SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
..................................
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
..................................
For the fiscal year ended Commission File Number 0-19306
December 31, 1997
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 Research Way (516) 273-6900
E. Setauket NY 11733 (Registrant's Telephone Number)
(Address of Principal
Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Titles of Classes)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $118,332,130 based on the average bid and ask price as
reported by NASDAQ on March 19,1998.
The number of shares of the Registrant's common stock outstanding as of
March 18, 1998 was: 11,336,667.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement to be filed in connection with the Registrant's 1998
Annual Meeting of Stockholders (incorporated by reference under Part III)
PART I
......
This Annual Report on Form 10-K (and other reports issued by the
Company and its officers from time to time) contain certain statements
concerning the Company's future results, future performance, intentions,
objectives, plans, and expectations that are or may be deemed to be
"forward-looking statements". Such statements are made in reliance upon
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Such forward
looking statements are subject to a number of known and unknown risks and
uncertainties that, in addition to general economic and business
conditions, could cause the Company's actual result, performance, and
achievements to differ materially from those described or implied in the
forward looking statements. Factors that could cause or contribute to
such differences include, but are not limited to those discussed below
and in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 1. BUSINESS
General
Excel Technology, Inc. (the "Company") designs, develops,
manufactures and markets laser systems and electro-optical components for
industry, science, and medicine. The word laser is an acronym for "Light
Amplification by Stimulated Emission of Radiation." The essence of the
laser is the ability of a photon (light energy) to stimulate the emission
of other photons, each having the same wavelength (color) and direction
of travel. The laser beam is so concentrated and powerful that it can
produce power densities millions of times more intense than that found on
the surface of the sun, capable of cutting, welding and marking
industrial products, yet can be precisely controlled and directed,
capable of performing delicate surgery on humans.
Since 1992, the Company has focused its business activities on two
basic business strategies: (a) diversification and (b) industry
consolidation. Through its diversification strategy, the Company expects
to manufacture and market core solid state laser and optical products and
systems tailored to a variety of industrial, scientific and medical
applications. The Company believes that its acquisition strategy should
provide added opportunity for growth.
In October 1992, the Company acquired Quantronix Corporation, a
Delaware corporation ("Quantronix"), for Common Stock and warrants of the
Company valued at approximately $9 million, in a transaction pursuant to
which Quantronix became a wholly-owned subsidiary of the Company. The
acquisition of Quantronix and its wholly-owned subsidiaries, Control
Laser Corporation, located in Orlando, Florida ("Control Laser"),
Quantronix GmbH, located in Germany ("Quantronix GmbH"), and The Optical
Corporation, located in Oxnard, California ("Optical"), provided the
Company with its industrial, scientific and semiconductor product lines,
supplemented the Company's dental products and provided the Company with
a significant revenue base as well as established manufacturing,
engineering, marketing and customer service capabilities.
On February 14, 1995, the Company acquired Cambridge Technology,
Inc. ("Cambridge"), located in Cambridge, Massachusetts. Cambridge is
engaged primarily in the manufacture of laser scanners, essential
components to moving a laser beam with precision at a specified speed.
These products have both industrial and consumer applications, such as
laser marking and etching, high density laser printing and writing,
digitized x-ray imaging and entertainment laser light shows and displays.
This acquisition allowed the Company to expand into new markets as well
as enhance its present market position in the industrial business. The
Company acquired all of the outstanding shares of capital stock of
Cambridge in exchange for $4.75 million, consisting of $4.5 million in
cash (of which $3.5 million was paid on February 14, 1995) and
$250 thousand in shares of Common Stock (which was paid on February 14,
1995). Of the balance due, $600 thousand was paid in March 1996 and $400
thousand was paid in February 1997. Pursuant to the acquisition
agreement, additional payments were made due to Cambridge meeting
certain performance goals during the first two fiscal years after the
acquisition. In connection therewith, the Company paid $731 thousand for
1995 and $323 thousand for 1996.
On October 2, 1995, the Company acquired the Photo Research Division
("The Photo Research Division") of Kollmorgen Instruments Corporation
("Kollmorgen"). The Photo Research Division is engaged primarily in the
business of developing, manufacturing and marketing photometric and
spectroradiometer instruments and systems (the "Business"). In
accordance with an Asset Purchase Agreement, the Company purchased
substantially all of the net assets and properties utilized in connection
with the Business, in consideration of $3.5 million in cash. The Company
utilized its own cash to finance the acquisition. Subsequently, the
Company obtained a $3.5 million five-year term loan, from U.S.Trust (the
"Bank"), the proceeds of which were utilized by the Company to replenish
its own cash used in financing the acquisition.
Excel was organized under the laws of Delaware in 1985.
CURRENT PRODUCTS AND APPLICATIONS
Industrial
..........
Control Laser, the Company's subsidiary located in Orlando, Florida,
designs, manufactures and markets industrial laser systems for material
marking and engraving. Control Laser contributed approximately 34% of
the Company's total sales in 1997. With more than 1,650 systems
installed worldwide, including 1,300 in North America, Control Laser had
over 40% of the domestic market share in 1997. Control Laser's InstaMark
laser systems allow for permanent, high speed, computer-controlled
product marking for the aerospace, automotive, medical device,
electronic, tooling and consumer industries. Customers include
Honeywell, ITT Bosch, Nissan, Ford, Kodak, General Electric and General
Motors. Control Laser's marking products can be used manually or can be
utilized as part of an automated assembly line system. During 1997,
Control Laser introduced a new marking system designed to "mark on the
fly" for the packaging industry.
Scanners
.........
Cambridge, the Company's subsidiary based in Cambridge,
Massachusetts, manufactures high speed mirror positioning components and
sub-systems used to direct laser energy. Cambridge contributed
approximately 18% to the Company's sales in 1997. These optical scanning
products are key to a variety of applications where visible or invisible
laser energy is positioned quickly and precisely. An increasingly broad
base of laser system applications are served, by these products including
laser marking, machining, heat treating, welding and cutting,
semiconductor wafer inspection and processing, laser entertainment,
corporate advertising and a growing number of laser based medical
applications, which include digital radiography, skin resurfacing, eye
treatment and others. With patented designs, Cambridge is a technology
leader in galvanometer-based optical scanning and supports research and
development of new applications through a wide range of academic
institutions, private firms and government agencies.
Semiconductor
.............
Quantronix, the Company's subsidiary located in Hauppauge, New
York, manufactures and markets Defect Repair Systems (DRS) which are
laser based systems for use in semiconductor production. The DRS
provides a means to repair defects on the complex photomasks used to
produce integrated circuits.
A pioneer in this field, Quantronix has provided laser mask repair
systems to the industry since 1975. Currently, the DRSII Model 840e
system is the industry standard, with over 100 installed Quantronix
repair systems in operation.
In recognition of the demand for smaller, denser features on next
generation integrated circuits, the Company has embarked on a development
program to produce the next generation machines (DRS II Model 850) that
will support circuit production through the 0.35 microns, 0.25 microns
and 0.18 microns design generations, promoting product viability in the
future.
The initial shipment of a DRSII 850 system took place in November of
1996. The Company is currently working on a new updated machine to be
called the DRS II Model 855.
The DRSII 850 and DRSII 855 are being developed in close contact
with leaders within the semiconductor industry. This Quantronix product
line accounted for approximately 10% of the Company's total sales in
1997.
Scientific and OEM Products
............................
Quantronix also manufactures and markets solid-state lasers for
science, industry and OEM uses. On a worldwide basis, scientific lasers
represent one of the most stable and long-established laser markets.
Scientific lasers are used by chemists, biologists, physicists and other
scientists and engineers. In this market, end-users are generally
familiar with the various product specifications, features and
reliability, which are the major factors in choosing between competing
products.
Quantronix's current scientific line includes the Series 4800
Ultrafast Amplifiers and the Series 527 High Power Green pulsed lasers.
Quantronix's Ultrafast Amplifiers incorporate a material called Titanium
Sapphire ("Ti:Sapphire") which has created opportunities for a greater
volume of research than previous materials. Ultrafast Amplifiers
deliver high energy short pulses on the picosecond time scale. (A
picosecond is one trillionth of a second.) These short pulses enable the
investigation of a wide range of physical, chemical and biological
phenomena.
The system utilizes the Nd:YLF laser to produce high energy pulses
at a rate of 1kHz (1000 pulses per second). These pulses drive the
Ti:Sapphire Amplifier that can then pump other optical systems (also
marketed by Quantronix) which deliver tunable light from Ultraviolet to
Infrared regions of the spectrum. The material properties to be studied
vary over this range.
Industrial and OEM markets play host to a number of diversified
Nd:YAG lasers. Some of the markets are for diamond drilling, micro-
machining and material processing. Recent developments based on the
scientific product line have increased Quantronix's high end market share
and should enable further applications in material processing.
Quantronix 's scientific, industrial and OEM products accounted for
approximately 13% to the Company's total 1997 sales.
Optical Products
................
Optical, a subsidiary of the Company based in Oxnard, California,
specializes in the manufacture of custom precision optical flats used for
measurement in optical scanners, laser systems, professional motion
picture cameras and other industrial and scientific applications.
Optical contributed approximately 3% to the Company's sales in 1997.
Light and Color Measurement
...........................
Photo Research, the Company's Chatsworth, California subsidiary, is
a leader in high precision, state of the art electro-optical
instrumentation and systems for light and color measurement. Photo
Research contributed approximately 9% to the Company's total 1997 sales.
The Spectra product line offers systems to a wide variety of industries
for research, quality control and on-line testing. Video Instrumentation
provides high resolution CRT and flat panel inspection. The Photo
Research Optical Metrology Laboratory is a supplier of and service
provider to optical radiation standards, calibration and measurement for
major manufacturers of instruments, displays, devices and materials.
Spare Parts
...........
The Company derives a portion of its revenues from the sale of spare
parts and related consumable materials used primarily in its
semiconductor, industrial and scientific systems. This operation is based
in Hauppauge, New York. Spare parts and consumables include replacement
optical elements, lamps and electronic components. This Quantronix
product line contributed approximately 10% of the Company's total sales
in 1997.
Dental Products
...............
Quantronix manufactures and markets in its Hauppauge, New York
facility, a series of solid-state lasers for the treatment of dental
soft tissue. The Quantronix dental product line contributed
approximately 3% to the total sales of the Company in 1997. Soft-tissue
procedures include treatments of diseased gums, biopsies, control of
bleeding and preparation of gums for crown and bridge impressions.
Quantronix's existing line of dental laser systems contain Nd:YAG and
Ho:YAG lasers in a single unit. The systems utilize a fiber optic cable
and a handpiece, are internally air cooled, and can be operated from
standard 110 volt electrical outlets.
