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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-11635
LASER PHOTONICS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 59-2058100
(State or other jurisdiction (I.R.S. Employer ID No.)
of incorporation or organization)
12351 RESEARCH PARKWAY, ORLANDO, FLORIDA 32826 (Address
of principal executive offices)
Registrant's telephone number, including area code: (407) 281-4103
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Each Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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-K or any amendment to this
Form 10-K. [X]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PROCEEDING FIVE YEARS.
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
--- ---
The market value of the Registrant's Common Stock, $0.01 par value per share,
held by nonaffiliates (2,320,929 shares) was $11,169.47 (based on $4.8125 per
share) based upon the average of the bid and asked prices at closing on
September 2, 1997. Beneficial ownership of stock rules adopted pursuant to
Section 13 of the Securities Exchange Act of 1934 were used to exclude Common
Stock owned by directors and officers, some of whom may not be held to be
affiliates upon judicial determination.
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As of September 2, 1997, there were 6,266,595 shares of "New" Common Stock
outstanding.
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PART I
ITEM 1 BUSINESS
I. OVERVIEW
Laser Photonics, Inc., a Delaware corporation organized in 1980, (the
"Company"), through its 76% owned Acculase, Inc. subsidiary acquired in May of
1995, is engaged in the development of proprietary excimer laser and fiberoptic
equipment and techniques directed initially toward the treatment of coronary
heart disease, as well as other medical applications.
The Company also designs, develops, manufactures and markets
solid-state, diode and gas laser systems and accessories for use in both
"Medical" and "Scientific" applications.
On May 22, 1995, the Company emerged from reorganization under Chapter
11 of the Federal Bankruptcy Act, and became a 75% owned subsidiary of
Helionetics, Inc., of Van Nuys, California.
The following table sets forth certain financial information as to laser
products for the identified application for the last three fiscal years to
unaffiliated customers:
<TABLE>
<CAPTION>
May 23, January 1,
Year Ended 1995 to 1995, to Year Ended
December 31, December 31, May 22, December 31,
1996 1995 1995 1994
------------ --------------- -------------- -----------
<S> <C> <C> <C> <C>
Medical Sales $ 118,229 $ 294,086 (1) $ 208,749 $1,906,752
Scientific Sales 2,783,225 1,114,373 1,033,065 3,807,867
--------- --------- --------- ---------
Total Sales 2,901,454 1,408,459 1,241,814 5,714,619
Gross Profit or Loss
Medical (4,549) 21,232(1) 7,361 389,176
Gross Profit or Loss
Scientific 576,606 105,072 27,894 790,144
------- ------- ------ ----------
Total Gross Profit 572,155 126,304 35,255 1,179,320
</TABLE>
The Company's assets are shared by its medical and scientific product
lines.
(1) Above medical margin provides Costs of Sales for Acculase of $30,174,
reducing LPI margin accordingly. This is the first year with Acculase data in
the 10-K as 76.1% was acquired as of May 22, 1995.
The Company's strategy is to apply its extensive solid-state and excimer
laser expertise to develop a broad base of laser products focused on medical and
scientific applications. The Company believes that solid-state and excimer laser
technology provides the basis for reliable cost effective systems that will
increasingly be used in connection with less invasive, less traumatic surgical
procedures.
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II. ACCULASE'S ALLIANCE WITH BAXTER HEALTHCARE CORPORATION
On August 19, 1997, Acculase executed a series of Agreements with Baxter
Healthcare Corporation ("Baxter"). These Agreements provided among other things
for the following:
1. Acculase granted to Baxter an exclusive world-wide right and
license to manufacture and sell the Acculase Laser and disposable
products associated therewith, for the purposes of treatment of
cardiovascular and vascular disease.
2. Baxter agreed to pay Acculase a royalty equal to 10% of the "End
User Price" for each disposable product sold, or if the laser
equipment is sold on a "per treatment" basis, the "imputed"
average sale price based on average "non" per procedure sales.
3. Baxter agreed to purchase from Acculase, certain existing excimer
laser systems for cardiovascular and vascular disease.
4. Baxter agreed to fund the total cost of obtaining regulatory
approvals world-wide for the use of the Acculase Laser and
delivery system for the treatment of cardiovascular and vascular
disease.
5. Baxter agreed to fund all sales and marketing costs related to
the introduction and marketing of the Acculase Laser and delivery
system to treat cardiovascular and vascular disease.
6. Acculase agreed to manufacture the excimer laser system to
specifications for Baxter at certain agreed costs.
7. Baxter paid Acculase $700,000 in cash at closing, agreed to pay
Acculase an additional $250,000 in cash three months after
closing, and agreed to pay an additional $600,000 upon delivery
of the first two commercial excimer lasers.
8. Acculase has granted Baxter a security interest in all of its
patents to secure performance under the Baxter Agreement. The
agreement expires upon the expiration of the last to expire
licensed patent, however, Baxter may terminate the agreement at
any time.
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III THE COMPANY'S 1995 REORGANIZATION
The Company filed a Petition for Reorganization under chapter 11 of the
Federal Bankruptcy Act on May 13, 1994. (Case No. 94-02608-611 - Federal
Bankruptcy Court - Middle District, Florida) (the "Reorganization"). An order
was issued on May 22, 1995 (the "Effective Date"), confirming the Company's
Third Amended Plan of Reorganization (the "Plan") pursuant to this proceeding.
During the pendency of the Reorganization, Helionetics, acquired all
rights to the secured claims of Sun Bank, one of the principal creditors, whose
claims were secured by virtually all the property of the Estate, and originally
totaled approximately $237,240. (After paydown pursuant to cash collateral and
adequate protection orders, these claims totaled approximately $146,000 plus
legal fees.)
Helionetics, in addition, loaned a total of $300,000 to the Debtor
during the pendency of the Reorganization for working capital purposes.
On or prior to the Effective Date, Helionetics contributed to the
Company the sum of $1 million dollars in cash, which funds were utilized as the
source for all immediate cash payments under the Plan.
In addition, on the Effective Date, Helionetics transferred to the
Company, ownership of approximately 76% of the outstanding common stock of
Acculase, Inc., and Helionetics further committed to fund the cost of research
and development of Acculase's excimer laser technology for a minimum of two
years.
As a "Proponent" of the Plan, Helionetics in exchange for this infusion
of cash and transfer of Acculase shares, received in 1995 3,750,000 shares of
"New Common Stock" of the Company issued in the reorganization, which in the
aggregate totaled 75% of the Company's 5,000,000 shares of outstanding "New
Common Stock" as of the Effective Date of the Plan. As of December 31, 1996,
Helionetics owned 61% of the Company's outstanding Common Stock. As a result of
sales of the Company's shares by Helionetics, and the issuance of additional
shares by the Company, as of September 5, 1997, Helionetics owned only
approximately 25% of the Company's outstanding Common Stock.
[The remainder of this page left blank intentionally.]
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IV. ACCULASE'S BUSINESS
On May 22, 1995, the Company acquired approximately 76% of the
outstanding stock of Acculase, Inc., a development stage company.
Acculase was founded in 1985 for the purpose of commercializing products
that utilize its proprietary excimer laser and fiberoptic technologies. Acculase
has focused primarily on the development of medical products for the treatment
of coronary heart disease. Two products have been under development, one being
an excimer laser system for performing transmyocardial revascularization (TMR),
a procedure that creates new channels for blood to flow to ischemic, or
oxygen-starved, heart muscle. The other product is an excimer laser angioplasty
system for removing atherosclerotic blockages from coronary arteries.
1. ACCULASE TRANSMYOCARDIAL REVASCULARIZATION SYSTEM. Acculase has under
development an excimer laser and fiberoptic system for the treatment of coronary
heart disease in a procedure called transmyocardial revascularization (TMR).
Rather than opening narrowed coronary arteries, the Acculase TMR system is
intended to treat ischemic myocardium (oxygen-starved heart tissue) directly.
This is accomplished by lasing small channels through ischemic areas of the
heart such that the channels connect directly with the left ventricle, which is
a reservoir of oxygen-rich blood. These channels thus provide new pathways for
blood flow into the heart muscle.
Acculase met with representatives of the U.S. Food and Drug
Administration (FDA) in January, 1995 to discuss preclinical data submission
requirements necessary to initiate human trials of its TMR system. Animal
testing of the Acculase TMR system was then performed in collaboration with
several heart research institutions in the U.S.,culminating in a study at The
New York Hospital Cornell Medical center which serves as the pre-clinical basis
for an Investigative Device Exemption (IDE) that was granted by the FDA in
August, 1996.
Under this IDE, Phase I human clinicals have begun at New York Cornell
Medical Center.
The IDE submission provides for the Acculase TMR system to be used in
open heart procedures. The Phase I study only includes patients that are
suffering from ischemia and angina, and who are not candidates for coronary
bypass grafts (CABG) or for balloon angioplasty.
There are an estimated 120,000 people worldwide per year who qualify for
TMR under the conditions set forth above. Depending upon the outcomes of the
Phase I study, the company may petition the Phase II studies be expanded to a
multi-site study (more than 10 institutions) and expand the procedure to include
patients who are candidates for incomplete CABG revascularization. This will
greatly expand the patient base.
Acculase has in process a review of existing patents in the area of its
TMR Laser held by other companies which could impact or even perhaps preclude in
some markets the ability of Acculase to commercialize its TMR System, except
pursuant to licensed rights which might have to be negotiated.
2. LASER ANGIOPLASTY SYSTEM Acculase also has developed a laser
angioplasty system that is proposed to be used to treat atherosclerotic
blockages of the coronary arteries during a surgical bypass operation. The
Company believes that the major advantage of its laser angioplasty system over
competing therapies is the ability to remove vessel blockages without causing
significant injury to neighboring healthy tissues. Since the trauma caused by
the procedure should be minimal, it is hoped that the body's healing response,
which contributes to renarrowing at the treatment site, will be reduced.
The "intraoperative" laser angioplasty system was developed for the
purpose of collecting proof of
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principle information needed to qualify the novel design of its catheter and
fiberoptics. Acculase obtained clearance to perform Phase 1 of a human clinical
study for its intraoperative laser angioplasty, but has placed research on hold
while it expands its research on its TMR Laser.
3. BAXTER HEALTHCARE CORPORATION LICENSE AND MANUFACTURING AGREEMENTS
On August 19, 1997, Acculase executed a series of Agreements with Baxter
Healthcare Corporation ("Baxter"). These Agreements provided among other things
for the following:
(a) Acculase granted to Baxter an exclusive world-wide right and
license to manufacture and sell the Acculase Laser and disposable
products associated therewith, for the purposes of treatment of
cardiovascular and vascular disease.
(b) Baxter agreed to pay Acculase a royalty equal to 10% of the "End
User Price" for each disposable product sold, or if the laser
equipment is sold on a per treatment basis, the "imputed" average
sale price based on average "non" per procedure sales.
(c) Baxter agreed to purchase from Acculase, certain existing excimer
laser systems for cardiovascular and vascular disease.
(d) Baxter agreed to fund the total cost of obtaining regulatory
approvals world-wide for the use of the Acculase Laser and
delivery system for the treatment of cardiovascular and vascular
disease.
(e) Baxter agreed to fund all sales and marketing costs related to
the introduction and marketing of the Acculase Laser and delivery
system to treat cardiovascular and vascular disease.
(f) Acculase agreed to manufacture the excimer laser system to
specifications for Baxter at certain agreed costs.
(g) Baxter paid Acculase $700,000 in cash at closing, agreed to pay
Acculase an additional $250,000 in cash three months after
closing, and agreed to pay an additional $600,000 upon delivery
of the first two commercial excimer lasers.
(h) Acculase has granted Baxter a security interest in all of its
patents to secure performance under the Baxter Agreement. The
agreement expires upon the expiration of the last to expire
licensed patent, however, Baxter may terminate the agreement at
any time.
4. ANTICIPATED MARKETS. Anticipated markets for the Acculaser and
disposable products are hospitals located in the U.S. and around the world.
Acculase's management believes that the market for its laser angioplasty
devices potentially could be very large.
Since the Acculase system is still in the clinical trials stage with its
products, there is no assurance it will be able to successfully develop these
products, prove up their anticipated benefits, obtain required governmental
approvals for their use, and with its strategic association with Baxter, reach
anticipated markets ahead of competing technologies and competitors.
5. WORKING CAPITAL. Acculase will require significant working capital
over the next 12 months
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to continue development of its products, and meet its obligations under the
Baxter Agreements, estimated in the range of $1,500,000 to $2,500,000.
Management believes approximately $2,000,000 of these funds are expected to come
from Baxter, substantially from the sale of lasers to Baxter under the Baxter
Agreements, but the sources of and terms for the remainder of such capital are
uncertain at this date.
6. SOURCES AND AVAILABILITY OF RAW MATERIALS. Acculase uses raw
materials that may be obtained from a number of different vendors. Therefore,
Acculase believes that there are adequate sources and availability of all raw
materials required to commercialize its products.
7. PATENTS, TRADEMARKS, ETC. Acculase has received four U.S. Patents.
The first patent, which was issued in January 1990, provides patent protection
until 2007 and covers Acculase's base excimer laser design. The second patent,
which was issued in May 1990, provides patent protection until 2007 and covers a
liquid filled flexible laser light guide. The third patent, which was issued in
May 1991, provides patent protection until 2007, and covers a means of measuring
optical fiber power output. The fourth patent, which was issued in September
1991, provides patent protection until 2008 and relates to the laser to optical
fiber coupling apparatus used in the Acculase Laser. Acculase also has one U.S.
patent application pending relating to a proprietary laser catheter design,
which application was initially denied and now is on appeal.
Acculase also received patents for its base excimer laser design in
Australia in November 1991, Canada in December 1992, and Israel in February
1993. The Australian, Canadian, and Israeli patents provide protection until
August 2004, December 2009, and August 2008, respectively. Patent applications
are pending in these countries and in Japan for a fiber optic laser catheter
design.
8. COMPETITION. Numerous competitors, many with resources more
significant than that of Acculase, have developed and continue to develop
products for the treatment of coronary heart disease. Acculase faces competition
from balloon angioplasty, atherectomy devices, other laser angioplasty devices,
stents, TMR and pharmaceutical companies.
9. NUMBER OF PERSONS EMPLOYED. Acculase currently has six full time
employees. With the expansion of its work on laser angioplasty and TMR, the
number of employees will be increased commensurate with projects undertaken and
the ability of the parent Company to provide additional capital.
D. EMPLOYEES
The Company, including Acculase, as of December 31, 1996, employed a
total of 37 persons. The Company has no union employees.
E. PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS HELD
The Company holds several United States patents on various items of
laser equipment and components. The Company does not, however, consider the
ownership of patents essential to its operations. In general, the Company relies
upon its engineering, development and manufacturing know-how and the creative
skills of its personnel, rather than upon patent protection to establish and
maintain its industry position. In addition, the Company treats its design and
technical data as confidential and relies on internal nondisclosure safeguards,
such as confidentiality agreements, and on laws protecting its trade secrets, to
seek to protect what it regards as proprietary information.
