<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-11365
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LASER PHOTONICS, INC.
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(exact name of registrant as specified in its charter)
Delaware 59-2058100
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6865 Flanders Drive, Suite G, San Diego, CA 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 455-7030
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N/A
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(Former name, former address and former fiscal year, if changed since
last report)
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant (1) 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
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As of September 30, 1998, 9,295,694 shares of Common Stock, par value $.01
per share, were outstanding.
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INDEX
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<TABLE>
<CAPTION>
Page
Number
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PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997................... 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months ended September 30, 1998 and 1997.......... 4
Condensed Consolidated Statements of Cash Flow for the
Nine Months ended September 30, 1998 and 1997.................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations................. 7
PART II OTHER INFORMATION
Exhibits and Reports of Form 8-K................................. 8
Signatures....................................................... 9
</TABLE>
2
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PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
LASER PHOTONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1998 December 31, 1997 *
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 488,045 $ 1,225,932
Accounts receivable, net 176,788 343,465
Inventory 1,114,662 951,209
Prepaid expenses 51,221 91,463
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TOTAL CURRENT ASSETS 1,830,716 2,612,069
PROPERTY AND EQUIPMENT, net 213,342 141,432
PREPAID LICENSE FEE, net 3,583,333 3,958,333
OTHER 163,189 100,515
GOODWILL, NET 606,194 995,955
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TOTAL ASSETS $ 6,396,774 $ 7,808,304
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Current portion $ 455,001 $ 610,004
Convertible notes payable 1,000,000 -
Accounts payable 996,763 859,559
Accrued payroll and related expenses 436,303 400,222
Other accrued liabilities 550,661 588,086
Due to officers 46,722 43,722
Customer deposits 266,538 -
Deferred revenue - 95,000
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TOTAL CURRENT LIABILITIES 3,751,988 2,596,593
NOTES PAYABLE, LESS CURRENT PORTION 282,559 282,559
SHAREHOLDERS' EQUITY
Common stock 92,957 92,471
Additional paid-in-capital 14,977,704 14,625,564
Accumulated Deficit (12,708,434) (9,788,883)
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TOTAL SHAREHOLDERS' EQUITY 2,362,227 4,929,152
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$ 6,396,774 $ 7,808,304
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</TABLE>
* Condensed from audited financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
3
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Condensed Consolidated Statements of Operations
LASER PHOTONICS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine months ended Three months ended
- -------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
1998 1997 1998 1997
(UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Sales $ 1,795,578 $2,340,699 $ 422,310 $ 667,122
Other 95,000 336,693 - 336,693
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Total revenues 1,890,578 2,677,392 422,310 1,003,815
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COSTS AND EXPENSES
Cost of Sales 1,214,736 1,601,569 422,119 507,118
Selling, General & Administrative 1,905,341 1,566,973 683,815 884,803
Research & Development 461,168 323,758 27,859 101,909
Depreciation and Amortization 815,407 512,857 277,947 169,180
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Total costs and expenses 4,396,652 4,005,157 1,411,740 1,663,010
----------- ----------- ----------- ----------
LOSS FROM OPERATIONS (2,506,074) (1,327,765) (989,430) (659,195)
Interest Expense 418,901 289,804 331,889 106,882
Other expenses (income), net (5,424) 147,663 7,367 71,063
----------- ----------- ----------- ----------
NET LOSS $(2,919,551) $(1,765,232) $(1,328,686) $ (837,140)
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BASIC & DILUTED LOSS PER SHARE $ (0.31) $ (0.28) $ (0.14) $ (0.13)
----------- ----------- ----------- ----------
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Weighted Average Shares 9,286,265 6,253,359 9,295,694 6,367,378
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
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Condensed Consolidated Statements of Cash Flows
LASER PHOTONICS, INC.
