<PAGE>
As filed with the Securities and Exchange Commission on January 27, 1998
Registration No. 333-__________
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
______________________
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
______________________
LASER PHOTONICS, INC.
______________________
(Exact name of registrant as specified in its charter)
Delaware 3845 59-2058100
- ------------------- ------------- ----------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
6865 Flanders Drive
Suite G
San Diego, California 92121
(619) 455-7030
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Raymond A. Hartman
Chief Executive Officer
Laser Photonics, Inc.
6865 Flanders Drive
Suite G
San Diego, California 92121
(619) 455-7030
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
Matthias & Berg LLP
Attn: Jeffrey P. Berg, Esq.
1990 South Bundy Drive
Suite 790
Los Angeles, California 90025
Phone: (310) 820-0083
Fax: (310) 820-8313
_______________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
______________________
If any of the securities being registered on this Form are to be offered
on a delayed basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. [X]
_______________________
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Amount of
Securities to be Registered Registered(1) Offering Price (1) Maximum Registration
Aggregate Fee
Offering
Price(1)
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share 679,500 $1.25(2) $ 849,375 $ 250.57
Common Stock, par value
$0.01 per share 1,500,000 $4.00(2) $6,000,000 $1,770.00
Common Stock, par value
$0.01 per share 800,000 $2.70(2) $2,159,708 $ 637.11
Shares of Common Stock
underlying Warrants 900,000 $4.00(3) $3,600,000 $1,062.00
Total 3,879,500 $12,609,083 $3,719.68
</TABLE>
__________________________________
(1) Estimated solely for the purpose of calculating the registration fee.
(2) This amount is based upon the per share purchase price of the shares from
the Company.
(3) This amount is based on the per share exercise price of the Warrants
related to these shares.
(REGISTRATION STATEMENT COVER PAGE CONTINUED)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
LASER PHOTONICS, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K.
Showing Location in the Prospectus of Information
Required by Items 1 through 12, Part I, of Form S-1
Registration Statement Item Number
and Caption Location in Prospectus
- ---------------------------------- ----------------------
1. Forepart of the Registration
Statements and Outside Front
Cover Page of Prospectus........ Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front and Outside Back Cover
Pages of Prospectus; Additional
Information
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges................ Prospectus Summary; Risk Factors;
Selected Financial Data
4. Use of Proceeds.................. Use of Proceeds; Selling Stockholders
and Plan of Distribution
5. Determination of Offering Price.. Plan of Distribution
6. Dilution......................... Not Applicable
7. Selling Security Holders......... Outside Front Cover Page of Prospectus;
Selling Stockholders and Plan of
Distribution
8. Plan of Distribution............. Outside Front Cover Page of Prospectus;
Selling Stockholders and Plan of
Distribution
9. Description of Securities to
Be Registered.................... Outside Front Cover Page of Prospectus;
Dividend Policy; Shares Eligible for
Future Sale; Principal Stockholders;
Selling Stockholders and Plan of
Distribution; Description of Securities
10. Interests of Named Experts and
Counsel......................... Legal Matters
<PAGE>
11. Information with Respect to
the Registrant................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Compensation of
Executive Officers and Directors;
Certain Relationships and Related
Transactions; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities.. Not Applicable
<PAGE>
LASER PHOTONICS, INC.
3,879,500 SHARES
COMMON STOCK
OFFERED BY SELLING STOCKHOLDERS
This Prospectus relates to 3,879,500 shares (the "Shares") of common
stock, par value $0.01 (the "Common Stock") of Laser Photonics, Inc., a
Delaware corporation (the "Company") to be offered (the "Offering") for the
account of certain selling stockholders (the "Selling Stockholders") of the
Company. The 3,879,500 shares include 2,979,500 shares of Common Stock
currently issued in the name of the Selling Stockholders and 900,000 shares
of Common Stock underlying certain warrants (the "Warrants") issued in the
name of certain of the Selling Stockholders. The Selling Stockholders
directly, through agents designated from time to time, or through brokers,
dealers, or through underwriters to be designated, may sell the shares of
Common Stock offered hereby from time to time on terms to be determined at
the time of sale. To the extent required by applicable law, the specific
shares to be sold, the terms of the offering, including price, the names of
any agent, dealer or underwriter, and any applicable commission, discount or
other compensation with respect to a particular sale will be set forth in an
accompanying Prospectus Supplement. See "Selling Stockholders and Plan of
Distribution."
The Company will receive none of the proceeds from the sale of these
Shares. However, the Company may receive gross proceeds of up to $3,600,000
upon the exercise of the Warrants, if at all. The Selling Stockholders and
any broker-dealer, agents or underwriters that participate with the Selling
Stockholders in the distribution of the Common Stock may be deemed to be
underwriters within the meaning of the Securities Act of 1933, as amended
("Securities Act") and any commission received by them and any profit on the
resale of the Common Stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Company has paid all
of the costs of the Offering with respect to the Shares to be offered by the
Selling Stockholders. See "Use of Proceeds" and "Selling Stockholders and
Plan of Distribution."
The Company's Common Stock is currently listed for trading in the
Over-the-Counter Market under the symbol "LSPT." On January 23, 1998,
the market price for the Common Stock in the Over-the-Counter Market was
approximately $3.50 per share. See "Price Range of Common Stock."
THESE SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC
OFFERING PRICE. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE SECTION ENTITLED "RISK FACTORS" (AT PAGE 6 OF THIS PROSPECTUS)
CONCERNING THE COMPANY AND THIS OFFERING.
________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
SUBJECT TO COMPLETION DATED JANUARY 27, 1998
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT
TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES, IN ANY JURISDICTION IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
<PAGE>
This Prospectus may be deemed to contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). Forward-looking statements in this Prospectus or
hereafter included in other publicly available documents filed with the
Securities and Exchange Commission (the "Commission"), reports to the
Company's stockholders and other publicly available statements issued or
released by the Company involve known and unknown risks, uncertainties and
other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ from the future results,
performance (financial or operating) or achievements expressed or implied by
such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. These risks include, but are not limited to, the
risks set forth herein, each of which could adversely affect the Company's
business and the accuracy of the forward-looking statements contained herein.
ii
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information in this Prospectus.
This summary should be read in conjunction with, and is qualified in its
entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. The
Shares offered hereby involve a high degree of risk. Investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
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 and commercial
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. Additionally, as part of the
plan of reorganization, the Company acquired approximately 76% of the
outstanding stock of AccuLase, Inc. ("AccuLase"), a development stage company.
The Company's assets are shared by its medical and scientific product
lines.
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,
commercial 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.
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. Three 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, an excimer laser
angioplasty system for removing atherosclerotic blockages from coronary
arteries and an excimer laser system to treat psoriasis.
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.
The Company's principal executive offices are located at 6865 Flanders
Drive, Suite G, San Diego, California 92121, (619) 455-7030.
2
<PAGE>
THE OFFERING
Securities Offered by the
Selling Stockholders............... 3,879,500 Shares of Common Stock to
be offered, including 2,979,500 shares
issued in the name of the Selling
Stockholders and 900,000 shares
which may be issued upon the
exercise of the Warrants for the
account of certain Selling
Stockholders. See "Description of
Securities" and "Selling
Stockholders and Plan of
Distribution."
Common Stock Outstanding(1):
Before the Offering.......... 9,246,095 shares
After the Offering........... 9,246,095 shares (2)
Use of Proceeds................ The Company will receive none of the
proceeds from the sale of the Shares
offered hereby for the benefit of the
Selling Stockholders. However, the
Company may receive up to a maximum
of $3,600,000 of gross proceeds
from the exercise of the Warrants,
if at all. The Company intends to
use the net proceeds of this
Offering received from the exercise
of the Warrants for working capital
and general corporate purposes.
See "Use of Proceeds" and "Selling
Stockholders and Plan of
Distribution."
Risk Factors and Dilution..... The securities offered hereby are
highly speculative and involve a high
degree of risk. These factors include,
but are not limited to risks related
to the Company's historical lack of
profitability, legislative and
regulatory restrictions impacting the
Company's business operations and
industry and the market for the
securities offered hereby. An
investment in these securities
should be made only by investors
who can afford the loss of their
entire investment. See "Risk
Factors."
Over-the-Counter Market
Symbol
Common Stock.................. LPST
__________________________
(1) Does not include shares of Common Stock that are reserved for
issuance pursuant to certain stock option plans of the Company and certain
other options of the Company. See "Price Range of Common Stock," "Management -
Stock Option Plans," "Certain Relationships and Related Transactions" and
"Description of Securities."
(2) Does not give effect to 900,000 shares of Common Stock which may be
issued upon the exercise of the Warrants. See "Selling Stockholders and Plan
of Distribution" and "Description of Securities."
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
(In Thousands, except for Per Share Data)
The Summary Financial Information set forth below should be read in
conjunction with the audited and unaudited financial statements included
elsewhere herein:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -----------------
1/1-5/22 5/23-12/31
1992(1) 1993(1) 1994 1995(2) 1995(2) 1996 1996 1997
------- ------- ---- ------- ------- ---- ---- ----
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 8,503 6,090 5,715 1,242 1,408 2,901 2,162 2,341
Net income (loss) (3,663) (3,718) (2,234) 4,839(3) (2,124) (5,358) (2,488) (1,765)
Net income (loss) per
common share (0.68) (0.58) (0.35) 0.77 (0.42) (0.95) (0.46) (0.28)
Weighted average
common shares
outstanding(4) 5,351 6,361 6,312 6,312 5,000 5,620 5,409 6,253
DECEMBER 31,
------------------------------------------------------
5/22 12/31 SEPTEMBER 30, 1997
1992(1) 1993(1) 1994 1995(2) 1995(2) 1996 ACTUAL AS ADJUSTED(5)
------- ------- ---- ------- ------- ---- ------ -------------
BALANCE SHEET DATA
Working capital (deficit) 1,759 (1,823) 960 (99) (610) (1,728) (1,054) 456
Total assets 10,634 4,511 2,144 1,715 5,796 3,195 3,062 8,572
Liabilities subject
to compromise ----- ----- 7,930 7,564 ----- ----- ----- ------
Long-term debt, deferred revenue
and capital lease obligations 6,709 3,872 ----- ----- 867 283 2,806 646
Total stockholders'
equity (deficit) (1,398) (4,409) (6,643) (7,404) 686 (2,090) (2,474) 5,195
</TABLE>
____________________
(FOOTNOTES ARE ON FOLLOWING PAGE)
4
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
(1) These amounts have been derived from certain unaudited financial statements
of the Company.
(2) In connection with the confirmation of the Bankruptcy Plan on May 22, 1995,
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 May 23, 1995
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 Bankruptcy 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 Bankruptcy 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, reflect that of
Company on and after May 23, 1995, 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 reflect that of the
Company prior to May 23, 1995.
(3) Includes an extraordinary gain of $5,768,405.
(4) Common Stock equivalents and convertible issues are antidilutive and,
therefore, are not included in the weighted shares outstanding during the
years the Company incurred net losses.
(5) PRO FORMA to give effect to: (i) the sale of 1,600,000 shares of Common
Stock subsequent to September 30, 1997, (ii) the application of the net
proceeds therefrom estimated at approximately $5,510,000 and (iii) the
issuance of 800,000 shares to purchase a note payable by AccuLase, Inc., a
subsidiary of the Company ("AccuLase") in the amount of $2,159,708. See
"Use of Proceeds," "Capitalization" and "Description of Securities."
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. AN INVESTMENT IN THESE SECURITIES
SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN ADDITION TO THE FACTORS SET FORTH ELSEWHERE IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL CONSIDERATION TO THE FOLLOWING RISK
FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.
THIS PROSPECTUS MAY BE DEEMED TO CONTAIN FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF THE REFORM ACT. FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS
OR HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE
COMMISSION, REPORTS TO THE COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE
STATEMENTS ISSUED OR RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE
RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON
MANAGEMENT'S BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT
RESULTS OF OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, RISKS SET
FORTH HEREIN, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND
THE ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
LACK OF PROFITABILITY AND HISTORY OF LOSSES; BANKRUPTCY PROCEEDING. The
Company historically has incurred significant net losses from operations. On
May 13, 1994, the Company filed a voluntary petition of reorganization (the
"Bankruptcy Proceeding") with the United States Bankruptcy Court for the
Middle District of Florida (the "Bankruptcy Court") pursuant to Chapter 11 of
the United States Bankruptcy Code. During the pendency of the Bankruptcy
Proceeding, the Company conducted its business operations as a
debtor-in-possession, subject to the jurisdiction of the Bankruptcy Court.
On May 22, 1995, the Bankruptcy Court confirmed the Company's Third Plan of
Reorganization (the "Bankruptcy Plan"). As of September 30, 1997, the
Company had an accumulated deficit of $9,246,755. The Company expects to
continue to incur significant operating losses over at least the following
two years as it continues to devote significant financial resources to
product development activities and as the Company expands its operations. In
order to achieve profitability, the Company will have to manufacture and
market products which are accepted on a widespread commercial basis. There
can be no assurances that the Company will manufacture or market any products
successfully, operate profitably in the future, or that Company will not
require significant additional financing in order to accomplish the Company's
current business plan. See "Use of Proceeds," "Management's Discussion and
Analysis of Results of Operations and Financial Condition," "Business" and
"Financial Statements."
NEED FOR ADDITIONAL FINANCING. Management of the Company has included an
explanatory footnote in the Company's financial statements to the effect that
there is doubt about the Company's ability to continue as a going concern
because of the magnitude of its losses since emerging from the Bankruptcy
Proceeding and the Company's existence is dependent upon its ability to raise
substantial capital, to increase sales and to improve operations significantly.
