herein by
reference to Exhibit 10.10 to Lasertechnics'
Registration Statement on Form S-1 (Registra-
tion No. 2-80946).
10.2 -- Registration Agreement among Lasertechnics
and certain shareholders. Incorporated
herein by reference to Exhibit 10.12 to
Lasertechnics' Registration Statement on Form
S-1 (Registration No. 2-80946).
10.3 -- Land Purchase Agreement. Incorporated herein
by reference to Exhibit 10.21 to
Lasertechnics' Registration Statement on Form
S-1 (Registration Statement No. 2-80946).
10.4 -- Guaranty Agreement, dated as of October 1,
1983, between Security Trust Company, as
trustee, and Lasertechnics. Incorporated
herein by reference to Exhibit 10.20 to
Lasertechnics' Registration Statement No. 2-
90117).
10.5 -- License agreement, dated June 30, 1988,
between Lasertechnics and Patlex Corporation.
Incorporated herein by reference to Exhibit
10.17 to Lasertechnics' Form 10-K for the
year ended December 31, 1988.
10.6 -- Employment agreement dated August 31, 1989,
between Louis F. Bieck, Jr. and
Lasertechnics, Inc. as amended. Incorporated
herein by reference to Exhibit 10.17 to
Lasertechnics' Form 10-K for the year ended
December 31, 1990.
10.7 -- Agreement, dated June 28, 1991 between
Applied Electron Corporation, Quantrad
Corporation, Lasertechnics, Inc. and
Wolfensohn Associates L.P. Incorporated
27
<PAGE>
herein by reference to Exhibit 10.9 to
Lasertechnics' Form 10-K for the year ended
December 31, 1991.
10.8 -- 1991 Incentive Stock Option Plan, dated
August 14, 1991. Incorporated herein by
reference to Exhibit 10.10 to Lasertechnics'
Form 10-K for the year ended December 31,
1991.
10.9 -- Termination agreement effective September 22,
1992 between Louis F. Bieck, Jr. and
Lasertechnics, Inc.. Incorporated herein by
reference to Exhibit 10.11 to Lasertechnics'
Form 10-K for the year ended December 31,
1992.
10.10 -- Distributor Agreement, dated November 16,
1990, between Lasertechnics and Coherent-
Hull, Ltd. Incorporated herein by reference
to Exhibit 10.17 to Lasertechnics' Form SB-2,
Post-Effective Amendment No. 2, dated
December 14, 1993.
10.11 -- Amendments to Distributor Agreements between
Lasertechnics, Lumonics, Inc. and Lumonics
Hull Ltd.. Incorporated herein by reference
to Exhibit 10.18 to Lasertechnics' Form SB-2,
Post Effective Amendment No. 2, dated
December 14, 1993.
10.12 -- Asset Purchase Agreement between Sandia
Imaging Systems Corporation and Media Imaging
Technologies Corporation dated as of August
1, 1993. Incorporated herein by reference to
Exhibit 10.21 to Lasertechnics' Form SB-2,
Post-Effective Amendment No.2, dated December
14, 1993.
10.13 -- Note Cancellation and Stock Purchase
Agreement between Lasertechnics and D. Blech
& Company, Inc. dated as of October 28, 1993.
Incorporated herein by reference to Exhibit
10.13 to Lasertechnics' Form 10-KSB for the
year ended December 31, 1993.
28
<PAGE>
10.14 -- Note Cancellation and Stock Purchase
Agreement between Lasertechnics and
Wolfensohn Associates, L.P. dated as of
October 28, 1993. Incorporated herein by
reference to Exhibit 10.14 to Lasertechnics'
Form 10-KSB for the year ended December 31,
1993.
10.15 -- Purchase Agreement between Sandia Imaging
Systems Europe SA and Jean-Luc Poutchnine,
Alain Quilleau and Philippe Bonnevie dated
March 4, 1994.
10.16 -- Letter confirming sale of Lasertechnics, Inc.
Common Stock shares to Singapore Precision
Industries PTE. LTD. dated May 12, 1994.
10.17 -- Contract Manufacturing Agreement between
Sandia Imaging Systems Corporation and
Singapore Precision Industries PTE LTD dated
May 13, 1994.
10.18 -- Advisory and investment banking services
agreement between Lasertechnics, Inc. and
Wolfensohn International dated May 19, 1993.
10.19 -- Purchase of Common Stock and Convertible Note
Agreement between Lasertechnics, Inc. and J.
P. Morgan Investment Corporation dated July
8, 1994.
10.20 -- OEM License Agreement between Sandia Imaging
Systems Corporation and Xerox Corporation
dated January 6, 1995.
10.21 -- Demand Promissory Note issued to J. P. Morgan
Investment Corporation dated December 19,
1994.
10.22 -- Demand Promissory Note issued to J. P. Morgan
Investment Corporation dated December 31,
1994.
21.1 -- Subsidiaries of Lasertechnics.
23.1 -- Consent of KPMG Peat Marwick.
29
<PAGE>
b) Reports on Form 8K
------------------
Filed 10/19/95, 12/15/95,1/2/96.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of The Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 2, 1996
LASERTECHNICS, INC
By: /s/Richard C. E. Morgan
----------------------------
Richard C. E. Morgan
Chairman of the Board &
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange 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.
By: /s/Richard C. E. Morgan By: /s/Paul J. Coleman, Jr.
------------------------------ ------------------------------
Richard C. E. Morgan Paul J. Coleman, Jr
Chairman of the Board and Director
Chief Executive Officer
By: /s/Ronald Bencke By: /s/C. Seth Cunningham
------------------------------ ------------------------------
Ronald Bencke C. Seth Cunningham
Vice President, Chief Financial Director
Officer and Principal Account-
ing Officer
By: /s/Jean-Pierre Arnaudo By: /s/Theodore F.Patlovich
------------------------------ ------------------------------
Jean-Pierre Arnaudo Theodore F.Patlovich
Director Director
By: /s/E. A. Bourque By: /s/Alfred E. Paulekas
------------------------------ ------------------------------
E. A. Bourque Alfred E. Paulekas
Director Director
By: /s/Richard M. Clarke
------------------------------
Richard M. Clarke
Director
31
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedule
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD APPEARS HERE]
Independent Auditors Report
The Board of Directors and Stockholders
Lasertechnics, Inc.:
We have audited the consolidated balance sheets of Lasertechnics, Inc. and
subsidiaries (the Company) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lasertechnics, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company s recurring losses from
operations and resulting continued dependence upon access to additional external
financing together with the default on a capital lease obligation raise
substantial doubt about its ability to continue as a going concern. Management s
plans in regard to these matters are also described in note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG PEAT MARWICK LLP
-------------------------------------------
KPMG PEAT MARWICK LLP
Albuquerque, New Mexico
March 8, 1996, except as to the
the last paragraph of note 12
and note 19 which are as of
March 15, 1996
F-1
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,892,357 1,427,058
Accounts receivable - trade,
less allowance for doubtful
accounts of $278,263 in 1995
and $170,010 in 1994 4,040,247 2,990,145
Inventory:
Raw materials 2,514,746 1,714,433
Work-in process 329,700 196,543
Finished goods 1,144,904 992,694
------------ ------------
3,989,350 2,903,670
Inventory deposit (note 3) 591,630 136,334
Prepaid expenses 155,859 265,136
Other 102,459 40,005
------------ ------------
Total current assets 10,771,902 7,762,348
Property, plant and equipment,
at cost, net (notes 5 and 6) 3,000,241 2,357,181
Goodwill (note 16) 254,546 417,076
Other assets, at cost 615,913 173,851
------------ ------------
$ 14,642,602 10,710,456
============ ============
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1995 1994
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Payable to stockholder:
Convertible notes payable
(notes 7 and 10) $ - 1,940,000
Notes payable 200,000 -
Accounts payable 3,485,328 3,546,229
Notes payable 402,945 488,302
Customer advances 426,978 688,246
Commissions payable 192,548 301,123
Product warranty reserve 256,003 261,138
Accrued payroll and payroll taxes 299,096 435,467
Accrued vacation 205,541 212,226
Capital lease obligations in
default (note 6) 1,113,768 1,248,278
Current portion of capital lease
obligations (note 6) 28,944 16,518
Other 478,396 347,335
------------ ------------
Total current liabilities 7,089,547 9,484,862
Convertible debtentures (note 8) 4,405,095 -
Capital lease obligations (note 6) 35,328 13,050
Other 183,046 219,957
------------ ------------
11,713,016 9,717,869
------------ ------------
Stockholders' equity (notes 7, 8,
9, 10, 11 and 18):
Convertible preferred stock,
no par; 10,000,000 shares
authorized;
Series A: $1.30 stated value;
1,153,846 shares outstanding
in 1995 and none in 1994 1,473,394 -
Series B: $1.42 stated value;
1,056,338 shares outstanding
in 1995 and none in 1994 1,473,394 -
Series C: $1.51 stated value;
708,530 shares outstanding
in 1995 and none in 1994 1,069,880 -
Common stock, $.01 par value.
