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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-11933
LASERTECHNICS, INC.
(Exact name of Small Business Issuer in Its charter)
DELAWARE 85-0294536
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3208 COMMANDER DRIVE, CARROLLTON, TEXAS 75006
(Address of principal executive offices) (Zip Code)
(972) 407-6080
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE 46,634,964
(Title of Class) (Number of Shares Outstanding
as of March 20, 1998)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not 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 this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1997 were
$11,118,339. There were 2,249,842 shares of non-voting Common Stock outstanding
as of March 20, 1998.
The aggregate market value of voting and non-voting Common Stock held
by nonaffiliates of the Issuer is approximately $9,367,409. This amount was
calculated by reducing the total number of shares of the Issuer's Common Stock
outstanding by the total number of shares of Common Stock held by officers,
directors and stockholders owning in excess of 5% of the Issuer's Common Stock,
and multiplying the remainder by the average of the bid and asked price for the
Issuer's Common Stock on March 20, 1998, as reported on the over-the-counter
Nasdaq SmallCap Market. The information provided shall in no way be construed
as an admission that any officer, director or more than 5% stockholder of the
Issuer may be deemed an affiliate of the Issuer or that such person is the
beneficial owner of shares reported as being held by such person, and any such
inference is hereby disclaimed.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement concerning the
1998 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are
incorporated by reference into Part III of this report. The Proxy Statement
will be filed with the Commission not later than 120 days after the
Registrant's fiscal year ended December 31, 1997.
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1997 ANNUAL REPORT ON FORM 10-KSB
Table of Contents
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PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II
ITEM 5. MARKET FOR LASERTECHNICS COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Lasertechnics, Inc., a Delaware corporation ("Lasertechnics" or the "Company"),
was formed in October 1981. In early 1995, the Company became a holding
company with two separate operating units, Sandia Imaging Systems Corporation
("Sandia") and Lasertechnics Marking Corporation ("LMC"), both Delaware
corporations. With the application of its personalized color ID card printing
and production experience, Sandia is developing and marketing secure access
control products that will provide organizations with a low-cost method for
controlling access to facilities. See "Business -- Access Control Business."
LMC designs, manufactures and sells high speed date marking equipment used by
manufacturers on various food products and other date sensitive consumer goods
and industrial products to facilitate inventory control. See "Business --
Marking Business." Each of Sandia and LMC is run by its own management team,
produces different products and serves different markets. References to
Lasertechnics or the Company mean the Company and its subsidiaries taken as a
whole, unless the context requires otherwise.
The Company's principal offices are located at 3208 Commander Drive,
Carrollton, Texas 75006, and its telephone number is (972) 407-6080.
PRODUCT LINES AND SERVICES
ACCESS CONTROL BUSINESS
Sandia, a 96% owned subsidiary of the Company, operates and manages its access
control business through two divisions: imaging and technology. The imaging
division is principally engaged in the businesses of distributing and reselling
high-end and mid-range dye-sublimation card printers and printer consumables,
as well as production of customized, high quality, fraud resistant,
personalized color ID cards. Sandia is leveraging this experience to design
corporate access control systems based on card-mounted biometric and other
verification for corporate security applications. See "Business -- Imaging
Division." The technology division is principally engaged in the development
and commercialization of imaging component products such as the new document
reader, digital camera and dithering technology (the "XLV Technology") the
Company is in the process of acquiring from XL Vision, Inc., a Safeguard
Scientifics partnership company ("XLV") for use in card readers and other
digital image-acquisition applications. In January 1998, the Company and XLV
entered into the Intellectual Property Transfer Agreement (the "Technology
Acquisition Agreement") which provides the Company with options to acquire the
XLV Technology from XLV. See "Business -- Technology Division." The
acquisition of the XLV Technology is subject to certain conditions, including
(1) the approval of a reverse stock split proposal by the Company's
stockholders and (2) the receipt of any other stockholder approval required by
law or by the rules of Nasdaq. See "Proposed 1998 Changes in Capital Stock."
Imaging Division
Sandia's imaging business accounted for approximately 39% of the Company's 1997
consolidated sales, down from 47% in 1996 and 23% in 1995. Sandia sells its
goods and services in several foreign countries to organizations
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such as national and local government agencies. Sandia's plastic card printers
accommodate any type of PVC-based card meeting the International Standards
Organization ("ISO") plastic card requirements, including plain,
magnetic-striped, "smart" (i.e., with on-card microprocessors) and optical
storage cards. These assorted plastic cards are used to issue, among other
things, drivers' licenses, border crossing cards, identification cards and
health care cards.
In December 1997, the Company launched its IDCard Services program. IDCard
Services provides an outsourcing option to companies, associations and
universities that do not want to make a capital investment in a printer. It is
a turnkey service providing color, personalized ID cards with edge-to-edge
thermal printing and encoding. IDCard Services employs the latest complex
security technologies such as hologram, optical card chip and magnetic stripe
encoding. In addition, IDCard Services is marketing its cards as keepsakes to
the retail marketplace.
Technology Division
The technology division is attempting to develop technology for use with access
control products marketed by the imaging division and to other imaging reader
integrators. To date, the Company has not recognized any sales revenue from
its operation of the technology division.
Dataglyphs(TM). Sandia is designing imaging component products which embed in a
card database symbology originally developed by Xerox Corporation ("Xerox").
This information based card system is being marketed by Sandia under the trade
name Dataglyphs(TM). In 1995, Xerox granted Sandia the sole worldwide right to
sell DataGlyphs(TM) for use in the secure access industry. A plastic card
utilizing DataGlyphs(TM) costs no more than a magnetic-striped card but offers
40 times more data storage (which is storage comparable to a computer chip
card). The Technology Division intends to develop a customized DataGlyphs(TM)
reader, to serve as the reading device for DataGlyphs(TM) applications. The
Company and Xerox are currently involved in discussions regarding a dispute
concerning the applicability of the products and services provided under the
Dataglyphs(TM) license and the payments due Xerox under the license. See
"Legal Proceedings."
The Dataglyph(TM) Verification System. Sandia is pairing Glyphit(TM) software
and glyph readers with third party biometric verification software systems, to
develop a total card security system for use in a variety of applications.
Sandia has begun marketing these systems directly to end-users and through
re-seller arrangements under the name The Dataglyphs(TM) verification system.
The combination of The Dataglyph(TM) verification system and Sandia's plastic
card printer family offers an integrated solution for the printing, encoding,
securing and verifying needs of numerous plastic card identification
applications.
The XLV Technology. Sandia recently entered into the Technology Acquisition
Agreement with XLV for the development and commercialization of the XLV
Technology, which consists of both hardware and software technology. The
Company believes that its secure card industry experience and the XLV
Technology will enable it to develop and market a low cost fraud resistant
access control system. This system would combine the portable card embedded
database with nontransferable personal information, such as finger prints, to
permit access only by the authorized card holder.
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Under the terms of the Technology Acquisition Agreement, XLV will continue to
devote personnel, services and project management for the enhancement and
commercialization of the XLV Technology. The Company will fund the enhancement
of the XLV Technology. In January 1998, the Company paid XLV $500,000 and will
make additional payments to XLV in the aggregate amount of $4.1 million for
further development expenses, payable in several installments over the
development period. Such funds will be used to fund technology enhancement
activities by XLV with respect to the XLV Technology, with the goal of making
such technology market-ready, as determined by mutual agreement of the Company
and XLV. Of the $4.1 million earmarked for development expenses, the Company
may, at its option, accelerate funding the development of the XLV Technology.
All payments made prior to the development of a working model, including the
costs of acquiring the options under the Technology Acquisition Agreement, will
be expensed as research and development costs.
The Company does not currently have any binding commitment in place to finance
such development expenses, but intends to seek the necessary funding through
the issuance of additional debt or equity securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources." The Company has the option to cease funding
the development of the XLV Technology at any time without further liability in
its reasonable business judgment or for the failure of XLV to meet the
development schedule. If, however, the Company terminates such funding, the
License Option, the Exclusive License Option and the Assignment Option (each
described below), to the extent not previously exercised, will terminate
automatically. See "Acquisition of XLV Technology" below. All technology and
intellectual property rights developed pursuant to these joint efforts will
initially be the property of XLV, subject to the License Option, the Exclusive
License Option and the Assignment Option.
Acquisition of XLV Technology. Subject to the Company's receipt of stockholder
approval relating to the issuance by the Company of the maximum number of shares
of its common stock, $0.01 par value (the "Common Stock") to XLV under the terms
of the Technology Acquisition Agreement, the Company will have the option (the
"License Option") for six months commencing 30 days after the Company's 1998
annual meeting of stockholders, to acquire a non-exclusive perpetual license to
the XLV Technology in exchange for 200,000 shares of Common Stock (as in effect
following the Reverse Stock Split Proposal). See "Proposed 1998 Changes in
Capital Stock." If the Company exercises the License Option, then, for 90 days
beginning on the date on which payment of all development funds contemplated by
the Technology Acquisition Agreement has been made in full, the Company will
have the further option, in exchange for an additional 300,000 post-reverse
split shares of Common Stock, to acquire an exclusive perpetual license to the
XLV Technology (the "Exclusive License Option"). If the Company exercises the
Exclusive License Option, then, for 90 days beginning on the earlier of April 1,
1999, and the date on which payment of all development funds has been made in
full by the Company, the Company will have the further option to acquire
outright ownership of the XLV Technology in exchange for an additional 300,000
post-split shares of Common Stock (the "Assignment Option"). If the Company
exercises the License Option, XLV will indemnify the Company against any claims
of intellectual property infringement by a third party relating to the XLV
Technology. If the Company exercises the Assignment Option, it will grant to XLV
an exclusive license to the XLV Technology within a specified field of use.
Under the terms of the Technology Acquisition Agreement, neither the Exclusive
License Option nor the Assignment Option may be exercised by the Company until
the Company has received stockholder approval
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of the issuance by the Company of the maximum number of shares of Common Stock
issuable under the Technology Acquisition Agreement. Accordingly, the Company
will seek stockholder approval of the issuance by the Company of the maximum
number of shares of Common Stock issuable under the Technology Acquisition
Agreement at its 1998 annual meeting of stockholders, which is currently
expected to be held in June 1998. To the extent that the Technology
Acquisition Agreement may result in the issuance of shares of Common Stock
constituting in the aggregate more than 20% of the number of shares of Common
Stock outstanding prior to such issuance, the Technology Acquisition Agreement
may require stockholder approval under the Nasdaq Listing Requirements that
went into effect on February 23, 1998 (the "New Nasdaq Listing Requirements").
Spot/Mag Provision. XLV and Spot/Mag, Inc., a corporation organized under the
laws of Taiwan ("Spot/Mag"), are currently engaged in discussions regarding the
possibility of entering into an agreement (the "Spot/Mag Agreement") under
which Spot/Mag would receive certain intellectual property rights relating to
the XLV Technology, for certain limited uses, in exchange for an obligation to
pay royalties and other remuneration to XLV. If the Spot/Mag Agreement is
executed within three years after the effective date of the Technology
Acquisition Agreement, and if the Company exercises the Assignment Option, XLV
will assign its rights and obligations under the Spot/Mag Agreement to the
Company, including the right to receive all royalties and amounts payable under
the Spot/Mag Agreement. In consideration for the assignment of the Spot/Mag
Agreement, the Company has agreed to pay to XLV on a quarterly basis one share
of Common Stock for each ten dollars ($10.00) of royalty actually received by
the Company from Spot/Mag under the Spot Mag Agreement, up to a maximum of
200,000 shares of Common Stock (in each case, based on the Common Stock
outstanding after the Reverse Stock Split). See "Proposed 1998 Changes in
Capital Stock." Thereafter, any additional royalties would inure solely to the
benefit of the Company.
MARKING BUSINESS
Laser Markers. LMC designs, manufactures and markets laser marking systems
which are used by manufacturers for the in- plant placement of lot numbers,
freshness dates and other information on consumer and industrial products and
packaging materials. LMC's marking business accounted for 61% of the Company's
1997 consolidated sales, up from 53% in 1996 and 77% in 1995. Since inception,
LMC has provided CO2 (carbon dioxide) gas laser markers that are easily
integrated into a wide range of sophisticated and demanding high-speed product
packaging facilities. To that end, LMC has created the Blazer 6000CE(TM), a
water-cooled, CO2 pulsed, gas laser system used in the on-line marking of
industrial and consumer products. In the last quarter of 1995, after more than
one year of development, LMC introduced a test version of its BlazerJet(TM)
dot-matrix coder at a major packaging industry show. See "Product Development"
below. As compared to the Blazer 6000CE(TM), the BlazerJet(TM) product offers a
higher degree of programmability to meet a greater number of packaging needs
and allows a larger number of codes to be stored and called up for use with a
few simple keystrokes. The BlazerJet(TM) system is transportable among
packaging lines, allows for maximum code flexibility and provides marking
quality and operating performance superior to inkjet markers of similar
capacity. LMC shipped fully functional BlazerJet(TM) systems to customers
throughout the second half of 1997.
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LMC's marking systems typically solve problems related to four main product
identification needs:
Perishables. Perishables such as beverage, food and dairy products
require a variety of date information to provide accurate product
freshness information. These products are manufactured in extremely
clean facilities and are characterized by extremes in temperature 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 marked using either the Blazer
6000CE(TM) or the BlazerJet(TM).
Traceability. Product traceability concerns, especially in the
medical and pharmaceutical industries, require variable batch
information to meet ever-increasing government regulations and enhance
a manufacturer's ability to limit and defend against 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. LMC's Blazer 6000CE(TM) can
operate at speeds exceeding 1,800 marks per minute and easily provide
legible information on fragile and/or thin materials with irregular
surfaces or limited space. The Blazer 6000CE(TM) marks so fast (about
one-millionth of a second per mark) that it operates at speeds
required by high speed packaging equipment manufacturers with whom LMC
has integrated the Blazer system. High speed packaging lines are
accommodated by the computer-based controller of the Blazer 6000CE(TM)
that interfaces with packaging line control equipment. While current
models of the BlazerJet(TM) are better suited for more moderate speed
production lines, the new BlazerJet(TM) marker system is expected to
operate at speeds comparable to that needed in most Blazer 6000CE(TM)
applications.
Environmental Concerns. Packagers seeking a product identification
system that eliminates the problems inherent in the use of expensive
and hazardous inks and solvents are increasingly using lasers. The
solvents used in many industrial inkjet coders are potentially harmful
to the environment, as well as to the health of personnel who handle
them. In addition, many inks used in marking contain solvents which
are classified as hazardous substances by the Environmental Protection
Agency (the "EPA") and, as such, are becoming more and more expensive
to handle as government regulations become more stringent. LMC's
products do not use hazardous substances as they consume only
electricity, water and non-toxic C2 laser gas. Thus the Blazer
6000CE(TM) and BlazerJet(TM) offer a safe, environmentally clean and
highly reliable product marking alternative to inkjet marking.
Dependence on Sales to Major Customer. LMC's largest customer is
Anheuser-Busch. LMC recorded sales of system upgrades, spare parts and
training to Anheuser-Busch in the amount of $1,139,187, $3,153,000 and
$2,171,000 in 1997, 1996 and 1995, respectively. Sales to Anheuser-Busch
accounted for 17%, 34% and 21% of LMC's total sales in 1997, 1996 and 1995,
respectively. Although this arrangement may be terminated by either party at
any time, the Company believes it has a good relationship with Anheuser-Busch
and continues
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to enhance this relationship. The loss of this customer would have a material
adverse effect on the Company's results of operations.
Product Development. In November 1994, LMC introduced a prototype of its new
BlazerJet(TM) marking system utilizing technology which was previously licensed
from United Technology Optical Systems and is currently licensed, on a non-
exclusive basis, from DeMaria ElectroOptic Systems. The Company's new laser
marker emulates the action of an inkjet system by forming dot matrix characters
to mark a moving product, such as a consumer good moving along a production
line, and is the first single-laser system of this type to bring the laser tube
to the mark point. LMC shipped fully functional BlazerJet(TM) systems to
customers in the second half of 1997.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures by the Company were $2,572,848,
$2,848,767 and $3,040,830 for the years 1997, 1996 and 1995 respectively. The
research and development expenses were incurred primarily for the development
of new manufacturing systems, DataGlyphs(TM) software, hardware and software
upgrades to Sandia's high speed plastic card printers and additional
enhancements to LMC's Blazerjet(TM) dot-matrix coder. The access control and
laser marking industries are undergoing, and are expected to continue to
undergo, rapid and significant technological change. There can be no assurance
that the Company's research and development programs will enable it to compete
effectively in the future. The development by others of new or improved
processes or products may make the Company's research and its products
obsolete.
COMPETITION
Access Control Business. Sandia competes with a variety of manufacturers and
resellers of plastic card printers that incorporate a non-proprietary dye
sublimation process as well as with hardware and software companies that have
similar printer and software technologies. DataGlyphs(TM) products compete
with alternative data encryption technologies used with plastic cards, such as
bar codes, magnetic stripes, optical data and smart chips. Sandia competes in
the data encryption and plastic card printer market through the development of
relationships with corporations that are prime contractors and technology
providers in the plastic card printing and secure card markets.
Laser Marking. The Company's Marking business faces competition not only from
other laser marking companies, but from companies using other marking
technologies in widespread use such as inkjet (currently the dominant
technology in the packaging industry), embossing and hot stamping. LMC
competes in the product marking market by marketing directly to end users
through full service distributors and independent manufacturer representatives.
The access control and laser marking industries are highly competitive in all
aspects, including research and development and marketing, and competition is
expected to intensify in both industries as technological advances are made and
become more widely known.
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The Company believes that the major competitive advantages in both of its
businesses include customer service, price, technical support, speed and
reliability. Because of the increase in competition, no assurance can be given
that the Company will compete successfully with respect to the factors
discussed above. Also, the Company would be adversely affected if its
competitors were to offer their products and systems at significantly lower
prices. Many of the Company's competitors have considerably greater financial,
technical and marketing resources than the Company.
MANUFACTURING AND SUPPLIERS
Approximately one-third of LMC's employees are engaged in manufacturing
activities. Sandia out-sources its manufacturing and does not have any
manufacturing employees.
Both companies depend upon a number of outside suppliers for components for
their products. Sandia arranges for the manufacture of all its plastic card
printers by a single source, Polyprint S.A. Generally, these supply
arrangements may be terminated by either party at any time, but the Company has
entered into them with the expectation that these arrangements will lead to
long-term relationships or contracts with those suppliers. Although to date
the Company has generally been able to obtain adequate supplies of these
products, the inability of the Company in the future to obtain sufficient sole
or limited source products, or to develop alternative sources, could result in
delays in product introductions or shipments and could have material adverse
effects on the Company's results of operations.
MARKETING
Access Control Business. Marketing and sales and service functions of the
access control business are performed directly by Sandia as well as through the
use of Distributors, Value Added Resellers ("VARs") and systems integrators.
Sandia has created strategic product marketing alliances with several system
integrators and technology companies in the secure card market. Because
Sandia's high speed printer systems can support edge-to-edge color printing and
data encoding requirements of any card-mounted, digitized security technology,
the Company believes Sandia's products represent the most complete and
cost-effective alternative in the high volume plastic card printing market.
Laser Marking. LMC derives the major portion of its revenues from the sale of
laser marking systems and related spare parts. LMC currently markets and sells
its products in the United States, through independent sales representatives
who are paid on a commission basis. Sales in the rest of the Americas, Western
Europe and the Pacific Rim are made through full service distributors who have
OEM pricing arrangements. LMC uses demonstrations at trade shows and
conventions, direct mailings of sales brochures and advertisements in trade
journals to advertise its products.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company relies on a combination of patents, technology licenses, trade
secrets and other intellectual property rights, nondisclosure agreements and
other protective measures to preserve its rights pertaining to its products.
The Company is licensed under certain patents related to the lasers used in its
markers and owns
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three patents, which have a broad range of medical and industrial laser marking
applications. 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 Sandia's plastic card printer
family of dye sublimation, photographically- customized identification/security
card printers. The Company's rights under such patents do not preclude the
manufacture of competitive products by others. However, pursuant to its
license agreement with Xerox, the Company does have sole rights to the
DataGlyphs(TM) technology for use with security and identification media. See
"Legal Proceedings."
The Company has registered or is in the process of registering the following
trade and service marks: "AXCESS Inc. (logo) "(TM), "The Clean Ones"(TM),
"Inkless Inkjet"(TM), Blazer 6000CE(TM) and "BlazerJet"(TM).
Much of the Company's ability to compete in the laser marking and access
control industries depends on trade secrets, know-how and proprietary technical
knowledge that is unprotected by patents. Although the Company continues to
implement protective measures and intends to defend its proprietary rights
vigorously, there can be no assurance that these efforts will be successful.
Such protections may not preclude competitors from developing products similar
to the Company's. In addition, the laws of certain foreign countries do not
protect intellectual property rights to the same extent as do the laws of the
United States. There can also be no assurance that third parties will not
assert intellectual property infringement claims against the Company. Any such
infringement claim could result in protracted and costly litigation and could
have a material adverse effect on the Company's results of operations
regardless of its outcome.
EMPLOYEES
As of December 31, 1997, the Company employed 82 people. Of this total, Sandia
employed 37, Sandia-Europe employed 11, LMC employed 32 and the holding company
employed 2. Because of the specialized nature of its businesses, the Company
is dependent upon the efforts of its current officers, consultants, and
engineers and upon its ability to attract and retain technologically qualified
personnel, particularly engineers and software designers highly qualified in
the areas of access control and laser technology. There is intense competition
for qualified personnel in the access control and marking industries, including
competition from companies with substantially greater resources than
Lasertechnics. Although the Company has been successful to date in recruiting
adequate numbers of qualified personnel, there is no assurance that it will be
successful in the future in recruiting or retaining personnel of the requisite
scientific caliber or in the requisite numbers to enable the Company to compete
effectively. For information with respect to the executive officers and
directors of the Company, reference is made to the Proxy Statement.
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.
As a company with international sales, Lasertechnics is subject to the federal
Export Administrative Regulations, which govern exports from the United States
of non-military goods, technology, software and technical services. The
regulations prohibit, or require prior approval for, exports of certain items
depending upon the characteristics of the item to be exported, the country of
destination, the ultimate end-use and ultimate end-user of the export.
Lasertechnics' products are not currently considered sensitive for export
control purposes and may be exported to almost all locations without prior
government approval. It should be noted, however, that the export controls
applicable to a particular item can be changed without prior notice, subject
only to public notification in the Federal Register. In recent years,
Lasertechnics' products have been subjected to several such changes.
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<PAGE> 11
Lasertechnics is also subject to the regulations promulgated by the foreign
governments in the countries in which it sells products and provide services.
These foreign regulations vary from country to country and may be changed
without prior notice at any time.
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 Sandia or LMC due to compliance with existing provisions of
federal, state and local laws regulating the discharge of material into, or
otherwise relating to the protection of, the environment.
YEAR 2000 COMPLIANCE
The Company has assessed all of its major software applications and determined
that such applications are Year 2000 compliant in all material respects.
Although the Company may incur some expenses in connection with making certain
minor modifications to its software applications to make them Year 2000
compliant, in the opinion of management, any such expenses related to any Year
2000 issues are not expected to have a material adverse effect on the Company's
business, operations or financial condition.
PROPOSED 1998 CHANGES IN CAPITAL STOCK
At a special meeting of the stockholders of Lasertechnics to be held on March
31, 1998 (the "Special Meeting"), the stockholders of the Company will consider
the following three proposals to amend the Company's Certificate of
Incorporation: (a) a proposal to affect a one-for-twenty reverse stock split
of the outstanding Common Stock, Non- Voting Common Stock, and Series A, B and
C Convertible Preferred Stock (the "Reverse Stock Split Proposal"); (b) a
proposal to reduce the number of authorized shares of the Company's Common
Stock; and (c) a proposal to change the Company's name to AXCESS Inc.
The primary purpose of the Reverse Stock Split Proposal is to combine the
outstanding shares of Common Stock so that the Common Stock outstanding after
giving effect to the Reverse Stock Split Proposal trades at a significantly
higher price per share than the Common Stock outstanding before giving effect
to the Reverse Stock Split Proposal. During 1997, the closing bid price for
the Common Stock on the SmallCap tier of The Nasdaq Stock Market, Inc. (the
"Nasdaq SmallCap Market") ranged from $1.34 to $0.22 per share. The closing
bid price for the Common Stock on March 20, 1998, was $0.22 per share. The
Company's current market price is below the minimum bid price of $1.00 per
share required for continued inclusion of the Common Stock on the Nasdaq
SmallCap Market pursuant to the New Nasdaq Listing Requirements. See
"Cautionary Statements--Nasdaq Listing."
A secondary purpose of the Reverse Stock Split Proposal is to increase the
number of authorized but unissued shares of Common Stock. Currently, the
Company does not have a sufficient number of authorized but unissued shares of
Common Stock to effect the conversion, exercise or exchange of all outstanding
securities of the Company that by their terms are convertible into, or
exercisable or exchangeable for, shares of Common
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<PAGE> 12
Stock. The lack of available shares would also prevent the Company from
consummating any of the transactions contemplated by the Technology Acquisition
Agreement.
The purpose of the authorized share proposal is to decrease the number of
authorized shares of Common Stock following effectiveness of the Reverse Stock
Split Proposal, so that the number of authorized but unissued shares of Common
Stock following the Reverse Stock Split Proposal bears a more appropriate
relation to the total number of shares of Common Stock then authorized. The
authorized share proposal will not be presented to the stockholders of the
Company at the Special Meeting unless the Reverse Stock Split Proposal has been
approved.
Finally, the purpose of the name change proposal is to change the corporate
name of the Company to better reflect the current primary business focus of the
Company.
