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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the fiscal year ended: Commission file number:
June 30, 1998 0-14427
LA-MAN CORPORATION
DBA DISPLAY TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 38-2286268
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
5029 EDGEWATER DRIVE, ORLANDO, FL 32810 (407) 521-7477
(Address, including zip code, of principal executive offices and telephone
number, including area code of Issuer)
Securities registered under Section 12(b) of the Act: NONE
Securities Registered under Section 12(g) of the Exchange Act: COMMON
STOCK, $.001 PAR VALUE
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the last 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. [x] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $32,478,018
On September 23, 1998 the bid and ask prices of the common stock were $3.50
and $3.63, respectively, according to NASDAQ Small Cap Market quotations
furnished by the National Quotation Bureau, Inc. The aggregate market value of
the voting stock of the Issuer held by non-affiliates based on the average of
the bid and ask prices on September 23, 1998 was $12,530,448.
As of September 23, 1998, 4,931,750 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [x] No
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 9 through 12 of Part III of this
Report is incorporated by reference from the Issuer's definitive proxy statement
filed in accordance with Rule 14a-01, Schedule 14A, in connection with the
Issuer's October 29, 1998 meeting of shareholders which involves the election of
directors.
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PART I
ITEM 1. BUSINESS.
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La-Man Corporation dba Display Technologies, Inc., a Nevada corporation, was
originally incorporated in Michigan on November 2, 1979 and remained
substantially inactive until the autumn of 1980. On February 4, 1983, La-Man
Corporation, a Nevada corporation ("the Company"), was formed and, pursuant to a
Certificate of Merger filed on May 16,1983, the Michigan corporation was merged
into the Nevada corporation. The Company's executive office is located at 5029
Edgewater Drive, Orlando, Florida 32810. Its telephone number is (407) 521-
7477. The Company operates in two business segments: Image Enhancement Displays
and Filtration.
The Company began doing business under the fictitious name "Display
Technologies, Inc." in September 1998. At the annual meeting of the Company's
shareholders to be held on October 29, 1998, shareholders will be requested to
consider and vote on Restated Articles of Incorporation of the Company changing
the Company's corporate name to Display Technologies, Inc. and creating a new
class of capital stock comprised of 50,000,000 shares of preferred stock. The
new corporate name, if approved, will better identify the Company's principal
business of designing and manufacturing electronic displays, message centers and
other commercial signs. The Company's management believes that the new class of
preferred stock, if approved, will enhance the Company's flexibility in
connection with future acquisitions, financings, and other general corporate
purposes. More information concerning the name change and the new class of
preferred stock is contained in the Company's September 15, 1998 proxy statement
sent to shareholders in connection with the October 29 annual meeting.
The Company's direct wholly-owned subsidiaries include Ad Art Electronic Sign
Corporation, a Florida corporation ("Ad Art"), Nevada SEMCO, Inc., a Nevada
corporation ("SEMCO"), Don Bell Industries, Inc., a Florida corporation ("Don
Bell"), Don Bell Industries of Nevada, Inc., a Nevada corporation ("Don Bell
Nevada"), Vision Trust Marketing, Inc., a Florida corporation ("Vision") and
Certified Maintenance Service, Inc., a Florida Corporation ("Certified"). The
Company's indirect wholly-owned subsidiaries include J.M. Stewart Industries,
Inc., a Florida corporation ("Stewart Industries"), and J.M. Stewart
Corporation, a Florida corporation ("Stewart Corporation"), each of which is
directly owned by SEMCO, and E.S.C. of Nevada, Inc., a Nevada corporation ("ESC
Nevada), owned directly by Ad Art.
Unless the context otherwise requires, the term "Company" hereinafter refers
to La-Man Corporation, Ad Art, ESC Nevada, Certified, SEMCO and its subsidiaries
Stewart Corporation and Stewart Industries, Don Bell, Don Bell Nevada, and
Vision. The Company's Consolidated Financial Statements include the accounts of
all subsidiaries. See the footnotes to the Company's Consolidated Financial
Statements for information relating to the Company's industry segments.
ACQUISITION OF AD ART ELECTRONIC SIGN CORPORATION
On February 18, 1998, the Company acquired all of the outstanding capital
stock of Electronic Sign Corporation dba Ad Art, a California corporation,
through the merger of the California corporation into a wholly-owned Florida
subsidiary of the Company, whose name was subsequently
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changed to Ad Art Electronic Sign Corporation. In consideration of the merger,
shareholders of the California corporation received a combination of $3,000,000
cash and 810,000 privately issued shares of the Company's common stock, with an
additional 540,000 shares contingently issuable upon the attainment by Ad Art of
certain annual net operating income levels for the fiscal year ending June 30,
1999. Ad Art designs and manufactures high quality electronic message centers
and video display boards with sophisticated animation and instant replay
capabilities. It is a major manufacturer of traditional and electronic signage
across a broad range of industries and countries.
ACQUISITION OF CERTIFIED MAINTENANCE SERVICES, INC.
On July 1, 1997, the Company acquired all of the outstanding shares of
Certified in exchange for the assumption of Certified's net liabilities.
Certified services indoor and outdoor signage and lighting. Through a network
of subcontractors, as well as its own service fleet and staff, Certified
specializes in providing service nationwide to multi-store retail outlets such
as department stores, grocery stores, gas stations, office complexes and
clothing outlets. Following the acquisition, the operations of Certified were
merged with the installation and service operations of Don Bell to form a single
operating division.
ACQUISITION OF DON BELL INDUSTRIES, INC.
On September 7, 1995, the Company acquired all of the outstanding shares of
Don Bell, a Port Orange, Florida manufacturer of commercial signs, in exchange
for 275,000 privately issued shares of common stock, a $750,000 convertible note
and cash of $360,000. The note, which is convertible into the Company's common
stock at $4.53 per share, was paid down to $500,000 in September 1998. The
remaining balance is payable in equal annual installments of $250,000 in each of
the next two years of the note. Interest is payable semi-annually and the
Company has a call feature at 105% of principal in year one reducing annually to
100% in year five. As an adjustment to the purchase price, additional notes
payable totaling $626,477 were issued on January 31, 1997 to the previous owners
of Don Bell. These notes were paid in full and retired with the proceeds of a
refinancing of the Company's indebtedness on August 28, 1997.
ACQUISITION OF J.M. STEWART CORPORATION AND J. M. STEWART INDUSTRIES, INC.
On January 6, 1994, the Company acquired Stewart Corporation and Stewart
Industries through a merger of their parent company into SEMCO, in exchange for
316,923 privately issued shares of restricted common stock valued at $824,000
and $214,312 cash. The Company simultaneously competed a registered public
offering of units of the Company's common stock and common stock purchase
warrants for net proceeds of $1,353,431, of which $1,000,020 was used to retire
debt of the acquired companies with the remainder applied to working capital.
ACQUISITION OF VISION TRUST MARKETING, INC.
In November 1994, the Company purchased the outstanding shares of common stock
of Vision, an authorized agent of MCI Telecommunications, Inc. ("MCI"). Under
the terms of the acquisition agreement, La-Man canceled certain contractual
advances due from Vision in the amount of $180,195 and assumed the net
liabilities of Vision. It also entered into a consulting agreement with the
prior owner of Vision and issued 70,000 newly issued shares of common stock
under its 1994
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Amended and Restated Employee and Consultant Stock Compensation Plan as
consideration for consulting fees under the agreement.
The Company operated Vision in Orlando, Florida offering long distance
telephone services as an agent of MCI. The original contract between Vision and
MCI for commercial long-distance customers was executed in 1994 and was restated
and extended for a new five-year term in May 1996. This contract revision had
been proposed by MCI in September 1995 and discussed with Vision over a period
of eight months. In reliance on the new contract, Vision invested heavily in
staff, facilities and equipment in anticipation of significant commission
revenue as a result of the enhancements in the revised contract. In November
1996, the contracts between Vision and MCI were abruptly terminated by MCI. A
lawsuit was filed by Vision on April 16, 1997 seeking the recovery of damages
from MCI. Because the cancellation of the contract by MCI resulted in Vision no
longer being contracted to market MCI long-distance services, its sole line of
business, the Company discontinued the operations of Vision in December 1996.
PRINCIPAL PRODUCTS
Image Enhancement Displays. The Company's display segment accounted for 94%
and 90% of consolidated sales for 1998 and 1997, respectively, and includes the
design, manufacture and sale of image enhancement displays by Ad Art and Don
Bell, the sale of stock institutional signage by Stewart Corporation, the
production of graphic arts and screen printed products by Stewart Industries and
the service, maintenance and installation of lighting and signage by both Don
Bell and Certified. None of Ad Art, Don Bell, Stewart Corporation or Certified
is dependent upon a single customer or a few major customers, the loss of any
one or more of which would have a material adverse effect on their respective
operations. However, from time to time Ad Art and Don Bell enter into contracts
of significant value that may represent more than 10% of their sales in any one
particular year. Since these large contracts vary in amount from year to year
and are not with the same customer or group of customers each year, the Company
does not have a significant economic dependence upon a single customer or a few
major customers.
Ad Art Ad Art designs and manufactures high quality electronic message
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centers and video display boards with sophisticated animation and instant replay
capabilities. It is a major manufacturer of traditional and electronic signage
across a broad range of industries and countries. Aesthetically pleasing,
durable and economical, Ad Art displays products are being utilized in the
world's casinos, stadiums, restaurants, banks, auto malls and retail
establishments.
Ad Art is a recognized leader in state-of-the-art lamp-based video display
boards. Its electronic video displays are found in many of the world's largest
venues, including Hiram Bithorn Stadium in San Juan, Puerto Rico, Atanasio
Giradot Stadium in Medellin, Columbia, and Chelsea Football Stadium in London.
Since its debut at Super Bowl XXX in Tempe, Arizona, Ad Art's StadiaVision
product has received critical acclaim for its crisp, bright display and video-
replay capabilities. Ad Art's new LED (light emitting diode) video display
boards have been installed in shopping centers and a board is being installed in
the Hofheinz Pavilion at the University of Houston.
Ad Art is a leader in the design, manufacture and installation of spectacular
signs as typically viewed in Las Vegas, Nevada. Currently the gaming market is
expanding rapidly in Atlantic City,
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along the Mississippi and on Native American land nationally. Among the
successes designed and manufactured by Ad Art are the freestanding signs for
Stardust, Frontier, Mirage, Treasure Island, MGM (currently the tallest in Las
Vegas), and Monte Carlo. Ad Art manufactured a spectacular 195-foot tall sign
for the Rio Hotel & Casino. This project contained a 50 x 100 foot electronic
InfoVision(TM) display and is capable of displaying live video.
Ad Art's new state-of-the art LED technology provides a video picture
comparable to and, in daytime applications, exceeding the quality of
conventional CRT displays. This enables Ad Art to compete for major
installations, including sports stadium applications that have historically
relied on the older and more expensive CRT (large scale television) technology.
The LED's have a life several times longer than the CRT's with significantly
less power consumption than incandescent lamp systems.
Historically, Ad Art's core business has been selling to and servicing its
well-established regional and national accounts in five broad customer
categories: banks, fast food, merchants, oil companies and entertainment. Ad
Art signs for market leaders like Wells Fargo Bank, McDonalds, Federal Express,
Blockbuster Video, Pizza Hut, Chief Auto Parts, Office Depot, Texaco, Planet
Hollywood, The Disney Store and many others can be seen virtually on any street
corner throughout U.S. and Canada. Ad Art has been chosen by Federal Express
to implement its new "FedEx" logo in 1,600 sign locations worldwide. The
reasons each of these $1mm+ accounts relies on Ad Art are its superior creative
services combined with super-bright displays, quality of manufacture and
competitive pricing.
Don Bell Don Bell is a producer of electronic message centers, custom
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designed identification systems and custom graphic systems for commercial
clients. Don Bell specializes in developing and installing interior and
exterior themed signage programs for shopping malls, parks, speedways,
restaurants, vacation destinations and other facilities with a themed image.
Don Bell's product line is very diverse and includes single and multiple face
fluorescent backlit identification signs, changeable copy reader boards,
electronic time and temperature displays, large pylon electronic and non-
electronic identification signs, monochrome electronic message centers and
multi-color wedge-based electronic displays. In addition, Don Bell often
produces smaller peripheral signs to complement larger signs and create a
signage theme for its customers.
Both Don Bell and Certified provide installation, service and maintenance on
interior and exterior lighting and signage. Prior to the acquisition of
Certified on July 1, 1997, the majority of the service work performed by Don
Bell was performed under five year maintenance agreements on signs sold by Don
Bell. The acquisition of Certified expanded this business to include service on
other manufacturer's signs as well as service of interior and exterior lighting.
The service and installation department of Don Bell was merged with the
operations of Certified to form a single service division within the Company.
Through a network of subcontractors and its own fleet of service trucks in Port
Orange, Orlando and Tampa, Florida, as well as Atlanta, Georgia and Las Vegas,
Nevada, the Company specializes in providing service nationwide to multi-store
retail outlets such as department stores, grocery stores, gas stations, office
complexes and clothing outlets while continuing to sell service contracts on
signs manufactured by Don Bell.
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Stewart Corporation Stewart Corporation markets custom designed and
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standard sign products specifically designed for outdoor use by institutional
organizations such as churches, schools, civic organizations and
governmental/military installations. The Company continually seeks markets in
other institutional organizations. The sign products are backed by a 20-year
comprehensive warranty, and warranty claims have historically been less than 1%
of sales. The sign cabinets are constructed of heavy gauge aluminum extrusions
which are welded at mitered corners. The exteriors are painted in various,
selected customer colors utilizing high quality automotive paints. The formed
faces of the signs are constructed of a polycarbonate product principally
manufactured by General Electric under the product name Lexan. Lexan provides a
sign face which is long lasting, weather and hazard resistant and extremely
shatterproof. The actual design of the sign can be selected from various stock
models which have been designed by Stewart Corporation or a sign may be custom
designed by the customer with Stewart Corporation's assistance.
The signs are internally illuminated by fluorescent lamps for night
visibility, and have facing which permits the user to customize the message or
announcement on the signs. The signs utilize a steel base plate which can be
bolt mounted on a concrete, stone or steel pylon base, and signs are designed
for ease of installation by the customer.
Sign and sign component manufacturing historically have been carried out under
Stewart Corporation's supervision by non-affiliated manufacturing and assembly
businesses. The majority of the sign manufacture is now handled by one
unaffiliated company, with a limited amount of manufacturing being fulfilled by
affiliated companies. Drawings and specifications are submitted to the
manufacturer, prices are negotiated and Stewart Corporation places individual
orders with the vendor based on the agreed upon prices. Products are shipped
directly to the customer from the third-party manufacturer and, consequently,
Stewart Corporation does not maintain an inventory of stock signs at its
facilities. The manufacturing process utilizes molds, the engineering and
design of which are proprietary to Stewart Corporation.
Stewart Industries produces graphic arts and screen printed products. Stewart
Industries also uses computers to design and produce die cut vinyl letters,
symbols, and logos for signs. Stewart Corporation purchases changeable screen
printed copy letters and lettered signs for its church and school signs from
Stewart Industries. These intercompany sales are eliminated in the consolidated
financial statements.
Filtration and Related Products. The filtration segment, which accounted for
6% and 10% of consolidated sales for 1997 and 1996, respectively, includes the
manufacture and sale of a line of products which, when installed in compressed
air lines, substantially reduce or totally eliminate water and condensate
problems and most foreign contaminants, such as moisture, oil, dust, rust, and
the like, in the air line. The Company also manufactures and markets
replacement filters and filter materials for each of its filtration devices.
The Company assembles and ships all of its products from its owned facility in
Port Orange, Florida. However, in order to minimize production costs, the
actual components are manufactured by others using tooling owned by the Company.
In the event that the shareholders approve the change of the Company's
corporate name to Display Technologies, Inc. at the 1998 annual meeting, the
Company intends to spin off its filtration division to a new, wholly-owned
subsidiary that will continue to do business under the name La-Man Corporation.
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PATENT AND TRADEMARK PROTECTION
The Company is the owner of 10 U.S. patents: U.S. Reg. No. 4,464,186 relating
to the Pneumatic Liquid Evaporator/Extractor (expires in the year 2001); No.
4,483,417 relating to the Pneuguard(R) Lubricator (expires in 2001); No.
4,487,618 relating to the Extractor/Dryer(R) (expires in 2001); No. 4,810,272
relating to the Air Inlet Valve Arrangement for Pneumatic Equipment (expires in
2006); No. Re32,989 (Reissue of No. 4,600,416) relating to the Air Line Vapor
Trap (expires in 2003); No. 4,874,408 relating to a Liquid Drain Assembly
(expires in 2006); No. 4,925,466 relating to a Filter Cartridge Assembly
(expires in 2007); No. 5,030,262 relating to the Air Vapor Trap and Drain
(expires in 2008); No. 5,114,443 relating to the Air Line Vapor Trap (expires in
2009) and No. 5,261,946 relating to the Air Line Vapor Trap With Air Warming
System (expires in 2010).
The Company also is the owner of nine foreign patents and patents
applications: Canadian Nos. 1,206,889 relating to the Pneumatic Dryer (expires
2003), 1,197,477 relating to the Extractor/Dryer(R) (expires 2002),1,207,674
relating to the Pneuguard(R) Lubricator (expires 2003), and 1,267,057 relating
to the Air Line Vapor trap (expires 2007), Canadian Patent Application No.
2,064,401 for the Air Line Vapor With Air Warming System; Japanese Patent Nos.