The Company has historically financed its operations significantly through the
private placement of equity and debt securities. The Company has significant
debt obligations which will require additional financing in order to repay in
full. The Company will not receive any of the proceeds from this Offering,
except to the extent any of the Selling Stockholders exercise the Warrants
which relate to certain of the shares of Common Stock which are the subject of
this Prospectus. The Company continues to require such financing in order to
accomplish the Company's current business plan. The Company believes that the
Company has sufficient capital to finance the Company's operations and
continued development of the Company's products for a period of at least
thirteen (13) months following the date of this Prospectus, based on the
Company's current business plan. However, there can be no assurance that the
Company will be able to generate sufficient revenues prior to such date or at
all, or that the Company will not require additional
6
<PAGE>
financing at or prior to such date in order to continue operations and
product development. There can be no assurances that any additional sources
of financing will be available on terms favorable to the Company, or at all,
or that the business of the Company will ever achieve profitable operations.
Further, any additional financing may be senior to the Company's Common Stock
or result in significant dilution to the holders of the Common Stock. In the
event the Company does not receive any such financing or generate profitable
operations, management may have to suspend or discontinue its business
activity or certain components thereof in its present form or cease
operations altogether. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -Liquidity and Capital
Resources" and "Financial Statements."
CONSENT DECREE. In 1996, the Company entered into a consent decree with the
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.
There can be no assurance that the Consent Decree will not have an adverse
effect on the Company's ability to conduct financings in the future. See
"Business - Litigation."
ASSETS ENCUMBERED; POTENTIAL LITIGATION. Substantially all of the
Company's assets are encumbered by liens granted in favor of certain of the
Company's creditors. As a result of the chronic lack of working capital of
the Company, the Company is in arrears on a number of obligations to third
parties. One party has filed security interests on certain of the assets of
the Company under the Uniform Commercial Code. In the event that any of such
parties should execute on their security interests or such assets should be
seized, the Company could be materially adversely affected. In the event the
Company should become party to any litigation relating to these obligations,
the costs of defending against such claims could be substantial, and the
Company could be materially adversely affected.
INSUFFICIENT AUTHORIZED CAPITAL; POTENTIAL FORCED REDEMPTION; RESTRICTIONS
ON RAISING ADDITIONAL CAPITAL. The Company's Certificate of Incorporation
currently authorizes the issuance of up to 10,000,000 shares of Common Stock.
As of the date of this Prospectus, the Company has 9,246,095 shares of Common
Stock issued and outstanding. As a result, there not sufficient authorized
shares of Common Stock to be issued in the event of the exercise of all of
the currently issued and outstanding exercisable options and Warrants of the
Company. The Company has agreed, on a best efforts basis, to increase the
authorized capital of the Company to be able to issue the shares of Common
Stock underlying the 900,000 Warrants on or before four (4) months following
November 27, 1997, or the holders of the Warrants may be entitled to require
the Company to redeem up to 1,500,000 shares of Common Stock acquired on
November 27, 1997 for a gross purchase of $6,000,000. The Company will
require the consent of the Company's stockholders to adopt an amendment to
the Company's Certificate of Incorporation in order to increase the
authorized capitalization. There can be no assurances that the Company will
be able to comply with this obligation in a timely manner, and if not, the
Company may be obligated to redeem the 1,500,000 shares. The Company does
not have sufficient resources to pay for such redemption, and any obligation
to do so would have a material adverse effect on the Company's financial
condition. Further, the limited authorized capitalization of the Company
severely restricts the Company's ability to raise capital through the
issuance of the Company's securities, and the Company may be unable to raise
necessary financing in the event that the Company does not increase the
authorized capitalization. See "Description of Securities."
7
<PAGE>
TECHNOLOGICAL UNCERTAINTY; NO ASSURANCE OF REGULATORY APPROVALS. Certain of
the Company's laser products will require significant clinical testing and
regulatory clearances prior to the Company's ability to market such products
for medical use. The proposed development of these products is subject to the
risks of failure in the development of devices and procedures based on
innovative technologies. These risks include the possibilities that the
Company's laser and/or delivery system or the medical treatments they embody,
will be found to be ineffective, or otherwise fail to receive necessary
regulatory clearances, or uneconomical to market. Accordingly, management is
unable to predict whether its development activities will result in any
commercially viable products or applications. There can be no assurance that
proposed products will prove to be safe or effective or receive regulatory
approvals that are required for commercial sale.
NEED TO DEVELOP, AND POTENTIAL OBSOLESCENCE OF, NEW PRODUCTS. The Company is
engaged in the business of developing new products and technologies for the
laser industry. Certain of the Company's lasers are marketable for non-medical
uses and certain lasers need to complete clinical testing and obtain regulatory
approval for medical uses. No assurance can be given that the Company will be
able to complete such testing or obtain such approvals. The markets for the
Company's products are characterized by rapidly changing technology, frequent
new product introductions and price erosion. Accordingly, the Company believes
its future prospects depend on its ability not only to enhance and successfully
market its products, but also to develop and introduce new products in a timely
fashion that achieve market acceptance. There can be no assurance that the
Company will be able to identify, design, develop, market or support such
products successfully or that the Company will be able to respond effectively
to technological changes or product announcements by competitors. Delays in
new product introductions or product enhancements, or the introduction of
unsuccessful products, could have a material adverse effect on the Company. No
assurance can be given that technologies developed by others will not render
any product developed by the Company obsolete, or otherwise significantly
diminish the value of the Company's products, or that there will still be a
market for such product by the time such product is ready for
commercialization. If the Company does not develop a market for the Company's
products at a time when a market window for such a product is still open, there
would be a material adverse effect on the Company's financial position. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
RISK OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS. The Company's growth
will depend on the Company's ability to identify, develop and successfully
market its products. The laser industry is populated by many companies of
various sizes and types and are characterized by constant and rapid
technological and other change, innovation and new discoveries, which make
conducting such a business more difficult. The identification of specific
market needs is seldom made by any one company alone, and no assurance can be
given that there are not many other laser companies actively engaged in
developing products designed to solve the needs identified by the Company or
that one or more such companies could not develop a product which has the
effect of capturing the market which has been targeted by management of the
Company for its products or making obsolete a product or technology developed
by the Company. There can be no assurance that any products which may be
developed by the Company, if at all, will meet any specific needs then
existing in the market or that such products will obtain commercial
acceptance in the market. See "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Financial
Statements."
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DIFFICULTY OF MARKETING THE COMPANY'S PRODUCTS. The Company faces a number
of obstacles to the successful marketing of certain of its products and certain
of its products which are ready for marketing, but which have not been
successfully marketed as of the date of this Prospectus. No assurance can be
given that the markets currently projected by the Company for such products
will exist, or if it does, that the products using the Company's technologies
will achieve acceptance in the market. Even in the event that the Company's
products find a level of market acceptance, there can be no assurance that the
sale of such products will generate significant revenue for or result in
profitability to the Company. The Company may face a formidable task in
marketing such products in the face of efforts by other companies to market
their own products, even if such companies' products do not, in the opinion of
management of the Company, perform as effectively or efficiently as the
Company's products. Further, no assurance can be given that any market share
which may be achieved by the Company will not be overtaken by products
manufactured by other companies possessing far greater technical and financial
resources. See "Business--Products;--Competition."
DEPENDENCE ON THIRD PARTIES FOR RESEARCH, DEVELOPMENT, MANUFACTURE AND
MARKETING OF PRODUCTS AND RISKS OF ACCESS TO ALTERNATIVE SOURCES AND DELAYS.
The Company does not have sufficient financial resources, by itself, to
conduct human clinical trials and the other research and development
necessary to commercialize the application of the laser and delivery system
to cardiovascular and vascular applications for medical use. The Company has
entered into an agreement (the "Baxter Agreement") with Baxter Healthcare
Corporation, a subsidiary of Baxter International, Inc. ("Baxter"), pursuant
to which Baxter has agreed to provide certain limited commitments to fund
research, development and marketing of the Company's laser technology for
cardiovascular and vascular applications. However, Baxter may terminate any
such commitment pursuant to the Baxter Agreement and cease further funding at
any time, and likely will do so if research and clinical results make the
Company's laser and delivery system look less attractive. The Company may
rely on outside parties for the research, development and marketing of its
products. There can be no assurance that these third parties will be willing
or able to meet the Company's product needs in a satisfactory and timely
manner. Although the Company believes that these third parties would have an
economic incentive to provide such assistance for the Company, the amount and
timing of resources to be devoted to these activities are not within the
control of the Company, and there can be no assurance that manufacturing and
marketing problems will not occur in the future.
Production of the Company's lasers requires specific component parts used in
the assembly of lasers from certain suppliers. In the event that such
suppliers cannot meet the Company's needs, the Company believes that
alternative suppliers could be found. However, a change in suppliers or any
significant delay in the Company's ability to have access to such resources
would have a material adverse effect on the Company's delivery schedules,
business, operating results and financial condition.
There can be no assurance that the Company will be able to enter into
agreements with additional third parties to develop or market the Company's
products, or that, if it is able to enter into such agreements, that those
agreements will be on terms favorable to the Company. Different specifications
of such third parties for marketing products may require the Company to
generate a new design for each such third party, and may cause additional
delays and may cause the Company to incur substantial additional costs.
Product positioning and market acceptance may be adversely affected by such
delays, particularly if competitors introduce improved or superior products
during such period.
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The Company maintains limited manufacturing facilities and will need to
expand such facilities to effectively manufacture its products on a profitable
basis. Although certain members of the Company's management have manufacturing
experience, the expansion of the Company's manufacturing facilities and
capabilities will subject the Company to numerous risks, including
unanticipated technological problems or delays. Such expansion will also
require additional sources of capital, which may not be available on
commercially reasonable terms, if at all. In the event that the Company is
unable to expand its manufacturing facilities and capabilities, the Company may
be required to enter into arrangements with others for the manufacture and
packaging of its proposed products. There can be no assurance that the Company
will be able to enter into any such arrangements on commercially reasonable
terms, or at all, or that the Company will ever be able to establish the
capability to manufacture its products on a commercial basis, in which case the
Company's business, results of operations and financial condition would be
materially adversely affected.
In addition, there can be no assurance that either the Company, Baxter or any
future prospective corporate partners, will be able to successfully introduce
the laser and delivery system so that it will achieve acceptance by patients,
health care providers and insurance companies, or that it can be manufactured
and marketed at prices that would permit the Company to operate profitably.
DEPENDENCE ON THE BAXTER AGREEMENT. As of the date of this Prospectus, the
Company has entered into a contract with Baxter Healthcare Corporation
("Baxter") which has the potential for generating revenue from the sale or
license of the Company's excimer laser products for certain uses. If the
Company is unable to meet its obligations under the Baxter Agreement, or if
the Baxter Agreement is terminated for any reason, there could be a material
adverse effect on the Company's financial condition, and the Company may be
compelled to curtail or cease business operations altogether. See
"Business--Baxter Agreement."
DEPENDENCE ON EFFECTIVE PRODUCT DEVELOPMENT. In order to compete
successfully in the future, the Company will continuously need to develop
higher performance versions of lasers, and will also need to develop future
generations of products. Certain of the Company's future products will require
significant additional research and development prior to their
commercialization. The nature of the Company's research and development
activities is inherently complex, precluding definitive statements as to the
time required and costs involved in reaching certain objectives. Consequently,
actual research and development costs and estimated time frames may require
extension. Any delays or additional research costs could require the raising
of funds and therefore could have a material adverse effect on the Company's
business and results of operations. There can be no assurance that any
potential products will be capable of being produced in commercial quantities
on a timely basis at acceptable costs or be successfully marketed, or that the
Company will be able to obtain such additional financing on terms favorable to
the Company, or at all. See "Business."
UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT. In the United States,
health care providers, including hospitals and physicians, that purchase
devices with medical applications for treatment of their patients, generally
rely on third-party payors, principally federal Medicare, state Medicaid and
private health insurance plans, to reimburse all or a part of the costs and
fees associated with the procedures performed using these devices. The
Company's ultimate success will be dependent upon, among other things, the
ability of health care providers to obtain satisfactory reimbursement from
third-party payors for medical procedures in which the laser and delivery
system products are used. Third-party payors may deny reimbursement if they
determine that a prescribed device has not received appropriate regulatory
clearances or approvals, is not used in accordance with cost-effective
treatment methods as determined by the payor, or is experimental, unnecessary
or inappropriate. If FDA clearance or approval is received, third-party
reimbursement would also depend
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upon decisions by Health Care Financing Administration ("HCFA") for Medicare,
as well as by individual health maintenance organizations, private insurers
and other payors.
Reimbursement systems in international markets vary significantly by country
and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
devices and procedures. In most markets, there are private insurance systems
as well as government managed systems. There can be no assurance that
reimbursement for the Company's products will be available in the United States
or in international markets under either government or private reimbursement
systems, or that physicians will support and advocate reimbursement for
procedures using the Company's products. Failure by hospitals and other users
of the Company's products to obtain reimbursement from third-party payors, or
changes in government and private third-party payors' policies toward
reimbursement for procedures employing the Company's products, would have a
material adverse effect on the Company's ultimate business prospects.
Moreover, management is unable to predict what additional legislation or
regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future, or what effect such
legislation or regulation would have.
UNCERTAINTY RELATED TO HEALTH CARE REFORM. Political, economic and
regulatory influences are subjecting the health care industry in the United
States to a fundamental change. Management anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative health care delivery and payment systems. Potential approaches
that have been considered include mandated basic health care benefits, controls
on health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, the creation of large
insurance purchasing groups, price controls and other fundamental changes to
the health care delivery system. Legislative debate is expected to continue in
the future, and market forces are expected to demand reduced costs. Management
cannot predict what impact the adoption of any federal or state health care
reform measures, future private sector reform or market forces may have on its
business.