CAUTIONARY STATEMENTS
Except for the historical information contained herein, this Report includes
"forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Although
the Company believes that the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Certain important factors that could cause actual results
to differ materially from the Company's expectations ("Cautionary Statements")
are disclosed below and qualify the forward looking statements included in this
Report. All subsequent written and oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
ACCUMULATED LOSSES
From its incorporation in 1981 through December 31, 1997, the Company has an
accumulated loss of approximately $66,700,000 and has been profitable in only
one fiscal year during that time. There can be no assurance that the Company
will generate sufficient revenues to achieve profitability in the future.
AUDITORS' REPORT
The Company's auditors have included an explanatory paragraph in their audit
opinion with respect to the Company's consolidated financial statements related
to a significant uncertainty with respect to the Company's financial position
at December 31, 1997, which states that the Company's recurring losses from
operations and resulting continued dependence on access to external financing
raise substantial doubts about its ability to continue as a going concern. In
October 1995, March 1996, and December 1997, the Company arranged an aggregate
of $12,500,000 in additional financing. In addition, in July 1996, May 1997
and December 1997, the Company completed a private placement of convertible
preferred stock for $8,350,000, $500,000 and $7,000,000. respectively. As a
result, there can be no assurance that the Company's future financial
statements will not include a similar explanatory paragraph if the Company is
unable to raise sufficient funds either through financing or from operations to
cover the cost of its operations. The factors leading to and the
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<PAGE> 13
existence of the explanatory paragraph may adversely affect the Company's
relationship with customers and suppliers and have an adverse effect on its
ability to obtain financing.
The Company is currently in discussions with a number of existing and potential
corporate, strategic and institutional investors. The Company's actual funding
needs will depend upon numerous factors, however, including actual expenditures
and revenues generated from its operations compared to its business plans. The
Company's actual funding needs will also depend on the successful development
of the new products contemplated within the XLV Technology Acquisition and
other unanticipated expenditures, none of which can be predicted with
certainty. There can be no assurance, however, that the Company will acquire
the additional funding it needs to fully pursue its business objectives.
SMALL TRADING VOLUME AND VOLATILITY OF STOCK PRICE
The weekly trading volume of the Company's Common Stock in the over-the-counter
market has varied from several thousand shares to 3 and 4 million shares, which
may tend to increase the volatility of the price. Since January 1992, the
closing bid price of Common Stock in the over-the-counter market has varied
from a low of $.22 to a high of $4.07 per share. There can be no assurance
that the price volatility will not continue in the future.
NASDAQ LISTING
The Company's Common Stock is listed on the Nasdaq SmallCap Market, which
requires maintenance of certain quantitative and other standards for continual
listing thereon. In its quarterly report on Form 10-QSB for the fiscal quarter
ended September 30, 1997, the Company reported total stockholders' equity of
approximately $1.3 million, down from approximately $5.3 million at June 30,
1997, reflecting the Company's consolidated net loss applicable to common stock
for the three month period ending September 30, 1997 of approximately $4.7
million, partially offset by conversions into Common Stock of outstanding
convertible notes. On November 17, 1997, Nasdaq advised the Company that the
Company was not in compliance with the listing requirements of the Nasdaq
SmallCap Market, then in effect (the "Old Nasdaq Listing Requirements") which
required a minimum bid price of $1.00 per share or, as an alternative if the
bid price is less than $1.00, maintenance of capital and surplus of $2,000,000
and a public float of $1,000,000. The Nasdaq's letter stated that no delisting
action with respect to the bid price deficiency would be initiated at that time
and that the Company would be provided 90
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<PAGE> 14
calendar days in which to regain compliance with either the minimum bid price
or the alternative stockholders' equity/ public float requirement.
The Company believes that it is currently in compliance with the stockholders'
equity and public float provisions of the Old Nasdaq Listing Requirements.
However, on August 22, 1997, the Securities and Exchange Commission
("Commission") approved the New Nasdaq Listing Requirements for (defined below)
continued listing on the Nasdaq SmallCap Market. In particular, the New Nasdaq
Listing Requirements require that a Company currently included in Nasdaq meet
each of the following standards to maintain its continued listing: (i) either
(A) net tangible assets (defined as total assets, minus goodwill, minus total
liabilities) of $2 million, (B) total market capitalization of $35 million, or
(C) net income (in the latest fiscal year or in two of the last three fiscal
years) of $500,000; and (ii) public float of at least 500,000 shares, with a
market value of at least $1 million; and (iii) minimum bid price of $1; and
(iv) at least two market makers; and (v) at least 300 round lot beneficial
shareholders; and (vi) compliance with certain corporate governance
requirements (the "New Nasdaq Listing Requirements"). Although the Company
believes, but cannot assure, that it will meet such requirements on the first
full trading day after the Company gives notice to Nasdaq that the Reverse
Stock Split has become effective, there can be no assurances that such will be
the case, or that continued losses or other factors beyond the control of the
Company will not cause the Company to fail to meet such requirements. See
"Proposed 1998 Changes in Capital Stock."
Since December 31, 1997, Antiope Partners L.L.C. ("Antiope Partners") and
Amphion Ventures L.P. (Amphion Ventures") converted $1.9 million in advances
under a Note Purchase Agreement dated as of June 25, 1997 (the "Note Purchase
Agreement") into shares of a new series of Convertible Preferred Stock, Series
G, $0.01 par value (the "Series G Preferred Stock"). Additionally, Amphion
Ventures committed to purchase up to an additional $5,500,000 of Series G or
another new series of preferred stock to fund the Company's operations and
provide for the continued maintenance of the Company's net tangible assets
above the New Nasdaq Listing Requirements. As of February 28, 1998, the
Company's net tangible assets were in excess of the $2 million threshold
established by the New Nasdaq Listing Requirements. Although management
believes that the Company will be able to preserve the listing of the Common
Stock on the Nasdaq SmallCap Market, there can be no assurance that the Company
will be able to do so.
If the Common Stock were delisted from the Nasdaq SmallCap Market, trading, if
any, would likely be conducted in the over-the-counter market on the National
Association of Securities Dealers' OTC Bulletin Board and/or on the pink sheets
of the National Quotation Bureau. As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Common Stock. In addition, the Common Stock would be subject to rules
promulgated under the Exchange Act applicable to penny stocks. The Commission
has adopted regulations that generally define a "penny stock" to be an equity
security that has a market price (as determined pursuant to regulations adopted
by the Commission) or exercise price of less than $5.00 per share, subject to
certain exceptions. By virtue of being listed on the Nasdaq SmallCap Market,
the Common Stock will be exempt from the Definition of "penny stock." If,
however, the Common stock is removed from the Nasdaq SmallCap Market, the
Company's securities may become subject to the penny stock rules that impose
additional sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors.
Consequently, the penny stock rules may affect the ability of broker-dealers to
sell the Common Stock and may affect the ability of purchasers of Common Stock
to sell such securities in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE; CONVERTIBLE SECURITIES AND WARRANTS
Future sales of Common Stock in the public market by existing stockholders,
warrant holders and holders of convertible securities subsequent to the date
hereof could adversely affect the market price of the Company's Common Stock. At
December 31, 1997, an aggregate of approximately 32,722,691 shares of Common
Stock were outstanding and freely tradeable without restriction under the
Securities Act. In addition, up to 13,912,273 shares were eligible for resale
in accordance with the manner of sale and volume limitations of Rule 144
promulgated under the Securities Act.
Lasertechnics has reserved approximately 10,000,000 shares of Common Stock for
issuance upon the exercise of outstanding convertible securities and warrants.
As of December 31, 1997, there were 1,153,846, 1,056,338,
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<PAGE> 15
708,530 and 789.74 shares of Series A, B, C and G Convertible Preferred Stock
outstanding, respectively. Each share of Series A, B and C Convertible
Preferred Stock is convertible at any time, at the option of the holder, into
one share of Common Stock. The conversion price for the Series G Convertible
Preferred Stock is $0.50 per share, subject to the Series G Reset Right. See
"Recent Sale of Unregistered Securities" below.
There are also currently 6,008,189 warrants outstanding to acquire the same
number of shares of Common Stock, as well as $535,000 of indebtedness with a
two-year maturity, convertible into Common Stock at $0.25 per share.
Lasertechnics has also reserved approximately 1,093,066 shares of Common Stock
for issuance to key employees, officers, directors and consultants pursuant to
the Company's benefit plans. As of December 31, 1997, there were 553,965
options outstanding.
ITEM 2. PROPERTIES.
ACCESS CONTROL BUSINESS
Sandia 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 that terminates in 2000. In addition, Sandia is the
lessor for two facilities in Paris, France comprising approximately 2,700
square feet in the aggregate, which are used to house the administrative,
engineering and sales functions of Sandia Europe. Both of these leases expire
in June 1998. The Asia/Pacific operations are handled by Sandia's consulting
partner, Technology Interests Pty. Ltd in Sydney, Australia, and the
Europe/Africa operations are handled by Sandia's Paris, France office.
MARKING BUSINESS
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 of the Notes to the Consolidated
Financial Statements for the years ended December 31, 1997, 1996, and 1995.
ITEM 3. LEGAL PROCEEDINGS.
On February 28, 1996, an investor group filed suit against the Company in the
U.S. District Court for the Southern District of New York. 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 Common Stock at a price of
$.495 per share. 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. On May 1, 1996, the Company moved to dismiss the
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<PAGE> 16
complaint on the grounds that the court in New York lacked personal
jurisdiction over the Company. The court denied the motion to dismiss by order
dated June 10, 1997. Subsequently, the Company filed an answer, denying the
material allegations of the complaint and asserting various defenses. On
December 31, 1997, plaintiffs moved for partial summary judgment on the
question of liability, as to whether or not the option was assignable. The
Company filed papers opposing this motion on or about January 26, 1998. The
Company believes the claim is without merit and will vigorously oppose it.
However, there can be no assurances that the Company will prevail in the
pending litigation, and an adverse outcome could have a material adverse effect
upon the financial position and liquidity of the Company.
The Company is currently in discussions with Xerox regarding the scope of the
Company's license for DataGlyphs(TM), a 2-D symbology developed by Xerox. In
1995, the Company was granted an exclusive license from Xerox, for an initial
license fee of $2.1 million, for the right to develop and sell products
utilizing DataGlyphs(TM) for the secured access industry. The royalty obligation
was evidenced by the Company's promissory note payable to Xerox, due in three
equal annual principal installments, plus interest, beginning December 1997. In
December 1997, the Company notified Xerox that it would not make the payment due
under the note, pending satisfactory resolution of the Company's concerns
regarding the technological applicability of the products and services provided
by Xerox to the Company pursuant to its license and the payment due in respect
thereof. Xerox has advised the Company in writing that it believes that payment
under the note is now past due. The Company believes that it has valid defenses
to any legal action that may be brought by Xerox to enforce its note, and
intends to take steps to preserve its rights if its discussions with Xerox fail
to produce an amicable resolution of their dispute. To date, the Company has
not recognized any sales revenue related to the DataGlyphs(TM) Technology. The
Company and Xerox have held settlement discussions during the first quarter of
1998 in an effort to amicably resolve their dispute. However, there can be no
assurances that the Company will prevail in any action or proceeding arising in
connection with its dispute with Xerox, or that an amicable resolution of such
dispute will be possible.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR LASERTECHNICS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq SmallCap Market tier of the
Nasdaq Stock Market under the symbol LASX. 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 Nasdaq. Such price quotations represent inter-dealer prices
without retail markup, markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
1997 LAST SALE PRICES 1996 LAST SALE PRICES
--------------------- ---------------------
CALENDAR PERIOD LOW HIGH LOW HIGH
--------------- --- ---- --- ----
<S> <C> <C> <C> <C>
First Quarter $0.47 $1.47 $1.91 $2.06
Second Quarter 0.59 1.00 2.59 2.88
Third Quarter 0.50 0.97 1.31 1.38
Fourth Quarter 0.22 0.66 1.00 1.19
</TABLE>
As of December 31, 1997, the Company had approximately 1,500 holders of record
of voting Common Stock and one holder of record of non-voting Common Stock.
The Company estimates that there were approximately 9,000 beneficial owners of
its Common Stock as of the same date.
The Company has not paid dividends on its Common Stock and does not anticipate
the payment of cash dividends in the foreseeable future as it contemplates
retaining all earnings to finance the continued growth of the Company's
business. In addition, certain covenants contained in the Company's financing
arrangements restrict the payment of dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Notes 8 and 9 to Notes to Consolidated Financial
Statements for the years ended December 31, 1997, 1996 and 1995.
RECENT SALE OF UNREGISTERED SECURITIES
During the fourth quarter of 1997, the Company issued unregistered securities
in connection with each of the transactions described below. All references in
this section to numbers of shares and to the exercise or conversion prices of
convertible securities were determined without reference to the Reverse Stock
Split Proposal. See "Proposed 1998 Changes in Capital Stock." The issuance of
the preferred stock, Common Stock, warrants and convertible debentures were
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as a transaction not involving a public offering and an
appropriate restrictive legend were affixed to the certificates and warrants.
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<PAGE> 18
Transactions Involving Convertible Securities
The Company's 10% Convertible Debentures due March 1, 1999 (the "1996
Debentures"), in the original principal amount of $5,500,000, the Company's 10%
Convertible Series B Debenture due March 1, 1999 (the "Series B Debenture"), in
the principal amount of $500,000 and the Company's Series D Convertible
Preferred Stock, $0.01 par value (the "Series D Preferred Stock"), in the
original stated amount of $8,350,000, and Series E Convertible Preferred Stock,
$0.01 par value (the "Series E Preferred Stock") in the original stated amount
of $500,000 became convertible in full into Common Stock at various times
during 1996 and 1997.
In May 1997, $600,000 principal amount of the 1996 Debentures was redeemed by
the Company with (i) the proceeds from the private placement to a single new
investor of the Company's Series B Convertible Debenture, due March 1999 in the
principal amount of $500,000 and (ii) $100,000 in proceeds from the private
placement of $500,000 of Series E Preferred Stock with a single new investor.
The Series E Preferred Stock was substantially identical to the terms of the
Series D Preferred Stock and the Series B Convertible Debenture had
substantially identical terms as the 1996 Debentures. In June 1997, $400,000 of
Series D Preferred Stock was redeemed by the Company, upon receipt of the
holder's notice of conversion, with the remaining proceeds from the sale of
Series E Preferred Stock. See "Restructuring of Variable Price Convertible
Securities" below.
Equity Investment by Major Stockholder
In December 1997, the Company concluded an agreement with an institutional
investor with respect to the purchase of 700 shares of Series G Preferred Stock
for an aggregate purchase price of $7,000,000. The purchase price was payable
primarily through a combination of cash and the cancellation and exchange of
existing indebtedness of the Company to the institutional investor. In
addition, the purchaser had the right to offset a portion of the purchase price,
aggregating approximately $709,000, against the Company's obligation to pay
previously accrued and unpaid cash dividends on outstanding shares of Series A,
Series B and Series C Preferred Stock of the Company held by the institutional
investor on such date, and to pay a portion of such total purchase price, not to
exceed an aggregate of $1,500,000, by delivery of an unconditional promissory
note, payable on demand, in principal amount equal to the portion of the
purchase price so paid.
As additional consideration, the Company agreed that if, at any time on or
before December 31, 1999, the Company completes a financing with third parties
raising at least $3,000,000 in new equity, the initial holders of the Series G
Preferred will have the non-assignable right (the "Series G Reset Right"), but
not the obligation, to exchange all or a portion of their shares of Series G
Preferred Stock for shares of a new series of preferred stock with substantially
the same terms and conditions offered to such third parties; provided that no
such exchange will result in an increase in the conversion price above $.50 per
share (as determined without giving effect to the Reverse Stock Split Proposal).
See "Proposed 1998 Changes in Capital Stock."
Extension of Bridge Loans
Also in December 1997, the Company concluded an agreement (the "Extension
Agreement") with Amphion Ventures, Antiope Partners and J. P. Morgan
Investment Corporation
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<PAGE> 19
("JPMIC"), with respect to the extension of the Company's obligations under the
June Note Purchase Agreement by and among the Company, Antiope Partners
(formerly, Wolfensohn Partners L.P.), Amphion Ventures (by assignment from
Antiope Partners) and JPMIC, and the several Senior Promissory Notes issued and
sold by the Company pursuant to the June Note Purchase Agreement. The Extension
Agreement extended the maturity date of such promissory notes for one year,
through December 31, 1998. In addition, the agreement provided for the base
interest rate on the promissory note payable to JPMIC to be increased from 6.64%
to 10% per annum, which is the same rate originally payable under the promissory
note payable to Antiope Partners. As provided for in the original June Note
Purchase Agreement, on December 31, 1997, the holders of such promissory notes
also became entitled to receive, as a late payment fee, (i) additional 3-year
warrants to purchase 600,000 shares of Common Stock with an exercise price of
$0.25 per share and with a fair market value of approximately $60,000 as of the
date of issuance and (ii) 112,942 additional shares of restricted Common Stock
with a fair market value of approximately $28,000 as of the date of issuance.
The total value of the warrants and Common Stock issued will be charged to
interest expense during 1998, producing a total effective interest rate of
thirteen percent (13%) for 1998 on the Extension Agreement.
Restructuring of Variable Price Convertible Securities
In December 1997, the Company entered into negotiations with the holders of
certain outstanding convertible securities of the Company, with respect to the
restructuring and/or refinancing of such securities.
The Company originally issued the 1996 Debentures, the Series B Debentures
(collectively, the "Convertible Debentures"), the Series D Preferred Stock, and
the Series E Preferred Stock in separate private placements to institutional
investors in 1996 and 1997. In July 1997, the Company issued shares of a new
series of Convertible Preferred Stock, Series F, $0.01 par value (the "Series F
Preferred Stock"), in exchange for, and/or to finance the repurchase of, all the
outstanding shares of Series D Preferred Stock and Series E Preferred Stock, as
described below. The terms of the Series F Preferred Stock are substantially
identical to the terms of the Series D and Series E Preferred Stock, except as
necessary to reflect the terms of the Standstill Agreement described below. The
Convertible Debentures, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock were all convertible into Common Stock at a conversion
price determined by formula, which was generally about 85% of the recent average
market price of the Common Stock at the time of conversion, subject to a fixed
maximum conversion price. The Convertible Debentures, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock aively herein as the
Company's "Variable Price Convertible Securities".
In July 1997, the Company and certain holders of Variable Price Convertible
Securities negotiated a gated standstill arrangement (the "Standstill
Agreement"), in which such holders agreed to refrain from converting 75% of
their holdings for a period of at least three months, with the locked-up
portion released in five equal monthly installments thereafter. The provisions
of the Standstill Agreement (which also included a reduction in the maximum
conversion price to $1.14 in the case of the Series D and Series E Preferred
Stock and $1.00 in the case of the Convertible Debentures, and the issuance of
$.70 warrants to acquire 814,375 shares of Common Stock as an additional
inducement to the participating holders) were implemented by the execution
of allonges to the Convertible Debentures and by exchanging all of the
outstanding shares of Series D Preferred Stock and Series E Preferred Stock for
an equal number of shares of Series F Preferred Stock, which shares were
substantially identical to the shares exchanged, except as necessary to
implement the terms of the Standstill Agreement. Concurrently therewith, the
Company issued 48 shares of Series F Preferred Stock to a single existing
investor for $480,000 in cash, which was used by the Company to repurchase and
cancel an
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<PAGE> 20
equal number of shares of Series D Preferred Stock, the holder of which had
declined to participate in the Standstill Agreement. By December 14, 1997, 70%
of the face amount of the Variable Price Convertible Securities held by such
holders on the date of the Standstill Agreement were available for conversion,
with the remainder to become convertible in equal installments in January and
February 1998.
In December 1997, the Company re-initiated negotiations with the holders of the
Variable Price Convertible Securities, with the intention of restructuring or
refinancing such securities to remove the variable price conversion feature. In
December 1997 and January 1998, the Company converted, redeemed or restructured
all of the Variable Price Convertible Securities that had been outstanding on
December 1, 1997, comprising in the aggregate $1,250,000 principal amount of
Convertible Debentures and 237 shares ($2,370,000 face amount) of Series F
Preferred Stock (collectively, the "December 1997 Restructuring"). Based on the
closing bid prices of the Common Stock for the applicable trading periods prior
to December 24, 1997, such Variable Price Convertible Securities, together with
accrued interest and dividends, would have been convertible on that date into
an aggregate of approximately 17 million shares of Common Stock, with further
dilution possible in the event of further declines in the market price of the
Common Stock.
To implement the December 1997 Restructuring, including all related conversions,
the Company made cash payments totaling approximately $1.3 million and issued in
the aggregate approximately: $1.1 million in non-convertible short-term
indebtedness; $535,000 of indebtedness with a two-year maturity, convertible
into Common Stock at $.25 per share (the "1997 Debentures"); 1,407,000 shares of
Common Stock, most of which are subject to certain transfer restrictions; 89.74
shares of Series G Preferred Stock; and warrants to purchase an additional
1,440,000 shares of Common Stock at an average exercise price in excess of $.46
per share. The fair market value of the additional securities issued, at the
time of their issuance, represents the conversion inducement. The Convertible
Debentures inducement was valued at approximately $48,000 and charged to
interest expense. The inducement for Variable Price Convertible Securities other
than the Convertible Debentures was valued at approximately $306,000 and
recorded as a preferred dividend. The Company funded the cash and short-term
debt portion of the restructuring by issuing shares of Series G Preferred Stock
as described above.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
BUSINESS SEGMENTS
The Company operates in two business segments: imaging and marking. Imaging
operations involve the manufacture and sale of plastic card printing systems
and related consumable products to print and encode fraud-resistant
wallet-sized plastic cards for, among other things, drivers' licenses,
identification, border crossing, financial transactions and health care
services. Marking is involved in the manufacture and sale of laser systems
which mark consumer and commercial products with a "freshness date," serial
number, lot numbers, logos or bar code.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth for each of the years 1997,
1996 and 1995 has been derived from the audited consolidated financial
statements for the years ended December 31, 1997, 1996, and 1995 and the notes
thereto. General corporate assets and expenses are allocated to the respective
business segments. Assets used by the respective segments are located at the
operating units of the respective segments and there
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are no general corporate assets. General corporate expenses are allocated
based on the estimated usage of financial resources by the respective segments.
<TABLE>
<CAPTION>
IMAGING MARKING CONSOLIDATED
(Sandia) (LMC) (LASX)
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<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Sales . . . . . . . . . . . . . $ 4,353,318 $ 6,765,021 $ 11,118,339
Loss from operations . . . . . (8,383,449) (1,808,445) (10,191,894)
Identifiable assets . . . . . . 8,934,768 5,750,644 14,685,412
Capital expenditures . . . . . 178,212 (109,953) 68,259
Depreciation . . . . . . . . . 417,489 92,359 509,848
YEAR ENDED DECEMBER 31, 1996
Sales . . . . . . . . . . . . . $ 8,197,639 $ 9,383,801 $ 17,581,440
Loss from operations . . . . . (8,642,620) (981,376) (9,623,996)
Identifiable assets . . . . . . 9,941,186 7,720,671 17,661,857
Capital expenditures . . . . . 654,832 128,962 783,794
Depreciation . . . . . . . . . 459,860 265,999 725,859
YEAR ENDED DECEMBER 31, 1995
Sales . . . . . . . . . . . . . $ 3,121,577 $10,308,154 $ 13,429,731
Loss from operations . . . . . (7,934,839) (195,374) (8,130,213)
Identifiable assets . . . . . . 5,844,770 8,797,832 14,642,602
Capital expenditures . . . . . 640,528 354,990 995,518
Depreciation . . . . . . . . . 133,991 218,466 352,457
</TABLE>
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995.
Consolidated Sales. Consolidated sales decreased to $11,118,339 in 1997 from
$17,581,440 in 1996. In 1995 sales totaled $13,429,731.
Imaging. The Company's imaging business is based largely on the sale
of high volume card printers. The price of a high volume card printer is such
that generally only governments and state agencies have ongoing card volume
production requirements sufficient to justify such a purchase. Historically,
new government customers have consisted primarily of developing nations,
resulting in highly unpredictable selling cycles and procurement demand. In the
third quarter of 1996, the Company was realizing revenue from its Australian
drivers' license project. In 1997, there was no equivalent project in process.
Additionally, revenues from the introduction of GlyphScan readers and
Glyphit(TM) software have not materialized to date, as a result, in part, of the
factors underlying the Company's dispute with Xerox regarding the DataGlyph
technology licensed by the Company. The Company's dispute with Xerox is more
fully described in Note 11 to Notes to Consolidated Financial Statements.
The Company has taken a number of actions to improve future sales. The Company
has restructured its imaging business by reorganizing it into two divisions:
imaging and technology, and expects to expand its market opportunities and
product offerings through the proposed acquisition of advanced imaging and
software technology (the "XLV Technology") from XL Vision, Inc., a Safeguard
Scientifics Partnership Company ("XLV"). Sandia recently entered into the
Intellectual Property Transfer Agreement (the "Technology Acquisition
Agreement")
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<PAGE> 22
with XLV for the development and commercialization of the XLV Technology, which
consists of both hardware and software technology. The Company believes that
its secure card industry experience and the XLV Technology will enable it to
develop and market a low cost fraud resistant access control system. This
system would combine the portable card embedded database with nontransferable
personal information, such as finger prints, to permit access only by the
authorized card holder.
Under the terms of the Technology Acquisition Agreement, XLV will continue to
devote personnel, services and project management for the enhancement and
commercialization of the XLV Technology. The Company will fund the enhancement
of the XLV Technology. In January 1998, the Company paid XLV $500,000 and will
make additional payments to XLV in the aggregate amount of $4.1 million for
further development expenses, payable in several installments over the
development period. Such funds will be used to fund technology enhancement
activities by XLV with respect to the XLV Technology, with the goal of making
such technology market-ready, as determined by mutual agreement of the Company
and XLV. Of the $4.1 million earmarked for development expenses, the Company
may, at its option, accelerate funding the development of the XLV Technology.
