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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission File Number 000-22625
LASER POWER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3423358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
12777 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(Address of principal executive offices) (Zip Code)
(619) 755-0700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |_| Yes |X| No (1)
As of June 30, 1997, there were 5,852,354 shares of the Registrant's Common
Stock outstanding.
(1) The Registrant has been subject to the filing requirements of the
Securities Exchange Act of 1934 since June 12, 1997 and has filed all
reports required to be filed by it since that date.
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LASER POWER CORPORATION
FORM 10-Q INDEX
This report contains forward-looking statements that involve risks and
uncertainties. The actual future results of the Company could differ materially
from those statements. Factors that could cause or contribute to such
differences include, but are not limited to, uncertainties regarding market
acceptance of new products and product enhancements, delays in the introduction
of new products or product enhancements, size and timing of individual orders,
competition, general economic conditions in the Company's geographic markets,
seasonality of revenues, and the management of the Company's growth, as well as
those factors discussed in the Company's Registration Statement on Form SB-2
(No. 333-24421).
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
May 31, 1997 (unaudited) and August 31, 1996............3
Condensed Consolidated Statements of Operations
(unaudited) for the three and nine months
ended May 31, 1997 and 1996.............................4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
May 31, 1997 and 1996...................................5
Notes to Condensed Consolidated Financial
Statements (unaudited)..................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.....................8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS..................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.........................16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASER POWER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, 1997 AUGUST 31, 1996
------------ ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 203 $ 298
Accounts receivable, net ......................... 3,592 2,993
Inventories, net ................................. 3,400 2,730
Other current assets ............................. 253 166
-------- --------
Total current assets ..................... 7,448 6,187
Property and equipment, net ........................ 5,614 4,187
Intangibles and other assets (net of
accumulated amortization) ........................ 1,551 820
-------- --------
Total assets ............................. $ 14,613 $ 11,194
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank ............................. $ 682 $ --
Accounts payable ................................. 2,379 1,340
Accrued liabilities .............................. 1,956 1,522
Current portion of long-term debt ................ 568 488
-------- --------
Total current liabilities ................ 5,585 3,350
Long-term debt and deferred rent ................... 1,595 864
Subordinated convertible debentures ................ 1,660 1,660
Stockholders' equity:
Convertible preferred stock, $.125 par value
Authorized -- 3,000,000 shares
Issued and outstanding -- 1,610,891
shares in 1996 and 1997 ..................... 201 201
Common stock, par value $.001:
Authorized -- 15,000,000 shares
Issued and outstanding
3,000,106 shares in 1996 and
3,009,102 shares in 1997 .................... 3 3
Additional paid-in capital ....................... 10,269 10,223
Foreign currency translation adjustment .......... 1 123
Accumulated deficit .............................. (4,701) (5,230)
-------- --------
Total stockholders' equity ............... 5,773 5,320
-------- --------
Total liabilities and stockholders' equity $ 14,613 $ 11,194
======== ========
</TABLE>
See accompanying notes.
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LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, NINE MONTHS ENDED MAY 31,
------------------------- ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Product sales ............. $ 4,489 $ 4,262 $ 12,485 $ 11,143
Contract research and
development ............ 1,520 980 4,648 2,662
-------- -------- -------- --------
Total revenues .... 6,009 5,242 17,133 13,805
Costs and expenses:
Cost of product sales ..... 3,092 2,879 8,567 7,480
Contract research and
development ............ 1,194 769 3,695 2,031
Internal research and
development ............ 274 726 664 2,187
Selling, general and
administrative ......... 1,122 1,079 3,400 3,162
-------- -------- -------- --------
Total costs and
expenses ........ 5,682 5,453 16,326 14,860
-------- -------- -------- --------
Income (loss) from operations 327 (211) 807 (1,055)
Interest expense, net ....... 102 74 247 227
-------- -------- -------- --------
Income (loss) before income
taxes ..................... 225 (285) 560 (1,282)
Income taxes ................ 9 3 31 10
-------- -------- -------- --------
Net income (loss) ........... $ 216 $ (288) $ 529 $ (1,292)
======== ======== ======== ========
Net income (loss) per
share ..................... $ .04 $ (.07) $ .11 $ (.30)
======== ======== ======== ========
Shares used in per share
computations .............. 4,831 4,401 4,825 4,301
======== ======== ======== ========
</TABLE>
See accompanying notes.
