<PAGE> 1
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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 DECEMBER 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. [X] Yes [ ] No
As of December 31, 1997, there were 6,101,854 shares of the Registrant's Common
Stock outstanding.
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1.
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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 Annual Report on Form 10-K and
Registration Statement on Form S-4 (No. 333-43415)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
December 31, 1997 (unaudited) and August 31, 1997........................................... 3
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended
December 31, 1997 and November 30, 1996..................................................... 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the three months ended
December 31, 1997 and November 30, 1996..................................................... 5
Notes to Condensed Consolidated Financial
Statements (unaudited)...................................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.......................................................... 7
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds...................................................... 12
ITEM 6. Exhibits and Reports on Form 8-K............................................................... 12
</TABLE>
2.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LASER POWER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, 1997 August 31, 1997
----------------- ---------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 2,960 $ 6,304
Accounts receivable, net ......................... 4,255 4,281
Inventories, net ................................. 4,533 3,612
Other current assets ............................. 297 334
------------ ------------
Total current assets ..................... 12,045 14,531
Property and equipment, net ........................ 6,519 5,720
Intangibles and other assets, net ................. 1,245 935
------------ ------------
Total assets ............................. $ 19,809 $ 21,186
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 2,305 $ 1,933
Accrued liabilities .............................. 1,258 1,747
Current portion of long-term debt ................ 349 375
------------ ------------
Total current liabilities ................ 3,912 4,055
Long-term debt and deferred rent ................... 1,283 1,406
Subordinated convertible debentures ................ 1,660 1,660
Stockholders' equity:
Convertible preferred stock, $.001 par value:
Authorized -- 3,000,000 shares
Issued and outstanding - None ............... -- --
Common stock, $.001 par value:
Authorized -- 15,000,000 shares
Issued and outstanding
6,099,854 shares at August 31, 1977 and
6,101,854 shares at December 31, 1977...... 6 6
Additional paid-in capital ....................... 18,577 18,586
Foreign currency translation adjustment .......... (41) (51)
Accumulated deficit .............................. (5,588) (4,476)
------------ ------------
Total stockholders' equity ............... 12,954 14,065
------------ ------------
Total liabilities and stockholders' equity $ 19,809 $ 21,186
============ ============
</TABLE>
See accompanying notes.
3.
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LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
December 31, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
Revenues:
Product sales ................................ $ 4,334 $ 4,060
Contract research and development ............ 1,399 1,562
------------ ------------
Total revenues ....................... 5,733 5,622
Costs and expenses:
Cost of product sales ........................ 3,335 2,730
Contract research and development ............ 1,105 1,315
Internal research and development ............ 628 200
Selling, general and administrative .......... 1,438 1,169
------------ ------------
Total costs and expenses ............. 6,506 5,414
------------ ------------
Income (loss) from operations .................. (773) 208
Interest expense, net .......................... 28 67
------------ ------------
Income (loss) before income taxes .............. (801) 141
Income taxes ................................... 8 12
------------ ------------
Net income (loss) .............................. $ (809) $ 129
============ ============
Basic Earnings (loss) per share ................ $ (0.13) $ 0.03
============ ============
Diluted Earnings (loss) per share .............. $ (0.13) $ 0.03
============ ============
Average Common Shares Outstanding - Basic ...... 6,101 4,193
============ ============
Average Common Shares Outstanding - Diluted .... 6,101 4,644
============ ============
</TABLE>
See accompanying notes.
4.
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LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
December 31, 1997 November 30, 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) from operations .......................... $ (809) $ 129
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 340 245
Other .................................................... (138) (95)
Changes in operating assets and liabilities .............. (1,221) (42)
------------ ------------
Net cash provided by (used in) operating activities (1,828) 321
INVESTING ACTIVITIES
Additions to property and equipment ........................ (1,028) (340)
Increase in intangibles and other assets ................... (345) (133)
------------ ------------
Net cash used in investing activities ............. (1,373) (473)
FINANCING ACTIVITIES
Net proceeds from initial public offering .................. (5) --
Payments on borrowings ..................................... (94) (69)
Net proceeds from issuance and repurchase of stock ......... 9 --
------------ ------------
Net cash used in financing activities ............. (90) (69)
------------ ------------
Net decrease in cash and cash equivalents .................. (3,291) (221)
Cash and cash equivalents at beginning of the period ....... 6,251 298
------------ ------------
Cash and cash equivalents at end of the period ............. $ 2,960 $ 77
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................... $ 122 $ 109
============ ============
</TABLE>
See accompanying notes.