All payments made prior to the development of a working model, including the
costs of acquiring the options under the Technology Acquisition Agreement, will
be expensed as research and development costs.
The imaging division will (i) continue to resell high volume printers, including
a launch of mid-volume printers for customers with card volume requirements
below that of the Company's historical customers, (ii) market overnight delivery
of fraud-resistant wallet size ID cards to corporate badge and loyalty account
customers through its newly-developed service bureau operation, and (iii) sell
turnkey security systems utilizing biometrics and portable databases on
Company-produced and other vendor cards. The new technology division proposes to
develop and commercialize the XLV Technology to be acquired from XLV, including
digital camera and optical butting technologies, for use in card readers and
other digital image-acquisition applications. This new generation of card
readers is expected to accommodate a wide range of card-mounted symbologies,
including DataGlyphs(TM), at commercially attractive speeds. The proposed
acquisition of the XLV Technology is subject to stockholder approval and certain
other conditions. The Company believes that the diversification provided by its
revised business strategy will help to make its revenue stream more predictable,
and that the corporate access control market, which is currently highly
fragmented, will provide a significantly greater market size for the Company's
expanded product offerings.
The Company's ability to improve future sales may be affected by the volatility
of market demand, timing of large governmental and state agency contracts,
competition and technological innovations. These factors could significantly
effect the Company's ability to compete effectively.
Marking. The Company's marking business was adversely affected by (i)
the delay in the re-introduction of the BlazerJet(TM) marking system, which
began shipment in the summer of 1997, and (ii) the Company's announcement in
the second quarter of 1997 that it had engaged an independent financial advisor
to advise on strategic alternatives for LMC, including the possibility of a
disposition or strategic partnership. The Company believes that this
announcement was a distraction to LMC's management and other potential new
employees, and resulted in a degree of confusion and uncertainty among certain
current and potential customers, thereby delaying LMC's ability to capitalize
on the launch of the BlazerJet(TM). Since the Company's termination of the
independent financial advisor, LMC's management has stabilized relationships
with current and potential customers and key employees, allowing them to
refocus on the marking business. Additionally, significant progress has been
made in the development of strategic relationships aimed at leveraging LMC's
distribution capabilities and creating access to the newest marking
technologies.
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Sales to the marking business's largest customer, Anheuser-Busch, accounted
for 17%, 34% and 21% of LMC's total sales in 1997, 1996 and 1995, respectively.
The loss of this customer or the inability to obtain others would have a
material adverse effect on the Company's results of operations.
Consolidated Gross Profit. Consolidated gross profit as a percentage of sales
(gross margin) remained relatively the same for 1997 at 30% compared to 31% in
1996 and 32% in 1995. In the third quarter of 1997, certain limited shelf-life
imaging business inventories (ribbons and other consumables) were written off.
These inventories had been acquired in anticipation of certain large government
contracts and were purchased in advance of the contracts being awarded to
ensure availability and to take advantage of volume purchase discounts. The
related government contracts have not been awarded and the remaining shelf-life
of these inventories rendered them unusable for the Company's intended
customers, resulting in write-offs of approximately $500,000.
Consolidated Operating Expenses. Consolidated operating expenses were
$13,557,196, $15,047,325 and $12,400,551 in 1997, 1996 and 1995 respectively.
In the third quarter of 1997, Sandia recorded significant accounts receivable
provisions related to two separate contracts. In each case the Company was
acting as a sub-contractor. In connection with one such contract, a dispute
arose between the Company and the prime contractor for the project. Although
the Company had fulfilled all contractual obligations related to revenues
recognized, the Company and the prime contractor agreed to discontinue the
relationship. The Company established $400,000 in reserves on receivables
previously recorded under this contract, considering the degree of uncertainty
as to their ultimate collectability. In connection with the other contract, a
second prime contractor has experienced delays in the launch of their publicly
announced major Asian project, of which the printers purchased from the Company
are an integral part. The Company's contract was not conditioned on the timing
of the prime contractor's project, but the prime contractor additionally
experienced delays in the receipt of funding from external financing they had
expected to have available when the Company's printers were purchased. The
degree of uncertainty relating to the timing of the project launch combined
with the related uncertainty of the timing of the receipt of their external
funding, caused the Company to establish $200,000 in reserves for receivables
previously recorded under this contract.
In 1996 the Company recorded a loss on settlement of a contract as the result
of discontinuing a manufacturing agreement with its Singapore manufacturer.
Sandia recorded $1,000,000 in expenses as a cost of settling the dispute. In
addition, the imaging segment recorded a $287,000 charge in the third quarter
of 1996 to reduce on-going expenses in its international operations.
Other Income/(Expense). Other income/(expense) consisting primarily of interest
expense including the amortization of discounts and inducements in connection
with the issuance and extension of debt arrangements and securities as more
fully described in Notes 8 and 9 to Notes to Consolidated Financial Statements
was ($2,628,547) in 1997, ($1,774,999) in 1996, and ($2,016,251) in 1995.
Consolidated Net Loss. Consolidated net loss for 1997 was $12,820,441 compared
to the 1996 consolidated net loss of $11,398,995. The 1995 net loss was
$10,146,464.
The Company has restated its consolidated financial statements for the years
ended December 31, 1995 and 1996 to conform its accounting for beneficial
conversion features related to the issuance of convertible debentures in October
1995 and March 1996 and convertible preferred stock issued in July 1996 to
Emerging Issues Task Force Topic No. D-60 issued in March 1997 ("Topic D-60").
Topic No. D-60 requires that the intrinsic value of beneficial conversion
features of convertible debt securities should be recognized as interest expense
over the period from issuance to the first date that conversion can occur.
Previously, the Company was amortizing the estimated fair value of the
beneficial conversion feature to interest expense over the life of the
convertible debentures. Topic No. D-60 further states that the intrinsic value
of beneficial conversion features of convertible preferred stock should be
treated as a return to the preferred stockholder over the period from issuance
to the first date that conversion can occur. The Company had not previously
assigned a value to the beneficial conversion feature of its Series D
Convertible Stock. See Note 2 to Notes to Consolidated Financial Statements for
the years ended December 31, 1997, 1996 and 1995.
IMAGING BUSINESS RESULTS OF OPERATIONS
Imaging segment sales decreased in 1997 to $4,353,318, or approximately 53% of
1996 sales totaling $8,197,639. Imaging segment sales were $3,121,577 in 1995.
The decrease from 1996 was primarily due to the completion of the Australian
drivers' license project. Sandia did not acquire a similar size project in
1997.
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<PAGE> 24
The Imaging segment loss from operations in 1997 was $8,383,449 compared to
$8,642,620 in 1996 and $7,934,839 in 1995. 1996 results include the $1,000,000
loss on contract settlement and the $287,000 charge noted above.
The Imaging segment gross profit margin in 1997 improved to 29.4% compared to
17.3% and 16% in 1996 and 1995, respectively. Lower margins in 1996 were
primarily the result of Sandia's first significant drivers' license contract
(the Australian drivers' license contract) at margins that insured Sandia would
be awarded the contract. In 1995 the lower margins were the result of larger
than expected OEM sales of plastic card printers which carry a lower selling
price and lower margin than direct sales to end users, and because of the sale
of custom-designed plastic card printers which have a higher manufacturing cost
than standard models.
Imaging segment operating expenses decreased 4.0% in 1997 to $9,661,795.
Imaging segment operating expenses increased 19% in 1996 to $10,061,712 from
the $8,421,492 of operating expenses in 1995. The 1996 increase of $1,640,220
was primarily the result of approximately $360,000 increase in sales and
marketing costs for the continued expansion of Sandia worldwide operations and
the $1,000,000 and $287,000 charges noted above.
Research and development expense for 1997 was $1,634,671 compared to $2,053,111
for 1996 and $1,963,537 for 1995. The research and development costs incurred
in 1997, 1996 and 1995 were primarily for manufacturing development,
DataGlyphs(TM) software development and hardware and software upgrading of
Sandia's high speed plastic card printers. Research and development expenses
were lower in 1997 as a result of the completion of certain custom products in
1996.
Sales and marketing expenses increased approximately 22% in 1997 to $4,776,741
as a result of the accounts receivable provisions previously discussed, compared
to $3,737,867 in 1996 and $3,376,618 in 1995. General and administrative
expenses remained constant in 1997 at $3,250,383 compared to 1996 and 1995.
MARKING BUSINESS RESULTS OF OPERATIONS
The 1997 operating loss for the Marking segment was $1,808,445 compared to the
1996 operating loss of $981,376, and the 1995 operating loss of $195,374.
Marking segment sales decreased approximately 28.0% to $6,765,021 following a
decrease of 9%, from $10,308,154 in 1995 to $9,383,801 in 1996. The decrease
in 1997 was primarily due to the delay in the re-introduction of the
BlazerJet(TM) marking system and customer's reluctance to place orders while
the disposition of the Marking business was under consideration.
The 1997 gross profit percentage for the Marking segment was 31% compared to
44% in 1996 and 37% in 1995. The decline in margin in 1997 was primarily a
result of an inventory write-down of $441,000 for slow moving inventory. Higher
margin service sales were the major contributor to the 1996 and some extent
1995 overall margins.
Marking segment operating expenses for 1997 were $3,895,401 compared to
$4,985,613 and $3,979,059 in 1996 and 1995, respectively. The 1997 decrease was
primarily the result of a $700,000 decrease in general and administrative
expenses, a $500,000 decrease in marketing expenses, and an increase of
$140,000 in research and development expenses. The general and administrative
decrease resulted from reductions in bad
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<PAGE> 25
debt expense, legal and accounting fees, and salaries and benefits due to
personnel reductions. Marketing expenses decreased because of decreased travel.
Research and development expense increased due to continued enhancements on the
BlaserJet(TM). The 1996 increase of 25% over 1995, was primarily the result of
a $610,000 increase in general and administrative expenses, a $500,000 increase
in marketing expenses and a $281,000 reduction in research and development
expenses. The reduction in research and development is the result of narrowing
the scope of research and development activities to upgrading current marking
systems only.
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 and short-term bridge loans from
shareholders to meet its working capital requirements.
The Company's foreign sales are generated by Sandia Europe (located in Paris,
France), Sandia and LMC. Sandia Europe sales and operating costs are primarily
denominated in French Francs. Sandia and LMC sales are in US dollars. Although
the Company funds some of its European operations out of the U.S., currency
exchange exposure is considered minimal because the majority of French franc
expenses are funded with French franc revenues.
The Company's operations continued to generate losses in 1997, primarily due to
lower than expected sales in both the imaging and marking businesses. The
Company's future working capital requirements will depend upon many factors,
including the extent and timing of the Company's product sales, the Company's
operating results and the status of competitive products. The Company
anticipates that its existing working capital resources and revenues from
operations, together with the additional financing in the aggregate amount of
$5,500,000 arranged in the first quarter of 1998. (See Note 18 to Notes to
Consolidated Financial Statements), will not be adequate to satisfy its funding
requirements in 1998. The Company is continuing discussions with a number of
existing and potential corporate, strategic and institutional investors. The
Company's actual funding needs will depend on numerous factors, including actual
expenditures and revenues generated from its operations compared to its business
plan. The Company's actual funding needs will also depend on the successful
development of the new products contemplated within the XLV Technology
Acquisition and other unanticipated expenditures, none of which can be
predicted with certainty. There can be no assurance, however, that the Company
will acquire the additional funding it needs to fully pursue its business
objectives. If the Company's losses continue, the Company may have to obtain
sufficient funds to meet its cash requirements through strategic or other
financial transactions with compatible entities having the resources to support
its programs, the sale of assets or securities or other financing arrangements,
or it will be required to curtail its programs or seek a merger partner. Any
additional funding may be on terms which are unfavorable to the Company or
disadvantageous to existing stockholders. In addition, no assurance may be
given that the Company will be successful in raising additional funds or
entering into business alliances.
In 1983, the City of Albuquerque, New Mexico issued 8% tax-exempt industrial
development revenue bonds in connection with a 25-year capital lease of LMC's
headquarters facility. The principal amount outstanding as of December 31,
1997 was $807,935. Pursuant to its agreement with the City of Albuquerque,
Lasertechnics is required to maintain a current ratio of at least 1 to 1. At
December 31, 1997, the Company's current ratio was less than 1 to 1 which is not
in compliance with the agreement. As a result, the full amount of the lease
was classified as a current liability on the Company's balance sheet at
December 31, 1997. Failure of the Company to obtain a waiver could result in
the relocation of LMC headquarters to other facilities and the associated
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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. The Company intends to seek a waiver of non-compliance during
1998 relating to this covenant violation. See Note 6 to Notes to Consolidated
Financial Statements.
OTHER
Nasdaq Listing. On August 22, 1997, the Commission approved the New Nasdaq
Listing Requirements (as defined below) for continued listing on the Nasdaq
SmallCap Market. In particular, the New Nasdaq Listing Requirements require that
a Company currently included in Nasdaq meet each of the following standards to
maintain its continued listing: (i) either (A) net tangible assets (defined as
total assets, minus goodwill, minus total liabilities) of $2 million, (B) total
market capitalization of $35 million, or (C) net income (in the latest fiscal
year or in two of the last three fiscal years) of $500,000; and (ii) public
float of at least 500,000 shares, with a market value of at least $1 million;
and (iii) minimum bid price of $1; and (iv) at least two market makers; and (v)
at least 300 round lot beneficial shareholders; and (vi) compliance with certain
corporate governance requirements (the "New Nasdaq Listing Requirements").
Although the Company believes, but cannot assure, that it will meet such
requirements on the first full trading day after the Company gives notice to
Nasdaq that the Reverse Stock Split has become effective, there can be no
assurances that such will be the case, or that continued losses or other factors
beyond the control of the Company will not cause the Company to fail to meet
such requirements. See Note 18 to Notes to Consolidated Financial Statements.
Inflation. Inflation has not had and is not expected to have a material impact
on the operations and financial condition of the Company.
Recent Accounting Pronouncements.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"). SFAS 129 is
applicable to all entities and requires that disclosure about any entity's
capital structure include a brief discussion of rights and privileges for
securities outstanding. SFAS 129 is effective for financial statements for
periods ending after December 15, 1997. The effective adoption of SFAS No. 129
is not expected to have a material impact on the Company's financial statements
and related disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 is effective for fiscal
years beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components. The
effective adoption of SFAS No. 130 is not expected to have a material impact on
the Company's financial statements and related disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for the way that public companies
report information about segments in annual and interim financial statements.
The effective adoption of SFAS No. 131 is not expected to have a material
impact on the Company's financial statements and related disclosures.
Caution Regarding Forward-Looking Statements. The Company occasionally makes
forward-looking statements concerning its plans, goals, product and service
offerings, and anticipated financial performance. These forward-looking
statements may generally be identified by introductions such as "outlook" for
an upcoming period of time, or words and phrases such as "should", "expect",
"hope", "plans", "projected", "believes", "forward-looking" (or variants of
those words and phrases) or similar language indicating the expression of an
opinion or view concerning the future.
These forward-looking statements are subject to risks and uncertainties based on
a number of factors and actual results or events may differ materially from
those anticipated by such forward-looking statements. These factors include,
but are not limited to: the ability to raise capital; the growth rate of the
Company's revenue and market share; the consummation of new, and the
non-termination of, existing relationships with customers and suppliers; the
Company's ability to effectively manage its business functions while growing the
Company's business in a rapidly changing environment; the ability of the Company
to adapt and expand its services in such an environment; the effective and
efficient development of new products; and the quality of the Company's plans
and strategies, and the ability of the Company to execute such plans and
strategies.
In addition, forward-looking statements concerning the Company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the Company has no control. The Company does not plan to generally
publicly update prior forward-looking statements for unanticipated events or
otherwise and, accordingly, prior forward-looking statements should not be
considered to be "fresh" simply because the Company has not made additional
comments on those forward-looking statements. See "Cautionary Statements" in
the Company's Form 10-KSB for the period ended December 31,1997.
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ITEM 7. FINANCIAL STATEMENTS.
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CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . F-9
</TABLE>
The following consolidated financial statement schedule of the Company
is filed as a part of this report:
FINANCIAL STATEMENT SCHEDULE
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Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
All other financial statement schedules have been omitted because they
are not applicable or the required information is shown in the consolidated
financial statements and notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information regarding Directors, Executive Officers, Promoters and Control
Persons is incorporated by reference in this Form 10-KSB to the sections
entitled "Principal Shareholders," "Management," and "General" in the Company's
Proxy Statement to be filed with the Commission in connection with the Annual
Meeting of Stockholders to be held on June 9, 1998.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference in this Form
10-KSB to the section entitled "Management" in the Company's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is incorporated by reference in this Form
10-KSB to the sections entitled "Principal Shareholders" and "Management" in
the Company's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference in this Form
10-KSB to the section entitled "Management" in the Company's Proxy Statement.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
3.1 --Certificate 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 dated June 6, 1986. Incorporated
herein by reference to Exhibit 3.3 to Lasertechnics'
Annual Report on Form 10-KSB for the year ended
December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of
Lasertechnics, dated May 27, 1987. Incorporated
herein by reference to Exhibit 3.4 to Lasertechnics'
Annual Report on Form 10-KSB for the year ended
December 31, 1987.
3.5 --Third Amendment to Certificate of Incorporation of
Lasertechnics, dated November 11, 1994. Incorporated
herein by reference to Exhibit 4.4 to Lasertechnics'
Registration Statement on Form S-3 (Registration No.
333-10665).
3.6 --Fourth Amendment to Certificate of Incorporation of
Lasertechnics, dated July 28, 1995. Incorporated
herein by reference to Exhibit 4.5 to Lasertechnics'
Registration Statement on Form S-3 (Registration No.
333-10665).
3.7 --Fifth Amendment to Certificate of Incorporation of
Lasertechnics, dated June 17, 1996. Incorporated
herein by reference to Exhibit 4.6 to Lasertechnics'
Registration Statement on Form S-3 (Registration No.
333-10665).
4.1 --Certificate of Designation of Lasertechnics Series
A, B and C Preferred Stock, dated December 27, 1995.
Incorporated herein by reference to Exhibit 4.7 to
Lasertechnics' Registration Statement on Form S-3
(Registration No. 333-10665).
4.2 --Certificate of Designation of Lasertechnics Series
D Preferred Stock. Incorporated herein by reference
to Exhibit 4.1 to Lasertechnics' Quarterly Report on
Form 10-QSB for the period ended June 30, 1996.
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<PAGE> 29
4.3 --Certificate of Designation of Lasertechnics Series
E Preferred Stock. Incorporated by reference to
Exhibit 4.3 to Lasertechnics' Quarterly Report on
Form 10-QSB for the period ended September 30, 1997.
4.4 --Certificate of Designation of Lasertechnics Series
F Preferred Stock and Certificate of Correction.
Incorporated by reference to Exhibit 4.4 to
Lasertechnics' Quarterly Report on Form 10-QSB for
the period ended September 30, 1997.
4.5 --Certificate of Designation of Lasertechnics Series
G Preferred Stock.*
10.1 --License agreement, dated June 30, 1988, between
Lasertechnics and Patlex Corporation. Incorporated
herein by reference to Exhibit 10.17 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1988.
10.2 --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-KSB for the year ended
December 31, 1990.
10.3 --1991 Incentive Stock Option Plan, dated August 14,
1991. Incorporated herein by reference to Exhibit
10.10 to Lasertechnics' Annual Report on Form 10-KSB
for the year ended December 31, 1991.
10.4 --Purchase Agreement between Sandia Europe and
Jean-Luc Poutchnine, Alain Quilleau and Philippe
Bonnevie, dated March 4, 1994. Incorporated herein by
reference to Exhibit 10.15 to Lasertechnics' Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.5 --Letter confirming sale of shares of Lasertechnics
Common Stock to Singapore Precision Industries PTE
LTD, dated May 12, 1994. Incorporated herein by
reference to Exhibit 10.16 to Lasertechnics' Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.6 --Advisory and investment banking services agreement
between Lasertechnics and Wolfensohn International,
Inc., dated May 19, 1993. Incorporated herein by
reference to Exhibit 10.18 to Lasertechnics' Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.7 --Purchase of Common Stock and Convertible Note
Agreement between Lasertechnics and J.P. Morgan
Investment Corporation, dated July 8, 1994.
- 27 -
<PAGE> 30
Incorporated herein by reference to Exhibit 10.19 to
Lasertechnics' Annual Report on Form 10- KSB for the
year ended December 31, 1994.
10.8 --OEM License Agreement between Sandia and Xerox
Corporation, dated January 6, 1995. Incorporated
herein by reference to Exhibit 10.20 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.9 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 19, 1994.
Incorporated herein by reference to Exhibit 10.21 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.10 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 31, 1994.
Incorporated herein by reference to Exhibit 10.22 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.11 --Amendment to the OEM License Agreement between
Sandia and Xerox Corporation, dated December 27,
1996. Incorporated by reference to Exhibit 10.12 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1996.
10.12 --Demand Promissory Note issued to Wolfensohn
Associates L.P., dated March 27, 1997. Incorporated
by reference to Exhibit 10.13 to Lasertechnics'
Quarterly Report on Form 10-QSB for the period ended
September 30, 1997.
10.13 --Warrant to purchase shares of Lasertechnics' Common
Stock issued to Wolfensohn Associates L.P., dated
March 27, 1997. Incorporated by reference to Exhibit
10.14 to Lasertechnics' Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
10.14 --Note Purchase Agreement dated June 25, 1997, by and
among Lasertechnics, J.P. Morgan Investment
Corporation and Wolfensohn Associates L.P.
Incorporated by reference to Exhibit 10.15 to
Lasertechnics' Quarterly Report on Form 10-QSB for
the period ended September 30, 1997.
10.15 --Intellectual Property Transfer Agreement dated
January 8, 1998, by and between XL Vision, Inc. and
Sandia Imaging Systems Corporation.*
21 --Subsidiaries of Lasertechnics.*
23 --Consent and Report Schedule of KPMG Peat Marwick
LLP.*
- 28 -
<PAGE> 31
27 --Financial Data Schedule*
------------------
*Filed herewith.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of fiscal 1997.
- 29 -
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1998 LASERTECHNICS, INC.
By: /s/ Richard C.E. Morgan
-------------------------------------
Richard C.E. Morgan, Chairman of
the Board and 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 indicated on March 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Richard C.E. Morgan Chairman of the Board and Chief Executive
- ------------------------------------------- Officer
Richard C.E. Morgan
/s/ Paul J. Coleman, Jr. Director
- -------------------------------------------
Paul J. Coleman, Jr.
/s/ Danny G. Hair Executive Vice President and Chief Financial Officer
- ------------------------------------------- (Principal Financial and Accounting Officer)
Danny G. Hair
/s/ C. Seth Cunningham Director
- -------------------------------------------
C. Seth Cunningham
/s/ Jean-Pierre Arnaudo Director
- -------------------------------------------
Jean-Pierre Arnaudo
/s/ Harry S. Budow Director and Secretary, and President and
- ------------------------------------------- Chief Operating Officer of
Harry S. Budow Sandia Imaging Systems Corporation
/s/ E.A. Bourque Director
- -------------------------------------------
E. A. Bourque
Director
- -------------------------------------------
Alfred E. Paulekas
/s/ Richard M. Clarke Director
- -------------------------------------------
Richard M. Clarke
</TABLE>
- 30 -
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lasertechnics, Inc.