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LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
--------------------------
1997 1996
--------- ---------
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OPERATING ACTIVITIES
Net income (loss) from operations .......................... $ 529 $ (1,292)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 853 734
Other .................................................... (10) (18)
Changes in operating assets and liabilities .............. 75 (540)
--------- ---------
Net cash provided by (used in) operating activities 1,447 (1,116)
INVESTING ACTIVITIES
Additions to property and equipment ........................ (2,290) (415)
(Increase) decrease in intangibles and other assets ........ (233) (93)
--------- ---------
Net cash used in investing activities ............. (2,523) (508)
FINANCING ACTIVITIES
Deferred public offering costs ............................. (607) --
Proceeds from borrowings ................................... 1,841 503
Payments on borrowings ..................................... (294) (312)
Net proceeds from issuance and repurchase of stock
41 1,205
--------- ---------
Net cash provided by financing activities ......... 981 1,396
--------- ---------
Net increase (decrease) in cash and cash equivalents
(95) (228)
Cash and cash equivalents at beginning of the period ....... 298 257
--------- ---------
Cash and cash equivalents at end of the period ........... $ 203 $ 29
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest ................... $ 253 $ 290
========= =========
Capital lease obligations .................................. $ -- $ 79
========= =========
</TABLE>
See accompanying notes.
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LASER POWER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit (except for the balance sheet information
as of August 31, 1996 which was derived from audited consolidated financial
statements) and, in the opinion of management, contain all adjustments necessary
to present fairly the consolidated financial position as of May 31, 1997 and the
consolidated results of operations for the three and nine months ended May 31,
1997.
Certain information and footnote disclosures normally included in financial
statements have been omitted or condensed. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Registration Statement on Form SB-2
(No. 333-24421). The results of operations for the periods ended May 31, 1997
are not necessarily indicative of the results that may be attained for the
entire fiscal year.
2. INITIAL PUBLIC OFFERING
In June 1997, the Company completed its initial public offering of
1,650,000 shares of common stock at a price of $5.50 per share (the "IPO"). Net
proceeds to the Company were approximately $7 million after underwriter
commissions and associated costs. Upon the closing of the IPO, all outstanding
shares of convertible preferred stock were exchanged for 1,193,252 shares of
common stock.
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common shares, convertible preferred shares and common share equivalents
outstanding during the periods presented. The convertible preferred shares are
included based on the 1,193,252 shares of common stock issued upon exchange of
the convertible preferred shares at the completion of the IPO in June 1997.
Common share equivalents result from subordinated convertible debentures, stock
options and warrants. Excluded from the computation because their effect would
be antidilutive are convertible subordinated debentures for all periods and
common share equivalents for loss periods, except that the Securities and
Exchange Commission requires common share and common share equivalents issued
during the twelve month period prior to the initial filing of a public offering
to be included in the computation as if they were outstanding for all periods
presented (using the treasury stock method and the $5.50 per share initial
public offering price).