PRODUCT DEFECTS; LIMITS OF PRODUCT LIABILITY INSURANCE. One or more of the
Company's products may be found to be defective after the Company has already
shipped in volume, requiring a product replacement which might cure such
defect. Product returns and the potential need to remedy defects or provide
replacement products or parts could impose substantial costs to the Company
and have a material adverse effect on the Company. The clinical testing,
manufacturing and marketing of the Company's devices and procedures may
expose the Company to product liability claims. The Company maintains
liability insurance with coverage limits of $1,000,000 per occurrence and
$2,000,000 in the annual aggregate amount. Although the Company has never
been subject to a product liability claim, there can be no assurance that the
coverage limits of the Company's insurance policies will be adequate or that
one or more successful claims brought against the Company would not have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business."
LARGER AND MORE ESTABLISHED COMPETITION. The market for the Company's
products is extremely competitive. The Company directly and indirectly
competes with other businesses, including businesses in the laser industries.
In most cases, these competitors are substantially larger and more firmly
established, have greater marketing and development budgets and substantially
greater capital resources than the Company. Accordingly, there can be no
assurance that the Company will be able to achieve and maintain a competitive
position in the Company's industry. Further, in order to compete effectively
in the market for the Company's lasers, the Company must develop and introduce
on a timely basis competitive products that embody new technology, meet
evolving industry standards, and achieve increased levels of performance at
prices acceptable to the market. In particular, the market for laser products
has been and continues to be characterized by intense and increasing price
competition.
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Many companies, research institutes and universities are working in a number
of disciplines to develop therapeutic devices and procedures aimed at vascular
and cardiovascular disease. Most of these companies, research institutes and
universities have substantially greater financial, technical, manufacturing
marketing, distribution and/or other resources than the Company. In addition,
many of such companies have experience in underlying human clinical trials of
new or improved therapeutic devices and procedures and obtaining U.S. Food and
Drug Administration ("FDA") and other regulatory clearances of devices and
procedures for use in human health care. The Company has limited experience in
conducting and managing clinical testing and in preparing applications
necessary to gain regulatory clearances. Accordingly, other companies may
succeed in developing devices and procedures that are safer or more effective
than those proposed to be developed by the Company and in obtaining FDA
clearances for such devices and procedures more rapidly than the Company.
Further, it is expected that competition in this field will intensify over the
next few years.
The Company's competitors spend substantial sums on research and
development for laser products in order to maintain their respective market
positions. The Company does not have comparable resources with which to
invest in research and development and is at a competitive disadvantage with
respect to its ability to develop products. The Company may also encounter
difficulties in customer acceptance because it is likely to be perceived as a
new laser supplier whose identity is not yet well known and whose reputation
and commercial longevity are not yet established. Substantial marketing and
promotional costs, possibly in excess of what the Company can afford, may be
required to overcome these barriers. There can be no assurance that the
Company will be able to overcome such barriers. The failure to gain customer
acceptance of the Company's lasers and related technology would have a
material adverse effect on the Company. See "Business - Competition."
NO MARKETING STUDIES. No independent studies with regard to feasibility of
the Company's proposed business plan have been conducted at the expense of
the Company or by any independent third parties with respect to the Company's
present and future business prospects and capital requirements. In addition,
there can be no assurances that the Company's products will find sufficient
commercial acceptance in the marketplace to enable the Company to fulfill its
long and short term goals, even if adequate financing is available and
products are ready for market, of which there can be no assurance. See
"Business."
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the skills of its
management and technical team. There is strong competition for qualified
personnel in the laser industry, and the loss of key personnel or an inability
to continue to attract, retain and motivate key personnel could adversely
affect the Company's business. There can be no assurances that the Company
will be able to retain its existing key personnel or to attract additional
qualified personnel. The Company does not have key-person life insurance on
any of its employees. See "Management."
RELIANCE ON PATENT PROTECTION AND PROPRIETARY TECHNOLOGY. The Company's
business could be adversely affected if it is unable to protect its
intellectual property, including patented and other proprietary technology,
certain of which is licensed by the Company and certain of which is owned by
the Company. To the extent the Company or the owners of the patented
technology are unsuccessful in protecting proprietary rights to such
technology or such technology may infringe on proprietary rights of third
parties, that portion of the Company's business could suffer. The Company's
more significant proprietary technology is based on unpatented trade secrets
and know-how. To the extent that the Company relies upon unpatented trade
secrets and know-how and the development of new products and improvements
thereon in establishing and maintaining a competitive
12
<PAGE>
advantage in the market for the Company's products, there can be no
assurances that such proprietary technology will remain a trade secret or
that others will not develop substantially equivalent or superior
technologies to compete with the Company's products. In addition, there can
be no assurances that others will not independently develop similar or
superior technologies which will enable them to provide superior products or
services. Further, there can be no assurances that patentable improvements
on such technology will be developed or that existing or improved technology
will have competitive advantages or not be challenged by third parties.
Further, the laser industry has been marked by costly and time-consuming
litigation with respect to intellectual property rights between competitors.
There can be no assurances that third parties will not claim that some or all
of the Company's technology infringes on proprietary rights of others. Such
litigation may be used to seek damages or to enjoin alleged infringement of
proprietary rights of others. Further, the defense of any such litigation,
whether or not meritious, may divert financial and other resources of the
Company, which may otherwise be devoted to development of the Company's
business plan, and therefore, may have a material adverse effect on the
financial condition of the Company. An adverse decision to the Company in
any such litigation may result in a significant damages award payable by the
Company or enjoin the Company from marketing its then existing products, and
therefore, would have an adverse effect on the Company's ability to continue
in business. In the event of an adverse result in such litigation, the
Company would be required to expend significant resources to develop
non-infringing technology or to obtain licenses to the disputed technology
from third parties. There can be no assurances that the Company will have
the resources to develop or license such technology, or if so, that the
Company would be successful in such development or that any such licenses
would be available on commercially reasonably terms.
Further, the Company may be required to commence litigation against third
parties to protect any proprietary rights of the Company. There can be no
assurances that the Company will be able to afford to prosecute such
litigation, or if so, that such litigation will be successful. See "Business -
Patents."
DISCLOSURE RELATING TO LOW-PRICED STOCKS. The Company's Common Stock is
currently listed for trading in the over-the-counter market (the "Over-the-
Counter Market") in the so-called "pink sheets" or the "Electronic Bulletin
Board" of the National Association of Securities Dealers, Inc. The Company's
securities are subject to the "penny stock rules" adopted pursuant to Section
15 (g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The penny stock rules apply to non-NASDAQ companies whose common stock trades
at less than $5.00 per share or which have tangible net worth of less than
$5,000,000 ($2,000,000 if the company has been operating for three or more
years). Such rules require, among other things, that brokers who trade "penny
stock" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade "penny stock" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. Because the Company's
securities are subject to the "penny stock rules," there may develop an adverse
impact on the market for the Company's securities. See "Price Range of Common
Stock."
CERTAIN REGISTRATION RIGHTS. This registration statement may have a
material adverse effect on the market price for the Company's Common Stock
resulting from the increased number of free trading shares of Common Stock in
the market. There can be no assurances that
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the enforcement of such registration rights will not have a material adverse
effect on the market price for the Common Stock. See "Certain Relationships
and Related Transactions" and "Description of Securities."
LACK OF DIVIDENDS ON COMMON STOCK. The Company has paid no dividends on its
Common Stock to date and there are no plans for paying dividends in the
foreseeable future. The Company intends to retain earnings, if any, to provide
funds for the expansion of the Company's business. See "Dividend Policy" and
"Description of Securities."
POTENTIAL ANTI-TAKEOVER EFFECT OF DELAWARE LAW. The Company is subject to
certain provisions of the Delaware General Corporation Law which, in general,
restrict the ability of a publicly held Delaware corporation from engaging in
certain "business combinations," with certain exceptions, with "interested
stockholders" for a period of three (3) years after the date of transaction in
which the person became an "interested stockholder." The effect of such "anti-
takeover" provisions may delay, deter or prevent a takeover of the Company
which the stockholders may consider to be in their best interests, thereby
possibly depriving holders of the Company's securities of certain opportunities
to sell or otherwise dispose of their securities at above-market prices, or
limit the ability of stockholders to remove incumbent directors as readily as
the stockholders may consider to be in their best interests. See "Description
of Securities - Certain Business Combinations."
SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES. Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. There are
currently 105,000 restricted shares and 9,141,095 shares of Common Stock
which are freely tradeable, eligible to have the restrictive legend removed
pursuant to Rule 144(k) promulgated under the Securities Act or are the
subject of this Prospectus or other registration statements. Further, the
Company has granted options to purchase up to an additional 1,463,500 shares
of Common Stock, 343,000 of which are currently exercisable, and warrants to
purchase up to 900,000 shares of Common Stock. Sales of substantial amounts
of Common Stock in the public market, or the perception that such sales may
occur, could have a material adverse effect on the market price of the Common
Stock. Pursuant to its Certificate of Incorporation, the Company has the
authority to issue additional shares of Common Stock. The issuance of such
shares could result in the dilution of the voting power of Common Stock
purchased in the Offering. See "Compensation of Executive Officers and
Directors" "Principal Stockholders," "Description of Securities" and "Shares
Eligible for Future Sale."
EFFECT OF OUTSTANDING WARRANTS. The holders of the Warrants are given an
opportunity to profit from a rise in the market price of the Common Stock,
with a resulting dilution in the interest of the other stockholders.
Further, the terms on which the Company might obtain additional financing
during the period may be adversely affected by the existence of the Warrants.
The holders of the Warrants may exercise the Warrants at a time when the
Company might be able to obtain additional capital through a new offering of
securities on terms more favorable than those provided herein. See
"Description of Securities."
LIMITATIONS ON DIRECTOR LIABILITY. The Company's Certificate of
Incorporation provides, as permitted by governing Delaware law, that a director
of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
with certain exceptions. These provisions may discourage stockholders from
bringing suit against a director for breach of fiduciary duty and may reduce
the likelihood of derivative litigation brought by stockholders on behalf of
the Company against a director. In addition, the Company's Certificate of
Incorporation and Bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. See "Management."
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered hereunder. However, the Company may receive up to
$3,600,000 of gross proceeds from the exercise of the Warrants, if at all. The
net proceeds to the Company from the exercise of the 900,000 Shares which may
be issued upon the exercise of the Warrants will be used for working capital
and general corporate purposes.
Management believes that, based on the Company's current business plan, the
Company currently has sufficient operating capital for a period of at least
thirteen (13) months following the date of this Prospectus, excluding any
proceeds which may be received from the exercise of the Warrants, if at all.
However, there can be no assurance that changes in the Company's research and
development plans or other changes affecting the Company's operating expenses
and business strategy will not result in the expenditure of such resources
before such time or the Company will be able to develop profitable operations
prior to such date, or at all, or that the Company will not require
additional financing at or prior to such time in order to continue operations
and product development. There can be no assurance that additional capital
will be available on terms favorable to the Company, if at all. To the
extent that additional capital is raised through the sale of additional
equity or convertible debt securities, the issuance of such securities could
result in additional dilution to the Company's stockholders. Moreover, the
Company's cash requirements may vary materially from those now planned
because of results of research and development, product testing, changes in
the focus and direction of the Company's research and development programs,
competitive and technological advances, the level of working capital required
to sustain the Company's planned growth, litigation, operating results,
including the extent and duration of operating losses, and other factors. In
the event that the Company experiences the need for additional capital, and
is not able to generate capital from financing sources or from future
operations, management may be required to modify, suspend or discontinue the
business plan of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources" and "Financial Statements."
Pending full utilization of the proceeds which may be obtained from the
exercise of the Warrants, if at all, the Company may invest the net proceeds in
short-term, investment grade, interest bearing securities. See "Business."
DIVIDEND POLICY
No dividend has been declared or paid by the Company since inception on the
Company's Common Stock. The Company does not anticipate that any dividends will
be declared or paid in the future on the Company's Common Stock. See
"Description of Securities."
PRICE RANGE OF COMMON STOCK
As of the date of this Prospectus, the Company had 9,246,095 shares of
Common Stock issued and outstanding. Further, the Company has issued and
outstanding options and warrants to purchase an additional 1,463,500 shares
of Common Stock.
The Company's Common Stock is listed for trading in the Over-the-Counter
Market under the symbol "LSPT." The Company's Common Stock, subsequent to the
confirmation of the Bankruptcy Plan on May 22, 1995, has been quoted on the
Electronic Bulletin Board since approximately January 22, 1996 under the stock
symbol "LPST". The Company's "old" Common Stock, prior to the confirmation of
the Bankruptcy Plan, was also quoted on the Electronic Bulletin Board in 1993,
and during the period from May 13, 1994 to May 22, 1995, during the pendency of
the related Bankruptcy Proceeding, in the "pink sheets" under the stock symbol
"LAPHQ."
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The following table sets forth quotations for the bid and asked prices for
the Common Stock for the periods indicated below, based upon quotations between
dealers, without adjustments for stock splits, dividends, retail mark-ups, mark-
downs or commissions, and therefore, may not represent actual transactions:
BID PRICES ASKED PRICES
---------- ------------
HIGH LOW HIGH LOW
---- --- ---- ---
Year Ended December 31, 1996
1st Quarter 7 3/4 4 1/2 8 1/4 5 3/4
2nd Quarter 8 1/4 3 3/4 8 1/2 4 1/4
3rd Quarter 5 3/8 3 5/8 5 5/8 4
4th Quarter 3 11/16 11/16 4 1/8 1 13/16
Year Ending December 31, 1997
1st Quarter 2 9/32 5/16 2 5/16 3/8
2nd Quarter 1 5/16 5/16 1 7/16 13/32
3rd Quarter 4 3/8 7/8 4 9/16 1 1/16
4th Quarter 6 1/8 2 31/32 6 3/8 3 1/8
On January 23, 1998, the closing market price for the Company's Common
Stock in the Over-the-Counter Market was approximately $3.50 per share.