We have audited the accompanying consolidated balance sheets of Lasertechnics,
Inc. and subsidiaries as of December 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 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 3 to the
consolidated financial statements, the Company's recurring losses from
operations and resulting continued dependence upon access to additional external
financing 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 3. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Dallas, Texas
February 20, 1998
F-1
<PAGE> 34
LASERTECHNICS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
(note 2)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,687,178 1,598,744
Note receivable from stockholder 1,158,684 --
Accounts receivable - trade, less allowance for doubtful accounts
of $380,911 in 1997 and $357,136 in 1996 1,864,270 3,196,943
Inventory (note 14):
Raw materials 3,824,932 4,293,978
Work-in-process 483,500 551,340
Finished goods 935,684 1,754,689
----------- -----------
5,244,116 6,600,007
Prepaid expenses 130,137 230,839
Other 50,081 67,606
----------- -----------
Total current assets 10,134,466 11,694,139
----------- -----------
Property, plant and equipment, net (note 5) 2,974,725 3,334,277
Goodwill 90,473 172,510
Deferred license fee (note 11) 1,400,000 2,100,000
Other assets 85,748 360,931
----------- -----------
$14,685,412 17,661,857
=========== ===========
</TABLE>
(continued)
F-2
<PAGE> 35
LASERTECHNICS, INC. & SUBSIDIARIES
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ ---- ----
(note 2)
Current liabilities:
<S> <C> <C>
Notes payable to stockholder (note 8) $ 2,931,821 --
Notes payable (note 11) 3,942,495 775,292
Accounts payable 1,789,321 1,369,818
Accrued liabilities (note 7) 2,089,793 2,957,525
Current portion of capital lease obligations (note 6) 807,935 225,676
------------ ------------
Total current liabilities 11,561,365 5,328,311
------------
Convertible debentures (note 9) -- 2,250,749
Capital lease obligations (note 6) 114,845 927,411
Notes payable, long-term (note 11) 535,205 1,400,000
Other 4,694 149,387
------------ ------------
Total liabilities 12,216,109 10,055,858
------------ ------------
Stockholders' equity (notes 2, 9, 10, 11 and 12):
Convertible preferred stock, $.01 par; 7,000,000 shares authorized
in 1997 and 1996:
Series A: $1.30 stated value; 1,153,846 shares issued and
outstanding in 1997 and 1996 1,500,000 1,500,000
Series B: $1.42 stated value; 1,056,338 shares issued and
outstanding in 1997 and 1996 1,500,000 1,500,000
Series C: $1.51 stated value; 708,530 shares issued and
outstanding in 1997 and 1996 1,069,880 1,069,880
Series D: $10,000 stated value; exchanged for Series F
in 1997 and 585 in 1996 -- 6,049,314
Series G: $10,000 stated value; 789.735 shares outstanding
in 1997 and none in 1996 7,897,353 --
Common stock, $.01 par value; authorized 56,750,000 in
1997 and 1996; 47,369,216 and 37,133,514 shares issued and
outstanding in 1997 and 1996 473,692 371,335
Nonvoting convertible common stock; $.01 par value
Authorized 2,250,000 shares in 1997 and 1996; 2,249,842
shares issued and outstanding in 1997 and 1996. Convertible
into common stock on a share-for-share basis 22,499 22,499
Paid-in capital 56,696,968 49,891,230
Accumulated deficit (66,691,089) (52,798,259)
------------ ------------
Total stockholders' equity 2,469,303 7,605,999
------------ ------------
$ 14,685,412 17,661,857
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 36
LASERTECHNICS, INC. & SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(note 2) (note 2)
<S> <C> <C> <C>
Sales (notes 4 and 16) $ 11,118,339 17,581,440 13,429,731
Cost of sales 7,753,037 12,158,111 9,159,393
------------ ------------ ------------
Gross profit 3,365,302 5,423,329 4,270,338
Expenses:
Research and development 2,572,848 2,848,767 3,040,830
General and administrative 4,921,359 5,151,502 4,460,724
Selling and marketing 6,062,989 5,760,056 4,898,997
Loss on contract
settlement and other (Note 14) -- 1,287,000 --
------------ ------------ ------------
Operating expenses 13,557,196 15,047,325 12,400,551
------------ ------------ ------------
Loss from operations (10,191,894) (9,623,996) (8,130,213)
Other income (expense):
Interest income 24,646 110,007 32,182
Interest expense (2,254,887) (1,910,919) (2,020,751)
Other (398,306) 25,913 (27,682)
------------ ------------ ------------
Net other income (expense) (2,628,547) (1,774,999) (2,016,251)
Loss before income taxes (12,820,441) (11,398,995) (10,146,464)
Income taxes (note 15) -- -- --
------------ ------------ ------------
Net loss (12,820,441) (11,398,995) (10,146,464)
Preferred stock dividend requirements (Note 10) (1,072,389) (1,865,115) (73,234)
------------ ------------ ------------
Net loss applicable to common stock $(13,892,830) (13,264,110) (10,219,698)
============ ============ ============
Net loss per common share $ (0.31) (0.39) (0.37)
============ ============ ============
Weighted average shares of common stock outstanding
during the year 44,684,785 34,339,313 27,511,489
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 37
LASERTECHNICS, INC. & SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Nonvoting
Convertible convertible
Preferred stock Common stock common stock
--------------- ------------ ------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 -- $ -- 25,078,779 $ 250,788 377,684 $ 3,777
Exercise of common stock options -- -- 625,712 6,257 -- --
(note 12)
Detachable warrants issued in
conjunction with -- -- -- -- -- --
convertible debt (note 9)
Stock issued for debt, net of
unamortized 2,521,363 3,469,880 1,383,632 13,836 1,872,158 18,722
discount and expenses (note 8)
Increasing rate preferred stock -- (126,446) -- -- -- --
discount
Discount accretion -- 73,234 -- -- -- --
Conversion feature of debentures -- -- -- -- -- --
issued (note 9)
Debentures converted, net of
unamortized -- -- 658,570 6,586 -- --
discount and expenses (note 9)
Issuance of convertible preferred 397,351 600,000 -- -- -- --
stock (note 10)
Exercise of detachable warrants -- -- 534,105 5,341 -- --
Foreign currency translation -- -- -- -- -- --
adjustment
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 2,918,714 4,016,668 28,280,798 282,808 2,249,842 22,499
Exercise of common stock options -- -- 89,222 893 -- --
(note 12)
Increasing rate preferred stock -- 53,212 -- -- -- --
discount (note 10)
Conversion feature of debentures and -- -- -- -- -- --
detachable warrants issued (note 9)
Conversion feature of Series D
Preferred Stock (note 10) -- (1,198,055) -- -- -- --
Debentures converted, net of
expenses (note 9) -- -- 6,682,561 66,825 -- --
Warrant discount net of related
debenture -- -- -- -- -- --
conversions (note 9)
Issuance of convertible preferred
stock, net of 835 8,350,000 -- -- -- --
expenses (note 10)
Preferred stock accretion and
dividends -- 1,455,721 -- -- -- --
(note 10)
Preferred stock converted, including
related (250) (2,558,352) 2,280,933 22,809 -- --
accretion (note 10)
Retirement of treasury stock -- -- (200,000) (2,000) -- --
Foreign currency translation -- -- -- -- -- --
adjustment
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 2,919,299 10,119,194 37,133,514 371,335 2,249,842 22,499
</TABLE>
<TABLE>
<CAPTION>
Paid-in Accumulated Treasury
capital deficit stock Total
------- ------- ----- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $30,302,473 $(29,314,451) $(250,000) $ 992,587
Exercise of common stock options 450,593 -- -- 456,850
(note 12)
Detachable warrants issued in
conjunction with 207,000 -- -- 207,000
convertible debt (note 9)
Stock issued for debt, net of
unamortized 2,804,215 -- -- 6,306,653
discount and expenses (note 8)
Increasing rate preferred stock 126,446 -- -- --
discount
Discount accretion -- (73,234) -- --
Conversion feature of debentures 1,235,294 -- -- 1,235,294
issued (note 9)
Debentures converted, net of
unamortized 968,959 -- -- 975,545
discount and expenses (note 9)
Issuance of convertible preferred -- -- -- 600,000
stock (note 10)
Exercise of detachable warrants 684,659 -- -- 690,000
Foreign currency translation (109,248) -- -- (109,248)
adjustment
Net loss -- (10,146,464) -- (10,146,464)
----------- ----------- ----------- -----------
Balance at December 31, 1995 36,670,391 (39,534,149) (250,000) 1,208,217
Exercise of common stock options 109,898 -- -- 110,791
(note 12)
Increasing rate preferred stock
discount (note 10) -- -- -- 53,212
Conversion feature of debentures
and detachable warrants
issued (note 9) 1,555,981 -- -- 1,555,981
Conversion feature of Series D
Preferred Stock (note 10) 1,198,055 -- -- --
Debentures converted, net of
expenses (note 9) 8,796,242 -- -- 8,863,067
Warrant discount net of related
debenture 53,792 -- -- 53,792
conversions (note 9)
Issuance of convertible preferred
stock, net of (762,964) -- -- 7,587,036
expenses (note 10)
Preferred stock accretion and
dividends -- (1,865,115) -- (409,394)
(note 10)
Preferred stock converted, including
related 2,535,543 -- -- --
accretion (note 10)
Retirement of treasury stock (248,000) -- 250,000 --
Foreign currency translation (17,708) -- -- (17,708)
adjustment
Net loss (11,398,995) (11,398,995)
----------- ----------- ----------- -----------
Balance at December 31, 1996 49,891,230 (52,798,259) -- 7,605,999
</TABLE>
F-5
<PAGE> 38
LASERTECHNICS, INC. & SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
<TABLE>
<CAPTION>
Nonvoting
Convertible convertible
Preferred stock Common stock common stock
--------------- ------------ -------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,919,299 $ 10,119,194 37,133,514 $ 371,335 2,249,842 $ 22,499
Exercise of common stock options -- -- 757,240 7,572 -- --
Issuance of common stock for
extension of stockholder
notes payable (note 8) -- -- 112,942 1,129 -- --
Conversion feature of stockholder
notes payable (note 8) -- -- -- -- -- --
Conversion feature of debentures
issued (note 9) -- -- -- -- -- --
Issuance of common stock in
connection with stockholder
notes payable (note 8) -- -- 734,252 7,343 -- --
Debentures converted, net of
expenses (note 9) -- -- 1,980,901 19,809 -- --
Issuance of Series G preferred stock,
net of expenses and conversion of
Series F Preferred Stock,
including common stock issued (note 10) 801,735 7,980,842 -- -- -- --
Issuance of common stock for the
conversion of Series F to Series G
Preferred Stock -- -- 897,353 8,974 -- --
Preferred stock accretion and
dividends note 10) -- 231,911 -- -- -- --
Preferred stock converted,
including related accretion (note 10) (359.00) (3,829,218) 5,753,014 57,530 -- --
Preferred stock redeemed (note 10) (132.50) (1,350,000) -- -- -- --
Preferred stock converted to debt (105.50) (1,185,496) -- -- -- --
(note 10)
Issuance of warrants in connection with
the stockholder notes payable,
standstill agreement and December 1997
restructuring (notes 8, 9, and 10) -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------- ------------ ---------- ------- --------- ------
Balance at December 31, 1997 2,919,503,735 $ 11,967,233 47,369,216 473,692 2,249,842 22,499
============= ============ ========== ======= ========= ======
</TABLE>
<TABLE>
<CAPTION>
Paid-in Accumulated Treasury
capital deficit stock Total
------- ------- ----- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 49,891,230 $(52,798,259) $ -- $ 7,605,999
Exercise of common stock options 33,111 -- -- 40,683
Issuance of common stock for
extension of stockholder notes
payable (note 8) 27,107 -- -- 28,236
Conversion feature of stockholder notes
payable (note 8) 687,833 -- -- 687,833
Conversion feature of debentures
issued (note 9) 88,235 -- -- 88,235
Issuance of common stock in connection
with stockholder notes payable (note 8) 383,699 -- -- 391,042
Debentures converted, net of
expenses (note 9) 1,013,637 -- -- 1,033,446
Issuance of Series G preferred stock, net
of expenses and conversion of Series F
Preferred Stock, including common stock
issued (note 10) -- -- -- 7,980,842
Issuance of common stock for the
conversion of Series F to Series G
Preferred Stock 227,851 -- -- 236,825
Preferred stock accretion and
dividends note 10) -- (1,072,389) -- (840,478)
Preferred stock converted, including
related accretion (note 10) 3,771,688 -- -- --
Preferred stock redeemed (note 10) -- -- -- (1,350,000)
Preferred stock converted to debt
(note 10) -- -- -- (1,185,496)
Issuance of warrants in connection with
the stockholder notes payable,
standstill agreement and December 1997
restructuring (notes 8, 9, and 10) 567,593 -- -- 567,593
Foreign currency translation adjustment 4,984 -- -- 4,984
Net loss -- (12,820,441) -- (12,820,441)
------------ ------------ ------------ ------------
Balance at December 31, 1997 $ 56,696,968 $(66,691,089) $ -- $ 2,469,303
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 39
LASERTECHNICS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -----
(note 2) (note 2)
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(12,820,441) (11,398,995) (10,146,464)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,126,870 725,859 514,988
Provision for losses on accounts receivable 1,058,572 248,489 115,375
Provision for product warranty reserve 382,795 639,606 338,250
Amortization of discount and issuance costs
and other non-cash interest and dividends 1,553,934 1,259,621 1,726,193
Accrued interest not paid -- 514,163 --
(Increase) decrease in:
Accounts receivable, trade 274,101 628,243 (1,165,875)
Inventory 1,577,165 (2,187,157) (1,616,559)
Prepaid expenses 100,702 (775,350) 104,779
Other current assets 17,525 (1,280,821) 163,769
Accounts payable 419,503 (2,087,326) (42,450)
Accrued expenses (842,060) (598,871) (890,512)
Other 205,571 608,912 --
----------- ---------- -----------
Net cash used by operating activities (6,945,763) (13,703,627) (10,898,506)
Cash flows from investing activities -
Capital expenditures (206,555) (783,794) (995,518)
</TABLE>
(continued)
F-7
<PAGE> 40
LASERTECHNICS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------- ------------
(note 2) (note 2)
Cash flows from financing activities:
<S> <C> <C> <C>
Borrowings under financing agreements 7,158,808 3,800,000 7,329,906
Principal payments on financing agreements -- (2,200,000) (2,969,452)
Proceeds from issuance of convertible debentures 500,000 5,500,000 7,000,000
Convertible debenture issuance costs -- (385,000) (520,000)
Principal payments on capital lease obligations (230,307) (219,018) (164,860)
Net proceeds from issuance of preferred and common stock 1,952,525
Redemption of preferred stock (1,350,000) -- --
Redemption of convertible debentures (650,000) -- --
Other (140,274) -- --
7,697,826 1,683,729
------------------ ------------- ------------
Net cash provided by financing activities 7,240,752 14,193,808 12,359,323
Net increase (decrease) in
cash and cash equivalents 88,434 (293,613) 465,299
Cash and cash equivalents at beginning of year $ 1,598,744 1,892,357 1,427,058
------------------ ------------- ------------
Cash and cash equivalents at end of year $ 1,687,178 1,598,744 1,892,357
================== ============= ============
Supplemental information:
Cash paid during the year for interest 2,031 151,354 173,619
================== ============= ============
Conversions to common stock (notes 8, 9 and 10):
Debentures 1,000,000 9,225,000 1,025,000
Notes payable, net of expenses -- -- 5,953,773
Accrued interest 33,446 483,435 373,222
Preferred stock 3,829,218 -- --
Convertible preferred stock accretion (note 10) 231,911 257,666 --
================== ============= ============
Detachable warrants issued in conjunction with convertible
debt and preferred stock (notes 8, 9 and 10) 567,593 462,000 207,000
================== ============= ============
Conversion feature of debentures and stockholder notes payable issued
(notes 8 and 9) 776,068 1,555,981 1,235,294
================== ============= ============
Common stock issued in connection with stockholder notes
payable and preferred stock (notes 8 and 10) 656,103 -- --
================== ============= ============
Preferred stock converted to notes payable (note 10) 1,185,496 -- --
================== ============= ============
Debentures and accrued interest converted to short- and
long-term note payable (note 9) 1,035,205 -- --
================== ============= ============
Borrowings under capital lease obligations -- 194,064 --
================== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 41
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(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), its 96 percent owned subsidiary
Sandia Imaging Systems Corporation (Sandia), and Sandia's wholly
owned French subsidiary Sandia Imaging Systems SA (Sandia 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. The Company had cash equivalents of $1,683,011 and
$1,587,878 at December 31, 1997 and 1996, respectively.
(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 acquired 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) Fair Value of Financial Instruments
The carrying amount of cash equivalents, accounts receivable,
accounts payable, notes payable, customer advances, commissions
payable and accrued liabilities approximate fair value because of
the short-term maturity of these instruments.
F-9 (Continued)
<PAGE> 42
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The outstanding borrowings under the Company's note payable to
Xerox Corporation (note 11) and the long-term note payable (note
9) bear interest at current market rates, and therefore, the
carrying amount of debt approximates estimated fair value at
December 31, 1997 and 1996.
At December 31, 1996, the net carrying value of the March 1996
convertible debentures (note 9) approximates fair value as such
debentures are recorded based on the current effective interest
rate.
(f) Income Taxes
The Company accounts for income taxes under the asset and
liability method. Under this method, 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. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount more likely than not to be realized. Income tax expense is
the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(g) Foreign Currency Translation
The functional currency for the Company's foreign subsidiary is
the applicable local currency. Assets and liabilities of the
foreign subsidiary are translated to U.S. dollars at year-end
exchange rates. Income and expense items are translated at the
average rates of exchange prevailing during the year. The
adjustments resulting from translating the financial statements of
the foreign subsidiary are reflected in stockholders' equity.
(h) Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS No. 128 revised the previous
calculation methods and presentations of earnings per share and
requires that all prior-period earnings (loss) per share data be
restated to conform to SFAS No. 128. The Company adopted SFAS No.
128 in the fourth quarter of 1997 as required by this Statement.
In accordance with SFAS No. 128, the Company has presented basic
loss per share, computed on the basis of the weighted average
number of common shares outstanding during the year. Diluted
earnings per share which includes the dilutive effect of options
and warrants has not been presented since, due to the net losses
recorded by the Company for all periods presented, their inclusion
would be antidilutive.
F-10 (Continued)
<PAGE> 43
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net loss applicable to common stock is derived by adding to the
consolidated net loss the accretion of the discount recorded for
the Company's increasing rate preferred stock Series A, B and C,
the annual accretion of Series D, E and F Preferred Stock, the
value of warrants issued to induce conversions from Series F to
Series G Preferred Stock during 1997 and in connection with a 1997
standstill agreement and the intrinsic value of the beneficial
conversion feature of the Series D Preferred Stock (note 10).
(i) Revenue Recognition
The Company recognizes revenue on sales of its products either
when the products are shipped from the Company or received by the
customer, depending on shipping terms. Revenue related to product
sales that require installation or customer acceptance is
recognized upon fulfillment of such requirements.
(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 Company provides for future warranty
obligations in the period product sales are recorded. The warranty
reserve is reviewed quarterly and adjusted based upon the
Company's actual historical warranty costs and its estimate of
future costs.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the asset exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position or
results of operations.
(l) Stock Compensation Plans
On January 1, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize
as expense over the vesting period the fair value of all
stock-based awards on the date of grant.
F-11 (Continued)
<PAGE> 44
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and
provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and
future years as if the fair value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosures of SFAS No. 123. Under APB Opinion No. 25,
compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the
exercise price.
(m) Reclassifications
Certain reclassifications have been made to prior year
consolidated financial statements to conform to the current year
presentation.
(2) Restatement
The Company has restated its consolidated financial statements for the
years ended December 31, 1995 and 1996 to conform its accounting for
beneficial conversion features related to the issuance of convertible
debentures in October 1995 and March 1996 and convertible preferred stock
issued in July 1996 to the Financial Accounting Standards Board's
Emerging Issues Task Force Topic No. D-60 issued in March 1997 ("Topic
No. D-60"). Topic No. D-60 requires that the intrinsic value of
beneficial conversion features of convertible debt securities should be
recognized as interest expense over the period from issuance to the first
date that conversion can occur. Previously, the Company was amortizing
the estimated fair value of the beneficial conversion feature to interest
expense over the life of the convertible debentures. Topic No. D-60
further states that the intrinsic value of beneficial conversion features
of convertible preferred stock should be treated as a return to the
preferred stockholder over the period from issuance to the first date
that conversion can occur. The Company had not previously assigned a
value to the beneficial conversion feature of its Series D Convertible
Preferred Stock.
F-12 (Continued)
<PAGE> 45
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of the aforementioned restatement, amounts were adjusted as follows:
<TABLE>
<CAPTION>
Year ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Interest expense, as previously
reported $ 1,541,001 $ 968,790
Adjustment 369,918 1,051,961
------------ ------------
Restated interest expense 1,910,919 2,020,751
============ ============
Restated net loss (11,398,995) (10,146,464)
Dividends, as previously
reported (667,060) (73,234)
Adjustment (1,198,055) --
------------ ------------
Restated net loss attributable
to common stockholders (13,264,110) (10,219,698)
============ ============
Basic and diluted loss per
share, as previously reported (0.34) (0.33)
Restated basic and diluted loss
per share (0.39) (0.37)
</TABLE>
Unaudited quarterly financial data has also been restated from amounts
previously reported for the fiscal 1997 and 1996 quarterly results. See
note 17.
(3) Operations, Liquidity and Going Concern
The Company's operations in 1997 continued to generate losses. The loss
in 1997 significantly exceeded losses in either 1996 or 1995. Although,
during 1997, the Company raised gross proceeds of approximately $11
million through equity and debt transactions, the Company's operations,
capital expenditures and debt service requirements have utilized a
significant portion of such proceeds through February 1998. These factors
raise substantial doubt about the Company's ability to continue as a
going concern.
The Company's business plan for 1998 is predicated principally upon the
commencement of a new service center for outsourced card printing,
significant increases in sales for existing Sandia 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 may require additional external
financing to meet its 1998 requirements. 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 Sandia 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,
F-13 (Continued)
<PAGE> 46
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
reduce its sales and marketing efforts, dispose of assets or undertake
other actions as may be appropriate.
(4) Significant Customers
One customer accounted for 10, 18 and 16 percent of consolidated revenues
in 1997, 1996 and 1995, respectively. Another customer accounted for 29
percent of 1996 consolidated revenues. At December 31, 1997 and 1996, two
customers accounted for 29% and 27% of consolidated net accounts
receivable, respectively.
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Amortization/
Depreciation
Period 1997 1996
----------- ----------- -----------
<S> <C> <C>
Property, plant and equipment under
capital lease:
Land (note 6) $ 336,396 336,396
Building Lease term 923,550 923,550
Machinery and equipment Lease term 127,411 127,411
Research equipment Lease term 21,339 21,339
Furniture and fixtures Lease term 530,913 530,913
----------- -----------
1,939,609 1,939,609
Accumulated amortization (695,084) (648,131)
----------- -----------
Property, plant and equipment
under capital leases, net 1,244,525 1,291,478
----------- -----------
Other property, plant and equipment:
Building 14 to 45 years 311,955 311,955
Leasehold improvements Lease term 158,311 165,679
Machinery and equipment 5 to 8 years 1,543,854 1,285,025
Demonstration equipment 2 to 3 years 830,258 933,363
Research equipment 3 years 179,796 136,005
Furniture and fixtures 5 years 657,963 781,851
----------- -----------
3,682,137 3,613,878
----------- -----------
Accumulated depreciation and amortization (1,951,937) (1,571,079)
----------- -----------
Other property, plant and
equipment, net 1,730,200 2,042,799
----------- -----------
Total property, plant and
equipment, net $ 2,974,725 3,334,277
=========== ===========
</TABLE>
F-14 (Continued)
<PAGE> 47
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 was to 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 made its monthly
payments on a timely basis and remained in compliance with the
agreement's debt covenants, which required 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. During the fourth quarter of 1996, the bondholder
agreed to permanently waive the debt to equity ratio requirement and its
right to call the bond for redemption provided the lessee remains in
compliance with all other covenants. At December 31, 1997, the Company's
current ratio was 0.9 to 1, which was in violation with the lease
covenants, and accordingly, the Company has classified the outstanding
note payable pursuant to this agreement as a current liability in the
accompanying consolidated financial statements. The Company intends to
seek a waiver of non-compliance during 1998 relating to this covenant
violation. 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. No such call has
occurred as of February 1998 and management believes the likelihood that
such acceleration provisions will be exercised in 1998 is remote.
Capital lease obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
City of Albuquerque, New Mexico, due monthly (approximately
$17,589 to maturity) including interest at 75% of the prime
rate of Chase Manhattan Bank (6.38% at December 31,
1997) but not less than 8% nor more than 14%, maturing
September 2001 $ 807,935 955,852
Other capital leases, due $6,601 monthly, with maturity dates
through June 2002, including interest ranging from 15.15%
to 19.4%
114,845 197,235
--------- ---------
Total capital lease obligations 922,780 1,153,087
Less:
Current portion of capital leases 807,935 225,676
--------- ---------
$ 114,845 927,411
========= =========
</TABLE>
F-15 (Continued)
<PAGE> 48
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The annual aggregate lease payments under capital leases, assuming no
acceleration of lease payments due to the covenant violations discussed
above, are as follows:
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1998 $ 287,215
1999 257,879
2000 238,853
2001 229,829
2002 73,270
-----------
1,087,046
Less amount representing interest (164,266)
-----------
$ 922,780
===========
</TABLE>
(7) Accrued liabilities
Accrued liabilities consist of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Customer advances $ 6,489 436,249
Commissions payable 33,970 65,249
Product warranty reserve 645,055 516,783
Accrued payroll and payroll taxes 167,415 265,928
Accrued vacation 108,617 163,935
Preferred stock dividends 60,916 356,182
Other 812,139 1,153,199
Interest payable 255,192 --
---------- ----------
$2,089,793 2,957,525
========== ==========
</TABLE>
(8) Notes Payable to Stockholders
During the first quarter of 1997, the Company obtained a commitment for a
working capital bridge loan of up to $1,000,000 from Antiope Partners
L.L.C. (formerly Wolfensohn Partners L.P.) ("Antiope Partners"). The
Company made draws of $1,000,000 under this agreement during the first
and second quarters of 1997. Borrowings bore interest at 12% and were due
on demand. The borrowings were ultimately convertible into the Company's
voting common stock. In June 1997, borrowings under this agreement were
converted into an advance under the terms of a new bridge loan financing
provided to the Company by Antiope Partners and J.P. Morgan Investment
Corporation ("JPMIC") pursuant to a note purchase agreement dated June
25, 1997 (the "Note Purchase Agreement"). The Note Purchase Agreement
provided the Company with additional bridge financing up to a total of
$3,000,000, to be funded 60% by Antiope Partners and 40% by JPMIC. Under
the Note Purchase Agreement, the Company
F-16 (Continued)
<PAGE> 49
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
received additional fundings of $2,000,000 by September 1997. The Note
Purchase Agreement provided for an interest rate of 10% per annum for
advances by Antiope Partners and 6.64% per annum for advances by JPMIC,
with a final maturity of December 31, 1997. In connection with the
advances, the Company issued to Antiope Partners and JPMIC an aggregate
of 308,571 restricted shares of the Company's common stock and warrants
to purchase 600,000 shares of the Company's common stock with a strike
price of $0.70. In connection with the restricted shares and warrants,
the Company recorded a discount to equity of approximately $287,000
($91,000 for the warrants and $196,000 for the common stock). Further,
advances under the Note Purchase Agreement were convertible into
convertible debentures with terms similar to the currently outstanding
convertible debentures (see note 9), which were ultimately convertible
into common stock at a discount. The Company recorded a discount to
equity of approximately $688,000 for the intrinsic value of the
beneficial conversion feature. The discount attributable to the
restricted shares, warrants and conversion feature was fully accreted to
interest expense during 1997. Advances under the Note Purchase Agreement
are secured by a pledge of all the capital stock of the Company's LMC
subsidiary held by the Company.