1,410,903 relating to the Airline Lubricator (expires 2002), and 1,899,252
relating to the Air Line Vapor Trap (expires 2001), Taiwanese Patent No. UM
55136 relating to the Air Inlet Valve Arrangement for Pneumatic Equipment
(expires 2000), and Swedish Patent No. 101,861 relating to the Airline
Lubricator (next renewal date July 13, 1997).
The Company is the owner of U.S. Reg. No. 1,287,666 for the trademark LA-
MAN(R), Reg. No. 1,328,054 for PNEUGUARD(R), Reg. No. 1,596,100 for
EXTRACTOR/DRYER(R), and Reg. No. 1,790,935 for ENCAPULATOR(R), all on the
Principal Register of the U.S. Patent and Trademark Office, Reg. No. 1,359,880
for the mark EXTRACTOR(R) on the Supplemental Register and Reg No. 1,844,119
for "We make Compressed Air Work". Federal trademark protection is perpetual,
but the Company must renew its trademarks every 10 years.
Ad Art presently has applications pending with the U.S. Patent and Trademark
Office for the following trademarks: INFOVISION(TM), STADIAVISION(TM),
ARENAVISION(TM) and AD ART(TM) Design. All of the applications have been
published, and are in various stages of the approval process. However, in view
of the backlog in the U.S. Patent and Trademark Office, the Company will not
know for a period of months whether any of the applications will face
opposition.
The Company believes its filtration and lubrication products are proprietary
assets of the Company's filtration segment. The Company intends to maintain all
patents and trademarks material to its business for their complete respective
terms. Patents generally are granted for 17-year terms and are nonrenewable;
trademarks are renewable for 10-year terms. The products and services of SEMCO,
Stewart Corporation, Stewart Industries and Don Bell are non-proprietary and, as
a result, trademarks and patents are not deemed material to the Company's
signage segment.
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MARKETING AND DISTRIBUTION
Ad Art and Don Bell market all U.S. products through staffs of commissioned
salespersons and commissioned independent sales contractors. Ad Art markets its
products outside the United States through commissioned sales persons and
independent sales representatives. The companies also participate in
conventions, advertising programs and trade associations. Their long-time
reputations as quality manufacturers are valued sources of sales leads.
Stewart Corporation markets its signs by direct marketing efforts which
include direct mail, telephone calls on prospective church, school and
institutional customers, and direct calls made upon the procurement personnel of
various national churches and church denominations, school board officials and
school procurement personnel. Stewart Corporation also participates in church,
school and governmental/military conventions, denominational meetings and other
events attended by representatives of potential church, school and
governmental/military customers. It advertises its products and services
through church denominational publications and bulletins, and publications of
schools, school boards and school administrative personnel.
Stewart Corporation also markets products through joint venture and similar
arrangements with the denominational headquarters of various organized churches.
Under the joint venture marketing strategy, Stewart Corporation products are
presented in denominational publications which are disseminated to member
churches. Stewart Corporation is presented as an appointed supplier of the
signs and related products and member churches are encouraged to purchase such
products from Stewart Corporation. Stewart Corporation remits a commission to
the denominational headquarters based upon product sales. Stewart Corporation
also plans to utilize joint venture arrangements in sign marketing to schools to
secure sign product endorsements from school boards and other administrative and
governing bodies.
Don Bell and Certified market service agreements through direct sales calls as
well as the sale of five-year service agreements on signs manufactured by Don
Bell. Through a network of subcontractors, as well as their own fleet of
service trucks in Port Orange, Orlando, Tampa and Miami, Florida, as well as
Atlanta, Georgia, Don Bell and Certified specialize in providing service
nationwide to multi-store retail outlets such as department stores, grocery
stores, gas stations, office complexes and clothing outlets. As a result, a
significant portion of marketing is dedicated to direct sales calls on the
corporate or regional headquarters of national retailers. In addition to
national and regional sales, the companies market service to local retailers
such as automobile dealers and shopping malls. They also cross market signage
and lighting services to provide a full range of services to customers.
The Company's filtration and lubrication business uses various techniques in
marketing its products, such as trade media advertising, direct mail, attendance
at trade shows and direct customer contact.
BACKLOG
Customers of Ad Art and Don Bell place orders on an as-needed basis. Deposits
of up to 50% with the orders are negotiated with customers. Delivery and
installation are dependent on the size and customization required of the order
and are usually completed within two months, except for
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long-term contracts. Ad Art and Don Bell do not have backlog orders which they
are not able to fill in accordance with their usual practice. However, they did
have contracts in process exceeding $14,700,000 in contract value as of June 30,
1998.
Stewart Corporation's customers place orders on an as-needed basis. Stewart
Corporation authorizes the manufacture of the sign when it obtains a deposit,
customarily 50% of the order, from the customer. The completed sign is shipped
to the customer approximately 6-8 weeks after the deposit is received. As of
June 30, 1998, Stewart Corporation did not have any firm orders for products
which it had not been able to fill in accordance with its usual practice.
Most of the Company's filtration customers place orders on an as-needed
basis, which generally are filled within one to five days after receipt and in
accordance with the delivery requirements of the Company's customers. For the
fiscal year ending June 30, 1998, the Company did not have any firm orders for
products which it had not been able to fill in accordance with its usual
practice. The Company's larger customers provide the Company with "blanket
orders," i.e., scheduled orders, at designated prices over the course of six-
month or twelve-month periods. These orders are subject to modification by the
customer from time to time.
EMPLOYEES
The Company presently has 481 full-time employees. The following table shows
the breakdown of employees:
Signage Segment:
Commercial Signage 328
Institutional Signage 47
Installation and Service 84
Graphic Arts and Screen Printing 5
Filtration Segment 11
Executive Offices 6
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481
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COMPETITION
Ad Art competes in two distinct markets - traditional signage and electronic
media. In broad terms, Ad Art has Japanese and domestic competitors in video
display markets. Sony Jumbotron and Mitsubishi Diamond Vision created the
outdoor stadium and "Times Square/Ginza" markets. Ad Art now delivers comparable
picture quality at 1/3 the total cost of ownership. Among the remaining lamp-
based domestic alternatives, Ad Art competes with three main companies:
Daktronics and Whiteway, which manufacture scoreboards with electronic
messaging, and Mikhon Visual Products, with similar capabilities but vertically
oriented to the Las Vegas market.
Ad Art has few major competitors in the spectacular sign market, nationally or
internationally. Over the past 30 years, Ad Art signs have been more highly
recognized for design and fabrication than those of its competitors.
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In the regional and national market, Ad Art identifies 10 competitors
representing approximately $500 million in annual sales against whom it vies for
market share. Of these firms, two generate annual sales in excess of $100
million, four generate annual sales of between $40-$70 million, and four
generate annual sales of between $25-$40 million. Ad Art competes extremely
well in local markets based on a solid brand image for quality, creativity and
value in both electronic and traditional signage.
Don Bell and Certified are in a highly competitive market, primarily for
medium-to-large sign products and electronic message systems, with both national
and local sign makers. The strength of their sales force, the quality of their
products and electronics, and their pricing and name recognition are the keys to
their successful sales records. The sign and lighting service industry is
dominated by small, single-location service companies. Multiple location
dispatch centers in Port Orange, Orlando, Tampa and Miami, Florida as well as
Atlanta, Georgia, Stockton, California and Los Angeles, California, in
combination with an extensive network of subcontractors, enable the Company to
provide nationwide service, which gives the Company a competitive advantage in
the signage and lighting service market.
Stewart Corporation encounters substantial competition from a myriad of local
signage companies which operate throughout the United States and Canada. The
principal factors in such competition are product pricing, service, quality,
design, production and delivery time, and product warranties. Stewart
Corporation products contain materials of high quality. A 20-year sign warranty
is also provided. Management believes that the comparative quality of the
Stewart Corporation sign products, together with related services provided and
the extensive product warranty, enable the company to effectively compete with
other sign companies. Additionally, Stewart Corporation's joint venture
marketing strategy provides access to potential church and school customers that
is generally not available to local competitors. Stewart Corporation also
competes with a number of smaller companies in the sale of lower volume economy
signs.
The Company's filtration manufacturing segment is subject to substantial
competition from a number of companies. At present, screening devices such as
filters and cumbersome water traps are the principal methods of attempting to
remove moisture and other impurities from compressed air lines. The Company is
not aware of any product presently marketed that offers the range of uses,
effectiveness and ease of installation provided by the Company's line of
products. The principal methods of competition include performance, service and
price. Management believes the Company's product prices are within the range of
the prices of its competitors.
GOVERNMENT REGULATION
The Company has no knowledge of any U. S. governmental regulations which
adversely affect its business operations. In the manufacture of its products
for governmental agencies, the Company is required to meet certain governmental
specifications. The Company has had no difficulty satisfying these requirements.
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ENVIRONMENTAL PROTECTION COMPLIANCE
The Company has no knowledge of any federal, state or local environmental
compliance regulations which materially affect its current business activities.
The Company has not expended any capital to comply with environmental
protection statutes and does not anticipate that such expenditures will be
necessary in the future with respect to its products.
RESEARCH AND DEVELOPMENT COSTS
The Company spent approximately $80,000 in fiscal 1998, primarily through Ad
Art. Research and development expenses in fiscal 1997, prior to the Ad Art
acquisition, were negligible.
Ad Art and Don Bell are expected to incur continuing research and development
costs for enhancement of LED video display boards, message centers and for
reduction of manufacturing costs. Stewart Corporation and Stewart Industries'
operations do not require the expenditure of any sums for research and
development. The Company's expenditures for its last two fiscal years on
research and development of new filtration and lubrication products were not
significant.
ITEM 2. PROPERTIES.
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The Company maintains its corporate offices in a 5,250 square foot leased
facility in an office and retail complex in Orlando, Florida under a five year
lease expiring in 2000.
Ad Art owns a 100,000 square foot manufacturing facility in Stockton,
California which is situated on a 10-acre site and is suitable for plant
expansion and multiple shifts. The property is encumbered by deeds of trust
securing Ad Art indebtedness of approximately $1,158,000.
Ad Art also leases branch offices in San Francisco, California, Carson,
California and Las Vegas, Nevada. The San Francisco lease is for 4,953 square
feet of office space for a term that expires January 31, 2002. The Carson,
California lease is for approximately 15,120 square feet of office space for a
term ending February 28, 2001. The Las Vegas lease is for 2,900 square feet of
office space for a term ending August 1, 2001.
Don Bell operates in its owned manufacturing facilities; a 38,000 square foot
structure in Port Orange, Florida. This building, situated on eight acres of
land owned by Don Bell, is a one and one half-story, steel frame structure with
a metal roof and slab floor. Don Bell also leases an adjacent one-acre site for
rent of $2,750 per month for a term ending April 30, 2000, with an option to
purchase the parcel for $400,000. In addition to the abovementioned facilities,
Don Bell and Certified operate service branches out of the corporate
headquarters in Orlando, Florida. Service trucks are stationed at customers'
facilities in Atlanta, Georgia and Las Vegas, Nevada.
Stewart Corporation leases approximately 9,175 feet of office space in
Sarasota, Florida for a five-year term that ends on December 31, 2000. Stewart
Industries leases, for its graphics and screen print operations, space in
Sarasota, Florida for a one-year term that ends on January 31, 1999. SEMCO does
not have separate offices and conducts its business from the offices of Stewart
Corporation.
11
<PAGE>
The Filtration segment operates in its owned manufacturing facilities; an
8,750 square foot structure in Port Orange, Florida. This building, situated on
approximately one acre of land adjacent to the Don Bell property, is a one-
story, steel frame structure with a metal roof, slab floor, heat and partial
central air conditioning.
The Company recently acquired an additional facility in which to manufacture
signs for Stewart Corporation or for commercial sign production. The facility
is approximately 14,000 square feet and is adjacent to both the Don Bell and
Filtration facilities.
All properties currently owned by the Company (except those of Ad Art), are
pledged as collateral against the Company's letter of credit, notes and line of
credit with SouthTrust Bank.
ITEM 3. LEGAL PROCEEDINGS.
- ---------------------------
In November 1996, the agency contracts between Vision and MCI were abruptly
terminated by MCI. The contract for commercial long-distance customers was
originally executed in 1994 and was restated and extended for a new five-year
term in May 1996. This contract revision had been proposed by MCI in September
1995 and discussed with Vision over a period of eight months. In reliance on
the new contract, Vision invested heavily in staff, facilities and equipment in
anticipation of significant commission revenue as a result of the enhancements
in the revised contract. A lawsuit was filed by Vision on April 16, 1997
seeking the recovery of damages from MCI. As of the date of this report, the
court hearing the lawsuit had made no material rulings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
- ---------------------------------------------------------------------------
MATTERS.
- --------
The Company's common stock is quoted on the NASDAQ Small Cap Market under the
trading symbol "LAMN" but is not traded on any exchange. If the Company's
proposed name change is approved at its 1998 annual meeting of shareholders, the
Company intends to change its trading symbol to "DTEK." The following table
indicates the range of high and low bid prices for the common stock for each
full quarterly period within the two most recent fiscal periods ended June 30,
1998 and June 30, 1997 as such quotes were supplied by the NASDAQ Small Cap
Market to the National Quotation Bureau, Inc. and reported to the Company by the
National Quotation Bureau, Inc. The market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
12
<PAGE>
Fiscal Year Common Stock Bid Prices
-----------------------
Ending Quarter Ending High Low
- -------------- ------------------ ----- -----
June 30, 1997 September 30, 1996 $2.13 $0.88
December 31, 1996 2.00 1.00
March 31, 1997 2.00 1.09
June 30, 1997 2.69 1.25
June 30, 1998 September 30, 1997 $3.13 $2.19
December 31, 1997 3.63 2.50
March 31, 1998 4.69 3.06
June 30, 1998 3.53 2.81
As of September 23, 1998 there were approximately 707 holders of record of
the common stock.
The Company has never paid and does not anticipate paying any cash dividends
on its common stock in the foreseeable future, but instead intends to retain
working capital and earnings for use in the Company's business operations and in
the expansion of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS.
- ----------------------
RESULTS OF OPERATIONS
The Company's consolidated financial statements include the accounts of the
Company and its subsidiaries SEMCO, Stewart Corporation, Stewart Industries,
Vision, Don Bell, Don Bell Nevada, Certified (since July 1, 1997) and Ad Art
(since February 18, 1998).
Except for the historical information contained herein, certain matters
addressed in this Annual Report on Form 10-KSB may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
Such forward looking statements are subject to a variety of risks and
uncertainties that could cause actual results to be different materially from
those anticipated by the Company's management. The Private Securities
Litigation Reform Act of 1995 (the "1995 Act") provides certain "safe harbor"
provisions for forward-looking statements. All forward-looking statements made
in this Annual Report on Form 10-KSB are made pursuant to the 1995 Act.
YEAR ENDED JUNE 30, 1998 COMPARED WITH YEAR ENDED JUNE 30, 1997
Fiscal 1998 sales of $32,478,000 represented an increase of $16,532,000, or
104%, over 1997 sales of $15,946,000. The increased sales resulted from
increases in both the sign and image enhancement display segment (the "display
segment") and the filtration segment.
Display segment sales, which accounted for 94.5% of consolidated sales in 1998
and 89.7% of consolidated sales in 1997, increased $16,387,000, or 115%, from
1997 to 1998. The sales growth in this segment can be broken down into internal
sales growth of $1,524,000 and growth from acquisitions of $14,863,000.
13
<PAGE>
Excluding the effects of acquisitions, display segment sales increased from
$14,299,000 in 1997 to $15,823,000 in 1998 - an increase of 11%. The most
significant portion of this increase came from commercial signage, image
enhancement displays, and related products and services which accounted for
sales of $7,753,000 (net of increases from acquisitions) in 1998 compared to
sales of $6,774,000 in 1997. This represents an internal growth rate of 14%.
The internal growth rate for less complex signs and image enhancement displays,
which consists primarily of institutional signage, was 7% with sales increasing
from $7,525,000 in 1997 to $8,070,000 in 1998.
The acquisition growth in the display segment resulted from the July 1, 1997
acquisition of Certified and the February 18, 1998 acquisition of Ad Art.
Certified contributed sales during 1998 of $1,068,000 and Ad Art contributed
sales of $13,795,000.
The internal sales growth in the display segment, as well as a portion of the
growth from acquisitions, was the result of several factors such as continued
refinement of marketing and promotion, new market development, sales staff
increases and synergies created from the acquisitions.
The marketing and promotion function was refined in July 1997 to more directly
target commercial customers through selective trade show attendance, direct mail
and other methods similar to the methods historically used to develop
institutional customer sales leads. Marketing has also been expanded for
institutional displays to target customers in the government and military,
funeral home and civic (such as municipalities and social clubs and
organizations) industries.
Synergies between the existing operations of the Company and the operations of
acquired companies have contributed significantly to the internal sales growth
and have also enable the acquired companies to grow at a faster pace subsequent
to the acquisitions.
The acquisition of Ad Art created various opportunities for the Company's
existing display segment, and vice-versa, primarily through a wider variety of
products available for sale, exposure to a wider customer base and an increased
ability to penetrate the nationwide market. Ad Art is a leader in the industry
in the production of wedge-based and LED color message centers and video
displays. Historically, the Company has purchased these products from third
party suppliers when needed. In the other direction, the Company's existing
commercial display operation is a leader in the industry in the production of
monochrome, large lamp, incandescent message center displays. This is a product
that Ad Art had historically purchased from third party suppliers. This
availability of a wider variety of high quality products has resulted in
significant cross-marketing with Ad Art sales personnel working side by side
with Don Bell sales personnel. Historically, neither company would have been
able to make these sales calls because they either did not have the necessary
products available, or did not have the necessary sales contacts to make the
calls. These joint marketing efforts will also be expanded to existing national
account customers such as Office Depot, Nike, Lil' Champs, Hard Rock Cafe and
many others that currently are being served either by Ad Art on the west coast
or Don Bell on the east coast. These existing relationships create
opportunities for increased sales for both Ad Art and Don Bell. A west coast
presence has also created new opportunities for increased sales of institutional
displays where sales have historically been concentrated in the southeast. A
new sales position has recently been developed in California and should increase
sales in the western region of the United States.