In November 1993, Quantronix received clearance from the German
government, under applicable "MedGV" regulations, to market its dental
laser system in Germany. In connection therewith, Quantronix has engaged
experienced product marketing teams with an established nationwide
network in Germany. Quantronix began export of the dental laser to
Germany in December 1993.
In June 1994, Quantronix introduced a laser based welding system to
be used in the fabrication and repair of crowns, bridges, partials,
implants and other devices for dental laboratories. Quantronix's laser
welding system contains a pulsed Nd:YAG laser with input power of 220
volts AC, 50/60 Hz and 4 kilowatts peak power and 20 watts average power.
The dental laser welder was developed in conjunction with several
leading dental laboratories in the United States and is capable of
directly welding different metals and alloys used in connecting bridges,
crowns, loops, clasps, etc. without the need for external soldering
materials. The biggest advantages of laser welding, as compared to
soldering, are the stronger bonds and reduced labor costs.
Marketing and Sales
...................
Marketing activities for the Company's product lines include the
presentation of its product lines at domestic and international trade
shows and advertising. The marketing and sales staff conduct
professional meetings, conferences and in-person and telephone sales
calls. The Company also engages independent manufacturers'
representatives for the sale of its products. Foreign sales of its
products are made primarily through foreign equipment distribution
organizations and representatives, and by Quantronix GmbH, its German
subsidiary. Quantronix GmbH is engaged in the business of marketing,
distributing, integrating and servicing laser systems (for industrial,
semiconductor, scientific and dental products) manufactured at the
Company's Hauppauge, New York and Orlando, Florida facilities. The sales
territory covered by Quantronix GmbH is primarily in Europe. The staff
of twenty-three includes seven engineers who install and service all
products including complex semiconductor, scientific, and other
industrial systems. In addition, Quantronix GmbH provides spare parts
for its installed base.
The following table represents a breakdown between the
Company's domestic and foreign revenues for the years ended December 31,
1997, 1996 and 1995 (in thousands of dollars).
1997 1996 1995
Dollars Percent Dollars Percent Dollars Percent
....... ....... ....... ....... ....... .......
DOMESTIC $42,186 64% $37,781 66% $27,513 63%
FOREIGN 23,762 36% 19,681 34% 16,401 37%
....... ....... ....... ....... ....... .......
TOTAL $65,948 100% $57,462 100% $43,914 100%
....... ....... ....... ....... ....... .......
....... ....... ....... ....... ....... .......
Manufacturing
.............
The Company assembles its products at its facilities in Hauppauge,
New York; Orlando, Florida; Oxnard, California; Cambridge, Massachusetts;
and Chatsworth, California. The Company relies upon unaffiliated
suppliers for the material components and parts used to assemble its
products. Most parts and components purchased from suppliers are
available from multiple sources. To date, the Company has not
experienced any significant delays in obtaining parts and components for
its products. The Company believes that it will be able to continue to
obtain most required components and parts from a number of different
suppliers, although there can be no assurance thereof. Lack of
availability of certain components could require major redesign of the
products and could result in production delays.
WARRANTY AND CUSTOMER SERVICES
The Company's warranty for all of its new products varies between
three months and twelve months. The Company also provides field support
services on an individual call basis, services maintenance contracts and
provides customer support services by telephone to customers with
operational and service problems.
RESEARCH AND DEVELOPMENT
Due to the intense competition and rapid technological change in the
laser and optical industries, the Company believes that it must continue
to improve and refine its existing products and systems and develop new
applications for its technology. Research and development expenses for
the years ended December 31, 1997, 1996, and 1995 were $4,860,903,
$4,406,364 and $3,096,934, respectively.
COMPETITION
The laser industry is subject to intense competition and rapid
technological change. Several of the Company's competitors are
substantially larger and have greater financial and other resources than
the Company. Competition among laser manufacturers extends to attracting
and retaining qualified technical personnel. The overall competitive
position of the Company will depend primarily upon a number of factors,
including the price and performance of its products, the compatibility of
its products with existing laser systems and the Company's overall
reputation in the laser industry.
In the scientific market, a number of competitors, including
Spectra-Physics, Inc. and Coherent, Inc., which are believed to be the
industry's two largest companies, produce Ti:Sapphire lasers.
The Company's industrial laser products for material marking
applications compete primarily with those manufactured by A.B. Laser and
Lumonics. These products have generally been subject to intense price
competition in recent years.
In the semiconductor photomask repair market, the Company primarily
competes with NEC. Semiconductor products have recently been subject to
market saturation conditions and the rapid advances in miniaturization of
integrated circuits and computers. These factors are behind the
Company's commitment to continue developing its next generation mask
repair products.
In the dental laser market, the Company competes with several
manufacturers including American Dental Technologies.
In light and color measurement, the major competitor to the
Company's Spectra product is Minolta. Minolta has approximately a 30% to
35% worldwide market share compared with Photo Research's 20% to 25%
share. In the on-line video inspection market, the Company is a
technical leader with Dynacolor and EeRise as its key competitors.
In the laser scanner market, General Scanning, which has an
estimated current market share of 50%, is a significant competitor of the
Company. This competitor was also one of the Company's largest U.S.
customers for scanners in 1997 and 1996. The Company has a significant
market presence in Europe and Japan with 50% of laser scanner sales being
outside the United States.
BACKLOG
As of December 31, 1997, the Company had a backlog of firm orders of
approximately $14 million as compared to a backlog of $13.5 million as of
December 31, 1996. The Company believes that the current backlog will be
filled during the present fiscal year. Historically, backlog is shipped
within 90 days from the order date.
PATENTS AND LICENSES
The Company has several United States patents covering a wide
variety of its products and has applications pending in the United States
patent office. There can be no assurance that any other patents will be
issued to the Company or that such patents, if and when issued, will
provide any protection or benefit to the Company. Although the Company
believes that its patents and its pending patent applications are
valuable, the Company does not consider the ownership of patents
essential to its business. The Company believes that, in general, the
best protection of proprietary technology in the laser industry will come
from market position, technical innovation and product performance.
There is no assurance that any of these advantages will be realized by
the Company.
GOVERNMENT REGULATION
The Company is subject to the laser radiation safety regulations of
the Radiation Control for Health and Safety Act administered by the
National Center for Devices and Radiological Health of the FDA. Among
other things, these regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing
and sales records, to distribute appropriate operating manuals, to
incorporate certain design and operating features in lasers sold to end-
users and to certify and label each laser sold to end-users as one of
four classes (based on the level of radiation from the laser that is
accessible to users). Various warning labels must be affixed and certain
protective devices installed depending on the class of product. The
National Center for Devices and Radiological Health is empowered to seek
fines and other remedies for violations of the regulatory requirements.
The Company believes that it is currently in compliance with these
regulations.
There are two principal methods by which FDA regulated products may
be marketed in the United States. One method is an FDA pre-market
notification filing under Section 510(k) of the Food, Drug and Cosmetics
Act (a "510(k) Application"). Applicants under the 510(k) procedure must
demonstrate that the device for which approval is sought is substantially
equivalent to devices on the market prior to the Medical Device
Amendments of 1976 or devices approved thereafter pursuant to the 510(k)
procedure. The review period for a 510(k) Application is 90 days from
the date of filing the application. While applications not rejected
within the 90-day period are deemed approved, applicants typically defer
marketing until a favorable response to the 510(k) Application is
received from the FDA. In 1992, the Company's three dental products
received 510(k) approval for use in soft tissue applications.
The alternate method, where section 510(k) is not available, is to
obtain pre-market approval ("PMA") from the FDA. Under the PMA
procedure, the applicant must obtain an investigational device exemption
before beginning the substantial clinical testing required to determine
the safety, efficacy and potential hazards of the product. The
preparation of a PMA application is significantly more complex and time
consuming than the 510(k) Application. The review period under a PMA
application is 180 days from the date of filing but the application is
not automatically deemed approved if not rejected during the period and
the FDA often responds with requests for additional information or
clinical reports. The PMA approval process can take up to several years.
The FDA also imposes various requirements on manufacturers and
sellers of products under its jurisdiction, such as labeling,
manufacturing practices, record keeping and reporting requirements. The
FDA also may require post-market testing and surveillance programs to
monitor a product's effects. There can be no assurance that the
appropriate approvals from the FDA will be granted, that the process to
obtain such approvals will not be excessively expensive or lengthy or
that the Company will have sufficient funds to pursue such approvals at
the time they are sought. The failure to receive requisite approvals for
the Company's products or processes, when and if developed, or
significant delays in obtaining such approvals, would prevent the Company
from commercializing its products as anticipated and would have a
materially adverse effect on the business of the Company.
FOREIGN REGULATORY REQUIREMENTS
Foreign sales of the Company's dental and medical laser systems are
or will be subject in each case to approval by the recipient country.
Regulatory requirements vary widely among the countries, from electrical
approvals to clinical applications similar to the PMA applications filed
with the FDA for sales in the United States. The Company has obtained
appropriate approvals for its dental products in Japan, Korea and certain
European countries including Germany.
EMPLOYEES
As of December 31, 1997, the Company had 300 full-time employees,
consisting of 2 executive officers, 7 subsidiary executive officers, 91
engineering and technical personnel and 200 manufacturing, administrative
and sales support personnel. The Company believes that its relations
with its employees are satisfactory. None of the Company's employees is
represented by a union.
FINANCIAL INFORMATION ABOUT FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
For the years ended December 31, 1997, 1996 and 1995, the Company
had net sales to customers in foreign countries amounting to
approximately $23.8 million, $19.7 million and $16.4 million,
respectively (approximately 36%, 34% and 37% of total net sales and
services, respectively). These sales included sales by Quantronix GmbH,
the Company's German subsidiary. Quantronix GmbH buys laser systems,
spare parts and related consumable materials from Quantronix and Control
Laser, the Company's New York and Florida subsidiaries, for resale to
European and other foreign customers, and also furnishes field repair
services. See Note 13 of the "Notes to Consolidated Financial
Statements."
Foreign currency translation for Quantronix GmbH, the Company's
subsidiary in Germany, is performed utilizing the current rate method
under which assets and liabilities are translated at the exchange rate on
the balance sheet date, except for property, plant and equipment which is
translated at historical rates, while revenues, costs and other expenses
are translated at the average exchange rate for the reporting period.
The resulting translation adjustment of $(256) thousand and $(78)
thousand at December 31, 1997 and 1996, respectively, is included as a
component of stockholders' equity. Currency and exchange rate
fluctuations from transaction gains and losses resulted in net losses of
$167 thousand and $178 thousand for the years ended December 31, 1997 and
1996, respectively, and a net gain of approximately $115 thousand for the
year ended December 31, 1995. Such amounts are based upon the accounting
treatment of foreign intercompany balances and transaction gains and
losses.