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4. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, 1997 AUGUST 31, 1996
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Raw materials ...... $ 1,113 $ 910
Work in progress ... 1,629 1,148
Finished goods ..... 658 672
--------------- ---------------
$ 3,400 $ 2,730
=============== ===============
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
REVENUES
For the three and nine months ended May 31, 1997, product sales were
$4,489,000 and $12,485,000 compared to $4,262,000 and $11,143,000 for the same
periods in fiscal 1996, an increase of $227,000 or 5% for the three months and
$1,342,000 or 12% for the nine months ended May 31, 1997. Contract research and
development revenues were $1,520,000 and $4,648,000 for the three and nine
months ended May 31, 1997 compared to $980,000 and $2,662,000 for the same
periods in fiscal 1996, an increase of $540,000 or 55% for the three months and
$1,986,000 or 75% for the nine months ended May 31, 1997. The increase in
product sales for both the three and nine month periods was due primarily to
increased demand for laser optics for new lasers and as replacement parts in
installed lasers. In addition, product sales for the three month period ended
May 31, 1997 reflect revenues from initial shipments of microlasers, which were
partially offset by a lower volume of non-recurring custom orders of laser
optics. The increase in contract research and development revenues for both the
three and nine month periods was primarily due to work performed on a commercial
microlaser display development contract that began in July 1996.
The Company's ability to maintain or improve on the increased product sales
for the remainder of fiscal 1997 will depend on maintaining increased orders for
products, integrating into operations additional manufacturing equipment
purchased and facilities leased during the first nine months of fiscal 1997,
hiring and training new employees for its expanded facility in Mexico and
increasing shipments of microlasers for medical and other applications. The
growth in contract research and development revenues is expected to slow for the
full year because the commercial microlaser display development contract is
scheduled to be completed prior to year end, and the Company does not expect to
commence work on a proposed follow-on contract until fiscal 1998.
GROSS PROFIT
Gross profit on product sales was $1,397,000 and $3,918,000 for the three
and nine months ended May 31, 1997 compared to $1,383,000 and $3,663,000 for the
same periods in fiscal 1996, an increase of $14,000 or 1% for the three months
and $255,000 or 7% for the nine months ended May 31, 1997. Gross profit on
research and development revenues was $326,000 and $953,000 for the three and
nine months ended May 31, 1997 compared to $211,000 and $631,000 for the same
periods in fiscal 1996, an increase of $115,000 or 55% for the three months and
$322,000 or 51% for the nine months ended May 31, 1997. Gross margin on product
sales was 31% for the three and nine months ended May 31, 1997 compared to 32%
and 33% for the three and nine months ended May 31,
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1996. The decrease in gross margin was due to the manufacturing start-up costs
of the Company's new microlaser products. Gross margin on contract research and
development revenues was 21% for the three and nine months ended May 31, 1997
compared to 22% and 24% for the three and nine months ended May 31, 1996. The
decrease in gross margin was due to the lower negotiated gross margin on the
commercial microlaser display development contract.
INTERNAL RESEARCH AND DEVELOPMENT EXPENSE
Internal research and development expenses were $274,000 and $664,000, or
5% and 4% of sales, respectively, for the three and nine months ended May 31,
1997 compared to $726,000 and $2,187,000, or 14% and 16% of sales, respectively,
for the same periods in fiscal 1996, a decrease of $452,000 or 62% for the three
months and $1,523,000 or 70% for the nine months ended May 31, 1997. The
decrease was due to the transition of funding for certain microlaser development
efforts from internal sources to contract sources. The Company expects to
increase funding for internal research and development of both microlaser and
laser optics products in future periods. The extent of increased internal
funding will depend in part on the Company's ability to maintain adequate levels
of contract research and development funding.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses were $1,122,000 and
$3,400,000, or 19% and 20% of sales, respectively, for the three and nine months
ended May 31, 1997 compared to $1,079,000 and $3,162,000, or 21% and 23% of
sales, respectively, for the same periods in fiscal 1996, an increase of $43,000
or 4% for the three months and $238,000 or 8% for the nine months ended May 31,
1997. These expenses have decreased as a percentage of revenues as absolute
spending has increased at a slower rate than the growth in revenues. Selling,
general and administrative expenses are not expected to decrease further as a
percentage of revenues in the near-term due to planned increases in selling
expenses for microlaser products and to the additional expenses attributed to
the Company becoming publicly-held in June 1997.