14
<PAGE>
Filtration segment sales, which accounted for 6% of sales in fiscal 1998 and
10% of sales in 1997, increased by 9% from $1,646,000 in 1997 to $1,792,000 in
1998. Sales from this segment had been essentially flat for the previous three
years. The 9% increase in 1998 is attributable to significant changes in the
segment's marketing methods in April 1997. At that time, additional field
representatives were added, trade show attendance was expanded, advertising was
increased, communication with distributors was enhanced and a proactive program
to add distributors was enacted.
The Company's overall gross margins dropped from 49.1% during 1997 to 39.4%
during 1998. The drop is a direct result of the change in the sales mix
resulting from the Ad Art acquisition. The types of display products produced
by Ad Art are typically sold at margins of 30% to 35%, which is consistent with
Don Bell's margins. These margins are significantly lower than the historical
55% to 60% gross margins on the Company's institutional display and filtration
operations, which have higher gross margins but higher selling expenses.
Margins were also reduced, to a lesser extent, from the Certified acquisition.
Certified historically under-priced its services and had excessive overhead.
Since the acquisition, the Company has gradually increased prices, reduced
operating costs and converted customer services to more cost efficient methods.
The filtration segment's gross margins increased from 57.5% in 1997 to 59.6%
in 1998. This increase represents a return to historical profit margins for
this segment upon training a new work force hired after the segment's operations
were moved from Indiana to Florida.
Selling expense increased by 93% from $2,581,000 in 1997 to $4,973,000 in
1998. Again, this increase was a result of acquisitions as selling expenses,
expressed as a percentage of sales, dropped from 16.2% of sales in 1997 to 15.3%
of sales in 1998.
Selling expenses for the display segment increased by 97% from $2,355,000 in
1997 to $4,643,000 in 1998. However, as a percentage of sales, the display
segments's selling expenses dropped from 16.5% of sales in 1997 to 15.1% of
sales in 1998 due to the acquisition of Ad Art, where selling expenses average
approximately 13.4% of sales. Disregarding the effect of acquisitions, the
segment's selling expenses increased from 16.5% of sales in 1997 to 17.5% of
sales in 1998 as a result of the increased marketing activities to commercial
and institutional customers. Historically, selling expenses for the Company's
institutional sign operations have been approximately 20% of sales while selling
expenses for the Company's commercial sign operations have been approximately
12% of sales. For the four-month period that Ad Art's operations are included
in the Company's financial statements, its selling expenses totaled $1,843,000,
or 13.4% of its sales for the period. This level of selling expenses is
consistent with the levels historically experienced by the Company's commercial
display operations.
General and administrative expenses increased by 26% from $4,210,000 in 1997
to $5,306,000 in 1998. The display segment, which includes the effects of
acquisitions, had a 26% increase in general and administrative expenses from
$3,073,000 in 1997 to $3,876,000 in 1998 and corporate general and
administrative expenses increased 38% from $856,000 in 1997 to $1,183,000 in
1998. The full increase in the display segment's general and administrative
expenses came from acquisitions where Ad Art added general and administrative
expenses of $594,000 (for the four months included in the Company's operations)
and Certified added general and administrative expenses of $226,000.
15
<PAGE>
Corporate general and administrative expenses primarily consist of executive
compensation and benefits, occupancy costs of the corporate office, and other
compliance costs incurred as a result of being a public company such as legal
fees, director fees, SEC and NASDAQ filing costs and investor relation and
publicity costs. From 1997 to 1998, corporate general and administrative costs
increased $327,000, or 38%. Approximately $140,000 of this increase resulted
from increased salary and bonus compensation to executives whose compensation
and bonuses are calculated under a formula based upon the financial performance
of the Company. The other significant expense increase, of approximately
$80,000, resulted from a expansion in investor relations and stock publicity
during 1998. Prior to 1998, investor relations and publicity activities were
very limited. The remaining increase in corporate general and administrative
expenses came from various sources associated with the growth of the Company
such as increased travel costs associated with the new west coast subsidiary and
increased costs for directors and officers insurance needed to attract a high
caliber of non-employee directors.
Non-operating activities netted to a $307,000 expense in 1998 compared to
$158,000 in income in 1997, a net increase in expenses of $465,000. The main
components of this increase are interest expense and the gain on sales of
assets.
Interest expense increased by 109%, or $253,000, from $233,000 in 1997 to
$486,000 in 1998. The increase in interest expense is directly attributable to
the acquisitions, as a total of approximately $100,000 in interest was incurred
during the year on debt incurred to finance the acquisitions and approximately
$180,000 in additional interest was paid on debts assumed in the acquisitions.
Gains on sales of assets dropped from $271,000 in 1997 to only $5,000 in 1998.
During 1997, the Company sold three billboards for a gain of approximately
$260,000 ($0.08 per basic share and $0.06 per diluted share). This sale removed
the Company from the billboard industry and represents a non-recurring gain.
Income tax expense for 1998 was $615,000 compared to a tax credit of $229,000
in 1997, a net increase in expense of $844,000 ($0.21 per basic share and $0.15
per diluted share). The tax credit in the prior year was the result of the
recognition of tax benefits derived from net operating losses incurred in prior
years. A portion of these benefits was also realized during 1998, which reduced
the effective tax rate for the Company to 28% rather than the statutory 38% to
40% federal and state rates. All benefits of these historical net operating
losses have now been realized and future tax expense should approximate the
statutory rates.
Net income from continuing operations increased by 12% from $1,418,000 in 1997
to $1,588,000 in 1998. On a per share basis, basic earnings per share from
continuing operations decreased from $0.41 in 1997 to $0.40 in 1998 on a 15%
increase in weighted average shares outstanding from 3,439,000 in 1997 to
3,965,000 in 1998. Diluted earnings per share from continuing operations
decreased from $0.35 in 1997 to $0.32 in 1998 on a 28% increase in weighted
average shares outstanding from 4,202,000 in 1997 to 5,389,000 in 1998.
16
<PAGE>
The loss from discontinued operations in 1997 includes the loss from
operations and winddown costs of Heritage Packaging Corporation, the Company's
package wholesaling subsidiary that was discontinued in August, 1996 and Vision,
the Company's telemarketing subsidiary that was discontinued in December, 1996.
Net income increased by 107% from $765,000 in 1997 to $1,588,000 in 1998. On
a per share basis, basic earnings per share increased by 82% from $0.22 per
share in 1997 to $0.40 per share in 1998 despite the 15% increase in weighted
average shares outstanding, and diluted earnings per share increased by 60% from
$0.20 in 1997 to $0.32 in 1998 despite the 28% increase in weighted average
shares outstanding.
LIQUIDITY, CASHFLOW AND CAPITAL RESOURCES
A total of $1,026,000 in cash was used in operations during the year. Net
income contributed cash of $2,214,000 net of non-cash charges for depreciation
and amortization, fixed asset disposals, contributions to the Company's 401(k)
plan and deferred income taxes. This cash provided was offset by increases in
receivables of $2,036,000 and inventories of $551,000 as well as decreases in
accounts payable of $1,080,000 and changes in other assets and liabilities. An
additional $755,000 in cash was provided from increased customer deposits.
The cash used to increase receivables and inventories is directly related to
higher sales and year-end sales backlogs that require higher levels of
receivables and inventory be carried on the Company's books. This also
contributed to the higher level of customer deposits as increased sales result
in increased deposits received from customers. The $1,080,000 used to pay down
account payables is somewhat misleading, as significant past due payables were
acquired in both the Ad Art and Certified acquisitions. The Company provided
working capital for each of these companies upon acquisition, which allowed
payables to be made current. However, since these payments occurred subsequent
to the acquisition, they are classified as operating activities rather than
investing activities associated with the acquisition.
A total of $3,868,000 in cash was used for investing activities during the
year, primarily as a result of the acquisitions which used $3,005,000 in cash,
net of cash acquired. An additional $883,000 in cash was used to acquire
various property, plant and equipment during the year.
A total of $5,200,000 in cash was provided by financing activities during the
year, which included $4,500,000 to finance the Ad Art acquisition consisting of
$3,500,000 in debt and $1,000,000 in common stock. An additional $327,000 in
cash was received from the proceeds of long-term debt when the Company
refinanced its long-term debt in August, 1997.
At June 30, 1998, the Company had working capital of $6,557,000 and
availability under open lines of credit of $3,341,000. Management believes that
this, combined with other available debt and equity financing sources, is
sufficient to fund the operations of the Company as well as potential future
acquisitions.
17
<PAGE>
INFLATION
Although inflation has slowed in recent years, it continues to be a factor in
the Company's operations. In recent years, the Company has taken steps to
counteract the effects of inflation by price increases and by careful cost
controls. There are no other significant factors which are expected to cause a
material increase in the Company's general and administrative expenses.
YEAR 2000
Many existing computer programs use only two digits to identify a year in the
date field, with the result that data referring to the year 2000 and subsequent
years may be misinterpreted by these programs. If present in computer
applications of the Company or its suppliers and not corrected, this problem
could cause computer applications to fail or to create erroneous results and
could cause a disruption in operations and have an adverse effect on the
Company's business and results of operations.
All of the Company's computer systems are provided by third-party vendors.
The Company has evaluated its principal computer systems and received assurances
from the system vendors that all systems currently in place are year 2000
compliant.
The Company has not communicated with all of its suppliers to determine the
extent to which the Company is vulnerable to failure by them to remediate their
own year 2000 issues. However, because of the availability of alternative
suppliers for the majority of the Company's raw materials, the Company does not
believe that any potential noncompliance by material vendors will have a
significant adverse effect on the Company.
Expenditures to remediate the year 2000 issue have not been material and the
Company does not anticipate any material expenditures related to this issue in
the future.
RECENT ACCOUNTING PRONOUNCEMENTS
See the footnotes to the Company's Consolidated Fiancial Statements for
information relating to recent accounting pronouncements.
ITEM 7. FINANCIAL STATEMENTS.
- ------------------------------
Financial statements are included at the end of this report starting at page
F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS, ETC.
- ------------------------------------------------------------
None.
PART III
THE INFORMATION REQUIRED BY ITEMS 9 THROUGH 12 OF THIS PART III IS INCORPORATED
BY REFERENCE FROM THE COMPANY'S DEFINITIVE PROXY STATEMENT TO BE FILED IN
CONNECTION WITH THE OCTOBER 29, 1998 MEETING OF SHAREHOLDERS OF THE COMPANY,
WHICH WILL INVOLVE THE ELECTION OF DIRECTORS.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- --------------------------------------------------------------------------
FORM 8-K.
- ----------
(a) The following documents are filed as part of this Report:
18
<PAGE>
<TABLE>
<S> <C>
LA-MAN CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants - BDO Seidman, LLP.............. F-2
Consolidated Balance Sheet as of June 30, 1998..................................... F-3
Consolidated Statements of Income for the years ended June 30, 1998 and 1997....... F-4
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1998 and 1997........................................................... F-5
Consolidated Statement of Cash Flows for the years ended June 30, 1998 and 1997.... F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
Exhibit
Number Title of Exhibit
- ------ ----------------
2.1 Stock Purchase and Sale Agreement dated as of September 7, 1995 among
Registrant, Don Bell Industries, Inc., Worrell Enterprises, Inc. and
Gary D. Bell/24/
2.2 Agreement for Purchase of Assets dated as of August 27, 1996 between
Heritage Packaging Services, Inc. and Midwest Packaging Products,
Inc./27/
2.3 Stock Purchase and Sale Agreement among the Registrant, Certified
Maintenance Service, Inc. and Mark Manfredi dated as of July, 1,
1997/32/
2.4 Agreement and Plan of Merger and Reorganization dated as of February 17,
1998 among the Registrant, Displays Acquisitions, Inc., a wholly owned
Florida subsidiary of the Registrant, Electronic Sign Corporation d/b/a
Ad Art, a California corporation, and Terry J. Long, Daniel G. O'Leary,
individually and in his capacity as Trustee of the Daniel O'Leary Trust
Dated April 18, 1993, Betty E. Papais, individually and in her capacity
as Trustee of the Papais Trust Dated January 29, 1991, and Lou A.
Papais/33/
3.1 Articles of Incorporation of Registrant/1/
3.2 Certificate of Merger/1/
3.3 Bylaws of Registrant as amended/27/
3.4 Amendment to Articles of Incorporation/9/
3.9 Articles of Incorporation of Nevada SEMCO, Inc., a Nevada
corporation/20/
3.10 By-Laws of Nevada SEMCO, Inc./20/
3.13 Articles of Incorporation of Vision Trust Marketing, Inc., a Florida
corporation/27/
3.14 Bylaws of Vision Trust Marketing, Inc./27/
3.15 Articles of Incorporation of Don Bell Industries, Inc., a Florida
corporation/27/
3.16 Bylaws of Don Bell Industries, Inc./27/
3.17 Articles of Incorporation of Don Bell Industries of Nevada, Inc./27/
3.18 Bylaws of Don Bell Industries of Nevada, Inc./27/
3.19 Articles of Incorporation of Certified Maintenance Service, Inc./32/
3.20 Bylaws of Incorporation of Certified Maintenance Service, Inc./32/
3.21 Articles of Incorporation of Displays Acquisitions Corp. (n/k/a Ad Art
Electronic Sign Corporation)/35/
3.22 Articles of Merger of Electronic Sign Corporation into Displays
Acquisition Corp. (with the surviving corporation, Displays Acquisitions
Corp. changing its name to Ad Art Displays, Inc.)/35/
3.23 Articles of Amendment to Articles of Incorporation of Ad Art Displays,
Inc. (changing the corporate name to Ad Art Electronic Sign
Corporation)/35/
3.24 Bylaws of Ad Art Electronic Sign Corporation f/k/a Ad Art Displays,
Inc./35/
3.25 Articles of Incorporation of ESC of Nevada, Inc./35/
19
<PAGE>
3.26 Bylaws of ESC of Nevada, Inc./35/
4.1 Specimen of Common Stock Certificate/17/
4.2 Specimen of Warrant Certificate (as revised)/17/
4.3 Form of Representative's Unit Purchase Option (as revised)/20/
4.7 Form of Warrant Agreement among Registrant, Mathews, Holmquist &
Associates, Inc., and Continental Stock Transfer & Trust Company
(revised)/20/
4.8 Specimen Certificate of Common Stock to be included in Units/17/
4.13 Amendment No. 1 to Warrant Agreement, dated as of December 8, 1995,
between La-Man Corporation and Continental Stock Transfer & Trust
Company, as Warrant Agent/29/
4.14 8% Convertible Note of Registrant, dated September 7, 1995, in
principal amount of $750,000 to Worrell Enterprises, Inc./26/
4.15 Amendment No. 2 to Warrant Agreement, dated as of January 10,1997,
between La-Man Corporation and Continental Stock & Transfer Company,
as Warrant Agent/32/
4.16 Amendment No. 3 to Warrant Agreement, dated as of March 20, 1998,
between La-Man Corporation and Continental Stock Transfer & Trust
Company, as Warrant Agent/35/
4.17 Convertible Loan Agreement Dated March 2, 1998 by and between La-Man
Corporation and Renaissance Capital Growth & Income Fund III, Inc.,
Renaissance US Growth & Income Trust PLC and Renaissance Capital
Group, Inc./34/
4.18 8.75% Convertible Debenture Due March 2, 2005 issued to Renaissance
Capital Growth & Income Fund III, Inc./34/
4.19 8.75% Convertible Debenture Due March 2, 2005 issued to Renaissance US
Growth & Income Trust PLC /34/
4.20 Stock Purchase Warrant issued to Renaissance Capital Growth & Income
Fund III, Inc./34/
4.21 Stock Purchase Warrant issued to Renaissance US Growth & Income Trust
PLC /34/
4.22 J. William Brandner Lock-Up Agreement /34/
4.23 J. Melvin Stewart Lock-Up Agreement /34/
9 Voting Trust Agreement dated as of May 19, 1998 among J. Melvin
Stewart, as Trustee, and Rebecca Stewart Brooks, Bonnie Stewart Knox,
J. Melvin Stewart as Trustee for the Emily Stewart Michelsen
Irrevocable Trust dated May 6, 1998, Susan Stewart Michelsen,
Elizabeth Stewart Ricci, Deborah Stewart, John M. Stewart and Mary
Stewart
10.46 1988 Incentive Stock Option Plan/17/
10.47 1992 Stock Option and Appreciation Rights Plan/17/
10.58 Employment Agreement dated July 26, 1993 between Registrant and Philip
Howe Hoard/20/
10.60 Employment Agreement dated August 19, 1993, between J.M. Stewart
Corporation and J. Melvin Stewart/20/
10.61 Employment Agreement dated as of April 28, 1994 between Registrant and
J. William Brandner/21/
10.94 Amendment No. 1, dated as of August 31, 1995 to Employment Agreement
between Registrant and J. William Brandner/27/
10.95 Amendment No. 1, dated as of August 31, 1995 to Employment Agreement
between Registrant and Philip Howe Hoard/27/
10.96 Amendment No. 1, dated as of August 31, 1995 to Employment Agreement
between Registrant and J. Melvin Stewart/27/
10.102 Employment Agreement dated as of September 7, 1995 among Registrant,
Don Bell Industries, Inc. and Gary D. Bell/26/
10.104 La-Man Corporation 1994 Amended and Restated Employee and Consultant
Stock Compensation Plan, as amended by Amendment No. 1 thereto dated
as of August 31, 1995/26/
20
<PAGE>
10.106 $2,570,000 Irrevocable Letter of Credit No. SB 1326 issued by
SouthTrust Bank, National Association, on August 28, 1997 for the
account of La-Man Corporation./32/
10.107 Form of La-Man Corporation $2,500,000 Variable/Fixed Rate Credit
Enhanced Notes./32/
10.108 Trust Indenture dated August 1, 1997 between La-Man Corporation and
SouthTrust Bank, National Association /32/
10.109 Remarketing Agent Agreement dated as of August 1, 1997 among La-Man
Corporation, SouthTrust Bank, National Association, as Trustee and
SouthTrust Securities, Inc., as Remarketing Agent /32/
10.110 Revolving-Line-of-Credit Promissory Note dated August 1, 1997 from La-
Man Corporation to SouthTrust Bank, National Association /32/
10.111 Credit and Security Agreement dated as of August 1, 1997 between La-
Man Corporation and SouthTrust Bank, National Association /32/
10.112 Real Estate Mortgage and Security Agreement dated as of August 1,
1997, by La-Man Corporation, Don Bell Industries, Inc., Don Bell
Industries of Nevada, Inc., Nevada SEMCO, Inc., JM Stuart Corporation,
JM Stuart Industries, Inc., Certified Maintenance Services, Inc. and
Vision Trust Marketing, Inc., to and for the benefit of SouthTrust
Bank, National Association /32/
10.113 Guaranty Agreement dated as of August 1, 1997, by Don Bell Industries,
Inc., Don Bell Industries of Nevada, Inc., Nevada SEMCO, JM Stuart
Corporation, JM Stuart Industries, Inc., Certified Maintenance
Service, Inc. and Vision Trust Marketing, Inc. to and for the benefit
of SouthTrust Bank, National Association /32/
10.114 Exclusive Manufacturing and Sales Agreement dated as of September 16,
1997 between Don Bell Industries, Inc. and Electronic Sign Corporation
d/b/a Ad Art /32/
10.115 February 17, 1998 promissory note from Electronic Sign Corporation
payable to the order of Terry J. Long/33/
10.116 February 17, 1998 promissory note from Electronic Sign Corporation
payable to the order of Daniel Gregory O'Leary, as Co-Trustee under
the Daniel and Beverly O'Leary Revocable Family Trust Dated January
17, 1997/33/
10.117 February 17, 1998 promissory note from Electronic Sign Corporation
payable to the order of Betty E. Papais, as Trustee of the Papais
Trust Dated January 29, 1991/33/
10.118 Employment Agreement dated February 18, 1998 between and among La-Man
Corporation, Ad Art Displays, Inc. and Terry J. Long/33/
10.119 Employee Stock Option Agreement dated February 18, 1998 by and between
La-Man Corporation and Terry J. Long/33/
10.120 Consulting Agreement dated February 18, 1998 between and among Ad Art
Displays, Inc. and Lou A. Papais/33/
10.121 Pledge Agreement dated March 2, 1998 between La-Man Corporation and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth & Income Trust PLC /34/
10.122 Security Agreement dated March 2, 1998 between La-Man Corporation and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth & Income Trust PLC /34/
10.123 Form of Subsidiary Continuing Guaranty /34/
10.124 Form of Subsidiary Security Agreement /34/
10.125 Amendment No. 2 to La-Man Corporation 1992 Stock Option and
Appreciation Rights Plan, as amended /34/
21
<PAGE>
10.126 Amendment No. 3 to La-Man Corporation 1992 Stock Option and
Appreciation Rights Plan, as amended /34/
10.127 Amendment No. 2 to La-Man Corporation Amended and Restated 1994
Employee and Consultant Stock Compensation Plan, as amended /34/
10.128 Employment Agreement dated as of February 17, 1998 among Registrant,
Don Bell Industries, Inc. and Gary D. Bell/35/
10.129 Employment Agreement dated as of September 1, 1998 between Registrant
and Marshall S. Harris
21 Subsidiaries/35/
____________
/1/ Incorporated by reference from Registrant's Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form S-18
(Registration No. 2-89341).