ITEM 2. PROPERTIES
Excel leases approximately 2,900 square feet in New York City from
an unaffiliated landlord for its corporate offices. The lease is for a
five-year period at an average annual rent of $108,000, and expires in
November 2001.
Quantronix leases approximately 28,000 square feet in Hauppauge, New
York from an unaffiliated landlord for its executive offices and for
sales, service and manufacturing. The lease is for a five-year period
which ended in November 1997, at an average annual rent of approximately
$230,000. Excel's principal executive office is maintained in the
Hauppauge facility, where financial and accounting functions of the
Company are performed. Quantronix is in the process of constructing its
own building, at a cost of approximately $3.7 million, which is scheduled
for completion February 28, 1998.
Control Laser leases a building containing approximately 50,000
square feet in Orlando, Florida from an unaffiliated landlord, which it
utilizes for administrative offices and laser manufacturing operations.
Annual rent is approximately $240,000. The lease expires in December
2001.
Optical leases a 14,000 square foot building in Oxnard, California
from an unaffiliated landlord for manufacturing purposes, at an annual
rent of approximately $90,000. The lease term expires in December 1998.
Cambridge leases a 17,000 square foot building in Cambridge,
Massachusetts from an unaffiliated landlord for manufacturing operations
and administrative offices. The lease is for a ten-year period ending in
October 2006, at an annual rent of approximately $150,000 through October
2003 and $175,000 from November 2003 through October 2006.
Quantronix GmbH leases approximately 7,500 square feet of office
space, used for sales and service, in Darmstadt, Germany from an
unaffiliated landlord at an average annual rent of approximately
$106,000. The lease expires in June 2005.
Photo Research leases a 36,000 square foot facility located in
Chatsworth, California from an unaffiliated landlord for manufacturing
operations and administrative offices, at an annual rent of approximately
$480,000. The lease expires in June 1998.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has disputes that arise in the
ordinary course of its business, none of which the Company believes
should have a material impact on its business. There are no material
pending legal proceedings to which the Company or its subsidiaries is a
party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
.......
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the symbol "XLTC" since May 1991, the date of the Company's initial
public offering, and on the NASDAQ National Market System since October
2, 1992. The following table sets forth the high and low bid quotations
reported on NASDAQ for the Common Stock for the periods indicated.
Year ended: High Low
December 31, 1997
First Quarter 10-1/8 7-1/4
Second Quarter 9-1/4 7-1/2
Third Quarter 13-3/8 8-5/8
Fourth Quarter 15-3/8 8-3/4
December 31, 1996
First Quarter 9-3/8 6-1/2
Second Quarter 11-3/4 7-7/8
Third Quarter 9-5/8 6-3/4
Fourth Quarter 9-1/8 7
The above quotations represent prices between dealers, do not
include retail mark-ups, markdowns or commissions and do not necessarily
reflect actual transactions.
As of March 18, 1998, there were approximately 926 holders of
record of Common Stock. Since many shares are registered in street name,
the number of beneficial owners is considerably higher.
The Company has never paid cash dividends on its Common Stock. In
April 1996 the Company paid a $0.40 per share dividend on its Preferred
Stock. In May 1996, the Company exercised its option to redeem all
Preferred Shares that were not converted. Therefore, after May 1996, no
cash dividends were paid to holders of the Preferred Stock. Payment of
dividends to holders of the Common Stock is within the discretion of the
Company's Board of Directors and will depend, among other factors, on
earnings, capital requirements, limitations on dividends under the
Company's revolving line of credit agreement and the operating and
financial condition of the Company. At the present time, the Company's
anticipated capital requirements are such that it intends to follow a
policy of retaining earnings, if any, in order to finance the development
of its business.
ITEM 6. SELECTED FINANCIAL DATA
The following tables summarize certain consolidated financial data
which should be read in conjunction with the reports of the Company's
independent auditor and the more detailed consolidated financial
statements and notes thereto which appear elsewhere herein.
Statement of Operations Data
............................
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
YEARS ENDED DECEMBER 31,
......................................................................
1997 1996 1995 1994 1993
........... ........... ........... ............ ............
<S> <C> <C> <C> <C> <C>
Net sales and services $65,947,896 $57,462,263 $43,914,222 $33,550,842 $29,027,825
Net earnings (loss) $ 8,234,697 $ 4,892,826 $(1,595,835) $ 1,890,279 $ 2,878,419
Net earnings (loss) per share
Basic $0.77 $0.55 $(0.21) $0.22 $0.43
Diluted $0.73 $0.50 $(0.21) $0.22 $0.38
Weighted average common and common
equivalent shares outstanding
Basic 10,686,763 9,862,217 8,281,194 7,632,230 6,071,327
Diluted 11,327,086 9,757,411 8,281,194 8,563,600 7,456,927
Common stock cash dividends 0 0 0 0 0
Preferred stock cash dividends 0 0 162,137 187,981 268,258
<CAPTION>
BALANCE SHEET DATA
DECEMBER 31,
.......................................................................
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total assets $59,219,681 $39,816,442 $43,007,614 $33,082,983 $23,909,913
Total liabilities 8,316,574 10,800,102 20,948,036 9,727,602 8,959,774
Working capital 37,166,960 17,492,287 17,609,490 20,963,663 12,196,774
Stockholders' equity 50,903,107 29,016,340 22,059,578 23,355,381 14,950,139
Long-term liabilities 0 0 7,573,320 3,348,141 2,958,880
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
.......
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto set
forth elsewhere herein.
Summary
.......
The Company achieved revenues of approximately $66 million for the
year ended December 31, 1997 as compared to approximately $57.5 million
and $43.9 million for the years ended December 31, 1996 and 1995,
respectively. Earnings (loss) before provision for income taxes were
approximately $12.6 million, $7.1 million, and ($1.1) million for the
years ended December 31, 1997, 1996 and 1995, respectively. The net
earnings (loss) and earnings (loss) per share on a diluted basis were
approximately $8.2 million and $0.73 per share in 1997 $4.9 million and
$0.50 per share in 1996 and ($1.6) million and ($0.21) per share in
1995. Due to the loss in 1995, common stock equivalents and the
conversion of preferred shares were antidilutive and were not included in
the diluted earnings per share in 1995.
The following table presents consolidated financial data for the
years ended December 31, 1997, 1996 and 1995 (in thousands of dollars and
as a percentage of total net sales and services.)
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
1997 1996 1995
Dollars Percent Dollars Percent Dollars Percent
.................. ................. ...................
<S> <C> <C> <C> <C> <C> <C>
Net Sales and Services $65,948 100.0 57,462 100.0 43,914 100.0
Cost of Sales 33,245 50.4 31,004 54.0 24,863 56.6
....... ..... ...... ..... ...... ......
Gross Margin 32,703 49.6 26,458 46.0 19,051 43.4
Operating Expense:
Selling and Marketing 10,639 16.1 9,743 17.0 7,204 16.4
General and Administrative 4,805 7.3 4,212 7.3 4,450 10.1
Research and Development 4,861 7.4 4,406 7.7 3,097 7.1
Amortization of Goodwill 370 0.6 508 0.9 469 1.1
Litigation Settlement 0 0.0 0 0.0 3,400 7.7
....... ..... ...... ..... ...... ......
Earnings from Operations 12,028 18.2 7,589 13.1 431 1.0
Non-Operating expense (income) (615) (1.0) 511 0.8 1,552 3.5
....... ..... ...... ..... ...... ......
Earnings (loss) before provision
for income taxes 12,643 19.2 7,078 12.3 (1,121) (2.5)
Provision for Income taxes 4,408 6.7 2,185 3.8 475 1.1
....... ..... ...... ..... ...... ......
Net Earnings (loss) 8,235 12.5 4,893 8.5 (1,596) (3.6)
....... ..... ...... ..... ....... ......
....... ..... ...... ..... ....... ......
</TABLE>
Net Sales and Services
......................
Net sales and services for the year ended December 31, 1997
increased to $65.9 million from $57.5 million in 1996 and from $43.9
million in 1995. The increase from 1996 to 1997 of $8.4 million or 14.6
percent was attributable to increased sales of all products with the
exception of dental. The increase from 1995 to 1996 of $13.6 million or
31.0 percent was primarily attributable to the inclusion of Photo
Research's operations for an entire year (increase of approximately $5
million) and increased sales of industrial and scientific/OEM products,
offset in part by reduced medical product revenues.
Gross Margins and Cost of Sales
...............................
Gross margins as a percentage of sales increased to 49.6 percent
from 46.0 percent in 1996 and 43.4 percent in 1995. Cost of sales and
services increased to $33.2 million in 1997 from $31.0 million in 1996
and $24.9 million in 1995. The increase in gross margins as a percentage
of sales was primarily due to improved efficiencies in manufacturing and
product mix. The increase from 1995 to 1996 was primarily due to the
inclusion of an entire year of operations of Photo Research which
experiences higher gross margins.
Operating Expenses
..................
Selling and Marketing
Selling and marketing expenses increased to $10.6 million in 1997
from $9.7 million in 1996 and $7.2 million in 1995. The increase of 900
thousand or 9.2 percent was primarily attributable to increased sales.
Selling and marketing expenses as a percentage of sales increased from
16.4 percent in 1995 to 17.0 percent in 1996 and decreased to 16.1
percent in 1997. The increase of $2.5 million or 34.7 percent from 1995
to 1996 was primarily attributable to the acquisition of Cambridge and
Photo Research and increased sales.
General and Administrative
General and administrative expenses increased to $4.8 million in
1997 from $4.2 million in 1996 and $4.5 million in 1995. The increase in
1997 is primarily due to the added operating expenses associated with
opening the New York City office. The decrease of $240 thousand or 5
percent from 1995 to 1996 was due to the one time $300 thousand
compensation charge in 1995 related to the resignation of the former
Chairman and CEO, partially offset by the addition of Photo Research.
General and administrative expenses as a percentage of sales remained the
same at 7.3 percent in 1996 and 1997.
Research and Development
Research and development costs for the year ended December 31, 1997
were 4.9 million as compared to $4.4 million and $3.1 million for the
years ended December 31, 1996 and 1995, respectively. The increase from
1996 to 1997 is primarily attributable to increased research and
development activity in all products with the exception of dental. The
primary reason for the increase of $1.3 million or 42 percent from 1995
to 1996 was due to the inclusion of a full year's R&D for Photo Research
and increased R&D efforts in all subsidiaries.
Amortization of Goodwill
The amortization of the excess of cost over fair value of the net
assets of businesses acquired of $370 thousand, $508 thousand and $469
thousand for the years ended December 31, 1997, 1996 and 1995,
respectively, was a result of the acquisition of Quantronix in October
1992, Cambridge in February 1995 and Photo Research in October 1995. The
increase from 1995 to 1996 was due to the full year of amortization for
Photo Research. The decrease in 1997 is primarily a result of a
reduction in goodwill due to the establishment of a deferred tax asset in
1996.