F. GOVERNMENT REGULATION
The Company is subject to the Radiation Control for Health and Safety
Act with laser radiation safety regulations administered by the Center for
Devices and Radiological Health ("CDRH") of the FDA. These
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regulations require laser manufacturers to file new product and annual reports,
to maintain quality control, product testing and sales records, to incorporate
certain design and operating features in lasers sold to end users and to certify
and label each laser sold (except those sold to OEM customers) as belonging to
one of four classes, based on the level of radiation from the laser that is
accessible to users. Various warning labels must be affixed and certain
protective devices installed, depending on the class of the product. CDRH is
empowered to seek fines and other remedies for violations of the regulatory
requirements. To date, the Company has filed the documentation with CDRH for its
laser products requiring such filing, and has not experienced any difficulties
or incurred significant costs in complying with such regulations.
Medical devices incorporating lasers are subject to extensive FDA
regulations governing the use and marketing of such devices. FDA conducts
on-site inspections to insure compliance with good manufacturing practice. The
FDA conducted a no-notice compliance inspection in September 1991, and the
Company received no written deficiencies in its Quality Assurance program.
G. ACQUISITION OF ENABLING TECHNOLOGY BY BAXTER
Baxter acquired certain enabling laser technology from a third party for
a purchase price of $4 million in order to facilitate performance under its
agreements with Acculase. The technology may have applications in the continued
development of the Acculase Laser and Delivery System, however, there is no
certainty that such applications may be realized. The Company and its investment
banker, Pennsylvania Merchant Group Ltd. ("PMG") have agreed to repay Baxter the
$4 million on or before November 3, 1997. The Company contemplates the private
sale of additional Common Stock through PMG to meet this obligation. However,
the sources and availability of such capital are uncertain at this time.
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V. LASER PHOTONICS' BUSINESS AREAS
A. MEDICAL APPLICATIONS AND PRODUCTS.
1. OVERVIEW. The Company's product focus in this area shifted over the
past year. In 1996, the Company has emphasized development of its Ruby laser
dermatology system. Lasers have been used by physicians for many years as
surgical tools for specific applications such as gynecology, gastroenterology
and ophthalmology because of their precision and ability to coagulate or
vaporize tissue. Recently, applications have been developed in connection with
less invasive, less traumatic surgical procedures, such as endoscopy and
laparoscopy, which have expanded the use of fiber optically coupled laser
systems in medicine. The use of minimally invasive endoscopic and laparoscopic
procedures have begun to replace certain conventional open surgical procedures.
The new less invasive procedures deliver laser energy through a small optical
fiber to cut, coagulate, or vaporize tissue and usually results in reduced
hospital stays by reducing attendant blood loss and trauma associated with
conventional open surgery.
The development of new laser wavelengths and fiber delivery systems
which allows physicians to develop new minimally invasive techniques to treat
conditions that previously required open surgery. Urologists are using lasers to
treat prostate disease, (BPH) and to fragment kidney and biliary stones with no
damage to the surrounding soft tissue and dermatologists are using lasers to
treat benign vascular and pigmented lesions of the skin such as spider veins and
port wine stains, moles and tatoos.
The Company has used its base of solid-state technology to develop a
number of products for use in these emerging applications. The Company has
developed and is commercially marketing a solid-state surgical Nd:YAG laser
system and accessories for which FDA clearances have been received. The Company
has also developed an alexandrite laser lithotriptor for which it received FDA
clearance (April 1993) to commercially market.
2. MEDICAL LASER PRODUCTS. Set forth below is a brief summary of the
Company's current medical laser systems:
(1) RUBY LASER SYSTEM. The use of solid-state laser systems has
expanded into new application areas such as dermatology for the
treatment of benign pigmented lesions of the skin such as nevus of ota,
moles, age spots and tattoos. This new application represents an
extension of the Company's scientific ruby laser technology, a
technology which was one of the earliest laser systems developed for
commercial use. Laser energy created by the ruby laser is highly
absorbed by pigmented lesions but poorly absorbed by normal skin. Using
the laser system, therefore, allows the physician to treat effectively
the skin lesion without anesthesia and without causing normal pigmented
changes or scarring. The Company began manufacturing and shipping these
systems in August 1991 on a private label basis. The OEM
Manufacturing/Distribution Agreement with the customer officially
terminated in 1993. In May, 1995, the Company resumed production of the
ruby laser using a distributor network for marketing the product.. R&D
programs have been geared toward modification to allow long pulsewidth
operation for other dermatological applications including hair removal.
Ruby lasers have shown the ability to remove hair without damage to the
surrounding tissue while removing the hair for long periods of time.
Repeated application may lead tp permanent hair removal. The Company is
awaiting FDA approval for the long pulse laser for dermatology.
(2) ND:YAG LASER SYSTEMS. During the 1980's, the CO2 gas laser
began to be replaced as the "workhorse" of the industry by the Nd:YAG
Laser System. Major complaints with the CO2 were the cumbersome delivery
mechanism (an articulating arm) and its inability to coagulate tissue or
to deliver energy through a fluid medium. The Nd:YAG energy could be
delivered through a small flexible optical fiber, could be effectively
used in a fluid medium, and was effective in cutting,
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coagulating and vaporizing tissue.
In 1990, the Company received FDA clearances to market
commercially 100, 60, and 45 watt Nd:YAG systems and accessories for use
in general surgery. These systems are used in traditional applications
such as gynecology as well as in endoscopic and laparoscopic procedures
such as laser laparoscopic cholecystectomy (gallbladder removal). New
endoscopic and laparoscopic procedures have generated significant
interest among general surgeons in the use of lasers for surgery. Due to
limited cash resources, the Company did not actively market the Nd:YAG
laser in 1996.
(3) ALEXANDRITE LASER SYSTEM. Laser induced shockwave lithotripsy
("LISL"), or the use of laser energy to break up kidney and biliary
stones, also represents a new application of medical lasers. The Company
believes that LISL offers a reliable cost effective adjunct or
alternative to surgery or extracorporeal shockwave lithotripsy ("ESWL")
for the treatment of kidney and biliary stones. ESWL uses externally
generated shock waves that noninvasively pass through the skin and
fragment the stone, allowing it to be passed by the patient. ESWL
equipment is expensive to purchase and install and may not be usable in
treating certain stones in the lower two-thirds of the ureter which are
shielded by the pelvic bone.
LISL requires a minimally invasive endoscopic procedure or percutaneous
puncture to allow access to the stone. A small optical fiber is passed
through the endoscope or percutaneous catheter until it reaches the
stone. Laser energy is transmitted through the optical fiber and causes
the stone to fragment into small particles which can be expelled
naturally. LISL can be used to fragment stones in areas which are not
easily treated by ESWL or following ESWL treatment when fragments become
lodged or are not small enough to be expelled naturally.
In April 1993, the Company received FDA clearance to market its
solid-state alexandrite lithotriptor for the treatment of kidney stones
in the renal and urinary tract. Clearance to market the lithotriptor was
also received in Japan in late 1995. Again, due to limited cash
resources, the company did not actively promote the lihotriptor in 1996,
choosing instead to focus on the dermatology market.
(4) ACCULASE EXCIMER LASER. The company's subsidiary, AccuLase,
Inc., is involved in the development of excimer laser technology for
Transmyocardial Revascularization (TMR) (See section entitled "AccuLase"
for details.)
3. PRINCIPAL MARKETS & METHODS OF DISTRIBUTION. The Company's marketing
strategy is to define specific target markets and to modify existing products or
design new products to meet perceived market demand. The Company markets its
medical laser systems principally through independent distributors and
representatives to large hospitals, small community hospitals, and freestanding
outpatient surgery centers throughout the world. The Company promotes its
medical products through attendance at trade shows and exhibits, advertising in
medical journals, and direct mail programs to the medical community.
The following classes of medical products contributed total revenues
annually equal to 15% or more of total revenues:
<TABLE>
<CAPTION>
1996 1995 1994
Sales Sales Sales
----- ----- -----
<S> <C> <C> <C>
Nd:YAG Lasers (1) (1) $851,740
</TABLE>
(1) Did not account for 15% of sales in 1996 or 1995
No other medical products accounted for 15% of sales in 1996, 1995 or
1994.
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4. SOURCES AND AVAILABILITY OF RAW MATERIALS. To date, the Company has
not experienced any difficulty in obtaining solid state laser rods, optical,
electro-optical, electronic or any other components and raw materials for its
products, most of which are available from multiple sources which are
well-established in the industry, although because of the Company's financial
constraints certain suppliers have required the Company to pay COD for
materials.
5. SEASONAL FACTORS- MEDICAL LASERS. Seasonality is not a significant
factor in medical laser sales. Budgetary cycles and funding are spread out in
various hospitals, chains and organizations so that funding is not as cyclical
as in the scientific laser market.
6. WORKING CAPITAL ITEMS - MEDICAL LASERS. The Company is required by
the FDA under GMP guidelines to carry certain inventories for emergency medical
service. Typically, major service problems must be responded to within 24 hours.
The Company estimates that $250,000 of service inventory is on hand at any given
time for emergency response.
The Company does not provide the right to return units. In some cases,
demonstration equipment is sent to the customer prior to the sale to determine
suitability. In rare cases the Company has allowed returns when accompanied by a
substantial restocking fee.
In April, 1996 the Company entered into a factoring relationship with
Commercial Factors of Atlanta. Commercial Factors purchases accounts receivable
from the Company at a discounted rate of 75% of the invoice value at the time of
shipment. The remaining 25% of the invoice value is paid to the Company, less
fees and interest, when the invoice is paid to the Company. The factoring
arrangement provides needed working capital immediately upon shipment, although
the interest rate is high. In June, 1997, the Company changed factors to Altres
Financial of Salt Lake City, Utah. The change was due primarily to lower
interest rates .
All customers are on 30 day payment terms with approved credit. Some
distributors have been granted 60 day terms on a case by case basis.
7. DEPENDENCE ON NEW CUSTOMERS. The Company did not have sales to a
single customer in excess of 10% of total sales in 1996.
8. BACK LOG ORDERS. As of December 31, 1996, the Company had an
approximate backlog of $120,000 in orders believed to be firm for its medical
lasers, not including contract orders for the ruby laser. All of the backlog
orders at December 31, 1996 are expected to be filled during 1997.
9. COMPETITION. The laser industry is very complex and fragmented
because of the specialized nature of laser products and the differing
applications required by purchasers of lasers and laser systems. Although the
Company believes its laser products incorporate state-of-the-art technology, the
laser industry is subject to intense competition and rapid technological change.
Many of the Company's competitors are manufacturers which are substantially
larger than the Company and have substantially greater financial and personnel
resources. To the extent the Company's products are incorporated into systems
for medical and scientific applications, the Company indirectly competes with
hundreds of suppliers of devices employing other technologies, and also those
which employ lasers as a principal component. An element of the Company's
competitive strength is its ability to attract and retain qualified technical
personnel. See "Employees".
The Company believes the primary competitive factors within the surgical
laser market are the level of customer support, training, price, product
reliability, and breadth of product line. The Company believes that it offers a
broad product line, flexible OEM capabilities, and provides through its
distributors and in-house capabilities a high level of customer service and
training. The Company believes that its medical products are competitively
priced compared to competing laser products and that its products based on
solid-state
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technology are very reliable. Although the Company has manufactured surgical YAG
laser systems and components on a private label basis for a number of years, as
an entrant into this market under the Laser Photonics label, the Company must
establish its reputation as a direct provider of products to the medical
community.
10. PRODUCT WARRANTIES. The Company's standard warranty period on most
products, except consumables, which have a ninety day warranty period, is one
year for parts and labor. Selected medical products have a 12 month parts only
warranty. During the warranty period, the Company pays shipping charges one way.
The Company has established a reserve for warranty costs based upon the
estimated costs to be incurred.
11. RESEARCH AND DEVELOPMENT. The Company research and development
emphasis has shifted from pure research to product modification and development
to meet new market demands. The Company's strategy is to utilize and modify its
existing laser and component base to develop new products and applications in
targeted medical and scientific markets. In addition to internal development,
the Company may take advantage of opportunities, if they arise, in the current
laser market environment of consolidation and market specialization by
continuing to seek out and acquire both products and technology at a cost the
Company believes to be lower than internal development. The Company does not
have any present acquisition plans. Because the Company products are focused in
specific niche scientific and medical markets, the Company does not believe the
decline in R&D expenditures will impact the Company's abilities to be
competitive in its markets.
During 1996, the Company concentrated on upgrading and modifying its
ruby laser for dermatology. Secondarily, the Company has been working with an
OEM customer to develop its scientific nitrogen laser technology for cancer
detection.
12. ENVIRONMENTAL CONCERNS - MEDICAL LASERS. Laser Photonics'
medical lasers are not thought to cause any environmental concerns. All medical
lasers are solid-state construction so no hazardous gases or liquid dyes are
used in their operation or manufacture. In winter months, medical laser cooling
systems are filled with an ethelyne glycol and water mixture to prevent freezing
during shipment. This mixture must be removed and discarded upon installation.
Acculase excimer lasers utilize Xenon-Chloride gas as a lasing medium.
The chlorine component of this gas is extremely corrosive and must be handled
with care. Although only a small quantity of gas is present in each laser,
proper handling is essential for safe operation. Depleted gas is reacted prior
to disposal. Excimer lasers are common in hospitals and laboratories and the
disposal and handling of these gases is well known. The use of these gases is
not expected to impact the desirability of these lasers. Excimer lasers used in
PRK (photorefractive radial keratectomy) use similar gases These lasers are also
in widespread use.
[The remainder of this page left blank intentionally.]
13
<PAGE> 14
B.SCIENTIFIC APPLICATIONS AND PRODUCTS.
1. OVERVIEW. The Company's scientific products are sold into niche
markets for use principally in applications such as spectroscopy, calibration,
alignment, and ultra-fast event measurement by universities, government, and
private industry research labs.
The Company manufactures and markets scientific products based on a wide
range of technologies which include: nitrogen laser systems, nitrogen pumped dye
laser systems, solid state mid infrared laser systems, CO2 laser systems, as
well as laser diodes and laser diode spectrometers.
2. SCIENTIFIC LASER SYSTEMS. Set forth below is a brief summary of the
Company's current scientific laser systems:
(1) DIODE LASER SYSTEMS. In February 1989, The Company acquired
Laser Analytics, Inc., a wholly-owned subsidiary of Spectra Physics.
Since the acquisition, the Company has funded continued development
efforts focused primarily on improvements in the production of tunable
infrared laser diodes. In 1990, the Company signed a joint technology
licensing agreement with the General Motors Research Lab. This
technology uses a spectrometer based on the Company tunable infrared
laser diode to measure naturally occurring, non-radioactive stable
isotopes in exhaled breath. These measurements are useful in diagnosing
such medical problems as diabetes, lung and liver dysfunction, digestive
tract diseases, such as the detection of helicobactor pylori which has
been shown to be a precursor to liver and stomach cancer. The Company is
continuing research and development efforts on this product but does not
anticipate commercial sales from this product in the next twelve months.
The Company's tunable diode lasers are based on lead-salt
semiconductor technology for use in advanced research such as high
resolution molecular spectroscopy, combustion diagnostic studies and
atmospheric chemistry. These are "high end" instruments designed for
research which requires a high level of sophistication and performance.