/2/ Incorporated by reference from Registrant's Pre-Effective Amendment
No. 2 to the Registrant's Registration Statement on Form S-18
(Registration No. 2-8934 1).
/3/ Filed as an exhibit to Registrant's Form 10-Q for the period ended
June 30, 1986 (File No. 0-14427), and incorporated by reference.
/4/ Incorporated by reference from Registrant's Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form S-18 (Registration No.
2-89341).
/5/ Filed as an exhibit to Registrant's Form 10-Q for the period ended
December 31, 1985 (File No. 0-14427), and incorporated by reference.
/6/ Filed as an exhibit to Registrant's Current Report on Form 8-K filed
on December 23, 1987 (File No. 0-14427), and incorporated by reference.
/7/ Filed as an exhibit to Registrant's Form 10-K for the period ended
September 30, 1986 (File No. 0-14427), and incorporated by reference.
/8/ Filed as an exhibit to Registrant's Form 10-K for the period ended
September 30, 1987 (File No. 0-14427), and incorporated by reference.
/9/ Filed as an exhibit to Registrant's Form 10-K for the period ended
September 30, 1988 (File No. 0-14427), and incorporated by reference.
/10/ Filed as an exhibit to Registrant's Current Report on Form 8-K filed
on October 3, 1989 (File No. 0-14427), and incorporated by reference.
/11/ Filed as an exhibit to Registrant's Form 10-K for the period ending
September 30, 1989 (File No. 0-14427), and incorporated by reference.
/12/ Filed as an exhibit to Registrant's Form 8-K dated March 29, 1990
(File No. 0-14427), and incorporated by reference.
/13/ Filed as an exhibit to Registrant's Form 8-K dated January 5, 1991
(File No. 0-14427), and incorporated by reference.
22
<PAGE>
/14/ Filed as an exhibit to Registrant's Form 10-K for the period ending
September 30, 1991 (File No. 0-14427), and incorporated by reference.
/15/ Filed as an exhibit to Registrant's Form 8-K filed on September 3,
1992 (File No. 0-14427), and incorporated by reference.
/16/ Filed as an exhibit to Registrant's Form 10-K for the transition
period ending June 30, 1992 (File No. 0-14427), and incorporated by
reference.
/17/ Previously filed as an exhibit to the Registration Statement
(Registration No. 33-54230) and incorporated by reference.
/18/ Previously filed as an exhibit to Post Effective Amendment No. 1 to
the Registration Statement (Registration No. 33-54230) and incorporated by
reference.
/19/ Filed as an Exhibit to Registrant's Form 8-K dated August 19, 1993
(File No. 0-14427) and incorporated by reference.
/20/ Previously filed as an exhibit to Post Effective Amendment No. 2 to
the Registration Statement (Registration No. 33-54230) and incorporated by
reference.
/21/ Filed as an exhibit to Registrant's Form 8-K dated June 23, 1994 filed
on June 28,1994 (File No. 0-14427), and incorporated by reference.
/22/ Filed as an exhibit to Registrant's Form 8-K dated January 27, 1994
and filed on February 3, 1994 (File No. 0-14427), and incorporated by
reference.
/23/ Filed as an exhibit to Registrant's Form 10-K for the period ending
June 30, 1994 (File No. 0-14427), and incorporated by reference.
/24/ Filed as an exhibit to Registrant's Form 8-K dated November 14, 1994
and filed on January 27, 1995 (File No. 0-14427), and incorporated by
reference.
/25/ Filed as an exhibit to Registrant's Form 8-K dated February 13, 1995
and filed on February 27, 1995 (File No. 0-14427), and incorporated by
reference.
/26/ Filed as an exhibit to Registrant's Form 8-K dated September 7, 1995
and filed effective September 22, 1995 (File No. 0-14427), and incorporated
by reference.
/27/ Filed as an exhibit to Registrant's Form 10-KSB for the period ending
June 30, 1995 (File No. 0-14427), and incorporated by reference.
/28/ Filed as an exhibit to Registrant's Registration Statement on Form S-3
(Registration No. 33-98964), and incorporated by reference.
/29/ Filed as an exhibit to Registrant's Post-Effective Amendment No. 7 to
Registration Statement on Form S-3 (Registration No. 33-54230), and
incorporated by reference.
/30/ Filed as an exhibit to Registrant's Form 8-K dated December 27, 1995
(File No. 0-14427), and incorporated by reference.
23
<PAGE>
/31/ Filed as an exhibit to Registrant's Form 8-K dated August 28, 1996
(File No. 0-14427), and incorporated by reference.
/32/ Filed as an exhibit to Registrant's Form 10-KSB for the period ending June
30, 1997 (File No. 0-14427), and incorporated by reference.
/33/ Filed as an exhibit to Registrant's Form 8-K dated February 18, 1998
and filed March 2, 1998 (File No. 0-14427), and incorporated by reference.
/34/ Filed as an exhibit to Registrant's Form 8-K dated March 2, 1998 and
filed March 12, 1998 (File No. 0-144227), and incorporated by reference.
/35/ Filed as an exhibit to Registrant's Registration Statement on Form S-3
(Registration No. 333-51835), and incorporated by reference.
(b) No reports on Form 8-K were filed by the Registrant during the three-month
period ended June 30, 1998, the last quarter of the period covered by this
Annual Report on Form 10-KSB.
(c) Exhibits:
9 Voting Trust Agreement dated as of May 19, 1998 among J. Melvin
Stewart, as Trustee, and Rebecca Stewart Brooks, Bonnie Stewart
Knox, J. Melvin Stewart as Trustee for the Emily Stewart Michelsen
Irrevocable Trust dated May 6, 1998, Susan Stewart Michelsen,
Elizabeth Stewart Ricci, Deborah Stewart, John M. Stewart and Mary
Stewart
10.129 Employment Agreement dated as of September 1, 1998 between
Registrant and Marshall S. Harris
24
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
By: /s/ J. William Brandner
--------------------------------------
J. William Brandner, President
(Chief Executive Officer) and Director
September 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report had been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ J. Melvin Stewart By: /s/ Terry J. Long
---------------------------------- --------------------------
J. Melvin Stewart, Chairman of Terry J. Long, Director
the Board and Director September 24, 1998
September 24, 1998
By: /s/ Gary D. Bell By: /s/ Lou A. Papais
---------------------------------- --------------------------
Gary D. Bell, Director Lou A. Papais, Director
September 24, 1998 September 24, 1998
By: /s/ Edwin M. Freakley By: /s/ William A. Retz
---------------------------------- --------------------------
Edwin M. Freakley, Director William A. Retz, Director
September 24, 1998 September 24, 1998
By: /s/ Thomas N. Grant By: /s/ Robert M. Smither, Jr.
---------------------------------- --------------------------
Thomas N. Grant, Director Robert M. Smither, Jr.,
September 24, 1998 Director
September 24, 1998
By: /s/ Phillip Howe Hoard By: /s/ Todd D. Thrasher
---------------------------------- --------------------------
Philip Howe Hoard, Vice President, Todd D. Thrasher
Secretary and Director Vice President, Treasurer
September 24, 1998 (Chief Financial Officer)
and Assistant Secretary
By: /s/ Lester Jacobs September 24, 1998
----------------------------------
Lester Jacobs, Director
September 24, 1998
</TABLE>
25
<PAGE>
LA-MAN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
LA-MAN CORPORATION AND SUBSIDIARIES
Report of Independent Certified Public Accountants............................... F-2
Consolidated Balance Sheet as of June 30, 1998................................... F-3
Consolidated Statements of Income for the years ended June 30, 1998 and 1997..... F-4
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1998 and 1997......................................................... F-5
Consolidated Statement of Cash Flows for the years ended June 30, 1998 and 1997.. F-6
Notes to Consolidated Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
La-Man Corporation
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Display Technologies, Inc.
We have audited the accompanying consolidated balance sheet of La-Man
Corporation and subsidiaries as of June 30, 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the two
years in the period ended June 30, 1998. These consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of La-Man Corporation
and subsidiaries as of June 30, 1998, and the results of their operations and
their cash flows for each of the two years in the period ended June 30, 1998 in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Orlando, Florida
August 10, 1998
F-2
<PAGE>
La-Man Corporation
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 1998
- -----------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 537,564
Accounts receivable:
Trade, less allowance for doubtful accounts of $374,088 6,897,120
Other 433,004
Inventories 4,338,453
Costs and estimated earnings in excess of billings on uncompleted contracts in progress 1,611,070
Prepaid expenses 905,017
Deferred tax assets 574,000
- -----------------------------------------------------------------------------------------------------
15,296,228
- -----------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, less accumulated depreciation 6,071,271
- -----------------------------------------------------------------------------------------------------
OTHER ASSETS
Intangibles, less accumulated amortization 9,009,986
Deferred tax assets 122,000
Other 295,123
- -----------------------------------------------------------------------------------------------------
9,427,109
- -----------------------------------------------------------------------------------------------------
$30,794,608
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,821,524
Customer deposits 1,331,396
Accrued expenses 3,523,342
Billings in excess of costs and estimated earnings on uncompleted contracts in progress 210,052
Current maturities of long-term debt 650,375
Current portion of obligations under capital leases 202,747
- -----------------------------------------------------------------------------------------------------
8,739,436
- -----------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Lines of credit 2,959,195
Long-term debt, less current maturities 7,257,583
Obligations under capital leases, less current portion 234,930
Other 76,102
- -----------------------------------------------------------------------------------------------------
10,527,810
- -----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock; $.001 par value; authorized 50,000,000 shares; issued and
outstanding 4,891,524 shares 4,892
Additional paid-in capital 11,501,193
Retained earnings 21,277
- -----------------------------------------------------------------------------------------------------
11,527,362
- -----------------------------------------------------------------------------------------------------
$30,794,608
=====================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
F-3
<PAGE>
La-Man Corporation
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30 1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------
SALES $32,478,018 $15,945,627
COST OF SALES 19,688,873 8,123,075
- ----------------------------------------------------------------------------------------
Gross profit 12,789,145 7,822,552
OPERATING EXPENSES
Selling expenses 4,973,451 2,581,389
General and administrative expenses 5,305,649 4,209,536
- ----------------------------------------------------------------------------------------
10,279,100 6,790,925
- ----------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 2,510,045 1,031,627
OTHER INCOME (EXPENSE)
Interest income 94,812 100,770
Interest expense (486,460) (233,140)
Gain on disposal of property and equipment 4,649 270,892
Miscellaneous income 79,895 19,253
- ----------------------------------------------------------------------------------------
(307,104) 157,775
- ----------------------------------------------------------------------------------------
Income from continuing operations before income tax benefit 2,202,941 1,189,402
Income tax (expense) benefit (615,000) 229,000
- ----------------------------------------------------------------------------------------
Income from continuing operations 1,587,941 1,418,402
- ----------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Loss from operations of discontinued operations - 281,371
Loss on disposal of discontinued operations - 371,572
- ----------------------------------------------------------------------------------------
- 652,943
- ----------------------------------------------------------------------------------------
Net income $1,587,941 $ 765,459
========================================================================================
EARNINGS PER COMMON SHARE
BASIC
Continuing operations $0.40 $ 0.41
Discontinued operations - (0.19)
- ----------------------------------------------------------------------------------------
$0.40 $ 0.22
========================================================================================
DILUTED
Continuing operations $0.32 $ 0.35
Discontinued operations - (0.15)
- ----------------------------------------------------------------------------------------
$0.32 $ 0.20
========================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 3,964,960 3,438,580
Diluted 5,389,452 4,202,331
========================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
F-4
<PAGE>
La-Man Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional Retained Earnings Total
Number Par Paid-In (Accumulated Stockholders'
Of Shares Value Capital Deficit) Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996 3,058,665 $3,059 $6,158,510 $(1,601,831) $4,559,738
Issuance of five percent stock dividend 152,768 153 152,615 (152,768) -
Issuance of note payable as adjustment to
Don Bell Industries purchase price - - (626,476) - (626,476)
Exercise of stock options and warrants, net 52,521 52 18,698 - 18,750
Issuance of stock options and warrants - - 35,000 - 35,000
Stock contributed to 401(k) plan 46,915 47 71,485 - 71,532
Net income - - - 765,459 765,459
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 3,310,869 3,311 5,809,832 (989,140) 4,824,003
Issuance of five percent stock dividend 167,885 168 577,356 (577,524) -
Issuance of stock for acquisition of Ad Art 810,000 810 3,336,390 - 3,337,200
Sales of common stock, net 231,482 232 969,768 - 970,000
Exercise of stock options and warrants, net 322,396 322 548,398 - 548,720
Issuance of stock options and warrants - - 124,250 - 124,250
Stock contributed to 401(k) plan 35,845 36 101,812 - 101,848
Stock issued for employee bonuses 13,047 13 33,387 - 33,400
Net income - - - 1,587,941 1,587,941
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 4,891,524 $4,892 $11,501,193 $21,277 $11,527,362
=================================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
F-5
<PAGE>
La-Man Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,587,941 $ 765,459
Adjustments to reconcile net income to net cash provided by (used for)
continuing operating activities:
Loss from discontinued operations - 652,943
Depreciation and amortization 666,941 479,227
Gain on disposal of property, plant and equipment (4,650) (270,892)
Contribution of common stock to 401(k) plan 101,848 71,532
Realization of deferred income - (52,810)
Change in deferred income taxes (137,656) (250,000)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (1,992,003) (467,322)
Other receivables (43,655) 155,060
Inventories (550,953) (305,868)
Prepaid expenses (240,100) (101,003)
Accounts payable (1,079,715) (420,299)
Customer deposits 754,520 88,791
Accrued expenses (88,771) 318,036
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) CONTINUING OPERATING ACTIVITIES (1,026,253) 662,854
NET CASH USED FOR DISCONTINUED OPERATING ACTIVITIES - (509,768)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (882,813) (257,266)
Business acquisitions, net of cash acquired (3,004,568) -
Proceeds from sale of property, plant and equipment 19,470 382,635
Changes in other assets - 12,801
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (3,867,911) 138,170
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in line of credit borrowings (62,048) -
Proceeds from issuance of notes payable 3,827,077 -
Principal payments on notes payable (114,458) (159,167)
Proceeds from sales of stock (including option and warrant exercises), net 1,518,720 18,750
Payments on capital lease obligations (108,265) (32,253)
Payment of fees for long-term debt (142,630) -
Other financing activities 282,019 -
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 5,200,415 (172,670)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 306,251 118,586
CASH, beginning of year 231,313 112,727
- --------------------------------------------------------------------------------------------------------
CASH, end of year $ 537,564 $ 231,313
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND COMPANY NAME
The Company designs, manufactures, installs and services hi-tech electronic
computer driven video displays, message centers, scoreboards, and business
identity signs.