INTEREST EXPENSE
Net interest expense was $102,000 and $247,000, or 2% and 1% of sales,
respectively, for the three and nine months ended May 31, 1997 compared to
$74,000 and $227,000, or 1% and 2% of sales, respectively, for the same periods
in fiscal 1996, an increase of $28,000 or 38% for the three months and $20,000
or 9% for the nine months ended May 31, 1997. The increase for the three and
nine month periods was due primarily to increased capital investment and to a
lesser extent higher average interest rates on debt based on the prime rate. In
the near-term, interest expense is expected to be lower due to repayment of
certain debt and investment of remaining proceeds from the IPO in June 1997.
INCOME TAXES
Income taxes were $9,000 and $31,000 for the three and nine months ended
May 31, 1997 compared to $3,000 and $10,000 for the same periods in fiscal 1996,
an increase of $6,000 or 200% for the three months and $21,000 or 210% for the
nine months ended May 31, 1997. The increase was due to increased taxable
income. The Company's effective tax rate was reduced substantially by the
utilization of federal and state tax net operating loss
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carryforwards. The future availability of carryforwards may be limited by the
application of rules relating to a change in control as a result of the
completion of the IPO in June 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed the IPO in June 1997, raising approximately $7
million, net of offering costs. Prior to the IPO, the Company satisfied its
liquidity requirements primarily from cash generated from operating activities
and the net proceeds of private sales of preferred and common stock and, to a
lesser extent, from issuance of subordinated debentures and capital equipment
leasing and bank debt.
Cash provided by operating activities was $1,447,000 for the nine months
ended May 31, 1997 compared to cash used in operating activities of $1,116,000
for same period in fiscal 1996, an increase of $2,563,000. The primary reason
for the increase was the transition of certain microlaser research and
development activities from internal funding to contract funding which resulted
in increased operating income.
Cash used in investing activities was $2,523,000 for the nine months ended
May 31, 1997 compared to $508,000 for the same period in fiscal 1996, an
increase of $2,015,000. The increase is primarily due to additions to plant and
equipment to increase capacity and automation for manufacture of optics products
and to enable manufacturing of microlaser products.
Cash provided by financing activities was $981,000 for the nine months
ended May 31, 1997 compared to $1,396,000 for the same period in fiscal 1996, a
decrease of $415,000. The decrease was due to reduced financing requirements as
a result of improved cash flow provided by operating activities. For the fiscal
1997 period, the primary source of financing was bank loans. For the fiscal 1996
period, the primary source of financing was the private sale of preferred stock.
On August 1, 1997, a $1,320,000 capital equipment line of credit will convert to
a five-year term loan. The Company has advances of $682,000 on its bank line of
credit at May 31, 1997, which was paid off from the IPO proceeds. As of June 30,
1997, the Company has no advances on the $2,000,000 bank line of credit.
The Company believes that the net proceeds from the IPO completed in June
1997 together with other sources of liquidity and anticipated cash provided by
operations will satisfy its cash requirements for at least the next twelve
months.
RISK FACTORS
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
As a result of substantial investments in research and development, the
Company incurred operating losses in each of the last three fiscal years and, at
May 31, 1997, had an accumulated deficit of $4.7 million. The development,
sales, marketing and support of new products will require continued substantial
expenditures for the foreseeable future, which could
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result in additional operating losses. The Company has funded a substantial
portion of its product development efforts through development contracts. Any
failure by the Company to maintain its external funding sources could result in
increased operating losses. There can be no assurance that the Company will
maintain its external funding sources or be profitable in the future or that
present capital and any funds provided by operations will be sufficient to fund
the Company's future capital requirements.
DEVELOPMENT RISKS RELATING TO MICROLASER TECHNOLOGIES
The Company has devoted substantial resources to developing its microlasers
and future microlaser based products. To date, sales of the Company's
microlasers have been limited to customer evaluation sales. Other microlasers
and microlaser based products are still in the early stages of development.