These lasers are sold both as a standardized unit, and as a customized
unit. In addition, the Company has designed a system using the tunable
diode laser technology for pollution monitoring applications.
In 1996, the Company received an order from its Japanese
distributor for complete systems for monitoring plasma reactions for
advanced semiconductor manufacturing. Five systems were initially
installed in February, 1997. If beta testing is successful, significant
orders from this manufacturing consortium could be realized in early
1998.
(2) NITROGEN LASER AND NITROGEN PUMPED DYE LASER SYSTEMS. The
Company's nitrogen/dye laser uses an ultraviolet laser beam that when
exposed to certain dyes creates a visible wavelength that is tunable
over a wide range of frequencies. This feature makes them extremely
useful to chemists who do spectroscopic studies of materials that absorb
or react to specific wavelengths of light. The main features of this
product line are tunability, reliability, stability, ease of operation
and low cost. The Company's sealed nitrogen lasers are now being used in
OEM commercial applications. In 1995, the Company received two
significant quantity orders from a foreign government for nitrogen
lasers to be used in the currency printing process. Machine vision
systems and mass spectrometer manufacturers are also using nitrogen
lasers in quantity. The Company is working with an OEM customer to
develop a system for cervical cancer detection. Multiple quantity orders
are expected for this application in early 1998.
(3) SOLID STATE MID INFRARED LASER SYSTEMS. The Company's
solid-state scientific product line consists of a broad range of laser
system products (Nd:YAG, Nd:GLASS, Ti:SAPPHIRE). Each product within
this line has unique wavelength and performance characteristics which
are useful in laboratory research in holography, plasma diagnostics, and
bathimetry (ocean mapping).
14
<PAGE> 15
(4) CO2 AND CO LASER SYSTEMS. The Company's CO2 and CO laser technology
covers a broad range of infrared laser applications requiring unique
characteristics and can be categorized into two main classifications - low and
high power infrared. The low power infrared gas scientific laser products are
designed for use in spectroscopy. As such, they are very stable, sensitive
instruments, which have recently also been used commercially for remote sensing
and gas trace analysis. In 1996, the Company ceased manufacturing of the CO2 and
CO product line, but continues to provide service support and marketing through
an agreement with another manufacturer.
3. PRINCIPAL MARKETS & METHODS OF DISTRIBUTION. The Company markets its
scientific products through a direct sales force in the United States and
through a network of distributors outside of the United States, principally to
universities, governmental research labs and large companies. The Company
promotes its scientific products through attendance at trade shows, advertising
in scientific journals and industry magazines, and direct mail programs to the
scientific research community.
The following classes of scientific products contributed total revenues
annually equal to 15% or more of total revenues:
<TABLE>
<CAPTION>
1996 1995 1994
Sales Sales Sales
----- ----- -----
<S> <C> <C> <C>
Nitrogen/Dye Lasers 970,151 762,581 1,043,122
Diode lasers and systems 1,377,950 948,006
</TABLE>
4. SOURCES AND AVAILABILITY OF RAW MATERIALS- SCIENTIFIC LASERS. Laser
Photonics believes its relationship with vendors of materials for scientific
lasers is good. As a result of the Company's reorganization, most vendors
operate on a C.O.D. basis. This has not significantly affected the willingness
of vendors to work with the Company on an ongoing basis. Most major components,
including laser crystals, optics and electro-optic devices are available from a
variety of sources. The company does not rely on sole source vendors. Cash flow
constraints are the main limiting factors in parts availability.
5. SEASONAL FACTORS - SCIENTIFIC LASERS. The scientific laser market is
affected mainly by the government budget cycle. A majority of the company's
scientific laser sales are funded by government agencies such as the National
Science Foundation, the National Institute of Health, Department of Energy and
Department of Defense. The second and third quarters are typically the heaviest
for booking orders. Approved funding is usually allocated late in the first
quarter or early in the second quarter each year. The Company typically sees an
increase in bookings at this time . The government fiscal year ends on September
30 of each year. Bookings typically increase at this time as researchers
scramble to spend funding before it is cut off.
6. WORKING CAPITAL ITEMS - SCIENTIFIC LASERS. The Company is not
required by any regulatory body to keep inventories on hand to meet service or
delivery issues. Certain raw materials have lead times of greater than sixteen
weeks. The Company keeps a safety stock of these items when appropriate. The
Company estimates that less than $100,000 of current inventory is set aside for
safety stock.
The Company does not provide the right to return units . In some cases,
demonstration equipment is sent to the customer prior to the sale to determine
suitability. In rare cases the Company has allowed returns when accompanied by a
substantial restocking fee.
In April, 1996 the Company entered into a factoring relationship with
Commercial Factors of Atlanta. Commercial Factors purchases accounts receivable
from the Company at a discounted rate of 75% of the
15
<PAGE> 16
invoice value at the time of shipment. The remaining 25% of the invoice value is
paid to the Company, less fees and interest, when the invoice is paid to the
Company. The factoring arrangement provides needed working capital immediately
upon shipment, although the interest rate is high. In June, 1997, the Company
changed factors to Altres Financial of Salt Lake City, Utah. The change was due
primarily to lower interest rates .
7. DEPENDENCE ON NEW CUSTOMERS. The Company did not have sales to a
single customer in excess of 10% of total sales in 1996.
8. BACK LOG ORDERS. As of December 31, 1996, the Company had an
approximate backlog of $1,200,000 in orders believed to be firm for its
scientific lasers. All of the backlog orders at December 31, 1996 are expected
to be filled during 1997.
9. COMPETITION. The Company believes that the primary competitive
factors within the scientific market are the level of customer support and
training, price, product reliability, and breadth of product line. The Company
believes that it offers one of the broadest product lines available in the
scientific laser industry and provides through its direct sales force and
in-house service capabilities a high level of customer service. The Company
believes that its scientific products are competitively priced compared to
competing laser products and that its products are very reliable. Because the
Company has purchased existing, well established product lines, which now
comprise most of its scientific business, the Company has the advantage of
selling scientific products which are well known and have established
reputations for quality and performance.
10. PRODUCT WARRANTIES - SCIENTIFIC LASERS. The Company's standard
warranty on scientific lasers is twelve months parts and labor, except
consumables, which have a ninety day warranty. Most scientific lasers can easily
be returned to the factory for repair due to their small size and weight. During
the warranty period, the Company pays shipping charges one way. The Company has
established a reserve for warranty costs based upon the estimated costs to be
incurred over the warranty period of the Company's products.
11. RESEARCH AND DEVELOPMENT. In 1996, the Company's scientific R&D
focused on development of the diode laser systems for the semiconductor
manufacturing application and on development of OEM nitrogen lasers for cancer
detection and industrial applications.
12. ENVIRONMENTAL CONCERNS - SCIENTIFIC LASERS. The Company does not
knowingly use any products known to harm the environment. All solvents and
cleaners are biodegradable. Cooling systems, where applicable, use CFC free
refrigerant.
The Company's Analytics Division produces lead-salt diodes. The
manufacturing process used to produce the state-of-the-art lasers is a complex
process in which many different types of materials are used to produce
sophisticated lasers. Many of these materials must be processed in a laboratory
environment. The quantity of materials is small (the Analytics Division is
classified as a Very Small Quantity Generator). This division has chemical
management programs which are designed to provide a safe work environment for
all employees and to ensure compliance with all Federal, State and Local
regulations related to the use and disposal of chemicals in the work
environment.
This Form 10-K Annual Report may include "forward-looking statements".
Any statements regarding the Company's strategies, plans, objectives and
expectations, and those of Acculase, Inc.'s and with regard to the Acculase
Laser and Laser Delivery System, may be considered forward-looking statements.
Although the Company believes that any expectations reflected in any such
statements are reasonable at this time, it can give no assurance that such
expectations will prove to have been correct, and actual results may differ
materially from the Company's expectations.
16
<PAGE> 17
[The remainder of this page left blank intentionally.]
17
<PAGE> 18
ITEM 2. PROPERTIES
Acculase presently leases approximately 5,400 square feet of office and
laboratory space in San Diego, California on a month to month basis, at a
monthly rental of $4,719.
The Company currently occupies approximately 12,000 square feet of
office and light manufacturing space at its headquarters in Orlando, Florida, at
a monthly rent of $11,000 per month, on a month to month basis.
The Company's Analytics Division relocated to a 13,000 square foot
office and light manufacturing facility in Wilmington, Massachusetts, in
December, 1996 for a five year period at $5,600 per month.
ITEM 3. LEGAL PROCEEDINGS
In 1996, the Company entered into a consent decree with the Securities
and Exchange Commission where it neither admitted or denied alleged securities
law violations in 1992 and early 1993 under prior management, but consented to
the issuance of an injunction against any future violation. The alleged events
occurred prior to the Company's Chapter 11 Reorganization and involves events
which occurred prior to the change in the Company's management and Directors.
The current Management and Directors have no connection with this SEC
proceeding. No monetary damages were sought.
Acculase is the defendant in a lawsuit brought against it and others by
Jeffrey Levatter and Sherry Brainerd, former employees of Acculase, seeking
unspecified damages for breach of contract and on various tort grounds (Levatter
et al vs. Acculase, Inc., et al, California Superior Court - San Diego). The
management believes, but cannot guarantee, that Acculase has meritorious
defenses to all claims in this litigation.
The Company is delinquent in remitting Federal and state payroll taxes.
As of December 31, 1996, the Company has accrued approximately $400,000 for
payroll taxes, which includes interest and penalties related to the delinquent
payments.
In June, 1997, the Company was served with a complaint as defendant by
Riverboat Landing, Inc., plaintiff, in the County Court of the Eighteenth
Judicial Circuit, Seminole County, FL regarding failed lease negotiations for a
facility in Sanford, FL. The Company has filed a response and is anticipating
settlement out of court. The Company had placed a $10,000 deposit on this
facility which has been written off in 1996.
In August, 1997, the Company received notification from the U.S.
Department of Labor regarding violation of several provisions of ERISA
specifically regarding failure to make timely 401(k) contributions. The Company
is in arrears approximately $53,570. Management has been in discussion with the
Department of Labor and expects to resolve these issues prior to the end of 1997
with no further penalties or litigation.
The Company is not involved in any other material litigation and all
current litigation is deemed to be in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
<PAGE> 19
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's "new" common stock, post Chapter 11 reorganization, has
been quoted on the Electronic Bulletin Board since March, 1996 under the stock
symbol "LSPT". The company's "old" stock, pre-Chapter 11 reorganization, was
also quoted on the Electronic Bulletin Board in 1993, and during the period from
May 13, 1994 to May 12, 1995, while the Company was in a Chapter 11 bankruptcy
proceeding, in the "pink sheets" under the stock symbol "LAPHQ".
Laser Photonics "old" stock - LAPHQ
1995
<TABLE>
<CAPTION>
Closing sales Q-1 Q-2 Q-3 Q-4
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High None None None 1/8
Low None None None 1/8
</TABLE>
<TABLE>
<CAPTION>
1996 - LAPHQ
Closing sales Q-1 Q-2 Q-3
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
High 0.29 n/a n/a
Low 0.22 n/a n/a
</TABLE>
Such market quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not necessarily represent actual
transactions.
The Registrant's "new" stock (LSPT) was quoted as follows on September
2, 1997:
<TABLE>
<CAPTION>
Bid Price High Low Close
-----------------------------------------------------------------------
<S> <C> <C> <C>
4 1/8 3 1/2 4 1/8
</TABLE>
As of September 2, 1997, there were 880 record holders of the Company's
New Common Stock. No dividends have been declared or paid in the Company's
history. The Company presently intends to retain future earnings, if any, in
order to provide funds for use in the operation and expansion of its businesses
and, accordingly, does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
The charts and graphs on the following page reflect the price and volume of the
Company's "new" stock since trading began on March 1, 1996
[The remainder of this page left blank intentionally.]
19
<PAGE> 20
Laser Photonics, Inc. (LSPT)
1996 Weekly Stock Prices
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
LASER PHOTONICS, INC. (LSPT) - WEEKLY DATA
Date High Low Last Volume Date High Low Last Volume
- ---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03/01/96 6.5 5.75 6.125 1,800 11/08/96 2.25 1.8125 2.0625 67,800
03/08/96 6.5 5.5 5.5 14,600 11/14/96 2.125 1.625 1.75 76,300
03/15/96 6.5 5.5 6 30,600 11/22/96 1.6875 0.9375 1.2187 104,100
03/22/96 7.875 6 7.875 386,500 11/29/96 1.5 1.1875 1.472 106,700
03/29/96 8 7.312 8 247,000 12/06/96 1.5625 1.375 1.375 45,600
04/04/96 8.25 7.75 7.75 33,900 12/13/96 1.5 0.9375 1 56,500
04/12/96 8.25 7.75 8.062 67,700 12/20/96 1.0937 0.6875 1.0937 169,800
04/19/96 8.5 8 8.125 97,500 12/27/96 1.125 1 1.125 79,900
04/26/96 8.375 7.25 7.25 80,200 01/03/97 1.5625 1.125 1.4375 103,400
05/03/96 7.5 7.25 7.375 32,300 01/10/97 2.0625 1.4375 2.0625 183,900
05/10/96 8.125 7.25 7.75 46,300 01/17/97 2.375 1.875 2.0937 171,800
05/17/96 7.875 7 7.25 764,900 01/24/97 2.1875 1.6875 1.75 106,800
05/24/96 7.625 6 6.25 267,000 01/31/97 1.75 1.4375 1.5 37,100
05/31/96 6.5 6 6.25 269,700 02/07/97 1.5 1.1875 1.1875 24,100
06/07/96 6.625 5.75 6.25 243,400 02/14/97 1.375 1 1.0312 89,300
06/14/96 6.375 5.75 5.75 123,700 02/21/97 1.0312 0.9375 1.0312 15,700
06/21/96 6.25 5.5 5.5 63,100 03/07/97 1 0.6562 0.6875 43,100
06/28/96 5.875 3.125 4.25 123,000 03/14/97 0.75 0.5625 0.625 16,400
07/05/96 4.625 3.875 4.25 96,400 04/11/97 0.8125 0.3125 0.8125 50,200
07/12/96 5.75 4.125 5.5 296,900 04/18/97 1 0.5625 1 66,400
07/19/96 5.5 4.625 5.375 72,200 04/25/97 1.4375 1 1.3125 211,400
07/19/96 5.5 4.625 5.375 72,200 05/09/97 1.125 0.6875 0.75 56,300
07/26/96 5.375 4.5 4.5 77,200 05/23/97 1.375 0.6875 1.25 79,400
08/02/96 5 4.25 4.25 8,500 05/30/97 1.25 1.0625 1.125 72,900
08/09/96 4.625 4.25 4.5 9,900 06/06/97 1.3125 1.0625 1.25 109,800
08/16/96 4.375 3.625 3.875 5,700 06/20/97 1.3125 1 1.3125 31,900
08/23/96 4.625 3.937 4.5 90,300 06/27/97 1.3125 0.9375 1.3125 67,200
08/30/96 5.375 4.375 5.125 208,500 07/04/97 1.1875 1.0625 1.0625 4,100
09/06/96 5.375 4.25 4.25 45,200 07/11/97 1.3125 1.125 1.25 29,600
09/13/96 4.625 3.75 3.75 62,000 07/18/97 1.625 1.25 1.25 90,400
09/20/96 4.25 3.75 4 34,900 07/25/97 1.5 0.9375 1.1875 117,500
09/27/96 4.125 3.9375 4.125 36,100 08/01/97 1.5625 1.125 1.5 201,000
10/04/96 4.125 3.4375 3.68 40,600 08/08/97 1.75 1.3125 1.5 143,300
10/11/96 3.75 2.75 2.75 38,800 08/15/97 2.625 1.5 2.5 346,200
10/18/96 3.5 2.6875 2.9375 137,700 08/22/97 3.125 1.1 3.0625 3,516,600
10/25/96 3.25 2.75 2.875 17,400 08/29/97 4.9375 3 3.5625 1,743,700
11/01/96 2.75 1.5 1.875 165,900 09/05/97 4.25 3.5 3.81 220,200
</TABLE>
20
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The following summary of certain financial information relating to the Company
for each of the three years in the period ended December 31, 1996 have been
derived from the financial statements of the Company. Such information should be
read in conjunction with the financial statements and notes thereto included
elsewhere in this report.