Litigation Settlement
Litigation settlement costs for the year ended December 31, 1995
were $3.4 million of which $2.7 million was for the SBIR settlement with
the U.S. Department of Justice and $700 thousand for legal expenses
related to the SBIR investigation.
Other Income/Expense
Interest expense was $160 thousand, $608 thousand and $691 thousand
for the years ended December 31, 1997, 1996 and 1995, respectively.
Interest expense decreased $448 thousand or 74 percent from 1996 to 1997
due to the Company's prepayment of all its term loans with U.S. Trust and
repayment of other long-term debt and notes payable. Interest expense
decreased $83 thousand or 12.0 percent from 1995 to 1996 due to the
reduced debt level in 1996.
The increase in interest income of $578 thousand from $294 thousand
in 1996 to $872 thousand in 1997 was due to increased average
investments. The decrease in interest income of $102 thousand from $395
thousand in 1995 to $294 thousand in 1996 was due to the reduced average
investment levels in 1996 that resulted from prepayments in long- term
debt.
Other income/expense for the year ended December 31, 1997 was $97
thousand of expense compared to $200 thousand in 1996. The expense was
due primarily to foreign exchange losses. The decrease in expense from
1995 to 1996 was primarily due to investment losses in 1995.
Liquidity and Capital Resources
...............................
Working capital at December 31, 1997 and 1996 was $37.2 million and
$17.5 million, respectively. Cash, cash equivalents and investments
increased by approximately $13.6 million from December 31, 1996 to
December 31, 1997. Such increase is primarily attributable to the
proceeds from the exercise of options and warrants of $17.2 million and
cash flows from operations of $6.8 million, partially offset by capital
expenditures of $3.9 million, repayment of debt of $2.3 million and the
purchase of treasury stock of $3.3 million. Increases in accounts
receivable and inventory in 1997 were primarily attributable to the
Company's increased sales volume.
The Company had capital expenditures of approximately $3.9 million
for the year ended December 31, 1997 and has plans to expend
approximately $2.5 million in 1998. The Company had capital expenditures
of $1.6 million for the year ended December 31, 1996.
The Company commenced its year 2000 date conversion plans to address
all necessary code changes, testing and implementation. Project
completion is planned for the beginning of 1999. Management anticipates
that the cost of the conversion plan will not be material to the
Company's results of operations or liquidity in 1998 or 1999. Management
anticipates that the Company's year 2000 date conversion project will be
completed on a timely basis. However, there can be no assurance that the
systems of other companies which the Company interacts with will be
timely converted or that any such failure to convert by another company
would not have an adverse effect on the Company.
On June 30, 1994, the Company entered into a $5 million revolving
line of credit agreement with U S Trust, (the "Bank") which matures in
March 1998. At December 31, 1997 the Company had no borrowings and had
all $5.0 million available for borrowing under the line of credit.
On February 14, 1995, the Company acquired all of the outstanding
shares of capital stock of Cambridge in exchange for $4.75 million,
consisting of $4.5 million in cash (of which $3.5 million was paid on
February 14, 1995) and $250 thousand in shares of Common Stock (which was
paid on February 14, 1995). On March 31, 1995, the Company borrowed $4.0
million from the Bank, requiring monthly payments of $67 thousand plus
interest through April 2000. Such term loan has been fully repaid as of
December 31, 1997. Of the balance due, $600 thousand was paid in March
1996 and $400 thousand was paid in February 1997. Pursuant to the
acquisition agreement, additional payments were made due to Cambridge
meeting certain performance goals during the first two fiscal years after
the acquisition. In connection therewith, the Company paid $731 thousand
for 1995 and $323 thousand for 1996.
On October 2, 1995, the Company acquired substantially all of the
net assets and property utilized in connection with the business of Photo
Research from Kollmorgen Instruments Corporation for $3.53 million in
cash. The Company utilized its own cash to finance the Photo Research
acquisition. Subsequently, the Company obtained a $3.5 million five-year
term loan from the Bank, which has been fully repaid as of December 31,
1997.
As of December 31, 1997, the Company had prepaid all its debt on its
term loans with the Bank and has no outstanding long-term debt.
In December 1997, the Company purchased 375,000 shares of its common
shares as treasury stock. On January 23, 1998 the Board of Directors
authorized the Company to repurchase up to 2,000,000 of its common shares
in the open market at prevailing market prices.
The Company estimates that its current resources and anticipated
cash to be generated from operations will be sufficient to meet its cash
requirements for at least the next 12 months.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Follow on next page.
EXCEL TECHNOLOGY, INC.
Index to Consolidated Financial Statements and
Financial Statement Schedule filed with the Annual
Report of the Company on Form 10-K
For the Year Ended December 31, 1997.
Page
Independent Auditors' Report 19
Consolidated Financial Statements:
Balance Sheets as of December 31, 1997 and 1996 20
Statements of Operations for each of the three years in the
period ended December 31, 1997. 21
Statements of Stockholders' Equity for each of the three years
in the period ended December 31, 1997. 22
Statements of Cash Flows for each of the three years in the
period ended December 31, 1997. 23
Notes to Consolidated Financial Statements. 24-39
Additional Financial Information Pursuant to the
Requirements of Form 10-K:
Schedule II - Valuation and Qualifying Accounts and Reserves 40
.............
Schedules not listed above have been omitted because they are either not
applicable or the required information has been given elsewhere in the
consolidated financial statements or notes thereto.
<AUDIT-REPORT>
Independent Auditors' Report
............................
Board of Directors and Stockholders
Excel Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Excel Technology, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the years in the three-year period
ended December 31, 1997. In connection with our audit of the
consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
financial statement schedule 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
Excel Technology, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Jericho, New York
January 23, 1998
</AUDIT-REPORT>
<TABLE>
<CAPTION>
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Assets
......
Current assets:
Cash and cash equivalents $ 6,331,159 2,910,982
Investments 14,209,854 4,076,045
Accounts receivable, less allowance for doubtful accounts
of $254,000 in 1997 and $276,000 in 1996 11,522,041 9,145,460
Inventories 12,143,140 10,977,407
Deferred income taxes 692,500 650,200
Other current assets 584,840 532,295
........... ...........
Total current asset 45,483,534 28,292,389
........... ...........
Property, plant and equipment, net 5,392,955 2,475,586
Other assets 545,725 701,896
Deferred income taxes 1,674,600 1,854,000
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $1,849,332 in
1997 and $1,479,628 in 1996 6,122,867 6,492,571
........... ...........
$59,219,681 39,816,442
........... ...........
........... ...........
Liabilities and Stockholders' Equity
....................................
Current liabilities:
Current portion of long-term debt 0 1,923,024
Notes payable, current 182,888 1,288,282
Accounts payable 2,235,109 2,161,740
Accrued expenses and other current liabilities 5,898,577 5,427,056
........... ...........
Total current liabilities 8,316,574 10,800,102
........... ...........
Stockholders' equity:
Preferred stock, par value $.001 per share
2,000,000 shares authorized; none issued 0 0
Common stock, par value $.001 per share: 20,000,000 shares
authorized, 11,714,471 and 9,189,265 shares issued
in 1997 and 1996 11,714 9,189
Additional paid-in capital 48,726,078 31,559,063
Retained earnings (accumulated deficit) 5,760,370 (2,474,327)
Treasury stock, 375,000 shares (3,339,375) 0
Foreign currency translation adjustment (255,680) (77,585)
........... ...........
50,903,107 29,016,340
........... ...........
$59,219,681 39,816,442
........... ...........
........... ...........
See accompanying notes to consolidated financial statements.
<CAPTION>
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
<S> <C> <C> <C>
Net sales and services $65,947,896 57,462,263 43,914,222
Cost of sales and services 33,245,432 31,004,440 24,862,687
........... .......... ..........
Gross profit 32,702,464 26,457,823 19,051,535
........... .......... ..........
Operating expenses:
Selling and marketing 10,639,570 9,742,409 7,204,268
General and administrative 4,805,284 4,212,261 4,449,637
Research and development 4,860,903 4,406,364 3,096,934
Amortization of excess cost over fair value
of net assets of businesses acquired 369,704 508,124 468,681
Litigation settlement and related expenses 0 0 3,400,018
........... .......... ..........
20,675,461 18,869,158 18,619,538
........... .......... ..........
Earnings from operations 12,027,003 7,588,665 431,997
Non operating expenses (income):
Interest expense 159,888 608,349 691,415
Interest income (872,481) (294,114) (395,429)
Other expense (income), net 96,814 196,902 1,256,506
........... .......... ..........
Earnings (loss) before provision for income taxes 12,642,782 7,077,528 (1,120,495)
Provision for income taxes 4,408,085 2,184,702 475,340
........... .......... ..........
Net earnings (loss) 8,234,697 4,892,826 (1,595,835)
Preferred stock dividends 0 54,273 162,137
........... .......... ..........
Net earnings (loss) available to common shareholders $ 8,234,697 4,838,553 (1,757,972)
........... .......... ..........
........... .......... ..........
Basic earnings (loss) per share $0.77 0.55 (0.21)
........... .......... ..........
........... .......... ..........
Weighted average common shares outstanding 10,686,763 8,862,217 8,281,194
Diluted earnings (loss) per share $0.73 0.50 (0.21)
........... .......... ..........
........... .......... ..........
Weighted average common and common equivalent
shares outstanding 11,327,086 9,757,411 8,281,194
........... .......... ..........
........... .......... ..........
See accompanying notes to consolidated financial statements
<CAPTION>
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
Retained Foreign Unrealized
Additional earnings currency gain on
Preferred Stock Common Stock Treasury paid-in (accumulated translation marketable
Shares Amounts Shares Amounts stock capital deficit) adjustment securities Total
....... ....... ........ ....... .......... ........... ........... ........... .......... ...........
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 469,952 470 8,189,825 8,190 0 29,041,693 (5,609,181) (25,220) (60,571) 23,355,381
Common stock issued to
acquire Cambridge 0 0 62,500 62 0 249,938 0 0 0 250,000
Exercise of common
stock options
and warrants 0 0 30,518 30 0 68,647 0 0 0 68,677
Conversion of
preferred stock (64,610) (65) 64,610 65 0 0 0 0 0 0
Preferred stock
dividend 0 0 0 0 0 0 (162,137) 0 0 (162,137)
Unrealized gain on mar-
ketable securities 0 0 0 0 0 0 0 0 60,571 60,571
Foreign currency trans-
lation adjustment 0 0 0 0 0 0 0 82,921 0 82,921
Net loss for the year 0 0 0 0 0 0 (1,595,835) 0 0 (1,595,835)
......... ..... .......... ...... ........... .......... ........... ......... ........ ...........