As of January 21, 1998, without giving effect to the number of stockholders
whose shares are held in "street name," the Company had approximately 1,050
stockholders of record.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of: (i)
September 30, 1997, (ii) as adjusted to reflect the sale of 1,600,000 shares
of Common Stock subsequent to September 30, 1997, and (iii) the issuance of
800,000 shares of Common Stock to purchase a note payable by AccuLase, a
subsidiary of the Company, in the amount of $2,159,708. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Certain Relationships and Related Transactions" and " Selling Stockholders and
Plan of Distribution." This table should be read in conjunction with the
financial statements and related notes included elsewhere in this Prospectus:
SEPTEMBER 30, 1997
ACTUAL AS ADJUSTED(1)
NOTES PAYABLE:
Current portion $ 612,367 $ 612,367
Long term 2,442,267 282,559
STOCKHOLDERS' EQUITY:
Common Stock, par value
$0.01; 10,000,000 shares
authorized; issued and
outstanding 6,846,095 shares;
9,246,095 as adjusted(2) 68,471 92,471
Additional paid-in-capital 6,704,341 14,349,751
Accumulated deficit (9,246,755) (9,246,755)
Total stockholders'
equity (deficit) (2,473,943) 5,195,467
Total capitalization $ 580,691 $ 6,090,393
________________________
(1) Does not include shares of Common Stock that are reserved for issuance
pursuant to certain stock option plans of the Company and certain other options
of the Company. See "Management - Stock Option Plans," "Certain Relationships
and Related Transactions," "Description of Securities" and "Selling
Stockholders and Plan of Distribution."
(2) As of the date of this Prospectus, the Company had 9,246,095 shares of
Common Stock issued and outstanding. Does not give effect to the 900,000
shares of Common Stock underlying the Warrants. See "Description of
Securities."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS, INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS
DISCLOSED IN THE "RISK FACTORS" SECTION OF THIS PROSPECTUS, WHICH PROSPECTIVE
PURCHASERS OF THE SECURITIES OFFERED HEREBY SHOULD CONSIDER CAREFULLY.
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and related Notes included elsewhere in
this Prospectus.
BASIS FOR PREPARATION OF FINANCIAL STATEMENTS.
The consolidated financial statements filed elsewhere herein 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 and in connection with the confirmation of
the Bankruptcy Plan on May 22, 1995, 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 May 23, 1995 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 Bankruptcy 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 Bankruptcy 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, reflect that of Company on and after
May 23, 1995, 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 reflect that of the Company prior to May 23, 1995.
RESULTS OF OPERATIONS
Although results of operations are given for 1994, 1995 and 1996, the
results of operations in 1995 and 1996 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 due to the Plan of Reorganization.
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RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
Sales for the nine months ended September 30 ,1997 increased by 8% to
$2,340,699 over the $2,161,608 reported for the nine months ended September
30, 1996. The increase in sales was due to increases from the first quarter
of 1997. Sales for the three months ended September 30, 1997 decreased by 14%
to $667,122 compared to $779,294 reported for the three months ended
September 30, 1996. During the three months ended September 30, 1997, the
Company recognized $336,693 of income relating to funds received from Baxter
in connection with the Baxter Agreement which AccuLase entered into during
August 1997.
Gross profit for the nine months ended September 30, 1997 increased by
$580,242 to $1,075,823 from $495,581 reported for the nine months ended
September 30, 1996. Gross profit for the three months ended September 30,
1997 increased by $368,572 to $496,697 over the $128,125 reported for the
three months ended September 30, 1996. The increase in gross profit was due
primarily to the income recognized from the Baxter Agreement, the increase in
sales as well as a reduction in labor and other direct costs to better fit
the Company's availability of working capital.
Net loss was reduced to $1,765,232 for the nine months ended September 30,
1997 from $2,488,097 reported for the nine months ended September 30, 1996.
The reduction of $722,865 was primarily due to the recognition of income
relating to the Baxter Agreement, the reduction in amortization expense of
$325,000 relating to the write-off of reorganization goodwill during 1996 and
the improvements in gross profit.
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.
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 selling, general and administrative expenses of
$1,158,841 are LPI alone.
Many improvements were initiated during 1995 and continued into 1996 as to
reduced staffing, product selection, cost controls, budgets and planning.
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
Bankruptcy Plan. 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's 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.
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Selling, general and administrative 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 research and development 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 and loss for 1996 included in Laser
Photonics consolidation is as indicated:
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)
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 and planning. 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).
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Selling, general and administrative costs totaled $1,262,870, of which none
related to AccuLase. The Company maintained its position with regards to
selling, general and administrative expenses but implemented improvements in
medical costs, and rent expense which was 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 research and
development 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 and loss for 1995 included in Laser
Photonics consolidation is as indicated:
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)
LIQUIDITY AND CAPITAL RESOURCES
For the period ending September 30, 1997 the Company had cash and cash
equivalents of $416,101 representing a improvement from December 31, 1996 due
to equity funding in the third quarter.
The Company failed to make timely payments of certain federal and state
payroll and withholding taxes during the periods of 1996 and 1997. During
September 1997, all federal taxes except those for the quarters ended June
30, 1996 and September 30, 1996, were paid in full. As of the date of this
Prospectus, all delinquent taxes have been paid.
Funding from intercompany balances was primarily due to AccuLase's
intercompany debt to Helionetics. $150,000 of the increased intercompany
balance was due to interest accrued at a 10% annual rate on the Helionetics
note.
Bad debt expense of $259,196 represents write-offs of the Company's
intercompany balance with Helionetics. The write-off was due to Helionetics
bankruptcy filing as Helionetics was responsible for funding AccuLase through
May 22, 1997.
The Company will continue to have difficulty funding its current debt
amounts from its current cash flow, due to the minimum cash required to
purchase the inventory needed to reduce the sales backlog.
On August 19, 1997, the Company's AccuLase subsidiary executed a series of
agreements with Baxter Healthcare Corporation.
In September and November, 1997, the Company privately sold a total of
679,500 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 partial
payments on delinquent Federal and State taxes outstanding, and to make
payments on other outstanding bills.
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During October 1997, the Company purchased from a third party a note
payable of its subsidiary, AccuLase, Inc. in the amount of $2,159,708 for
800,000 shares of newly issued common stock of LPI. The effect on the
Company's financial statements will be to reduce long-term debt with a
corresponding increase in stockholders' equity in the amount of $2,159,708.
In November, 1997, the Company issued 1,500,000 shares of Common Stock and
750,000 Warrants in connection with a private financing of $6,000,000 to the
Company.
As of September 30, 1997, the Company had an accumulated deficit of
$9,246,755. Management of the Company has included an explanatory footnote
in the Company's financial statements to the effect that there is doubt about
the Company's ability to continue as a going concern because of the magnitude
of its losses since emerging from the Bankruptcy Proceeding and the Company's
existence is dependent upon its ability to raise substantial capital, to
increase sales and to improve operations significantly. See "Financial
Statements."
Management believes that, based on the Company's current business plan, the
Company has sufficient operating capital for a period of at least thirteen
(13) months following the date of this Prospectus. However, there can be no
assurance that changes in the Company's research and development plans or
other changes affecting the Company's operating expenses and business
strategy will not result in the expenditure of such resources before such
time or that the Company will be able to develop profitable operations prior
to such date, or at all, or that the Company will not require additional
financing at or prior to such time in order to continue operations and
product development. There can be no assurance that additional capital will
be available on terms favorable to the Company, if at all. To the extent
that additional capital is raised through the sale of additional equity or
convertible debt securities, the issuance of such securities could result in
additional dilution to the Company's stockholders. Moreover, the Company's
cash requirements may vary materially from those now planned because of
results of research and development, product testing, changes in the focus
and direction of the Company's research and development programs, competitive
and technological advances, the level of working capital required to sustain
the Company's planned growth, litigation, operating results, including the
extent and duration of operating losses, and other factors. In the event
that the Company experiences the need for additional capital, and is not able
to generate capital from financing sources or from future operations,
management may be required to modify, suspend or discontinue the business
plan of the Company. See "Risk Factors."
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
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statements or on any matter which was the subject of any prior disagreement
between the Company and its previous certifying accountant.
BUSINESS
GENERAL
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 Company's assets are shared by its medical and scientific product lines.
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.
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 has paid AccuLase $950,000 in cash and has agreed to pay an
additional $600,000 upon delivery of the first two commercial excimer lasers.
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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.
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
repaid Baxter the $4,000,000 in November, 1997.
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 a result of sales of
the Company's shares by Helionetics, and the issuance of additional shares by
the Company, as of the date of this Prospectus, Helionetics owned
approximately 19% of the Company's outstanding Common Stock. See "Principal
Stockholders."
MASSACHUSETTS GENERAL HOSPITAL AGREEMENT
On November 26, 1997, the Company entered into a license agreement (the
"Massachusetts General Hospital Agreement") with the General Hospital
Corporation, a not-for-profit corporation doing business as Massachusetts
General Hospital ("Massachusetts General Hospital") pursuant to which the
Company has obtained an exclusive, worldwide, royalty-bearing license from
Massachusetts General Hospital to commercially develop, manufacture, use and
sell products utilizing certain technology of Massachusetts General Hospital
related to the diagnosis and treatment of certain dermatological conditions
and diseases, including psoriasis. The licensed technology is the subject of
a currently pending provisional patent application filed in the United States
by Massachusetts General Hospital.
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The Company has agreed to use its best efforts to develop and make
commercially available products with respect to the licensed technology within
certain time frames, or Massachusetts General Hospital may have the right to
cancel the exclusive license or convert any exclusive license to a non-
exclusive license.
There can be no assurances that the Company will be able to develop any
products utilizing the licensed technology within the contractual time frame or
at all.
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.
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.
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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 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.
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.
WORKING CAPITAL. AccuLase will require significant working capital over the
next 12 months 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.
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.
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 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.
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MEDICAL APPLICATIONS AND PRODUCTS.
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 tattoos.
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.
MEDICAL LASER PRODUCTS. Set forth below is a brief summary of the Company's
current medical laser systems:
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 pulse width 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 to permanent
hair removal. The Company is awaiting FDA approval for the long pulse laser for
dermatology.
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, coagulating and vaporizing tissue.
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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 1997.
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 1997, choosing instead to focus on the
dermatology market.
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.)
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.
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.
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.
28
<PAGE>
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.
DEPENDENCE ON NEW CUSTOMERS. The Company did not have sales to a single
customer in excess of 10% of total sales in 1997.
BACK LOG ORDERS. As of December 31, 1997, the Company had an approximate
backlog of $267,000 in orders believed to be firm for its medical lasers. All
of the backlog orders at December 31, 1997 are expected to be filled during
1998.
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.
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 research and development expenditures will impact the Company's
abilities to be competitive in its markets.
During 1997, 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.
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<PAGE>
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.
SCIENTIFIC APPLICATIONS AND PRODUCTS
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.
SCIENTIFIC LASER SYSTEMS. Set forth below is a brief summary of the Company's
current scientific laser systems:
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.
30
<PAGE>
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.
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).
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.
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:
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.
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.
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<PAGE>
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 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.
DEPENDENCE ON NEW CUSTOMERS. The Company did not have sales to a single
customer in excess of 10% of total sales in 1997.
BACK LOG ORDERS. As of December 31, 1997, the Company had an approximate
backlog of $576,000 in orders believed to be firm for its scientific lasers.
All of the backlog orders at December 31, 1997 are expected to be filled
during 1998.
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.
RESEARCH AND DEVELOPMENT. In 1997, the Company's scientific research and
development 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.
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.
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<PAGE>
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. 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.
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 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.
The market for the Company's proposed products is extremely competitive. The
Company directly and indirectly competes with other businesses, including
businesses in the laser industry. In many cases, these competitors are
substantially larger and more firmly established than the Company. In
addition, many of such competitors have greater marketing and development
budgets and substantially greater capital resources than the Company.
Accordingly, there can be no assurance that the Company will be able to achieve
and maintain a competitive position in the Company's industry. Further, in
order to compete effectively in the market for laser technology, the Company
must develop and introduce on a timely basis competitive products that embody
new technology, meet evolving industry standards, and achieve competitive
levels of performance at prices acceptable to the market.
The Company's competitors include companies with substantially greater
resources in technology, finance, manufacturing, sales, marketing,
distribution, customer service and support, as well as greater experience and
name recognition, than the Company. The Company expects substantial direct
competition, both from existing competitors and from new market entrants.
Further, larger and more established competitors may seek to impede the
Company's ability to establish a market share for any products which may be
developed by the Company through competitive pricing activities. Also,
prospective customers for the Company's products may be reluctant to disrupt
relationships with well-established distributors of products which may be
comparable in quality or pricing to any of the Company's products.
Further, the Company's competitors spend substantial sums on research and
development and manufacturing facilities in order to maintain their respective
market positions. The Company does not have comparable resources with which to
invest in research and development and advertising and is at a competitive
disadvantage with respect to its ability to develop products. The Company may
also encounter difficulties in customer acceptance because it is likely to be
perceived as a new processor supplier whose identity is not yet well known and
whose reputation and commercial longevity are not yet established. Substantial
marketing and promotional costs, possibly in excess of what the Company can
afford, may be required to overcome barriers to customer acceptance. There can
be no assurance that the Company will be able to overcome such barriers. The
failure to gain customer acceptance of the Company's laser technology would
have a material adverse effect on the Company.
33
<PAGE>
PATENTS AND TRADEMARKS
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. 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. The Company 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.
The Company 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.
The Company regards its technological processes and product designs as
proprietary and seeks to protect its rights in them through a combination of
patents, internal procedures and non-disclosure agreements. The Company also
utilizes licenses from third parties for processes and designs used by the
Company which are proprietary to other parties. The Company believes that its
success will depend in part on the protection of its proprietary information
and patents, and the licenses of technologies from third parties.