Authorized 41,500,000
shares in 1995 and 45,000,000
shares in 1994; issued and
outstanding 28,280,798 shares
in 1995 and 25,078,779 shares
in 1994 282,808 250,788
Nonvoting convertible common stock,
$.01 par value. Authorized
8,500,000 shares in 1995 and
5,000,000 shares in 1994; issued
and outstanding 2,249,842 shares
in 1995 and 377,684 shares
in 1994. Convertible into voting
common stock on a one share for
one share basis 22,499 3,777
Paid-in capital 37,339,799 30,302,473
Accumulated deficit (38,482,188) (29,314,451)
------------ ------------
3,179,586 1,242,587
Less treasury stock, 200,000 common
shares, at cost (250,000) (250,000)
------------ ------------
Total stockholders' equity 2,929,586 992,587
Commitments, contingencies and
subsequent events
(notes 2, 6, 12 and 19) ------------ ------------
$ 14,642,602 10,710,456
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales (notes 4 and 15) $13,429,731 15,856,209 8,028,010
Cost of sales 9,159,393 10,670,197 5,198,441
----------- ---------- ----------
Gross profit 4,270,338 5,186,012 2,829,569
Expenses:
Research & development 2,910,346 3,577,209 844,339
General & administrative 4,036,271 2,755,063 1,976,735
Selling & marketing 5,453,934 4,898,274 2,118,264
Restructuring charge
(note 13) - 1,148,275 -
----------- ---------- ----------
Loss from operations (8,130,213) (7,192,809) (2,109,769)
----------- ---------- ----------
Other income (expense):
Interest income 32,182 44,387 15,641
Interest expense (968,790) (160,071) (136,895)
Other (27,682) 21,537 185,953
----------- ---------- ----------
(964,290) (94,147) 64,699
----------- ---------- ----------
Loss before income taxes (9,094,503) (7,286,956) (2,045,070)
Income taxes (note 14) - - -
----------- ---------- ----------
Net loss $(9,094,503) (7,286,956) (2,045,070)
Preferred stock dividend
requirements (73,234) - -
----------- ---------- ----------
Net loss applicable to
common stock $(9,167,737) (7,286,956) (2,045,070)
=========== ========== ==========
Net loss per common share $ (.33) (.33) (.12)
=========== ========== ==========
Weighted average shares of
common stock outstanding
during the year 27,511,489 21,997,410 16,842,380
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Convertible
preferred stock Common stock
-------------------------- -----------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 - $ - 15,739,089 $157,391
Common stock issued for debt (note 7) - - 454,545 4,545
Issuance of common stock, net of
issuance expenses (note 18) - - 2,769,757 27,698
Common stock issued for expenses - - 30,748 308
Exercise of common stock options
(note 11) - - 20,032 200
Net loss - - - -
--------- ----------- ----------- --------
Balances at December 31, 1993 - - 19,014,171 190,142
Exercise of common stock options
(note 11) - - 65,830 658
Issuance of common stock, net of issuance
expenses (note 18) - - 5,998,778 59,988
Translation adjustment - - - -
Nonvoting convertible common stock issued
for debt (note 18) - - - -
Detachable warrants issued in conjunction
with convertible debt (notes 7 &10) - - - -
Net loss - - - -
--------- ----------- ----------- --------
Balances at December 31, 1994 - - 25,078,779 250,788
Exercise of common stock options
(note 11) - - 625,712 6,257
Detachable warrants issued in conjunction
with convertible debt (notes 7 &10) - - - -
Stock issued for debt, net of unamortized
discount and expenses (note 7) 2,521,363 3,469,880 1,383,632 13,836
Increasing rate preferred stock discount - (126,446) - -
Discount accretion - 73,234 - -
Conversion feature of debentures issued
(note 8) - - - -
Debentures converted, net of unamortized
discount and expenses (note 8) - - 658,570 6,586
Issuance of convertible preferred stock
(note 18) 397,351 600,000 - -
Exercise of detachable warrants (note 7) - - 534,105 5,341
Foreign currency translation adjustment - - - -
Net loss - - - -
--------- ----------- ----------- --------
Balances at December 31, 1995 2,918,714 $4,016,668 28,280,798 282,808
========= ========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Nonvoting
convertible
common stock Accumu-
------------ Paid-in lated
Shares Amount capital deficit
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 0 $ 0 21,549,040 (19,982,425)
Common stock issued for debt (note 7 0 0 495,455 0
Issuance of common stock, net of
issuance expenses (note 18) 0 0 2,159,175 0
Common stock issued for expenses 0 0 50,501 0
Exercise of common stock options
(note 11) 0 0 15,541 0
Net loss 0 0 0 (2,045,070)
--------- -------- ---------- -----------
Balances at December 31, 1993 0 0 24,269,712 (22,027,495)
Exercise of common stock options
(note 11) 0 0 59,401 0
Issuance of common stock, net of
issuance expenses (note 18) 0 0 5,531,232 0
Translation adjustment 0 0 27,105 0
Nonvoting convertible common stock
issued for debt (note 18) 377,684 3,777 355,023 0
Detachable warrants issued in
conjunction with convertible debt
(notes 7 &10) 0 0 60,000 0
Net loss 0 0 0 (7,286,956)
--------- -------- ---------- -----------
Balances at December 31, 1994 377,684 3,777 30,302,473 (29,314,451)
Exercise of common stock options
(note 11) 0 0 450,593 0
Detachable warrants issued in conjunction
with convertible debt (notes 7 &10) 0 0 207,000 0
Stock issued for debt, net of unamortized
discount and expenses (note 7) 1,872,158 18,722 2,804,215 0
Increasing rate preferred stock discount 0 0 126,446 0
Discount accretion 0 0 0 (73,234)
Conversion feature of debentures issued
(note 8) 0 0 2,200,000 0
Debentures converted, net of unamortized
discount and expenses (note 8) 0 0 673,661 0
Issuance of convertible preferred stock
(note 18) 0 0 0 0
Exercise of detachable warrants (note 7) 0 0 684,659 0
Foreign currency translation adjustment 0 0 (109,248) 0
Net loss 0 0 0 (9,094,503)
--------- -------- ---------- -----------
Balances at December 31, 1995 2,249,842 22,499 37,339,799 (38,482,188)
</TABLE>
<TABLE>
<CAPTION>
Treasury
stock Total
-------- --------
<S> <C> <C>
Balances at December 31, 1992 (250,000) 1,474,006
Common stock issued for debt (note 7 0 500,000
Issuance of common stock, net of
issuance expenses (note 18) 0 2,186,873
Common stock issued for expenses 0 50,809
Exercise of common stock options
(note 11) 0 15,741
Net loss 0 (2,045,070)
-------- ----------
Balances at December 31, 1993 (250,000) 2,182,359
Exercise of common stock options
(note 11) 0 60,059
Issuance of common stock, net of issuance
expenses (note 18) 0 5,591,220
Translation adjustment 0 27,105
Nonvoting convertible common stock issued
for debt (note 18) 0 358,800
Detachable warrants issued in conjunction
with convertible debt (notes 7 &10) 0 60,000
Net loss 0 (7,286,956)
-------- ----------
Balances at December 31, 1994 (250,000) 992,587
Exercise of common stock options
(note 11) 0 456,850
Detachable warrants issued in conjunction
with convertible debt (notes 7 &10) 0 207,000
Stock issued for debt, net of unamortized
discount and expenses (note 7) 0 6,306,653
Increasing rate preferred stock discount 0 0
Discount accretion 0 0
Conversion feature of debentures issued
(note 8) 0 2,200,000
Debentures converted, net of unamortized
discount and expenses (note 8) 0 680,247
Issuance of convertible preferred stock
(note 18) 0 600,000
Exercise of detachable warrants (note 7) 0 690,000
Foreign currency translation adjustment 0 (109,248)