In December 1997, JPMIC, Antiope Partners and Amphion Ventures L.P.
("Amphion), an affiliate of Antiope Partners, extended the maturity of
the Note Purchase Agreement to December 31, 1998 in exchange for 112,942
restricted shares of the Company's common stock and warrants to purchase
600,000 shares of common stock at an exercise price of $0.25. The Company
recorded a debt discount of approximately $88,000 ($60,000 for warrants
and $28,000 for the common stock) representing the estimated fair value
of the warrants and restricted stock provided under this arrangement. The
debt discount will be accreted to interest expense through the extended
maturity date of December 31, 1998.
The Company borrowed additional funds of $4,138,575 from Amphion during
late September 1997 through early December 1997 under an informal
borrowing agreement. The advances accrued interest at a rate of 10% per
annum. In connection with these advances, the Company issued 425,681
restricted shares of the Company's common stock and warrants to purchase
827,715 shares of the Company's common stock at an exercise price of
$.70. The Company recorded a debt discount of approximately $316,000
($121,000 for the warrants and $195,000 for the common stock)
representing the estimated fair value of the warrants and restricted
stock, which was fully accreted to interest expense as of December 31,
1997. In December 1997, the Company entered into an agreement whereby it
converted the advances under this informal borrowing agreement into
Series G Preferred Stock (see note 10).
The effective interest rate associated with the borrowings from Antiope
Partners, Amphion and JPMIC was 71% including the beneficial conversion
feature, and 39% excluding the same.
During June and July 1996, the Company obtained a 12% working capital
bridge loan totaling $1.7 million from Amphion. The loan principal and
related interest were paid in full in August 1996 with proceeds from the
sale of Series D Convertible Preferred Stock (note 9). In connection with
these borrowings, a five year warrant to purchase a total of 56,341
shares of Common Stock was issued to Amphion.
F-17 (Continued)
<PAGE> 50
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 1994 and 1995, the Company borrowed $8,900,000 from JPMIC and
Amphion under notes payable which bore interest at 12% and were due on
demand, or if no demand was made, principal and interest became due at
various dates in 1996. Of the total amount borrowed, $6,210,000 plus
accrued interest was converted into a combination of common, nonvoting
common and preferred stock. In conjunction with these borrowings,
Wolfensohn received detachable warrants to purchase 534,105 shares of
Common Stock. The warrants were fully exercised in 1995 at an aggregate
price of $690,000, and an exercise price ranging from $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. Amphion converted
its debt during 1995, and the unamortized portion of the discount was
netted against additional paid-in capital as of the date of conversion.
The Company paid Amphion $2,000,000 of the amount borrowed with
proceeds from the October 1995 convertible debenture private placement
(note 9). The balance of borrowings outstanding were repaid when
Amphion exercised all 534,105 warrants to purchase common stock of the
Company.
(9) Convertible Debentures
In October 1995, the Company completed a $7,000,000 private placement of
10 percent convertible debentures maturing in October 1998 (the "1995
Debentures"). The 1995 Debentures plus accrued interest were convertible
by the holder into unregistered Common Stock 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 1995
Debentures could be converted at the lesser of $2.34375 or 85 percent of
the average five day closing bid price of the Common Stock prior to
conversion, and (c) after December 25, 1995, and during the term of the
1995 Debentures, all 1995 Debentures could be converted by the holder
under the same terms described in (b). The Company had the right to
convert the 1995 Debentures at its own election subject to the terms of
the 1995 Debenture agreement. The Common Stock issued upon conversion has
registration rights under certain circumstances. The Company recorded a
debt discount of approximately $1,235,000 for the intrinsic value of the
beneficial conversion feature of the 1995 Debentures. The consolidated
financial statements have been restated to reflect the accretion of the
beneficial conversion feature from issuance in October 1995 to the date
of first available conversion of all of the debentures, December 25, 1995
(see note 2). In 1995, $1,025,000 face amount of 1995 Debentures plus
$20,342 of accrued interest were converted into 658,570 shares of Common
Stock. During 1996, all remaining 1995 Debentures, having a face value of
$5,975,000, plus $355,823 of accrued interest were converted into
4,290,500 shares of Common Stock.
F-18 (Continued)
<PAGE> 51
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the 1995 Debentures, a five year warrant to purchase
221,867 shares of Common Stock, priced at 20 percent above the $2.34375
closing price, or $2.81 per share, was issued to the placement agent for
the offering as part of the placement fee.
In March 1996, the Company completed a $5,500,000 private placement of 10
percent convertible subordinated debentures maturing March 1, 1999 (the
"1996 Debentures"). The 1996 Debentures, plus accrued interest, were
convertible into the Company's unregistered common stock at the option of
the holder as follows: (a) between March 13, 1996 and May 11, 1996 at the
fixed exercise price of $2.00 per share and (b) at the lesser of $2.00
per share or 85 percent of the average five day closing bid price of the
Common Stock prior to conversion for up to one-fourth of the 1996
Debentures purchased beginning on each of these dates in 1996: May 12,
June 11, July 11, and August 10. The Company had the right to convert the
1996 Debentures at its own election at any time after March 1, 1997
utilizing the formula described above. The Company also has the right to
redeem the 1996 Debentures for cash upon notice of conversion by a holder
or at any time after March 1, 1997. The Common Stock issued upon
conversion has registration rights under certain circumstances. In
connection with the 1996 Debentures, five year warrants to purchase
192,500 shares of Common Stock at $2.20 per share were issued to the
placement agent for the offering as part of the placement fee. In
addition, five year warrants to purchase 550,000 shares of Common Stock
at $2.00 per share were issued with the 1996 Debentures. The Company
recorded a debt discount of approximately $950,000 representing the
intrinsic value of the beneficial conversion feature of the 1996
Debentures and approximately $606,000 for the estimated fair value of the
550,000 related detachable warrants to purchase Common Stock. The
consolidated financial statements have been restated to reflect the
accretion of the beneficial conversion feature from issuance in March
1996 to the date of first available conversion of all of the debentures
(see note 2). The discount related to the detachable warrants was being
amortized ratably as an interest rate adjustment over the life of the
1996 Debentures or until conversion. All outstanding 1996 Debentures were
to be automatically converted into Common Stock prior to maturity. During
1996, $3,250,000 face amount of the 1996 Debentures plus $127,612 of
accrued interest were converted into 2,392,061 shares of Common Stock.
During 1997, $1,000,000 face amount of the 1996 Debentures plus $181,239
accrued interest were converted into 1,980,901 shares of the Company's
common stock. Additionally, in May 1997, the Company redeemed $600,000
principal of its March 1996 Debentures with the proceeds from the private
placement of $500,000 principal amount of the Series B 10% Convertible
Debenture due March 1999 (the "Series B Debenture") with substantially
identical terms as the 1996 Debentures and $100,000 in proceeds from the
private placement of $500,000 of Series E convertible preferred stock
(see note 10). The Company recorded a debt discount of approximately
$88,000 representing the intrinsic value of the beneficial conversion
feature of the Series B Debenture. The discount was
F-19 (Continued)
<PAGE> 52
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
fully accreted to interest expense during 1997. The Company redeemed an
additional $50,000 face amount of the 1996 Debentures during 1997.
In July 1997, the holders of the 1996 Debentures, Series B Debenture,
Series D Preferred Stock and Series E Preferred Stock (the "Suspended
Securities") agreed to a ninety day suspension of conversion rights on
75% of their holdings beginning July 14, 1997. From October 14, 1997 and
thereafter, the holders of the Suspended Securities can exercise the
suspended portion at a cumulative rate of 20% per month. In exchange for
the standstill agreement, the holders of the 1996 Debentures and the
Series B Debenture received warrants to purchase 271,875 shares of the
Company's common stock at an exercise price of $0.70. In connection with
the issuance of these warrants, the Company recorded a charge to interest
expense of approximately $60,000, which represents the estimated fair
value of the warrants provided as an inducement to the holders of the
Suspended Securities.
At December 31, 1997, as part of a series of transactions to convert
debentures and preferred stock into notes payable (the "December 1997
Restructuring"), the remaining $600,000 face amount of the 1996
Debentures were converted into a 12% short-term note payable with
$300,000 principal due in January 1998 and three installments of $100,000
plus current interest due in March, April and May 1998. Additionally, the
Company converted the $500,000 principal amount of the Series B Debenture
into an 8% long-term promissory note due January 15, 2000. In connection
with these conversions, the Company issued to the holders warrants to
purchase 600,000 shares of the Company's common stock at an average
exercise price of $0.42. In connection with the warrants issued, the
Company recorded a charge to interest expense of approximately $47,000,
which represents the estimated fair value of the warrants provided as a
conversion inducement.
(10) Preferred Stock
Series D Preferred Stock
In July 1996, the Company completed an $8,350,000 private placement of
835 shares of a new class of preferred stock, Series D Convertible
Preferred Stock, par value $.01 per share ("Series D Preferred Stock").
Shares of Series D Preferred Stock was convertible into Common Stock in
increments of up to 1/3 of Series D Preferred Stock purchased at the
lesser of (i) $2.1406 per share or (ii) (a) the average closing bid price
of the Common Stock for the ten trading days immediately prior to the
conversion date multiplied by (b) a percentage which is 90 percent from
October 1, 1996 through November 29, 1996, 87.5 percent from November 30,
1996 through January 28, 1997, and 85 percent thereafter. The Company
assigned a value of approximately $1,198,000 to the beneficial conversion
feature of the Series D Preferred Stock, which has been included as a
preferred stock dividend for purposes of calculating loss applicable to
common stockholders for the year ended December 31, 1996 in the
accompanying consolidated financial statements. See note 2. The Series D
Preferred Stock did not accrue dividends; however, each share possessed
an 8 percent per annum accretion rate prior to conversion which was
payable in Common
F-20 (Continued)
<PAGE> 53
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock upon conversion or redemption at the conversion price then in
effect. Any shares of Series D Preferred Stock outstanding on August 2,
1999 were to be subject to automatic conversion at the conversion rate
then in effect. The Company effected a Registration Statement on Form S-3
(Registration No. 333-10665), which registers up to 6,000,000 shares of
Common Stock to be offered by the holders of Series D Preferred Stock
upon such holders' conversion of such Series D Preferred Stock into
Common Stock.
In connection with the Series D Preferred Stock, a five year warrant to
purchase 195,039 shares of Common Stock at $2.1406 per share was issued
to the placement agent for the offering as part of the placement fee.
During 1996, 250 shares of Series D Preferred Stock, having an aggregate
face value of $2,500,000, and an aggregate accretion value of $58,352,
were converted into 2,280,933 shares of Common Stock.
Series E and F Preferred Stock
In June 1997, the Company completed the private placement of $500,000
Series E Convertible Preferred Stock ("Series E Preferred Stock"). The
Series E Preferred Stock had substantially identical terms as the Series
D Preferred Stock. The proceeds of this placement were used to redeem
$400,000 of Series D Preferred Stock and a portion of the $600,000
principal amount of 1996 Debentures redeemed (see note 9). As discussed
in note 10, in July 1997, the holders of the 1996 Debentures, Series B
Debenture, Series D Preferred Stock and Series E Preferred Stock (the
"Suspended Securities") agreed to a ninety day suspension of conversion
rights on 75% of their holdings beginning July 14, 1997. In exchange for
the standstill agreement, the holders of the Series D and Series E
preferred stock received warrants to purchase 542,500 shares of the
Company's common stock at an exercise price of $0.70. The Company
recorded a discount of approximately $119,000 representing the estimated
fair value of the warrants provided for under this arrangement. These
warrants provided as an inducement to the holders of the Suspended
Securities have been accounted for as stock dividends to the Series D
and E Preferred Stockholders. In connection with the standstill
agreement, the Company converted the outstanding shares of Series D and
Series E Preferred Stock into Series F Convertible Preferred Stock
("Series F Preferred Stock"). The Series F Preferred Stock had
substantially identical terms as the Series D and Series E Preferred
Stock. Additionally, the Company completed a private placement of
$480,000 face amount of Series F Preferred Stock in July 1997 with
Antiope, the proceeds of which were used to redeem $480,000 of existing
Series D Preferred Stock from a stockholder.
During 1997, the Company converted a total of $3,590,000 face amount plus
$239,218 in accreted dividends of Series D, E and F Preferred Stock into
5,753,014 shares of common stock and redeemed for cash a total $1,350,000
face amount.
F-21 (Continued)
<PAGE> 54
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Series G Preferred Stock and December 1997 Restructuring
In December 1997, in connection with the December 1997 Restructuring, the
Company completed a $7,897,353 private placement of Series G Preferred
Stock with stockholders of the Company. Proceeds from the private
placement were as follows: cash of $931,000; a short-term note receivable
of $1,158,684 (which was repaid in full in January and February 1998);
forgiveness of accrued dividends payable of $708,620 on Series A, B and C
Series Preferred Stock; conversion of $4,138,575 principal and $63,121
accrued interest from the informal borrowing agreement (see note 9); and
conversion of $860,000 face amount plus $37,353 of accreted dividends in
Series F Preferred Stock. In connection with the Series F to Series G
Preferred Stock conversion, the Company issued 897,353 shares of common
stock to the Series F Preferred Stockholders with a fair value of
approximately $236,000 as a conversion inducement. This conversion
inducement has been accounted for as a stock dividend to the Series F
Preferred Stockholders.
Additionally, in connection with the December 1997 Restructuring,
$980,000 face amount of Series F Preferred Stock plus $112,768 in
accrued dividends were converted into a short-term note payable due in
two installments in January and September 1998. The remaining $75,000
face amount of Series F Preferred Stock was converted into a 12%
short-term note payable, with accrued interest at December 31, 1997 of
$17,759. In connection with these conversions, the Company issued to the
holders warrants to purchase 840,000 shares of the Company's common
stock at an exercise price of $0.50. The Company recorded a debt
discount of approximately $70,000 representing the estimated fair value
of the warrants provided for under this arrangement. This conversion
inducement has been accounted for as a stock dividend to the Series F
Preferred Stockholders.
Series A, B and C Preferred Stock
The Company has three additional classes of convertible preferred stock,
Series A, B and C Convertible Preferred Stock, stated value $1.30, $1.42,
and $1.51, respectively. Each share of Series A, B, and C Convertible
Preferred Stock is convertible at the option of the holder into voting
Common Stock on a share for 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 per annum: 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 per annum through December 31, 1995 and 10 percent
per annum thereafter. Dividends are payable within 15 days following each
calendar quarter in cash or in additional shares of preferred stock at
the option of the Company through June 30, 1996 (September 30, 1996 for
Series C Preferred Stock). After June 30, 1996 (September 30, 1996 for
Series C Preferred Stock), dividends are payable in cash or additional
shares of preferred stock at the option of the stockholders. There were
no dividends in arrears at December 31, 1997 and 1996.
F-22 (Continued)
<PAGE> 55
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A discount on the Series A, B, and C Convertible Preferred Stock was
recorded equal to the present value of the difference between the actual
dividends that would be paid and the 10 percent perpetual dividend
amount, calculated over the increasing dividend rate period. The discount
was amortized to provide a constant effective dividend rate. The 1996 and
1995 aggregate discount amortization for all three series of preferred
stock was $53,212, and $73,234, respectively. The discount was fully
amortized during 1996.
All series of preferred stock rank senior in right of payment to the
Company's Common Stock as to dividends or upon a liquidation or
dissolution of the Company.
(11) Notes Payable
On December 27, 1996, Sandia signed a $2,100,000 note payable to Xerox
Corporation ("Xerox") in connection with a license agreement for certain
technology. Initially, one-third of the note principal plus accrued
interest was due on December 15 of 1997, 1998 and 1999. The Company and
Xerox have held settlement discussions during the first quarter of 1998
in an effort to amicably resolve their dispute. However, there can be
no assurances that the Company will prevail in any action or proceeding
arising in connection with its dispute with Xerox, or that an amicable
resolution of such dispute would be possible. Accordingly, the
outstanding balance of $2,100,000 has been classified as a current
liability in the accompanying consolidated balance sheet.
The license fee of $2,100,000 has been recorded as a deferred license fee
and is being amortized over the three year term of the license agreement.
Accordingly, the Company has reflected the unamortized balance of
$1,400,000 as a noncurrent asset. In years following 1999, upon license
renewal the Company will pay a minimum royalty. The royalty on annual
sales in excess of $10,000,000 is to be calculated using a declining
percentage ranging from 4.5% to 3%.
The remaining balance in notes payable at December 31, 1997 includes
short term notes payable totaling $1,767,767 and long-term notes payable
of $535,205 related to the December 1997 Restructuring transactions
discussed at notes 9 and 10 and other, as follows:
<TABLE>
<S> <C>
Note payable issued to 1996 Debenture holder $ 600,000
Notes payable issued to Series F Preferred stockholders 1,167,767
Xerox note payable 2,100,000
Other notes payable 74,728
---------------
Total short-term notes payable $ 3,942,495
===============
Long-term note payable issued to Series B debenture holder $ 535,205
===============
</TABLE>
F-23 (Continued)
<PAGE> 56
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stock Compensation Plans
At December 31, 1997, the Company has four stock-based compensation plans
that are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation
cost has been recognized related to stock option grants since the
intrinsic value of stock options awarded is zero at the date of grant.
Had compensation cost for the Company's four stock-based compensation
plans been determined based on the grant date fair value method in
accordance with SFAS No. 123, the Company's net loss and net loss per
share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Net loss applicable to
common stock As reported (as restated - see note 2) $ (13,892,830) $ (13,264,110) $ (10,219,698)
Pro forma (14,140,970) (13,359,439) (10,268,031)
Basic and diluted net
loss per common As reported (as restated - see note 2) $ (0.31) $ (0.39) $ (0.37)
share
Pro forma (0.32) (0.34) (0.33)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996,
respectively: (i) expected volatility of 90 and 92 percent, except that
expected volatility is assumed to be zero in the computation of fair
value of the non-public subsidiary options since such stock does not
trade, (ii) risk-free interest of 6.5%, and (iii) expected lives of 5
years for director options and 10 years for employee options.
The Company had a key employee stock option plan (the 1981 Plan) that
terminated on November 29, 1991. Under the 1981 Plan, 93,066 shares of
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,
when they expire.
Under the Company's 1991 Employee Stock Option Plan, the Company may
grant up to 1,000,000 shares of Common Stock to its employees. The
exercise price of each option equals the market price of the Company's
stock on the date of grant and an option's maximum term is ten years.
Options granted vest over a four year period. In addition to employees,
the Company has issued stock options to various members of the Board of
Directors and officers of the Company. The exercise price of each option
equals the average market price of the Company's stock during the thirty
trading days immediately prior to the date of grant and the option term
is five years. Options are generally granted each year and have various
vesting requirements.
The Company also has separate Employee Stock Option Plans for each of its
subsidiary companies. The Sandia unit, under its 1994 Employee Stock
Option Plan, may grant up to 2,000,000 shares of its common stock to
employees of Sandia. The LMC unit, under its 1995 Employee Stock Option
Plan, may grant 450,000 shares of its common stock to LMC
F-24 (Continued)
<PAGE> 57
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
employees. Under both plans, the exercise price of each option equals or
exceeds the estimated fair value of the subsidiary's stock on the date of
grant and an option's maximum term is 10 years. Options are generally
granted each year and vest over a four year period. In addition to
employees, each subsidiary has issued stock to its Board of Directors and
officers. The exercise price of each option equals or exceeds the
estimated fair value of each subsidiary's stock on the date of grant and
the option's maximum term is five years.
<TABLE>
<CAPTION>
Weighted Average
LASERTECHNICS, INC. Shares Exercise Price
------------------- ------ --------------
<S> <C> <C>
Balance outstanding at December 31, 1994 2,624,743 $ 0.69
Granted 127,587 1.42
Exercised (627,212) 0.73
Forfeited (1,417,956) 0.50
--------------- ---------------
Balance outstanding at December 31, 1995 707,162 1.19
Granted 70,000 1.80
Exercised (69,228) 1.06
Forfeited (92,374) 1.07
--------------- ---------------
Balance outstanding at December 31, 1996 615,560 1.29
Granted -- --
Exercised -- --
Forfeited (61,595) 1.36
--------------- ---------------
Balance outstanding at December 31, 1997 553,965 $ 1.29
--------------- ---------------
</TABLE>
At December 31, 1997, 1996, and 1995, there were 518,965, 528,060 and
647,245 Lasertechnics, Inc. options exercisable, respectively.
Weighted-average fair values of Lasertechnics, Inc. options granted
during the year ended December 31, 1996 and 1995 were $1.60 and $1.20 per
share, respectively.
<TABLE>
<CAPTION>
Weighted Average
SUBSIDIARIES Shares Exercise Price
------------ ------ --------------
<S> <C> <C>
Balance outstanding at December 31, 1994 227,500 $ 0.09
Granted 40,000 0.50
Exercised (45,000) 0.01
Forfeited (45,000) 0.06
--------------- ---------------
Balance outstanding at December 31, 1995 177,500 0.20
Granted 1,260,675 0.97
Exercised (10,000) 0.01
Forfeited (153,000) 0.93
--------------- ---------------
Balance outstanding at December 31, 1996 1,275,175 0.88
Granted 515,000 1.00
Exercised (10,000) 0.01
Forfeited (455,100) 0.96
--------------- ---------------
Balance outstanding at December 31, 1997 1,325,075 $ 0.90
--------------- ---------------
</TABLE>
F-25 (Continued)
<PAGE> 58
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31,1997, 1996 and 1995, there were 394,087, 249,747, and
95,208 subsidiary options exercisable, respectively. Weighted-average
fair values of subsidiary options granted during the years ended December
31, 1997, 1996 and 1995 were $0.35, $0.53 and $0.28 per share,
respectively.
The following table summarizes information about the stock options
outstanding at December 31,1997. Certain ranges of exercise prices
overlap because of the significant difference in contracted lives.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Wt. Ave.
Number Remaining Wt. Ave. Number Wt. Ave.
Range of Outstanding Contractual Exercise Outstanding Exercise
Exercise Prices at 12/31/97 Life/Years Price at 12/31/97 Price
--------------- ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
LASERTECHNICS, INC
$0.66 to $0.66 93,066 3.0 $ 0.66 93,066 $ 0.66
$1.00 to $1.29 67,375 5.8 1.04 67,375 1.04
$1.22 to $1.81 322,624 1.3 1.44 310,124 1.42
$1.58 to $1.79 70,900 7.8 1.64 48,400 1.63
----------- ------------
$0.66 to $1.81 553,965 3.0 1.29 518,965 1.25
=========== ============
SUBSIDIARIES
$0.01 to $0.01 75,000 0.9 $ 0.01 75,000 $ 0.01
$1.50 to $1.00 1,250,075 8.9 0.95 319,087 0.89
----------- ------------
$0.01 to $1.00 1,325,075 8.4 0.90 394,087 0.72
=========== ============
CONSOLIDATED
$0.01 to $1.81 1,879,040 6.8 $ 1.01 913,052 $ 1.02
=========== ============
</TABLE>
(13) Commitments and Contingencies
The Company has entered into license agreements that provide for royalty
payments based on various percentages of certain product sales. Royalty
expense under these agreements for the years ended December 31, 1997,
1996 and 1995 was approximately $275,000, $126,000 and $151,000,
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 Common Stock at $.495 per share. 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 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
F-26 (Continued)
<PAGE> 59
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 1997, management estimates that the ultimate
outcome of this claim will not have a material adverse effect upon the
Company's financial position or results of operations. Management's
estimates could change depending upon the progress of the lawsuit.
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 investigating the merits
of the asserted claim. Management currently estimates that the ultimate
outcome of this claim will not have a material adverse effect upon the
Company's financial position or results of operations. Management's
evaluation may change depending upon the results of its investigation.
The Company is also involved in various other claims and lawsuits which
are generally incidental to its business. The Company is vigorously
contesting all such matters and believes that their ultimate resolution
will not have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
(14) 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, Sandia 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 became a licensed distributor of Sandia products.
Concurrently, SPI purchased 826,447 shares of Common Stock for
$1,000,000. 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.
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 negotiations were not completed until the second quarter of
1996. In settlement of all outstanding claims under this agreement, which
included payment for units already produced and parts inventory, the
Company agreed to pay $1,525,000 to SPI. As part of the settlement, the
Company received plastic card printers and parts having an estimated net
realizable value of $525,000. As a result, the Company recorded an
expense of $1 million in the second quarter of 1996 as a cost of settling
the dispute.
F-27 (Continued)
<PAGE> 60
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company had previously paid SPI $465,000 for amounts due for units
produced. The remaining amount was paid in 1996 after completion of the
negotiations.
(15) Income Taxes
Due to the Company's losses, no income tax expense was recorded for the
years ended December 31, 1997, 1996 and 1995. At December 31, 1997, the
Company had a net operating loss carryforward of approximately
$46,000,000 for U.S. federal income tax purposes, which will begin
expiring in 1998. Of this federal net operating loss carryforward
approximately $9,125,000 is available for state income tax purposes. The
tax benefit (approximately $15,700,000) 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 $2,440,000 during 1997. Because of conversions of existing
convertible debt, a change in ownership, as defined for purposes of the
Internal Revenue Code, occurred in 1996 that limits the annual
utilization of the U.S. federal net operating loss carryforward under
applicable Internal Revenue Service regulations. The annual limitation,
as defined under Internal Revenue Code (IRC) Section 382, is computed
pursuant to such IRC section and considers the fair market value of the
corporation on the ownership change dates and the federal long-term tax
exempt interest rate. Additionally, the Company had approximately
$400,000 of research and development carryforward. The carryforwards
expire from 1998 to 2006. The credit carryforwards will also be
restricted in their usage as a result of the ownership change.
