<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A-2
AMENDMENT NO. 2
[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 ____________
Commission file number 0-11933
LASERTECHNICS, INC.
- -----------------------------------------------------------------------------
(Name of small business issuer in its charter)
DELAWARE 85-0294536
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
- -----------------------------------------------------------------------------
5500 WILSHIRE AVENUE, N.E., ALBUQUERQUE, NEW MEXICO 87113
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number. (505) 822-1123
--------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE
---- ----
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK. PAR VALUE $.01 PER SHARE
(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
---- ----
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 incorporated by reference in Part III of this Form 10-KSB or any
amendment to
1
<PAGE>
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 ________
(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
---- ----
2
<PAGE>
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............ 23
PART III
Item 9. Directors and Executive Officers of the
Registrant........................................ 23
Item 10. Executive Compensation............................ 26
Item 11. Security Ownership of Certain Beneficial
Owners and Management............................. 26
Item 12. Certain Relationships and Related Transactions.... 26
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................... 26
SIGNATURES....................................................... 31
3
<PAGE>
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.
SIS, formed in August 1993, distributes, integrates and sells multi-station
and mono-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% owned 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
There is an increasing worldwide consumer awareness and demand for batch and
expiration codes on a variety of packages and containers. 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 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 CO2 (carbon dioxide) gas laser markers that
are easily
4
<PAGE>
integrated into a wide range of sophisticated and demanding high
speed product packaging facilities. The Blazer 6000-TM- is a water cooled
CO2 pulsed gas lasers used in the on-line marking of industrial and consumer
products. In 1995, LMC introduced the BlazerJet-TM- dot-matrix coders. The
BlazerJet-TM- had been under development for the years 1994 and 1995 as
discussed in the Product Development Marking Section. 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. The system is transportable between packaging lines
and is designed for maximum flexibility - while providing marking quality and
operating performance superior to inkjets of similar capacity. 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:
PERISHABLES. Perishables such as food, dairy and beverage products require a
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
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
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
5
<PAGE>
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
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 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. based
manufacturer of high speed, laser-based product coding equipment. The Company
continues to receive repeat orders from customers who purchase the Company's
hardware and solutions to meet package marking requirements.
DEPENDENCE ON SALES. In 1994, the Company sold $7,296,000 of Blazer products
and 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. The cost of card fraud totals billions of
dollars per year and card issuers are now accelerating the use of technology to
reduce the losses. SIS develops and markets systems to help businesses and
government agencies implement new technological solutions to address the
increase in card fraud. SIS offers a family of high-speed plastic card
printers which use the dye sublimation process. During 1995, SIS added four-,
five-, six- and seven-station models to its line of Mono and Multi-station
plastic card printer line. The models were in product
6
<PAGE>
development during the past two years. SIS has the ability to offer
customized printers for identification and credit card applications. In the
fourth quarter of 1995 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.
The Company's systems can support the printing and data encoding requirements of
any card-mounted, digitized security technology, positioning the Company to grow
rapidly in the card security industry.
DATAGLYPHS. The newest product offering from SIS is DataGlyphs. SIS has the
sole worldwide rights granted by Xerox Corporation for the sale of DataGlyphs, a
portable database symbology, for use on pocket sized media, including
identification cards. DataGlyphs offers 30 times more data storage than
magnetic stripes, at the same level as card chips, but costs no more than the
magnetic stripe card. SIS has developed a total card security system called the
"Chipless"-TM- Smart Card Verification System, that combines DataGlyphs
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 DataGlyphs reader called
GlyphScan-TM- to serve as the scanning device for DataGlyphs applications. The
DataGlyphs 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.
The Company created strategic product marketing alliances with several leading
system integrators and technology companies in the card security market.
7
<PAGE>
DIGITAL IMAGE RECORDER (DIR). The DIR is a high resolution laser based, gray-
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
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 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
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
8
<PAGE>
market. In addition, the Company will continue to develop the DataGlyphs
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
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 plastic card printers use the dye sublimation process which
competes with a number of large hardware and software companies with similar
products. SIS competitors include DataCard, Atlantek, Toppan, Dai Nippon
Printing, among others.
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.