Balance at
December 31, 1995 405,342 405 8,347,453 8,347 0 29,360,278 (7,367,153) 57,701 0 22,059,578
Exercise of common
stock options and
warrants 0 0 436,470 437 0 2,198,785 0 0 0 2,199,222
Conversion of
preferred stock (405,342) (405) 405,342 405 0 0 0 0 0 0
Foreign currency trans-
lation adjustment 0 0 0 0 0 0 0 (135,286) 0 (135,286)
Net income for the year 0 0 0 0 0 0 4,892,826 0 0 4,892,826
......... ..... .......... ...... ........... .......... ........... ......... ........ ...........
Balance at
December 31, 1996 0 0 9,189,265 9,189 0 31,559,063 (2,474,327) (77,585) 0 29,016,340
Exercise of common
stock options
and warrants 0 0 2,525,206 2,525 0 17,167,015 0 0 0 17,169,540
Acquisition of
treasury stock 0 0 0 0 (3,339,375) 0 0 0 0 (3,339,375)
Foreign currency trans-
lation adjustment 0 0 0 0 0 0 0 (178,095) 0 (178,095)
Net income for the year 0 0 0 0 0 0 8,234,697 0 0 8,234,697
......... ..... .......... ...... ........... .......... ........... ......... ........ ...........
Balance at
December 31, 1997 0 0 11,714,471 11,714 (3,339,375) 48,726,078 5,760,370 (255,680) 0 50,903,107
......... ..... .......... ...... ........... .......... ........... ......... ........ ...........
......... ..... .......... ...... ........... .......... ........... ......... ........ ...........
See accompanying notes to consolidated financial statements
<CAPTION>
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,234,697 4,892,826 (1,595,835)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,479,499 1,371,942 1,247,610
Provision for bad debts 71,722 82,743 102,784
Deferred income taxes 139,000 735,000 (618,000)
Changes in operating assets and liabilities, net of
effects from acquisitions:
(Increase) decrease in accounts receivable (2,448,303) (1,874,724) 689,991
(Increase) decrease in inventories (1,165,733) 2,313,322 (3,593,640)
(Increase) decrease in prepaid and refundable
income taxes and other current assets (52,545) 157,486 282,437
Decrease (increase) in other assets 29,239 92,622 (2,224)
Increase (decrease) in accounts payable 73,369 (890,803) 258,434
Increase (decrease) in accrued expenses and
other liabilities 471,521 (1,043,627) 1,991,247
Proceeds from sale of trading securities 0 0 4,473,779
............ ........... ...........
Net cash provided by operating activities 6,832,466 5,836,787 3,236,583
............ ........... ...........
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired (723,150) (1,331,237) (6,775,179)
Purchases of property, plant and equipment (3,902,132) (1,561,487) (781,984)
(Purchase) redemption of investments, net (10,133,809) 1,811,648 0
Proceeds from sale of assets 0 522,178 0
............ .......... ...........
Net cash used in investing activities (14,759,091) (558,898) (7,557,163)
............ ........... ...........
Cash flows from financing activities:
Proceeds from exercise of common stock options and warrants 17,169,540 2,199,222 68,677
Purchase of treasury stock (3,339,375) 0 0
Payment of preferred stock dividend 0 (162,137) (186,941)
(Payments of) proceeds from notes payable, net (382,244) (268,501) 370,165
(Payments of) proceeds from borrowings on long term debt
and revolving credit line, net (1,923,024) (6,327,137) 4,767,542
............ ........... ...........
Net cash provided by (used in)
financing activities 11,524,897 (4,558,553) 5,019,443
............ ........... ...........
Effect of exchange rate changes on cash and cash equivalents (2,797) (6,721) 930
Effect of exchange rate changes on assets and liabilities (175,298) (128,565) 81,991
............ ........... ...........
Net increase in cash and cash equivalents 3,420,177 584,050 781,784
Cash and cash equivalents - beginning of year 2,910,982 2,326,932 1,545,148
............ ........... ...........
Cash and cash equivalents - end of year $ 6,331,159 2,910,982 2,326,932
............ ........... ...........
............ ........... ...........
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 159,888 606,801 691,415
............ ........... ...........
............ ........... ...........
Income taxes $ 3,989,709 1,577,756 617,338
............ ........... ...........
............ ........... ...........
See accompanying notes to consolidated financial statements.
</TABLE
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
a) Principles of Consolidation
............................
The consolidated financial statements include the accounts of Excel
Technology, Inc. (Excel), its wholly-owned subsidiaries, Photo Research,
Inc. (Photo Research), Cambridge Technology, Inc. (Cambridge), Control
Laser Corporation and Quantronix Corporation (Quantronix), and
Quantronix's wholly-owned subsidiaries, The Optical Corp., Quantronix
International Corporation (a FSC) and Quantronix GmbH (collectively
referred to as the Company). All material intercompany transactions and
balances have been eliminated in consolidation.
b) Nature of Business
..................
Excel designs, develops, manufactures and markets laser systems and
electro-optical components, primarily for the electronic, semiconductor,
dental, scientific and other industrial markets.
c) Revenue Recognition
...................
Net sales and services are generally recognized when the earnings
process is complete, either upon shipment of products or performance of
services.
d) Investments and Cash Equivalents
................................
Investments, which consist primarily of commercial paper, are
recorded at fair value. The Company records debt and equity securities
that have readily determinable fair values at fair value unless they are
classified as held to maturity. Investments are classified as held to
maturity and carried at amortized cost only if the Company has a positive
intent and ability to hold those securities to maturity. If not
classified as held to maturity, investments are classified as trading
securities or securities available for sale. Unrealized gains or losses
for securities available for sale are excluded from earnings and reported
as a net amount as a separate component of stockholders' equity.
Unrealized holding gains and losses for trading securities are included
in earnings. The Company has classified its investments as trading
securities as of December 31, 1997 and 1996. Investments with original
maturities of three months or less at the time of purchase are considered
cash equivalents.
(e) Inventories
...........
Inventories consist of material, labor and overhead and are stated
at the lower of average cost or market. Average cost approximates actual
cost on a first-in, first-out basis.
(f) Depreciation and Amortization
.............................
The Company's property, plant and equipment, recorded at cost, are
depreciated or amortized over their estimated useful lives under the
straight-line method. Leasehold improvements are amortized over the life
of the lease or the estimated life of the asset, whichever is less.
Patents are amortized over their estimated useful lives, not
exceeding 17 years, using the straight-line method.
The excess of cost over fair value of net assets of businesses
acquired ("goodwill") is amortized on a straight-line basis over twenty
years. The Company assesses the recoverability of unamortized goodwill
based on the undiscounted projected future cash flows of the related
businesses.
(g) Capitalized Software Development Costs
......................................
The Company has capitalized certain computer software development
costs relating to the development of the Company's third generation
Defect Mask Repair System (DRS III) in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalization of computer software development costs begins upon
the establishment of technological feasibility. Technological
feasibility for the Company's computer software products is generally
based upon achievement of a detail program design free of high risk
development issues. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized computer software
development costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to,
technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technology.
Amortization of capitalized computer software costs is provided on a
product-by-product basis at the greater of the amount computed using the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or the straight-line method over the
remaining estimated economic life of the product. An original estimated
economic life of no more than four years is assigned to capitalized
computer software development costs. Approximately $367,000 and $459,000
of software development costs, included in other long-term assets, were
capitalized as of December 31, 1997 and 1996, respectively. During 1997,
approximately $92,000 of these costs were amortized.
(h) Income Taxes
............
The Company recognizes deferred tax assets and liabilities for the
future tax consequences attributable to temporary differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities at enacted rates expected to be in effect when such amounts
are realized or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Foreign Currency Translation
............................
Foreign currency translation for the Company's German subsidiary,
Quantronix GmbH, is performed utilizing the current rate method under
which assets and liabilities are translated at the exchange rate on the
balance sheet date, except for property, plant and equipment which is
translated at historical rates, while revenues, costs, and expenses are
translated at the average exchange rate for the reporting period. The
resulting translation adjustment of $(255,680) and $(77,585) at December
31, 1997 and 1996 is included as a component of stockholders' equity. In
addition, there were transaction gains and losses and intercompany
balances not deemed long-term in nature at the balance sheet date that
resulted in a net loss of $166,906, a net loss of $177,506 and a net gain
of $115,000 during the years ended December 31, 1997, 1996 and 1995,
respectively, which is reflected in other (income) expense in the
consolidated statements of operations.
(j) Net Earnings Per Share
......................
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share," which the Company adopted during 1997. Under SFAS 128, the
Company presents two earnings per share (EPS) amounts. Basic EPS is
calculated based on income available to common shareholders and the
weighted-average number of shares outstanding during the reported period.
Diluted EPS includes additional dilution from potential common stock
including stock issuable pursuant to the exercise of dilutive stock
options and warrants outstanding and the effect of assuming the
conversion of convertible preferred stock. Prior year earnings per share
data have been restated to apply the provisions of SFAS 128.
(k) Fair Value of Financial Instruments
...................................
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents,
investments, accounts receivable, notes payable, accounts payable and
accrued expenses are reflected in the financial statements at fair value
because of the short-term maturity of these instruments.
(l) Use of Estimates
................
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Among the more significant estimates included in these
financial statements are the estimated allowance for doubtful accounts
receivable and the estimated valuation allowance reducing the Company's
deferred tax asset. Actual results could differ from those and other
estimates.
(m) Accounting for Stock-Based Compensation
.......................................
The Company records compensation expense for employee stock options
and warrants only if the current market price of the underlying stock
exceeds the exercise price on the date of the grant. On January 1, 1996,
the Company adopted Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation". The Company has elected not to implement
the fair value based accounting method for employee and directors' stock
options and warrants, but has elected to disclose the pro forma net
earnings and pro forma earnings per share to account for employee and
directors' stock option and warrant grants beginning in 1995 as if such
method had been used to account for such stock-based compensation cost.
(n) Reclassifications
.................
Certain prior year amounts have been reclassified to conform with
the current year presentation.
(2) Acquisitions
............
On February 14, 1995, the Company acquired Cambridge Technology,
Inc. which is engaged primarily in the manufacture of laser scanners,
essential components to moving a laser beam with precision at a specified
speed. These products have both industrial and consumer applications,
such as laser marking and etching, high density laser printing and
writing, digitized x-ray imaging and entertainment laser light shows and
displays. The Company acquired all of the outstanding shares of capital
stock of Cambridge in exchange for $4.75 million, consisting of $4.5
million in cash and $250,000 in shares of Common Stock. Pursuant to the
acquisition agreement, additional payments were made due to Cambridge
meeting certain performance goals during the first two fiscal years after
the acquisition. In connection therewith, the Company paid $731,000 for
1995 and $323,150 for 1996. The amount owed at December 31, 1996 of
$723,150 is included in notes payable in the accompanying balance sheet.