<TABLE>
<CAPTION>
Nine months ended
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SEPTEMBER 30, 1998 September 30, 1997
(UNAUDITED) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,919,551) $(1,765,232)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and Amortization 815,407 512,857
Allowance for doubtful accounts (3,000) -
Stock issued to pay legal fees 20,000 95,625
Non cash compensation expense - 560,958
Non cash interest expense - 150,000
Interest related to beneficial conversion features
of notes payable 296,875 -
Changes in operating assets and liabilities:
Current assets (22,473) (1,649)
Current liabilities 310,398 (280,885)
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NET CASH USED IN OPERATING ACTIVITIES (1,502,344) (728,326)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (116,291) (23,462)
Proceeds from sale of asset - 61,939
Deferred income - 363,307
Advances from related parties - 18,268
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (116,291) 420,052
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (155,003) -
Proceeds from issuance of convertible notes payable 1,000,000 -
Proceeds from issuance of common stock 35,751 724,375
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NET CASH PROVIDED BY FINANCING ACTIVITIES 880,748 724,375
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (737,887) 416,101
CASH AND CASH EQUIVALENTS, beginning of period 1,225,932 -
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CASH AND CASH EQUIVALENTS, end of period $ 488,045 $ 416,101
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LASER PHOTONICS, INC. AND SUBSIDIARIES
September 30, 1998
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of September 30, 1998 and the
related condensed consolidated statements of operations and cash flow for the
three and nine months ended September 30, 1998 and 1997, and cash flows for
the nine months ended September 30, 1998 and 1997 have been prepared by the
Company without audit. In the opinion of management, the condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial position
of Laser Photonics, Inc. and subsidiaries as of September 30, 1998, the
results of their operations for the three and nine months ended September 30,
1998 and 1997 and cash flows for the nine months ended September 30, 1998 and
1997. The results of operations for the three and nine months ended September
30, 1998 are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
report on Form 10-K for the year ended December 31, 1997.
Certain reclassifications have been made to the prior year's condensed
consolidated financial statements to conform with the current presentation.
Such reclassifications had no effect on net loss.
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
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<S> <C> <C>
Raw Materials $ 464,769 $435,583
Work in Process 564,717 435,854
Finished Goods 85,176 79,772
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TOTAL INVENTORY $1,114,662 $951,209
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</TABLE>
3. ASSETS HELD FOR SALE
On April 8, 1998, the Company entered into a letter of intent to sell certain
assets, subject to the assumption of certain liabilities, to a third party.
The completion of the transaction was subject to numerous items, including
but not limited to, the final identification of specific assets and
liabilities to be transferred and the execution of a final written agreement.
The proposed sales price was $1,300,000, which would result in an approximate
gain of $300,000 to the Company. An agreement was not reached and the Company
is not planning on further pursuing the sale with this buyer.
4. CONVERTIBLE NOTES PAYABLE
During July and August, 1998, the Company's 76% owned subsidiary, AccuLase,
Inc. issued $1,000,000 in 10% Convertible Promissory Notes. Interest is
payable annually and may be paid in cash or in the Company's common
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LASER PHOTONICS, INC. AND SUBSIDIARIES
September 30, 1998
stock at the Company's option. The entire principal is due in one payment on
or before December 31, 1998. All outstanding balances under the Notes are
guaranteed by the Company. The holders of the Notes may convert any or all
balances outstanding into the Company's common stock at a conversion price of
$2.00 per share at any time. All balances outstanding at December 31, 1998
automatically convert into shares of the Company's common stock at a
conversion price of $2.00 per share. At the date of issuance the conversion
price was less than the market price resulting in a beneficial conversion
feature in the amount of $296,875 which is included in interest expense at
September 30, 1998.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 1998 decreased by $786,814
to $1,890,578 compared to $2,677,392 in the prior period. The decrease was
due to a decrease in sales of scientific and medical lasers from the
Company's Florida and Massachusetts operations offset by the final milestone
payment in the amount of $600,000 pursuant to the Baxter Agreement which
included the sale of two excimer lasers. Revenues for the three months ended
September 30, 1998 were $422,310 compared to $1,003,815 for the three months
ended September 30, 1997. The decrease was due to a decrease in sales of
scientific and medical lasers from the Company's Florida and Massachusetts
operations.
Gross margins were 35.7% for the nine months ended September 30, 1998
compared to 40.2% for the nine months ended September 30, 1997 and 0.1% for
the three months ended September 30, 1998 compared to 49.5% for the three
months ended September 30, 1997. The decrease in gross margins was due to the
increase in labor costs as a percentage of sales.