9
<PAGE>
MARKETING
LASER MARKING: LMC derives the major portion of its revenues from the sale of
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
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:
- --------------------------------------------------------------------------
YEAR END YEAR END YEAR END
1995 1994 1993
- --------------------------------------------------------------------------
Total $3,442,000 $3,886,000 $8,094,000
- --------------------------------------------------------------------------
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
10
<PAGE>
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
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.
11
<PAGE>
Item 2. PROPERTIES
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
On February 28, 1996, an investor group comprised of Michael Jesselson,
Nicholas Madonia as Trustee for the Blech Family Trust, and David Blech filed
suit against the Company in the U.S. District Court for the Southern District of
New York. The action 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
the Company's Common Stock at $.495 per share. The option had been granted to
the Company's former President, who attempted to transfer his option to the
investor group on the last day of the option term in September of 1995. The
Company refused to recognize the attempted transfer of the option to the
investor group on the primary ground that the option was granted personally to
the Company's former President 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 of $693,000, or in the alternative, monetary damages which
the investor group alleges to be not less than $2,800,000. While the Company's
management believes the claim is without merit and will vigorously oppose it, at
the present time it is not reasonably possible to predict the outcome.
Therefore, the Company has made no provision for any losses as of December 31,
1995 and as of March 31, 1996.
12
<PAGE>
Also, refer to Note 12 of the Notes to the Consolidated Financial 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
STOCKHOLDER MATTERS.
The table below sets forth high and low last sale prices for the Common Stock
during each of the periods indicated, as reported by the WALL STREET JOURNAL.
The Company's stock trades under the symbol LASX.
1994 LAST SALE PRICES 1995 LAST SALE PRICES
--------------------- ----------------------
CALENDAR PERIOD LOW HIGH LOW HIGH
- -------------------------------------------------------------------
First Quarter $ .96875 1.5625 1.00000 1.6250
Second Quarter $ 1.0625 2.5000 1.12500 1.6250
Third Quarter $1.46875 2.5625 1.34375 2.3750
Fourth Quarter $2.03125 1.1875 1.03125 2.4375
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
13
<PAGE>
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
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
SEPARATE BUSINESS UNITS. Late in 1993 the Company announced that it would
try to 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.
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
14
<PAGE>
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 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, as mentioned in the previous paragraph, and
an increase in the higher margin service sales in 1995.
15
<PAGE>
In 1994 the marking segment gross profit increased by 86%, or $1,568,113, from
1993, while the gross profit percentage declined from 36% to 34%. Accounting
for these changes primarily was the shipment during 1994 of a large lower
margin single order of $7.5 million 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 lower
sales and from the completion in the prior year of the major research and
development efforts on the new BlazerJet-TM- system resulting in a reduction
of the research and development expenses of approximately $225,000.
The significant prototype development costs of the BlazerJet-TM- 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 decrease in the gross profit of
$575,430 in 1995 and more importantly, an increase in operating expenses of
$1,731,035 from 1994 to 1995 and $4,676,720 from 1993 to 1994.
Imaging segment sales decreased 20% in 1995 compared to 1994 primarily because
of the decrease in Digital Imaging Recorder (DIR) and SnapShot sales of
approximately $750,000. In the fourth quarter of 1995, the DIR and SnapShot
lines of printers were sold.
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 lower margin, and because of the sale of specific
designed plastic
16
<PAGE>
card printers which have a higher product 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 and lower margin.
Segment operating expenseS increased 26% in 1995 to $8,421,496 from the
$6,690,461 operating expenses in 1994. This increase of $1,731,035 was the
result of approximately $440,000 increase in sales and marketing costs,
including the opening of several sales offices, and approximately $530,000
increase in costs due to the establishment of a customer service department. In
addition, general and administrative costs increased $875,000 to support the
overall expanded operations of the imaging business, including approximately
$268,000 increase in the allocation of costs to operate the Lasertechnics, Inc.
holding company.
Research and development expenses declined 5%, or approximately $115,000, from
the 1994 level. Additional R & D costs of approximately $775,000 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 on which the Company spent over $890,000 in
1994.
Imaging operating expenses increased 232% in 1994 compared to 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
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.
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
17
<PAGE>
and a nominal amount of interest income. The majority of other expenses in
1995 relate to the interest and amortization on the sale of the October 1995
debentures and short term debt.