There can be no assurance that the Company will successfully develop any
microlaser or microlaser based products. There also can be no assurance that the
Company's microlasers will be successfully designed into customers' products or
that the Company's products under development will achieve commercial sales
volumes. The Company believes that it will be necessary to continue to reduce
the cost of manufacturing and to broaden the variety of wavelengths provided by
its microlasers to achieve commercial acceptance. If the Company is unable to
successfully gain market acceptance of its microlasers and microlaser based
products, its business, operating results and financial condition will be
materially and adversely affected.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES
To meet its strategic objectives, the Company must continue to develop,
manufacture and market new products, develop new processes and improve its
existing processes. As a result, the Company expects to continue to make
significant investments in research and development and to consider from time to
time the strategic acquisition of businesses, products, or technologies
complementary to the Company's business. The success of the Company in
developing, introducing and selling new and enhanced products depends upon a
variety of factors, including product selection, timely and efficient completion
of product design and development, timely and efficient implementation of
manufacturing and assembly processes, effective sales and marketing and product
performance in the field. There can be no assurance that the Company will be
able to develop and introduce new products or enhancements to its existing
products and processes in a manner that satisfies customer needs or achieves
market acceptance. The failure to do so would have a material adverse effect on
the Company's business, financial condition and results of operations.
LIMITED MICROLASER MANUFACTURING EXPERIENCE; SCALE-UP RISK
The Company has no experience in producing microlasers other than in small
developmental quantities. The Company's microlasers are assembled from component
parts at the Company's San Diego facility. The Company purchases component parts
for its microlasers, including laser crystals, nonlinear crystals and diode
lasers, from various sources around the world. However, none of the Company's
suppliers of microlaser component parts has
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experience in supplying components with the Company's specifications at
increased volumes. The Company does not have long term or volume purchase
agreements with any of its suppliers and currently purchases components on a
purchase order basis. There can be no assurance that these suppliers will be
able to provide components to the Company in the quantities, with the quality or
at the prices necessary for production quantities of the Company's products
under development. The Company must increase its manufacturing capacity to
polish and coat crystals and to perform the required complex assembly steps.
Such an increase in its manufacturing capacity will require significant scale-up
expenditures and additions to the Company's facilities. In the event the Company
is unable to locate sufficient sources of microlaser component parts, or is
unable to expand its manufacturing capacity to produce microlasers and
microlaser based products, the Company will not be able to manufacture its
products on commercially reasonable terms, if at all, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
LIMITED MICROLASER SALES, MARKETING AND DISTRIBUTION EXPERIENCE
The Company has only limited experience marketing and selling its
microlasers, and does not have experience marketing and selling such products in
commercial quantities. The Company intends to sell its microlasers and
microlaser based products through a direct sales force in North America and a
direct sales force and distributors in Europe. In Asia, the Company intends to
sell its microlasers and microlaser based products primarily through agreements
with distributors or representatives, although the Company has not entered into
any such agreements or arrangements to date. To the extent that the Company
enters into distribution or representation arrangements for the sale of its
microlasers and microlaser based products, the Company will be dependent upon
the efforts of third parties. There can be no assurance that the Company will be
able to build a direct sales force or marketing organization for microlasers or
microlaser based products, that establishing such a direct sales force or
marketing organization will be cost effective, or that the Company's sales and
marketing efforts will be successful. There can be no assurance that the Company
will be able to enter into agreements with distributors or representation
arrangements on a timely basis, if at all, or that such distributors or
representatives will devote adequate resources to selling the Company's
microlasers and microlaser based products. Failure to build an effective sales
and marketing organization or to establish effective distribution or
representation arrangements for the Company's microlaser products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
FUTURE CAPITAL REQUIREMENTS
Although the Company believes that its existing cash balances, cash flow
from operations and available lines of credit will be sufficient to meet its
capital requirements for at least the next 12 months, the Company may seek
additional equity or debt financing to compete effectively in the markets it
serves. The timing and amount of the Company's capital requirements cannot be
precisely determined at this time and will depend on a number of factors,
including the demand for the Company's products and products under development.