<TABLE>
<CAPTION>
May 23, January 1,
Year Ended 1995 to 1995 to Year Ended December 31
December 31, December 31, May 22, -----------------------------------
1996 1995 1995 1994 1993 * 1992 *
------------ ----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 2,901,454 1,408,459 1,241,814 $5,714,619 6,090,159 $8,503,278
Net Income (Loss) (5,357,968) (2,123,814)(1)4,839,456 (2,233,829) (3,717,909) (3,662,995)
Net Income (Loss) (0.95) (0.42) 0.77 (0.35) (0.58) (0.68)
per share
Weighted Average 5,619,668 5,000,000 6,312,112 6,312,112 6,360,579 5,350,527
shares
outstanding(2)
Total Assets 3,195,082 5,796,468 1,714,844 2,143,821 4,511,304 10,634,418
Long-term Debt 282,599 866,516 -- -- 3,872,200 6,708,844
and Capital Lease
obligations
Liabilities subject to -- -- 7,564,469 7,929,852 -- --
Compromise
Shareholders' (2,089,928) 686,214 (7,404,460) (6,643,063) (4,409,234) (1,398,391)
equity (deficit)
Working Capital (1,728,843) (610,247) (99,108) 959,994 (1,823,426) 1,759,167
(Deficit)
Current Ratio 0.43 0.66 0.93 2.12 -- 1.33
</TABLE>
* Derived from unaudited financial statements
[The remainder of this page left blank intentionally.]
- --------
(1) Includes extraordinary gain of $5,768,405
(2) Common stock equivalents and convertible issues are anti-dilutive and
therefore not included in weighted average shares outstanding in the
years when the Company incurred losses.
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10-K Annual Report may include "forward-looking statements". Any
statements regarding the Company's strategies, plans, objectives and
expectations, and those of Acculase, Inc.'s and with regard to the Acculase
Laser and Laser Delivery System, may be considered forward-looking statements.
Although the Company believes that any expectations reflected in any such
statements are reasonable at this time, it can give no assurance that such
expectations will prove to have been correct, and actual results may differ
materially from the Company's expectations.
The following discussion and analysis should be read in conjunction with the
Selected Financial Data included in Item 6 hereto and to the Consolidated
Financial Statements and related Notes included in Item 8 hereto.
FINANCIAL CONDITION
Basis for Preparation of Financial Statements
The accompanying consolidated financial statements have been prepared on
a going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business and, where
applicable, in conformity with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code," issued in November
1990, by the American Institute of Certified Public Accountants ("SOP 90-7").
Under the provisions of SOP 90-7, the Company was required to adopt
fresh start reporting as of May 23, 1995 since the reorganization value
(approximate fair value at the date of reorganization) was less than the total
of all postpetition liabilities and allowed claims, and holders of existing
voting shares before the Effective Date received less than 50% of the voting
shares of the emerging entity. Accordingly, the statement of operations for the
period ended May 22, 1995 reflects the effects of the forgiveness of debt
resulting from the confirmation of the Plan and the effects of the adjustments
to restate assets and liabilities to reflect the reorganization value.
In addition, the accumulated deficit of the Company was eliminated and
its capital structure was recast in conformity with the approved Plan. As such,
the consolidated financial statements of the Company as of December 31, 1995 and
1996 and for the period from May 23, 1995 to December 31, 1995, and from January
1, 1996 to December 31, 1996, represent that of the Successor Company which, in
effect, is a new entity for financial reporting purposes with assets,
liabilities, and a capital structure having carrying values not comparable with
prior periods. The consolidated balance sheet as of December 31, 1994 and the
accompanying consolidated financial statements for the period from January 1,
1995 to May 22, 1995 and the year ended December 31, 1994 represent that of the
Predecessor Company.
OUTLOOK FOR 1997
The Company's business areas continue to improve operationally. In the
medical market, the Company signed a contract in July 1996 for ruby lasers for
dermatology applications valued at $1.5 million over the next twelve months.
Upgrades and redesigns of the ruby product were completed in September, 1997.
The Company expects shipment of the ruby laser to expand in the fourth quarter
with the Company's OEM customer anticipating FDA approval for hair removal.
The Company's Analytics Subsidiary in Andover, MA has a substantial
backlog approaching $1.0 million as of December 31, 1996. In the third quarter
of 1996, the Company received an initial order from a Japanese association of
electronics manufacturers subsidized by MITI (Ministry of International Trade
and Industry) for development of a diode laser based system for semiconductor
process monitoring. The goal of the program is to develop a plasma based etching
process on the level of 0.15 micron resolution. The
22
<PAGE> 23
Company's diode laser system is used to measure, analyze and control the plasma
reaction. These systems were installed in the first quarter of 1997. Following
beta site testing, additional orders from this customer are expected in late
1997 or early 1998.
The remainder of this discussion as to operational improvements and cash
needs pertains to the Company's scientific and medical divisions only and is
exclusive of AccuLase.
The Company has taken steps to alleviate the cash flow problems
including financing through a factor. For the remainder of 1997, the Company
expects to generate additional capital through the sale of additional securities
or through the sale of one or more of the Company's operations. Management is
optimistic that through one or more of these sources, capital will be provided
to acquire the inventory needed to reduce the backlog of sales and generate
cash.
Given the current backlog, the new orders pending and the current
booking rate, and assuming cash constraints are removed, the Company's
scientific and medical divisions, exclusive of AccuLase, could show an operating
profit in the third and fourth quarters of 1997. Based on the Company's current
budget, the Company can break even with yearly sales of approximately $4
million. The combination of a strong backlog, reduced costs, and tighter
controls should have a positive impact on the Company's potential profitability.
RESULTS OF OPERATIONS
Although results of operations are given for 1996, 1995 and 1994, the results of
operations in 1995 are not comparable to those of 1994 and prior years due to
the Company's adoption of fresh start reporting and the inclusion of AccuLase.
The following table sets forth, for the periods indicated, certain selected
financial information as a percentage of total sales:
<TABLE>
<CAPTION>
% % %
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Sales 100 100 100
Cost of Sales 80 94 79
Gross Profit 20 6 21
Selling, general and 40 48 25
administrative expenses
Research and development 29 36 8
expenses
Write-off of Related Party Receivable 23 -- --
Write-off of reorganization 51 -- --
goodwill
Depreciation and Amortization 42 28 --
Income (Loss) from operations (166) (105) (17)
Other Income (5) 2 (15)
Interest Expense (14) (12) (7)
Extraordinary Income -- 218 --
Net Income (Loss) (185) 103 (39)
</TABLE>
Operating income reflects for 1996 a loss on a consolidated basis. Operating
expenses include three substantial items, the write-off of $662,775 intercompany
loan, the write-off of reorganization goodwill of $1,486,823 and depreciation
and amortization of $1,214,876, $712,887 of which is attributed to Acculase.
Remaining SG&A expenses of $1,158,841 are LPI alone.
23
<PAGE> 24
YEAR ENDED DECEMBER 31, 1996
The results of operations in 1996 are not compared herein to those of
1995 or prior years due to the Company's adoption of fresh start accounting and
the acquisition of AccuLase in 1995.
The company had cash flow problems throughout the entire year. This
resulted in the inability to purchase inventory and therefore consummate sales.
At year-end there was a sales backlog of $1,200,000 of which approximately
$700,000 could have been sold during 1996. The cash flow problems directly
resulted in a revenue reduction.
Many improvements were initiated during 1995 and continued into 1996 as
to reduced staffing, product selection, cost controls, budgets, planning, etc.
Management believes the financials have not yet fully reflected these
accomplishments, but will do so in the future.
In addition, the Company acquired AccuLase, Inc. as a part of the Plan
of Reorganization. This acquisition is in a start-up phase. AccuLase has begun
clinical trials. As a result, AccuLase generates no revenues and has a
substantial impact on the financials. AccuLase' operations are highlighted
separately.
During the twelve months ended December 31, 1996, the Company recorded a
net operating loss of ($4,802,153). As mentioned previously, severe cash flow
limitations affected the Company's ability to purchase parts and also affected
the cost of parts as quantity discounts could not be realized. Cost of sales was
therefore affected accordingly.
Sales for the year were $2,901,454 which was due to LPI and LAI as
AccuLase did not generate revenues. and resulted in a gross margin of $572,155
for LPI only.
Selling, General and Administration costs totaled $1,158,841, all of
which are expensed to LPI alone. Other operating expenses for 1996 included one
time charges of $662,755 of intercompany write-off, and $1,486,823 of
reorganization goodwill write-off. Depreciation and amortization of $1,214,876
includes $712,887 attributed to Acculase. The Company implemented improvements
in medical costs, staffing and rent expense which will be fully realized in
1997. This benefit will be allocated to all departments on a basis consistent
with prior allocation policy.
Research and Development totaled $851,000 including $560,258 for
Acculase. The Company's R&D policy during 1996 was to focus on reducing existing
product's costs and on product improvement. Due to cash limitations, no new
product development was undertaken although several new versions of existing
products were developed for OEM applications.
As previously mentioned, on May 23, 1995, Laser Photonics acquired
AccuLase. Since AccuLase was acquired during 1995, there is not any comparable
data. The AccuLase Profit & Loss for 1996 included in Laser Photonics
consolidation is as indicated:
<TABLE>
<S> <C>
Revenue 0
Cost of Sales 0
-
Gross Margin 0
Depreciation and Amortization 712,887
Research and Development 560,258
Interest Expense 177,697
Net Income (Loss) (1,450,842)
</TABLE>
24
<PAGE> 25
YEAR ENDED DECEMBER 31, 1995
The results of operations in 1995 are not compared herein to those of
1994 or prior years due to the Company's adoption of fresh start accounting.
The company had cash flow problems throughout the entire year, both
before and after its Chapter 11 reorganization. This resulted in the inability
to purchase inventory and therefore consummate sales. At year-end there was a
sales backlog of $708,435 of which approximately $375,000 could have been sold
during 1995. The cash flow problems directly resulted in a revenue reduction.
Many improvements were initiated during 1995 as to reduced staffing,
product selection, cost controls, budgets, planning, etc. Management believes
the financials have not yet reflected these accomplishments, but will do so in
the future.
In addition, the Company acquired AccuLase, Inc. as a part of the Plan
of Reorganization. This acquisition is in a start-up phase. AccuLase is awaiting
FDA approval to begin clinical trials. As a result, AccuLase generates no
revenues and has a substantial impact on the financials. AccuLase' operations
are highlighted separately.
During the twelve months ended December 31, 1995, the company recorded a
loss before extraordinary item of ($3,052,763) exclusive of the gain from
reorganization of $5,768,405. As mentioned previously, severe cash flow
limitations affected the Company's ability to purchase parts and also affected
the cost of parts as quantity discounts could not be realized. Cost of sales was
therefore affected accordingly.
Sales for the year were $1,241,814 prior to confirmation and $1,408,459
post-confirmation and resulted in a gross margin of $161,559 including the
AccuLase loss of ($30,174).
Selling, General and Administration costs totaled $1,262,870, of which
none related to AccuLase. The Company maintained its position with regards to
SG&A expenses but implemented improvements in medical costs, and rent expense
which will be fully realized in 1996. This benefit will be allocated to all
departments on a basis consistent with prior allocation policy.
Research and Development totaled $942,232. The Company's R&D policy
during 1995 was to focus on reducing existing product's costs and on product
improvement. Due to cash limitations, no new product development was undertaken.
As previously mentioned, on May 23, 1995, Laser Photonics acquired
AccuLase. Since AccuLase was acquired during 1995, there is not any comparable
data. The AccuLase Profit & Loss included in Laser Photonics consolidation is as
indicated:
<TABLE>
<S> <C>
Revenue 0
Cost of Sales 30,174
------
Gross Margin (30,174)
Depreciation and Amortization 412,238
Research and Development 299,131
Interest Expense 105,942
Net Income (Loss) (847,485)
</TABLE>
25
<PAGE> 26
YEAR ENDED DECEMBER 31, 1994 COMPARED TO DECEMBER 31,1993
During the twelve months ended December 31, 1994, the Company recorded a
net loss of $2,233,829 as compared to a net loss of $3,717,909 for the same
period in 1993. A significant decrease in selling, general and administrative
expenses ($2,005,748) as well as decreases in the level of expenditures for
research and development programs ($753,369), accounted for the reduction in
loss, period to period.
Sales for the year ended December 31, 1994 were $5,714,619 or $375,740
less than the same period in 1993. Medical sales declined by approximately
$655,828 when compared to 1993 due to a softening in the medical market and the
loss of the Company's distribution contract with Surgilase, Inc.
Sales of the Company's scientific products decreased by $11,146 for the
year ended December 31, 1994 to $3,807,867.
Gross profit increased by $1,844,774 from ($665,454) in 1993 to
$1,179,320 in 1994.
Selling, general and administrative expenses decreased by $2,005,748, as
a result of reduced general and administrative personnel, and reduced
advertising, travel and commission expenses.
Research and development expenses decreased by $753,369 to $477,404 for
the year ended December 31, 1994. This decrease was the direct result of reduced
development expenditures as the Company changed its engineering focus to
concentrate on existing product improvement and cost reduction.
Interest expense decreased in 1994 by 59% or $581,617 to $406,673, as
compared to $988,290 for 1993. This decrease was primarily due to termination of
the Orlando facility lease as the Company was not in a position to exercise its
purchase option.
LIQUIDITY AND CAPITAL RESOURCES - 1996
As Of December 31, 1996, cash decreased by $61,086, and working capital
decreased by $1,118,596. As previously stated this was due to acquisition of
AccuLase current liabilities, AccuLase intercompany obligations to Helionetics,
convertible debt (converted to stock in 1996) and an additional inventory
reserve as well as long-term debt being classified as short-term.
Laser Photonics (and AccuLase) net loss totaled $5,357,968 of which
$1,450,842 is attributed to AccuLase.
Net accounts receivable at year end was $383,435. The Company has
experienced very little difficulty with collections and feels that an improved
collection effort has helped keep accounts receivable at a low level. The
Company currently factors receivables
Net Fixed Assets were $294,842 of which $139,730 is attributed solely to
the AccuLase acquisition.