The acquisition was accounted for as a purchase and the operating
results of Cambridge were included in the consolidated financial
statements commencing February 1, 1995.
On October 2, 1995, the Company acquired substantially all of the
net assets and property utilized in connection with the business of Photo
Research, which develops and manufactures light measuring instruments,
for $3.53 million in cash. The acquisition was accounted for as a
purchase and the operating results of Photo Research were included in the
consolidated financial statements from the date of the acquisition.
The excess of the cost of the acquisitions over the fair value of
the net assets acquired, amounting to $4,830,000 for Cambridge and
$1,727,000 for Photo Research, is being amortized over twenty years.
During 1996 goodwill was reduced by $522,000 as a result of the sale of
Cambridge's medical product line. The sales price, net of expenses,
approximated the net book value of the assets sold.
(3) Investments
...........
Investments at December 31, 1997 and 1996 consist entirely of
commercial paper classified as trading securities, which are recorded at
fair value.
The Company recorded realized net gains of approximately $600,000
and unrealized holding losses on equity trading securities of
approximately $2.2 million included in other expense in the 1995
consolidated statement of operations. In January 1996, the Company sold
all of its equity securities and no further losses were realized.
(4) Inventories
...........
Inventories consist of the following:
December 31,
1997 1996
.......................
Raw materials $ 5,792,455 4,473,246
Work-in-process 5,013,691 5,098,370
Finished goods 619,316 1,124,538
Consigned inventory 717,678 281,253
.......... .........
$12,143,140 10,977,407
........... ..........
(5) Property, Plant and Equipment
.............................
Property, plant and equipment consists of the following:
December 31,
Useful life 1997 1996
........... .......... ..........
Land 0 $ 440,408 0
Building 30 years 1,617,940 0
Leasehold improvements Lease term 686,014 523,304
Fixtures and computer
equipment 5-8 years 1,545,797 1,169,811
Machinery and equipment 4-8 years 3,960,658 3,172,736
Laboratory equipment 4-8 years 928,684 675,536
.......... .........
9,179,501 5,541,387
Less accumulated
depreciation and
amortization (3,786,546) (3,065,801)
.......... .........
$5,392,955 2,475,586
.......... .........
.......... .........
Quantronix is in the process of constructing a new building at a
cost of approximately $3.7 million. The Company will commence
depreciation of the building once it is completed which is scheduled to
be February 28, 1998. As of December 31, 1997, the Company has paid
$2,058,348 towards the land and new building.
Depreciation and amortization expense aggregated approximately
$985,000, $863,000 and $779,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
(6) Income Taxes
............
The income (loss) before provision for income taxes for the years
ended December 31, 1997, 1996 and 1995 was comprised of domestic income
(loss) of $12,833,403, $7,416,546, and $(1,507,202), respectively, and
foreign income (loss) of $(190,621), $(339,018) and $386,707,
respectively.
The provision for income taxes consists of:
Year ended December 31,
.......................
1997 1996 1995
.......... ......... ........
Current:
Federal $3,477,085 1,202,702 794,340
State and local 792,000 280,000 200,000
Foreign 0 (33,000) 99,000
.......... ......... ........
4,269,085 1,449,702 1,093,340
.......... ......... .........
.......... ......... .........
Deferred:
Federal 139,000 735,000 (763,000)
State and local 0 0 0
Foreign 0 0 145,000
.......... ......... ........
139,000 735,000 (618,000)
.......... ......... ........
$4,408,085 2,184,702 475,340
.......... ......... ........
.......... ......... ........
The current provision for income taxes includes a tax benefit of
$281,000 for 1997, 1996 and 1995 from utilizing Federal net operating
loss carryforwards. The deferred tax provision for 1996 and 1995 was
increased by $190,000 and $335,000, respectively, due to allocating
acquired tax benefits to goodwill.
The difference between taxes at the Federal statutory income tax
rate and the Company's provision for income taxes is as follows:
Year ended December 31,
.......................
1997 1996 1995
.......... ......... .........
Taxes at statutory Federal
income tax rate $4,298,600 2,406,400 (381,000)
Amortization of excess of cost
over fair value of net assets
of businesses acquired 96,400 142,800 153,000
Non-deductible litigation
settlement expenses 0 0 544,000
Foreign Sales Corporation (FSC)
benefit (343,700) (110,500) (118,000)
Net reduction of valuation
allowance for realization of
operating loss carryforwards
and deductible temporary
differences (411,100) (360,000) (90,000)
State income taxes net of
Federal benefit 523,000 184,500 132,000
Other 244,885 (78,500) 235,340
.......... ......... .........
$4,408,085 2,184,700 475,340
.......... ......... .........
.......... ......... .........
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
December 31, 1997 and 1996 are presented below:
December 31
.......................
1997 1996
.......... ...........
Deferred tax assets:
Excess of tax over financial statement
basis of inventory $ 411,000 351,000
Allowance for doubtful accounts 50,000 53,000
Accrued warranty reserve 98,000 118,000
Other accrued expenses 134,000 428,000
Benefits of U.S. tax net operating loss
carryforwards 2,428,000 2,709,000
Benefits of foreign net operating loss
carryforwards 120,000 120,000
Capital loss carryforward 43,000 63,000
Plant and equipment depreciation 77,000 98,000
Other 8,000 8,000
.......... ..........
Total deferred tax assets 3,369,000 3,948,000
Less valuation allowance (876,900) (1,288,000)
.......... ..........
Net deferred tax assets 2,492,100 2,660,000
.......... ..........
Deferred tax liabilities:
Capitalized software development costs (125,000) (156,000)
.......... ..........
Total deferred tax liabilities (125,000) (156,000)
.......... ..........
Net deferred tax asset $2,367,100 2,504,000
.......... ..........
.......... ..........
At December 31, 1997, Excel has available net operating loss
carryforwards (NOL's), expiring in 2005 through 2007, of approximately
$2.1 million for income tax purposes. The utilization of NOL's by Excel
for income tax purposes is subject to annual limitations imposed by
Internal Revenue Code Section 382 due to various equity transactions from
1991 to 1993 and alternative minimum tax limitations. If the full amount
of that limitation is not used in any year, the amount not used increases
the allowable limit in the following year.
At December 31, 1997, Quantronix and its subsidiaries have available
for tax purposes utilizable preacquisition NOL's of approximately $5.0
million expiring in 2005 through 2007. Such NOL's can only be utilized
to offset Quantronix's future taxable income and are limited, in a
similar fashion to Excel's NOL's, in each year to approximately $560,000
as a result of the change in ownership from the merger with Excel.
During 1996, the Company reduced goodwill by $1,923,000 for the
establishment of deferred tax assets and the utilization of Quantronix's
preacquisition deductible temporary differences and net operating loss
carryforwards.
While management believes that the Company's deferred tax asset will
be realized based on its generation of taxable income in recent years and
its future projected taxable income, the substantial restrictions on and
time periods required to realize certain of the Company's NOL's makes it
appropriate to record a valuation allowance against a portion of those
NOL's. In addition, a valuation allowance has been provided against the
Company's capital loss and foreign net operating loss carryforwards.
Accordingly, Excel has provided a total valuation allowance of $877,000,
as of December 31, 1997. There can be no assurance that the Company will
generate sufficient taxable earnings in future years to fully realize
recorded tax benefits.
(7) Accrued Expenses and Other Current Liabilities
..............................................
Accrued expenses and other current liabilities consists of the
following:
December 31
.......................
1997 1996
.......... ...........
Salaries, wages, commissions
and bonuses $1,690,700 1,769,134
Accrued accounts payable 228,427 110,657
Customer deposits 869,490 891,043
Accrued royalties payable 13,037 15,736
Warranty reserve 415,912 413,513
Unearned service contract revenue 153,315 240,763
Professional fees 111,918 146,176
Income taxes payable 931,127 589,813
Other 1,484,651 1,250,221
.......... .........
$5,898,577 5,427,056
.......... .........
.......... .........
(8) Long-Term Debt and Notes Payable
................................
Long-term debt and notes payable consist of the following:
December 31
.......................
1997 1996
.......... ...........
Revolving line of credit (a) 0 0
Term loan payable (b) (c) 0 1,850,986
Notes payable - Cambridge
acquisition (note 2) 0 723,150
Other 0 637,170
.......... ...........
3,211,306
.......... ...........
Less current installments 0 (3,211,306)
$ 0 0
.......... ...........
.......... ...........
(a) On June 30, 1994, the Company entered into a $5 million
revolving line of credit agreement with a bank which matures in March
1998. At December 31, 1997 and 1996 the Company had no borrowings and had
$5.0 million available for borrowing under the line of credit. The
agreement contains certain financial covenants, including minimum
tangible net worth, and limits the payment of dividends. The revolving
line of credit agreement is secured by all the U.S. assets of the Company
and bears interest at the bank's base lending rate plus 0.75%.
(b) On March 31, 1995, the Company borrowed $4.0 million from a
bank requiring monthly payments of $67,000 plus interest through April
2000. The Company accelerated principal payments in 1996 and reduced the
principal balance to $767,000 at December 31, 1996. Such balance was
prepaid in January 1997.
(c) On October 23, 1995 the Company obtained a $3.5 million five
year term loan from a bank requiring monthly payments of $58,000 plus
interest through November 2000. The Company accelerated principal
payments in 1996 and reduced the principal balance to approximately $1.08
million at December 31, 1996. Such balance was prepaid in January 1997.
Other debt at December 31, 1996 includes short-term borrowings of
the Company's subsidiary in Germany at an interest rate of 9.5%, of
approximately $412,000. As of December 31, 1997 the Company had no such
short- term borrowings.
(9) Stockholders' Equity
....................
(a) Preferred Stock
...............
Each share of preferred stock was converted into one share of common
stock and one Class B warrant. During the years ended December 31, 1997,
1996 and 1995, zero shares, 405,342 and 64,610 shares, respectively, of
preferred stock were converted to common stock. While outstanding, the
Company paid a dividend of $0.40 per share for each year the preferred
stock was not converted or redeemed.
(b) Stock Option Plan
.................
In 1990, Excel adopted a stock option plan (the Plan) which provides
for the granting of incentive stock options and nonincentive stock
options to certain key employees, including officers and directors of
Excel, to purchase an aggregate of 2,000,000 shares of common stock, as
amended, at prices and terms determined by the Board of Directors. The
option price per share of incentive stock options must be at least 100%
of the fair market value of the stock on the date of grant, except in the
case of shareholders owning more than 10% of the outstanding shares of
common stock, the option price must be at least 110% of the fair market
value on the date of grant, and for nonincentive stock options such price
may be less than 100% of the fair market value of the stock on the date
of grant. Options granted under the Plan, which terminates on July 30,
2000, may be exercisable for a period of up to ten years. All options
granted under the Plan have exercise prices equal to the market value of
the stock on the date of grant, vest ratably over three or five years and
expire either five or ten years from date of grant.