Net loss 0 (9,094,503)
-------- ----------
Balances at December 31, 1995 (250,000) 2,929,586
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,094,503) (7,286,956) (2,045,070)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 514,988 410,231 185,317
Provision for losses on accounts
receivable 115,375 65,169 21,008
Provision for product warranty reserve
338,250 687,591 116,553
Amortization of financing discount
and issuance costs 674,232 - -
Restructuring charges - 1,148,275 -
Write-off of software development
costs - 552,989 -
(Increase) decrease in:
Accounts receivable, trade (1,165,875) (1,652,944) (564,795)
Inventory (1,149,528) (1,357,558) (814,120)
Inventory deposit (467,031) 133,666 (270,000)
Prepaid expenses 104,779 (101,952) (28,301)
Other 163,769 (99,577) (150,137)
Increase (decrease) in:
Accounts & notes payable (42,450) 1,799,923 769,455
Customer advances (278,721) (571,644) 1,246,999
Commissions payable (108,575) 196,417 22,557
Product warranty reserve (348,956) (523,867) (145,159)
Accrued payroll and payroll taxes (147,575) 197,485 (62,734)
Accrued vacation (6,685) 66,298 38,588
------------ ---------- ----------
Net cash used by operating
activities (10,898,506) (6,336,454) (1,679,839)
------------ ---------- ----------
Cash flows from investing activities:
Capital expenditures (995,518) (790,409) (292,939)
Business acquisitions - (100,000) (50,000)
Software development - (119,251) (72,439)
------------ ---------- ----------
Net cash used by investing
activities (995,518) (1,009,660) (415,378)
------------ ---------- ----------
</TABLE>
F-5 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings under financing agreements $ 7,329,906 3,936,828 -
Principal payments on financing
agreements (2,969,452) (1,770,136) -
Proceeds from issuance of convertible
debentures 7,000,000 - -
Convertible debenture issuance costs (520,000) - -
Principal payments under capital lease
obligations (164,860) (160,613) (89,941)
Net proceeds from issuance of preferred
and common stock 1,683,729 6,355,268 1,850,374
----------- --------- ---------
Net cash provided by financing
activities 12,359,323 8,361,347 1,760,433
----------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 465,299 1,015,233 (334,784)
Cash and cash equivalents at beginning
of year 1,427,058 411,825 746,609
----------- --------- ---------
Cash and cash equivalents at end of year $ 1,892,357 1,427,058 411,825
=========== ========= =========
Supplemental information:
Cash paid during the year for interest $ 173,619 146,271 136,895
=========== ========= =========
Conversions to stock (notes 7 and 8):
Debentures, net of unamortized
discount and expenses $ 659,905 - -
Notes payable, net of unamortized
discount and expenses 5,953,773 345,000 500,000
Accrued interest 373,222 - -
=========== ========= =========
Detachable warrants issued in
conjunction with convertible debt
(note 7) $ 207,000 60,000 -
=========== ========= =========
Conversion feature of debentures
issued (note 8) $ 2,200,000 - -
=========== ========= =========
Receivable from sale of common
stock (note 18) $ - - 350,000
=========== ========= =========
Business assets acquired (note 16):
Fair value of net assets acquired - 779,296 444,144
Cash paid - (100,000) (50,000)
Issuance of note payable - - (150,000)
Issuance of common stock of
subsidiary - (500) (2,240)
Assumption of liabilities - (881,918) (241,904)
Minimum guaranteed royalty - (281,610) -
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Company Organization and Basis of Presentation
----------------------------------------------
The accompanying consolidated financial statements include
the accounts of Lasertechnics, Inc. and its wholly owned
subsidiaries Lasertechnics Marking Corp. (LMC) and Quantrad, Inc.,
its 92 percent owned subsidiary Sandia Imaging Systems Corporation
(SIS U.S.), SIS U.S.'s wholly owned French subsidiary Sandia
Imaging Systems SA(SIS Europe) (collectively, the Company). All
significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(b) Statements of Cash Flows
------------------------
The Company considers all highly liquid debt instruments
with original maturities of three months or less to be
cash equivalents.
(c) Inventory
---------
Inventory is valued at the lower of cost or market using
the first-in, first-out method.
(d) Depreciation and Amortization
-----------------------------
Depreciation on property and equipment is calculated using
the straight-line method over the estimated useful lives
of the respective assets. Assets utilized under capital
leases are amortized over the lesser of the term of the
lease or the estimated useful life of the asset using the
straight-line method.
(e) Goodwill
--------
Goodwill represents the excess of cost over net assets
acquired in the 1994 acquisition of Printis SARL, (note
16) and is amortized on a straight-line basis over the
expected periods to be benefited (five years). The
Company assesses the recoverability of this intangible
asset by determining whether the amortization of the
goodwill balance over its remaining life can be recovered
through projected undiscounted future results. The
amount of goodwill impairment, if any, is measured based
on projected, discounted future results using a discount
rate equal to prime rate. Amortization expense for the
years ended December 31, 1995 and 1994 was $162,530 and
$70,837, respectively. Accumulated amortization was
$233,367 and $70,837 at December 31, 1995 and 1994,
respectively.
F-7 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(f) Fair Value of Financial Instruments
-----------------------------------
Cash and cash equivalents, accounts receivable, inventory
deposit, payable to stockholder, accounts payable, notes
payable, customer advances, commissions payable and
accrued liabilities are reflected in the financial
statements at fair value because of the short-term
maturity of these instruments.
The fair value of the convertible debentures approximates
recorded value because the fair value of the debt and
equity components of the financial instrument were valued
at the October 1995 issuance date and market conditions
have not changed significantly since that date.
It is not practical to estimate the fair value of capital
lease obligations in default since expected cash flows
and maturities on this instrument are undeterminable. In
addition, the Company may not be able to obtain debt with
similar terms in the current market, so an appropriate
interest rate could not be estimated.
(g) Income Taxes
------------
Effective January 1, 1993, the Company adopted Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109, Accounting for Income
---------------------
Taxes. The effect of adopting Statement 109 was
-----
immaterial to the consolidated financial statements.
Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences
are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Net Loss Per Common Share
-------------------------
Net loss per common share is based on the weighted average
shares of common stock and, if dilutive, common
equivalent shares (options, warrants, convertible
preferred stock and convertible debt) outstanding during
the period. None of the common stock equivalents were
dilutive during the periods presented.