Current liabilities at year end were $3,011,011. This consists of the
inclusion of AccuLase short term liabilities, conversion of long term debt to
short term debt and high current liabilities due to the cash flow shortage
previously mentioned.
Long term debt was $282,559 . This is primarily due to the Internal
Revenue Service debt, and other priority debts post confirmation and inability
to pay debts resulting in reclassification of long-term debt to short-term..
The Company's plan to resolve its immediate cash needs is through the
sale of additional securities
26
<PAGE> 27
and possible through the sale of one or more of the Company's operating units.
Discussions are proceeding with several potential investors interested in one or
more of the Company's operating units. Management is optimistic that through one
or more of these sources, capital will be provided to acquire the inventory
needed to reduce the backlog of sales and generate cash. The Company's Acculase
subsidiary is receiving capital infusion from its sale of licensing rights to
Baxter, and expects to realize further revenues through the sale of lasers to
Baxter.
LIQUIDITY AND CAPITAL RESOURCES - 1995
As of December 31, 1995, cash increased by $11,749, and working capital
decreased by $2,798,211. As previously stated this was due to acquisition of
AccuLase current liabilities, AccuLase intercompany obligations to Helionetics,
convertible debt (converted to stock in 1996) and an additional inventory
reserve. In addition, the unsecured debt prepetition was previously treated as
long term debt.
Laser Photonics (and AccuLase) operating loss totaled $2,782,453 of
which $847,485 is attributed to AccuLase. The Laser Photonics operating loss
increased by only $268,778, even though gross revenue reduced by $3,064,346.
Accounts receivable at year end was $256,369. The Company has
experienced very little difficulty with collections and feels that an improved
collection effort has helped keep accounts receivable at a low level.
Net Fixed Assets were $537,122 of which $324,001 is attributed solely to
the AccuLase acquisition.
Current liabilities at year end were $1,808,126. This consists of the
inclusion of AccuLase short term liabilities and the intercompany debt to
Helionetics, conversion of long term debt to short term debt and high current
liabilities due to the cash flow shortage previously mentioned.
Long term debt was $866,516 . This is primarily due to the Internal
Revenue Service debt, and other priority debts post confirmation.
The Company's plan to resolve its immediate cash needs includes accounts
receivable and inventory financing, perhaps further loans from Helionetics, Inc.
and perhaps the sale of additional securities, and/or the exercise of
outstanding stock warrants. Management is optimistic that through one or more of
these sources, capital will be provided to acquire the inventory needed to
reduce the backlog of sales and generate cash.
The Company needs to consider long term cash needs due to further
product enhancement and FDA clinical trials within the Acculase subsidiary. This
will have to be resolved through the sale of stock in a secondary offering,
joint development with an outside partner or further investment by Helionetics,
Inc. Helionetics is obligated by the Plan of Reorganization to fund Acculase
through May, 1997.
INFLATION
The Company does not believe that inflation will have a material impact
on its future operations.
SEASONALITY
The Company's operations are not impacted by seasonality.
27
<PAGE> 28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not conduct business in other than U.S. currency, and
does not hold market risk sensitive instruments for trading or other purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Part II, Item 8, is submitted as a separate section of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective February 16, 1996, the Board of Directors of the Company
decided to change the Company's independent accountant. The independent
accountant who was previously engaged as the principal accountant to audit the
Company's financial statements was Corbin & Wertz Certified Public Accountants.
The report of Corbin & Wertz covering the Company's 1994 consolidated financial
statements contained a going concern qualification. Other than the foregoing,
the report on the financial statements of the Company for fiscal 1994 did not
contain any adverse opinion or disclaimer of opinion, or was not qualified or
modified as to uncertainty, audit scope, or accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
The Company retained the accounting firm of Hein + Associates, LLP, to
serve as the Company's principal accountant to audit the Company's financial
statements. This engagement was effective March 6, 1996. Prior to its engagement
as the Company's principal independent accountant, Hein + Associates, LLP had
not been consulted by the Company either with respect to the application of
accounting principles to a specified transaction or the type of audit opinion
that might be rendered on the Company's financial statements or on any matter
which was the subject of any prior disagreement between the Company and its
previous certifying accountant.
28
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and certain
information regarding them are as follows:
<TABLE>
<CAPTION>
Year
Became
Name Age Director Position
- ---- --- -------- --------
<S> <C> <C> <C>
Bernard 65 1995 Director, Chairman
B. Katz(1) of the Board,
E. Maxwell 60 1995 Director
Malone
Chaim 52 1995 Director and Chief
Markheim Financial Officer
Steven 41 1995 Director, President
Qualls and Chief
Executive Officer
</TABLE>
(1)Mr. Katz resigned as Chairman of the Board and as a Director of Laser
Photonics, Inc., and as a Director of Acculase, Inc. on October 9, 1997.
Each of the Company's directors has been elected or appointed to serve
until the next annual meeting of stockholders and until his respective successor
has been elected and qualified. The Company's executive officers are elected at
each annual meeting of the Board of Directors. There are no family relationships
between any directors or any directors or executive officers.
BERNARD B. KATZ was appointed to the Board of Directors of the Company
pursuant to the Plan of Reorganization. Mr. Katz resigned as Chief Executive
Officer of the Company effective January 15, 1996. Mr. Katz is a Director of
Helionetics, Inc., and has served as Chairman of its Board of Directors for more
than the last five years. He is also the spouse of Susan E. Barnes, a principal
shareholder of Helionetics, Inc. Mr. Katz received a Certificate of Industrial
Management from Wayne State University. He also received a Certificate of
Executive Management, from the Graduate School of Business at UCLA, in Los
Angeles, California.
E. MAXWELL MALONE was appointed to the Board of Directors of the Company
pursuant to the Plan of Reorganization. Mr. Malone has been a director of
Helionetics, Inc. and has served as its Chief Executive Officer for more than
the last five years. Mr. Malone holds a degree in Mathematics and a Masters
Degree in Mathematical Economics from Southern Illinois University.
CHAIM MARKHEIM was appointed to the Board of Directors of the Company
pursuant to the Plan of Reorganization. Mr. Markheim is a director of
Helionetics, Inc. and has served as Helionetics' Chief Operating Officer since
May, 1992. Mr. Markheim acted as business consultant to a diversified group of
small corporations, including Definicon and Helionetics, from 1986 to 1992. Mr.
Markheim is a Certified Public Accountant in the State of California. Mr.
Markheim holds a Bachelor of Science Degree in Accounting from California State
University, at Northridge.
STEVEN QUALLS was appointed to the Board of Directors of the Company
pursuant to the Plan of Reorganization. Mr. Qualls has been an employee of the
Company since 1987. He has served as General Manager since 1993. He has served
as a director and Chief Operating Officer since May 1995 and as President and
Chief Executive Officer since January 15, 1996. Mr. Qualls previously served as
Director of
29
<PAGE> 30
Corporate Development, and Scientific Sales Manager for the Company. Mr. Qualls
holds an MBA from the Crummer Graduate School of Business at Rollins College in
Winter Park, Florida, and received a BS in Physics from the University of
Central Florida.
OTHER INFORMATION
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
of the Company. The Company was in a Chapter 11 Reorganization proceeding during
1994, and as a result the Company received no filing of such forms. In June,
1996, the Company received an initial report from Helionetics, Inc., its then
majority shareholder. The Company has received no other reports.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth the annual compensation paid and accrued
by the Company during its last three fiscal years to the executive officers to
whom it paid in excess of $100,000, including cash and issuance of securities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION(1)
Annual Compensation Awards Payouts
------------------------------- ----------------- ------------------
Securities
Name Annual Restricted Underlying Other
and Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven Qualls 1996 75,000 60,000
Pres. & CEO
Paul Cattermole
Pres. & CEO 1994 104,769 -0- 104,769 -0- -0- -0- -0-
1995 None
</TABLE>
30
<PAGE> 31
SUMMARY COMPENSATION TABLE(1)
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
At Assumed Annual Alternative
Rates of Stock Price to (f) and (g):
Appreciation Grant Date
Individual Grants for Option Term Value
- -----------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (f)
Number of % of
Securities Total
Under- Options/
lying SARs
Options/ Granted to Exercise Grant
SARs Employees or Base Date
Granted in Fiscal Price Expiration Present
Name (#) Year ($/Sh) Date 5% ($) 10%($) Value $
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven Qualls 60,000 14% 1.50 1/2/06 56,000 143,100
Chaim
Markheim 50,000 11% 1.50 1/2/06 47,167 119,250
</TABLE>
(1) After recognition of the effect of Confirmation of Registrant's Plan of
Reorganization.
No stock options were exercised by any executive officer during the Company's
1996 fiscal year.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Steven Qualls 1996 75,000 -0- -0-
Pres. & CEO
Paul Cattermole 1994 104,769 -0- -0-
Pres. & CEO 1995 n/a n/a n/a
</TABLE>
The Company also reimburses all travel, entertainment and auto expenses of the
executive officers incurred in connection with activities of the Company.
There are no standard arrangements for compensating Directors, and Directors
were not compensated for serving as Directors in 1996.
There are no employment contracts in existence between the Company and its
officers or Directors.
31
<PAGE> 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership as of September 2, 1997, of the Company's common stock, by any person
who is known to the Company to be the beneficial owner of more than 5% of the
Company's voting securities and by each director, by executive officers, and by
officers and directors of the Company as group, on the basis that all securities
provided to be issued under the Company's Plan of Reorganization, confirmed on
May 22, 1995, have been issued.
<TABLE>
<CAPTION>
NAME AND NUMBER OF PERCENTAGE
ADDRESS SHARES OF CLASS
- ------- ---------- --------
<S> <C> <C>
Bernard B. Katz (1)(3) 175,000(2) 2.79
6849 Hayvenhurst
Van Nuys, CA 91406
E. Maxwell Malone (1) 5,000 0.08
2701 Junipero Street
Signal Hill, CA 90806
Chaim Markheim (1) 5,000 0.08
6865 Flanders Drive, Ste G
San Diego, CA 92121
Steven Qualls 10,666 0.17
12351 Research Parkway
Orlando, FL 32826
Helionetics, Inc.(1) 1,750,000 27.93
6849 Hayvenhurst
Van Nuys, California
91406
Platinum Partners, L.P., 600,000 9.21
Hori Capital Management, Inc.
and Calvin G. Hori
One Washington Mall
Boston, MA 02108
</TABLE>
(1) Messrs. Bernard B. Katz, E. Maxwell Malone, and Chaim Markheim are Directors
of the Company, and are also three of the five Directors of Helionetics, Inc.,
formerly the Company's principal shareholder.
(2) These shares are held by Susan Barnes, the wife of Bernard B. Katz, as her
sole and separate property, and Ms. Barnes specifically disclaims any affiliate
status, voting arrangement, or understanding with Mr. Katz with respect to these
shares.
(3) Mr. Katz resigned from the Board of Directors and as Chairman of Laser
Photonics, Inc., and as a Director of Acculase, Inc. on October 9, 1997.
32
<PAGE> 33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. Officers and Directors Relationships
Bernard Katz, Chairman of the Board of Directors of the Company, is also
Chairman of the Board of Directors of Helionetics, Inc., formerly the Company's
majority shareholder, and currently its principal shareholder. E. Maxwell Malone
and Chaim Markheim, Directors and Officers of the company, are Chief Executive
Officer and Chief Operating Officer, respectively, as well as Directors, of
Helionetics, Inc. Helionetics, Inc. is currently operating inside a Chapter 11
reorganization proceeding, as debtor-in-possession.
2. Conversion of Convertible Debt.
In 1995, the Company sold an aggregate of $600,000 in six month
convertible, secured Notes in a private transactions to offshore corporations.
As additional consideration, Laser Photonics issued transferable 5 year
Warrants attached to the Notes, for an aggregate of 500,000 shares of Laser
Photonics common stock, exercisable at an exercise price of $0.625 per share,
with antidilution protection, callable in whole or in part at the option of the
Company at $0.01 per Warrant. These warrants expired in 1995 due to the
Company's meeting of certain filing requirements. The Noteholders were also
granted a transferable one year option to purchase 134,000 additional shares at
$2.25 per share, 134,000 shares at $3.00 per share, and 137,000 shares at $3.75
per share, to be delivered either by Laser Photonics, or by Helionetics at its
option.
On February 1, 1996, the notes, representing the principal of said note
and accrued interest thereon, were converted into an aggregate 538,583 shares of
the Company's Common Stock at a conversion price of $0.96 per share, which
shares were issued to the Noteholders pursuant to exemption from registration
under the Securities Act of 1933. At the same time, an additional 30,000 shares
were issued for payment of past due consulting services valued at $60,000.
3. Key Man Option Plan
On January 2, 1996, the Company adopted The Laser Photonics, Inc. 1995
Non Qualified Option Plan for key employees, officers, directors and
consultants, and provided for up to 500,000 options to be issued thereunder. The
option exercise price is not less than 100 percent of market value on the date
granted, 40% of granted Options vest immediately, and may be exercised
immediately; 30% vest and may be exercised beginning 12 months after grant; and
the remaining 30% vest and may be exercised beginning 24 months from Grant.
No options may be exercised more than ten years after grant, options are
not transferable (other than at death), and in the event of complete termination
"For Cause" (other than death or disability) or ""Voluntary" termination, all
"unvested" options automatically terminate.
On January 2, 1996, a total of 335,000 options were issued at an option
exercise price of $1.50 per share to directors and to certain key employees and
consultants.
On July 1, 1997, a total of 108,500 Options were issued at an option
price of $1.00 per share to certain key officers, directors, employees and
consultants.
33
<PAGE> 34
The following chart outlines the options granted to certain officers aid
directors, and key employees as a group, and outstanding at September 2, 1997:
<TABLE>
<CAPTION>
Options
Options Exercised Exercise Date
Granted as of 9/2/97 Price Granted
------- ------------ ----- -------
<S> <C> <C> <C> <C>
Bernard B. Katz, Director 50,000 0 $1.50 February 1, 1996
Chairman of the Board
E. Maxwell Malone, 50,000 0 $1.50 February 1, 1996
Director
Chaim Markheim, CFO 50,000 0 $1.50 February 1, 1996
Steven Qualls, CEO 60,000 0 $1.50 February 1, 1996
Ray Hartman, President 60,000 0 $1.50 February 1, 1996
of Acculase
Key Employees and 65,000 0 $1.50 February 1, 1996
Consultants
Key Employees and 108,500 0 $1.00 July 1, 1997
Consultants
</TABLE>
4. Issuance of Shares to Possible Affiliates.
On February 14, 1996, the Company issued privately, 25,000 shares of the
Company's Common Stock to Susan E. Barnes. Ms. Barnes is the wife of Bernard B.
Katz, (Director and Chairman of the Board of Laser Photonics, Inc. and
Helionetics, Inc.), and is a principal shareholder of Helionetics. The shares
were issued to Ms. Barnes in consideration for her personal guaranty of $81,000
in lease obligations associated with the Company's Andover facility lease. On
October 16, 1996, an additional 100,000 shares of the Company's Common Stock
were privately issued to Susan E. Barnes in connection with her further personal
guaranty of the Andover lease and lease extension, after the lease went into
default and the landlord was threatening immediate eviction. This second
personal guaranty was secured by a pledge of 391,360 shares of her personally
owned Helionetics, Inc. Common Stock. On February 14, 1996, the Company agreed
to issue to Susan E. Barnes, 50,000 shares of the Company's Common Stock for
services she arranged to provide in connection with raising $1.5 million to
finance the Company's emergence from Chapter 11, at a value of $1.00 per share.