(16) Segment Information
Export sales totaled approximately $4,431,054, $9,409,624 and $5,333,443
in 1997, 1996 and 1995, respectively. Such export sales were to the
following geographic regions:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Europe $ 870,328 1,692,523 1,980,847
Asia-Pacific 3,045,781 7,437,154 3,256,877
Other 514,945 279,947 95,719
---------- --------- ---------
$4,431,054 9,409,624 5,333,443
========== ========= =========
</TABLE>
F-28 (Continued)
<PAGE> 61
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Business Segments
The Company operates with its product groups organized into two business
segments: imaging and marking. Imaging operations involve the sale of
plastic card printers. Operations in marking involve the production and
sale of laser systems which mark products with a serial number, logo or
bar code.
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, 1997, 1996 and 1995. General
corporate assets and expenses are allocated to the respective business
segments. Assets used by the respective segments are located at the
operating units of the respective segments and there are no general
corporate assets. General corporate expenses are allocated based on the
estimated usage of financial resources by the respective segments.
<TABLE>
<CAPTION>
Imaging Marking Consolidated
(Sandia) (LMC) Company
-------------------- --------------------- --------------------
<S> <C> <C> <C>
1997:
Sales $ 4,353,318 (a) $ 6,765,021 (b) $ 11,118,339
Loss from operations (8,383,449) (1,808,445) (10,191,894)
Identifiable assets (c) 8,934,768 5,750,644 14,685,412
Capital expenditures 178,212 (109,953) 68,259
Depreciation 417,489 92,359 509,848
1996:
Sales $ 8,197,639 (a) $ 9,383,801 (b) $ 17,581,440
Loss from operations (8,642,620) (981,376) (9,623,996)
Identifiable assets (c) 9,941,186 7,720,671 17,661,857
Capital expenditures 654,832 128,962 783,794
Depreciation 459,860 265,999 725,859
1995:
Sales $ 3,121,577 $ 10,308,154 $ 13,429,731
Loss from operations (7,934,839) (195,374) (8,130,213)
Identifiable assets (c) 5,844,770 8,797,832 14,642,602
Capital expenditures 640,528 354,990 995,518
Depreciation 133,991 218,466 352,457
</TABLE>
(a) Sales of imaging products to two customers were $688,198 and
$722,000 in 1997, which represents 16% and 17% of imaging sales
for that year. Sales to the same two customers were $5,122,000
and $1,107,000 in 1996, which represents 63% and 14% of imaging
sales for that year. Additionally, sales to another customer were
$506,000, which represents 12% of imaging sales in 1997.
F-29 (Continued)
<PAGE> 62
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Sales of marking products to a single customer were $1,139,000,
$3,153,000 and $2,171,000 in 1997, 1996 and 1995, which
represents 17%, 34%, and 21% of marking sales, respectively.
(c) Identifiable assets by business segment are those assets used in
the Company's operations in each segment.
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>
1997:
Sales $ 10,953,416 $ 1,720,205 $ (1,555,282) $ 11,118,339
Loss from operations (8,291,174) (1,674,849) (225,871) (10,191,894)
Identifiable assets (e) 15,103,387 1,486,049 (1,904,024) 14,685,412
1996:
Sales $ 18,320,335 (a) $ 7,143,779 (b) $ (7,882,674) $ 17,581,440
Loss from operations (6,989,549) (1,927,536) (706,911) (9,623,996)
Identifiable assets (e) 17,470,744 2,535,828 (2,344,715) 17,661,857
1995:
Sales $ 11,730,377 (a) $ 2,549,943 (850,589) 13,429,731
Loss from operations (6,565,747) (1,557,388) (7,078) (8,130,213)
Identifiable assets (e) 12,356,388 2,520,500 (234,286) 14,642,602
</TABLE>
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.
F-30 (Continued)
<PAGE> 63
LASERTECHNICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Quarterly Financial Data (Unaudited - as restated (note 2))
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
1997:
Net revenues $ 4,589,787 2,591,537 1,982,489 1,954,526
Operating income $ (1,297,126) (202,775) (3,925,433) (4,766,560)
Net loss applicable to common stock $ (1,630,226) (3,094,533) (4,459,747) (4,708,324)
Basic and diluted net
loss per share $ (0.04) (0.07) (0.10) (0.10)
1996:
Net revenues $ 4,111,701 3,454,222 7,252,217 2,763,300
Operating income $ (1,750,246) (3,230,530) (2,100,109) (2,543,111)
Net loss applicable to common stock $ (2,144,870) (4,406,255) (3,234,236) (3,478,749)
Basic and diluted net
loss per share $ (0.07) (0.13) (0.09) (0.10)
1995:
Net revenues $ 3,266,475 3,496,314 3,181,409 3,485,533
Operating income $ (1,652,719) (2,311,655) (1,613,883) (2,551,956)
Net loss applicable to common stock $ (1,775,527) (2,575,240) (1,866,174) (4,002,757)
Basic and diluted net
loss per share $ (0.07) (0.10) (0.07) (0.15)
</TABLE>
(18) Subsequent Event (unaudited)
In August 1997, the Securities and Exchange Commission approved certain
changes to the continued listing requirements of the Nasdaq SmallCap
Market. Two such rule changes, which became effective February 22, 1998,
require an issuer to maintain a minimum bid price of $1 per share for
its listed securities and to maintain a minimum of $2 million in net
tangible assets. A special stockholders' meeting is scheduled for March
31, 1998, to approve, among other things, a 1-for-20 reverse split.
Following the reverse split, if approved, the Company believes its common
stock will trade significantly above the $1 per share minimum bid price.
Subsequent to December 31, 1997, Antiope and Amphion converted $1.9
million in advances under the Note Purchase Agreement (note 8) into
Series G Preferred Stock. Additionally, Amphion committed to purchase up
to an additional $5.5 million of Series G or certain other new preferred
stock to fund the Company's operations and provide for the continued
maintenance of the Company's net tangible assets above the Nasdaq minimum
requirement. As of February 28, 1998, the Company's net tangible assets
were in excess of the $2 million Nasdaq requirement. While management
believes that the Company will be able to preserve the listing of the
Common Stock on the Nasdaq SmallCap Market, there can be no assurance
that the Company will be able to do so.
F-31
<PAGE> 64
Schedule II
LASERTECHNICS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions
Balance charged Balance
at to at
beginning costs end
of and of
Description Period expenses Deductions Period
- ----------------------------------------- ------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Reserves and allowance deducted
from asset accounts-allowance
for doubtful accounts $ 357,136 $ 1,058,572 $ (1,034,797)(a) $ 380,911
====================================================== ===========
Product Warranty Reserve $ 516,783 $ 382,795 $ (254,523)(b) $ 645,055
====================================================== ===========
For the year ended December 31, 1996:
Reserves and allowance deducted
from asset accounts-allowance
for doubtful accounts $ 278,263 $ 248,489 $ (169,616)(a) $ 357,136
====================================================== ===========
Product Warranty Reserve $ 256,003 $ 639,606 $ (378,826)(b) $ 516,783
====================================================== ===========
For the year ended December 31, 1995:
Reserves and allowance deducted
from asset accounts-allowance
for doubtful accounts $ 170,010 $ 115,375 $ (7,122)(a) $ 278,263
====================================================== ===========
Product Warranty Reserve $ 261,138 $ 338,250 $ (343,858)(b) $ 256,003
====================================================== ===========
</TABLE>
(a) Charge-Offs
(b) Actual costs incurred
S-1
<PAGE> 65
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
---------- -----------
3.1 --Certificate 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 dated June 6, 1986. Incorporated
herein by reference to Exhibit 3.3 to Lasertechnics'
Annual Report on Form 10-KSB for the year ended
December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of
Lasertechnics, dated May 27, 1987. Incorporated
herein by reference to Exhibit 3.4 to Lasertechnics'
Annual Report on Form 10-KSB for the year ended
December 31, 1987.
3.5 --Third Amendment to Certificate of Incorporation of
Lasertechnics, dated November 11, 1994. Incorporated
herein by reference to Exhibit 4.4 to Lasertechnics'
Registration Statement on Form S-3 (Registration No.
333-10665).
3.6 --Fourth Amendment to Certificate of Incorporation of
Lasertechnics, dated July 28, 1995. Incorporated
herein by reference to Exhibit 4.5 to Lasertechnics'
Registration Statement on Form S-3 (Registration No.
333-10665).
3.7 --Fifth Amendment to Certificate of Incorporation of
Lasertechnics, dated June 17, 1996. Incorporated
herein by reference to Exhibit 4.6 to Lasertechnics'
Registration Statement on Form S-3 (Registration No.
333-10665).
4.1 --Certificate of Designation of Lasertechnics Series
A, B and C Preferred Stock, dated December 27, 1995.
Incorporated herein by reference to Exhibit 4.7 to
Lasertechnics' Registration Statement on Form S-3
(Registration No. 333-10665).
4.2 --Certificate of Designation of Lasertechnics Series
D Preferred Stock. Incorporated herein by reference
to Exhibit 4.1 to Lasertechnics' Quarterly Report on
Form 10-QSB for the period ended June 30, 1996.
<PAGE> 66
4.3 --Certificate of Designation of Lasertechnics Series
E Preferred Stock. Incorporated by reference to
Exhibit 4.3 to Lasertechnics' Quarterly Report on
Form 10-QSB for the period ended September 30, 1997.
4.4 --Certificate of Designation of Lasertechnics Series
F Preferred Stock and Certificate of Correction.
Incorporated by reference to Exhibit 4.4 to
Lasertechnics' Quarterly Report on Form 10-QSB for
the period ended September 30, 1997.
4.5 --Certificate of Designation of Lasertechnics Series
G Preferred Stock.*
10.1 --License agreement, dated June 30, 1988, between
Lasertechnics and Patlex Corporation. Incorporated
herein by reference to Exhibit 10.17 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1988.
10.2 --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-KSB for the year ended
December 31, 1990.
10.3 --1991 Incentive Stock Option Plan, dated August 14,
1991. Incorporated herein by reference to Exhibit
10.10 to Lasertechnics' Annual Report on Form 10-KSB
for the year ended December 31, 1991.
10.4 --Purchase Agreement between Sandia Europe and
Jean-Luc Poutchnine, Alain Quilleau and Philippe
Bonnevie, dated March 4, 1994. Incorporated herein by
reference to Exhibit 10.15 to Lasertechnics' Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.5 --Letter confirming sale of shares of Lasertechnics
Common Stock to Singapore Precision Industries PTE
LTD, dated May 12, 1994. Incorporated herein by
reference to Exhibit 10.16 to Lasertechnics' Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.6 --Advisory and investment banking services agreement
between Lasertechnics and Wolfensohn International,
Inc., dated May 19, 1993. Incorporated herein by
reference to Exhibit 10.18 to Lasertechnics' Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.7 --Purchase of Common Stock and Convertible Note
Agreement between Lasertechnics and J.P. Morgan
Investment Corporation, dated July 8, 1994.
<PAGE> 67
Incorporated herein by reference to Exhibit 10.19 to
Lasertechnics' Annual Report on Form 10- KSB for the
year ended December 31, 1994.
10.8 --OEM License Agreement between Sandia and Xerox
Corporation, dated January 6, 1995. Incorporated
herein by reference to Exhibit 10.20 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.9 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 19, 1994.
Incorporated herein by reference to Exhibit 10.21 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.10 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 31, 1994.
Incorporated herein by reference to Exhibit 10.22 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.11 --Amendment to the OEM License Agreement between
Sandia and Xerox Corporation, dated December 27,
1996. Incorporated by reference to Exhibit 10.12 to
Lasertechnics' Annual Report on Form 10-KSB for the
year ended December 31, 1996.
10.12 --Demand Promissory Note issued to Wolfensohn
Associates L.P., dated March 27, 1997. Incorporated
by reference to Exhibit 10.13 to Lasertechnics'
Quarterly Report on Form 10-QSB for the period ended
September 30, 1997.
10.13 --Warrant to purchase shares of Lasertechnics' Common
Stock issued to Wolfensohn Associates L.P., dated
March 27, 1997. Incorporated by reference to Exhibit
10.14 to Lasertechnics' Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
10.14 --Note Purchase Agreement dated June 25, 1997, by and
among Lasertechnics, J.P. Morgan Investment
Corporation and Wolfensohn Associates L.P.
Incorporated by reference to Exhibit 10.15 to
Lasertechnics' Quarterly Report on Form 10-QSB for
the period ended September 30, 1997.
10.15 --Intellectual Property Transfer Agreement dated
January 8, 1998, by and between XL Vision, Inc. and
Sandia Imaging Systems Corporation.*
21 --Subsidiaries of Lasertechnics.*
23 --Consent and Report on Schedule of KPMG Peat Marwick
LLP.*
<PAGE> 68
27 --Financial Data Schedule*
------------------
*Filed herewith.
<PAGE> 1
EXHIBIT 4.5
CERTIFICATE OF DESIGNATION
OF
SERIES G PREFERRED STOCK
OF
LASERTECHNICS, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
LASERTECHNICS, INC. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY as
follows:
1. The name of the Company is Lasertechnics, Inc., a Delaware
corporation.
2. The Certificate of Incorporation of the Company, as amended,
authorizes the issuance of Seven Million (7,000,000) shares of preferred stock,
$.01 par value per share, and expressly vests in the Board of Directors of the
Company the authority provided therein to issue any or all of said shares in one
or more series and by resolution or resolutions to establish the designation and
number and to fix the relative rights and preferences of each series to be
issued.
3. On December 29, 1997, the Board of Directors of the Company (the
"Board of Directors"), pursuant to the authority expressly vested in it as
aforesaid, adopted the following resolutions creating a series of 2,500 shares
of Preferred stock designated as the "Series G Preferred Stock":
RESOLVED, that two thousand five hundred (2,500) of the seven million
(7,000,000) authorized shares of Preferred stock of the Company shall be
designated Series G Preferred Stock, $.01 par value per share, and shall possess
the rights and preferences set forth below:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall have
a par value of $.01 per share and shall be designated as Series G Preferred
stock (the "Series G Preferred Stock") and the number of shares constituting the
Series G Preferred Stock shall be TWO THOUSAND FIVE HUNDRED (2,500). The Series
G Preferred stock shall have a stated value of Ten Thousand Dollars ($10,000)
per share (the "Original Series G Issue Price").
SECTION 2. RANK. The Series G Preferred stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series G Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock and Non-Voting Common Stock, each $.01 par value per share ("Common
Stock"); (iii) prior to any class or series of capital stock of the Company
hereafter created not specifically ranking by its terms senior to or on parity
with the Series G Preferred Stock (collectively, with the Common Stock, "Junior
Securities"); and (iv) on parity with the Series A Preferred Stock of the
Company, par value $.01 per share (the "Series A Preferred Stock"),
-1-
<PAGE> 2
the Series B Preferred stock of the Company, par value $.01 per share (the
"Series B Preferred Stock"), the Series C Preferred stock of the Company, par
value $.01 per share (the "Series C Preferred Stock"), the Series D Preferred
Stock of the Company, par value $.01 per share (the "Series D Preferred Stock"),
the Series E Preferred Stock of the Company, par value $.01 per share (the
"Series E Preferred Stock") the Series F Preferred Stock of the Company, par
value $.01 per share (the "Series F Preferred Stock") and any class or series of
capital stock of the Company hereafter created specifically ranking by its terms
on parity with the series G Preferred stock ("Parity Securities") in each case
as to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
SECTION 3. DIVIDENDS AND DISTRIBUTIONS. (a) Subject to Section 3(d), the
holders of record of shares of Series G Preferred stock (the "Holders"), in
preference to the holders of shares of capital stock ranking junior to the
Series G Preferred Stock as to dividends, shall be entitled to receive dividends
on each share of Series G Preferred Stock held of record at the annual rate of
8% of the Original Series G Issue Price, payable semi-annually, to the extent of
funds legally available therefor. Such dividends shall be cumulative, shall
accrue on each share on a daily basis (calculated on the basis of a 360-day
year, whether or not earned or declared, from the date of original issue of such
shares) and shall be payable in arrears, when, as and if declared by the Board,
on the last day of June and December in each year (each such date, a "Dividend
Payment Date"). Each such dividend will be paid to the Holders as they appear on
the stock register of the Company on the record date therefor as shall be fixed
by the Board of Directors, which record date shall not be more than 25 days or
less than 10 days preceding the payment date thereof.
(b) The Company may, at its option, make any dividend payment to Holders
of Series G Preferred Stock in cash or in additional shares (including
fractional shares) of Series G Preferred Stock or in any combination of cash and
such shares. Each such dividend payment (or portion thereof) to be paid in
shares of Series G Preferred Stock shall be paid by the issuance and delivery to
such Holders of that number of additional shares (including any fractional
shares, if applicable) of Series G Preferred Stock as shall be equal to the
quotient obtained by dividing the aggregate dollar amount of such dividend
payment (or portion thereof) by the Original Series G Issue Price per share.
Dividends to be paid in additional shares of Series G Preferred Stock shall be
deemed to have been made when certificates representing such additional shares
of Series G Preferred Stock have been delivered to the record holders of the
Series G Preferred stock entitled to receive the same, in accordance with the
instructions of such holders designated in writing to the Company at least two
business days prior to any Dividend Payment Date. All shares of Series G
Preferred Stock paid as such dividends ("Dividend shares") shall be validly
issued, fully paid and non-assessable, shall be free and clear of preemptive
rights and liens, claims and encumbrances of any kind. Subject to the other
provisions of this Certificate of Designation, holders of shares of Series G
Preferred stock shall not be entitled to any dividend, whether payable in cash,
additional shares of Series G Preferred Stock, or other property, in excess of
full cumulative dividends as herein provided. No interest, or sum of money in
lieu of interest, shall be payable under this Certificate of Designation in
respect of any dividend payment or payments on the Series G Preferred Stock
which may be in arrears.
(c) So long as any Series G Preferred Stock remains outstanding, the
Company will not redeem, purchase or otherwise acquire any Junior Securities;
nor will the Company declare or pay any dividend or make any distribution (in
each case, whether in cash or securities or assets in kind) upon any Junior
Securities (other than stock dividends on Junior Securities, payable in shares
of, options, warrants or similar rights to acquire shares of, the same class
(and series, if applicable) of Junior Securities), or make any sinking
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<PAGE> 3
fund or other payment in respect of any of the foregoing if the Company shall
not have paid in full all accrued dividends on the Series G Preferred Stock in
accordance with Section 3(a) hereof.
(d) Anything contained herein to the contrary notwithstanding, if at any
time that any shares of Series G Preferred Stock are outstanding, the closing
bid price per share of the Common Stock on The Nasdaq Stock Market (or, if the
Common Stock is not then included in Nasdaq, but is listed on any national
securities exchange, on the principal national securities exchange on which the
Common Stock is then listed) remains above $1.00 per share (as adjusted for any
stock splits, reverse stock splits, stock dividends or similar events after the
date of this Certificate of Designation) for 20 consecutive trading days, then,
commencing on such 20th trading day, the cumulative dividend will not be
payable; provided, however, that if the closing bid price per share of the
Common Stock remains below $1.00 for 20 consecutive trading days (as so
adjusted), then the dividend will resume as of such 20th day.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series G Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's
Certificate of Incorporation or any certificate of designation, and prior in
preference to any distribution to Junior Securities, and in parity with any
distribution to Parity Securities, an amount for each share of Series G
Preferred Stock then outstanding equal to the Original Series G Issue Price,
plus any and all accrued unpaid dividends. If upon the occurrence of such event,
and after payment in full of the preferential amounts with respect to the Senior
Securities, the assets and funds available to be distributed among the Holders
of the Series G Preferred stock and Parity Securities shall be insufficient to
permit the payment to such Holders of the full preferential amounts due to the
Holders of the Series G Preferred Stock and the Parity Securities, respectively,
then the entire assets and funds of the Company legally available for
distribution shall be distributed among the Holders of the series G Preferred
Stock and the Parity Securities, pro rata, based on the respective liquidation
amounts to which each such series of stock is entitled by the Company's
Certificate of Incorporation and any certificate(s) of designation relating
thereto.
(b) Upon the completion of the distribution required by subsection 4(a),
if assets remain in this Company, they shall be distributed to holders of Junior
Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which any person
or entity acquires more than fifty percent (50%) of the voting power of the
Company (a "Change of Control") shall be deemed to be a Liquidation Event as
defined in section 4(a); provided further that (i) a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
publicly traded company or companies shall not be treated as a Liquidation Event
as defined in Section 4(a), but instead shall be treated pursuant to Section
5(d)(ii) hereof, and (ii) a consolidation, merger, acquisition, or other
business combination of the Company with or into any other non-publicly traded
company or companies shall be treated as a Liquidation Event as defined in
section 4(a). The Company shall not effect any transaction described in
subsection 4(c)(ii) unless it first gives thirty (30) business days prior notice
of such transaction (during which time the Holder shall be entitled to convert
its shares of Series G Preferred Stock into Common Stock). For purposes of this
section 4(c), the public offering, sale or distribution
-3-
<PAGE> 4
of shares of stock (or assets) of the Company's Sandia Imaging Systems Corp.
subsidiary or the Lasertechnics Marking Corporation subsidiary (but not both)
shall not be deemed to be a Liquidation Event.
(d) In the event that, immediately prior to the closing of a transaction
described in section 4(c) which would constitute a Liquidation Event, the cash
distributions required by Section 4(a) have not been made, the Company shall
either: (i) cause such closing to be postponed until such cash distributions
have been made, or (ii) cancel such transaction, in which event the rights of
the Holders of Series G Preferred stock shall be the same as existing
immediately prior to such proposed transaction.
SECTION 5. CONVERSION. The record Holders of this Series G Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. On the terms and subject to the conditions set
forth in this Certificate of Designation, each record Holder of Series G
Preferred stock shall be entitled to convert the shares of Series G Preferred
Stock held by such Holder, in whole at any time and in part from time to time,
into a number of fully-paid and non-assessable shares of voting Common Stock of
the Company equal to the quotient of (i) the aggregate Original Series G Issue
Price of the shares of Series G Preferred Stock being converted divided by (ii)
the Conversion Price as determined pursuant to this Section 5(the "Conversion
Price"). The Conversion Price shall initially be FIFTY CENTS ($.50) per share of
Series G Preferred Stock. The Conversion Price shall be subject to adjustment
from time to time as provided in Section 5(d).
(b) Mechanics of Conversion. Conversion of shares of Series G Preferred
Stock may be effected by written notice to the Company, and shall be effective
upon receipt of such notice by the Company, or as otherwise provided in such
notice, and delivery to the Company of (i) one or more certificates representing
the shares of Series G Preferred Stock being converted, (ii) a certificate of
guaranteed delivery of such certificates reasonably satisfactory to the Company,
or (iii) evidence of the loss, theft or destruction of such certificates
pursuant to Section 10 of this Certificate of Designation, together with any
indemnity or security reasonably requested by the Company pursuant to such
section 10. Upon any conversion of shares of Series G Preferred stock pursuant
to this Section 5, the Holder shall be deemed to be the record holder of the
shares of Common Stock into which shares of Series G Preferred stock have been
converted and shall be entitled to receive duly executed certificates, in proper
form, representing such shares of voting Common Stock as soon as practicable
thereafter. Anything contained herein to the contrary notwithstanding, if any
conversion of shares of Series G Preferred Stock would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon such conversion, in the aggregate, shall be rounded to the nearest
whole number of shares (with one-half of a share rounded up).
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series G Preferred stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series G Preferred Stock; provided, however, that the Company shall not have any
obligation under this sentence prior to the earlier of (i) the second business
day after the stockholders of the Company approve an amendment to the
Certificate of Incorporation of the Company effecting a one-for-twenty reverse
stock split of the issued and outstanding shares of Common Stock, as provided in
the preliminary proxy statement of the Company dated January 8, 1998, and (ii)
June 30, 1998. If at any time the number of authorized but unissued shares of
Common Stock
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<PAGE> 5
(excluding for this purpose any authorized but unissued shares of Common Stock
that are properly reserved for some other purpose) shall be insufficient to
cause the conversion into Common Stock of all shares of Series G Preferred Stock
then outstanding, the Company will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(d) Adjustment to Conversion Rate.
(i) Adjustment to Conversion Price Due to Stock Split, Stock
Dividend ,Etc. If, at any time that any shares of Series G Preferred Stock
remaining outstanding, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased.
(ii) Adjustment Due to Merger, Consolidation, Etc. If, at any time
that any shares of Series G Preferred Stock remain outstanding, there shall be
any merger, consolidation, exchange of shares, recapitalization, reorganization,
or other similar event, as a result of which shares of Common Stock of the
Company shall be changed into the same or a different number of shares of the
same or another class or classes of stock or securities of the Company or
another entity, or there is a sale of all or substantially all the Company's
assets or there is a Change of Control not deemed to be a Liquidation Event
pursuant to section 4(c), then the Holders shall thereafter have the right to
receive upon conversion of shares of Series G Preferred Stock, upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had such shares of Series G Preferred Stock been
converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series G Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series G Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(d)(ii) unless (A) it first gives thirty (30) business days prior
notice of such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holders shall be
entitled to convert their shares of Series G Preferred Stock into Common Stock)
and (B) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company under this Certificate of
Designation including this subsection 5(d)(ii).
SECTION 6. VOTING. The Holders shall be entitled to vote, together with
the holders of the Company's voting Common Stock, as a single class, on all
matters submitted to a vote of the stockholders of the Company, or as to which
the holders of the voting Common Stock shall otherwise be entitled to vote. In
all such matters, the Holders shall be entitled to cast, for each share of
Series G Preferred stock held of record, a number of votes equal to the product
of (i) the number of votes that one share of voting Common Stock shall be
entitled to cast on such matter times (ii) the number of shares of voting Common
Stock into which one share of Series G Preferred Stock is convertible on the
record date for such vote. As used in this Section 6, all references to votes
and voting shall refer as well to action and actions by written consent.