There can be no assurances as to the range or degree of protection any patent
or registration which may be owned or licensed by the Company will afford, that
such patents or registrations will provide any competitive advantages for the
Company, or that others will not obtain patents or registrations similar to any
patents or registrations owned or licensed by the Company. There can be no
assurances that any patents or registrations owned or licensed by the Company
will not be challenged by third parties, invalidated, rendered unenforceable or
designed around, or that the Company's competitors will not independently
develop technologies which are substantially equivalent or superior to the
technologies owned or licensed by the Company and which do not infringe patents
or proprietary rights of the Company. Further, there can be no assurances that
any pending patent or registration applications or future applications will
result in the issuance of a patent or registration. There can be no assurances
that the Company or any licensor to the Company will be successful in
protecting its proprietary rights. No assurances can be given that the
technology owned or licensed by the Company will not infringe on patents or
proprietary rights of others, or that the Company can obtain or renew licenses
to use such proprietary rights, if necessary.
To the extent that the Company relies upon trade secrets and unpatented know-
how, and the development of new products and improvements of existing products
in establishing and maintaining a competitive advantage in the market for the
Company's products and services, there can be no assurances that such
proprietary technology will remain a trade secret or be available to the
Company, or that others will not develop substantially equivalent or superior
technologies to compete with the Company's products and services.
Any asserted claims or litigation to determine the validity of any third
party infringement claims could result in significant expense to the Company or
any licensor of such technology and divert the efforts of the Company's
technical and management personnel, whether or not such litigation is resolved
in favor of the Company or any such licensor. In the event of an adverse
result in any such litigation, the Company or any such licensor could be
required to expend significant time and resources to develop non-infringing
technology or to obtain licenses to the disputed technology from third parties.
There can be no assurances that the Company or any such licensor would be
successful in such development or that any such licenses would be available to
the Company on commercially reasonably terms, if at all.
34
<PAGE>
EMPLOYEES
As of January 22, 1998, the Company had approximately 35 full-time employees,
including 16 employees in the Company's Florida offices, 7 in the Company's
Massachusetts offices and 12 in the Company's California corporate offices.
These employees include technical, administrative and clerical personnel. The
Company intends to hire additional personnel as the development of the
Company's business makes such action appropriate. The loss of the services of
such key employees as Chaim Markheim could have a material adverse effect on
the Company's business. Since there is intense competition for qualified
personnel knowledgeable of the Company's industry, no assurances can be given
that the Company will be successful in retaining and recruiting needed
personnel. See "Management."
The Company's employees are not represented by a labor union or covered by a
collective bargaining agreement, and the Company believes it has good relations
with its employees. The Company provides its employees with certain benefits,
including health insurance.
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. At December
31, 1997, the Company was delinquent in payment of approximately $450,000 of
rental obligations on such lease.
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.
LITIGATION
In 1996, the Company entered into a consent decree with the 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 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 that AccuLase has meritorious defenses to all
claims in this litigation. However, there can be no assurances as to the
outcome of this litigation.
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, Florida regarding failed lease negotiations
for a facility in Sanford, Florida. 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.
Except as set forth above, the Company knows of no material legal actions,
pending or threatened, or judgment entered against the Company or any executive
officer or director of the Company in his capacity as such.
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<PAGE>
MANAGEMENT
The directors of the Company currently have terms which will end at the next
annual meeting of the stockholders of the Company or until their successors are
elected and qualified, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors. There are no
family relationships among any of the Company's directors and executive
officers.
NAME POSITION AGE
Raymond A. Hartman President and Chief Executive Officer 51
Chaim Markheim Director, Chief Operating Officer
and Chief Financial Officer 53
Steven Qualls Director and Executive Vice-President-
East Coast Operations 41
Alan R. Novak Director 63
The following table sets forth certain information concerning the members of
the Board of Directors and the current executive officers of the Company:
RAYMOND A. HARTMAN, President and Chief Executive Officer of Laser Photonics,
Inc. and AccuLase, Inc., is responsible for the engineering and development of
the excimer laser, handpieces and fiberoptics for TMR. He also developed and
obtained FDE for TMR as a sole therapy option for CAO patients. Prior
employment includes: Founder and President of Electrode Technology, Inc., Union
City, California; Vice President of Manufacturing and Research and Development,
Applied Medical Technology, Palo Alto, California. Mr. Hartman was an
Assistant Professor at The Ohio State University in Columbus Ohio, Business Law
and Marketing (Graduate School of Business); Business Policy (Graduate School
of Business) and Seapower and Maritime Affairs (ROTC). Mr. Hartman was a
Lieutenant in the United States Navy. He received his MBA from The Ohio State
University, and a BS with Honors in Chemistry at Montana State 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 Definition 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 previously served as General Manager, Chief
Operating Officer and as President and Chief Executive Officer. Mr.
Qualls previously served as Director of 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.
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ALAN R. NOVAK, Director, is Chairman of Infra Group, L.L.C., an international
project finance and development company. He is also Chairman of Lano
International, Inc., a real estate development company, and Chairman of
American Partners Asset Management ("Holdings") Limited and a director of
Strategic Partners (Holdings) Limited, an international airport and seaport
development company. Mr. Novak is a graduate of Yale University, Yale Law
School, and Oxford University as a Marshall scholar. Mr. Novak practiced law
at Cravath, Swaine & Moore and Swidler & Berlin, Chartered. His public service
includes a U.S. Supreme court clerkship with Justice Potter Stewart, Senior
Counsel, Senator E. M. Kennedy, Senior Executive Assistant to Undersecretary of
State, Eugene Rostow, and Executive Director, President Johnson's
Telecommunications Task Force. Appointed by President Carter, Mr. Novak served
for five years as Federal Fine Arts Commissioner.
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<PAGE>
COMPENSATION OF
EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning compensation of
certain of the Company's executive officers, including the Company's Chief
Executive Officer and all executive officers (the "Named Executives") whose
total annual salary and bonus exceeded $100,000, for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-------------------------- -------------------------------------------
Awards Payouts
- -------------------------------------------------------------------------------------------------------------------------
Name and Restricted Securities
principal Other annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) Options/SARs payouts compensation
($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven Qualls
(CEO) 1997 $ 75,000 0 0 0 0 0 0
Raymond A. Hartman
(CEO) 1997 $125,000(1) 0 0 0 0 0 0
Chaim Markheim 1997 $125,000(1) 0 0 0 0 0 0
Raymond A. Hartman
1996 $125,000(1) 0 0 0 60,000 0 0
Steven Qualls
(CEO) 1996 $ 75,000 0 0 0 60,000 0 0
Paul Cattermole
(CEO) 1995 0 0 0 0 0 0 0
</TABLE>
- -------------------
(1) Includes paid and accrued salary for each such fiscal year.
38
<PAGE>
OPTION/SAR GRANTS TABLE
The following table sets forth certain information concerning grants of
stock options to certain of the Company's executive officers, including the
Named Executives for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants For Option Term1
- --------------------------------------------------------------------------------------------------------
Number of % of
Securities Total
Underlying Options/
Options/ SARs Exercise
SARs Granted to or Base
Granted Employees Price Expiration
Name (#) in Fiscal Year ($/Share) Date 5% ($) 10%($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raymond A. Hartman 250,000 ____% $0.50 10/11/02 _____ _____
</TABLE>
_______________________
1. This chart assumes a market price of $________ for the Common Stock
with respect to determining the "potential realizable value" of the shares of
Common Stock underlying the options described in the chart, less the amount
of the exercise price for such options. Further, the chart assumes the
annual compounding of such assumed market price over the relevant periods,
without giving effect to commissions or other costs or expenses relating to
potential sales of such securities.
2. These options will vest in the event that certain performance levels
are reached with respect to the development of the Company's lasers.
OPTION EXERCISES IN 1997
No Named Executive exercised any stock option in 1997.
COMPENSATION OF DIRECTORS
The Company does not compensate directors for services rendered as
directors. The Company does not have directors' and officers' liability
insurance. The Company intends to obtain directors' and officers' liability
insurance, if such insurance is available on terms reasonably affordable to the
Company. However, there can be no assurances to this effect.
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LIMITATION ON DIRECTORS' LIABILITIES; INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation and Bylaws designate the
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and other items. The
Company's Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions which will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for dividend payments or stock repurchases illegal
under Delaware law or any transaction in which a director has derived an
improper personal benefit.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
The Company has no compensatory plans or arrangements which relate
to the resignation, retirement or any other termination of an executive
officer or key employee with the Company or a change in control of the
Company or a change in such executive officer's or key employee's
responsibilities following a change in control.
COMMITTEES; COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board has no standing committee on compensation, audit, nominations
or any other committees performing equivalent functions.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and the holders of more than 10% of the Company's Common
Stock to file with the Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. The Company has
only received a report required under Section 16(a) of the Exchange Act from
Helionetics, one of the Company's 10% stockholders. The Company has not
received any such reports from any other of its current executive officers,
directors and 10% stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. Certain Changes in Management.
During November 1997, the Company moved its corporate headquarters from
Orlando, Florida to 6865 Flanders Drive, Suite G, San Diego, California,
92121. The Company's new corporate telephone number is (619) 455-7030.
On October 9, 1997, Bernard Katz resigned as a director the Company.
Mr. Katz in his resignation letter did not cite any disagreements with the
Company on any matter relating to the Company's operations, policies or
practices.
On October 20, 1997, Raymond Hartman was elected to the Board of
Directors to fill Mr. Katz's position. Additionally, Mr. Hartman was elected
Chief Executive Officer of the Company and Steven Qualls, the prior Chief
Executive Officer was appointed Executive Vice President - East Coast
Operations. Additionally, Chaim Markheim, a director and Chief Financial
Officer was also appointed Chief Operating Officer.
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On October 21, 1997, Maxwell Malone resigned as a director of the
Company. Mr. Malone in his resignation letter did not cite any disagreements
with the Company on any matter relating to the Company's operations, policies
or practices.
On October 24, 1997, Alan Novak was elected to the Board of Directors to
fill Mr. Malone's position.
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 pursuant to exemption
from registration under Regulation S promulgated under the Securities Act.
The Company also issued to such persons warrants to purchase up to 500,000
shares of Common Stock which 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 the Company, or by Helionetics at its option. On
February 1, 1996, the notes were converted into an aggregate 538,583 shares
of Common Stock at a conversion price of $0.96 per share. 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 Company's 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.
4. Issuance of Shares to Former 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, (the former Director and Chairman of the Board of the Company and
Helionetics, Inc.), and is a principal stockholder 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 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 Common Stock for
services she arranged to provide in connection with raising $1.5 million to
finance the Company's emergence from the Bankruptcy Proceeding, at a value of
$1.00 per share.
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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 certain current and former officers and directors
for services rendered as follows: (i) Steven Qualls (10,000 shares), (ii) Chaim
Markheim (5,000 shares), and (iii) Maxwell Malone (5,000 shares).
6. Certain Issuances of Securities
a. During the second quarter of fiscal 1997, a total of 75,000 shares
of Common Stock were privately issued to key employees and outside
consultants to the Company for services rendered. In addition, options to
acquire 250,000 shares of Common Stock at an exercise price of $0.50 per
share and having a five year term were issued, contingent upon certain
performance contingencies in the future, to Raymond Hartman.
b. In September and October 1997, the Company privately sold a total
of 679,500 restricted shares of Common Stock in a private placement to
certain 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.
c. In September of 1997, Pennsylvania Merchant Group, Ltd. ("PMG"),
purchased from Helionetics, with approval of the Federal Bankruptcy Court in
the pending Helionetics Chapter 11 Bankruptcy proceeding, all AccuLase debt
owed by AccuLase to Helionetics, for a purchase price of $1,000,000.
In October, 1997, the Company purchased the debt owing by AccuLase, in
the amount of $2,159,708 from PMG in consideration of 800,000 shares of
Common Stock.
d. 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 options to acquire 100,000 shares of 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 the Company on October 9, 1997. The Board does not anticipate
utilizing the consulting services through K.B. Equities, Inc. in the future.
e. In November, 1997, the Company issued 1,500,000 shares of Common
Stock and 750,000 Warrants in a private placement to certain accredited
investors resulting in gross proceeds of $6,000,000 to the Company. The
Company also issued 150,000 Warrants and paid a commission of $480,000 to PMG
as a placement agent fee.
The Company believes that all such transactions with affiliates of the
Company have been entered into on terms no less favorable to the Company than
could have been obtained from independent third parties. The Company intends
that any transactions and loans with officers, directors and five percent
(5%) or greater stockholders, following the date of this Prospectus, will be
on terms no less favorable to the Company than could be obtained from
independent third parties and will be approved by a majority of the
independent, disinterested directors of the Company.
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PRINCIPAL STOCKHOLDERS
The following table reflects, as of the date of this Prospectus,
information concerning the beneficial Common Stock ownership of: (a) each
director of the Company, (b) each executive officer named in the Summary
Compensation Table, (c) each person known by the Company to be a beneficial
holder of five percent (5%) or more of its Common Stock, and (d) all
executive officers and directors of the Company as a group:
NAME AND ADDRESS NO. OF PERCENT #
OF BENEFICIAL OWNER SHARES BEFORE OFFERING* AFTER OFFERING*
- ------------------------ ------- --------------- ---------------
Chaim Markheim(1) 1,805,000 19.42 19.42
Raymond A. Hartman(2) 70,000 ** **
Steven A. Qualls(3) 70,000 ** **
Alan R. Novak(4) 0 ** **
Helionetics, Inc.(2)(5) 1,750,000 18.93 18.93
Calvin Hori and Hori 933,100 10.01 10.01
Capital Management, Inc.(6)
Platinum Partners, L.P.(6) 759,000 8.21 8.21
All directors and officers
as a group(4 persons)(7) 1,945,000 20.63 20.63
________________________________
# Pursuant to the rules of the Commission, shares of Common Stock which
an individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.
