<PAGE>
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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 JULY 2, 2000.
[ ] 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)
36570 BRIGGS ROAD
MURRIETA, CALIFORNIA 92563
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(909) 926-1866
(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 July 1, 2000, there were 9,701,421 shares of the Registrant's
Common Stock outstanding.
================================================================================
<PAGE>
LASER POWER CORPORATION
FORM 10-Q INDEX
This report contains forward-looking statements that involve risks and
uncertainties. The actual future results of Laser Power Corporation (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 competition, general economic conditions in the
Company's geographic markets, size and timing of individual orders, market
acceptance of new products and product enhancements, delays in the introduction
of new products or product enhancements, seasonality of revenues, and
developments with respect to the Company's products supplied to the U.S.
government, as well as those factors discussed in the Company's Annual Report on
Form 10-K
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 2, 2000
(unaudited) and September 30, 1999................................. 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months and nine months ended July 2, 2000
and June 27, 1999.................................................. 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended July 2, 2000 and June 27, 1999........... 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 1. Legal Proceedings..................................................12
ITEM 4. Submission of Matters to a Vote of Security Holders................12
ITEM 6. Exhibits and Reports on Form 8-K...................................12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
LASER POWER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
July 2, 2000 September 30,
(unaudited) 1999
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................. 312 860
Accounts receivable, net ......................... 4,742 4,488
Inventories, net ................................. 5,524 6,500
Other current assets ............................. 189 330
Net current assets of discontinued operations .... - 570
---------------------------------
Total current assets ......................... 10,767 12,748
Property and equipment, net ........................... 7,603 7,094
Intangibles and other assets, net .................... 764 419
Net non-current assets of discontinued operations ..... - 1,647
---------------------------------
Total assets .......................................... 19,134 21,908
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. 2,295 2,024
Accrued compensation and related expenses ........ 1,212 1,529
Other current liabilities ........................ 1,048 1,733
Allowance for operating losses of discontinued ops - 450
Current portion of long-term debt ................ 743 1,084
---------------------------------
Total current liabilities ................ 5,298 6,820
Long-term liabilities ................................. 269 420
Long-term debt, less current portion .................. 1,050 3,083
Subordinated convertible debentures ................... - 1,660
Stockholders' equity:
Common stock, par value $ 001: ................... 10 9
Authorized -- 15,000,000 shares
Issued and outstanding
8,579,987 shares at September 30, 1999 and
9,701,421 shares at July 2, 2000
Additional paid-in capital ....................... 22,641 19,573
Accumulated deficit .............................. (10,063) (9,639)
Accumulated other comprehensive loss ............. (71) (18)
---------------------------------
Total stockholders' equity ............... 12,517 9,925
---------------------------------
Total liabilities and stockholders' equity ............ 19,134 21,908
---------------------------------
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
July 2, 2000 June 27, 1999 July 2, 2000 June 27, 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales ............................... $ 7,071 $ 7,847 $ 22,814 $ 22,885
Contract research and development ........... 572 812 1,606 2,068
----------------------------------- ------------------------------
Total revenues .......................... 7,643 8,659 24,420 24,953
Costs and expenses:
Cost of product sales ....................... 5,254 5,770 16,976 16,791
Contract research and development ........... 497 614 1,111 1,432
Internal research and development ........... 387 139 839 373
Selling, general and administrative ......... 915 1,630 3,628 5,011
----------------------------------- ------------------------------
Total costs and expenses ................ 7,053 8,153 22,554 23,607
Income from operations ........................... 590 506 1,866 1,346
Termination Fee and Related Transaction Costs 2,221 - 2,221 -
Interest expense and other, net ............. 107 87 330 241
----------------------------------- ------------------------------
Income (loss) before income taxes ................ (1,738) 419 (685) 1,105
Income taxes ................................ (361) 0 (261) 9
----------------------------------- ------------------------------
Net income (loss) from continuing operations ..... (1,377) 419 (424) 1,096
Loss from discontinued operations ................ - (481) - (1,898)
----------------------------------- ------------------------------
Net Loss ......................................... ($1,377) ($62) ($424) ($802)
=================================== ==============================
Basic earnings (loss) per share:
Income (loss) from continuing operations .... ($0.14) $0.05 ($0.05) $0.13
Loss from discontinued operations ........... - ($0.06) - ($0.23)
----------------------------------- ------------------------------
Net Loss ................................ ($0.14) ($0 01) ($0.05) ($0.10)
Diluted earnings (loss) per share:
Income (loss) from continuing operations .... ($0.14) $0.05 ($0.04) $0.13
Loss from discontinued operations ........... $0.00 ($0.06) - ($0.23)
----------------------------------- ------------------------------
Net Loss ................................ ($0.14) ($0.01) ($0.04) ($0.10)
Average common shares outstanding -basic ......... 9,680,678 8,477,288 9,168,413 8,433,107
Average common shares outstanding -diluted ....... 9,953,615 8,477,288 9,441,350 8,433,107
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<CAPTION>
Nine Months Ended
July 2, 2000 June 27, 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net loss from continuing operations ............................... (424) (802)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization ................................ 876 1,091
Other current assets and current liabilities ................. 676 (1,374)
Changes in other assets and liabilities ...................... (749) (413)
----------------------------------
Net cash provided by (used in) operating activities
of Continuing operations ............................... 379 (1,498)
Net cash provided by (used in) operating activities
of Discontinued operations ............................. (439) 298
----------------------------------
Net cash provided by (used in) operating activities ...... (60) (1,200)
==================================
INVESTING ACTIVITIES
Additions to property and equipment ............................... (1,730) (1,832)
Changes in other assets and liabilities ........................... - -
----------------------------------
Net cash used in investing activities of continuing operations (1,730) (1,832)
Net cash provided by (used in) investing activities
of discontinued operations ................................ 2,207 (141)
----------------------------------
Net cash provided by (used in) investing activities ...... 477 (1,973)
FINANCING ACTIVITIES
Payments on borrowings ............................................ (4,033) (1,635)
Proceeds from borrowings .......................................... - 2,374
Net proceeds from issuance of stock ............................... 3,069 67
----------------------------------
Net cash provided (used in) by financing activities .......... (964) 806
Net decrease in cash and cash equivalents ......................... (548) (2,367)
Cash at beginning of the period ................................... 860 3,412
Cash at end of the period ......................................... 312 1,045
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest .......................... 362 422
</TABLE>
See accompanying notes.