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 $12,359,323 net proceeds from financing activities was raised
from the sale of $7,000,000 in debentures and other private borrowings later
converted to equity investments. Operating activities used net cash of
$10,898,506 primarily to support the $9,094,503 loss, the $1,149,528
increase in inventory, and the $1,165,875 increase in accounts receivable.
Although sales decreased from 1994 to 1995, accounts receivable increased
primarily due to a large number of shipments during the last two weeks of 1995
totaling approximately $1 million. In addition, an account receivable of
$718,932 due from a single customer is subject to an offset against a payable
to the customer. The Company and customer have agreed to the setoff of the
payable which is approximately the same amount. 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 foreign sales are generated by SIS Europe (located in Paris,
France), SIS US, and LMC. SIS Europe sales and operating costs are in
French Francs. SIS US and LMC sales are in US dollars, except for a
subcontract that was signed in April 1996 of approximately $5 million which
will be settled in Australian dollars. The Company is considering the
purchase of a currency contract to limit its exposure under this subcontract.
There were no significant currency fluctuations in 1995.
18
<PAGE>
The Company's business plan projects positive cash flow after the third
quarter of 1996. This projection is predicated principally upon significant
increases in the sale of existing imaging products and the successful
introduction of new product sales 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, 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 may need $10 million of additional external
financing to meet its 1996 requirements. A debenture offering was completed
in March 1996 which raised $5.5 million of the $10 million. Management
believes that it will be able to access equity, debt or bridge financing
sufficient to fund the cash requirements beyond cash provided from
operations; however, there are no assurances that the Company will be able to
do so. Currently, there are no existing commitments for any additional
external financing.
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 coupons accrue at a rate of 10% per annum
and are 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 of 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 with a 5 year term.
Lasertechnics may force conversion of any or all of the debentures at a price
that
19
<PAGE>
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 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.
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 lessee pays on a
timely basis the base prepayment and an additional prepayment amount of
$8,000 per month. All such payments were made on a timely basis. The lessee
has met with the bondholder and anticipates an extension or similar agreement
for a future period. If such an agreement is not completed, 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.)
20
<PAGE>
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 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.
Additionally, 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, the 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
21
<PAGE>
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
In October 1995 the 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 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
22
<PAGE>
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 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 Arnaudo........... 51 Director (1995) President &
CEO (SIS 1995)
E.A. Milo Mattorano.......... 50 Vice President and Chief
Financial Officer &
Controller (SIS 1995)
23
<PAGE>
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. (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.
24
<PAGE>
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 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.
25
<PAGE>
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 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
26
<PAGE>
(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 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 (Registration 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).
27
<PAGE>
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 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 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
28
<PAGE>
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.
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
29
<PAGE>
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.
11.0 -- Statement Re: Computation of Per Share Earnings
21.1 -- Subsidiaries of Lasertechnics.
23.1 -- Consent of KPMG Peat Marwick.