5.
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LASER POWER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X, and, in the opinion of management,
contain all adjustments necessary to present fairly the consolidated financial
position as of December 31, 1997 and the consolidated results of operations for
the three months ended December 31, 1997 and November 30, 1996.
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 Annual Report on Form 10-K for the
year ended August 31, 1997. The results of operations for the periods ended
December 31, 1997 are not necessarily indicative of the results that may be
attained for the entire fiscal year.
2. EARNINGS (LOSS) PER SHARE
The income (loss) per share information was computed applying the
requirements of recently effective Statement of Financial Accounting Standards
No. 128 and SEC staff accounting bulletin No. 98. Basic earnings per share
considers the weighted average number of common shares outstanding and the
assumed conversion of outstanding preferred stock to common stock. Diluted
earnings per share considers the shares included as Basic shares outstanding
and the dilutive effects of stock options and warrants to purchase common stock.
3. RECENT EVENTS
On October 29, 1997, the Company announced its intent to acquire EMI
Acquisition Corp. The Company plans to issue shares of its common stock based on
a formula described in its Registration Statement in Form S-4 (No. 333-43415)
and will account for the merger as a pooling-of-interests. Among other things,
consummation of the transaction is contingent upon approval of the Company's
stockholders. On December 23, 1997, the parties executed an Agreement and Plan
of Reorganization that was subsequently amended on February 9, 1998. Included in
other assets at December 31, 1997 is approximately $200,000 of deferred costs
related to the proposed merger.
On December 6, 1997, the Company's Board of Directors approved the change of
the Company's fiscal year end from August 31 to September 30, 1997. For the
month of September, the Company recorded a net loss of $302,000 on revenues of
$1,750,000. Total assets of the Company were $21,000,000 at September 30,
1997.
4. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1997 August 31, 1997
----------------- ---------------
<S> <C> <C>
(unaudited)
Raw materials ..... $ 2,127 $ 1,338
Work in progress 1,716 1,595
Finished goods .... 690 679
---------- ----------
$ 4,533 $ 3,612
========== ==========
</TABLE>
6.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Revenues
For the three months ended December 31, 1997, product sales were $4,334,000
compared to $4,060,000 for the three months ended November 30, 1996, an increase
of $274,000 or 7%. Contract research and development revenues were $1,399,000
compared to $1,562,000, a decrease of $163,000 or 10%. The increase in product
sales was due primarily to sales of microlaser products, for which there were no
sales in the prior year. The decrease in contract research and development
revenues was primarily due to a lower level of funding for development of
commercial microlaser display technology.
A number of factors will determine whether the Company will be able to
sustain or increase the current level of product sales, including price
competition in laser optics markets, uncertainties in foreign markets and
currency exchange rates, the ability to successfully complete introduction of
automation and new manufacturing flow processes for laser optics manufacturing,
and the ability to successfully increase manufacture and sale of microlaser
products. For the remainder of fiscal 1998, contract research and development
revenues are expected to be lower than the prior year because of the lower level
of funding for commercial microlaser display development
Gross Profit
For the three months ended December 31, 1997 compared to the three months
ended November 30, 1996, gross profit on product sales was $999,000 compared to
$1,330,000, a decrease of $331,000 or 25%. Gross profit on research and
development revenues was $294,000 compared to $247,000, an increase of $47,000
or 19%. Gross margin on product sales was 23% compared to 33% in the prior year.
The decrease in gross margin was due primarily to inefficiencies in laser optics
manufacturing resulting from introduction of automation and new products and
processes, and to expansion of manufacturing facilities. To a lesser extent,
gross margins were negatively affected by price competition and changes in
product mix in laser optics sales and to manufacturing start-up costs of the
Company's new microlaser products. Gross margin on contract research and
development revenues was 21% compared to 16% in the prior year. The increase in
gross margin was due to the higher negotiated gross margin on commercial
microlaser display development.
The ability of the Company to increase gross margin on product sales is
dependent on successful implementation of new laser optics manufacturing
processes, achieving manufacturing efficiencies sufficient to offset the effect
of future price competition in laser optics markets, and achieving sufficient
growth in microlaser product sales to permit more efficient manufacturing.