* Assumes that the shares of Common Stock underlying the Warrants,
which are registered in connection with this Prospectus, are not exercised.
** Less than 1%.
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1. Mr. Markheim, the Chief Operating Officer, Chief Financial Officer
and a director of the Company, is also a director of Helionetics, Inc.
("Helionetics"), a principal stockholder of the Company. Mr. Markheim is the
beneficial owner of 5,000 shares of Common Stock registered in the name of
his wife, Anna L. Markheim. He is also the beneficial owner of 1,750,000
shares of Common Stock registered in the name of Helionetics. He is also the
registered owner of options to purchase up to 50,000 shares of Common Stock.
Mr. Markheim's address is 6865 Flanders Drive, Suite G, San Diego, California
92121.
2. Includes options to purchase up to 60,000 shares of Common Stock
registered in his name and options to purchase up to 10,000 shares of Common
Stock registered in the name of his wife, Sandra Hartman. Does not include
options to purchase up to 250,000 shares of Common Stock which may vest
subject to certain schedules. Mr. Hartman's address is 6865 Flanders Drive,
Suite G, San Diego, California 92121.
3. Includes 10,000 shares of Common Stock and options to purchase up
to 60,000 shares of Common Stock. Mr. Qualls' address is 12351 Research
Parkway, Orlando, Florida 32826.
4. Mr. Novak's address is 3050 K Street, NW, Suite 105, Washington,
D.C. 20007.
5. The address for Helionetics is 6849 Hayvenhurst Avenue, Van Nuys,
California 91406.
6. The listed persons, Calvin Hori ("Hori"), Hori Capital Management,
Inc. ("Hori Capital") and Platinum Partners, L.P. ("Platinum") have jointly
filed an Amendment No. 1 to Schedule 13D (the "Schedule 13D"), dated December
1, 1997, with respect to 933,100 shares of Common Stock. The Schedule 13D
provides, in pertinent part, that: (a) Hori, Hori Capital and Platinum may be
deemed to be the beneficial owners of 759,000 of these shares, and (b) Hori
and Hori Capital may be deemed to be the beneficial owners of an additional
174,100 of these shares. The address for each of the listed persons is One
Washington Mall, Boston, Massachusetts 02108.
7. Includes 1,765,000 shares of Common Stock and options to purchase
up to 180,000 shares of Common Stock. Does not include options to purchase
up to 250,000 shares of Common Stock which may vest subject to certain
schedules. See "Certain Relationships and Related Transactions."
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DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $0.01 per share. As of the date of this Prospectus,
there were issued and outstanding 9,246,095 shares of Common Stock. There
were also issued and outstanding warrants and options to purchase up to
1,463,500 shares of Common Stock.
COMMON STOCK
Holders of the Common Stock are entitled to cast one vote for each share
held of record, to receive such dividends as may be declared by the Board of
Directors out of legally available funds and to share ratably in any
distribution of the Company's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Holders of the
Common Stock do not have preemptive rights or other rights to subscribe for
additional shares, and the Common Stock is not subject to redemption. The
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable.
Under Delaware law, each holder of a share of Common Stock is entitled
to one vote per share for each matter submitted to the vote of the
stockholders, and cumulative voting is allowed for the election of directors,
if provided for in the Certificate of Incorporation. The Company's
Certificate of Incorporation does not provide for cumulative voting.
WARRANTS
The Company has issued and outstanding, non-callable Warrants to
purchase up to 900,000 shares of Common Stock at an exercise price of $4.00
per share, which expire on November 26, 2002. The 900,000 shares
underlying the Warrants are being registered in connection with this
Prospectus.
OPTIONS
The Company has issued and outstanding options to purchase 563,500
shares of Common Stock to various employees, officers, directors and
consultants of the Company at exercise prices ranging from $0.50 to $1.50 per
share, 343,000 of which are currently exercisable. See "Compensation of
Executive Officers and Directors - Stock Option Plans."
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer &
Trust Co., New York, New York.
CERTAIN BUSINESS COMBINATIONS
Delaware law contains a statutory provision which is intended to curb
abusive takeovers of Delaware corporations. The effect of such
"anti-takeover" provisions may delay, deter or prevent a takeover of the
Company which the stockholders may consider to be in their best interests,
thereby possibly depriving holders of the Company's securities of certain
opportunities to sell or otherwise dispose of their securities at
above-market prices, or limit the ability of stockholders to remove incumbent
directors as readily as the stockholders may consider to be in their best
interests.
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Section 203 of the Delaware General Corporation Law addresses the
problem by preventing certain business combinations of the corporation with
interested stockholders within three years after such stockholders become
interested. Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person or an affiliate, or associate of such person, who is an
"interested stockholder" for a period of three (3) years from the date that
such person became an interested stockholder unless: (i) the transaction
resulting in a person becoming an interested stockholder, or the business
combination, is approved by the Board of Directors of the corporation before
the person becomes an interested stockholder; (ii) the interested stockholder
acquired 85% or more of the outstanding voting stock of the corporation in
the same transaction that makes such person an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and
by the holders of at least 66-2/3% of the corporation's outstanding voting
stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of fifteen percent (15%) or more
of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of fifteen percent (15%)
or more of the outstanding voting stock of the corporation at any time within
the three (3) year period immediately prior to the date on which it is sought
to be determined whether such person is an interested stockholder.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The shares of the Company's Common Stock offered hereby by the Selling
Stockholders may be sold from time to time to purchasers directly by the
Selling Stockholders. Alternatively, the Selling Stockholders may from time
to time offer the shares of Common Stock through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders and/or the
purchasers of the shares for whom they may act as agent. The Selling
Stockholders and any underwriters, dealers or agents that participate in the
distribution of the shares of Common Stock may be deemed to be underwriters
and any profit on the sale of shares by them and any discounts, commissions
or concessions received by any such underwriters, dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
At the time a particular offer of shares is made, to the extent required, a
Prospectus Supplement will be distributed which will set forth the specific
shares to be sold and the terms of the offering, including the name or names
of any underwriters, dealer-agents, any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
The shares of Common Stock may be sold from time to time in one or more
transactions at a fixed offering price which may be changed or at varying
prices determined at the time of sale or negotiated prices.
The Company has paid all of the expenses incident to the offering of the
shares of the Common Stock offered by the Selling Stockholders, other than
commissions and discounts of underwriters, dealers or agents and the fees and
expenses of counsel to the Selling Stockholders.
As of the date of this Prospectus, none of the Selling Stockholders or
their affiliates is a director, executive officer or 5% or greater beneficial
stockholder of the Company.
The following table sets forth certain information related to the number
of shares of Common Stock and shares underlying the Warrants which may be
offered by the Selling Stockholders pursuant to this Prospectus:
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NUMBER OF SHARES
SELLING STOCKHOLDERS NUMBER OF SHARES UNDERLYING WARRANTS
-------------------- ---------------- -------------------
1. Frank A. Abruzzese 5,000
2. Accrued Investments, Inc. 15,000 7,500
3. David S. Allsopp 57,900
4. Fran M. Auch 16,500
5. Kenneth J. Beahan 10,000
6. Mary E. Bowler 7,000
7. William P. Brown 10,000
8. Frank J. Campbell III 100,000
9. Steven G. and Riki Charles 2,000
10. Coutts (Jersey) Limited 240,000 20,000
11. Amir L. Ecker(1) 160,000 37,500
12. EDJ Limited 20,000 10,000
13. Joseph M. and Linda Evancich 10,000
14. Peter J. Faillace, Jr.(2) 10,000
15. Richard S. Frary 15,000 7,500
16. Jay M. and Sandee Fuller 25,000 12,500
17. Kathleen M. Furgiuele 1,000
18. Joseph E. Gallo, Trustee, FBO
Children's Family Trust, dated
August 17, 1990 125,000 62,500
19. Richard Gibbs 26,875 8,438
20. Richard C. Goodwin 25,000 12,500
21. Jon D. and Linda W. Gruber (3) 87,500 43,750
22. Penelope S. and Richard A. Hansen(4) 105,000
23. Holmes Partners, L.P. 12,500 6,250
24. Jubilee Partners Family Limited
Partnership 10,000
25. Clifford Kalista(5) 50,000
26. Lagunitas Partners, L.P. 162,500 81,250
27. Lancaster Investment Partners, L.P. 200,000 50,000
28. Legion Fund, Ltd. 25,000 12,500
29. James J. and Carolyn Lennon 10,000
30. Mary M. Losty 25,000 12,500
31. Larry Martin 200,000 100,000
32. Michael A. Martorelli 10,000
33. Irving L. Mazer 5,625 2,812
34. John J. McAtee, Jr.(6) 100,000
35. Scott McQueen 10,000 5,000
36. Salomon E. and Flor Melgen 50,000 25,000
37. Millridge Corporation 100,000
38. Harry Mittelman(7) 86,100 33,000
39. J. Gregory O'Meara 10,000
40. Vincent Papa 10,000
41. David Parke 5,000
42. George Parlby 48,000 24,000
43. Eric and Ellen Peterson 22,500 6,250
44. Arnold A. Phipps, III 20,000
45. Porter Partners, L.P. 110,000 30,000
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NUMBER OF SHARES
SELLING STOCKHOLDERS NUMBER OF SHARES UNDERLYING WARRANTS
-------------------- ---------------- -------------------
46. ProFutures Special
Equities Fund, L.P. 125,000 62,500
47. Peter S. Rawlings(8) 200,000
48. Charles Robins 25,000
49. Leonid Roytman 10,000 5,000
50. James M. Sheridan 5,000
51. Linda D. and Joseph T. Simon 5,000
52. Robert M. Smith 10,000
53. Perry D. Snavely, Jr.(9) 52,500
54. Sonz Partners, L.P. 50,000 25,000
55. Elliot Stein, Jr. 12,500 6,250
56. Teal Fund, L.P. 62,500 31,250
57. R. Scott Williams 20,000
58. Carolyn Wittenbraker 6,000 3,000
59. Pennsylvania Merchant Group 150,000
TOTAL ---------- --------
2,979,500 900,000
___________________________
1. Includes the number of Shares and Warrants registered in the names of
the persons set forth hereinafter, as follows: (a) Amir L. Ecker (95,000 Shares
and 12,500 Warrants), (b) Amir L. and Maria T. Ecker (7,500 Shares and 3,750
Warrants), (c) Amir L. Ecker IRA (30,000 Shares and 15,000 Warrants), and (d)
The Ecker Family Partnership (27,500 Shares and 6,250 Shares).
2. Includes the number of Shares and Warrants registered in the names of
the persons set forth hereinafter, as follows: (a) Peter J. Faillace, Jr.
(3,000 Shares), (b) Peter J. Faillace, Jr., C/F Matthew Faillace (3,500
Shares), and (c) Peter J. Faillace, Jr., C/F Adam Faillace (3,500 Shares).
3. Includes the number of Shares and Warrants registered in the names of
the persons set forth hereinafter, as follows: (a) Jon D. and Linda W. Gruber
(50,000 Shares and 25,000 Warrants), and (b) Gruber & McBaine International
(37,500 Shares and 18,750 Warrants).
4. Includes the number of Shares registered in the names of the persons
set forth hereinafter, as follows: (a) Penelope S. Hansen (35,000 Shares) and
(b) Richard A. Hansen (70,000 Shares).
5. Includes the number of Shares registered in the names of the persons
set forth hereinafter, as follows: (a) Clifford Kalista (47,000 Shares), and
(b) Phyllis Kalista (3,000 Shares).
6. Includes the number of Shares registered in the names of the persons
set forth hereinafter, as follows:(a) John J. McAtee, Jr. (84,000 Shares), (b)
Elizabeth P. McAtee (8,000 Shares), and (c) John C.C. McAtee (8,000 Shares).
7. Includes the number of Shares and Warrants registered in the names of
the persons set forth hereinafter, as follows: (a) Harry Mittelman (20,100
Shares), (b) Brenda Mittelman (6,000 Shares and 3,000 Warrants), (c) Harry
Mittelman, MD, Trustee, Harry Mittelman, MD, APC Pension Profit Sharing Plan
FBO Harry Mittelman (15,000 Shares and 7,500 Warrants), and (d) Harry
Mittelman, Trustee, The Harry Mittelman Revocable Trust, dated October 22, 1996
(45,000 Shares and 22,500 Warrants.)
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8. Includes the number of Shares registered in the names of the persons
set forth hereinafter, as follows: (a) Peter S. Rawlings (160,000 Shares), and
(b) Sarah P. Rawlings (40,000 Shares).
9. Includes the number of Shares and Warrants registered in the names of
the persons set forth hereinafter, as follows: (a) Perry D. Snavely, Jr.
(40,000 Shares), and (b) Perry D. Snavely IRA (12,500 Shares and 6,250
Warrants.)
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SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company had issued and
outstanding 9,246,095 shares of Common Stock. There are currently 105,000
shares of Common Stock which are restricted shares and 9,141,095 shares which
are freely tradeable or eligible to have the restrictive legend removed
pursuant to Rule 144(k) promulgated under the Securities Act. Further, the
Company has issued and outstanding options to purchase up to 563,500 shares
of Common Stock, 343,000 of which are currently exercisable, and warrants to
purchase up to 900,000 shares of Common Stock.
Holders of restricted securities must comply with the requirements of
Rule 144 in order to sell their shares in the open market. In general, under
Rule 144 as currently in effect, any affiliate of the Company and any person
(or persons whose sales are aggregated) who has beneficially owned his or her
restricted shares for at least one year, may be entitled to sell in the open
market within any three-month period in brokerage transactions or to
marketmakers a number of shares that does not exceed the greater of: (i) 1%
of the then outstanding shares of the Company's Common Stock (approximately
92,461 shares immediately after this Offering), or (ii) the average weekly
trading volume reported in the principal market for the Company's Common
Stock during the four calendar weeks preceding such sale. Sales under Rule
144 are also subject to certain limitations on manner of sale, notice
requirement and availability of current public information about the Company.