There can be no assurance that such additional financing will be available when
needed, or, if
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available, will be on terms satisfactory to the Company. If additional funds are
raised by issuing equity securities, further dilution to the then existing
stockholders will result.
FLUCTUATION IN QUARTERLY PERFORMANCE
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. The Company may incur
significant losses in the future due to product design, development,
manufacturing and marketing expenditures, especially in connection with its
microlasers and microlaser based products. If significant variations were to
occur between forecasts and actual orders with respect to its laser optics
business or microlasers and microlaser based products, the Company may not be
able to reduce its expenses proportionately and in a timely manner, and
operating results could be adversely affected. Such variations have occurred in
the past and could occur again in the future as a result of increases in
development expenditures for proposed new products, product introductions by
competitors, changes in customer ordering patterns and other factors. In
addition, the Company's ability to fill orders in a timely and responsive manner
is dependent upon maintaining adequate manufacturing capacity and significant
inventories of raw material and finished optics for replacement orders. The
Company has experienced capacity constraints in the past which have resulted in
delays in order fulfillment and reduced gross margins. Future delays in order
fulfillment could lead to declines in product sales. If product sales or prices
were to decline substantially, inventory writedowns could occur. Price
reductions or increases in material costs could also have an adverse effect on
the Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for approximately 46% of the Company's total
revenues in each of the quarters ended May 31, 1996 and May 31, 1997, and the
Company expects that international sales will continue to account for a
substantial portion of total revenues. Sales to Europe and the Asia Pacific
region accounted for 28% and 28% and 13% and 13%, respectively, of the Company's
total international sales for the quarters ended May 31, 1996 and 1997,
respectively. The Company may continue to expand its operations outside of the
United States and to enter additional international markets, both of which will
require significant management attention and financial resources. International
sales are subject to inherent risks, including unexpected changes in regulatory
requirements, tariffs and other trade barriers, political and economic
instability in foreign markets, difficulties in staffing and management and
integration of foreign operations, longer payment cycles, greater difficulty in
accounts receivable collection, currency fluctuations and potentially adverse
tax consequences. Since substantially all of the Company's foreign sales are
denominated in U.S. dollars, the Company's products may also become less price
competitive in countries in which local currencies decline in value relative to
the U.S. dollar. The Company's business and operating results may also be
materially and adversely affected by lower sales levels which typically occur
during the summer months and the calendar year end in Europe and certain other
overseas markets. The sales of many of the Company's OEM customers are dependent
on international sales, which increases the Company's exposure to the risks
associated with international sales.
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ENVIRONMENTAL, HEALTH AND SAFETY CONCERNS
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use and disposal of hazardous
materials used by the Company in connection with the manufacture of laser
optics. Both the governmental regulations and the costs associated with
complying with such regulations are subject to change in the future. There can
be no assurance that any such change will not have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company makes investments in protective equipment, and continually reviews and
monitors process controls, manufacturing procedures and training to minimize the
risks to employees, surrounding communities and the environment due to the
presence and handling of such hazardous materials. The failure to properly
handle such materials could lead to harmful exposure to employees or to the
improper discharge of hazardous materials. Since the Company does not carry
environmental impairment insurance, such a failure could result in a material
adverse effect on the Company's business, financial condition and results of
operations.
VOLATILITY OF STOCK PRICE
Until recently, there has been no public market for the Common Stock, and
there can be no assurance that an active public market for the Common Stock will
develop or be sustained. The trading price of the Common Stock could be subject
to significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant orders, changes in earning estimates by
analysts, announcements of technological innovations or new products by the
Company or its competitors, general conditions in the laser optics and laser
industries and other events or factors. In addition, the stock market in general
has experienced extreme price and volume fluctuations that have affected the
market price for many companies in industries similar or related to that of the
Company and that have been unrelated to the operating performance of those
companies. These market fluctuations may materially and adversely affect the
market price of the Common Stock.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company (the "Annual Meeting")
was held on April 18, 1997 in San Diego, California. All information with
respect to the numbers of shares voted is based on the number of shares entitled
to vote prior to the 1-for-1.5 reverse stock split of the Company's Common stock
effected April 25, 1997.