Internal Research and Development Expense
Internal research and development expenses were $628,000 for the three
months ended December 31, 1997 compared to $200,000 for the three months ended
November 30, 1996, an increase of $428,000 or 214%. The increase was due to
increased microlaser research and development activities for both existing and
new products, and to development of microlaser manufacturing processes. The
Company expects that internal research and development expense will remain at
current levels for the remainder of fiscal 1998.
Selling, General and Administrative Expense
Selling, general and administrative expenses were $1,438,000 for the three
months ended December 31, 1997 compared to $1,169,000 for the three months ended
November 30, 1996, an increase of $269,000 or 23%. The increase is due to the
additional expense related to the Company becoming publicly held in June 1997
and to increased sales and marketing expense for microlaser products. Selling,
general and administrative expenses are not expected to increase significantly
as a percentage of sales in future periods.
7.
<PAGE> 8
Interest Expense
Net interest expense was $28,000 for the three months ended December 31,
1997 compared to $67,000 for the three months ended November 30, 1996, a
decrease of $39,000 or 58%. The decrease was due primarily to retirement of debt
and investment of cash from proceeds of the IPO. In the near term, interest
expense is expected to increase as the Company continues to invest cash in
working capital and capital equipment, supplemented by additional secured
borrowings.
Income Taxes
Income taxes were $8,000 for the three months ended December 31, 1997
compared to $12,000 for the three months ended November 30, 1996, a decrease of
$4,000 or 33%. The decrease was due to the operating loss incurred in fiscal
1998. In the past, the Company's effective tax rate has been reduced
substantially by the utilization of federal and state tax net operating loss
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 and the proposed acquisition of EMI
Acquisition Corp.
Liquidity and Capital Resources
The Company completed the IPO in June 1997, raising approximately
$8,000,000, 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 used in operating activities was $1,828,000 for the three months ended
December 31, 1997 compared to cash provided by operating activities of $321,000
for the three months ended November 30, 1996, a reduction in cash of $2,149,000.
The primary reasons for the change were the operating losses sustained for the
month of September 1997 and the three months ended December 31, 1997, and an
increase in inventory for additional quantities of raw materials for laser
optics and for planned increases in microlaser product sales.
Cash used in investing activities was $1,373,000 for the three months ended
December 31, 1997 compared to $473,000 for the three months ended November 30,
1996, an increase of $900,000. 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 used in financing activities was $90,000 for the three months ended
December 31, 1997 compared to $69,000 for the three months ended November 30,
1996, an increase of $21,000. The increase was due to higher debt payments
resulting from conversion of a capital equipment line of credit to a term loan
in August 1997. As of January 31, 1998, the Company has no advances on its
$2,000,000 bank working capital line of credit.
The Company believes that its current cash balance 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
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.
History of Operating Losses and Accumulated Deficit
The Company has made substantial investments in research and development and
incurred significant start-up costs related to manufacture and sale of
microlaser products. As a result, the Company has incurred operating losses in
three of the last four fiscal years and in the three months ended December 31,
1997, and, at December 31, 1997, had an accumulated deficit of $5.6 million. The
development, sales, marketing and support of new products will require continued
substantial expenditures for the foreseeable future, which could 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
8.
<PAGE> 9
present capital and any funds provided by operations will be sufficient to fund
the Company's future capital requirements.
Pending Acquisition
On December 23, 1997 the Company entered into an Agreement and Plan of
Reorganization to acquire EMI Acquisition Corp. ("EMI") which was subsequently
amended February 9, 1998. While the parties intend to close the transaction on
or before February 27, 1998, the transaction is still subject to a variety of
conditions, including the approval of the stockholders of both the Company and
EMI. There can be no assurance that the transaction will be consummated, or if
consummated, that the combined company will be profitable in the future.
Competition
The industries in which the Company sells its products, and will sell its
products under development, are highly competitive. In each of the markets it
serves, the Company faces intense competition from established competitors, many
of which have substantially greater financial, engineering, research and
development, manufacturing, sales, marketing, service and support resources,
including greater name recognition, a larger installed base of products and
longer standing customer relationships. There can be no assurance that the
Company will be able to compete successfully in the laser optics, laser and
laser systems industries in the future, that the Company will be able to make
the technological advances necessary to maintain its competitive position or
that its new products will receive market acceptance. In addition, there can be
no assurance that technological changes or development efforts by the Company's
competitors will not render the Company's products or technologies obsolete or
uncompetitive.