Ms. Barnes may be deemed an "affiliate" of the Company, but disclaims the status
of an "affiliate".
5. Issuance of Shares to Key Employees and Consultants
During fiscal 1996, the Company issued 52,500 shares in exempt
transactions to key employees and consultants for services rendered. The Company
recognized aggregate consideration of $78,750 on its books and records in the
form of services rendered, in exchange for an issuance of these shares. Included
were issuances to officers and directors for services rendered as follows:
<TABLE>
<S> <C>
Steven Qualls 10,000 shares
Chaim Markheim 5,000 shares
E. Maxwell Malone 5,000 shares
</TABLE>
SUBSEQUENT EVENTS
1. During the second quarter of fiscal 1997, a total of 75,000 shares of Laser
Photonics, Inc. Common Stock were privately issued to key employees and outside
consultants to Acculase, Inc., for services rendered. In addition, options to
acquire 250,000 shares of Laser Photonics, Inc. Common Stock at an exercise
price of $0.50 per share and having a five year term, were issued, contingent
upon certain
34
<PAGE> 35
performance contingencies in the future, to Raymond Hartman, the President of
Acculase, Inc.
2. In September of 1997, the Company privately sold a total of 579,500
restricted shares of its common stock in a private placement to 20 accredited
investors at a price of $1.25 per share. These funds were used in part to pay
outside auditors in order to complete the Company's audit, to make a partial
payment on delinquent Federal and State taxes outstanding, and to make payments
on other outstanding bills.
3. Private Issuance of Shares for Acculase Debt
In September of 1997, Pennsylvania Merchant Group, Ltd. ("PMG"),
purchased from Helionetics, Inc., with approval of the Federal Bankruptcy Court
in the pending Helionetics Chapter 11 Bankruptcy proceeding, all Acculase debt
owed by Acculase to Helionetics, Inc., including a $1,991,440 secured claim as
of December 31 1996 (hereinafter the "Acculase Claims"), for a purchase price of
one million dollars.
PMG has now offered to sell the purchased debt to Laser Photonics, Inc.,
in consideration for 800,000 shares of Laser Photonics, Inc. Common Stock, to be
issued privately to PMG or its designees. The Board of Directors of the Company
has approved this transaction, and it is now in the process of being
consummated.
4. On October 9, 1997, in satisfaction of all compensation owed by the Company
to K.B. Equities, Inc. for the consulting services provided through K.B.
Equities, Inc. and rendered by Bernard B. Katz to the Company in 1997, the Board
of Directors granted 100,000 options to acquire 100,000 shares of Laser
Photonics, Inc. Common Stock to K.B. Equities, Inc., at an exercise price of
$0.75 per share, and having a term of seven years. K.B. Equities, Inc. is owned
100% by Susan Barnes, the wife of Bernard Katz. Mr. Katz resigned from the Board
of Directors of Laser Photonics, Inc. and Acculase, Inc. on October 9, 1997. The
Board does not anticipate utilizing the consulting services through K.B.
Equities, Inc. in the future.
[The remainder of this page left blank intentionally.]
35
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) List of Financial Statements
The following financial statements of Laser Photonics, Inc. are
included in Item 8:
Balance Sheets at December 31, 1996 and 1995.
Statement of Operations - for the year ended December 31, 1996,
the period from May 23, 1995 through December 31, 1995, the
period from January 1, 1995 through May 22, 1995 and for the year
ended December 31, 1994.
Statements of Shareholders' Equity (Deficit) - for the year ended
December 31, 1996, the period from May 23, 1995 through December
31, 1995, the period from January 1, 1995 through May 22, 1995
and for the year ended December 31, 1994.
Statements of Cash Flows - for the year ended December 31, 1996,
the period from May 23, 1995 through December 31, 1995, the
period from January 1, 1995 through May 22, 1995, and for the
year ended December 31, 1994.
Notes to Financial Statements.
(2) The following schedule for the years 1996, 1995 and 1994 are
submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
The financial statements and financial statement schedules are filed as a
separate section to this Form 10-K.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(3)(i) Articles of Incorporation, as Amended*
(3)(ii)Bylaws *
10.1 Lease Agreement Andover Plant *
10.2 Lease Agreement Orlando Plant *
10.3 Lease Agreement, Acculase San Diego Facility *
10.4 Patent License Agreement between Company and Patlex Corporation *
10.5 Agreements between Acculase and Baxter Healthcare Corporation:
These Agreements have been filed separately with the Secretary
of the SEC under seal, with a request that the Agreements be
given "Confidential Treatment".
21. List of Subsidiaries of Registrant
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Laser Analytics 10 Upton Drive
Wilmington, MA 01887
Acculase, Inc. 6865 Flanders Drive, Suite G
San Diego, CA 92121
</TABLE>
27. Financial Data Schedule
36
<PAGE> 37
99(i) Registrant's Third Amended Plan of Reorganization *
99(ii) Order Confirming Registrant's Third Amended Plan of
Reorganization, as modified *
99(iii) Letter of March 22, 1995 from Coopers & Lybrand, directed to
Laser Photonics, Inc. *
* Incorporated by reference to Exhibits filed with Form 10-K for the
Registrant's 1994 or 1995 fiscal year.
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.
LASER PHOTONICS, INC.
By /s/ STEVEN A. QUALLS
-----------------------------
Steven A. Qualls
Chief Executive Officer
Date: October 10, 1997
37
<PAGE> 38
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Chief Financial Officer
Director
/s/ Chaim Markheim
- ----------------------
Chaim Markheim October 10, 1997
President and
Chief Executive Officer
/s/ Steven Qualls Director
- ----------------------
Steven Qualls October 10, 1997
/s/ E. Maxwell Malone Director October 10, 1997
- ----------------------
E. Maxwell Malone
Controller
/s/ Robert Gibson Principal Accounting Officer
- ----------------------
Robert Gibson October 10, 1997
</TABLE>
38
<PAGE> 39
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<PAGE> 40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT- HEIN + ASSOCIATES LLP....................................................F-2
INDEPENDENT AUDITOR'S REPORT - Corbin & Wertz..........................................................F-3
CONSOLIDATED BALANCE SHEETS - December 31, 1996 and 1995...............................................F-4
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Year ended December 31, 1996,
the Period from May 23, 1995 through December 31, 1995, the Period
from January 1, 1995 through May 22, 1995 and for
the year ended December 31, 1994...........................................................F-5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - For the Year ended
December 31, 1996, the Period from May 23, 1995 through December 31,
1995, the Period from January 1, 1995 through May 22, 1995 and for
the year ended December 31, 1994...........................................................F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Year ended December 31, 1996,
the Period from May 23, 1995 through December 31, 1995, the Period
from January 1, 1995 through May 22, 1995 and for
the year ended December 31, 1994...........................................................F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................................................F-9
</TABLE>
F-1
<PAGE> 41
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Laser Photonics, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Laser Photonics,
Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the year ended December 31, 1996, and the periods from May
23, 1995 through December 31, 1995, and January 1, 1995 through May 22, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Laser Photonics, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the year ended December 31, 1996, and the
periods from May 23, 1995 through December 31, 1995, and January 1, 1995 through
May 22, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1, on May 22, 1995, the U.S. Bankruptcy Court entered an
order confirming the Company's Plan of Reorganization. Accordingly, the
accompanying consolidated financial statements have been prepared in conformity
with AICPA Statement of Position 90-7, "Financial Reporting for Entities in
Reorganization under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities, and a capital structure having carrying values
not comparable with prior periods.
Our audits referred to above include audits of the financial statement schedule
listed under Item 14(a)(2) of Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, in relation to the financial
statements taken as a whole, the information required to be stated therein.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
September 5, 1997, except for the second to the last paragraph of Note 12 which
is as of September 23, 1997 and the last paragraph of Note 12 which is as of
September 30, 1997.
F-2
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Laser Photonics, Inc. and Subsidiary
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows of Laser Photonics, Inc. and
subsidiary (the "Company") (as a debtor-in-possession pending approval for
reorganization under Chapter 11 of the U.S. Bankruptcy Code as of May 13, 1994 -
see Note 1) for the year ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the operations and cash flows of Laser
Photonics, Inc. and subsidiary for the year ended December 31, 1994 in
conformity with generally accepted accounting principles.
We have also audited Schedule II for the year ended December 31, 1994. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Laser Photonics, Inc. and subsidiary will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company filed
a voluntary petition for protection under Chapter 11 of Title 11 of the U.S.
Bankruptcy Code on May 13, 1994. The Plan was confirmed on May 12, 1995. The
Company has lost several significant customers and its operations do not
generate sufficient cash flow to meet its anticipated future obligations. These
uncertainties raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans concerning 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.
Irvine, California
July 31, 1995
F-3
<PAGE> 43
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ -- $ 61,086
Accounts receivable, net of allowance for doubtful accounts of
$100,000 in 1996 and 1995 383,435 256,369
Inventories 891,011 855,864
Prepaid expenses and other assets 7,722 24,560
----------- -----------
Total current assets 1,282,168 1,197,879
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$389,382 and $162,892 in 1996 and 1995, respectively 294,842 537,122
PATENT COSTS, net of accumulated amortization of $15,612 and
$7,259 in 1996 and 1995, respectively 67,260 75,613
EXCESSOF COST OVER NET ASSETS OF ACQUIRED COMPANIES, net of accumulated
amortization of $822,830 and $303,148 in 1996 and
1995, respectively 1,515,739 2,035,421
REORGANIZATION GOODWILL, net of accumulated amortization
of $2,137,025 and $222,600 in 1996 and 1995, respectively -- 1,914,425
OTHER ASSETS 35,073 36,008
----------- -----------
TOTAL ASSETS $ 3,195,082 $ 5,796,468
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable - current portion $ 696,453 $ 97,191
Accounts payable 698,286 680,456
Accrued payroll and related expenses 670,481 352,558
Other accrued liabilities 945,791 677,921
----------- -----------
Total current liabilities 3,011,011 1,808,126
NOTES PAYABLE, less current portion 282,559 866,516
CONVERTIBLE DEBENTURES -- 500,000
DUE TO RELATED PARTY 1,991,440 1,935,612
----------- -----------
Total liabilities 5,285,010 5,110,254
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value; 10,000,000 shares authorized,
6,162,583 and 5,000,000 shares outstanding in 1996 and 1995,
respectively 61,626 50,000
Additional paid-in capital 5,330,228 2,760,028
Accumulated deficit (7,481,782) (2,123,814)
----------- -----------
Total stockholders' equity (deficit) (2,089,928) 686,214
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,195,082 $ 5,796,468
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 44
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 23,1995 JANUARY 1,
YEAR ENDED TO 1995 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, MAY 22, DECEMBER 31,
1996 1995 1995 1994
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
SALES $ 2,901,454 $ 1,408,459 $ 1,241,814 $ 5,714,619
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,329,299 1,282,155 1,206,559 4,535,299
Selling, general and
administrative 1,158,841 566,805 696,065 1,446,807
Research and development 850,993 806,021 136,211 477,404
Bad debt expense related to
Related Party receivable 662,775 -- -- --
Write off of reorganization
goodwill 1,486,823 -- -- --
Depreciation and amortization 1,214,876 695,900 43,010 253,312
----------- ----------- ----------- -----------
7,703,607 3,350,881 2,081,845 6,712,822
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (4,802,153) (1,942,422) (840,031) (998,203)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Unrealized loss on available-for-
sale-securities -- -- -- (256,577)
Interest expense (392,000) (150,109) (175,677) (406,673)
Reorganization expense -- -- -- (602,318)
Other, net (163,815) (31,283) 86,759 29,942
----------- ----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY
ITEM (5,357,968) (2,123,814) (928,949) (2,233,829)
----------- ----------- ----------- -----------
Extraordinary item - gain from
reorganization -- -- 5,768,405 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(5,357,968) $(2,123,814) $ 4,839,456 $(2,233,829)
=========== =========== =========== ===========
LOSS PER SHARE $ (0.95) $ (0.42)
=========== ===========
WEIGHTED AVERAGE SHARES 5,619,668 5,000,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 45
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1994 6,312,112 $ 63,121 $ 11,318,259 $(15,790,614) $ (4,409,234)
Net loss -- -- -- (2,233,829) (2,233,829)
--------- ------------ ------------ ------------ -------------
Balances, January 1, 1995 6,312,112 63,121 11,318,259 (18,024,443) (6,643,063)
Net income -- -- -- 4,839,456 4,839,456
Elimination of old stockholders' interest, and
accumulated deficit (6,312,112) (63,121) (11,318,259) 13,184,987 1,803,607
Issuance of new shares 5,000,000 50,000 2,760,028 -- 2,810,028
--------- ------------ ------------ ------------ -------------
Balances, May 22, 1995 5,000,000 50,000 2,760,028 -- 2,810,028
Net loss -- -- -- (2,123,814) (2,123,814)
--------- ------------ ------------ ------------ -------------
Balances, December 31, 1995 5,000,000 50,000 2,760,028 (2,123,814) 686,214
Conversion of convertible debentures and
related accrued interest 538,583 5,386 519,896 -- 525,282
Exercise of stock options 268,000 2,680 700,820 -- 703,500
Stock issued for prior year services 148,500 1,485 171,640 -- 173,125
Stock issued for rent 30,000 300 59,700 -- 60,000
Stock issued as compensation 177,500 1,775 264,475 -- 266,250
Capital contribution from Helionetics -- -- 853,669 -- 853,669
Net loss -- -- -- (5,357,968) (5,357,968)
--------- ------------ ------------ ------------ -------------
Balances, December 31, 1996 6,162,583 $ 61,626 $ 5,330,228 $ (7,481,782) $ (2,089,928)
========= ============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 46
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
Period FROM
From JANUARY 1,
May 23,1995 1995
Year Ended Through THROUGH YEAR ENDED
December 31, December 31, MAY 22, DECEMBER 31,
1996 1995 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(5,357,968) $(2,123,814) $ 4,839,456 $(2,233,829)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 1,214,876 695,900 43,010 253,312
Write off of reorganization
goodwill 1,486,823 -- -- --
Bad debt expense related to
Related Party receivable 662,775 -- -- --
Allowance for doubtful accounts -- (141,200) 23,604 141,941
Loss on disposal of property and
equipment -- -- -- 9,674
Stock issued to pay interest 25,282 -- -- --
Stock issued to pay rent 60,000 -- -- --
Stock issued as compensation 266,250 -- -- --
Gain on sale of marketable
securities -- (86,759) -- --
Unrealized loss on marketable
securities -- -- -- 256,577
Gain on reorganization -- -- (5,768,405) --
Changes in operating assets and
liabilities:
Accounts receivable (127,066) 296,348 70,808 45,953
Inventories (35,147) 312,874 (31,422) 732,240
Prepaid expenses and
other assets 16,838 37,838 (10,552) 65,839
Accounts payable 17,830 382,733 89,779 102,609
Accrued payroll and
related expenses 317,923 167,940 33,928 --
Other accrued liabilities 440,995 (899,812) 693,704 754,423
Liabilities subject to
compromise -- -- -- (969,364)
Due to parent company -- (199,189) -- --
----------- ----------- ----------- -----------
Net cash used in operating activities (1,010,589) (1,557,141) (16,090) (840,625)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (16,024) (4,702) (17,286) (13,633)
Proceeds from disposal of property and
equipment -- -- -- 5,880
Acquisition of patents -- (11,845) -- --
Advances to Parent Company (292,900) -- -- --
Proceeds from sale of marketable securities -- 150,701 -- --
Other assets -- -- -- 49,594
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (308,924) 134,154 (17,286) 41,841
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on liabilities subject to
compromise -- -- -- (9,126)
Proceeds from notes payable 92,952 500,000 -- --
Payments on notes payable (67,647) (31,888) -- --
Capital contributions from Parent Company 529,622 -- -- --
Decrease in debt issuance costs -- -- -- 327,318
Proceeds from exercise of stock options 703,500 -- -- --
Cash proceeds from issuance of new shares -- -- 1,000,000 --
----------- ----------- ----------- -----------
Net cash provided by financing
activities 1,258,427 468,112 1,000,000 318,192
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (61,086) (954,875) 966,624 (480,592)
CASH, at beginning of period 61,086 1,015,961 49,337 529,929
----------- ----------- ----------- -----------
CASH, at end of period $ -- $ 61,086 $ 1,015,961 $ 49,337
=========== =========== =========== ===========
</TABLE>
(continued)
F-7
<PAGE> 47
<TABLE>
<CAPTION>
PERIOD
Period FROM
From JANUARY 1,
May 23,1995 1995
Year Ended Through THROUGH YEAR ENDED
December 31, December 31, MAY 22, DECEMBER 31,
1996 1995 1995 1994
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 189,021 $ 204,260 $ 169,125 $ 17,622
========= ========= ========== ========
Income taxes $ -- $ -- $ -- $ --
========= ========= ========== ========
Reorganization items:
Elimination of old equity $ -- $ -- $8,500,961 $ --
Record fixed assets at fair value -- -- (425,834) --
Contribution of AccuLase assets and
liabilities -- -- 892,882 --
Reorganization goodwill -- -- 2,136,829 --
Elimination of debt -- -- 6,343,613 --
Other -- -- 487,567 --
Non-cash financing transactions:
Conversion of convertible debentures
to common stock $ 500,000 $ -- $ -- $ --
========= ========= ========== ========
Stock issued for accrued prior year
services $ 173,125 $ -- $ -- $ --
========= ========= ========== ========
Reclassification of Helionetics $ 324,047 $ -- $ -- $ --
========= ========= ========== ========
advances to Additional Paid-in
Capital
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 48
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
Nature of Operations - Laser Photonics, Inc. and subsidiaries (the
Company) is principally engaged in the development, manufacture and
marketing of laser systems and accessories for medical and scientific
applications and, through its 76% owned subsidiary, AccuLase, Inc., is
developing excimer laser and fiber optic equipment and techniques
directed toward the treatment of coronary heart disease.