Nonaffiliates who have held their restricted shares for two years are
entitled to sell their shares under Rule 144 without regard to any of the
above limitations, provided they have not been affiliates of the Company for
the three months preceding such sale.
The Company can make no prediction as to the effect, if any, that sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of Common Stock. Nevertheless, sales of significant amounts
of Common Stock could adversely affect the prevailing market price of the
Common Stock, as well as impair the ability of the Company to raise capital
through the issuance of additional equity securities.
LEGAL MATTERS
Certain matters with respect to the validity of the Shares offered by
the Selling Stockholders will be passed upon for the Company by Matthias &
Berg LLP, Los Angeles, California.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a registration statement on
Form S-1 (the "Registration Statement") under the Securities Act with
respect to the Securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company
and the Securities, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements made in this
Prospectus as to the contents of any contract or any other document referred
to are not necessarily complete, and, in each instance, reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference to such exhibits. The Registration Statement, including exhibits
and schedules thereto, may be inspected without charge at the Public
Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the
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regional offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048; and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of the Registration Statement and the exhibits and
schedules thereto may be obtained from the Public Reference Room of the
Commission at its principal office in Washington, D.C. at prescribed rates.
In addition, such materials may be accessed electronically at the
Commission's site on the World Wide Web, located at http://www.sec.gov.
The Company is currently subject to the reporting requirements of the
Exchange Act and in accordance therewith files reports, proxy and information
statements and other information with the Commission. Such reports, proxy
and information statements and other information may be inspected and copied
at the Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549; and at the regional offices of the
Commission at 7 World Trade Center, Suite 1300, New York, New York 10048; and
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies
of such materials can be obtained from the Public Reference Section of the
Commission at its principal office in Washington, D.C. at prescribed rates.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as
the Company may determine to be appropriate or as may be required by law.
51
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT - HEIN + ASSOCIATES LLP . . . . . . . . . . . F-2
INDEPENDENT AUDITOR'S REPORT - Corbin & Wertz. . . . . . . . . . . . . . . F-3
CONSOLIDATED BALANCE SHEETS - December 31, 1995 and 1996, and
September 30, 1997 (unaudited). . . . . . . . . . . . . . . . . . . . F-4
CONSOLIDATED STATEMENTS OF OPERATIONS - For the year ended December 31,
1994, the period from January 1, 1995 through May 22, 1995, the
period from May 23, 1995 through December 31, 1995, the year ended
December 31, 1996 and for the nine months ended September 30, 1996
and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - For the year
from January 1, 1994 through December 31, 1996 and the nine months
ended September 30, 1997 (unaudited). . . . . . . . . . . . . . . . . F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the year ended December 31,
1994,the period from January 1, 1995 through May 22, 1995, the period
from May 23, 1995 through December 31, 1995, for the year ended
December 31, 1996 and for the nine months ended September 30 1996 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . .F-11
F-1
<PAGE>
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, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the periods from January 1, 1995 through May 22, 1995 and May
23, 1995 through December 31, 1995 and the year ended December 31, 1996. 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, 1995 and 1996, and the results of their
operations and their cash flows for the periods from January 1, 1995 through May
22, 1995 and May 23, 1995 through December 31, 1995 and the year ended December
31, 1996, 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 16(b) of the Registration Statement on Form S-1
(No. ). 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>
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.
Corbin & Wertz
Certified Public Accountants
Irvine, California
July 31, 1995
F-3
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 61,086 $ - $ 416,101
Accounts receivable, net of allowance for doubtful
accounts of $100,000 at December 31, 1995 and 1996, and
September 30, 1997 (unaudited) 256,369 383,435 409,297
Inventories 855,864 891,011 834,097
Prepaid expenses and other assets 24,560 7,722 16,770
------------ ------------ ------------
Total current assets 1,197,879 1,282,168 1,676,265
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $162,892, $389,382, and $384,020 at
December 31, 1995 and 1996, and September 30, 1997 (unaudited),
respectively 537,122 294,842 139,532
PATENT COSTS, net of accumulated amortization of
$7,259, $15,612, and $39,242 at December 31, 1995 and 1996, and
September 30, 1997 (unaudited), respectively 75,613 67,260 85,995
EXCESS OF COST OVER NET ASSETS OF ACQUIRED
COMPANIES, net of accumulated amortization of $303,148,
$822,830, and $1,472,536 at December 31, 1995 and 1996, and
September 30, 1997 (unaudited), respectively 2,035,421 1,515,739 1,125,876
REORGANIZATION GOODWILL, net of accumulated
amortization of $222,600 and $2,137,025 in 1995 and 1996,
respectively 1,914,425 - -
OTHER ASSETS 36,008 35,073 34,089
------------ ------------ ------------
TOTAL ASSETS $ 5,796,468 $ 3,195,082 $ 3,061,757
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable - current portion $ 97,191 $ 696,453 $ 501,391
Accounts payable 680,456 698,286 901,451
Accrued payroll and related expenses 352,558 670,481 589,700
Other accrued liabilities 677,921 945,791 737,584
------------ ------------ ------------
Total current liabilities 1,808,126 3,011,011 2,730,126
NOTES PAYABLE, less current portion 866,516 282,559 2,442,267
DEFERRED REVENUE 500,000 - 363,307
DUE TO RELATED PARTY 1,935,612 1,991,440 -
------------ ------------ ------------
Total liabilities 5,110,254 5,285,010 5,535,700
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and
11)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value; 10,000,000 shares authorized,
5,000,000, 6,162,583, and 6,846,095 shares outstanding at
December 31, 1995 and 1996, and September 30, 1997
(unaudited), respectively 50,000 61,626 68,471
Additional paid-in capital 2,760,028 5,330,228 6,704,341
Accumulated deficit (2,123,814) (7,481,782) (9,246,755)
------------ ------------ ------------
Total stockholders' equity (deficit) 686,214 (2,089,928) (2,473,943)
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 5,796,468 $ 3,195,082 $ 3,061,757
------------ ------------ ------------
------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-4
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, MAY 23, 1995 NINE MONTHS NINE MONTHS
YEAR ENDED 1995 TO TO YEAR ENDED ENDED ENDED
DECEMBER 31, MAY 22, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------ ----------- ----------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
SALES $ 5,714,619 $ 1,241,814 $ 1,408,459 $ 2,901,454 $ 2,161,608 $ 2,677,392
----------- ------------ ----------- ------------ ----------- ------------
COSTS AND EXPENSES:
Cost of sales 4,535,299 1,206,559 1,282,155 2,329,299 1,666,027 1,601,569
Selling, general and administrative 1,446,807 696,065 566,805 1,158,841 1,400,354 1,566,714
Research and development 477,404 136,211 806,021 850,993 273,904 323,758
Bad debt expense related to
Related Party receivable - - - 662,775 - -
Write off of reorganization
goodwill - - - 1,486,823 - -
Depreciation and amortization 253,312 43,010 695,900 1,214,876 925,058 512,857
----------- ------------ ----------- ------------ ----------- ------------
6,712,822 2,081,845 3,350,881 7,703,607 4,265,343 4,004,898
----------- ------------ ----------- ------------ ----------- ------------
LOSS FROM OPERATIONS (998,203) (840,031) (1,942,422) (4,802,153) (2,103,735) (1,327,506)
----------- ------------ ----------- ------------ ----------- ------------
OTHER INCOME (EXPENSE):
Unrealized loss on available-for-
sale-securities (256,577) - - - - -
Interest expense (406,673) (175,677) (150,109) (392,000) (305,802) (289,804)
Reorganization expense (602,318) - - - - -
Other, net 29,942 86,759 (31,283) (163,815) (78,560) (147,663)
----------- ------------ ----------- ------------ ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM (2,233,829) (928,949) (2,123,814) (5,357,968) (2,488,097) (1,764,973)
----------- ------------ ----------- ------------ ----------- ------------
Extraordinary item - gain from
organization - 5,768,405 - - - -
----------- ------------ ----------- ------------ ----------- ------------
NET INCOME (LOSS) $(2,233,829) $4,839,456 $(2,123,814) $(5,357,968) $(2,488,097) $(1,764,973)
----------- ------------ ----------- ------------ ----------- ------------
----------- ------------ ----------- ------------ ----------- ------------
LOSS PER SHARE $(0.42) $(0.95) $(0.46) $(0.28)
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
WEIGHTED AVERAGE SHARES 5,000,000 5,619,668 5,408,775 6,253,359
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<CAPTION>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1996
AND THE NINE MONTHS ENDING SEPTEMBER 30, 1997 (UNAUDITED)
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, December 31, 1994 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)
Stock issued in private placement (unaudited) 579,500 5,795 718,580 - 724,375
Stock issued for services (unaudited) 105,000 1,050 655,533 - 656,583
Net loss (unaudited) - - - (1,764,973) (1,764,973)
----------- -------- ------------ ----------- -----------
BALANCES, September 30, 1997 6,847,083 $68,471 $6,704,341 $(9,246,755) $(2,473,943)
----------- -------- ------------ ----------- -----------
----------- -------- ------------ ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
<CAPTION>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 MAY 23, 1995 FOR THE NINE FOR THE NINE
YEAR ENDED THROUGH THROUGH YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, MAY 22, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(2,233,829)$ 4,839,456 $(2,123,814) $(5,357,968) $(2,488,097) $(1,764,973)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 253,312 43,010 695,900 1,214,876 925,058 512,857
Write off of reorganization
goodwill - - - 1,486,823 - -
Bad debt expense related to
Related Party receivable - - - 662,775 - -
Allowance for doubtful accounts 141,941 23,604 (141,200) - - -
Loss on disposal of property and
equipment 9,674 - - - - -
Non cash compensation expense - - - - - 560,958
Non cash interest expense - - - - - 150,000
Stock issued to pay legal fees - - - - - 95,625
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 45,953 70,808 296,348 (127,066) (385,512) (25,862)
Inventories 732,240 (31,422) 312,874 (35,147) (96,661) 56,914
(continued)
F-7
<PAGE>
<CAPTION>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 MAY 23, 1995 FOR THE NINE FOR THE NINE
YEAR ENDED THROUGH THROUGH YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, MAY 22, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Prepaid expenses and other
assets 65,839 (10,552) 37,838 16,838 (32,236) (32,701)
Accounts payable 102,609 89,779 382,733 17,830 184,226 203,165
Accrued payroll and related
expenses - 33,928 167,940 317,923 (227,914) (80,781)
Other accrued liabilities 754,423 693,704 (899,812) 440,995 927,961 (208,207)
Liabilities subject to
compromise (969,364) - - - - -
Due to parent company - - (199,189) - - -
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities (840,625) (16,090) (1,557,141) (1,010,589) (1,193,175) (533,005)
----------- ----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of property and
equipment (13,633) (17,286) (4,702) (16,024) (26,034) (23,462)
Proceeds from disposal of property
and equipment 5,880 - - - - 61,680
Acquisition of patents - - (11,845) - - -
Advances to Parent Company - - - (292,900) 523,874 18,268
Proceeds from sale of marketable
securities - - 150,701 - - -
Deferred income - - - - 363,307
Other assets 49,594 - - - - -
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities 41,841 (17,286) 134,154 (308,924) 497,840 419,793
----------- ----------- ----------- ----------- ----------- -----------
(continued)
F-8
<PAGE>
<CAPTION>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 MAY 23, 1995 FOR THE NINE FOR THE NINE
YEAR ENDED THROUGH THROUGH YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, MAY 22, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on liabilities subject to
compromise (9,126) - - - - -
Proceeds from notes payable - - 500,000 92,952 - -
Payments on notes payable - - (31,888) (67,647) (534,054) (195,062)
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 - - 1,229,136 724,375
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities 318,192 1,000,000 468,112 1,258,427 695,082 529,313
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (480,592) 966,624 (954,875) (61,086) (253) 416,101
CASH, at beginning of period 529,929 49,337 1,015,961 61,086 61,087 -
----------- ----------- ----------- ----------- ----------- -----------
CASH, at end of period $ 49,337 $ 1,015,961 $ 61,086 $ - $ 60,834 $ 416,101
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 17,622 $ 169,125 $ 204,260 $ 189,021 $ 102,823 $ 123,924
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Income taxes $ - $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
(continued)
F-9
<PAGE>
<CAPTION>
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
PERIOD FROM PERIOD FROM
JANUARY 1, 1995 MAY 23, 1995 FOR THE NINE FOR THE NINE
YEAR ENDED THROUGH THROUGH YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, MAY 22, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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
advances to Additional Paid-in
Capital $ - $ - $ - $ 324,047 $ - $ -
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-10
</TABLE>
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 IS UNAUDITED)
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-11
<PAGE>
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-12
<PAGE>
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
depreciated 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-13
<PAGE>
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-14
<PAGE>
IMPACT OF RECENTLY ISSUED STANDARDS - The FASB recently issued Statement of
Financial Accounting Standards 128, "Earnings per Share" and Statement of
Financial Accounting Standards 129 "Disclosure of Information About an
Entity's Capital Structure." Statement 128 provides a different method of
calculating earnings per share than is currently used in accordance with
Accounting Principles Board Opinion 15 "Earnings per Share." Statement 128
provides for the calculation of "basic" and "diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted reflects the potential
dilution of securities that could share in the earnings of an entity,
similar to fully diluted earnings per share. Statement 129 establishes
standards for disclosing information about an entity's capital structure.
Statements 128 and 129 are effective for financial statements issued for
periods ending after December 15, 1997. Their implementation is not
expected to have a material effect on the consolidated financial
statements.