(i) Revenue Recognition
-------------------
The Company recognizes revenue on sales of its products
either when the products are shipped from the plant or
received by the customer, depending on shipping terms.
(j) Warranty Costs
--------------
The Company warrants its products against defects in
material and workmanship for periods ranging from 30 days
to two years from the date of installation. The warranty
reserve is reviewed quarterly and adjusted based upon the
Company s actual historical warranty costs and its
estimate of future costs.
F-8 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(k) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
(l) Advertising Costs
-----------------
Advertising costs, all of which are nondirect response
advertising, are expensed as incurred. Advertising
expense was $317,617, $232,625 and $200,907 for the years
ended December 31, 1995, 1994 and 1993. The Company
markets its products in both domestic and international
markets. Currently, approximately 65 to 75 percent of
the Company s sales are in the United States.
(2) Operations, Liquidity and Going Concern
---------------------------------------
The Company's operations in 1995 continued to generate
losses. The loss in 1995 significantly exceeded losses in
either 1994 or 1993. Although, during 1995, the Company raised
approximately $13 million through equity and debt transactions,
operations, capital expenditures and debt service requirements
utilized all such proceeds by the end of February 1996. In
addition, at December 31, 1995 the Company is in default of
covenants in its capital lease agreement (note 6).
The Company s business plan for 1996 is predicated
principally upon significant increases in sales for existing
SIS products, the successful introduction of new products in
both of its business segments, significant improvements in
gross margins and reductions in research and development
expenditures. Because of the anticipated timing of new product
introductions and manufacturing cost reductions, together with
the necessity to prepay all or a portion of the balance of its
lease obligation financing, the Company will require additional
external financing to meet its 1996 requirements. Management
believes that it will be able to access external financing
sufficient to fund such requirements (note 19). However,
there can be no assurance that sufficient additional external
financing could be obtained to fund any increases in financing
requirements resulting from delays in or inability to
significantly increase sales of existing SIS products,
successfully introduce planned new products, or achieve gross
margin improvements. If the Company is unable to obtain such
additional funds, it may be necessary to either reduce or stop
certain product development programs, reduce its sales and
marketing efforts, dispose of assets or undertake other actions
as may be appropriate.
(3) Termination of Manufacturing Agreement
--------------------------------------
In 1993, the Company engaged Wolfensohn International,Inc.,
a subsidiary of James D. Wolfensohn, Inc., which is an
affiliate of a significant stockholder, Wolfensohn Associates, L.P.
(Wolfensohn), to provide advisory and investment
banking services with respect to a possible strategic alliance
with a third-party to develop and manufacture the Company s
products. On May 13, 1994, SIS U.S. and Singapore Precision
Industries (SPI), a unit of Singapore Technology Industrial
Corporation, the technology manufacturing arm of the Singapore
government, entered into a contract manufacturing agreementand
a distribution agreement whereby SPI is a licensed distributor
of SIS products. Concurrently, SPI purchased 826,447 shares of
the Company s common stock for $1,000,000 (note 18). Pursuant
to the agreement with Wolfensohn the Company paid Wolfensohn
$50,000 during 1994 based upon the $1,000,000 SPI stock
purchase transaction. The Company does not anticipate that any
additional fees will be paid to Wolfensohn International, Inc.
pursuant to this agreement.
F-9 (Continued)
<PAGE>
LASERTECHNICH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The manufacturing agreement is scheduled to expire on December 31, 1998
and contains cancellation provisions by either party. In the third
quarter of 1995 the Company instructed SPI to discontinue production,
and subsequently began negotiations with SPI to terminate the
manufacturing agreement pursuant to the cancellation provisions of the
contract. The cancellation provisions of the contract provide that the
Company is required to purchase from SPI, subject to inspection and
acceptance by the Company, all inventories owned by SPI in connection
with the contract. SPI has asserted that it is due approximately
$1,810,000 for inventories previously produced or acquired in connection
with the contract, but has not yet permitted the Company to inspect or
verify such inventory. At December 31, 1995, the Company has not
reflected in the accompanying financial statements either the inventory
or obligation as asserted by SPI. The Company, through December 31,
1995, has however, paid $465,000 to SPI as a deposit against the
ultimate liability. In addition, the Company expects, based upon
negotiations to date, that the ultimate settlement with SPI will also
resolve amounts due from, and to, SPI consisting of trade accounts
receivable of $720,000 and trade accounts payable of $809,000 (which
amounts are reflected in the accompanying balance sheet at December 31,
1995). If negotiations to terminate the manufacturing agreement are
completed, the Company estimates that the inventory to be acquired from
SPI will require rework aggregating approximately $500,000, which is not
expected to result in the total cost of the inventory exceeding its net
realizable value.
Based upon the progress of negotiations with SPI to date, the Company
currently believes that the ultimate outcome of the negotiated
termination will not result in losses to the Company, and accordingly,
the Company has made no provision for any loss as of December 31, 1995.
Neither the final outcome of the negotiations, nor a litigated outcome,
in the event a settlement is not reached, can be predicted. Accordingly,
the Company's current estimates could change.
(4) Significant Customers
---------------------
One customer accounted for 16 percent and 46 percent of consolidated
revenues in 1995 and 1994, respectively. Another customer accounted for
16 percent of consolidated revenuesin 1993.
(5) Property, Plant and Equipment
-----------------------------
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Amortization
period 1995 1994
------------ ---- ----
<S> <C> <C> <C>
Property, plant and equipment under capital
leases:
Land $ 336,396 $ 336,396
Building lease term 1,235,505 1,235,505
Machinery and equipment lease term 127,411 65,899
Research equipment lease term 21,339 21,339
Furniture and fixtures lease term 363,022 363,022
---------- ----------
2,083,673 2,022,161
</TABLE>
F-10
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Amortization
period 1995 1994
------ ---- ----
<S> <C> <C> <C>
Accumulated amortization $(805,930) (731,761)
Property, plant and
equipment under
capital leases, net 1,277,743 1,290,400
Other property, plant and equipment:
Building 14 to 45 years 181,079 95,127
Leasehold improvements lease term 328,985 327,019
Machinery and equipment 5 to 8 years 1,179,217 987,436
Demonstration equipment 2 to 3 years 480,226 -
Research equipment 3 years 139,536 92,194
Furniture and fixtures 5 years 717,684 590,955
============== ----------- ----------
3,026,727 2,092,731
Accumulated depreciation (1,304,229) (1,025,950)
----------- ----------
Other property, plant
and equipment, net 1,722,498 1,066,781
----------- ----------
Property, plant and
equipment, net $ 3,000,241 2,357,181
=========== ==========
</TABLE>
(6) Lease Obligations
-----------------
In 1983, the Company entered into a long-term capital lease agreement with
the City of Albuquerque, New Mexico for office, manufacturing and
warehouse facilities and equipment. In connection with the transaction,
the City of Albuquerque issued industrial development revenue bonds. The
leased assets will revert to the Company upon retirement of the lease
obligations and payment of a nominal amount.
Pursuant to the original agreement, the bondholder has the right to call
the bonds starting in November 1993 and in each November thereafter. On
October 1, 1993, the Company and bondholder entered into an agreement
whereby the Company increased the monthly lease payment by $8,000. This
additional prepayment amount started in April 1994 and will be made for a
24 month period. In exchange for the Company s agreement to make these
prepayments, the bondholder agreed to waive its right to call the bonds
during this 24 month period provided that the Company makes its monthly
payments on a timely basis and remains in compliance with the agreement s
debt covenants, which require the Company to maintain a current ratio of
not less than 1 to 1 and a debt to equity ratio of not more than 3 to 1.