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<PAGE> 6
SECTION 7. OPTIONAL REDEMPTION BY COMPANY. The Series G Preferred stock
shall be subject to optional redemption by the Company, in whole at any time or
in part from time to time, at a redemption price per share equal to the Original
Series G Issue Price, plus any and all accrued unpaid dividends thereon. The
Company shall give at least 10 days' prior written notice of any redemption
pursuant to this Section 7 to each Holder of shares of Series G Preferred stock
to be redeemed. The Company's optional right of redemption is subject to each
Holder's right to convert all or any part of the shares to be redeemed into
Common Stock pursuant to Section 5, provided that the Holder gives written
notice of such conversion to the Company in accordance with Section 5 within 10
business days after the Company's notice of redemption. The Holders of Series G
Preferred Stock shall not be entitled to any mandatory redemption of their
Shares without the consent of the Company.
SECTION 8. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series G Preferred Stock shall be converted pursuant to Section 5
hereof or redeemed pursuant to Section 7 hereof, the shares so converted or
redeemed shall be canceled, shall return to the status of authorized but
unissued Preferred Stock of no designated series, and shall not thereafter be
issuable by the Company as Series G Preferred Stock.
SECTION 9. OTHER PREFERRED STOCK. Nothing contained herein shall be
construed to prevent the Board of Directors from authorizing the creation of, or
to prevent the Company from issuing shares of, one or more series of Preferred
Stock senior to, junior to or on parity with the Series G Preferred Stock as to
dividend, liquidation rights or otherwise.
SECTION 10. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any certificates
representing shares of Series G Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of the certificate(s), if mutilated, the
Company shall execute and deliver to the record Holder thereof new
certificate(s) of like tenor and date. However, the Company shall not be
obligated to re-issue such lost or stolen certificates if the Holder
contemporaneously requests the Company to convert such shares of Series G
Preferred Stock into shares of Common Stock.
4. This Certificate of Designation may be executed on separate
counterparts and shall be effective as of the date signed.
Signed on December 29, 1997
/s/
---------------------------
Richard C. E. Morgan
Chairman and C.E.O.
Attest:
/s/
---------------------------
Harry S. Budow, Secretary
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<PAGE> 1
EXHIBIT 10.15
INTELLECTUAL PROPERTY TRANSFER AGREEMENT
This INTELLECTUAL PROPERTY TRANSFER AGREEMENT (the "Agreement") is
made as of the 7th (seventh) day of January 1998, (the "Execution Date") by and
between LASERTECHNICS, INC. (hereinafter "LASX"), a corporation organized under
the laws of Delaware, having its principal place of business at 3208 Commander
Drive, Carrollton, Texas 75006, and XL Vision, Inc. (hereinafter "XLV"), a
corporation organized under the laws of Delaware, having its principal place of
business at 10305 102nd Terrace, Sebastian, Florida 32958.
WHEREAS, LASX and XLV, for and in consideration of the mutual
promises, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, enter into this Agreement.
1. GENERAL DEFINITIONS
Terms in this Agreement (other than the headings) that are capitalized
have the meanings established for such terms in the succeeding Paragraphs of
this Section 1.
a. EXECUTION DATE. The term Execution Date is the date
first above written.
b. EFFECTIVE DATE. The term Effective Date is the date
of LASX shareholder approval in accordance with Section 9(p)
of this Agreement.
c. INTELLECTUAL PROPERTY. The term Intellectual
Property shall mean and include the following interests and
rights: (a) all patents and patent rights including, without
limitation, all utility models, applications, continuations,
divisions, provisionals, continuations-in-part, reissues, and
any reexamined patents; (b) all patentable subject matter
including, without limitation, any and all inventions,
information, proprietary processes and formulae, designs,
schematics, parts list, manufacturing diagrams, devices,
source code, object code, algorithms, architecture, structure,
display screens, layouts, processes, development tools, and
the like that may contain subject matter that is eligible to
be protected through patent protection, whether or not fixed
in a tangible medium and whether or not reduced to practice;
(c) all Trademarks; (d) all copyrights and copyright
applications including, without limitation, all original works
of authorship fixed in a tangible medium, whether registered
or unregistered; (e) all trade secrets; (f) all know-how; (g)
all confidential information including, without limitation,
all data, information, compilations, disclosures,
documentation, source code commentary and media constituting,
describing or relating to the above, and the like; and (h) all
other world-wide
1
<PAGE> 2
intellectual property rights, whether currently vested,
perfected, registered, or available only through the common
law.
d. TRADEMARKS. The term Trademarks means all rights in
registered, unregistered, intent-to-use, and/or common law
trademarks, service marks, trade names, icons, logos, slogans,
trade dress, and any other indicia of source or sponsorship of
goods and services, including all associated and appurtenant
goodwill throughout the world.
e. SPOT/MAG AGREEMENT. XLV and Spot/Mag, Inc., a
corporation organized under the laws of Taiwan having its
principal place of business at [___________________________],
are currently negotiating a license agreement to be entered
into between XLV and Spot/Mag under which Spot/Mag will
receive certain Intellectual Property rights for digital
still camera and dithering technology in exchange for an
obligation to pay royalties and other remuneration to XLV.
The term Spot/Mag Agreement shall refer to the above license
agreement.
f. PRODUCTS. The term Products shall mean and include
the systems specified in Exhibit C developed and
commercialized based on the XLV Technology as defined herein.
g. SHARES. The term Shares shall mean shares of the
Common Stock, One Cent ($.01) par value, of LASX, as in effect
immediately following the one-for-twenty reverse stock split
contemplated by Sections 9(p) and 9(q) of this Agreement.
2. ASSIGNMENT OF XLV TECHNOLOGY AND XLV LICENSE OPTION
a. ASSIGNMENT OPTION
i. On April 1, 1999, or upon such date LASX
accelerates technology enhancement funding in
accordance with Section 5(b)(viii) of this Agreement
and LASX pays to XLV all sums required under Section
5 of this Agreement, whichever date occurs first, and
extending for a period of ninety (90) days
thereafter, provided LASX has exercised the Exclusive
License Option (as hereinafter defined), LASX shall
have the right to receive an assignment of the XLV
Technology (as hereinafter defined) from XLV, such
right to be exercised at LASX's option (the
"Assignment Option"). LASX may exercise the
Assignment Option by providing XLV with written
notice of LASX's desire to exercise the Assignment
Option within the time frame specified above.
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b. EXERCISE OF ASSIGNMENT OPTION
Upon LASX exercising LASX's Assignment Option in accordance with the
Section 2(a)(i) of this Agreement, XLV agrees to the following:
i. XLV hereby agrees to assign, grant, convey,
and transfer all world-wide rights, title, and
interest in all of its Intellectual Property relating
or associated in any way to the document reader and
digital camera technology specified in Exhibit A and
the dithering technology described in Exhibit B
(hereinafter "the XLV Technology"), including all
associated goodwill and world-wide rights to sue,
recover damages, and seek injunctive relief for past
infringement or misappropriation, to LASX, its
successors, assigns and legal representatives.
ii. XLV hereby agrees to execute all documents
necessary to perfect and record LASX's interest in
the XLV Technology.
iii. XLV hereby agrees to cooperate fully with
LASX in the acquisition, prosecution and enforcement
of all Intellectual Property rights in the XLV
Technology and all improvements to the XLV
Technology. Specifically, by way of example and not
limitation, XLV agrees to fully review and execute
declarations, oaths or any patent applications
associated with the XLV Technology, to execute any
assignment documents to be recorded in the patent
office of the United States or other countries, to
aid in the arguments during examination and
prosecution of any patent applications covering the
XLV Technology, and to cooperate as a consultant
and/or witness in any proceedings to enforce patent
or other Intellectual Property rights associated with
the XLV Technology.
iv. XLV hereby agrees to assign to LASX all
improvements to the XLV Technology developed in whole
or in part by XLV within ninety (90) days of the
assignment of the XLV Technology. XLV agrees not to
disclose or market any such improvements to any party
other than LASX for ninety (90) days following the
assignment of the XLV Technology.
v. XLV hereby agrees that it shall receive no
further compensation beyond what is specified in this
Agreement for the obligations to cooperate and to
assign further rights detailed in this Section.
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<PAGE> 4
c. WARRANTIES, REPRESENTATIONS, AND COVENANTS REGARDING
THE ASSIGNMENT OF XLV TECHNOLOGY
(1) Upon LASX exercising LASX's Assignment Option in
accordance with Section 2(a)(i) of this Agreement,
XLV makes the following ongoing warranties,
representations, and covenants to LASX regarding the
assignment of the XLV Technology:
i. XLV represents, warrants and agrees that:
(a) it has all requisite legal power and authority to
execute and deliver the assignments and to perform
its obligations detailed herein; (b) the assignments
specified in this Section 2 shall be duly executed
and delivered by a duly authorized officer of XLV;
(c) the execution and delivery of the assignments
specified in this Section 2 and the performance of
its obligations hereunder shall be duly authorized by
all necessary corporate action of XLV; and (d) that
there shall be no outstanding agreements,
assignments, or encumbrances inconsistent with any
provisions of the assignments specified in this
Section 2.
ii. XLV agrees that the assignments, obligations
and other terms specified in this Section 2 shall
constitute legal, valid and binding obligations and
shall be enforceable against XLV in accordance with
their terms.
iii. XLV represents and warrants that it owns full
right, title, and interest in and to the XLV
Technology to be transferred herein, subject only to
the Spot/Mag Agreement, free and clear of all liens,
claims, charges, or encumbrances, and no person or
entity other than XLV has any interest in the XLV
Technology, including, without limitation, any
license, security interest, royalty interest,
contingent interest or otherwise. XLV further
represents and warrants to LASX that it has full
power to convey all rights in the XLV Technology.
iv. XLV represents that the XLV Technology
represents and includes valuable trade secrets owned
by XLV and XLV knows of no instance of disclosure or
other circumstance that would prevent LASX from
asserting and enforcing the ownership rights in the
XLV Technology transferred under this Section 2.
v. XLV represents that it knows of no reason why
the XLV Technology may not be patented in the United
States or other countries.
vi. XLV represents and warrants that neither
XLV's present and former employees and consultants,
nor any other present or former employer or
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<PAGE> 5
contractor of any kind of XLV's present and former
employees and consultants, has any rights in or claim
to any portion of the XLV Technology.
vii. XLV represents that no other party has any
rights in or claims to any portion of the XLV
Technology.
viii. XLV represents that it knows of no United
States or foreign Intellectual Property rights which
would be infringed by the use of the XLV Technology
by LASX in the United States or elsewhere.
ix. XLV represents and warrants that it has no
obligation to compensate any person or entity for the
development, use, sale, or exploitation of the XLV
Technology to be transferred herein, and XLV has not
granted to any other person or entity any license,
option or other rights to develop, use, sell, or
exploit in any manner the XLV Technology transferred
herein, other than the Spot/Mag Agreement, whether or
not requiring the payment of royalties or other
consideration.
x. XLV agrees that LASX shall have the sole
discretion and right in determining whether to
institute, maintain, or settle any suit for
infringement(s) or misappropriation of any of the
Intellectual Property rights associated with the XLV
Technology to be transferred herein with all costs,
attorneys fees, and expenses to be paid by LASX.
LASX further shall have the sole right to collect and
keep any and all damages recovered from such
infringement or misappropriation, whether past,
present, or future.
xi. XLV agrees to notify LASX in writing of any
claims, assertions, allegations, suggestions, and the
like that XLV or LASX infringes any right of a third
party through the use of the XLV Technology to be
transferred to LASX under this Section 2.
(2) Upon LASX exercising LASX's Assignment Option in
accordance with Section 2(a)(i) of this Agreement,
LASX makes the following ongoing warranties,
representations, and covenants to XLV regarding the
assignment of the XLV Technology:
i. LASX warrants and represents that LASX shall
have all requisite legal power and authority to
execute and receive the assignments specified in this
Section 2 and to perform its obligations hereunder.
ii. LASX agrees that LASX will present to XLV
information related to dithered 2D imaging product
offerings to other parties acquiring the same
dithered 2D imaging products from LASX that XLV has
purchased. LASX
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<PAGE> 6
agrees to provide sufficient information to allow XLV
to evaluate the terms and conditions of such later
offerings. XLV shall have the option to acquire
dithered 2D imaging products under such later terms
and conditions if XLV determines that such later
terms and conditions are more advantageous than the
terms and conditions offered directly to XLV by LASX.
LASX is not obligated to provide the identity of the
other parties or any details of the relationship with
such parties not relevant to the offerings to XLV.
XLV's option shall be limited to the acceptance or
rejection of all terms and conditions associated with
another party and XLV shall not have the option to
accept only some of the terms and conditions and not
others.
d. ASSIGNMENT FEE
i. Upon LASX exercising LASX's Assignment
Option, and in consideration of the above assignment,
LASX agrees to pay XLV a technology assignment fee
payable in full by delivery of Three Hundred Thousand
(300,000) Shares. The Shares paid to XLV under this
Section 2(d)(i), shall be delivered to XLV upon the
completion of the assignment of the XLV Technology.
3. LICENSE OF INTELLECTUAL PROPERTY RIGHTS
a. LICENSE GRANT
Upon LASX exercising LASX's Assignment Option in accordance with
Section 2, LASX agrees to the following:
i. LASX hereby agrees to grant to XLV, and XLV
agrees to accept from LASX an exclusive, fully
transferable, worldwide, irrevocable, royalty-free,
fully paid-up and perpetual license to make, have
made, use, import, sell, and offer to sell, the
Intellectual Property rights to the XLV Technology
within the field of use specified in Exhibit E
attached hereto. XLV shall have and maintain the
right to modify and make derivative works of the XLV
Technology for improvements solely applicable within
the field of use specified in Exhibit E and the right
to grant sublicenses to its rights limited to within
such field of use. Subject to Section 2(b)(iv), the
derivative works of XLV for such improvements shall
be the sole and exclusive property of XLV.
ii. For all improvements to the XLV Technology
applicable in any manner outside the field of use
specified in Exhibit E, XLV agrees to assign
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to LASX all improvements to the XLV Technology in
accordance with Section 2(b)(i) of this Agreement.
4. ASSIGNMENT OF SPOT/MAG AGREEMENT
a. ASSIGNMENT
Upon LASX exercising LASX's Assignment Option in accordance with
Section 2, and provided the Spot/Mag Agreement is executed within
three (3) years of the Effective Date, XLV agrees to the following:
i. XLV does hereby agree to sell, assign,
transfer and set over to LASX, and LASX hereby agrees
to accept from XLV, all right and interest in the
Spot/Mag Agreement or in respect thereof, including
without limitation chooses in action. LASX agrees to
assume the rights and obligations arising after the
assignment of the Spot/Mag Agreement, including
without limitation the right to receive all royalties
and other amounts payable under the Spot/Mag
Agreement, the same to be held and enjoyed by LASX
for its own use and enjoyment and for the use and
enjoyment of its successors, and assigns, to the end
of the term or terms of the Spot/Mag Agreement is or
may be granted, as fully and entirely as the same
would have been held and enjoyed by XLV if the
assignment made under this paragraph had not been
made.
b. WARRANTIES, REPRESENTATIONS AND COVENANTS REGARDING
THE SPOT/MAG AGREEMENT
i. XLV does hereby warrant and represent that:
(1) The Spot/Mag Agreement shall not grant,
convey or transfer to Spot/Mag any exclusive
Intellectual Property rights;
(2) The Spot/Mag Agreement shall not assign,
grant, convey or transfer to Spot/Mag any
ownership interest in any Intellectual
Property rights but shall only license such
Intellectual Property rights to Spot/Mag;
(3) The Spot/Mag Agreement shall not grant to
Spot/Mag the right to assign the Spot/Mag
Agreement or to sublicense the rights
contained therein; and
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<PAGE> 8
(4) The only consideration for the Spot/Mag
Agreement between XLV and Spot/Mag shall be a
running royalty payable to XLV in United
States currency.
ii. XLV hereby agrees to present the Spot/Mag
Agreement to LASX for LASX's approval prior to XLV
entering into the Spot/Mag Agreement with Spot/Mag.
XLV agrees and understands that LASX's approval of
the Spot/Mag Agreement shall be required prior to XLV
entering into the Spot/Mag Agreement. LASX's
approval shall not be unreasonably withheld.
iii. XLV represents and warrants that it shall
have the right and authority to fully assign the
Spot/Mag Agreement to LASX and that it shall take all
corporate action necessary to effect such transfer.
XLV agrees to notify Spot/Mag of such transfer and to
take all necessary steps so that royalty payments due
under the Spot/Mag Agreement shall be delivered
directly to LASX and that, in addition to all other
rights under the Spot/Mag Agreement, any right to
reports or right to audit records of such royalties
shall inure to the benefit of LASX.
iv. XLV represents and warrants that it shall not
grant, convey or transfer any Intellectual Property
rights in the XLV Technology to any other party other
than LASX in accordance with the terms of this
Agreement or to Spot/Mag pursuant to the Spot/Mag
Agreement.
v. LASX agrees and understands that XLV has no
obligation to enter into the Spot/Mag Agreement.
c. ASSIGNMENT FEE
i. In consideration of the assignment of the
Spot/Mag Agreement, LASX agrees to pay XLV a license
assignment fee payable in full by delivery of Two
Hundred Thousand (200,000) Shares under the following
conditions:
(1) LASX shall deliver to XLV, on the 15th day
following the expiration of each quarter, One
(1) Share for each Ten Dollars ($10.00) of
royalty received from Spot/Mag under the
Spot/Mag Agreement until such time as LASX
has delivered Two Hundred Thousand (200,000)
Shares.
(2) XLV agrees and understands that royalties
received by LASX under the Spot/Mag Agreement
after the delivery of Two Hundred Thousand
(200,000) Shares to XLV in accordance with
Section
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<PAGE> 9
4(b)(i)(1) of this Agreement shall be the
sole and exclusive property of LASX.
5. OPTION PURCHASE AND TECHNOLOGY ENHANCEMENT
a. TECHNOLOGY ENHANCEMENT SERVICES
i. XLV agrees to continue to provide personnel
services and project management for the enhancement
and commercialization of the Products specified in
Exhibit C in accordance with the product development
schedule as detailed below and shown in Exhibit D
attached hereto. Any personnel supplied by XLV shall
be deemed to be independent contractors and shall not
be deemed to be employees of LASX for any purpose.
ii. XLV and LASX agree that within sixty (60)
days of the Effective Date, staffing for the
enhancement of the Products of employees and/or
independent contractors shall be complete (the
"Staffing Date").
iii. XLV agrees to maintain true and accurate
records that substantiate expenses relating to the
enhancement of the Products ("Expense Reports")
including the date incurred and the nature thereof.
Expense Reports shall be delivered to LASX at the
times specified under Section 5(a)(iv) of this
Agreement and at any other time upon the request of
LASX.
iv. XLV and LASX agree that upon the first (1st)
day of each calendar month after the Execution Date,
LASX management and XLV project management personnel
shall meet to discuss the development of the
Products. XLV shall supply to LASX at such meetings
the latest Expense Report and any and all relevant
information relating to the enhancement of the
Products, including, but not limited to, all current
Product specifications and documentation, Product
development schedules and marketing studies. Any
modifications requested by LASX to the Product
development schedule or Product specifications
described above must be approved in writing by XLV so
as not to materially alter the terms of this
Agreement. Such approval shall not be unreasonably
withheld.
v. XLV and LASX agree that LASX shall have the
right to cease payments under Section 5(b) any time
after the Staffing Date, without further liability,
in accordance with reasonable business judgment
decisions or for failure of the development to meet
critical milestone dates as detailed in Exhibit D.
Upon the cessation of payments under this Section
5(a)(v) or failure of LASX to make payments under
Section 5(b) when due, any License
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<PAGE> 10
Option, Exclusive License Option or Assignment Option
right not previously exercised by LASX as of the date
of payment cessation shall be terminated, and each of
LASX's and XLV's obligations and rights under this
Agreement, except for liability for pre-termination
breaches of this Agreement, shall be terminated
following the notice and cure time periods provided
for under Section 9(r) of this Agreement including,
but not limited to, the obligation of XLV to provide
personnel services and project management for the
enhancement and commercialization of the Products
pursuant to this Section.
vi. LASX shall notify XLV in writing of its
decision to cease payments pursuant to Section
5(a)(v) of this Agreement.
b. OPTION PURCHASE RIGHTS AND TECHNOLOGY ENHANCEMENT FUNDING
In consideration for the option rights to purchase technology
and the technology enhancements set forth in this Agreement,
and provided that LASX has not terminated this Agreement for
any reason prior to the due date of any particular payment
pursuant to Section 5(a)(v) of this Agreement, LASX, either
directly or through a corporate intermediary, shall pay to XLV
the sums specified below:
i. Upon the Execution Date, LASX shall pay to
XLV the sum of Five Hundred Thousand Dollars
($500,000.00).
ii. Within thirty (30) days of the Effective
Date, LASX shall pay to XLV the sum of One Million
Dollars ($1,000,000.00).
iii. On March 15, 1998, LASX shall pay to XLV the
sum of Five Hundred Thousand Dollars ($500,000.00).
iv. On July 1, 1998, LASX shall pay to XLV the
sum of Five Hundred Thousand Dollars ($500,000.00).
v. On September 1, 1998, LASX shall pay to XLV
the sum of One Million Dollars ($1,000,000.00).
vi. On October 1, 1998, LASX shall pay to XLV
the sum of Five Hundred Thousand Dollars
($500,000.00).
vii. On December 1, 1998, LASX shall pay to XLV
the sum of Six Hundred Thousand Dollars
($600,000.00).
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viii. LASX may, at LASX's option, accelerate the
technology funding schedule detailed in this Section
5(b) and pay the sums indicated prior to the dates
specified herein.
ix. All sums paid to XLV by LASX under this
Section 5(b) shall be nonrefundable.
c. TECHNOLOGY ENHANCEMENT AND TRANSFER OPTION EXERCISE
i. Upon such date that LASX has paid to XLV the
sum specified in Section 5(b)(ii), and extending for
a period of six (6) months thereafter, LASX shall
have the right to receive, at LASX's option, and XLV
shall grant to LASX upon LASX exercising such option,
a nonexclusive, fully transferable, worldwide,
irrevocable, royalty-free perpetual license to make,
have made, use, import, sell, and offer to sell, the
Intellectual Property rights to the XLV Technology
(the "License Option").
ii. LASX may exercise the License Option by
notifying XLV in writing of its desire to obtain the
above license within the time frame specified in
Section 5(c)(i).
iii. Upon the exercising of the License Option by
LASX, and in consideration of the above license, LASX
shall vest in XLV Two Hundred Thousand (200,000)
Shares.
iv. Upon such date LASX has paid to XLV all sums
required under Section 5 of this Agreement, and
extending for a period of ninety (90) days
thereafter, provided LASX has exercised the License
Option, LASX shall have the right to receive, at
LASX's option, and XLV shall grant to LASX upon LASX
exercising such option, an exclusive, fully
transferable, worldwide, irrevocable, royalty-free,
perpetual license to make, have made, use, import,
sell, and offer to sell, in all fields of use except
the field of use specified in Exhibit E, the
Intellectual Property rights to the XLV Technology
(the "Exclusive License Option") subject to those
rights, and only those rights, granted to Spot/Mag
pursuant to the Spot/Mag Agreement.
v. LASX may exercise the Exclusive License
Option by notifying XLV in writing of its desire to
obtain the above exclusive license within the time
frame specified in Section 5(c)(vi).
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vi. Upon the exercising of the Exclusive License
Option by LASX, and in consideration of the above
exclusive license, LASX shall vest in XLV Three
Hundred Thousand (300,000) Shares.
vii. Any shares vested in XLV under this Section
5(c) of this Agreement shall be delivered to XLV
within forty-five (45) days of vesting.
d. OWNERSHIP OF TECHNOLOGY
i. All technology and any Intellectual Property
rights associated therewith conceived or developed by
XLV or LASX in performance of the work or obligations
contemplated under this Agreement relating in whole
or in part to the enhancement and commercialization
of the Products ("Product Technology"), including but
not limited to the Products, or the process of
manufacture thereof, shall be owned solely and
exclusively by XLV subject to the License Option, the
Exclusive License Option, and the Assignment Option.
ii. XLV shall execute and deliver any documents
reasonably requested by LASX to transfer such Product
Technology to LASX under the License Option, the
Exclusive License Option, or the Assignment Option in
accordance with their respective terms as described
herein.
iii. Provided LASX exercises the Assignment
Option, LASX shall control the filing of
applications for patents, trademarks, copyrights and
other Intellectual Property rights for such Product
Technology whether or not it shall be deemed to have
been jointly or solely developed and whether or not
one party is believed to have contributed more to the
development than the other.
iv. Provided LASX exercises the Assignment
Option, XLV agrees to cooperate fully in the
acquisition, prosecution and enforcement of all
Intellectual Property rights relating in whole or in
part to the Product Technology. Specifically, by
way of example and not limitation, XLV agrees to
fully review and execute any patent applications
associated with the Product Technology, to execute
any declarations, oaths or assignment documents to be
recorded in the patent office of the United States or
other countries, to aid in the arguments during
examination and prosecution of any patent
applications covering the Product Technology, and to
cooperate as a consultant and/or witness in any
proceedings to enforce patent or other intellectual
property rights associated with the Product
Technology.