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 low level production quantities. Other
microlasers and microlaser based products are still in the early stages of
development. There can be no assurance that the Company's microlasers will be
successfully designed into customers' products or that such microlasers will
achieve widespread market acceptance. There can also be no assurance that the
Company will successfully develop additional microlaser or microlaser based
products or that any 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 low
level production 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 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 and products under development.
The Company is increasing 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
9.
<PAGE> 10
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 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.
Risks Associated With International Sales
International sales accounted for approximately 48% and 50% of the Company's
total revenues in the three months ended December 31, 1997 and November 30,
1996, respectively, and the Company expects that international sales will
continue to account for a substantial portion of total revenues. The Company may
continue
10.
<PAGE> 11
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. While the Company has not been materially affected by the
recent turmoil in Asian markets to date, there can be no assurance that such
turmoil will not in the future negatively affect the Company's business and
operating results.
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 June 1997, there had been no public market for the Company's common
stock, and there can be assurance that an active public market for the Company's
common stock will develop or be sustained. The trading price of the Company's
common stock has been in the past, and will continue to 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
combined company or its competitors, general conditions in the combined
company's 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 Company's common stock. Following the IPO, Nasdaq
informed the Company that it had revised its initial listing criteria for
inclusion on the Nasdaq National Market and that such revised criteria were to
be applied retroactively. In accordance with procedures established by Nasdaq,
the Company appeared at a hearing before a Nasdaq Listing Qualifications Panel
(the "Panel") on January 15, 1998. On January 27, 1998, the Panel issued its
decision that the Company be granted continued listing on the Nasdaq National
Market. The Panel's decision may be reviewed by the Nasdaq Listing and Hearing
Review Committee (the "Review Committee") within 45 days following the Panel's
decision.
11.
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
(c) On September 7, 1997, the Company issued Warrants to purchase 20,000
shares of Common Stock (the "Warrants") which are immediately
exercisable at an exercise price of $7.33 per share to L.H. Friend,
Weiness, Frankson and Presson, Inc. (11,000 shares), Robert W.
Campbell (4,500 shares) and Andre D. Guardi (4,500 shares) for
consulting services provided to the Company. The issuance of the
Warrants was deemed to be exempt from registration under the
Securities Act of 1933, as amended by virtue of Section 4(2) and/or
Regulation D promulgated thereunder. The recipients represented
their intention to acquire the securities for investment purposes
only and not with a view to the distribution thereof. Appropriate
legends are affixed to the Warrants. Similar legends are due to be
affixed to the Common Stock issuable upon exercise of the Warrants.
All recipients either received adequate information about the
Company or had access, through other relationships, to such
information.
(d) On June 18, 1997, the Company's Form SB-2 registration statement
(File no. 333-24421) was declared effective by the Securities and
Exchange Commission. The registration statement, as amended, covered
the offering of 1,650,000 shares of the Company's common stock,
$.001 par value. The offering commenced on June 19, 1997 and the
sale to the public of 1,650,000 shares of Common Stock at $5.50 per
share was completed on June 24, 1997 for an aggregate price of
$9,075,000. The registration statement covered an additional 247,500
shares of common stock that the underwriters had the option to
purchase solely to cover over-allotments. The managing underwriters
for the offering were Cruttenden Roth Incorporated and L.H. Friend,
Weinress, Frankson & Presson, Inc. On August 6, 1997, the
underwriters exercised their option to purchase all 247,500
additional shares of common stock. A total of 1,897,500 shares of
common stock were sold in the offering at an aggregate price of
$10,436,250. All of the shares sold in the offering were sold by the
Company.
Expenses incurred by the Company through December 31, 1997 in
connection with the issuance and distribution of Common Stock in the
offering included underwriting discounts, commissions and allowances
of $965,353 and other expenses of $1,365,566 Total offering
expenses of $2,330,919 resulted in net offering proceeds to the
Company of $8,105,331. No expenses were paid to directors, officers
or affiliates of the Company or 10% owners of any class of equity
securities of the Company.
Of the net offering proceeds to the Company of $8,105,331, through
December 31, 1997, approximately $700,000 had been used for
repayment of certain term loans and amounts outstanding under its
line of credit with Wells Fargo Bank N.A., approximately $200,000
had been used for the mandatory repayment of certain term loans owed
to Proxima, approximately $900,000 had been used for general
corporate purposes, approximately $1,000,000 had been used for the
purchase of certain machinery and equipment, approximately $200,000
had been used for facilities expansion and improvements and
approximately $400,000 had been used for enhancement of internal
research and development capabilities. No payments were made to
directors, officers or affiliates of the Company or 10% owners of
any class of equity securities of the Company, other than
compensation payments to officers of the Company. Approximately
$4,600,000 of the net offering proceeds remain as working capital,
primarily in the form of cash equivalents with approximately
$2,900,000 held as temporary investments.