As of December 31, 1996, the Company was a 61% owned subsidiary of
Helionetics, Inc. (Helionetics). Subsequent to December 31, 1996,
Helionetics sold 2,000,000 shares of the Company's common stock, thereby
reducing its ownership to 25% as of September 5, 1997.
Bankruptcy Filing and Plan of Reorganization - On May 13, 1994, the
Company filed a voluntary petition of reorganization with the U.S.
Bankruptcy Court in the Middle District of Florida (the Bankruptcy
Court) for protection under Chapter 11 of Title 11 of the U.S.
Bankruptcy Code (the Bankruptcy Code). The Company was subsequently
authorized to conduct its business operations as a debtor-in-possession
subject to the jurisdiction of the Bankruptcy Court.
On May 22, 1995, the Company's Plan of Reorganization (the Plan) was
confirmed by the Bankruptcy Court. The implementation of the terms of
the Plan resulted in the Company's adoption of "fresh start" accounting
as described in Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." The Plan
included, among other things, the following provision:
(a) Helionetics paid the Company $1,000,000 in cash, $215,000 in
expenses, and transferred to the Company all of Helionetics'
rights and interest in and to 76.1% of the common stock of
AccuLase, Inc. In addition, Helionetics committed to fund the
cost of research and development of AccuLase's excimer laser
technology for a minimum of two years from the effective date.
In exchange for the foregoing consideration, the Company issued
to Helionetics shares of the Company's new common stock such
that, following the issuance of all stock to be issued under the
Plan, Helionetics owned 75% of new common stock of the Company.
(b) In exchange for the forgiveness of certain unsecured debt, the
Company issued to unsecured creditors shares of the Company's
new stock such that, following the issuance of all new stock to
be issued under the Plan, the unsecured creditors owned 20% of
new common stock of the Company.
(c) The existing shareholders of the Company had their shares
canceled in exchange for the issuance of shares of the Company's
new common stock equal to 5% of the new common stock of the
Company.
The acquisition of AccuLase has been accounted for as a purchase and the
results of operations of AccuLase have been included in these
consolidated financial statements since May 23, 1995.
F-9
<PAGE> 49
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fresh Start Reporting - Under the provisions of SOP 90-7, the Company is
required to adopt fresh start reporting as of May 22, 1995 since the
reorganization value (approximate fair value at the date of
reorganization) was less than the total of all postpetition liabilities
and allowed prepetition claims, and holders of existing voting shares
before the effective date received less than 50% of the voting shares of
the emerging entity. Accordingly, the statement of operations for the
period ended May 22, 1995 reflects the effects of the forgiveness of
debt resulting from confirmation of the plan of reorganization and the
effects of the confirmation of the Plan and the effects of the
adjustments to restate assets and liabilities to reflect the
reorganization value of reorganized Laser Photonics, Inc.
In adopting fresh start reporting, the Company was required to determine
its reorganization value, which represents the fair value of the entity
before considering liabilities and approximates the amount a willing
buyer would pay for the assets of the Company immediately after its
emergence from Chapter 11 status. The reorganization value is based upon
the consideration given by Helionetics to acquire a 75% interest in the
Company. The purchase price of $1,894,122 was determined based upon cash
paid and the carrying value of the 76.1% interest in AccuLase owned by
Helionetics.
All assets and liabilities are restated to reflect their reorganization
value in accordance with procedures specified in Accounting Principles
Board Opinion 16 "Business Combinations" (APB 16) as required by SOP
90-7. The portion of the reorganization value that could not be
attributed to specific tangible or identified intangible assets has been
classified as reorganization value in excess of amounts allocable to
identifiable assets ("Reorganization Goodwill") and was being amortized
over five years. Because of the magnitude of the Company's losses since
emerging from bankruptcy the balance was written off as of December 31,
1996.
In addition, the accumulated deficit of the Company was eliminated and
its capital structure was recast in conformity with the approved plan.
As such, the consolidated financial statements of the Company as of
December 31, 1995 and for the seven and one half months then ended
represent that of the Successor Company which, in effect, is a new
entity with assets, liabilities and a capital structure having carrying
values not comparable with prior periods. The accompanying consolidated
financial statements for the five and one half months ended May 22, 1995
represent that of the Predecessor Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries,
Laser Analytics, Inc., and AccuLase, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
Statement of Cash Flows - For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Impairment of Long-Lived Assets - In the event that facts and
circumstances indicate that the cost of assets or other assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared
F-10
<PAGE> 50
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required.
Stock Based Compensation - In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for
Stock-Based Compensation" (FAS 123) which the Company adopted January 1,
1996. FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value. Companies that do
not adopt the fair value accounting rules must disclose the impact of
adopting the new method in the notes to the financial statements.
Transactions in equity instruments with non-employees for goods or
services must be accounted for on the fair value method. The Company has
elected not to adopt the fair value accounting prescribed by FAS 123 for
employees, and will be subject only to the disclosure requirements
prescribed by FAS 123.
Revenue Recognition - Revenues are recognized upon shipment of products
to customers.
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives (ranging from 3 to
7 years) of the respective assets. The cost of normal maintenance and
repairs is charged to operating expenses as incurred. Material
expenditures which increase the life of an asset are capitalized and
depre ciated over the estimated remaining useful life of the asset. The
cost of properties sold, or otherwise disposed of, and the related
accumulated depreciation or amortization are removed from the accounts,
and any gains or losses are reflected in current operations.
Intangible Assets - Patents are carried at cost less accumulated
amortization which is calculated on the straight-line basis over the
estimated useful lives of the assets, which is twelve years.
Reorganization goodwill represents the portion of the reorganization
value that could not be attributed to specific tangible or identified
intangible assets. The balance was being amortized over 5 years. Because
of the magnitude of the Company's losses since emerging from bankruptcy,
the balance of $1,486,823 was written off as of December 31, 1996.
Excess of cost over net assets of acquired companies represents the
goodwill recorded by Helionetics for the purchase of AccuLase that has
been "pushed down" to the Company. The balance is being amortized over 5
years.
Accrued Warranty Costs - Estimated warranty costs are provided for at
the time of sale of the warranted product. The Company extends warranty
coverage for one year from the time of sale.
Use of Estimates - The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting
principles requires the Company's management to make estimates and
assumptions that affect the amounts reported in these financial
statements and accompanying notes. Actual results could differ from
those estimates.
F-11
<PAGE> 51
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's financial statements are based upon a number of
significant estimates, including the allowance for doubtful accounts,
obsolescence of inventories, the estimated useful lives selected for
property and equipment and intangible assets, realizability of deferred
tax assets, due from Parent company, and allowance for warranty costs,
penalties and interest for delinquent payroll taxes and penalties for
ERISA violations. Due to the uncertainties inherent in the estimation
process, it is at least reasonably possible that these estimates will be
further revised in the near term and such revisions could be material.
Research and Development - Research and development costs are charged to
operations in the period incurred.
Concentrations of Credit Risk - Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. Concentrations of credit
risk (whether on or off balance sheet) that arise from financial
instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to
meet contractual obligations to be similarly effected by changes in
economic or other conditions described below. In accordance with FASB
Statement No. 105, Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, the credit risk amounts shown do not take
into account the value of any collateral or security.
The Company operates primarily in one industry segment and a geographic
concentration exists because the Company's customers are generally
located in the United States. Financial instruments that subject the
Company to credit risk consist principally of accounts receivable.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, are determined at discrete points in time
based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The estimated
fair values of the Company's financial instruments, which includes all
cash, accounts receivables, accounts payable, long-term debt, and other
debt, approximates the carrying value in the financial statements at
December 31, 1996.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Loss Per Share - Loss per share for the Successor Company is computed
using the weighted average number of common shares outstanding during
the period. Common stock equivalents have been excluded from the
computation because their effect would be antidilutive. The earnings
(loss) per share prior to reorganization is not presented as the results
are not meaningful due to debt discharge, the issuance of new common
stock and fresh start reporting.
F-12
<PAGE> 52
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impact of Recently Issued Standards - In February 1997, the Financial
Accounting Standards Board issued a new statement titled "Earnings per
Share" ("FAS 128"). The new statement is effective for both interim and
annual periods ending after December 15, 1997. FAS 128 replaces the
presentation of primary and fully diluted earnings per share with the
presentation of basic and diluted earnings per share. Basic earnings per
share excludes dilution and is calculated by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. Adoption of the standard would have no impact on
the financial statements.
Reclassification - Certain reclassifications have been made to conform
1995 and 1994 financial statements to the presentation in 1996. The
reclassifications had no effect on net income.
3. BASIS OF PRESENTATION:
The consolidated financial statements have been prepared on a going
concern basis, which contemplates, among other things, the realization
of assets and the satisfaction of liabilities in the normal course of
business. However, there is doubt about the Company's ability to
continue as a going concern because of the magnitude of its losses since
emerging from bankruptcy ($5,214,264 and $2,123,814 in the periods ended
December 31, 1996 and 1995) resulting in a total stockholders' deficit
of $1,806,289 as of December 31, 1996. In addition, the Company is
delinquent in remitting federal and state payroll taxes and is in
violation of several ERISA provisions. The Company's continued existence
is dependent upon its ability to raise substantial capital, to increase
sales and to significantly improve operations.
Management has taken several actions in response to these conditions. In
July 1997, AccuLase entered into a Master Technology Agreement with
Baxter Healthcare Corporation (See Note 12) under which AccuLase will
receive $1,550,000 plus purchase commitments and future royalty
payments. In August 1997, the Company authorized the sale of 750,000
shares of common stock in a private placement (See Note 12). As of
September 5, 1997, the Company has sold 579,500 shares for $724,375. The
Company also has received a commitment from an investment banker for a
private placement (See Note 12). The Company has authorized the sale of
the assets of Laser Photonics, Inc. and Laser Analytics, Inc. or the
closure of its Florida operations. Management believes that these
actions will allow the Company to continue as a going concern.
Accordingly, the consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of liabilities
or any other adjustment that might be necessary should the Company be
unable to continue as a going concern.
F-13
<PAGE> 53
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES:
Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $ 1,306,420 $ 1,659,085
Work-in-process 456,330 577,972
Finished goods 124,560 65,807
----------- -----------
1,887,310 2,302,864
Allowance for obsolescence (996,299) (1,477,000)
----------- -----------
$ 891,011 $ 855,864
=========== ===========
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Machinery and equipment $ 651,471 $ 662,977
Furniture and fixtures 32,753 37,037
--------- ---------
684,224 700,014
Less accumulated depreciation (389,382) (162,892)
--------- ---------
$ 294,842 $ 537,122
========= =========
</TABLE>
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Customer deposits $308,408 $ 44,925
Accrued professional fees 127,842 169,984
Accrued property taxes 113,721 87,617
Other accrued liabilities 395,820 375,395
-------- --------
$945,791 $677,921
======== ========
</TABLE>
F-14
<PAGE> 54
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. NOTES PAYABLE, LONG-TERM DEBT, AND CONVERTIBLE DEBENTURES:
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Notes payable - unsecured creditors, interest at prime rate, quarterly
interest only payments beginning October 1, 1995, principal due
October 1, 1999, unsecured $ 282,559 $ 282,559
Notes payable - unsecured creditors, interest at prime rate, quarterly
interest only payments beginning October 1, 1995, principal due
October 1, 1999, unsecured. Payments past due 165,298 165,298
Note payable - creditor, interest 10%, monthly interest only
payments through May 5, 1997, thereafter monthly interest and
principal payments of $6,384 through May 1999, unsecured
Payments past due 138,368 138,368
Note payable - U.S. Treasury, interest 9%, payable in monthly
principal and interest installments of $5,000 through December
1999, unsecured. Payments past due 158,387 201,978
Notes payable - various creditors, interest at 9%, payable in various
monthly principal and interest installments through July 2000,
unsecured. Payments past due 69,234 83,223
Note payable - creditor, interest at 9%, payable in monthly principal
and interest installments of $1,258 through January 2001,
collateralized by personal property of the Company. Payments past
due 50,583 60,640
Note payable - bank, interest at 9.75%, payable in monthly principal
and interest installments of $636 through February 1999, unsecured
Payments past due 21,641 21,641
Note payable - factor, interest at 36.5%, due on demand, secured
by all assets of the Company (Note 11) 76,150 10,000
Note payable - other, no interest, due on demand, unsecured 16,792 --
--------- ---------
979,012 963,707
Less current maturities (696,453) (97,191)
--------- ---------
$ 282,559 $ 866,516
========= =========
</TABLE>
F-15
<PAGE> 55
As a result of the past due payments on some of the notes listed above,
the notes are callable at the option of the holder. Therefore, these
notes have been classified as current. Aggregate maturities required on
long-term debt at December 31, 1996 are due in future years as follows:
<TABLE>
<S> <C>
1999 $282,559
-------- --------
$282,559
========
</TABLE>
In July and November 1995, the Company sold an aggregate of $500,000 in
six month convertible, secured notes in a private transaction to four
offshore corporations. Of the resulting proceeds, $300,000 was retained
by the Company, $100,000 was paid to Helionetics in compensation for its
corporate guarantee and pledge of collateral, and $100,000 was paid to
Helionetics toward the accruing Helionetics debt owed by the Company to
Helionetics.