The Board of Directors has adopted a resolution to change the name of the
Company to Display Technologies, Inc. This name change will not become
effective until ratified by the shareholders at the next shareholders meeting.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of La-Man Corporation
and its wholly-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
INVENTORIES
Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by the straight-line method.
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over their
estimated useful lives.
IMPAIRMENTS
Assets are evaluated for impairment when events change or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. When any such impairment exists, the related assets will be
written down to fair value.
REVENUE RECOGNITION
The Company recognizes revenue on long-term construction contracts under the
percentage-of-completion method, measured by the percentage of contract costs
incurred to estimated total costs for each contract. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Profit is included in revenues when its realization is reasonably assured.
LEASING ACTIVITIES
The Company leases certain of its signs to customers under long-term
noncancellable leases which are accounted for as sales-type leases. The present
value of the minimum rentals to be received under such leases is recorded
currently as net sales revenue. The cost of the leased property is charged
against income at the time the sale is recorded.
INCOME TAXES
Income tax expense or benefit includes both current and deferred state and
federal income taxes. Deferred income taxes are provided for temporary
differences in the recognition of income and expense for financial reporting and
income tax purposes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets, liabilities
and tax carry forwards that will result in taxable or deductible amounts in
future periods based upon enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Deferred tax
liabilities are recognized when incurred; deferred tax assets, when necessary,
are reduced by a valuation allowance and recognized when it is more likely than
not that the asset will be realized.
STOCK BASED COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) during 1997. However, as
permitted by SFAS 123, the Company has elected to continue to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for stock based compensation to
employees.
Stock options granted to non-employees are valued using a Black-Scholes option
pricing model with appropriate assumptions for risk free investment rates,
expected lives, dividend yields and volatility factors. The value of options
granted to non-employees is charged to appropriate asset or expense accounts
when the options are granted.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of June 30, 1998. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash, trade
receivables, accounts payable and accrued expenses. The fair value of the
Company's long-term debt is estimated based upon the quoted market prices for
the same or similar issues or on the current rates offered to the Company for
debt of the same remaining maturities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation.
F-7
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS
On February 18, 1998, the Company acquired all of the outstanding common stock
of Electronic Sign Corporation (dba Ad Art) ("Ad Art") in exchange for 810,000
shares of the Company's $.001 par value common stock valued at $3,337,200 and
$3,000,000 in cash. Additional costs of the acquisition, including legal and
other fees, totaled $277,800. An additional 540,000 shares of the Company's
$.001 par value common stock (the "contingent shares") are issuable on a pro-
rata basis if Ad Art's after tax earnings for fiscal 1999 are between $1.4
million and $2.4 million. The contingent shares are issuable at a rate of
approximately 49,000 shares for each $100,000 of after tax income in excess of
$1.4 million up to the maximum of 540,000 shares to be issued for after tax
income of $2.4 million or higher. The acquisition was recorded using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the net assets acquired based upon their estimated fair market values. The
excess of the purchase price over the estimated fair value of the net assets
acquired amounted to approximately $6,000,000, which has been accounted for as
goodwill and is being amortized over its estimated life of 40 years. The
operating results of Ad Art are included in the Company's consolidated results
of operations from the date of acquisition.
The following unaudited pro-forma summary presents the consolidated results of
continuing operations as if the acquisition of Ad Art had occurred at the
beginning of the period presented and does not purport to be indicative of what
would have occurred had the acquisition been made as of that date or of results
which may occur in the future.
Year ended June 30 1998 1997
- ----------------------------------------------
Net sales $52,546,000 $43,625,000
Net income $ 1,170,000 $ 633,000
Earnings per share
Basic $ .23 $ .12
Diluted $ .20 $ .12
==============================================
On July 1, 1997, the Company acquired all of the outstanding common stock of
Certified Maintenance Services, Inc. ("Certified") for the assumption of
Certified's net liabilities of approximately $600,000. The acquisition was
recorded using the purchase method of accounting. Accordingly, the purchase
price was allocated to the net assets acquired based upon their estimated fair
market values. The excess of the purchase price over the estimated fair value
of net assets acquired amounted to approximately $600,000, which has been
accounted for as goodwill and is being amortized over its estimated life of 40
years. The operating results of Certified are included in the Company's
consolidated results of operations from the date of acquisition.
NOTE 3. INVENTORIES
Inventories at June 30, 1998 consist of the following:
- -----------------------------
Raw materials $2,925,768
Work in process 1,256,188
Finished goods 156,497
- -----------------------------
$4,338,453
=============================
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1998 consist of the following:
Estimated
Useful Lives
- -----------------------------------------------------------
Land $1,547,256
Buildings and improvements 15-30 years 2,543,161
Machinery and equipment 5-10 years 2,029,194
Office equipment and furniture 5-10 years 1,256,721
Transportation equipment 3-5 years 582,465
Signs held for lease 11 years 255,527
- -----------------------------------------------------------
8,214,324
Less accumulated depreciation 2,143,053
- -----------------------------------------------------------
$6,071,271
===========================================================
Depreciation expense from continuing operations for the years ended June 30,
1998 and 1997 was $507,088 and $399,369, respectively.
NOTE 5. INTANGIBLE ASSETS
Intangible assets are summarized as follows:
Estimated Lives
- ---------------------------------------------------
Patents 5 years $ 223,143
Debt fees 7 - 15 years 383,234
Goodwill 40 years 8,910,234
- ---------------------------------------------------
9,516,611
Less accumulated amortization 506,625
- ---------------------------------------------------
$9,009,986
===================================================
Amortization expense from continuing operations for the years ended June 30,
1998 and 1997 was $159,853 and $79,858, respectively.
F-8
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. NET INVESTMENT IN SALES-TYPE LEASES
The Company is the lessor of a variety of signs and advertising display units
under agreements expiring through 2005. The Company accounts for these leases as
sales-type leases. At June 30, 1998, the net investment in sales-type leases
consists of the following:
- ----------------------------------------------------------------
Total minimum lease payments to be received $410,465
Less unearned income 69,665
- ----------------------------------------------------------------
Net investment in sales-type leases 340,800
Less current portion (included in other receivables) 118,897
- ----------------------------------------------------------------
Long-term net investment (included in other assets) $221,903
================================================================
The following is a schedule of minimum lease payments to be received as of
June 30, 1998:
- -------------------------------
1999 $153,017
2000 137,130
2001 66,572
2002 27,482
2003 19,632
Thereafter 6,632
- -------------------------------
$410,465
===============================
NOTE 7. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts consists of the following
at June 30, 1998:
- ------------------------------------------------------
Costs incurred on uncompleted contracts $ 2,394,655
Estimated earnings 870,546
- ------------------------------------------------------
3,265,201
Billings to date (1,864,183)
- ------------------------------------------------------
$ 1,401,018
======================================================
Included in the accompanying balance sheet under the following captions:
- ---------------------------------------------------------------
Costs and estimated earnings in excess of
billing on uncompleted contracts in progress $1,611,070
Billings in excess of costs and estimated earnings
on uncompleted contracts in progress (210,052)
- ---------------------------------------------------------------
$1,401,018
===============================================================
NOTE 8. ACCRUED EXPENSES
Accrued expenses at June 30, 1998 consist of he following:
- ----------------------------------------
Payroll and benefits $1,795,058
Taxes 847,511
Warranty 504,558
Other 376,215
- ----------------------------------------
$3,523,342
========================================
NOTE 9. LINES OF CREDIT
The Company has a $1.3 million revolving line of credit with a national bank.
The line of credit bears interest at one percent over the bank's prime rate (for
a rate of 9.5% at June 30, 1998) and matures October, 1999 with annual renewal
provisions. The line of credit is secured by eligible receivables and
inventory, subsidiary guarantees, and is cross-collateralized with the letter of
credit from the same lender and the $2.5 million notes payable secured by the
letter of credit. As of June 30, 1998, $62,000 was borrowed against this line
of credit. This line of credit contains certain financial and operating
covenants. The Company was in compliance with all covenants at June 30, 1998.
Through its Ad Art subsidiary, the Company has a $5,000,000 line of credit with
a corporate lending institution. The line of credit matures March, 2000 and
bears interest at 2.5% over the lenders prime rate and is adjustable to 1.5%
over the lenders prime rate provided Ad Art maintains certain tangible net worth
levels. At June 30, 1998, Ad Art had attained the required levels of tangible
net worth to obtain the lower interest rate, but had not yet maintained this
level for the required period. Therefore, the interest rate on this line of
credit was 11.0% at June 30, 1998. The line of credit is secured by eligible
receivables and inventory, substantially all other assets of Ad Art, and a
guarantee by the Company. As of June 30, 1998, $2,897,195 was borrowed against
this line of credit.
F-9
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. LONG-TERM DEBT
Long term debt at June 30, 1998 is summarized as follows:
- -----------------------------------------------------------------
Notes payable secured by a letter of credit with
a national bank, variable interest rate plus 1%
letter of credit fee (effective rate at
June 30, 1998 was 6.74%), secured by
substantially all assets of the Company,
subsidiary guarantees, and cross-collateralized
with and covered by the same covenants as
the line of credit with the same national bank,
interest due monthly with annual principal
payments due in varying amounts each August
through 2012. $ 2,500,000
8.75% convertible subordinated debentures,
convertible into the Company's $.001 par value
common stock at $4.75 per share, secured by
substantially all assets of the Company and
subsidiary guarantees, but subordinated to
bank debt, interest due monthly, monthly
principal payments begin March 2, 2001 at the
rate of 1% of the outstanding principal balance,
final balloon payment due March 2, 2005 3,500,000
8% unsecured convertible note payable,
convertible into the Company's $.001 par value
common stock at $4.53 per share, interest due
semi-annually with annual principal payments
of $250,000 for three years beginning
September 1998 750,000
7.875% note payable, secured by deed of trust
on specific land and buildings, monthly
payments of $8,663 including interest, matures 901,299
May 2013
8% note payable, secured by deed of trust on
specific real property, monthly payments of
$3,000 including interest, matures March 1999 256,659
- -----------------------------------------------------------------
7,907,958
Less current portion 650,375
- -----------------------------------------------------------------
Total $7,257,583
=================================================================
Aggregate maturities of long-term debt over future years are as follows: 1999 -
$650,375; 2000 - $401,412; 2001 - $554,336; 2002 - $592,495; 2003 - $600,909 and
thereafter - $5,108,431.
NOTE 11. COMMITMENTS
LEASES
The Company conducts its operations partially from leased facilities. These
leases are classified as operating leases and expire on various dates through
2005.
The Company also leases equipment under capital leases which expire on various
dates through 2003. The total capitalized cost for this equipment is $486,000
with accumulated depreciation of $154,000 as of June 30, 1998.
As of June 30, 1998, future net minimum lease payments under capital leases and
future minimum rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year are as follows:
Capital Operating
Year ending June 30 Leases Leases
- --------------------------------------------------------
1999 $ 250,456 $1,046,258
2000 114,500 934,368
2001 100,481 702,158
2002 61,992 228,976
2003 10,220 160,072
Thereafter - 418,927
- --------------------------------------------------------
537,649 $3,490,759
==========
Less amount representing interest 99,972
- --------------------------------------------
Present value of minimum
lease payments $ 437,677
============================================
Rental expense for the years ended June 30, 1998 and 1997 was approximately
$736,000 and $298,000, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements expiring at various dates
through the year 2000. As of June 30, 1998, the Company's total noncancellable
obligation under all employment contracts is approximately $1,115,204.
NOTE 12. INCOME TAXES
The components of deferred tax assets and liabilities consist of the following
as of June 30, 1998:
- -------------------------------------------------------------
DEFERRED TAX ASSETS
Accruals and reserves $ 497,000
Accounts receivable 66,000
Net operating loss and other tax carry forwards 794,000
Deferred income 1,000
Customer deposits 9,000
Intangible assets 5,000
- -------------------------------------------------------------
Gross deferred tax assets 1,372,000
Valuation allowance -
- -------------------------------------------------------------
Total deferred tax assets 1,372,000
DEFERRED TAX LIABILITIES
Sales-type lease receivables (115,000)
Inventory (106,000)
Plant and equipment (455,000)
- -------------------------------------------------------------
Net deferred tax assets $ 696,000
=============================================================
The change in the valuation allowance for deferred tax assets was a decrease of
$367,000 during 1998.
F-10
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the income tax expense (benefit) are as follows:
1998 1997
- ---------------------------------------------------------
CURRENT
Federal $ 632,000 $ 6,000
State 120,000 15,000
- ---------------------------------------------------------
752,000 21,000
- ---------------------------------------------------------
DEFERRED
Federal (117,000) (276,000)
State (20,000) 26,000
- ---------------------------------------------------------
(137,000) (250,000)
- ---------------------------------------------------------
$615,000 $(229,000)
=========================================================
At June 30, 1998, the Company had unused federal tax net operating losses (NOLs)
to carry forward against future years' taxable income of approximately
$2,335,000 expiring in various amounts from 2006 to 2013. As a result of the
consummation of the Company's public offering and certain acquisitions, the use
of these NOLs will be limited each year under the provisions of Section 382 of
the Internal Revenue Code of 1986, as amended and the provisions of Treasury
Regulation 1.1502-21 regarding Separate Return Limitation years as follows:
Maximum NOL
Year ending June 30 Available
- ---------------------------------------
1999 $680,000
2000 316,000
2001 316,000
2002 316,000
2003 316,000
Thereafter 391,000
- ---------------------------------------
$2,335,000
=======================================
The following summary reconciles differences from taxes on income from
continuing operations at the federal statutory rate with the effective rate:
1998 1997
- -------------------------------------------------------------
Federal taxes on income at statutory rates 34% 34%
Goodwill 2% 16%
State taxes 2% -
Reduction of deferred tax asset
valuation allowance (14%) (69%)
Other 4% -
- -------------------------------------------------------------
Taxes on income (benefit) at effective rates 28% (19%)
=============================================================
NOTE 13. CAPITAL STOCK
On June 29, 1994, the Board of Directors adopted the amended and restated 1994
Employee and Consultant Stock Compensation Plan ("the 1994 plan"). The 1994 plan
provides for the issuance of up to 2,425,500 shares of the Company's common
stock to employees and consultants of the Company. Options granted under the
plan are not permitted to have a term in excess of five years.
On November 4, 1992, the Board of Directors adopted the 1992 Stock Option and
Appreciation Rights Plan ("the 1992 plan"). The 1992 plan provides for the
issuance of up to 633,938 shares of the Company's common stock to employees,
officers, directors and consultants of the Company. Options granted to
employees or directors under this plan must have an exercise price equal to or
greater than 85% of the fair value of the stock on the date of grant and cannot
have a term in excess of 10 years.
On April 25, 1988, the Company adopted the 1988 Incentive Stock Option Plan
("the 1988 plan"). The 1988 plan provides for the issuance of up to 183,750
shares of the Company's common stock to employees of the Company. Options
granted under this plan must have an exercise price equal to or greater than the
fair value of the stock on the date of grant and are not exercisable until 18
months from the date of grant.
On March 2, 1998, in connection with the issuance of the 8.75% convertible note
payable, the Company issued a stock purchase warrant to the lender separate from
each of the above agreements. The stock purchase warrant entitles the holder to
purchase up to 200,000 shares of the Company's common stock at a price of $4.32
per share. As of June 30, 1998, all 200,000 warrants were exercisable.
Also on March 2, 1998, in connection with consulting services received for the
acquisition of Ad Art, the Company issued a stock purchase warrant to a
consulting firm separate from each of the above agreements. The stock purchase
warrant entitles the holder to purchase up to 75,000 shares of the Company's
common stock at a price of $4.32 per share. As of June 30, 1998, all 75,000
warrants were exercisable.
On March 18, 1997, the Company entered into an agreement with an investor
relations firm and, separate from each of the above established plans, issued an
option to purchase up to 50,000 shares of the Company's common stock at an
exercise price of $1.47 per share. On August 29, 1997, the Company extended
the agreement with this investor relations firm and issued an option to purchase
up to an additional 50,000 shares of the Company's common stock at an exercise
price of $2.62 per share. As of June 30, 1998, 65,000 of the options issued to
this investor relations firm were exercisable.
F-11
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 22, 1996 the Company entered into an agreement with an investment
banking firm and, separate from each of the above established plans, issued
warrants to purchase up to 210,000 shares of the Company's common stock at an
exercise price of $1.74 per share. These warrants were exercised during 1998
for total proceeds to the Company of $365,400.