Operating expenses increased by $778,328 for the nine months ended September
30, 1998 compared to the nine months ended September 30, 1997 due to
increases in consulting and professional fees, D & O insurance, marketing
expenses and increased funding of research and development activities.
Operating expenses decreased by $166,271 for the three months ended September
30, 1998 compared to the three months ended September 30, 1997 due to a
reduction in staff.
Interest expense increased by $129,097 for the nine months ended September
30, 1998 compared to the nine months ended September 30, 1997 and by $225,007
for the three months ended September 30, 1998 compared to the three months
ended September 30, 1997. The increase was the result of the recognition of a
beneficial conversion feature on the convertible notes payable of $296,875
offset by the purchase of a subsidiary's note payable through the issuance of
common stock during the year ended December 31, 1997.
Net loss increased to $2,919,551 for the nine months ended September 30, 1998
compared to $1,765,232 for the nine months ended September 30, 1997 and to
$1,328,686 for the three months ended September 30, 1998 compared to $837,140
for the three months ended September 30, 1997. The increase in the net loss
was due to the increases in operating expenses and decreases in revenues.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash and cash equivalents of
$488,045 which is a decrease of $737,887 since December 31, 1997. The Company
has utilized cash generated from the sale of common stock, from
7
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the Baxter agreement during 1997 and the issuance of the convertible notes
payable to fund marketing activities, increased research and development
activities, investments in inventory to support anticipated sales of excimer
lasers to Baxter and to pay off certain liabilities.
Capital expenditures in the nine months ended September 30, 1998 of $116,291
related to purchases of equipment and the construction of a laser to be used
as a demonstration model.
Cash flows provided by financing activities for the nine months ended
September 30, 1998 of $880,748 was due to the issuance of $1,000,000 of
convertible notes payable and proceeds from the issuance of common stock
offset by principal payments on debt.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's, or its suppliers' and customers' computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has developed plans to address issues related to the impact on
its computer systems of the year 2000. Financial and operational systems have
been assessed and plans have been developed to address systems modification
requirements. The financial impact of making the required systems changes is
not expected to be material to the Company's consolidated financial position,
liquidity or results of operations.
Neither the Company nor its subsidiaries has initiated formal communications
with significant suppliers and large customers to determine the extent to
which those third parties' failure to remedy their own Year 2000 Issues would
materially effect the Company and its subsidiaries. The Company has not
received any indications from its suppliers and large customers that the Year
2000 Issue may materially effect their ability to conduct business and the
Company has no current plans to formally undertake such an assessment.
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
ITEM 1 Legal Proceedings: See December 31, 1997 10-K
ITEM 2 Changes in Securities None
ITEM 3 Defaults Upon Senior Securities None
ITEM 4 Submission of Matters to Vote of
Security Holders None
ITEM 5 Other Information None
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K None
</TABLE>
8
<PAGE>
SIGNATURES TO FORM 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER PHOTONICS, INC.
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(Registrant)
Date: November 18, 1998 By: /s/ Raymond A. Hartman
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Raymond A. Hartman
Chief Executive Officer
Date: November 18, 1998 By: /s/ Chaim Markheim
---------------------------
Chaim Markheim
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 488,045
<SECURITIES> 0
<RECEIVABLES> 248,788
<ALLOWANCES> 72,000
<INVENTORY> 1,114,662
<CURRENT-ASSETS> 1,830,716
<PP&E> 418,437
<DEPRECIATION> 205,095
<TOTAL-ASSETS> 6,396,774
<CURRENT-LIABILITIES> 3,751,988
<BONDS> 292,559
0
0
<COMMON> 92,957
<OTHER-SE> 2,269,270
<TOTAL-LIABILITY-AND-EQUITY> 6,396,774
<SALES> 1,795,578
<TOTAL-REVENUES> 1,890,578
<CGS> 1,214,736
<TOTAL-COSTS> 1,214,736
<OTHER-EXPENSES> 3,181,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418,901
<INCOME-PRETAX> (2,919,551)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,919,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,919,551)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