The FASB has also issued Statement of Financial Accounting Standards 130
"Reporting Comprehensive Income" and Statement of Financial Accounting
Standards 131 "Disclosures About Segments of an Enterprise and Related
Information." Statement 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, Statement 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that displays
with the same prominence as other financial statements. Statement 131
supersedes Statement of Financial Accounting Standards 14 "Financial
Reporting for Segments of a Business Enterprise." Statement 131
establishes standards on the way that public companies report financial
information about operating segments in interim financial statements issued
to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. Statement 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
Statements 130 and 131 are effective for financial statement for period
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
the standards may have on the future financial statement disclosures.
Results of operations and financial position, however, will be unaffected
by implementation of these standards.
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.
F-15
<PAGE>
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.
4. INVENTORIES:
Inventories are as follows:
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
------------ ---------- -------------
(Unaudited)
Raw materials $ 1,659,085 1,306,420 $ 1,124,579
Work-in-process 577,972 456,330 443,927
Finished goods 65,807 124,560 108,466
----------- ----------- -----------
2,302,864 1,887,310 1,676,970
Allowance for obsolescence (1,477,000) (996,299) (842,875)
----------- ----------- -----------
$ 855,864 $ 891,011 $ 834,097
----------- ----------- -----------
----------- ----------- -----------
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
------------ ---------- -------------
(Unaudited)
Machinery and equipment $ 662,977 $ 651,471 $ 489,563
Furniture and fixtures 37,037 32,753 33,989
----------- ----------- -----------
700,014 684,224 523,552
Less accumulated
depreciation (162,892) (389,382) (384,020)
----------- ----------- -----------
$ 537,122 $ 294,842 $ 139,532
----------- ----------- -----------
----------- ----------- -----------
F-16
<PAGE>
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consists of the following:
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
------------ ---------- -------------
(Unaudited)
Customer deposits $ 44,925 $ 308,408 $ 311,011
Accrued professional fees 169,984 127,842 25,540
Accrued property taxes 87,617 113,721 124,476
Other accrued liabilities 375,395 395,820 276,551
----------- ----------- -----------
$ 677,921 $ 945,791 $ 737,584
----------- ----------- -----------
----------- ----------- -----------
7. NOTES PAYABLE, LONG-TERM DEBT, AND CONVERTIBLE DEBENTURES:
Notes payable and long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
------------ ---------- -------------
(Unaudited)
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 $ 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. 165,298 165,298 165,298
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. 138,368 138,368 111,814
F-17
<PAGE>
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
------------ ---------- -------------
(Unaudited)
Note payable - U.S.
Treasury, interest 9%,
payable in monthly
principal and interest
installments of $5,000
through December 1999,
unsecured. Payments past
due. 201,978 153,387 123,030
Notes payable - various
creditors, interest at 9%,
payable in various monthly
principal and interest
installments through
July 2000, unsecured.
Payments past due. 83,223 69,234 57,888
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. 60,640 50,583 43,361
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). 10,000 76,150 -
Note payable, due on
demand with interest at
the prime rate plus 2%.
In October 1997, the
Company purchased this
note with common stock.
(See Note 12). - - 2,159,708
Note payable - other, no
interest, due on demand,
unsecured. - 16,792 -
----------- ----------- -----------
963,707 979,012 2,943,658
Less current maturities (97,191) (696,453) (501,391)
----------- ----------- -----------
$ 866,516 $ 282,559 $ 2,442,267
----------- ----------- -----------
----------- ----------- -----------
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:
F-18
<PAGE>
1999 $ 282,559
---------
$ 282,559
---------
---------
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 12 months after grant; and the remaining 30% vest
and may be exercised beginning 24 months from grant.
F-19
<PAGE>
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:
DECEMBER 31, September 30,
1996 1997
----------- -----------
Net loss $(5,502,273)$(2,018,881)
----------- -----------
----------- -----------
Net loss per share $ (0.98)$ (0.32)
----------- -----------
----------- -----------
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
and $0.58 per share for options issued in 1996 and 1997, repectively. The
following assumptions were used for grants in 1996 and 1997: risk-free
interest rate of 4.9% and 6.2% in 1996 and 1997, respectively; 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.
F-20
<PAGE>
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 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:
DECEMBER 31,
----------------------------------
1994 1995 1996
-------- --------- --------
Deferred tax assets (liabilities):
Accounts receivable,
principally due to
allowances for doubtful
accounts $ 82,000 $ 37,000 $ 37,000
Tax credit carryforwards 704,000 - 283,000
Compensated absences,
principally due to accrual
for financial reporting
purposes 12,000 12,000 2,000
Warranty reserve, principally
due to accrual for
financial reporting
purposes 58,000 35,000 34,000
F-21
<PAGE>
Net operating loss
carryforwards 6,312,000 2,149,000 4,848,000
Inventory obsolescence
reserve 659,000 517,000 372,000
Depreciation and
amortization - - 29,000
Capitalized research and
development costs - - 309,000
Other 1,000 - -
----------- ----------- -----------
Total gross deferred
tax assets 7,828,000 2,750,000 5,914,000
Less valuation allowance (7,828,000) (2,750,000) (5,914,000)
----------- ----------- -----------
Net deferred tax assets $ - $ - $ -
----------- ----------- -----------
----------- ----------- -----------
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:
YEAR ENDED DECEMBER 31,
-----------------------
1997 $ 67,000
1998 67,000
1999 67,000
2000 73,000
2001 73,000
--------
Minimum lease payments $347,000
--------
--------
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
F-22
<PAGE>
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.
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.
F-23
<PAGE>
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.
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 $2,159,708. During October 1997, the investment banker sold this note
to the Company for 800,000 shares of the Company's common stock. The
effect on the Company's financial statements will be to reduce long-term
debt with a corresponding increase in stockholders' equity in the amount of
$2,159,708.
F-24
<PAGE>
LASER PHOTONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END OF
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS PERIOD
-------------------- ---------- --------- ---------- -----------
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
S-1
<PAGE>
NO DEALER, SALES REPRESENTATIVES, OR ANY OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
Prospectus Summary.............................................
Summary Financial Information..................................
Risk Factors...................................................
Use of Proceeds................................................
Dividend Policy................................................
Price Range of Common Stock....................................
Capitalization.................................................
Management's Discussion and Analysis of Results of Operations
and Financial Condition......................................
Business.......................................................
Management.....................................................
Compensation of Executive Officers and Directors...............
Certain Relationship and Related Transactions..................
Principal Stockholders.........................................
Description of Securities......................................
Selling Stockholders and Plan of Distribution..................
Shares Eligible for Future Sale................................
Legal Matters..................................................
Experts........................................................
Additional Information.........................................
Financial Statements...........................................
LASER PHOTONICS, INC.
3,879,500 SHARES
----------
PROSPECTUS
----------
_______________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the Offering
described in this Registration Statement, other than the underwriting
discount, will be as follows:
Securities and Exchange Commission Registration Fee .......... $3,719.68
Accounting Fees and Expenses .................................
Printing Expenses ............................................
Miscellaneous ................................................
Total ........................................................
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation generally provides for the
maximum indemnification of a corporation's officers and directors as
permitted by law in the State of Delaware. Delaware law empowers a
corporation to indemnify any person who was or is a party or who is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except in the case of an action by or in the right of the
corporation, by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise. Depending on the character of the
proceeding, a corporation may indemnify against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred in connection with such action, suit or proceeding if
the person indemnified acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceedings, had no
reasonable cause to believe his or her conduct was unlawful.
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against expenses, including amounts paid in
settlement and attorney's fees actually and reasonably incurred by him or her
in connection with the defense or settlement of the action or suit if he or
she acted in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which
such a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
II-1
<PAGE>
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to above, or in defense of any claim, issue or matter
therein, he or she must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the defense. Any indemnification under this section, unless
ordered by a court or advanced pursuant to this section, must be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made: (a) by the stockholders; (b)
by the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding; (c) if a
majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding so orders, by independent legal counsel in a
written opinion; or (d) if a quorum consisting of directors who were not
parties to the action, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
The certificate of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by
the corporation as they are incurred and in advance of the final disposition
of the action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he or she is not
entitled to be indemnified by the corporation. The provisions of this
section do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under
any contract or otherwise by law.
The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to this section: (a) does not exclude any other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his or her official capacity or an action in another capacity while holding
his or her office, except that indemnification, unless ordered by a court
pursuant to this section or for the advancement of any director or officer if
a final adjudication establishes that his or her acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was
material to the cause of action; and (b) continues for a person who has
ceased to be a director, officer, employee or agent and inures to the benefit
of the heirs, executors and administrators of such a person.
Further, the Company may enter into agreements of indemnification with its
directors to provide for indemnification to the fullest extent permitted
under Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. Conversion of Convertible Debt.
In 1995, the Company sold an aggregate of $600,000 in six month
convertible, secured notes in a private transactions pursuant to exemption
from registration under Regulation S promulgated under the Securities Act.
The Company also issued to such persons warrants to purchase up to 500,000
shares of Common Stock which 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 the Company, or by Helionetics at its option. On
February 1, 1996, the notes were converted into an aggregate 538,583 shares
of Common Stock at a conversion price of $0.96 per share. At the same time,
an additional 30,000 shares were issued for payment of past due consulting
services valued at $60,000.
II-2
<PAGE>
2. Key Man Option Plan.
On January 2, 1996, the Company adopted the Company's 1995 Non Qualified
Option Plan for key employees, officers, directors and consultants, and
provided for up to 500,000 options to be issued thereunder.
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.
3. Issuance of Shares to Former 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, (the former Director and Chairman of the Board of the Company and
Helionetics, Inc.), and is a principal stockholder 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 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 Common Stock for
services she arranged to provide in connection with raising $1.5 million to
finance the Company's emergence from the Bankruptcy Proceeding, at a value of
$1.00 per share.
4. 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 certain current and former officers and directors
for services rendered as follows: (i) Steven Qualls (10,000 shares), (ii)
Chaim Markheim (5,000 shares), and (iii) Maxwell Malone (5,000 shares).
5. Certain Issuances of Securities
a. During the second quarter of fiscal 1997, a total of 75,000 shares of
Common Stock were privately issued to key employees and outside consultants
to the Company for services rendered. In addition, options to acquire 250,000
shares of Common Stock at an exercise price of $0.50 per share and having a
five year term, were issued, contingent upon certain performance
contingencies in the future, to Raymond Hartman.
b. In September and October 1997, the Company privately sold a total of
679,500 restricted shares of Common Stock in a private placement to certain
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.
c. In September of 1997, Pennsylvania Merchant Group, Ltd. ("PMG"),
purchased from Helionetics, with approval of the Federal Bankruptcy Court in
the pending Helionetics Chapter 11 Bankruptcy proceeding, all AccuLase debt
owed by AccuLase to Helionetics, for a purchase price of $1,000,000.
In October, 1997, the Company purchased the debt owing by AccuLase, in the
amount of $2,159,708 from PMG in consideration of 800,000 shares of Common
Stock.
II-3
<PAGE>
d. 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 options to acquire 100,000 shares of
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 the Company on October 9, 1997. The Board does not anticipate
utilizing the consulting services through K.B. Equities, Inc. in the future.
e. In November, 1997, the Company issued 1,500,000 shares of Common Stock
and 750,001 Warrants in a private placement to certain accredited investors
resulting in gross proceeds of $6,000,000 to the Company. The Company also
issued 150,000 Warrants and paid a commission of $480,000 to PMG as a
placement agent fee.
Except as otherwise provided above, the Company believes each of the
foregoing issuances of securities was made to accredited investors in
transactions exempt from registration under Section 4(2) of the Securities
Act.
II-4
<PAGE>
ITEM 16
EXHIBITS.
3.1 Certificate of Incorporation(1)
3.2 Bylaws(1)
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Matthias & Berg LLP(1)
10.1 Lease Agreement (Andover, Massachusetts)(1)
10.2 Lease Agreement (Orlando, Florida)(1)
10.3 Lease Agreement (San Diego, California)(2)
10.4 Patent License Agreement between the Company and Patlex Corporation(1)
10.5 Agreements between the Company and Baxter Healthcare Corporation(3)
22.1 List of subsidiaries of the Company*
24.1 Consent of Hein + Associates LLP*
24.2 Consent of Corbin + Wertz*
24.3 Consent of Matthias & Berg LLP (included in Exhibit 5.1)*
25.1 Power of Attorney (included on signature page)
27 Financial Data Schedules
99.1 Registrant's Third Amended Plan of Reorganization(1)
99.2 Order Confirming Registrant's Third Amended Plan of Reorganization, as
modified(1)
99.3 Letter of March 22, 1995 from Coopers & Lybrand, directed to Laser
Photonics, Inc.(1)
_____________________________
* To be filed by amendment.
1. Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
2. Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
3. Incorporated by reference as part of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and subject to a
currently pending request for Confidential Treatment with the
Commission.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the Registration Statement; and
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) For the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) File a post-effective amendment to remove from registration any of the
securities being registered that remain unsold at the end of the Offering.
In addition, the undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, California
on January 26, 1998.
LASER PHOTONICS, INC.
By: /s/ RAYMOND A. HARTMAN
---------------------------
Raymond A. Hartman,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Chaim Markheim and Raymond A. Hartman,
or either of them, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) and supplements to this Registration
Statement, and to file the same with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
/s/ RAYMOND A. HARTMAN President and Chief January 26, 1998
- ---------------------- Executive Officer
Raymond A. Hartman
/s/ CHAIM MARKHEIM Director, Chief Operating January 26, 1998
- ---------------------- Officer and Chief Financial
Chaim Markheim Officer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ STEVEN QUALLS Director January 26, 1998
- -----------------------
Steven Qualls
/s/ ALAN R. NOVAK Director January 26, 1998
- ------------------------
Alan R. Novak
II-7
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 416,101
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