The notes bear interest at 12% per annum, with principal and interest
all due and payable on maturity. The notes are collateralized by the
corporate guarantee of Helionetics, the Company's parent, coupled with a
pledge of 300,000 shares of Tri-lite, Inc. (a subsidiary of Helionetics)
stock and 500,000 shares of the Company's common stock held by
Helionetics.
The notes provide that the holders may convert into an aggregate of
512,500 shares of the common stock of the Company, at a conversion price
of $0.96 per share. In January and April 1996, the notes were converted
to shares of common stock of the Company.
8. DUE TO/FROM PARENT COMPANY:
The amounts financed by Helionetics are due on demand with interest at
the prime rate plus 2%. (See Note 12)
Helionetics is a defendant in class action litigation seeking
substantial damages allegedly resulting from the purported violation of
Federal securities laws. In the opinion of management of Helionetics,
the ultimate outcome of these actions will not have a material impact on
the Company's financial statements.
Subsequent to year end, Helionetics filed a voluntary petition of
reorganization with the U.S. Bankruptcy Court in the Central District of
California for protection under Chapter 11 of Title 11 of the U.S.
Bankruptcy Code. As a result, the Company has written off its $662,775
receivable from Helionetics as of December 31, 1996.
9. STOCKHOLDERS' EQUITY:
On January 2, 1996, the Company adopted the 1995 Non-Qualified Option
Plan for key employees, officers, directors, and consultants, and
provided for up to 500,000 options to be issued thereunder. The option
exercise price is not less than 100% of market value on the date
granted, 40% of granted options vest immediately and may be exercised
immediately; 30% vest and may be exercised beginning
F-16
<PAGE> 56
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12 months after grant; and the remaining 30% vest and may be exercised
beginning 24 months from grant.
No options may be exercised more than 10 years after grant, options are
not transferable (other than at death), and in the event of complete
termination "for cause" (other than death or disability) or "voluntary"
termination, all "unvested" options automatically terminate.
In January 1996, the Board approved the grant of options to certain key
employees and consultants, to purchase 335,000 shares of common stock.
On the date of grant, 110,000 options were vested and the balance will
vest over two years. The options were granted with an exercise price of
$1.50 per share and are exercisable through January 2006.
Subsequent to year end, the Board approved the grant of options to
certain employees and consultants to purchase 108,500 shares of common
stock at an exercise price of $1.00 per share.
As stated in Note 2, the Company has not adopted the fair value
accounting prescribed by FAS 123 for employees. Had compensation cost
for stock options issued to employees been determined based on the fair
value at grant date for awards in 1996 consistent with the provisions of
FAS 123, the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net loss................... $ (5,502,273)
==============
Net loss per share......... $ (0.98)
==============
</TABLE>
The fair value of each option is estimated on the date of grant using
the present value of the exercise price and is pro-rated based on the
percent of time from the grant date to the end of the vesting period.
The weighted average fair value of the options on the grant date was
$1.08 per share. The following assumptions were used for grants in 1996:
risk-free interest rate of 4.9%; expected lives of two years; dividend
yield of 0%; and expected volatility of 148%.
In February 1996, the Board approved the issuance of 50,000 shares of
common stock to the Company's chairman for consulting services rendered,
and 98,500 shares of common stock and options to purchase 62,500 shares
of common stock to consultants for services rendered. The options were
granted with an exercise price of $2.50 per share, are fully vested and
are exercisable through February 2001. The accompanying financial
statements include accrued expenses of $173,125 as of December 31, 1995,
representing the agreed-upon value of the services rendered.
In October 1996, the Board approved the issuance of 125,000 shares of
common stock to the Company's chairman for consulting services rendered
and 52,500 shares of common stock to employees and consultants for
services rendered. The Company has recognized $266,250 in compensation
expense related to these services for the year ended December 31, 1996.
In conjunction with the issuance of convertible notes payable in 1995,
the Company issued transferable five year warrants attached to the
notes, for an aggregate of 500,000 shares of the Company's common stock,
exercisable at an exercise price of $0.625 per share. Said warrants have
antidilution protection, are nonexercisable for the first six months
after issuance, and provide that the notes may be tendered in
F-17
<PAGE> 57
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
whole or in part in payment of the warrant exercise price. Upon the
Company's filing of its Form 10-K, the warrants become callable in whole
or in part at the option of the Company at $0.01 per warrant. Such
warrants expired in 1995 due to the Company meeting certain filing
requirements.
The noteholders were given a one year "Right of First Refusal" to
purchase Company securities sold in reliance of Regulation S or
Regulation D under the Securities Act of 1933, or pursuant to an S-8
Registration under the Act, which are proposed to be: (i) issued by the
company; or (ii) sold by Helionetics; (including both common stock and
any security convertible into common stock). Excluded are 100,000 shares
of common stock, any underwritten public offering, any sale to a bona
fide strategic party, any stock distribution by Helionetics to its
shareholders, any Helionetics/Company intercompany financing, and any
issuance under any employee stock option or bonus plans.
The noteholders were also granted a transferable one year option to
purchase 375,000 additional shares of the Company's common stock,
exercisable 134,000 shares at $2.25 per share, 134,000 shares at $3.00
per share, and 137,000 shares at $3.75 per share. Shares deliverable
upon option exercise are to be provided either by the Company as new
issuance shares, or by Helionetics out of the block of shares it holds
for investment, at the sole option of Helionetics. During July and
August of 1996, 268,000 of these options were exercised. New shares were
issued for proceeds of $703,500. The remaining 137,000 options expired
during 1996.
AccuLase has reserved 800,000 shares of its common stock for issuance
under a noncompensatory employee stock option plan. Options are
exercisable over a period of up to ten years from the date of grant.
During 1993 and 1992, 5,000 and 28,500 options were granted at an
exercise price of $.10 and $2.80 per share, respectively. At December
31, 1996, all outstanding options are exercisable.
10. INCOME TAXES:
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Accounts receivable, principally due to
allowances for doubtful accounts $ 37,000 $ 37,000 $ 82,000
Tax credit carryforwards 283,000 -- 704,000
Compensated absences, principally due to
accrual for financial reporting purposes 2,000 12,000 12,000
Warranty reserve, principally due to accrual for
financial reporting purposes 34,000 35,000 58,000
Net operating loss carryforwards 4,848,000 2,149,000 6,312,000
Inventory obsolescence reserve 372,000 517,000 659,000
Depreciation and amortization 29,000 -- --
Capitalized research and development costs 309,000 -- --
Other -- -- 1,000
---------- ---------- ----------
</TABLE>
F-18
<PAGE> 58
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Total gross deferred tax assets 5,914,000 2,750,000 7,828,000
Less valuation allowance (5,914,000) (2,750,000) (7,828,000)
----------- ----------- -----------
Net deferred tax assets $ -- $ -- $ --
=========== =========== ===========
</TABLE>
At December 31, 1996, Laser Photonics and AccuLase had net operating
loss carryforwards of approximately $4,832,000 and $11,478,000, which
expire in various years through 2011. These net operating losses are
subject to annual limitations imposed by the Internal Revenue Code due
to change in control of the Companies.
11. COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its main facility under a month-to-month
operating lease which requires monthly payments of $11,000. Its
subsidiary leases its facility under a non-cancelable operating lease
which expires during fiscal 2001. Rental expense for these leases
amounted to $272,727, $302,800 and $465,076 for the years ended December
31, 1996, 1995 and 1994, respectively. The future annual minimum
payments under the non-cancelable lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C> <C>
1997 $ 67,000
1998 67,000
1999 67,000
2000 73,000
2001 73,000
--------
Minimum lease payments $347,000
========
</TABLE>
Factor Agreement - In April 1996, the Company entered into an agreement
to factor up to $400,000 in accounts receivable, $150,000 minimum per
month, at a discount of 1% plus .1% for each day the account is
outstanding. The factor also maintains a 24% reserve against the face
value of accounts outstanding. The Company may also borrow up to
$150,000 in inventory loans which are due on demand at 36.5% interest
per annum. Advances and loans are secured by all assets of the Company
and are guaranteed by Helionetics.
As of December 31, 1996, the face amount of receivables sold was
$275,833 and the amount of inventory loans outstanding was $76,150 (See
Note 7).
ERISA Violations - The Company is in violation of several provisions of
the Employee Retirement Income Security Act of 1974 (ERISA) primarily
because employee contributions to the Company's 401(k) plan have not
been remitted to the plan's trust. As of December 31, 1996, the Company
has accrued approximately $50,000 for employee contributions, lost plan
investment earnings and penalties which may be assessed by the U.S.
Department of Labor.
F-19
<PAGE> 59
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Delinquent Federal and State Payroll Taxes - The Company is delinquent
in remitting Federal and state payroll taxes. As of December 31, 1996,
the Company has accrued approximately $400,000 for payroll taxes which
includes interest and penalties related to the delinquent payments.
Contract with Cornell University - The Company has a contract with
Cornell University whereby Cornell University will conduct tests using
the Company's Excimer Laser. The Company has agreed to pay $45,000 for
this testing. The Company had paid $10,000 and accrued an additional
$12,500 as of December 31, 1996. The remaining $22,500 plus the $12,500
accrued are due in 1997.
12. SUBSEQUENT EVENTS:
In August 1997, the Company's board of directors authorized the sale of
750,000 shares of common stock at $1.25 per share through an investment
banker ("the investment banker") pursuant to Regulation D under the
Securities Act of 1933. As of September 5, 1997, the Company has sold
579,500 shares of common stock for $724,375.
Subsequent to year end, the Company's board of directors has approved a
bonus for the President of AccuLase in the form of LPI stock options.
Under the terms of the agreement, upon the completion of a new excimer
laser with agreed upon production costs, the President will vest in
options to purchase 250,000 shares of common stock at $0.50 per share.
On August 19, 1997, AccuLase executed a series of Agreements with Baxter
Healthcare Corporation ("Baxter"). These Agreements provided among other
things for the following:
1. AccuLase granted to Baxter an exclusive world-wide right and
license to manufacture and sell the AccuLase Laser and
disposable products associated therewith, for the purposes of
treatment of cardiovascular and vascular diseases.
2. In exchange Baxter agreed to:
a. Pay AccuLase $700,000 in cash at closing, agreed to pay
AccuLase an additional $250,000 in cash three months
after closing, and agreed to pay an additional $600,000
upon delivery of the first two commercial excimer
lasers.
b. To pay AccuLase a royalty equal to 10% of the "End User
Price" for each disposable product sold, or if the laser
equipment is sold on a per treatment basis, the
"imputed" average sale price based on "non" per
procedure sales.
c. To purchase from AccuLase excimer laser systems for
cardiovascular and vascular disease.
d. To fund the total cost of obtaining regulatory approvals
world-wide for the use of the AccuLase laser and
delivery systems for the treatment of cardiovascular and
vascular disease.
F-20
<PAGE> 60
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
e. To fund all sales and marketing costs related to the
cardiovascular and vascular business.
3. AccuLase agreed to manufacture the excimer laser system to
specifications for Baxter. Baxter agreed to pay a fixed price
per laser for the first 8 lasers to be manufactured by AccuLase,
and thereafter to pay unit prices on a reducing scale of from
$75,000 to $45,000 per laser, based upon the annual number of
lasers sold to Baxter.
4. AccuLase agreed for a period of five years not to engage in any
business competitive with the laser products for cardiovascular
and vascular applications licensed to Baxter.
5. AccuLase has granted Baxter a security interest in all of its
patents to secure performance under the Baxter Agreement. The
agreement expires upon the expiration of the last to expire
licensed patent, however, Baxter may terminate the agreement at
any time.
On September 23, 1997 Baxter purchased certain patent rights to related
patents from a third party for $4,000,000. The Company has received a
commitment from the investment banker for a private placement of common
stock, proceeds from which will be used to acquire a license to the
acquired patent rights from Baxter and to fund the working capital
requirements of AccuLase and the Company.
On September 30, 1997, the investment banker purchased from the
Helionetics bankruptcy estate the Company's note payable to Helionetics
in the amount of $1,991,440 as of December 31, 1996. The investment
banker has agreed to immediately sell such note to LPI for 800,000
shares of LPI's common stock.
F-21
<PAGE> 61
LASER PHOTONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Schedule II
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS PERIOD
-------------- --------- -------- ---------- ------
<S> <C> <C> <C> <C>
For the year ended
December 31, 1996:
Accumulated
amortization -Patent
costs $ 7,259 $ 8,353 $ -- $ 15,612
Accumulated
amortization -Excess of
cost over net assets of
acquired companies 303,148 519,682 -- 822,830
Accumulated
amortization -
Reorganization goodwill 222,600 1,914,425 -- 2,137,025
Allowance for
doubtful accounts 100,000 -- -- 100,000
Allowance for
obsolescence 1,477,000 -- 480,701 996,299
For the year ended
December 31, 1995:
Accumulated
amortization -Patent
costs -- 7,259 -- 7,259
Accumulated
amortization -Excess of
cost over net assets of
acquired companies
-- 303,148 -- 303,148
Accumulated
amortization -
Reorganization goodwill
-- 222,600 -- 222,600
Allowance for
doubtful accounts 217,591 23,609 141,200 100,000
Allowance for
obsolescence -- 1,477,000 -- 1,477,000
For the year ended
December 31, 1994:
Allowance for
doubtful accounts 75,650 141,941 -- 217,591
</TABLE>
S-1
<PAGE> 1
EXHIBIT 10.5
AGREEMENTS BETWEEN ACCULASE
AND BAXTER HEALTHCARE CORPORATION
* EXHIBIT FILED PURSUANT TO CONFIDENTIAL TREATMENT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 383,435
<ALLOWANCES> 0
<INVENTORY> 891,011
<CURRENT-ASSETS> 1,282,168
<PP&E> 684,224
<DEPRECIATION> 389,382
<TOTAL-ASSETS> 3,195,082
<CURRENT-LIABILITIES> 3,011,011
<BONDS> 0
0
0
<COMMON> 61,626
<OTHER-SE> (2,151,554)
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</TABLE>