At December 31, 1995 and 1994, the Company's current ratio was 1.5 to 1 and
.82 to 1, respectively, and the debt to equity ratio was 4.0 to 1 and 9.8
to 1, respectively. Accordingly, the Company has classified the entire
outstanding balance as a current liability in the accompanying
consolidated balance sheet at December 31, 1995 and 1994. In addition to
the covenants mentioned previously, the agreement includes a provision
whereby the debt can be called anytime the bondholder reasonably believes
itself to be insecure.
F-11 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Capital lease obligations are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
City of Albuquerque, New Mexico, due monthly
($21,177 from January 1995 to March 1996, $13,177
from April 1996 to maturity) including interest at
75% of the prime rate of Chase Manhattan Bank
(6.4% at December 31, 1995) but not less than 8%
nor more than 14%, maturing September 2008; in
default at December 31, 1995 $1,113,768 1,248,278
Other capital leases, due $4,201 monthly, with maturity
dates through August 1998, including interest ranging
from 15.15% to 19.4% 64,272 29,568
---------- ---------
Total capital lease obligations 1,178,040 1,277,846
Less:
Capital lease obligation in default classified as
current 1,113,768 1,248,278
Current portion of capital leases 28,944 16,518
---------- ---------
$ 35,328 13,050
========== =========
</TABLE>
The annual aggregate lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1996 $ 1,149,418
1997 26,011
1998 15,743
-----------
1,191,172
Less amount representing interest (13,132)
-----------
$ 1,178,040
===========
</TABLE>
(7) Convertible Notes Payable to Stockholders
In December 1994, the Company entered into agreements to borrow a total of
$2,000,000 from J.P. Morgan Investment Corporation (JPMIC), a
significant stockholder. During 1995, the Company borrowed an additional
$6,900,000 from another significant shareholder, Wolfensohn. These
borrowings from shareholders were evidenced by unsecured notes bearing
interest at 12 percent per annum. Interest and principal were due on
demand, but if no demand was made, principal and interest become due and
payable at various dates from February 1, 1996 through September 15,
1996. In the event that the Company completed an equity financing of
$5,000,000 or more, then JPMIC and Wolfensohn had the right to convert
the outstanding principal and interest, or a portion thereof, into
voting or nonvoting common stock of the Company at the price per share
paid by the investors in the equity financing. In connection with these
note agreements, JPMIC and Wolfensohn also received warrants to purchase
the Company s common stock (see note 10).
F-12 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Although the Company did not complete an equity financing of $5,000,000, the
Company agreed to convert $6,210,000 of the debt plus accrued interest of
approximately $353,000 held by the shareholders above into a combination
of common stock, nonvoting common stock and preferred stock evidenced by
debt to equity conversion agreements. In addition, the Company paid
Wolfensohn $2,000,000 of principal out of the proceeds of the convertible
debenture private placement (note 8). The remaining outstanding debt to
Wolfensohn was repaid when Wolfensohn exercised 534,105 warrants to
purchase common stock (note 10) resulting in total proceeds of $690,000.
The following table summarizes the 1995 convertible note payable
conversion activity:
<TABLE>
<CAPTION>
Conversion Shares of
Amount price per stock
Date Noteholder converted share Class of stock received
---- ---------- --------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
May 1995 JPMIC $ 314,450 0.95 Voting common 331,000
May 1995 JPMIC 1,778,550 0.95 Nonvoting common 1,872,158
May 1995 Wolfensohn 1,000,000 0.95 Voting common 1,052,632
Aug.1995 Wolfensohn 1,500,000 1.30 Series A preferred 1,153,846
Sept.1995 Wolfensohn 1,500,000 1.42 Series B preferred 1,056,338
Dec.1995 Wolfensohn 469,879 1.51 Series C preferred 311,180
---------- =========
$6,562,879
==========
</TABLE>
During 1992, the Company entered into an agreement to borrow $750,000 from
three stockholders. The loans were secured by certain inventory, accounts
receivable and common stock of the Company, and were due on December 31,
1993. Interest which was payable at maturity, accrued at a rate equal to
the prime rate. The stockholders had the option to be repaid in the
Company's unregistered common stock based upon 80 percent of the average
publicly traded price during the 30 days prior to conversion. One
stockholder converted his $250,000 note plus $6,500 of accrued interest
into common stock during 1992. In March 1993, and as part of a separate
private placement transaction (see note 18), the remaining two
stockholders converted their notes into 454,545 shares of common stock
based upon an adjusted price per share equal to 73 percent of the average
publicly traded price of the stock during the 30 days prior to
conversion.
(8) Convertible Debentures
----------------------
In October 1995, the Company completed a $7,000,000 private placement of 10
percent convertible debentures maturing in October 1998. The debentures
plus accrued interest are convertible by the holder into unregistered
common stock of the Company as follows: (a) between October 11, 1995 and
November 25, 1995 at an exercise price of $2.34375, (b) between November
26, 1995 and December 25, 1995, one-half of the debentures can be
converted at the lesser of $2.34375 or 85 percent of the average five day
closing bid price of the Company s stock prior to conversion, and (c)
after December 25, 1995, and during the term of the debentures, all
debentures can be converted by the holder under the same terms described
in (b). The Company has the right to force conversion under the following
conditions: (a) after October 2, 1996, the Company can force conversion
to common stock at the lesser of $2.34375 or 85 percent of the average 5-
day closing bid
F-13 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
price of the Company s common stock prior to conversion,
and (b) anytime the Company s stock trades at $3.80 per share
or better for 10 consecutive days, the Company may require
debenture holders to convert each debenture at the lesser of
$2.34375 or 80 percent of the closing bid price of the
Company s stock on the day that the Company provides notice of
conversion to the holders. The common stock has registration
rights under certain circumstances. The Company assigned a
value of $2,200,000 to the conversion feature of the debentures
which will be amortized ratably as an interest rate adjustment
over the life of the debentures resulting in a 25 percent
effective yield. During 1995, $1,025,000 face amount of
debentures plus $20,342 of accrued interest were converted into
658,570 shares of common stock.
(9) Preferred Stock
---------------
The Company has three classes of preferred stock, Series A,
B and C. The preferred stock ranks as senior to the Company's
common stock as to dividend and liquidation rights. Each share
is convertible at the option of the holder into voting common
stock on a one share for one share basis and is entitled to
vote as if converted into voting common stock. The Company may
redeem the preferred stock at anytime at stated value plus
accrued dividends.
The Series A and B preferred stock accrue dividends at the
following rates: 0 percent through December 31, 1995; 5
percent January 1, 1996 through March 31, 1996; 7.5 percent
April 1, 1996 through June 30, 1996 and 10 percent thereafter.
Series C preferred stock accrues dividends at 0 percent through
December 31, 1995 and 10 percent thereafter. Dividends are
payable within 15 days following each calendar quarter in cash
or in additional shares of preferred stock at the option only
of the Company through June 30, 1996 (September 30, 1996 for
Series C). After June 30, 1996 (September 30, 1996 for Series
C), dividends are payable in cash or additional shares of
preferred stock at the option only of the stockholder. There
were no dividends in arrears at December 31, 1995.
A discount has been recorded equal to the present value of
the difference between the actual dividends that will be paid
and the 10 percent perpetual dividend amount, calculated over
the increasing dividend rate period. The discount will be
amortized to provide a constant effective dividend rate. The
1995 discount amortization was $73,234.
(10) Common Stock Warrants
---------------------
During 1995, the Company agreed to issue an unrelated third-
party up to 65,000 warrants to purchase the Company's voting
common stock at $2.00 per share in connection with an investor
relations agreement. The issuance of the 65,000 warrants is
conditioned upon an increase in the Company s stock price to
specified levels, none of which had been reached as of
December 31, 1995. This agreement expires in September 1996
and any warrants issued will expire in 5 years after the
issuance. In addition, the Company issued unrelated employees
of the investor relations firm 100,000 warrants to purchase its
voting common stock at $1.50 per share and 75,000 warrant to
purchase its voting common stock at $2.50 per share.