All stock options and warrants issued during 1997 and 1998 pursuant to the above
plans and agreements were issued with an exercise price that approximated the
fair market value of the stock on the date of grant. A summary of the status of
the Company's stock options and warrants for the plans and agreements discussed
above as of June 30, 1998 and 1997 and changes during the years ended on those
dates (as restated for stock dividends) is presented below:
Weighted
Average
Exercise
Shares Price
- --------------------------------------------------
Outstanding - June 30, 1996 1,270,080 $0.66
Granted 443,625 1.51
Exercised (55,125) 0.34
Forfeited (22,050) 0.50
- --------------------------------------------------
Outstanding - June 30, 1997 1,636,530 $0.91
Granted 576,000 3.91
Exercised (326,065) 1.48
Forfeited (13,010) 1.07
- --------------------------------------------------
Outstanding - June 30, 1998 1,873,455 $1.73
==================================================
The following table summarizes stock options and warrants issued under the plans
and agreements discussed above outstanding at June 30, 1998:
Weighted Weighted
Range of Average Average
Exercise Exercise Remaining
Price Outstanding Price Contractual Life
- --------------------------------------------------------------
$ 0.46 - 0.80 1,091,401 $0.66 1.8 years
0.96 - 1.47 202,548 1.32 3.3 years
2.04 - 3.06 129,506 2.81 6.4 years
4.03 - 4.32 450,000 4.21 4.7 years
- --------------------------------------------------------------
$ 0.46 - 4.32 1,873,455 $1.73 3.0 years
==============================================================
As of June 30, 1997 1,389,780 options and warrants were exercisable under the
plans and agreements discussed above at a weighted average exercise price of
$.76. As of June 30, 1998 1,836,705 options and warrants were exercisable under
the plans and agreements discussed above at a weighted average exercise price of
$1.71 as follows:
Weighted Weighted
Range of Average Average
Exercise Exercise Remaining
Price Exercisable Price Contractual Life
- -------------------------------------------------------------
$ 0.46 - 0.80 1,091,401 $0.66 1.8 years
0.96 - 1.47 202,548 1.32 3.3 years
2.04 - 3.06 92,756 2.88 7.7 years
4.03 - 4.32 450,000 4.21 4.7 years
- -------------------------------------------------------------
$ 0.46 - 4.32 1,836,705 $1.71 2.9 years
=============================================================
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
stock based compensation to employees. Accordingly, no compensation expense has
been recognized for stock based compensation issued to employees. Had
compensation cost for the Company's stock based compensation issued to employees
been determined based upon the fair value at the grant date consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the Company's proforma net
income for 1998 and 1997 would have been $1,406,357 and $1,377,402 from
continuing operations and $1,406,357 and $724,459 after discontinued operations,
respectively. Proforma basic earnings per share from continuing operations would
have been $.35 for 1998 and $.40 for 1997 and diluted earnings per share would
have been $.28 and $.34 for 1998 and 1997, respectively. After discontinued
operations, proforma basic earnings per common share would have been $.35 for
1998 and $.21 for 1997 and diluted earnings per share would have been $.28 and
$.19 for 1998 and 1997, respectively.
The weighted average fair value of options granted during 1998 and 1997 was
estimated at $.86 and $0.17 per share, respectively, based upon the Black-
Scholes option-price model with the following weighted average assumptions: 5%
dividend yield, expected volatility of 40% for 1998 and 52% for 1997, risk-free
interest rate of 6% and expected life of 2.9 years for 1998 and 2.5 years for
1997.
On January 13, 1994 in conjunction with a public offering of the Company's
common stock, the Company issued 620,000 common stock purchase warrants with an
exercise price of $4.53 per share that expire, as amended, on December 31, 1998.
As of June 30, 1998 all of these warrants were exercisable. In conjunction with
the same public offering, the Company issued an option to purchase 31,000
"units", each unit consisting of two shares of common stock and two
nonredeemable common stock purchase warrants, for a price of $7.06 per unit.
Each common stock purchase warrant obtainable under this option entitles the
holder to purchase one share of common stock at a price of $4.25. Both the
option to purchase the units, and the purchase warrants included in the units,
expire on January 6, 1999. As of June 30, 1998 all these units as well as the
warrants issuable under the units are exercisable.
F-12
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. EMPLOYEE BENEFIT PLAN
The La-Man Corporation 401(k) profit sharing plan covers all employees with more
than six months of service and allows employees to defer up to 15% of their
income and contribute to the plan. The Company contributes to the plan at a
matching rate of 50% of the first six percent contributed by the employee.
Company contributions to the plan are in the form of the Company's common stock.
The Company issued to the 401(k) plan in fiscal years 1998 and 1997, 35,845 and
46,915 shares of the Company's common stock at an average price of $2.84 and
$1.52 per share, respectively.
NOTE 15. EARNINGS PER SHARE
Earnings per share for all periods presented is calculated under the provisions
of Financial Accounting Standards No. 128, "Earnings per Share" which was
adopted by the Company in 1998.
Diluted earnings per share for 1998 and 1997 is calculated as follows:
1998 1997
- ---------------------------------------------------------
Net Income $1,587,941 $ 765,459
Convertible debt interest, net 119,177 60,000
- ---------------------------------------------------------
Net income for purposes of
calculated diluted
earnings per share $1,707,118 $ 825,459
=========================================================
Weighted average shares 3,964,960 3,438,580
Convertible securities 411,177 165,441
Dilutive options and warrants 1,013,315 598,310
- ---------------------------------------------------------
Diluted weighted average shares 5,389,452 4,202,331
=========================================================
Diluted earnings per share $ 0.32 $ 0.20
=========================================================
NOTE 16. INDUSTRY SEGMENTS
The Company's operations are classified into two business segments: image
enhancement displays ("displays") and filtration.
The display segment markets and produces custom designed and stock sign products
which are specifically designed for internal and external use by institutional,
governmental and commercial enterprises. The display segment also provides
periphial services on the sign products such as installation, maintenance and
service.
Operations within the filtration segment include the manufacture and sale of a
line of products which, when installed in compressed air lines, substantially
reduce or totally eliminate water and condensate problems and most foreign
contaminants in the air line.
The following table shows sales and operating income from continuing operations
and other financial information by industry segment as of and for the years
ended June 30, 1998 and 1997:
1998 1997
- ------------------------------------------------
SALES
Displays $30,686,361 $14,299,463
Filtration 1,791,657 1,646,164
- ------------------------------------------------
$32,478,018 $15,945,627
================================================
OPERATING INCOME
Displays $ 3,201,907 $ 1,448,813
Filtration 490,792 439,125
Corporate expenses (1,182,654) (856,311)
- ------------------------------------------------
$2,510,045 $ 1,031,627
================================================
DEPRECIATION AND AMORTIZATION
Displays $ 590,443 $ 373,249
Filtration 43,187 68,493
Corporate 33,311 37,485
- ------------------------------------------------
$ 666,941 $ 479,227
================================================
IDENTIFIABLE ASSETS
Displays $28,418,273 $ 7,757,381
Filtration 1,053,464 995,683
Corporate 1,322,871 722,733
- ------------------------------------------------
$30,794,608 $ 9,475,797
================================================
CAPITAL EXPENDITURES
Displays $ 836,230 $ 203,192
Filtration 39,509 18,072
Corporate 7,074 36,002
- ------------------------------------------------
$882,813 $ 257,266
================================================
NOTE 17. ECONOMIC DEPENDENCE
For the years ended June 30, 1998 and 1997, the Company had one supplier which
accounted for a significant volume of consolidated purchases. For the year ended
June 30, 1998, purchases of signs from this supplier approximated $2,741,000, or
12% of consolidated purchases. For the year ended June 30, 1997, purchases of
signs from this supplier approximated $2,850,000, or 34% of consolidated
purchases.
F-13
<PAGE>
La-Man Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid $511,753 and $221,813 for interest and $4,440 and $-0- for
income taxes for the years ended June 30, 1998 and 1997, respectively.
The following summarizes noncash investing and financing transactions:
1997 1996
- -------------------------------------------------------------
Equity issued for acquisition of Ad
Art $3,372,450 $ -
Debt refinancing $2,005,318 $ -
Issuance of five percent stock
dividend $ 577,524 $152,768
Fees on long-term debt paid from
debt proceeds $ 167,605 $ -
Common stock contributed to
401(k) plan $ 101,848 $ 71,532
Issuance of stock warrants for fees
on long-term debt $ 73,000 $ -
Stock issued for employee bonuses $ 33,400 $ -
Issuance of stock options for
prepaid investment services $ 16,000 $ 35,000
Common stock and notes payable
issued in purchase of Don Bell
Industries $ - $626,476
Capital lease obligations incurred
for fixed asset acquisition $ - $ 30,305
=============================================================
NOTE 19. STOCK DIVIDEND
On October 30, 1997, the Company authorized a five percent stock dividend to be
issued December 1, 1997 to holders of record on November 14, 1997. The dividend
resulted in the issuance of an additional 167,885 shares of the Company's $.001
par value common stock. Earnings per share for the year ended June 30, 1997 has
been retroactively restated to reflect the effects of this stock dividend.
On July 12, 1996, the Company authorized a five percent stock dividend to be
issued August 7, 1996 to holders of record on July 26, 1996. The dividend
resulted in the issuance of an additional 152,768 shares of the Company's $.001
par value common stock. Earnings per share reflects the effects of this stock
dividend.
NOTE 20. LEGAL PROCEEDINGS AND DISCONTINUED OPERATIONS
In November, 1996, the contracts between Vision Trust Marketing Services, Inc.
("VTM"), the Company's long-distance telephone marketing subsidiary, and MCI
Telecommunications, Inc. ("MCI") were abruptly terminated by MCI. The contract
for commercial long-distance customers was originally executed in 1994 and was
restated and extended for a new five year term in May, 1996. This contract
revision had been proposed by MCI in September, 1995 and discussed with VTM over
a period of eight months. In reliance on the new contract, VTM invested heavily
in staff, facilities and equipment in anticipation of significant commission
revenue as a result of enhancements in the revised contract. A lawsuit was
filed by VTM on April 16, 1997 seeking the recovery of damages from MCI.
Because the cancellation of the contract by MCI resulted in VTM no longer being
contracted to market MCI long-distance services, its sole line of business, the
Company discontinued the operations of VTM in December, 1996. All identifiable
assets of VTM were either transferred to other subsidiaries of the Company or
disposed of with minimal proceeds at a loss of $282,281. As of June 30, 1997
VTM had no remaining assets or liabilities. From July 1, 1996 to December,
1996, VTM operated at a loss of $281,371. Additional costs charged to expense
during 1997 associated with the wind down of VTM subsequent to December, 1996
amounted to $129,276 including a remaining reserve for additional costs of
$12,201 and $35,336 at June 30, 1998 and 1997, respectively. Sales for VTM for
1997 were $105,348.
NOTE 21. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. FAS 133 is effective for periods beginning after
June 15, 1999. Historically, the Company has not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130) and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for periods
beginning after December 15, 1997. Neither FAS 130 nor FAS 131 are expected to
have a material effect on the Company's financial statements.
F-14
<PAGE>
VOTING TRUST AGREEMENT
This Voting Trust Agreement (the "Agreement") is made as of May 19, 1998
between the several shareholders of La-Man Corporation, a Nevada corporation
("Company"), whose names are subscribed below (the "Shareholders") and J. Melvin
Stewart (the "Trustee").
WHEREAS, the Shareholders are owners of an aggregate of 305,000 shares of
the common stock of the Company, par value $.001 per share (the "Shares"), in
the amounts set forth on SCHEDULE A; and
----------
WHEREAS, with a view toward the safe and competent management of the
Company in the interest of all of its shareholders, the Shareholders desire to
create a trust in the following manner, they agree as follows:
(S)1. Transfer of Shares. Upon execution of this Agreement the
------------------
Shareholders shall deliver to the Trustee the certificate or certificates
representing all the Shares now owned or controlled by them, the certificates to
be endorsed in blank or accompanied by proper instruments of assignment and
transfer in blank. The Shares will be held by the Trustee for the term provided
in (S)10 herein in trust, however, for the Shareholders, their heirs, personal
representatives, successors and assigns, and at all times subject to the terms
and conditions set forth in this Agreement.
(S)2. Additional Shares. Any certificate for additional Shares that
-----------------
shall be issued to or acquired by any of the Shareholders during the terms of
this Agreement in like manner shall be endorsed and delivered to the Trustee, to
be held by him under the terms of this Agreement.
(S)3. Delivery to Company. A counterpart of this Agreement and of
-------------------
every supplemental Agreement shall be filed at the Company's registered office
at 5029 Edgewater Drive, Orlando, Florida, 32810.
(S)4. Voting Trust Certificates. Upon the delivery to the Trustee of
-------------------------
the certificates representing the Shares of the Company which are subject to
this Agreement, the Trustee will cause the Shares to be transferred on the books
of the Company to himself as Trustee and will deliver to each of the
Shareholders a trust certificate for the number of Shares delivered to the
Trustee, substantially in the following form:
<PAGE>
"TRUST CERTIFICATE
This is to certify that the undersigned Trustee has received a
certificate or certificates issued in the name of
__________________________________, evidencing the ownership of __________
Shares of La-Man Corporation, a Nevada corporation, and that the Shares are
held subject to all the terms and conditions of that certain Voting Trust
Agreement dated May 19, 1998 between J. Melvin Stewart, as Trustee, and
certain shareholders of La-Man Corporation. During the period of 10 years
from and after May 19,1998, the Trustee, or his successors, as provided in
the Voting Trust Agreement, shall possess and be entitled to exercise the
right to vote and otherwise represent all of the Shares for all purposes,
it being agreed that no voting right shall pass to the holder by virtue of
the ownership of this certificate.
This certificate is assignable with the right of issuance of a new
certificate of like tenor only on the surrender to the undersigned or his
successor of this certificate, properly endorsed. On the termination of the
trust this certificate shall be surrendered to the trustee by the holder on
delivery to that holder of a stock certificate representing a like number
of Shares.
In witness whereof, the undersigned Trustee has executed this
certificate on May ________, 1998.
J. Melvin Stewart, Trustee"
The Trustee shall keep a record of the holders of the voting trust
certificates, including the names and addresses of the holders and the class of
Shares in respect of which the trust certificates are issued. A copy of the
record shall be deposited by the Trustee with the Company at its registered
office.
(S)5. Transfer of Certificates. Trust certificates, subject to the
------------------------
conditions of this Agreement, may be transferred by endorsement by the person to
whom issued, or by his or her attorney in fact, or by the personal
representative or guardian of his or her estate, and delivery to the Trustee;
but the transfer shall not be evidence to or be binding on the Trustee until the
certificate is surrendered to him and the transfer is so entered in his Trust
Certificate Book, which shall be kept to show the names of the parties by whom
and to whom transferred, the numbers of the certificates, the number of Shares
and the date of transfer. No new trust certificate shall be issued until its
predecessor certificate shall have been surrendered to and canceled by the
Trustee, and he shall preserve the certificates so canceled as vouchers. In
case any trust certificate shall be claimed to be lost or destroyed, a new trust
certificate may be issued on such proof of loss and such security as may be
required by the Trustee.
2
<PAGE>
(S)6. Trustee to Vote Stock. On the signing of this Agreement, it
---------------------
shall be the duty of the Trustee and he shall have the sole and exclusive power
and authority to vote the Shareholders' Shares, in person or by proxy, as in the
judgment of the Trustee may be in the best interest of the Company, at all
regular and special meetings of the shareholders of the Company, in the election
of directors and on any matter and question that may be brought before those
meetings, as fully as any shareholder might do if personally present, including
the right to vote the Shares for the purpose of either increasing or reducing
the capital stock of the Company.
(S)7. Trustee's Liability. The Trustee shall use his best judgment in
-------------------
voting on the stock subject to this Agreement but shall not be liable for any
act of commission or omission, any vote cast or consent given, in good faith and
in the absence of gross negligence or willful misconduct.
(S)8. Trustee's Indemnity. The Trustee shall be entitled to be fully
-------------------
indemnified by the Shareholders against all costs, charges, expenses and other
liabilities properly incurred by him in the exercise of any power conferred upon
him and the Shareholders covenant with the Trustee that each of them, in
proportion to the amount of their respective Shares and interest, will save
harmless and keep indemnified the Trustee of and from all loss or damage he may
sustain or be put to by reason of anything he may lawfully do in the execution
of this trust.
(S)9. Successor Trustee. In the event of the death, resignation,
-----------------
removal or incapacity of the Trustee, Howard Payne of Sarasota, Florida,
Trustee's tax advisor, shall be vested with all of the duties, power and
authority of Trustee as if originally named in this Agreement.
(S)10. Continuance of Trust. The trust shall continue for 10 years from
--------------------
this date and shall then terminate. Upon the termination of the trust the
Shares then remaining in the hands of the Trustee shall be assigned to the
Shareholders then entitled to them upon their surrender to the Trustee of the
trust certificates representing their Shares, and the Trustee then shall be
discharged of all obligations under this Agreement.
(S)11. Dividends. Any cash dividend declared by the board of directors
---------
of the Company shall be paid to the Trustee for the benefit of the holders of
trust certificates. The Trustee shall distribute such dividends to trust
certificate holders in proportion to the number of Shares respectively
represented by their trust certificates. If any dividend paid in capital stock
of the Company is received by the Trustee, the respective holders of trust
certificates shall be entitled to the delivery of new or additional trust
certificates for the amount of the stock so received by the Trustee.
(S)12. Counterparts. This Agreement may be executed in counterpart and
------------
all executed counterparts shall be deemed an original, binding on all parties.
3
<PAGE>
IN WITNESS WHEREOF, the Shareholders and the Trustee have executed this
Voting Trust Agreement as of the date first above written.