ITEM 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization dated December 23, 1997,
amended February 9, 1998, among the Company, LPC Acquisition
Subsidiary, Inc., EMI Acquisition Corp., and certain
shareholders of EMI (1)
12.
<PAGE> 13
11.1 Statement re Computation of Per Share earnings
27.1 Financial Data Schedule
(1) Filed as an exhibit to the Company's Registration Statement on
Form S-4 (No. 333-43415) or amendments thereto and incorporated
herein by reference.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K December 11, 1997 to report a change in
the Company's fiscal year end from August 31 to September 30.
13.
<PAGE> 14
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
Date: February 9, 1998 /s/ Paul P. Wickman, Jr.
--------------------------------------------
Paul P. Wickman, Jr.
Senior Vice President, Chief Financial
Officer and Secretary
(Principal Financial and Accounting Officer)
14.
<PAGE> 1
EXHIBIT 11.1
LASER POWER CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Years Ended August 31, Three Months Ended
----------------------------------------------------------
1995 1996 1997 NOV-96 DEC-97
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $(2,269) $(1,231) $ 754 $ 129 $ (809)
==========================================================
Average common shares outstanding 2,994 3,000 3,600 3,000 6,101
Effect of assumed conversion of preferred
stock from date of issuance 531 1,010 951 1,193 --
----------------------------------------------------------
Shares used in Basic computations 3,525 4,011 4,551 4,193 6,101
==========================================================
Earnings (loss) per share -- Basic $ (0.64) $ (0.31) $ 0.17 $ 0.03 $(0.13)
==========================================================
Net effect of dilutive common share equivalents
based on the treasury stock method (using
average market price as the buyback price) -- -- 578 451 --
----------------------------------------------------------
Shares used in Diluted computations 3,525 4,011 5,129 4,644 6,101
==========================================================
Earnings (loss) per share -- Diluted $ (0.64) $ (0.31) $ 0.15 $ 0.03 $(0.13)
==========================================================
</TABLE>
STATEMENT RE: COMPUTATION OF PER SHARE DATA, UNDER APB 15
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Years Ended August 31,
------------------------------------
1995 1996 1997
------------------------------------
<S> <C> <C> <C>
Net income (loss) $(2,269) $(1,231) $ 754
===================================
Average common shares outstanding 2,994 3,000 3,654
Net effect of dilutive common share
equivalents based on the treasury stock
method (using the ending market price as
the buyback price) -- -- 439
Adjustments to reflect requirement of
the Securities and Exchange Commission
(Effect of SAB 83) 331 331 248
Effect of assumed conversion of
preferred stock from date of issuance 531 979 802
-----------------------------------
Shares used in per share computations 3,856 4,310 5,143
===================================
Net earnings (loss) per share $(0.58) $(0.28) $ 0.15
===================================
</TABLE>
Note: SAB 83 shares include common stock, preferred stock, and common stock
options that were issued within the twelve month period preceding the initial
filing for the Company's public offering. Under SFAS No. 128, these shares are
not shown as SAB 83 shares, but are included within average common shares
outstanding, the conversion of preferred stock, or in the dilutive share
equivalents, as appropriate.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL QUARTER
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,960
<SECURITIES> 0
<RECEIVABLES> 4,512
<ALLOWANCES> (257)
<INVENTORY> 4,533
<CURRENT-ASSETS> 297
<PP&E> 13,923
<DEPRECIATION> (7,404)
<TOTAL-ASSETS> 19,809
<CURRENT-LIABILITIES> 3,912
<BONDS> 1,660
0
0
<COMMON> 6
<OTHER-SE> 12,948
<TOTAL-LIABILITY-AND-EQUITY> 19,809
<SALES> 4,334
<TOTAL-REVENUES> 5,733
<CGS> 3,335
<TOTAL-COSTS> 4,440
<OTHER-EXPENSES> 2,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> (801)
<INCOME-TAX> 8
<INCOME-CONTINUING> (809)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (809)
<EPS-PRIMARY> (0.13)<F1>
<EPS-DILUTED> (0.13)<F1>
<FN>
<F1>SEE NOTE 2 OF NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