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: 5/23/96
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 Accounting
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>
Exhibits Index
EXHIBITS
11 Computation of Per Share Earnings 33
23.1 Independent Auditors' Consent
32
<PAGE>
Exhibit 11
Lasertechnics, Inc. and Subsidiaries
Computation of Per Share Earnings
YEAR ENDED DECEMBER 31
-----------------------
1995 1994 1993
---- ---- ----
Shares Outstanding:
Weighted average shares
outstanding: 27,511,489 21,997,410 16,842,380
Net loss applicable to
common stock: $ 9,167,737 $ 7,286,956 $ 2,045,070
Net loss per share: $ (.33) $ (.33) $ (.12)
----- ----- -----
----- ----- -----
33
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lasertechnics, Inc.:
We consent to incorporation by reference in the Amendment No. 2 to 10K-SB
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 Form 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 finanical 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
May 20, 1996
34
<PAGE>
[LETTERHEAD]
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
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ---- ----
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 and development 2,910,346 3,577,209 844,339
General and administrative 4,036,271 2,755,063 1,976,735
Selling and 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>
NONVOTING
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ------------------- ---------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
--------- ---------- ---------- -------- --------- ------ ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1992 - $ - 15,739,089 $157,391 - - 21,549,040 (19,982,425) (250,000) 1,474,006
Common stock issued for debt
(note 7) - - 454,545 4,545 - - 495,455 - - 500,000
Issuance of common stock, net
of issuance expenses (note 18) - - 2,769,757 27,698 - - 2,159,175 - - 2,186,873
Common stock issued for expenses - - 30,748 308 - - 50,501 - - 50,809
Exercise of common stock options
(note 11) - - 20,032 200 - - 15,541 - - 15,741
Net loss - - - - - - - (2,045,070) - (2,045,070)
--------- ---------- ---------- -------- --------- ------ ---------- ----------- -------- ----------
Balances at December 31,
1993 - - 19,014,171 190,142 - - 24,269,712 (22,027,495) (250,000) 2,182,359
Exercise of common stock options
(note 11) - - 65,830 658 - - 59,401 - - 60,059
Issuance of common stock,
net of issuance expenses
(note 18) - - 5,998,778 59,988 - - 5,531,232 - - 5,591,220
Translation adjustment - - - - - - 27,105 - - 27,105
Nonvoting convertible common
stock issued for debt
(note 18) - - - - 377,684 3,777 355,023 - - 358,800
Detachable warrants issued in
conjunction with convertible
debt (notes 7 and 10) - - - - - - 60,000 - - 60,000
Net loss - - - - - - - (7,286,956) - (7,286,956)
--------- ---------- ---------- -------- --------- ------ ---------- ----------- -------- ----------
Balances at December 31, 1994 - - 25,078,779 250,788 377,684 3,777 30,302,473 (29,314,451) (250,000) 992,587
Exercise of common stock
options (note 11) - - 625,712 6,257 - - 450,593 - - 456,850
Detachable warrants issued in
conjunction with convertible
debt (notes 7 and 10) - - - - - - 207,000 - - 207,000
Stock issued for debt, net of
unamortized discount and
expenses (note 7) 2,521,363 3,469,880 1,383,632 13,836 1,872,158 18,722 2,804,215 - - 6,306,653
Increasing rate preferred
stock discount - (126,446) - - - - 126,446 - - -
Discount accretion - 73,234 - - - - - (73,234) - -
Conversion feature of
debentures issued (note 8) - - - - - - 2,200,000 - - 2,200,000
Debentures converted, net
of unamortized discount
and expenses (note 8) - - 658,570 6,586 - - 673,661 - - 680,247
Issuance of convertible
preferred stock (note 18) 397,351 600,000 - - - - - - - 600,000
Exercise of detachable
warrants (note 7) - - 534,105 5,341 - - 684,659 - - 690,000
Foreign currency translation
adjustment - - - - - - (109,248) - - (109,248)
Net loss - - - - - - - (9,094,503) - (9,094,503)
--------- ---------- ---------- -------- --------- ------ ---------- ----------- -------- ----------
Balances at December 31,
1995 2,918,714 $4,016,668 28,280,798 282,808 2,249,842 22,499 37,339,799 (38,482,188) (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>
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 338,2506 87,591 116,553
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 and 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>
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 (see 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 agreement and 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>
LASERTECHNICS, 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 revenues in 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 (Continued)
<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:
YEAR ENDING DECEMBER 31
1996 $1,149,418
1997 26,011
1998 15,743
----------
1,191,172
Less amount representing interest (13,132)
----------
$1,178,040
----------
----------
(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
August 1995 Wolfensohn 1,500,000 1.30 Series A preferred 1,153,846
September 1995 Wolfensohn 1,500,000 1.42 Series B preferred 1,056,338
December 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:
WARRANTS PRICE PER
OUTSTANDING SHARE
----------- -----------
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
-------- -----------
-------- -----------
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:
OPTIONS
OUTSTANDING
-----------
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
-------
-------
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:
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- -------------
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
------- ------------
------- ------------
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:
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- ------------
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, 1995 297,624 $1.22 - 1.74
---------- ------------
---------- ------------
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:
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- ----------
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
------- ----------
------- ----------
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 the
Company's 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. The Company 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.
MARKING IMAGING CONSOLIDATED
----------- --------- ------------
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
----------- ---------- ----------
----------- ---------- ----------
(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 for Peat Marwick]
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