TRUSTEE: WITNESS:
/s/ J. Melvin Stewart /s/ Sharon Y. Gabriel
- ---------------------------- --------------------------------------
J. MELVIN STEWART Print Name: Sharon Y. Gabriel
/s/ Pamela Schaetzel
--------------------------------------
Print Name: Pamela Schaetzel
SHAREHOLDERS: WITNESS:
/s/ Rebecca Stewart Brooks /s/ Debra Miles
- ---------------------------- --------------------------------------
REBECCA STEWART BROOKS Print Name: Debra Miles
--------------------------------------
Print Name:
---------------------------
/s/ Bonnie Stewart Knox /s/ Sandra J. Groff
- ---------------------------- --------------------------------------
BONNIE STEWART KNOX Print Name: Sandra J. Groff
/s/ Brenda L. Berthold
--------------------------------------
Print Name: Brenda L. Berthold
/s/ J. Melvin Stewart /s/ Sharon Y. Gabriel
- ---------------------------- --------------------------------------
J. MELVIN STEWART, as Trustee for the Print Name: Sharon Y. Gabriel
EMILY STEWART MICHELSEN
IRREVOCABLE TRUST dated /s/ Pamela J. Schaetzel
May 6, 1998 --------------------------------------
Print Name: Pamela J. Schaetzel
/s/ Susan Stewart Michelsen /s/ Michael W. Ricci
- ---------------------------- --------------------------------------
SUSAN STEWART MICHELSEN Print Name: Michael W. Ricci
--------------------------------------
Print Name:
---------------------------
4
<PAGE>
/s/ Elizabeth Stewart Ricci /s/ Susan E. Leaman
- ---------------------------- --------------------------------------
ELIZABETH STEWART RICCI Print Name: Susan E. Leaman
--------------------------------------
Print Name:
---------------------------
/s/ Deborah Stewart /s/ Sharon Y. Gabriel
- ---------------------------- --------------------------------------
DEBORAH STEWART Print Name: Sandra J. Groff
/s/ Ronald E. Shadduck
--------------------------------------
Print Name: Ronald E. Shadduck
/s/ John M. Stewart /s/ Phillip D. Farnsworth
- ---------------------------- --------------------------------------
JOHN M. STEWART Print Name: Phillip D. Farnsworth
/s/ Jadine Woo
--------------------------------------
Print Name: Jadine Woo
/s/ Mary Stewart /s/ Vera Zabramski
- ---------------------------- --------------------------------------
MARY STEWART Print Name: Vera Zabramski
/s/ M. Coggins
--------------------------------------
Print Name: M. Coggins
5
<PAGE>
VOTING TRUST AGREEMENT
----------------------
SCHEDULE A
----------
SHAREHOLDERS NUMBER OF SHARES
Rebecca Stewart Brooks 40,000
Bonnie Stewart Knox 40,000
Emily Stewart Michelsen 10,000
Irrevocable Trust dated
May 6, 1998
Susan Stewart Michelsen 30,000
Elizabeth Stewart Ricci 35,000
Deborah Stewart 55,000
John M. Stewart 40,000
Mary Stewart 55,000
6
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
September 1, 1998, between LA-MAN CORPORATION, a Nevada corporation (the
"Company"), and MARSHALL S. HARRIS ("Employee").
RECITALS:
---------
The Company has requested the Employee to accept employment as Vice
President and General Counsel of the Company for consideration and on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, the Company and the Employee, in consideration of the
covenants herein contained and intending to be legally bound hereby, agree as
follows:
1. DEFINITIONS. In addition to other terms defined herein, for purposes
of this Agreement, the following terms shall have the meanings specified in this
Section unless the context clearly requires otherwise:
1.01 "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
1.02 "BASE SALARY" shall mean the total annual cash salary, excluding
bonuses and incentive compensation, earned by the Employee in all capacities
with the Company.
1.03 "CAUSE" shall mean: (a) the repeated failure of the Employee to
observe or perform any of the material terms or provisions of this Agreement,
which failure continues after written notice to the Employee and remains uncured
for a period of 10 days following such written notice, except that there shall
be no cure period with respect to any violation of Section 7 or Section 8
hereof; (b) misappropriation of funds, or willful dishonesty towards, fraud
upon, or willful misconduct of a material nature to the injury of, the Company
or its Affiliates; (c) commission of a felony or other crime involving moral
turpitude; or (d) habitual insobriety or abuse of controlled substances.
1.04 "CHANGE OF CONTROL" shall be deemed to have occurred when: (a) any one
person, or any persons acting together which would constitute a "group" for
purposes of Section 13(d) of the Exchange Act (a "Group"), consummates a tender
offer, a plan of open-market purchases or an exchange offer for shares of the
Company's common stock, or consummates a proxy solicitation, which, in the
judgment of a majority of the members of the Board of Directors of the Company,
is reasonably likely to permit such person or Group to obtain control of a
sufficient number of voting securities of the
<PAGE>
Company to elect a majority of the members of the Board of Directors of the
Company; or (b) there occurs, within any period of 12 consecutive months other
than as a result of proxies solicited by, or votes cast by, management of the
Company, (1) a change in 35% of the persons who, as of this date, constitute the
Board of Directors of the Company other than as the result of resignations or
(2) an increase of 25% or more in the number of members of the Board of
Directors.
1.05 "NOTICE OF TERMINATION" means a written notice which (a) indicates the
specific termination provision in this Agreement relied upon, (b) briefly
summarizes the facts and circumstances deemed to provide a basis for termination
of the Employee's employment under the provision so indicated and (c) specifies
the Termination Date. The Termination Date so specified shall be (1) a date not
less than 60 days from the delivery of such Notice of Termination to the
Employee (in the case of termination by the Company other than for Cause), (2) a
date not more than 30 days after the delivery of such Notice of Termination to
the Company (in the case of termination by the Employee) or (3) the date of
receipt of such Notice of Termination by the Employee (in the case of
termination by the Company for Cause).
1.06 "PERSON" shall mean any individual, firm, corporation, partnership or
other entity.
1.07 "TERMINATION DATE" shall mean the date required to be specified in the
Notice of Termination, or the last day of the Employment Term (as hereinafter
defined) if the employment of the Employee by the Company does not continue
thereafter.
1.08 "TERMINATION OF EMPLOYMENT" shall mean the termination of the
Employee's actual employment relationship with the Company whether pursuant to
Section 10 hereof or upon expiration of the Employment Term.
1.09 "TERMINATION UPON A CHANGE OF CONTROL" shall mean a Termination of
Employment after a Change of Control either:
(a) initiated by the Company during the Employment Term in violation
of this Agreement;
(b) initiated by the Company after the Employment Term for any reason
other than for Cause; or
(c) initiated by the Employee upon any of the following occurrences:
(aa) a transfer of the Employee, without his express prior written consent, to a
location which is outside the Orlando, Florida metropolitan area, or which is
otherwise an unreasonable commuting distance from the Employee's principal
residence at the date of the Change of Control; (bb) any failure of the Company
to comply with Section 10 hereof; or (cc) the Base Salary of the Employee is
reduced to an amount less than the Base Salary in effect immediately prior to
the occurrence of such Change of Control.
2
<PAGE>
2. EMPLOYMENT TERM.
2.01 EMPLOYMENT TERM. The employment term under this Agreement shall
---------------
commence as of the date hereof (the "Effective Date"), and shall continue until
September 1, 2001. Thereafter, such employment term shall be renewed for
successive one-year terms unless and until either the Company or the Employee
elects not to renew by delivery of written notice to the other not later than
120 days prior to the expiration of the initial three (3) -year term or any
annual renewal term (the "Employment Term"). Notwithstanding any provisions to
the contrary contained herein, nothing in this Agreement shall be deemed to
create any obligation on the part of either party to renew this Agreement at any
time.
2.02 TERMINATION. The Employment Term may be terminated only in accordance
-----------
with Section 10 hereof.
3. DUTIES AND RESPONSIBILITIES. Unless modified by mutual written
consent, the Employee shall perform such services and discharge such duties and
responsibilities of a senior executive nature as may be prescribed from time to
time by the Board of Directors of the Company ("Board") or such other persons as
may be designated by the Board; provided, however, that the services performed
by, and the duties and responsibilities of, the Employee shall be consistent
with those usually associated with the position of Vice President and General
Counsel. The Employee shall serve in the capacities, titles and positions with
respect to the Company, and perform all duties and accept all responsibilities
incidental to any such capacities, titles and positions, as the Board may
reasonably direct in conformity with the foregoing sentence.
4. EXTENT OF SERVICE. The Employee shall devote his best efforts to the
business of the Company and shall devote his full time, attention and energy to
the performance of his services and the discharge of his duties and
responsibilities hereunder. During the existence of the employment relationship
hereunder, the Employee shall not work, on either a part-time, full-time or
independent contracting basis, for any other business or enterprise without the
Company's prior written consent.
5. COMPENSATION.
5.01 ANNUAL SALARY. For all the services to be performed by the Employee
-------------
hereunder, the Company shall pay the Employee a salary at the annual rate of no
less than $175,000, less withholding required by law. The Board shall review
such salary at least annually, and shall make such adjustments in the Employee's
annual salary from time to time as may be appropriate under the circumstances,
but such annual salary shall not at any time be less than $175,000 per year.
Such salary shall be payable in installments at such times as the Company
customarily pays its other senior executives (but in any event not less often
than monthly).
5.02 INCENTIVE COMPENSATION. In addition to his annual Base Salary, the
----------------------
Employee shall be designated a "Participant" under, and shall participate in,
the La-Man Corporation Senior Management Incentive Plan, commencing with the
fiscal year ending June 30, 2000.
3
<PAGE>
6. BUSINESS EXPENSES; OTHER BENEFITS.
6.01 COMPANY AUTO. At Employee's option, the Company will supply the
------------
Employee with a leased auto in accordance with existing policies.
6.02 BUSINESS EXPENSES. The Company will reimburse the Employee for
-----------------
Company auto operating expenses and for all other ordinary, necessary and
reasonable out-of-pocket business expenses incurred by Employee in connection
with his performance of services hereunder in accordance with the Company's
expense approval procedures in effect from time to time.
6.03 OTHER BENEFITS. The Company will provide the Employee with such
--------------
individual and dependant group medical insurance coverage, if any, and other
employment benefits as are or may in the future be provided by the Company to
its officer employees in accordance with the Company's policies.
7. CONFIDENTIAL INFORMATION. The Employee acknowledges that, by reason
of his employment by and service to the Company, he will have access to
confidential information of the Company and its Affiliates, including, without
limitation, information and knowledge pertaining to products, developments,
improvements, methods of operation, sales and profit figures, customer and
client lists and relationships between the Company and its Affiliates and their
agents, customers, clients, suppliers and others who have business dealings with
them (collectively, "Confidential Information"). The Employee acknowledges that
such Confidential Information is a valuable and unique asset of the Company and
its Affiliates and, in consideration of the benefits specified in this
Agreement, covenants that, both during and after the termination of the
employment relationship between the parties hereto, he will not use any
Confidential Information or disclose any Confidential Information to any Person
(except as his duties as an employee of the Company or any Affiliate may
require) without the prior written authorization of the Board. The obligation
of confidentiality imposed by this Section shall not apply to information which
becomes generally known in the industry through no act of the Employee in breach
of this Agreement or to information which the Employee is legally compelled to
disclose pursuant to subpoena, civil investigative demand or similar process (in
such event, the Employee promptly shall provide the Company with written notice
thereof in order to allow the Company to seek a protective order or other
appropriate remedy).
8. NON-COMPETITION. The Employee acknowledges that he will acquire
specialized knowledge and experience in the business of the Company and its
Affiliates and that if his knowledge, experience, reputation or contacts are
used by or on behalf of the Employee to compete with the Company or its
Affiliates or to solicit employees or agents away from the Company or its
Affiliates, serious harm to the Company and its Affiliates may result. In
consideration of the benefits specified in this Agreement, the Employee agrees
that during the Employee's employment by the Company and for a period of one (1)
year thereafter, subject to the performance by the Company of its obligations
under Section 10 hereof upon a Termination of Employment (whether prior to, or
as the result of, expiration of the Employment Term), the Employee shall not,
unless acting pursuant hereto or with the prior written consent of the Board,
directly or indirectly, render any services of a business, commercial, or
professional nature to any Person, whether for compensation or otherwise, within
the United States or elsewhere in competition with the Company or its Affiliates
or which is in conflict with the Company's or its Affiliates' interests, or
solicit for employment or in any other fashion hire any of the employees or
agents
4
<PAGE>
of the Company or its Affiliates or, with respect to the one (1)-year period
referred to above, any person who was an employee or agent of the Company or its
Affiliates at any time within six months prior to the termination of employment
hereunder; provided, however, that this provision shall terminate in the event
the employment of the Employee is terminated by the Company in violation of
Section 10 hereof. For the purpose of this Section 8, the phrases "in
competition with" and "in conflict with" shall not be deemed to apply to any
Person whose activities do not involve similar lines of business now or
hereafter undertaken by the Company or any Affiliate. In the event that the
provisions of this Section should ever be adjudicated to exceed the time,
geographic, service or product limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, service or product limitations permitted by
applicable law.
9. EQUITABLE RELIEF. The Employee acknowledges that the restrictions
contained in Sections 7 and 8 hereof are, in view of the nature of the business
of the Company and its Affiliates, reasonable and necessary to protect the
legitimate interests of the Company, and that any violation of any provisions of
those Sections will result in irreparable injury to the Company. The Employee
also acknowledges that the Company shall be entitled to temporary and permanent
injunctive relief, without the necessity of proving actual damages, and to an
equitable accounting of all earnings, profits and other benefits arising from
any such violation, which rights shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. In the event of
any such violation, the Company shall be entitled to commence an action for
temporary and permanent injunctive relief and other equitable relief in any
court of competent jurisdiction and Employee further irrevocably submits to the
jurisdiction of any California court or Federal court sitting in the Middle
District of Florida over any suit, action or proceeding arising out of or
relating to this Section 9. The Employee hereby waives, to the fullest extent
permitted by law, any objection that he may now or hereafter have to such
jurisdiction or to the venue of any such suit, action or proceeding brought in
such a court and any claim that such suit, action or proceeding has been brought
in any inconvenient forum. Effective service of process may be made upon the
Employee by mail under the notice provisions contained in Section 13 hereof.
10. TERMINATION.
10.01 TERMINATION WITHOUT CAUSE. The Company shall have the right to
-------------------------
terminate the employment of the Employee prior to expiration of the Employment
Term only as follows:
(a) As the result of partial or total disability as provided in
Section 10.02 hereof;
(b) Upon death of the Employee as provided in Section 10.03 hereof;
(c) For Cause as provided in Section 10.04 hereof;
(d) Upon breach by the Employee of his obligations under Section 7 or
Section 8 hereof; or
5
<PAGE>
(e) For any other, or for no, reason, provided that on or as soon as
practicable following the Termination Date, the Company pays to the Employee as
severance, less withholding required by law, in a single lump sum or, at the
Company's option, in equal installments corresponding to what would have been
the Employee's regular pay dates and amounts, an amount equal to the greater of:
-----------
(1) 100% of the Employee's Base Salary or (2) the Base Salary that would have
otherwise have been payable to the Employee for the remainder of the Employment
Term. Any severance payment pursuant to this subpart (e) shall be in addition
to, and not in lieu of, any unpaid salary, incentive compensation and other
benefits earned or accrued prior to the Termination Date.
The Employee acknowledges and agrees that the Company shall have no obligation
to pay any severance or other compensation to the Employee upon termination by
the Company for Cause or in the event the Employee elects to terminate such
employment other than as the result of the failure of the Company to perform its
obligations under this Section 10.
10.02 PARTIAL OR TOTAL DISABILITY. In the event that the Employee is
---------------------------
unable to perform his duties and responsibilities hereunder to the full extent
required hereunder by reason of illness, injury or incapacity for six
consecutive months (herein defined as a "Disability") (during which time, if
during the Employment Term, he shall be entitled to receive payments of the
difference between the Employee's Base Salary and incentive compensation during
such time, or portion thereof, and the payments to which the Employee is
entitled pursuant to any applicable disability insurance policy (less
withholding required by law), each such payment calculated and payable at the
times corresponding to what would have been the Employee's regular pay dates
during such time), the Employment Term may be terminated by the Company and the
Company shall have no further liability or obligation hereunder to the Employee
except for unpaid salary, incentive compensation and benefits accrued through
the date of termination. The Employee agrees, in the event of any dispute under
this Section 10.02, to submit to a physical examination by a licensed physician
selected by the Company, the cost of such examination to be paid by the Company.
10.03 DEATH. In the event that the Employee dies, the Employment Term
-----
shall terminate and thereafter the Company shall have no liability or obligation
to the Employee, his executors, administrators, heirs, assigns or any other
person claiming under or through him except for unpaid salary, incentive
compensation and benefits accrued to the date of his death. Such payments shall
be made to the Employee's surviving spouse, or if none, to the Employee's
surviving children, and the surviving issue of deceased children, in equal
shares per stirpes, or if none, to the Employee's estate.
10.04 CAUSE. Nothing in this Employment Agreement shall be construed
-----
to prevent the termination of the Employment Term by the Company at any time for
Cause. The termination of the Employee's employment hereunder for Cause shall
not be effective until delivery to the Employee of a written decision of the
Board (after notice in writing to the Employee as provided in Section 1.03) of
the basis for such termination and an opportunity for the Employee, together
with his counsel, to be heard before the Board), finding that in the good faith
opinion of the Board the Employee committed conduct constituting Cause and
specifying the particulars thereof in conformity with the requirements for a
Notice of Termination.