The Plan was amended in August 1993 to provide for the automatic
grant to each member of the Board of Directors, on the date of each
annual meeting of stockholders, non-incentive options to purchase 10,000
shares of common stock at the fair market value of the common stock on
such date. A summary of activity related to Excel's stock option plan
is as follows:
Number Weighted average
of shares exercise price
...........
Outstanding at December 31, 1994 1,786,632 $5.26
Granted 432,600 4.69
Exercised (25,200) 4.93
Canceled (1,096,709) 5.52
...........
Outstanding at December 31, 1995 1,097,323 5.12
Granted 695,600 7.50
Exercised (218,215) 5.58
Canceled (146,881) 6.03
Outstanding at December 31, 1996 1,427,827 6.17
...........
Granted 307,850 8.73
Exercised (643,804) 3.28
Canceled (77,115) 4.77
...........
Outstanding at December 31, 1997 1,014,758 $7.87
...........
...........
At December 31, 1997, a total of 274,320 options were exercisable at
a weighted average exercise price of $8.05, and options for the purchase
of 70,288 common shares were available for future grant under the Plan.
The options outstanding as of December 31, 1997 are summarized in
ranges as follows:
Weighted Number of Weighted
Range of average options average
exercise price exercise price outstanding remaining life
.............. .............. ............ ..............
$3.26 - $ 6.00 $ 4.86 142,047 2 years
$6.01 - $ 9.00 $ 6.99 566,332 4 years
$9.01 - $ 12.38 $10.36 306,379 8-1/2 years
............
1,014,758
(c) Other
.....
In February 1997, Class B Warrants to purchase 1,191,856 shares of
common stock at $8.00 per share were exercised, and resulted in net
proceeds of approximately $9.5 million to the Company. The remaining
394,369 Class B Warrants were redeemed by the Company at $.05 per warrant
in accordance with their terms. An underwriter's warrant was also
exercised in 1997 that resulted in net proceeds to the Company of
approximately $2.2 million for the issuance of 280,500 shares of common
stock.
In addition, at December 31, 1997, 51,000 warrants were outstanding
that expire between 1998 and 2000 with exercise prices ranging from $4.00
to $6.375. During 1997, 383,100 of these warrants were exercised.
(d) Shares Reserved for Issuance
............................
At December 31, 1997 Excel had reserved, authorized and unissued
common shares for the following purposes:
Shares
.........
Stock option plan 1,085,046
Stock purchase warrants 51,000
.........
1,136,046
.........
.........
(e) Stock-based compensation
........................
The per share weighted-average fair value of stock options and
warrants granted during 1997, 1996 and 1995 was $2.53, $3.76 and $2.41,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1997 - expected
dividend yield of 0%, risk free interest rate of 5.5%, expected stock
volatility of 31%, and an expected option and warrant life of 2.5 years;
1996 - expected dividend yield of 0%, risk free interest rate of 6%,
expected stock volatility of 50%, and an expected option and warrant life
of 5 years; 1995 - expected dividend yield of 0%, risk free interest rate
of 5%, expected stock volatility of 50%, and an expected option and
warrant life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan
and, accordingly, no compensation cost has been recognized in the
financial statements for its stock options and warrants which have an
exercise price equal to or greater than the fair value of the stock on
the date of the grant. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net earnings would have been reduced to the
pro forma amounts indicated below:
1997 1996 1995
Net earnings (loss):
As reported $8,234,697 $4,892,826 $(1,595,835)
Pro forma $7,423,697 $4,305,826 $(1,952,835)
Net earnings (loss)
available to common
shareholders:
As reported $8,234,697 $4,838,553 $(1,757,972)
Pro forma $7,423,697 $4,251,553 $(2,114,972)
Basic earnings (loss) per
common share
As reported $0.77 $0.55 $(0.21)
Pro forma $0.69 $0.48 $(0.26)
Diluted earnings (loss) per
common share:
As reported $0.73 $0.50 $(0.21)
Pro forma $0.66 $0.44 $(0.24)
Pro forma net earnings reflects only options and warrants granted
commencing in 1995. Therefore, the full impact of calculating
compensation cost for stock options and warrants under SFAS No. 123 is
not reflected in the pro forma net earnings amounts presented above
because compensation cost is reflected over the options' vesting period
and compensation cost for options granted prior to January 1, 1995 was
not considered.
(10) Earnings Per Share
..................
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations:
1997
....
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Basic EPS:
Net earnings available to common
shareholders $8,234,697 10,686,763 $0.77
Effect of Dilutive Securities:
Options and Warrants 640,323
..........
Diluted EPS:
Net earnings available to common
shareholders and assumed conversions $8,234,697 11,327,086 $0.73
.......... ..........
.......... ..........
1996
....
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Net Earnings $4,892,826
Less: Preferred stock dividends (54,273)
..........
Basic EPS:
Net earnings available to common
shareholders $4,838,553 8,862,217 $0.55
Effect of Dilutive Securities:
Options and Warrants 756,244
Convertible preferred stock 54,273 138,950
.......... ..........
Diluted EPS:
Net earnings available to common
shareholders and assumed conversions $4,892,826 9,757,411 $0.50
.......... ..........
.......... ..........
1995
....
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
........... ............. .........
Net loss $(1,595,835)
Less: Preferred stock dividends (162,137)
...........
Basic EPS:
Net earnings available to common
shareholders $(1,757,972) 8,281,194 $(0.21)
Diluted EPS:
Net earnings available to common
shareholders and assumed
conversions $(1,757,972) 8,281,194 $(0.21)
.......... ..........
.......... ..........
(11) Employee Benefit Plans
......................
(a) 401(k) Plan
...........
The Company has a voluntary contribution pension plan which complies
with Section 401(k) of the Internal Revenue Code, as amended. The Plan
permits employees to make a voluntary contribution of pretax dollars to a
pension trust, with a matching contribution by the Company equal to 50%
of an employee's basic contribution to the Plan up to a maximum of 3% of
their salaries. Company contributions to the plan were approximately
$303,000, $235,000 and $179,000 in 1997, 1996 and 1995, respectively.
(b) Health Plans
............
During the years ended December 31, 1997, 1996 and 1995, health
benefit costs, including premiums, amounted to approximately $1,100,000,
$778,000 and $955,000 respectively.
(12) Commitments and Contingencies
.............................
(a) Operating Leases
................
Excel and its subsidiaries lease certain buildings, vehicles and
equipment under noncancellable operating leases. At December 31, 1997,
the future minimum lease payments under operating leases are as follows:
1998 $1,027,252
1999 575,868
2000 544,928
2001 544,173
2002 162,478
Thereafter 700,546
..........
$3,555,245
..........
..........
Rent expense approximated $1.34 million, $1.29 million and $811,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
(b) Employment and Consulting Agreements
....................................
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination without cause,
aggregating $1.06 million.
(c) Litigation Settlement
.....................
Pursuant to a Release and Settlement Agreement (the "Agreement"),
dated as of November 24, 1995, by and between the U.S. Government, Excel,
Dr. Rama Rao, the former Chairman and Chief Executive Officer of Excel
("Dr. Rao"), and Triveni Srinivasan Rao, the wife of Dr. Rao and a former
director and former officer of Excel ("Mrs. Rao"), and without the
Company, Dr. Rao or Mrs. Rao admitting to any wrongdoing, the Company
paid the U.S. Government $2.7 million (reflecting the return of
$1,093,000 paid by the U.S. Government to the Company during 1985 to 1990
for Small Business Innovation Research ("SBIR") grants and approximately
$1,627,000 in statutory damages). In consideration of such payments and
agreements, the U.S. Government agreed to refrain from instituting any
civil or monetary claim, action or suit against the Company, Dr. Rao or
Mrs. Rao arising in connection with proposals submitted under the SBIR
grant program during the period July 1985 through November 24, 1995. In
connection with the foregoing, the Company recorded a charge of $3.4
million for the year ended December 31, 1995, including the $2.7 million
paid to the government and $700,000 of related legal fees expended in
1995. Of the $2.7 million paid to the government, only $1.1 million was
deductible for income taxes.
(13) Foreign and Domestic Operations and Export Sales
................................................
Information concerning foreign and domestic operations and export
sales is as follows:
As of or the year ended
December 31,
1997 1996 1995
........... .......... ...........
Net sales and services to
unaffiliated customers:
United States $58,468,251 50,023,979 34,793,096
Germany 7,479,645 7,438,284 9,121,126
........... .......... ..........
$65,947,896 57,462,263 43,914,222
........... .......... ..........
........... .......... ..........
Operating earnings (loss):
United States $12,088,227 7,695,932 (36,047)
Germany ( 61,224) (107,267) 468,044
........... .......... ..........
$12,027,003 7,588,665 431,997
........... .......... ..........
........... .......... ..........
Identifiable assets:
United States $54,508,949 35,466,426 38,302,849
Germany 4,710,732 4,350,016 4,704,765
........... .......... ..........
$59,219,681 39,816,442 43,007,614
........... .......... ..........
........... .......... ..........
In determining operating earnings (loss) for each geographic area,
sales and purchases between areas have been accounted for on the basis of
internal transfer prices set by the Company.
Identifiable assets are those tangible and intangible assets used in
operations in each geographic area.
During the years ended December 31, 1997, 1996 and 1995, the Company
had foreign and export sales of approximately $23.8 million, $19.7
million and $16.4 million, representing 36%, 34% and 37%, respectively,
of total net sales and services.
No single customer accounted for more than five percent of the
Company's net sales and services in fiscal 1997, 1996 and 1995, and no
account receivable from any customer exceeded five percent of the
Company's total stockholders' equity at December 31, 1997
Schedule II
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1997, 1996 and 1995
Column A Column B Column C Column D Column E
........ ........ ........ ........ ........
Additions
Charged
Balance at to cost Balance at
beginning and Deductions- end of
Description of period expenses describe period
........... .......... ......... ........... .........
Allowance for
doubtful accounts:
Year ended
December 31,:
1997 $ 276,000 72,000 (94,000)(1) 254,000
1996 377,000 83,000 (184,000)(1) 276,000
1995 200,000 103,000 74,000 (2) 377,000
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowance for doubtful accounts of acquired subsidiaries at date of
acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT'S
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
........
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 with respect to the directors
of registrant is hereby incorporated by reference to registrant's
definitive proxy statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, which proxy statement is anticipated to
be filed within 120 days after the end of registrant's fiscal year ended
December 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is hereby incorporated by
reference to registrant's definitive proxy statement to be filed pursuant
to Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of registrant's
fiscal year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is hereby incorporated by
reference to registrant's definitive proxy statement to be filed pursuant
to Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of registrant's
fiscal year ended December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Howard S. Breslow, a director of the Company, is a partner in
Breslow & Walker, LLP, the Company's legal counsel. In 1997, the Company
paid Breslow & Walker, LLP $130,000 for legal services.