F-14 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with a 1994 investor relations agreement, the
Company agreed to issue an unrelated third party up to 110,000
warrants to purchase its voting common stock at $1.22 per
share. Warrants for the purchase of 20,000 shares of voting
common stock were issued upon execution of the agreement,
February 15, 1994. Issuance of the other 90,000 warrants was
conditioned upon an increase in the Company's stock price to
specified levels to be measured at three points in time.
Although the first target price level was not achieved under
the original terms of the agreement, the Company's stock rose
to the targeted level soon thereafter. The Company amended the
original agreement and the first 30,000 conditional warrants
were issued. However, the other target stock prices set out in
the agreement were not met so the final 60,000 conditional
warrants were not issued. The 50,000 issued warrants expire
February 15, 1999.
During 1995 and 1994, the Company entered into several
convertible notes payable agreements with JPMIC and Wolfensohn (note 7).
In conjunction with these agreements JPMIC received detachable warrants
to purchase 58,824 (December 14, 1994) and 66,225 shares of the Company's
common stock. The exercise price of the warrants is the lesser of (i)
$1.70 per share (December 14, 1994) or $1.51 per share (December 29,
1994) or (ii) the price per share realized in an equity financing
completed prior to December 31, 1995. No such financing was completed.
The warrants have not been exercised and they expire in December 1999.
The value allocated to the warrants, $60,000, was reflected as a discount
on the convertible promissory notes and was being amortized ratably over
the one year stated term of the notes. JPMIC converted their debt during
1995 and the unamortized portion of this discount was netted against
additional paid-in capital as of the date of conversion (note 7).
In conjunction with the Wolfensohn convertible notes payable
agreements, the noteholder received detachable warrants to purchase
534,105 shares of the Company's common stock. The warrants were fully
exercised in 1995 at an aggregate price of $690,000, and an exercise
range of $1.01 to $1.76 per share. The value allocated to the warrants,
$207,000, was reflected as a discount on the convertible promissory notes
and was being amortized ratably over the one year stated term of the
notes. Wolfensohn converted their debt during 1995 and the unamortized
portion of the discount was netted against additional paid-in capital as
of the date of conversion (note 7).
In connection with the convertible debenture private
placement (note 8), a five year warrant to purchase 222,222 shares of the
Company's common stock, priced at 20 percent above the $2.34375 closing
price, or $2.81 per share, was issued to the placement agent as part of
the placement fee.
A summary of the warrants activity is as follows:
<TABLE>
<CAPTION>
Warrants Price per
outstanding share
----------- ----
<S> <C> <C>
December 31, 1993 - -
Warrants issued 175,049 1.22 - 1.70
------- -----------
December 31, 1994 175,049
Warrants issued 756,327 1.01 - 2.81
Warrants exercised (534,105) 1.01 - 1.76
------- -----------
December 31, 1995 397,271 1.22 - 2.81
======= ===========
</TABLE>
F-15 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Stock Options
The Company had a key employee stock option plan (the 1981 Plan) that
terminated on November 29, 1991. Under the 1981 Plan, 113,388 shares
of the Company s common stock have been reserved for the outstanding
options, all of which are exercisable at a price of $.66 per share
through December 21, 2000, at which time they expire.
The following information is a summary of the stock options under the 1981 Plan:
<TABLE>
<CAPTION>
Options
outstanding
-----------
<S> <C>
December 31, 1992, all exercisable 154,945
Options exercised (16,032)
Options expired (714)
-------
December 31, 1993, all exercisable 138,199
Options exercised (19,955)
-------
December 31, 1994, all exercisable 118,244
Options expired (4,856)
-------
December 31, 1995, all exercisable 113,388
=======
</TABLE>
On May 29, 1991, the Company s stockholders approved a key employee
stock option plan (the 1991 Plan) that is authorized to issue
1,000,000 shares of the Company s common stock which have been
reserved. The 1991 Plan will terminate on May 28, 2001, or on such
earlier date as the Board of Directors may determine.
The following information is a summary of the stock options under the
1991 Plan:
<TABLE>
<CAPTION>
Options Price
outstanding per share
----------- ---------
<S> <C> <C>
December 31, 1992 90,000 $ .82 - 1.29
Options exercised (4,000) 1.29
Options expired (1,000) 1.29
Options issued 226,000 1.00 - 1.75
-------- -------------
December 31, 1993 311,000 .82 - 1.75
Options exercised (5,875) 1.00 - 1.29
Options expired (18,500) 1.00 - 1.75
Options issued 30,000 1.75
-------- -------------
December 31, 1994 316,625 .82 - 1.75
Options exercised (55,875) 1.00 - 1.29
Options expired (14,600) .82 - 1.00
Options issued 50,000 1.58
-------- -------------
December 31, 1995 296,150 $ 1.00 - 1.75
======== =============
</TABLE>
At December 31, 1995, 203,525 of the above options are exercisable.
F-16 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In addition to stock options issued under the key employee stock option plans,
the Company has issued stock options to various members of the Board of
Directors, officers and employees of the Company and to unrelated individuals
and companies in exchange for services. The options are exercisable at various
prices and dates, have various vesting requirements and expire at various
times through December 7, 2000. The following information is a summary of the
stock options available, all of which have common shares reserved, under these
plans:
<TABLE>
<CAPTION>
Options Price
outstanding per share
----------- ---------
<S> <C> <C>
December 31, 1992, all exercisable 2,222,250 $ .50 - 2.00
Options expired (240,000) .60 - 2.00
Options issued 115,000 1.22 - 1.74
---------- ------------
December 31, 1993, all exercisable 2,097,250 .50 - 1.74
Options expired (65,000) .80 - 1.22
Options issued 157,624 1.28 - 1.34
---------- ------------
December 31, 1994, all exercisable 2,189,874 .50 - 1.74
Options exercised (569,837) .60 - 1.45
Options expired (note 12) (1,400,000) .50
Options issued 77,587 1.24 - 1.45
---------- ------------
December 31, 1994, all exercisable 297,624 $1.22 - 1.74
========== ============
</TABLE>
At December 31, 1995, 235,124 of the above options are exercisable.
SIS U.S. has issued stock options to various members of the Board of Directors,
officers and employees of SIS U.S. and SIS Europe to purchase SIS U.S. common
stock. The options have various vesting requirements and expire at various
times through November 16, 2004. The following is a summary of the SIS U.S.
stock options available:
<TABLE>
<CAPTION>
Options Price
outstanding per share
----------- ---------
<S> <C> <C>
December 31, 1992 - $ -
Options issued 190,000 .01
Options exercised (10,000) .01
------- -----------
December 31, 1993 180,000 .01
Options exercised (5,000) .01
Options expired (17,500) .01
Options issued 70,000 .01 - .50
------- -----------
December 31, 1994 227,500 .01 - .50
Options exercised (45,000) .01
Options expired (45,000) .01 - .50
Options issued 40,000 .50
------- -----------
December 31, 1995 177,500 $ .01 - .50
======= ===========
</TABLE>
F-17 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1995, 95,208 of the above options, all of
which have common shares reserved, were exercisable according
to the various vesting requirements.
(12) Commitments and Contingencies
-----------------------------
The Company has entered into license agreements that provide
for royalty payments based on various percentages of certain
product sales. Royalty expenses under these agreements for the
years ended December 31, 1995, 1994 and 1993 were approximately
$151,000, $248,000 and $63,000, respectively.