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e. WARRANTIES, REPRESENTATIONS AND COVENANTS REGARDING
PRODUCT ENHANCEMENT AND SERVICES
i. XLV warrants and represents that XLV
consulting and management personnel will use all
reasonable efforts to develop and market the
Products.
ii. XLV warrants and represents that, provided
LASX has exercised the Assignment Option, XLV shall
not disclose to any third party any proprietary,
confidential, technical and/or business information,
know-how, data, operating practices, developments or
inventions relating to the enhancement and
commercialization of the Products.
iii. Provided LASX has exercised the License
Option or the Exclusive License Option, XLV shall
indemnify and hold LASX harmless against any and all
claims by third parties that may be brought or
instituted against LASX prior to July 1, 2004, that
any use of the XLV Technology contemplated under this
Agreement infringes upon any Intellectual Property
rights of any third party. LASX shall give XLV
prompt notice of any claim and shall offer XLV the
opportunity to control the defense of such claim;
provided, however, LASX shall have the opportunity to
control the defense of such claim if: (i) XLV fails
to defend a claim that XLV is not obligated to
indemnify LASX against such claim; (ii) the claiming
third party seeks non-monetary damages against LASX;
or (iii) LASX obtains a legal opinion that LASX has
defenses different from or additional to defenses
available to XLV. XLV shall have the right to: (1)
obtain for LASX a perpetual, royalty-free license to
use, improve, and commercialize the XLV Technology;
or (2) refund to LASX all payments in cash or stock
made to XLV under this Agreement and to terminate
this Agreement. XLV shall not be obligated to
indemnify LASX against claims of infringement to the
extent such claim is based upon LASX modifications to
the XLV Technology or upon LASX using the XLV
Technology with any other hardware or software. All
obligations of XLV to indemnify LASX under this
Section 5(e)(iii) shall be limited to the total value
of money received by XLV from LASX under this
Agreement. XLV agrees to cooperate fully and use its
best efforts to assist LASX in the defense of any
such claim brought or instituted against LASX and
shall provide to LASX assistance and information as
may reasonably be required to fully defend against
such claim including, but not limited to, providing
access to fact and expert witnesses and producing
requested documents . XLV agrees that XLV shall not
take any action or any position adverse to the
interest of LASX in the defense of such claim.
iv. XLV agrees that upon the successful
completion of a demonstration unit of the Products,
provided LASX has exercised the License Option,
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LASX shall have the right, at LASX's expense and on
behalf of XLV, to seek the prosecution and
acquisition of all Intellectual Property rights
related to the enhancement of the Products. XLV
agrees to cooperate fully with LASX in the
prosecution and acquisition of such Intellectual
Property rights.
v. XLV and LASX understand and agree that the
parties' joint agreement to cooperate in the
enhancement of the Products is not an agreement of
partnership and none is intended hereby. In no event
is one party the agent for the other for any purpose
other than as specifically required by this
Agreement.
vi. Provided LASX has exercised the Exclusive
License Option, LASX agrees that LASX will present to
XLV information related to dithered 2D imaging
product offerings to other parties acquiring the same
dithered 2D imaging products from LASX that XLV has
purchased. LASX agrees to provide sufficient
information to allow XLV to evaluate the terms and
conditions of such later offerings. XLV shall have
the option to acquire dithered 2D imaging products
under such later terms and conditions if XLV
determines that such later terms and conditions are
more advantageous than the terms and conditions
offered directly to XLV by LASX. LASX is not
obligated to provide the identity of the other
parties or any details of the relationship with such
parties not relevant to the offerings to XLV. XLV's
option shall be limited to the acceptance or
rejection of all terms and conditions associated with
another party and XLV shall not have the option to
accept only some of the terms and conditions and not
others.
6. LOCK-UP AGREEMENT
a. XLV hereby irrevocably agrees that it will not sell,
offer to sell, solicit an offer to buy, contract to sell,
grant any option to purchase, or otherwise transfer or dispose
of any Shares issued pursuant to the License Option, Exclusive
License Option or the Assignment Option for a period of one
(1) year after the exercise of the applicable option without
the prior written consent of LASX; provided, however, that XLV
may pledge such Shares as long as the beneficiary of such
pledge agrees in writing to be bound by the terms of this
lock-up provision.
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7. REGISTRATION RIGHTS
a. DEMAND REGISTRATION. XLV shall have the right on any
two (2) occasions between the second and fourth anniversary of
the Effective Date to make a written request of LASX for
registration with the Securities and Exchange Commission
("SEC") (a "Demand Registration"), under and in accordance
with the provisions of the Securities Act, for the offer and
sale by XLV of the Shares issued pursuant to this Agreement
(the "Registrable Securities"). Upon receipt of the written
request by XLV of a Demand Registration, LASX shall prepare
and file with the SEC, within sixty (60) days following the
receipt of such request, a registration statement on Form S-3
(or another appropriate form) (the "Demand Registration
Statement") for the offer and sale by XLV of the Registrable
Securities and use reasonable efforts to have each such Demand
Registration Statement declared effective by the SEC as
promptly as reasonably practicable after the filing thereof
with the SEC. LASX shall use its reasonable efforts to keep
such Demand Registration Statement and the prospectus used in
connection therewith effective and in compliance with
applicable law for a period of at least twelve (12) months
(the "Effectiveness Period"). All expenses incident to LASX's
performance or compliance with this Section 7(a) shall be paid
by LASX; provided, however, XLV shall be responsible for and
shall pay any underwriting, brokerage or selling agent's fees,
discounts or commissions, and shall be responsible for and pay
all legal fees and expenses of counsel to XLV or counsel to
any underwriter or selling agent. In connection with any
underwritten offering to which LASX shall have consented, LASX
shall provide, or cause to be provided, such representations,
warranties, covenants, opinions, "cold comfort" letters,
indemnifications, opportunities for due diligence and other
matters, and shall take all such other reasonable actions, as
are customary in underwritten public offerings of securities.
Failure of LASX to cause the Demand Registration Statement to
be declared effective within one hundred fifty (150) days of
filing shall result in a sum payable to XLV by LASX (the
"Registration Penalty"). The Registration Penalty shall be
equal to the sum of Fifty Thousand Dollars ($50,000.00) for
failing to cause the Demand Registration Statement to be
declared effective within one hundred fifty (150) days after
filing and an additional Fifty Thousand Dollars ($50,000.00)
for each ninety (90) day period thereafter until such time as
the Demand Registration Statement is declared effective.
Failure of the Demand Registration Statement to be declared
effective for reasons that can be demonstrated by LASX to be
beyond the control of LASX shall not result in a Registration
Penalty.
b. PIGGYBACK REGISTRATION RIGHTS. If at any time
between the second and fourth anniversary of the Effective
Date, LASX proposes to file with the SEC a registration
statement (a "Piggyback Registration Statement") under the
Securities Act with respect to any offering of any Shares,
other than (i) a registration statement with respect to any
employee stock options or similar securities, securities
15
<PAGE> 16
issued or to be issued pursuant to any employee benefit plan,
or any interests in any employee benefit plan, (ii) a
registration statement in connection with the consummation of
an acquisition or business combination transaction, or (iii) a
registration statement filed in connection with an exchange
offer or an offering of securities to LASX's existing security
holders, LASX shall in each case give written notice (a
"Piggyback Registration Notice") of such proposed filing of
such Piggyback Registration Statement to XLV as soon as
practicable, but in no event less than 20 days before the
anticipated filing date, and shall, subject to the provisions
of this Section 7(b), use its commercially reasonable efforts
to include in such Piggyback Registration Statement the
Registrable Securities with respect to which LASX has received
from XLV a written request for inclusion therein within 15
days after the Piggyback Registration Notice is given to XLV.
Notwithstanding the foregoing, LASX will not be required to
include any Registrable Securities in any registration
statement if such registration statement is declared effective
on or following the fourth anniversary of the Effective Date.
In the case of an underwritten registration, if the managing
underwriters advise LASX in writing that in their opinion the
inclusion in such registration statement of all the
Registrable Securities proposed to be included (together with
any Shares proposed to be included in such registration
statement by other holders of Shares who also have exercised
piggyback registration rights with respect to such
registration) would interfere with the successful marketing of
the securities proposed to be registered, then XLV shall be
entitled to include such number of shares as, in the opinion
of the managing underwriter, would not so interfere and such
shares shall be allocated among XLV and any other holders of
Shares who have also had exercised piggyback registration
rights with respect to such registration pro rata in
proportion to their respective holdings of Shares (or as they
may otherwise agree). The delivery of a Piggyback
Registration Notice by LASX shall in no way obligate LASX to
file a Piggyback Registration Statement under this Section
7(b) and notwithstanding any such filing, LASX may, in its
sole discretion, determine not to offer the securities to
which the registration statement relates or to otherwise
withdraw such registration statement. XLV may not participate
in any registration hereunder unless XLV (i) in the case of an
underwritten registration, agrees to sell such Registrable
Securities on the basis provided in any underwriting
arrangements approved by LASX, (ii) provides all such
information as is reasonably required to effect such
registration and completes and executes all undertakings,
questionnaires, powers of attorney, indemnities, underwriting
agreements (in the case of an underwritten registration) and
other documents reasonably required under the terms of such
underwriting arrangements (in the case of an underwritten
registration) or applicable laws, and (iii) in the case of an
underwritten registration, complies with all other reasonable
requests of the managing underwriter (including but not
limited to requests for the delivery of customary legal
opinions by counsel to XLV) and complies with all other
reasonable requests related to such registration.
16
<PAGE> 17
i. If the registration statement filed by LASX
in which the Registrable Securities are permitted to
be included pursuant to this Section 7(b) provides
for the offering of Shares on a delayed or continuous
basis (a "Shelf Registration Statement" and, together
with a Demand Registration Statement and a Piggyback
Registration Statement, a "Registration Statement"),
then any Registrable Securities included in such
Shelf Registration Statement likewise, subject to the
provisions of this Agreement, will be permitted to be
offered on such delayed or continuous basis between
the second and fourth anniversary of the Effective
Date.
c. Notwithstanding anything to the contrary in Sections
7(a) and 7(b), LASX may, by delivering written notice to XLV,
prohibit offers and sales of Registrable Securities pursuant
to either the Demand Registration Statement or the Shelf
Registration Statement at any time if (A)(i) LASX is in the
possession of material non-public information relating to
LASX, (ii) LASX determines that such prohibition is necessary
in order to avoid a requirement to disclose such material
non-public information to the public and (iii) LASX determines
in good faith that public disclosure of such material
non-public information would not be in the best interests of
LASX and its stockholders or (B)(i) LASX has made a public
announcement relating to an acquisition or business
combination transaction including LASX and/or one or more of
its subsidiaries that are material to LASX and its
subsidiaries taken as a whole and (ii) LASX determines in good
faith that (x) offers and sales of Registrable Securities
pursuant to either the Demand Registration Statement or the
Shelf Registration Statement prior to the consummation of such
transaction (or such earlier date as LASX shall determine) is
not in the best interests of LASX and its stockholders or (y)
it would be impracticable at the time to obtain any financial
statements relating to such acquisition or business
combination transaction that would be required to be set forth
in such registration statement; provided, however, that upon
(i) the public disclosure by LASX of the material non-public
information described in clause (A) of this paragraph or (ii)
the consummation, abandonment or termination of, or the
availability of the required financial statements with respect
to, a transaction described in clause (B) of this paragraph,
the suspension of the use of such registration statement
pursuant to this Section 7(b) shall cease and LASX shall
promptly notify XLV that dispositions of Registrable
Securities may be resumed. Suspension of offers and sales of
Registerable Securities pursuant to this Section 7(c) shall
not occur more than once in any twelve (12) months period, and
such suspension shall not exceed ninety (90) days at any one
time unless agreed to by LASX and XLV in advance, such
agreement not to be unreasonably withheld when further
suspension would provide some benefit to shareholders.
d. LASX may require XLV to furnish to LASX such
information regarding the distribution of Registrable
Securities as is required by law to be disclosed in the
17
<PAGE> 18
Registration Statement, and LASX may delay the filing of the
Registration Statement (or in the case of a Piggyback
Registration Statement, exclude such Registrable Securities)
if XLV fails to furnish such information within a reasonable
time after receiving such request. XLV agrees to notify LASX
as promptly as practicable of any inaccuracy or change in
information previously furnished by XLV to LASX or of the
occurrence of any event as a result of which the prospectus
included in the Registration Statement contains or would
contain an untrue statement of a material fact regarding XLV
or XLV's intended method of distribution of Registrable
Securities, or omits to state any material fact regarding XLV
or XLV's intended method of distribution of Registrable
Securities, necessary to make the statements therein, in light
of the circumstances then existing, not misleading and
promptly furnish to LASX any additional information required
to correct and update any previously furnished information or
required so that such prospectus shall not contain, with
respect to XLV or the distribution of the Registrable
Securities, an untrue statement of a material fact or omit to
state a material fact necessary to make the statements
therein, in light of the circumstances then existing, not
misleading.
e. LASX will indemnify and hold harmless XLV from and
against any and all loss, damage, liability, cost and expense
to which XLV may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs
or expenses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in such Registration Statement, any prospectus
contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading; provided, however, that LASX will not be liable in
any such case to the extent that any such loss, damage,
liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or
alleged omission provided by XLV.
f. XLV will indemnify and hold harmless LASX, each of
its directors, each of its officers who have signed the
Registration Statement, and each person, if any, who controls
LASX from and against any and all loss, damage, liability,
cost and expense to which any such person may become subject
under the Securities Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are arising out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained in such Registration
Statement, any prospectus contained therein or any amendment
or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading; in each case to the extent,
but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was provided
by XLV.
18
<PAGE> 19
8. BOARD REPRESENTATION
a. So long as XLV and permitted assigns own in the
aggregate at least Four Hundred Thousand (400,000) Shares
delivered pursuant to this Agreement, LASX warrants and
represents that LASX will use its reasonable best efforts to
cause one (1) person designated by XLV to be nominated to
serve as a member of the board of directors of LASX.
9. GENERAL PROVISIONS
a. GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS.
i. LASX warrants and represents that: (a) this
Agreement has been duly executed and received by a
duly authorized officer of LASX; and (b) subject to
Section 9(p) hereof, the performance of its
obligations hereunder, other than the issuance of the
Shares shall be, and, subject to shareholder approval
as provided in Section 9(p), the issuance of the
Shares as provided herein will be, duly authorized by
all necessary corporate action of LASX.
ii. Each of XLV and LASX represents and warrants
that the obligations and other terms specified in
this Agreement shall constitute legal, valid and
binding obligations and shall be enforceable against
it in accordance with their terms.
iii. XLV warrants and represents that this
Agreement has been duly executed and received by a
duly authorized officer of XLV and has been duly
authorized by all necessary corporate action of XLV.
iv. LASX warrants and represents that upon
delivery of the Shares pursuant to the terms of this
Agreement, such Shares will be duly authorized,
validly issued, fully paid and nonassessable, and
will not have been issued in violation of any
preemptive rights of any stockholder. The Shares to
be issued to XLV pursuant to this Agreement will be
issued free and clear of any lien, option or
preemptive or other right or claim.
v. LASX warrants and represents that LASX has
made available to XLV a true and complete copy of
each report, schedule, registration statement and
definitive proxy statement filed by LASX with the SEC
since December 31, 1996 and prior to or on the date
of this Agreement (the "SEC Documents"),
19
<PAGE> 20
which are all the documents (other than preliminary
material) that LASX was required to file with the SEC
between December 31, 1996 and the date of this
Agreement. As of their respective dates, the SEC
Documents complied in all material respects with the
requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended, as the case may be,
and the rules and regulations of the SEC thereunder
applicable to such SEC Documents, and none of the SEC
Documents contained any untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading as of the
date filed. The financial statements of LASX
included in the SEC Documents complied as to form in
all material respects with the published rules and
regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except
as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly
present in accordance with applicable requirements of
GAAP (subject, in the case of the unaudited
statements, to normal, recurring adjustments, none of
which are material) the consolidated financial
position of LASX and its consolidated subsidiaries as
of their respective dates and the consolidated
results of operations and the consolidated cash flows
of LASX and its consolidated subsidiaries for the
periods presented therein.
vi. LASX represents that except as set forth in
the SEC Documents, as of the date hereof, there are
no liabilities of LASX of any kind whatsoever,
whether accrued, contingent, absolute, determined,
determinable or otherwise, that are reasonably likely
to have a material adverse effect on the financial
condition or results of operations of LASX, other
than: (i) liabilities provided for on the balance
sheet of LASX dated as of September 30, 1997
(including the notes thereto) contained in LASX's
Quarterly Report on Form 10-Q for the period ended
September 30, 1997; (ii) additional borrowings of
$2,991,000 under a Note Purchase Agreement among
LASX and Wolfensohn Associates II L.P.; (iii) the
acceleration of all payments due under a $2,100,000
Secured Promissory Note, dated December 26, 1996, to
the benefit of Xerox Corporation; (iv) liabilities
incurred in the ordinary course of business
subsequent to September 30, 1997; and (v) liabilities
under this Agreement.
b. NOTICES.
i. All payments, correspondence, notices, and
legal process delivered or deliverable pursuant to
this Agreement shall be in writing and deemed
20
<PAGE> 21
delivered: (i) upon personal or telecopy (with
receipt confirmed) delivery; (ii) three (3) days
after being sent by reliable overnight delivery; or
(iii) ten (10) days after being sent by certified
mail, postage prepaid, return receipt requested, to
the addresses set forth below:
If to XLV: Bill Haskell
President and COO
XL Vision, Inc.
10305 102nd Terrace
Sebastian, Florida 32958
If to LASX: Harry S. Budow
President and COO
LASERTECHNICS, INC.
Sandia Imaging Systems
3208 Commander Drive
Carrollton, Texas 75006
ii. Either party hereto may change the address to
which notice is to be sent via written notice to the
other party in accordance with the provisions of
this section.
c. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties hereto concerning the
subject matter hereof, and supersedes and replaces all prior
negotiations and agreements, if any, both written and oral.
d. AUTHORITY. The individuals executing this Agreement
for and on behalf of XLV and LASX represent that they are
fully authorized and empowered to do so for and on behalf of
their respective principals.
e. SUCCESSORS AND ASSIGNS. This Agreement is intended
to benefit and shall be binding on XLV and LASX and their
respective successors and permitted assigns.
f. AMENDMENTS. No modification, amendment, waiver,
termination or discharge of this Agreement, or any of the
terms or provisions hereof, shall be binding upon either of
the parties unless confirmed by a written instrument signed by
both parties.
21
<PAGE> 22
g. NO WAIVER. No waiver by either party of any term or
provision of this Agreement or of any default hereunder shall
affect such party's rights thereafter to enforce such term or
provision or to exercise any right or remedy in the event of
any other default, whether or not similar.
h. SEVERABILITY. If any provision of this Agreement
shall be held void, voidable, invalid or inoperative, no other
provision of this Agreement shall be affected as a result
thereof, and accordingly, the remaining provisions of this
Agreement shall remain in full force and effect as though such
void, voidable, invalid or inoperative provision had not been
contained herein.
i. CONFIDENTIALITY. XLV and LASX agree to maintain all
terms and conditions of this Agreement in strictest
confidence, except as otherwise required by law, including the
public disclosure requirements of LASX under federal
securities law and applicable exchange or Nasdaq rules and
listing agreements. The parties agree that, except as
required by law, including the public disclosure requirements
of LASX under federal securities law and applicable exchange
or Nasdaq rules and listing agreements, neither LASX nor XLV
shall issue any publicly available reports, statements or
releases pertaining to this Agreement without the prior
consent of the other party, which consent shall not
unreasonably be withheld or delayed.
j. CUMULATIVE RIGHTS AND REMEDIES. Except as otherwise
provided in this Agreement, all rights and remedies herein or
otherwise shall be cumulative, and none of them shall limit
any other rights or remedies.
k. CHOICE OF LAW. The validity, performance, and all
matters relating to the effect of this Agreement and any
amendments hereto shall be governed by the laws of the State
of Texas without regard to choice of law provisions, statutes,
regulations or principles of this or any other jurisdiction.
l. NON-AGENCY RELATIONSHIP. It is understood and agreed
that no agency relationship is involved or created with
respect to this Agreement.
m. SURVIVAL. All representations, warranties and
covenants contained in this Agreement shall continue in full
force and effect and shall survive notwithstanding the full
payment of all amounts due hereunder or the termination of
this Agreement in any matter whatsoever.
n. HEADINGS. The headings contained herein are for the
convenience of the parties only and shall not be interpreted
to limit or affect in any way the meaning of the language
contained in this Agreement.
22
<PAGE> 23
o. LIMITATIONS ON LIABILITY. NOTWITHSTANDING ANY OTHER
PROVISIONS OF THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL XLV OR LASX, ANY OF ITS OR THEIR AFFILIATES OR ANY OF
ITS OR THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
SUBCONTRACTORS BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF XLV OR LASX OR ANY OF THEIR
RESPECTIVE AFFILIATES, EVEN IF XLV OR LASX OR SUCH AFFILIATE
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR
PUNITIVE DAMAGES, LOSS OF ANTICIPATED PROFITS, SAVINGS OR
BUSINESS, LOSS OF COMMERCIAL REPUTATION OR OTHER ECONOMIC
LOSS, OR FOR DAMAGES THAT COULD HAVE BEEN AVOIDED, USING
REASONABLE DILIGENCE BY XLV OR LASX OR SUCH AFFILIATE.
p. SHAREHOLDERS MEETING(S) AND CHARTER AMENDMENTS
REQUIREMENTS. Except for LASX's obligation as specified in
Section 5(b)(i) of this Agreement, the rights and obligations
under this Agreement are expressly contingent upon the
approval by the stockholders of LASX at a meeting duly called
and held of (i) an amendment to the Charter of LASX to effect
a one-for-twenty reverse stock split of the issued and
outstanding shares of Common Stock, as described in the
preliminary proxy statement filed by LASX with the Securities
and Exchange Commission in January 1998 (the "Reverse Stock
Split"), and (ii) the issuance of the Shares to XLV in
accordance with the terms of this Agreement potentially
greater than 20% (twenty per cent) of LASX then outstanding.
q. PROPOSED REVERSE STOCK SPLIT. The parties
acknowledge that all references herein to the Shares of LASX
refer to the voting common stock, par value $.01 per share, of
LASX, after giving effect to the proposed Reverse Stock Split.
r. DEFAULTS AND REMEDIES.
i. LASX and XLV agree and understand that the occurrence
or existence of any one or more of the following
events will constitute a default by LASX:
(1) Material breach by LASX of any material
representation or warranty; or
(2) Material breach by LASX of any material
covenant after a thirty (30) day notice and
grace period to cure such breach.
ii. LASX and XLV agree and understand that the occurrence
or existence of any one or more of the following
events will constitute a default by XLV:
23
<PAGE> 24
(1) Material breach by XLV of any material
representation or warranty; or
(2) Material breach by XLV of any material
covenant after a thirty (30) day notice and
grace period to cure such breach.
iii. LASX and XLV agree that in the event of Default by
LASX, XLV shall have the following remedies:
(1) XLV may terminate the Agreement in addition
to remedies at law or equity subject to any
License Option or Exclusive License Option
exercised and continuing in effect. Any
License Option, Exclusive License Option, or
Assignment Option not previously exercised
shall terminate; and
(2) XLV may terminate this Agreement if Effective
Date does not occur by January 1, 1999.
iv. LASX and XLV agree that in the event of Default by
XLV, LASX shall have the following remedies:
(1) LASX may terminate the Agreement and cease
payments pursuant to Section 5(a)(v) in
addition to remedies at law or equity.
s. DISPUTE RESOLUTION. Any controversy or claim arising
out of or relating to this Agreement, or the breach thereof,
shall be settled by the following techniques in the order
provided:
i. Face-to-face good faith negotiations between Chief
Operating Officers of XLV and LASX;
ii. Mediation; and
iii. Binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having
jurisdiction thereof.
24
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused their respective
duly authorized representatives to execute this Agreement as of the date first
above written:
LASERTECHNICS, INC. XL VISION, INC.
("LASX") ("XLV")
By: /s/ By: /s/
---------------------------- ------------------------------------
Title: President Title: President
------------------------- ---------------------------------
25
<PAGE> 1
EXHIBIT 21
LASERTECHNICS, INC.
- SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Names of Subsidiaries State of Incorporation
- --------------------- ----------------------
<S> <C>
Sandia Imaging Systems Corporation Delaware
Sandia Imaging Systems Europe, S. A. France
Lasertechnics Marking Corporation Delaware
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT AND REPORT ON SCHEDULE OF
INDEPENDENT AUDITORS
The Board of Directors
Lasertechnics, Inc.:
The audits referred to in our report dated February 20, 1998, included the
related financial statement schedule as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997, included in
the Form 10-KSB. The 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, such financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to incorporation by reference in the registration statements Nos.
33-42214 and 33-98160 on Form S-8 and No. 333-10665 on Form S-3 of
Lasertechnics, Inc. of our reports dated February 20, 1998, relating to the
consolidated balance sheets of Lasertechnics, Inc. and subsidiaries as of
December 31, 1997 and 1996, 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, 1997, and related schedule, which reports
appear in the December 31, 1997, annual report on Form 10-KSB.
KPMG Peat Marwick LLP
Dallas, Texas
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,678,178
<SECURITIES> 0
<RECEIVABLES> 3,403,865
<ALLOWANCES> 380,911
<INVENTORY> 5,244,116
<CURRENT-ASSETS> 10,134,466
<PP&E> 5,621,745
<DEPRECIATION> 2,647,021
<TOTAL-ASSETS> 14,685,412
<CURRENT-LIABILITIES> 11,561,365
<BONDS> 0
0
11,967,233
<COMMON> 466,349
<OTHER-SE> (9,964,279)
<TOTAL-LIABILITY-AND-EQUITY> 14,685,412
<SALES> 11,118,339
<TOTAL-REVENUES> 11,118,339
<CGS> 7,753,037
<TOTAL-COSTS> 21,310,233
<OTHER-EXPENSES> 398,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,230,241
<INCOME-PRETAX> (12,820,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,820,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,892,830)<F1>
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
<FN>
<F1>Net loss applicable to Common Stock
</FN>
</TABLE>