6
<PAGE>
10.5 CHANGE OF CONTROL
-----------------
(a) Renewal of Employment Term. In the event of a Change of Control
--------------------------
during the Employment Term, the Employment Term of this Agreement shall be
renewed automatically for a new three-year term which shall commence as of the
time and date of the Change of Control, and following the expiration of such
renewed three-year term the Employment Term shall be subject to the extension
provisions set forth in Section 2(a) hereof.
(b) Notice of Termination. Any Termination upon a Change of Control
---------------------
(other than upon the death of the Employee) shall be communicated by a Notice of
Termination to the other party hereto.
(c) Severance. Subject to the provisions of Section 10.05(g) hereof:
---------
(1) in the event of the Employee's Termination upon or following a
Change of Control, except as set forth in (2) below the Company shall pay
to the Employee an amount in cash equal to the greater of (aa) 200% of the
----------
Employee's Base Salary in effect immediately prior to such Termination of
Employment or (bb) the Employee's Base Salary described in (aa) above for a
period equal to the remaining portion of the Employment Term; and
(2) at the option of the Company, the payments required pursuant
to (1) above shall be made either (aa) in equal installments paid in the
amounts, less withholding required by law, and at the times corresponding
to what would have been the Employee's regular periodic salary payments and
pay dates or (bb) in one lump sum, payable within 15 days after the
Termination Date, discounted to present value using (i) a period equal to
two years or the remaining portion of the Employment Term, whichever is
longer, and (ii) a discount rate equal to the 90-day United States
Treasury-bill rate in effect on the date of the Termination upon a Change
of Control.
(d) Other Payments. Subject to the provisions of Section 10.05(g)
--------------
hereof, in the event of the Employee's Termination upon or following a Change of
Control, the Company shall:
(1) pay to the Employee within 15 days after the Termination Date,
to the extent not theretofore paid, the Employee's Base Salary through the
Termination Date and a further amount equal to the Employee's salary in
lieu of his unused vacation pay, if any, both calculated at the rate in
effect on the Termination Date or, if higher, at the highest rate in effect
at any time within the 90-day period immediately preceding the Termination
Date; and
(2) to the extent permitted by applicable law, continue or cause
to be continued for a period of two (2) years or the remaining portion of
the Employment Term on the date of the Termination of Employment, whichever
is longer, on the cost-sharing basis in effect immediately prior to the
Change of Control, medical, dental, life, automobile and travel accident
insurance benefits (and, at the option of the Employee, disability
insurance benefits) substantially equivalent in all material respects to
those furnished by the Company and its Affiliates to the Employee and his
covered dependents immediately prior to the Change of Control; provided,
--------
however, that the obligation of the Company to provide such benefits shall
cease at such time as the Employee is employed on a full-time basis by a
corporation not owned or controlled by the
7
<PAGE>
Employee and such corporation provides the Employee, on substantially the
same cost-sharing basis between the Company and the Employee in effect
immediately prior to the Change of Control, with medical, dental, life,
automobile, travel accident and disability insurance benefits substantially
equivalent in all material respects to those furnished by the Company and
its Affiliates to the Employee immediately prior to the Change of Control.
(e) Amounts Payable. In no event shall an asserted violation of the
---------------
provisions of Sections 7 or 8 hereof constitute a basis for deferring or
withholding any amounts otherwise payable to the Employee under this Section 10.
(f) No Set-Off. The Company's obligation to make the payments provided
----------
for and otherwise to perform its obligations under this Section 10.05 hereof,
shall not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Company may
have against the Employee or others.
(g) Certain Reductions of Payments.
------------------------------
(1) Anything in this Agreement to the contrary notwithstanding, in
the event that it shall he determined that any payment or distribution by
the Company to or for the benefit of the Employee, whether paid or payable
or distributed or distributable pursuant to the terms of Section 10 hereof
or otherwise (a "Payment"), would constitute an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it would be economically advantageous to the
Employee to reduce the Payment to avoid or reduce the taxation of excess
parachute payments under Section 4999 of the Code, the aggregate present
value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Agreement (such payments or distributions
pursuant to this Agreement are hereinafter referred to as "Agreement
Payments") shall be reduced (but not below zero) to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value which
maximizes the aggregate present value of Agreement Payments without causing
any Payment to be subject to taxation under Section 4999 of the Code. For
purposes of this Section 10.05(g), present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
(2) All determinations to be made under this Section 10.05(g)
shall be made by the Company's independent public accountant immediately
prior to the Change of Control (the "Accounting Firm"), which firm shall
provide its determinations and any supporting calculations both to the
Company and the Employee within ten days of the Termination Date. Any such
determination by the Accounting Firm shall be binding upon the Company and
the Employee. The Employee shall in his sole discretion have the option to
determine which and how much of the Agreement Payments shall be eliminated
or reduced consistent with the requirements of this Section 10.05(g).
Within five days after the Employee's determination, the Company shall pay
(or cause to be paid) or distribute (or cause to be distributed) to or for
the benefit of the Employee such amounts as are then due to the Employee
under this Section 10.05(g).
8
<PAGE>
(3) As a result of the uncertainty in the application of Section
280G of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Agreement Payments may have been made
by the Company which should not have been made ("Overpayment") or that
additional Agreement Payments which have not been made by the Company could
have been made ("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. Within two years after the
Termination of Employment, the Accounting Firm shall review the
determination made by it pursuant to the preceding paragraph. In the event
that the Accounting Firm determines that an overpayment has been made, any
such Overpayment shall be treated for all purposes as a loan to the
Employee which the Employee shall repay to the Company together with
interest at the applicable Federal rate provided for in Section 7872(f)(2)
of the Code (the "Federal Rate"); provided, however, that no amount shall
--------
be payable by the Employee to the Company if and to the extent such payment
would not reduce the amount which is subject to taxation under Section 4999
of the Code. In the event that the Accounting Firm determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Employee together with interest at
the Federal Rate.
(4) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in this Section 10.05(g) shall be
borne solely by the Company. The Company agrees to indemnify and hold
harmless the Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to this
Section 10.05(g), except for claims, damages or expenses resulting from the
gross negligence or willful misconduct of the Accounting Firm.
(h) Settlement of All Disputes.
--------------------------
(1) In the event of any dispute, controversy or claim arising out
of or relating to any provision of this Agreement or the Employee's
Termination upon a Change of Control, any such dispute, controversy or
claim shall be settled by arbitration in the City of Orlando, Florida, in
accordance with the commercial arbitration rules then in effect of the
American Arbitration Association, before a panel of three arbitrators, two
of whom shall be selected by the Company and the Employee, respectively,
and the third of whom shall be selected by the other two arbitrators. Each
arbitrator selected as provided herein is required to be or have been a
director or an executive officer of a corporation whose shares of common
stock were listed during at least one year of such service on the New York
Stock Exchange or the American Stock Exchange or quoted on the National
Association of Securities Dealers Automated Quotations System. Any award
entered by the arbitrators shall be final, binding and nonappealable and
judgment may be entered thereon by any party in accordance with applicable
law in any court of competent jurisdiction. Federal rules of discovery in
---
civil litigation shall be applicable in any such arbitration proceeding.
This arbitration provision shall be specifically enforceable.
(2) The party or parties challenging the right of the Employee to
the benefits of this Agreement shall in all circumstances have the burden
of proof.
9
<PAGE>
(i) Term, Position, Duties and Compensation.
---------------------------------------
(1) The rights to payments pursuant to this Section 10.05 in the
event of a Termination upon a Change of Control shall continue regardless
of whether the Employment Term has terminated, and the terms of this
Section 10.05 shall thereafter continue until all of the obligations of the
parties hereunder are satisfied or have expired.
(2) In the event the Employment Term is terminated after a Change
of Control and the Employee continues to be employed by the Company, the
duties and responsibilities of the Employee with the Company shall be
determined as set forth in Section 3 hereof.
(3) The Base Salary, benefits and perquisites of the Employee
shall be as determined from time to time by the Board or such other persons
as may be designated by the Board, provided, however, that (aa) during the
Employment Term prior to a Change of Control, the Base Salary of the
Employee shall in no event be less than the amount required to be paid by
the Company as annual salary during the Employment Term pursuant to Section
5.01 hereof, and (bb) during the employment of the Employee after a Change
of Control, regardless of whether the Employment Term has terminated, the
Base Salary of the Employee shall in no event be less than the greater of
(i) the amount required to be paid by the Company as annual salary during
the Employment Term pursuant to Section 5.01 hereof or (ii) the Employee's
Base Salary in effect immediately prior to the Change of Control. During
the Employment Term prior to a Change of Control, and during the employment
of the Employee by the Company after a Change of Control, regardless of
whether the Employment Term has terminated, the benefits and perquisites
shall be at least equivalent to, in the aggregate, those provided to the
Employee by the Company, or any present or future Subsidiary or Affiliate,
as of the Commencement Date or at any time thereafter.
(j) Successor Company/Guaranty.
--------------------------
(1) The Company shall require any successor or successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company, by
agreement in form and substance reasonably satisfactory to the Employee, to
acknowledge expressly that this Agreement is binding upon and enforceable
against the Company in accordance with the terms hereof, and to become
jointly and severally obligated with the Company to perform this Agreement
in the same manner and to the same extent that the Company would be
required to perform if no such succession or successions had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and may be
deemed to be a Termination Upon a Change of Control at the option of the
Employee. As used in this Agreement, the Company shall mean the Company as
hereinbefore defined and any such, successor or successors to its business
and/or assets, jointly and severally.
(2) In the event the Company ceases to be a publicly-traded
corporation after a Change of Control, the controlling Person of the
Company, or any successor or successors
10
<PAGE>
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, shall expressly guarantee in writing the obligations of the
Company pursuant to this Agreement, such written guarantee to be in form
and substance reasonably satisfactory to the Employee. Failure of the
Company to obtain such written guarantee prior to the date on which the
Company ceases to be a publicly-traded corporation shall be a breach of
this Agreement and may be deemed to be a Termination Upon a Change of
Control at the option of the Employee.
10.06 EFFECT OF TERMINATION. In the event of a Termination of
---------------------
Employment, upon the satisfaction and performance by the Company of its
obligations under this Section 10, the Company and its Affiliates and their
respective shareholders, directors, officers, and employees, shall be deemed
fully released by the Employee, and that if employee agrees that such
satisfaction and performance by the Company of its obligations under this
Section 10 shall constitute a full release and discharge from any and all
claims, rights, demands, actions, obligations, and causes of action of any and
all kind, nature, and character, known or unknown, which the Employee may now
have or may have had against the Company or any predecessor to the termination
of employment, including, but not limited to, any claims to any federal or state
agencies, or lawsuits in federal or state courts against the Company alleging
discrimination (including, but not limited to, claims arising under the Civil
Rights Act of 1866, as amended, the Civil Rights Act of 1964, as amended, the
Age Discrimination in Employment Act of 1967, the Americans with Disabilities
Act of 1990, and the Civil Rights Act of 1991), workers' compensation claims,
any claim related to employment contracts, express or implied, or any other
claims related to Employee's employment or association with the Company or the
circumstances surrounding Employee's employment or association with the Company,
or the termination thereof.
10.07 RETURN OF COMPANY PROPERTY. Promptly following any Termination
--------------------------
of Employment, the Employee shall turn over and surrender to the Company all
property of the Company then in his possession, including without limitation
Company automobiles, automobile keys and office keys, credit cards, debit cards,
telephone calling cards, and all business and financial records, statements,
memoranda, notebooks, correspondence and other documentation, and the Employee
shall not retain in his actual or constructive possession copies or
reproductions of any of said items of property or information without the prior
written approval of the Company, the Employee hereby acknowledging that all of
said items are and shall remain the sole and exclusive property of the Company
and that following any Termination of Employment the Employee shall not have any
ownership interest in or right to use, either for his personal benefit or the
benefit of others, any of such items of property or information.
11. SURVIVAL. Notwithstanding the termination of the employment
relationship between the parties hereto, the obligations of the Employee under
Sections 7, 8, 9, 10.05 and 10.06 hereof shall survive and remain in full force
and effect and the Company shall be entitled to equitable relief against the
Employee pursuant to the provisions of Section 9 hereof. In addition to and not
in limitation of the provisions of the preceding sentence, notwithstanding any
such termination of the employment relationship between the parties hereto,
obligations of the Company under this Agreement that are intended pursuant to
the terms hereof to survive any such termination shall survive and remain in
full force and effect and such obligations shall be enforceable by the Employee
in accordance with the provisions of this Agreement.
11
<PAGE>
12. NOTICE. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission (provided acknowledgment of receipt
thereof is delivered to the sender) or sent by certified, registered or express
mail, postage prepaid. Any such notice shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission or, if
mailed, three days after the date of deposit in the United States mails as
follows:
If to Employee, to:
Marshall S. Harris
2443 Via Sienna
Winter Park, FL 32789
If to the Company, to:
La-Man Corporation
5029 Edgewater drive
Orlando, FL 32810
Attention: J. William Brandner
President & CEO
or to such other names or addresses as the Company or the Employee, as the case
may be, shall designate by notice to the other parties hereto in the manner
specified in this section.
13. REVIEW. The Employee represents and acknowledges that (a) he has been
advised by the Company to consult his own legal counsel with respect to this
Agreement and (b) he has had full opportunity, prior to execution of this
Agreement, to review thoroughly this Agreement with his counsel.
14. GOVERNING LAW. This Agreement shall be governed by, and construed and
interpreted under, the laws of the State of Florida without giving effect to any
conflict of laws provisions.
15. CONTENTS OF AGREEMENT; AMENDMENT AND ASSIGNMENT. This Agreement sets
forth the entire understanding between the parties hereto with respect to the
subject matter hereof and supersedes any and all other employment agreements or
arrangements between the parties hereto, including without limitation any prior
or existing employment or consulting agreements between the Company and the
Employee, and the Employee hereby releases and forever discharges the Company
and all of its respective Affiliates, shareholders, directors, officers,
employees and agents from any and all claims for additional fixed or incentive
compensation or other benefits, or other claims or causes of action of any
nature whatsoever arising out of or in connection with or under any and all such
other agreements, express or implied it being the mutual intent of the Company
and the Employee that any and all such agreements are superseded in their
entirety by this Agreement. This Agreement cannot be changed, modified or
terminated except upon written amendment duly executed by the parties hereto.
All of the terms and provisions of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective heirs,
representatives, successors and assigns of the parties hereto, except that the
duties and responsibilities of the Employee hereunder are of a personal nature
and shall not be
12
<PAGE>
assignable in whole or in part by the Employee. The Employee acknowledges that,
from time to time, the Company may establish, maintain and distribute employee
manuals or handbooks or personnel policy manuals, and officers or other
representatives of the Company may make written or oral statements relating to
personnel policies and procedures. Such manuals, handbooks and statements are
intended only for general guidance. No policies, procedures or statements of any
nature by or on behalf of the Company (whether written or oral, and whether or
not contained in any employee manual or handbook or personnel policy manual),
and no acts or practices of any nature, shall be construed to modify this
Agreement.
16. SEVERABILITY. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
17. ENFORCEMENT; NO MITIGATION; NON-EXCLUSIVITY.
17.01 Any party to this Agreement that is required to incur any
expenses associated with the enforcement of such party's rights under this
Agreement, whether by arbitration, litigation, other legal action or otherwise,
shall be entitled, upon successfully enforcing any such rights, to recover from
the party against whom such rights were successfully enforced all such costs and
expenses (including all reasonable attorneys' fees and expenses). For purposes
of this Section 17.01, "successfully enforcing" shall mean the attainment of a
final and binding determination pursuant to any arbitration, litigation, or
other legal action awarding damages, equitable relief or other relief for the
enforcement of the rights of any party hereunder.
17.02 This Agreement negates and supersedes in their entirety any and
all other employment agreements between Employee and the Company;
notwithstanding the foregoing, nothing in this Agreement shall prevent or limit
the Employee's continuing or future participation in or rights under any
benefit, bonus, incentive or other plan or program provided by the Company or
any present or future Subsidiary or Affiliate and for which the Employee may
qualify.
18. REMEDIES CUMULATIVE; NO WAIVER. No remedy conferred by this Agreement
is intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission in
exercising any right, remedy or power hereunder or existing at law or in equity
shall be construed as a waiver thereof, and any such right, remedy or power may
be exercised from time to time and as often as may be deemed expedient or
necessary.
19. HEADINGS. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement and shall
not affect in any way the meaning or interpretation of this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed or caused to be executed
this Agreement as of the date first above written.
LA-MAN CORPORATION
By: /s/ J. William Brandner
--------------------------------
J. William Brandner, President
/s/ Marshall S. Harris
--------------------------------
MARSHALL S. HARRIS
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-KSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 537,564
<SECURITIES> 0
<RECEIVABLES> 7,704,212
<ALLOWANCES> 374,088
<INVENTORY> 4,338,453
<CURRENT-ASSETS> 15,296,228
<PP&E> 8,214,324
<DEPRECIATION> 2,143,053
<TOTAL-ASSETS> 30,794,608
<CURRENT-LIABILITIES> 8,739,436
<BONDS> 7,257,583
0
0
<COMMON> 4,892
<OTHER-SE> 11,522,470
<TOTAL-LIABILITY-AND-EQUITY> 30,794,608
<SALES> 32,478,018
<TOTAL-REVENUES> 32,478,018
<CGS> 19,688,873
<TOTAL-COSTS> 10,279,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486,460
<INCOME-PRETAX> 2,202,941
<INCOME-TAX> 615,000
<INCOME-CONTINUING> 1,587,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,587,941
<EPS-PRIMARY> .40
<EPS-DILUTED> .32
</TABLE>