On February 28, 1996, an investor group filed suit against the
Company. This lawsuit arises out of the Company s refusal to
recognize the investor group s attempt to exercise an option to
purchase 1,400,000 shares of Lasertechnics common stock at
$.495 per share (note 11). The option had been granted to the
Company s former President and CEO who attempted to transfer
his option to the investor group on the last day of the option
term in September of 1995. On that same day the investor group
attempted to exercise the option. The Company refused to
recognize the attempted transfer of the option to the investor
group on the primary grounds that the option was granted
personally to the Company s former President and CEO and was
not transferable to third-parties. The lawsuit seeks issuance
and registration of the 1,400,000 shares upon payment of the
exercise price, or in the alternative, monetary damages which
the investor group alleges to be not less than $2,800,000.
Lasertechnics believes the claim is without merit and will
vigorously oppose it. At December 31, 1995, management
estimates that the ultimate outcome will not have a materially
adverse effect upon the Company s financial condition or
results of operations. Management s estimates could change
depending on how the lawsuit progresses.
On March 15, 1996, LMC was notified about a potential future
patent infringement claim by a competitor relating to LMC s
electronic code changing device. LMC does not believe that its
product infringes on the identified patent, but it is in the
process of employing special patent counsel to investigate the
merits of the potential claim. Management currently estimates
that the ultimate outcome of this claim will not have a
materially adverse effect upon the Company s financial position
or results of operations. Management s evaluation may change
depending upon the results of its investigation.
(13) Restructuring Charge
-------------------
During the fourth quarter of 1994, SIS U.S. and SIS Europe
recorded restructuring charges of $1,148,275 to adjust the net
carrying value of certain inventory to its estimated net
realizable value. The provision was principally necessitated
by the planned discontinuance of the digital image recorder
product line and the introduction of a new generation plastic
card printer product. The provision was estimated by
management based on a review of the market for its products and
the anticipated net revenues, less disposal costs, to be
received from the sale of this inventory.
F-18 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Income Taxes
------------
Due to the Company s losses, no income tax expense was
recorded for the years ended December 31, 1995, 1994 and 1993.
At December 31, 1995, the Company had a net operating loss
carryforward of approximately $22,000,000 for U.S. federal
income tax purposes, which will begin expiring in 1997. Of
this federal net operating loss carryforward approximately
$11,000,000 is available for state income tax purposes. The
tax benefit (approximately $7,500,000) of the net operating
loss carryforward has been fully offset by a valuation
allowance, since the Company cannot currently conclude that it
is more likely than not that the benefit will be realized. The
valuation allowance increased by approximately $3,000,000
during 1995. Because of expected conversions of existing
convertible debt, a change in ownership, as defined for
purposes of the Internal Revenue Code, could occur in 1996 that
would limit the annual utilization of the U.S. federal net
operating loss carryforward under applicable Internal Revenue
Service regulations. Additionally, the Company had
approximately $400,000 and $40,000, respectively, of research
and development and investment tax credit carryforwards. The
carryforwards expire beginning from 1997 to 2006. In addition,
the Company has available a capital loss carryforward of
$1,950,000 which fully expires in 1996.
(15) Export Sales
------------
Export sales totaled approximately $4,991,000, $4,191,000 and
$2,038,000 in 1995, 1994 and 1993, respectively.
(16) Acquisitions
------------
Printis, SARL
-------------
On February 19, 1992, the Company purchased a 43 percent
equity interest in Printis, SARL (Printis) of Paris, France for
approximately $279,000. In April 1994, SIS Europe purchased
the remaining 57 percent equity interest in Printis for
$100,000 cash, 50,000 shares of SIS U.S. common stock and
minimum royalties totaling approximately $282,000 through 1999.
This acquisition was accounted for using the purchase method of
accounting and resulted in goodwill of approximately $485,000.
During 1995 Printis was merged into SIS Europe.
Media Imaging Technology Corp.
------------------------------
On October 29, 1993, SIS U.S. acquired the assets and certain
liabilities of Texas-based Media Imaging Technology Corp.
(MITC) for $50,000 cash, a $150,000 note payable over a twelve-
month period, a minority stock interest in SIS U.S. and the
assumption of $241,904 of MITC liabilities. The acquisition
has been accounted for using the purchase method of accounting.
MITC is a producer of imaging software and photographic image
transmitters. Approximately $394,000 of the acquisition price
was allocated to purchased software and capitalized as an asset
on SIS s balance sheet. During 1994 and 1993 SIS U.S.
capitalized costs to modify the software. However, in the
fourth quarter of 1994 SIS U.S. determined that the market for
the product was not viable and all marketing and sales efforts
ceased. As a result, SIS U.S. wrote-off the unamortized
balance of purchased and internally developed software costs of
$375,000 during 1994. The write-off is classified as research
and development expense in the accompanying financial
statements.
F-19 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Segment Information
-------------------
Business Segments
-----------------
The Company operates with its product groups organized into two business
segments; marking and imaging. Operations in marking involve the
production and sale of laser systems which mark products with a serial
number, logo or bar code. Imaging operations involve the sale of
plastic card printers.
Operating results and other financial data are presented in the
information which follows for the principal business segments of the
Company for the years ended December 31, 1995, 1994 and 1993. General
corporate assets and expenses are allocated to the respective business
segments.
<TABLE>
<CAPTION>
Marking Imaging Consolidated
------- ------- ------------
<S> <C> <C> <C>
1995:
- ----
Sales $10,308,154 (a) 3,121,577 13,429,731
Loss from operations (195,374) (7,934,839) (8,130,213)
Identifiable assets (c) 8,797,832 5,844,770 14,642,602
Capital expenditures 354,990 640,528 995,518
Depreciation 218,466 133,991 352,457
1994:
- ----
Sales $11,963,399 (a) 3,892,810 15,856,209
Loss from operations (416,160) (6,776,649) (7,192,809)
Identifiable assets (c) 6,497,792 4,212,664 10,710,456
Capital expenditures 417,992 372,417 790,409
Depreciation 174,116 139,860 313,976
1993:
- ----
Sales $ 6,176,341 (a) 1,851,669 8,028,010
Loss from operations (710,029) (1,399,740) (2,109,769)
Identifiable assets (c) 5,869,861 1,800,942 7,670,803
Capital expenditures 161,108 131,831 (b) 292,939
Depreciation 149,547 2,925 (b) 152,472
============ ========== ==========
</TABLE>
(a) Sales of marking products to single customers were $2,171,000, $7,296,000
and $1,300,000 in 1995, 1994 and 1993 which represents, 21, 61 and 21
percent of marking sales, respectively.
(b) Prior to July 31, 1993, the marking and imaging business segments operated
in the same physical location. Through that date the marking segment made
all capital expenditures for both business segments and then allocated a
portion of depreciation expense to the imaging division through the
Company s normal expense allocation process. Consequently, the segment
data presented only reflects imaging capital expenditures and depreciation
for activity occurring subsequent to July 31, 1993.
(c) Identifiable assets by business segment are those assets used in the
Company s operations in each segment.
F-20 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Geographic Segments
-------------------
The Company operates primarily in the United States and France.
Operating results and other financial data are presented in the
information which follows for the principal geographic segments of the
Company.
<TABLE>
<CAPTION>
United Intercompany
States (g) France Activity (f) Consolidated
---------- ------ ------------ ------------
<S> <C> <C> <C> <C>
1995:
Sales $11,730,377 2,549,943 (850,589)(d) 13,429,731
Loss from operations (6,565,747) (1,557,388) (7,078) (8,130,213)
Identifiable assets (e) 16,157,790 2,520,500 (4,035,688) 14,642,602
1994:
Sales $13,722,594 2,831,014 (697,399)(d) 15,856,209
Loss from operations (5,644,499) (1,511,232) (37,078) (7,192,809)
Identifiable assets (e) 10,371,137 3,639,280 (3,299,961) 10,710,456
1993:
Sales $ 7,953,267 74,743 - 8,028,010
Loss from operations (1,962,740) (147,029) - (2,109,769)
Identifiable assets (e) 7,631,346 495,813 (456,356) 7,670,803
=========== ========== ========== ==========
</TABLE>
(d) Sales between geographic regions are recorded at amounts above cost
in accordance with the rules and regulations of the governing tax
authorities.