PROPOSAL I - ELECTION OF DIRECTORS
Each of the candidates listed below was duly elected to the Board of
Directors at the Annual Meeting by the tally indicated.
<TABLE>
<CAPTION>
CANDIDATE VOTES IN FAVOR VOTES WITHHELD
- --------------------------- ------------------------------- --------------
<S> <C> <C>
Glenn H. Sherman, Ph.D 4,134,520 99,237
Douglas H. Tanimoto, Ph.D 4,134,520 99,237
William G. Fredrick 4,222,884 10,873
Alain Godefreid* 4,222,884 10,873
Robert G. Klimasewski 4,134,520 99,153
Richard C. Laird 4,222,884 10,873
Siegfried Meder* 4,222,884 10,873
Kenneth E. Olson 4,222,884 10,873
John C. Stiska 4,222,884 10,873
Marc Van Sande* 4,222,884 10,873
</TABLE>
- ---------
* Director voluntarily resigned in June 1997 following the IPO without
disagreement with the Company.
15
<PAGE> 16
PROPOSAL II - AMENDMENT OF CERTIFICATE OF INCORPORATION TO EFFECT A 1 FOR 1.5
REVERSE STOCK SPLIT
VOTES IN FAVOR VOTES AGAINST VOTES ABSTAINED
-------------- ------------- ---------------
5,670,309 38,681 107,714
PROPOSAL III - APPROVAL OF THE 1997 EQUITY INCENTIVE PLAN
VOTES IN FAVOR VOTES AGAINST VOTES ABSTAINED
-------------- ------------- ---------------
5,670,309 101,404 8,413
PROPOSAL IV - APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
VOTES IN FAVOR VOTES AGAINST VOTES ABSTAINED
-------------- ------------- ---------------
5,804,231 10,333 2,140
PROPOSAL V - APPROVAL AND AUTHORIZATION OF INDEMNITY AGREEMENTS
VOTES IN FAVOR VOTES AGAINST VOTES ABSTAINED
-------------- ------------- ---------------
5,628,014 102,697 85,993
PROPOSAL VI - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
VOTES IN FAVOR VOTES AGAINST VOTES ABSTAINED
-------------- ------------- ---------------
5,806,271 10,333 100
On June 12, 1997, an action by written consent was approved by the stockholders
of the Company amending and restating the Certificate of Incorporation and
Bylaws to effect certain stockholder protection measures; consent was obtained
from 4,096,665 shares or 66.9% of the outstanding shares of the Company's
capital stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended May 31,
1997.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER POWER CORPORATION
-----------------------------------
(Registrant)
Date: July 12, 1997 /s/ Paul P. Wickman, Jr.
------------------ -----------------------------------
Paul P. Wickman, Jr.
Senior Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
AUGUST 31, 1996 AND AS OF AND FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 203
<SECURITIES> 0
<RECEIVABLES> 3,742
<ALLOWANCES> (150)
<INVENTORY> 3,400
<CURRENT-ASSETS> 7,448
<PP&E> 12,339
<DEPRECIATION> (6,725)
<TOTAL-ASSETS> 14,613
<CURRENT-LIABILITIES> 5,885
<BONDS> 1,660
<COMMON> 0
201
3
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 14,613
<SALES> 12,485
<TOTAL-REVENUES> 17,133
<CGS> 8,567
<TOTAL-COSTS> 12,262
<OTHER-EXPENSES> 4,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247
<INCOME-PRETAX> 560
<INCOME-TAX> 31
<INCOME-CONTINUING> 529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 529
<EPS-PRIMARY> .11<F1>
<EPS-DILUTED> .11<F1>
<FN>
<F1>SEE NOTE 4 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