PART IV
.......
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements (included in Part II, Item 8):
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996
Consolidated Statements of Operations for each of the years in
the three-year period ended December 31, 1997
Consolidated Statements of Stockholders' Equity for each of the
years in the three-year period ended December 31, 1997
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1997
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule and Report of
Independent Auditor (included in Part II Item 8)*
Schedule
II Valuation and Qualifying Accounts and Reserves
.......................
* Financial statement schedules other than those listed are
omitted because they are either not applicable or not required,
or because the information sought is included in the
Consolidated Financial Statements or the Notes thereto.
3. Exhibits included herein:
See Exhibit Index below for exhibits filed as part of this
Form 10-K annual report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed in the
last quarter of the period covered by this Report.
INDEX TO EXHIBITS
.................
Exhibit
Number Document
............... ........
2 (a) Agreement and Plan of Merger, dated March 20, 1992, by and
among the Company, Excel Merging Corporation and Quantronix
Corporation, as amended July 16, 1992.(1)
(b) Agreement and Plan of Merger, dated as of February 14,
1995, by and among, the Company, Excel Merging Corporation
and Cambridge Technology, Inc. (4)
(c) Asset Purchase Agreement, dated as of October 29, 1995 by
and among Kollmorgen Instruments Corporation and Photo
Research, Inc. (6)
3 (a) Restated Certificate of Incorporation dated November 13,
1990, as amended (3)
(b) By-Laws, as amended.(2)
4 (a) Specimen Certificate for Company's Common Stock.(2)
10 (a) 1990 Stock Option Plan, as amended.(3)
(b) Loan Agreement, dated as of June 30, 1994, by and among the
Company and U S Trust.(5)
(c) Release and Settlement Agreement, dated November 29, 1995,
by and between the U. S. Government and the Company (7)
(d) Employment Agreement, dated as of January 22, 1996, between
the Company and J. Donald Hill (8), amended as of
July 14, 1997.
(e) Employment Agreement, dated as of January 22, 1996, between
the Company and Antoine Dominic (8), amended as of
July, 14, 1997.
11 Computation of Net Earnings (loss) per share.
23 Consent of KPMG Peat Marwick LLP
(1) Incorporated by reference to the Company's Registration
Statement on Form S-4, File No. 33-47440.
(2) Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-39375.
(3) Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-52612.
(4) Incorporated by reference to the Company's Report on Form
8-K dated February 28, 1995
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(6) Incorporated by reference to the Company's Report on Form
8-K dated October 13, 1995.
(7) Incorporated by reference to the Company's Report on Form
8-K dated December 12, 1995.
(8) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
.....................................
J. Donald Hill, Chairman of the Board,
President, and Chief Executive Officer
By: /s/ Antoine Dominic
......................................
Antoine Dominic, Chief Financial Officer
and Principal Accounting Officer
Date: March 19,1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
......... ..... ....
/s/ J. Donald Hill Director March 19, 1998
........................
J. Donald Hill
/s/ Antoine Dominic Director March 19, 1998
........................
Antoine Dominic
/s/ Steven Georgiev Director March 19, 1998
........................
Steven Georgiev
/s/ Howard S. Breslow Director March 19, 1998
........................
Howard S. Breslow
/s/ Jan Melles Director March 19, 1998
........................
Jan Melles
Exhibit 10(f) Amendment
EXCEL TECHNOLOGY, INC.
45 ADAMS AVE.
HAUPPAUGE NY 11788
As of July 14, 1997
Mr. J. Donald Hill
2 Bridgeworth Lane
Sherman CT 06784
Re: Employment Agreement
.....................
Dear Don:
Reference is made to the employment agreement (the "Employment
Agreement"), dated as of January 22, 1996, by and between you and Excel
Technology, Inc. (the "Corporation"). Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Employment
Agreement.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the Corporation hereby agrees to the following amendments to
the Employment Agreement: (a) the Base Salary is increased to $250,000 per
annum for the remainder of the Employment Period, (b) in addition to the
Base Salary and other entitlements under the Employment Agreement, during the
remainder of the Employment Period you shall be entitled to a non-accountable
incidental expense allowance of $500 per month, and (c) provided that you
remain in the employ of the Corporation for not less than 60 days after the
date hereof, Section 6.04 of the Employment Agreement is amended to provide
that if the Corporation terminates you employment without Cause, you shall be
entitled to the Base Salary pursuant to Section 4.01 of the Employment
Agreement for a period of two years after the date of termination.
The foregoing modifications shall in no way amend, waive, or modify any
of the other terms or provisions of the Employment Agreement.
If you find the foregoing is in accordance with your understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become part of the Employment Agreement and
binding between us.
Sincerely,
EXCEL TECHNOLOGY, INC.
By: /s/ Antoine Dominic
........................
Antoine Dominic, Chief
Financial Officer
AGREED AND ACCEPTED:
/s/ J. Donald Hill
......................
J. Donald Hill
Exhibit 10(g) Amendment
EXCEL TECHNOLOGY, INC.
45 ADAMS AVE.
HAUPPAUGE NY 11788
As of July 14, 1997
Mr. Antoine Dominic
...................
Re: Employment Agreement
.....................
Dear Don:
Reference is made to the employment agreement (the "Employment
Agreement"), dated as of January 22, 1996, by and between you and Excel
Technology, Inc. (the "Corporation"). Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Employment
Agreement.
For good and valuable consideration, the receipt of which is hereby
acknowledged, the Corporation hereby agrees to the following amendments to
the Employment Agreement: (a) the Base Salary is increased to $225,000 per
annum for the remainder of the Employment Period, (b) in addition to the
Base Salary and other entitlements under the Employment Agreement, during the
remainder of the Employment Period you shall be entitled to a non-accountable
incidental expense allowance of $500 per month, and (c) provided that you
remain in the employ of the Corporation for not less than 60 days after the
date hereof, Section 6.04 of the Employment Agreement is amended to provide
that if the Corporation terminates you employment without Cause, you shall be
entitled to the Base Salary pursuant to Section 4.01 of the Employment
Agreement for a period of two years after the date of termination.
The foregoing modifications shall in no way amend, waive, or modify any
of the other terms or provisions of the Employment Agreement.
If you find the foregoing is in accordance with your understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become part of the Employment Agreement and
binding between us.
Sincerely,
EXCEL TECHNOLOGY, INC.
By: /s/ J. Donald Hill
......................
J. Donald Hill, President
and Chief Executive Officer
AGREED AND ACCEPTED:
/s/ Antoine Dominic
......................
Antoine Dominic
</TABLE>
<TABLE>
<CAPTION>
Exhibit 11
Computation of Net Earnings (Loss) per share
BASIC DILUTED
Year Ended Year Ended
December 31, December 31,
1997 1996 1995 1997 1996 1995
.......... .......... ............ .......... .......... .............
<S> <C> <C> <C> <C> <C> <C>
Net (loss) earnings $8,234,697 $4,892,826 $(1,595,835) $8,234,697 $4,892,826 $(1,595,835)
Less: Preferred Stock dividend <F2> 0 (54,273) (162,137) 0 0 (162,137)
........... .......... ............ .......... .......... ............
Net earnings (loss) available to
common shareholders $8,234,697 $4,838,553 $(1,757,972) $8,234,697 $4,892,826 $(1,757,972)
........... .......... ............ .......... .......... ............
........... .......... ............ .......... .......... ............
Weighted average common shares
outstanding, net of Treasury stock 10,686,763 8,862,217 8,281,194 10,686,763 8,862,217 8,281,194
Weighted average common share
equivalents:
Options and warrants 0 0 0 640,323 756,244 0
Preferred stock 0 0 0 0 138,950 0
........... .......... ............ .......... .......... ............
Weighted average common and
common share equivalents 10,686,763 8,862,217 8,281,194<F1> 11,327,086 9,757,411 8,281,194<F1>
........... .......... ............ .......... .......... ............
........... .......... ............ .......... .......... ............
Net (loss) earnings per share $0.77 $0.55 $(0.21) $0.73 $0.50 $(0.21)
........... .......... ............ .......... .......... ............
........... .......... ............ .......... .......... ............
<FN>
<F1> Due to the loss in 1995, common stock equivalents and the conversion of preferred shares are antidilutive
and are not included in the basic and diluted calculation for the year ended December 31, 1995.
Diluted net loss per share in 1995 includes the reduction for preferred stock dividends.
<F2> In 1996, for basic earnings per share, the Company included preferred stock dividends in its net earnings available to common
shareholders during the portion of the year the preferred stock was outstanding.
</FN>
</TABLE>
Exhibit 23
Consent of Independent Auditors
...............................
The Board of Directors
Excel Technology, Inc.
and Subsidiaries
We consent to incorporation by reference in the registration statements
on Form S-8 (No. 33-71122) and Forms S-3 (No. 33-34523) of Excel
Technology, Inc. and subsidiaries of our report dated January 23, 1998,
relating to the consolidated balance sheets of Excel Technology, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash
flows and related schedule for the three years ended December 31, 1997,
which report appears in the December 31, 1997 annual report on Form 10-K
of Excel Technology, Inc. and subsidiaries.
KPMG PEAT MARWICK LLP
Jericho, New York
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 6,331,159 2,910,982
<SECURITIES> 14,209,854 4,076,045
<RECEIVABLES> 11,522,041 9,145,460
<ALLOWANCES> 254,000 276,000
<INVENTORY> 12,143,140 10,977,407
<CURRENT-ASSETS> 45,483,534 28,292,389
<PP&E> 5,392,955 2,475,586
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 59,219,681 39,816,442
<CURRENT-LIABILITIES> 8,316,574 10,800,102
<BONDS> 0 0
0 0
0 0
<COMMON> 11,714 9,189
<OTHER-SE> 50,891,393 29,007,151
<TOTAL-LIABILITY-AND-EQUITY> 59,219,681 39,816,442
<SALES> 65,947,896 57,462,263
<TOTAL-REVENUES> 65,947,896 57,462,263
<CGS> 33,245,432 31,004,440
<TOTAL-COSTS> 33,245,432 31,004,440
<OTHER-EXPENSES> 20,675,461 18,869,158
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 159,888 608,349
<INCOME-PRETAX> 12,642,782 7,077,528
<INCOME-TAX> 4,408,085 2,184,702
<INCOME-CONTINUING> 8,234,697 4,892,826
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,234,697 4,838,553
<EPS-PRIMARY> $0.77 $0.55
<EPS-DILUTED> $0.73 $0.50
</TABLE>