(e) Identifiable assets by geographic segment are those assets used in
the Company s operations in each segment.
(f) Intercompany activity is eliminated in consolidation.
(g) All corporate activity and assets are included in the United States
geographic segment.
(18) Stock Issuances
---------------
At the annual meeting of the Board of Directors on July 28, 1995, the
Board authorized the issuance of up to 10 million shares of convertible
preferred stock, increased the number of authorized shares of nonvoting
stock from 5,000,000 to 8,500,000 and decreased the number of
authorized shares of voting common stock from 45,000,000 to 41,500,000.
During the year, the Company s Board established three classes of
convertible preferred stock, Series A, B and C, with each class being
convertible into one share of the Company s voting common stock.
On December 27, 1995, the Company issued 198,676 shares of convertible
preferred stock to Wolfensohn for cash totaling $300,000 and an
additional 198,675 shares of convertible preferred stock to an
affiliate of Wolfensohn for cash totaling $300,000.
In January 1994, the Company issued 272,331 shares of its unregistered
common stock to Wolfensohn at a per share price of approximately $.73.
The $200,000 proceeds from this sale were principally utilized by SIS
U.S. in its acquisition of Printis (note 16).
F-21 (Continued)
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In June 1994, the Company issued 826,447 shares of its unregistered
common stock at $1.21 per share (total of $1,000,000) to SPI. Under the
terms of the agreement, a nonvoting representative of SPI is entitled
to attend Lasertechnics, Inc., board meetings. Concurrently with SPI's
purchase of common stock, SIS U.S. entered into a contract
manufacturing agreement and a distribution agreement with SPI (see note
3).
In July 1994, the Company issued 4,900,000 shares of its unregistered
common stock to JPMIC at $.95 per share (total of $4,655,000). The
Company also issued a $345,000 convertible note payable bearing
interest at 10 percent and convertible at $.95 per share into nonvoting
convertible common stock of the Company. The nonvoting convertible
common stock is convertible into voting common stock on a one share for
one share basis. On November 29, 1994, the convertible note payable
plus interest was converted into 377,684 shares of the Company s
nonvoting convertible common stock. Under the terms of the stock
purchase agreement JPMIC is entitled to one seat on the Board of
Directors.
On March 29, 1993, and in conjunction with a private placement
transaction, the Company issued 727,273 shares of its common stock to
three stockholders for $800,000 cash and also issued 454,545 shares of
its common stock for the conversion of $500,000 of convertible debt
(see note 7).
On October 28, 1993, the Company issued 2,042,484 shares of common stock
to two stockholders for cash totaling $1,500,000. At December 31, 1993,
$350,000 of cash proceeds still owed to the Company from this issuance
was recorded as a receivable from the sale of common stock in the
accompanying consolidated balance sheet. The $350,000 was received by
the Company in January 1994.
(19) Subsequent Event
----------------
On March 15, 1996, the Company completed a $5,500,000 private placement
of 10 percent convertible subordinated debentures maturing March 1,
1999. The debentures are convertible into the Company s common stock at
the option of the holder at the lesser of $2.00 per share or 85 percent
of the average 5-day closing bid price of the Company's stock prior to
conversion, subject to certain holding requirements. The Company has
the right to force conversion at any time after March 1, 1997 utilizing
the formula described above. The Company also has the right to redeem
the debentures for cash upon notice of conversion by a holder or at
anytime after March 1, 1997. All outstanding debentures shall
automatically be converted into the Company s common stock at maturity.
F-22
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
Independent Auditors Report on
-------------------------------
Financial Statement Schedule
----------------------------
The Board of Directors and Stockholders
Lasertechnics, Inc.:
Under date of March 8, 1996, except as to the last paragraph of note 12 and note
19 which are as of March 15, 1996, we reported on the consolidated balance
sheets of Lasertechnics, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders equity and
cash flows for each of the years in the three-year period ended December 31,
1995. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement Schedule II. This
financial statement schedule is the responsibility of the Company s management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The audit report on the consolidated financial statements of Lasertechnics, Inc.
and subsidiaries referred to above contains an explanatory paragraph that states
that the Company s recurring losses from operations, and resulting continued
dependence upon access to additional external financing, raise substantial doubt
about the Company s ability to continue as a going concern. This financial
statement schedule does not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG PEAT MARWICK LLP
-------------------------------------
KPMG PEAT MARWICK LLP
Albuquerque, New Mexico
March 8, 1996, except as to
the last paragraph of note 12
and note 19 to the consolidated
financial statements, which are as of
March 15, 1996
S-1
<PAGE>
Schedule II
-----------
LASERTECHNICS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additions
Balance charged
at to Balance
beginning costs at end
of and of
Description period expenses Deductions period
----------- ------ -------- ---------- ------
<S> <C> <C> <C> <C>
For the year ended December 31,
1995:
Reserves and allowances deducted
from asset accounts -
allowance for doubtful
accounts $ 170,010 115,375 (7,122)(a) 278,263
========= ======= ====== =======
Product warranty reserve
$ 261,138 338,250 (343,385)(b) 256,003
========= ======= ====== =======
For the year ended December 31,
1994:
Reserves and allowances deducted
from asset accounts - allowance
for doubtful accounts $ 104,841 65,169 - 170,010
========= ======= ====== =======
Product warranty reserve $ 97,415 687,591 (523,868)(b) 261,138
========= ======= ====== =======
For the year ended December 31,
1993:
Reserves and allowances deducted
from asset accounts - allowance
for doubtful accounts $ 222,535 21,008 (138,702)(a) 104,841
========= ======= ====== =======
Product warranty reserve $ 126,021 116,553 (145,159)(b) 97,415
========= ======= ====== =======
</TABLE>
(a) Charge-offs.
(b) Actual costs incurred.
S-2
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Lasertechnics, Inc.:
We consent to incorporation by reference in the registration statements No. 33-
42214 and 33-98160 on Form S-8 of Lasertechnics, Inc. and subsidiaries of our
report dated March 8, 1996, except as to the last paragraph of footnote 12 and
footnote 19 which are as of March 15, 1996, relating to the consolidated balance
sheets of Lasertechnics, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity and
cash flows and related financial statement schedule for each of the years in the
three-year period ended December 31, 1995, which reports appear in the December
31, 1995 annual report on For 10-KSB of Lasertechnics, Inc.
Our report dated March 8, 1996, except as to the last paragraph of footnote 12
and footnote 19 which are as of March 15,1996, contains an explanatory paragraph
that states that the Company's recurring losses from operations and resulting
continued dependence upon access to additional external financing together with
the default on a capital lease obligation raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements and financial statement schedule do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ KPMG PEAT MARWICK LLP
----------------------------------------
KPMG PEAT MARWICK LLP
Albuquerque, New Mexico
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 453
<SECURITIES> 0
<RECEIVABLES> 3,515
<ALLOWANCES> 506
<INVENTORY> 4,628
<CURRENT-ASSETS> 8,964
<PP&E> 228
<DEPRECIATION> 132
<TOTAL-ASSETS> 12,306
<CURRENT-LIABILITIES> 11,237
<BONDS> 0
0
3,000
<COMMON> 290
<OTHER-SE> (2,191)
<TOTAL-LIABILITY-AND-EQUITY> 12,306
<SALES> 9,944
<TOTAL-REVENUES> 9,944
<CGS> 6,288
<TOTAL-COSTS> 9,234
<OTHER-EXPENSES> (16)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 654
<INCOME-PRETAX> (6,217)
<INCOME-TAX> 1
<INCOME-CONTINUING> 1
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,217)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