5
<PAGE>
LASER POWER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Laser Power Corporation (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
Company's consolidated financial position as of July 2, 2000 and the
consolidated results of operations for the three and nine fiscal months ended
July 2, 2000 and June 27, 1999.
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 information included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission. The results of operations for the
period ended July 2, 2000 are not necessarily indicative of the results that may
be attained for the entire fiscal year.
The Company's general policy is to report 13 week quarters. The quarter
ended July 2, 2000, includes a 14 week period to adjust the end of the quarter
to conform to the calendar quarter.
The Company has determined that its continuing operations are only one
segment and has disclosed information related to its discontinued operations in
the Notes to the Condensed Consolidated Financial Statements.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using "Basic EPS" and "Diluted
EPS" as required by Statement of Financial Accounting Standards No. 128,
Earnings per Share ("SFAS 128"), which supersedes APB Opinion 15. Basic EPS
includes no dilution and is based on weighted-average common shares outstanding
for the period. Diluted EPS reflects the potential dilution of stock options,
convertible preferred stock and warrants to purchase common stock. For loss
periods, these common equivalent shares are excluded from the Diluted EPS
computation as their effect would be antidilutive.
3. FINANCING AGREEMENTS
In November 1999, the Company entered into a credit agreement with
Wells Fargo Bank. The credit agreement provides a $4,000,000 revolving line of
credit, subject to a borrowing base limitation, and a $1,950,000 term loan,
amortized over 60 months commencing October 31, 1999. The annual interest rate
on these loans was 1.5% above the lender's prime rate until net proceeds from
the sale of discontinued operations exceeded $2,000,000. The credit agreement
also provides a $750,000 equipment financing facility with interest at 2% above
the lender's prime rate. The agreement expires October 31, 2002 unless renewed.
On April 1, 2000, the interest rate on the revolving line and the term loan was
reduced to 1% over the lender's prime rate after net proceeds from the sale of
discontinued operations exceeded $2,000,000. On April 6, 2000, the Company
redeemed $1,660,000 of its convertible subordinated debentures held by Union
Miniere.
Borrowings under the credit agreement are secured by accounts
receivable, inventory, and property and equipment. The agreement contains
restrictive covenants that include limitations on losses, maintenance of minimum
tangible net worth, debt, equity and cash flow ratios, as well as restrictions
on capital and lease expenditures, additional borrowings and payments of
dividends. On July 2, 2000 the Company was not in compliance with certain loan
covenants and secured waivers from Wells Fargo Bank.
6
<PAGE>
4. INVENTORIES (in thousands)
The components of inventory at July 2, 2000 and September 30, 1999 are
as follows:
July 2, 2000 September 30, 1999
------------ ------------------
Raw materials .................... 3,070 3,405
Work In Process .................. 1,656 1,483
Finished goods ................... 3,023 3,009
------- -------
Subtotal .................... 7,749 7,897
Reserves ......................... (2,225) (1,397)
------- -------
Inventories, net ................. 5,524 6,500
------- -------
5. DISCONTINUED OPERATIONS (in thousands)
During fiscal 1999, the Board of Directors adopted a plan to sell the
Company's microlaser operations and to phase out certain contract research
operations. Operations sold or phased out are reported as discontinued
operations. The Company sold the majority of the assets of discontinued
operations in December, 1999, and concluded a transaction for the remaining
discontinued operations in February 2000.
The results of discontinued operations were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 2, 2000 June 27, 1999 July 2, 2000 June 27, 1999
<S> <C> <C> <C> <C>
Revenues:
Product sales ..................... $ 0 $ 598 $ 602 $ 1,713
Contract research and development . - 443 467 1,365
-------- -------- -------- --------
Total revenues ............ - 1,041 1,069 3,078
Costs and expenses:
Cost of product sales ............. - 617 584 1,719
Contract research and development . - 331 414 1,069
Internal research and development . - 276 123 1,039
Selling, general and administrative - 243 387 996
-------- -------- -------- --------
Total costs and expenses .. - 1,467 1,508 4,824
-------- -------- -------- --------
Loss from discontinued operations ... - (426) (439) (1,745)
Interest expense, net ............. - 55 - 153
-------- -------- -------- --------
Loss before income taxes ............ - (481) (439) (1,898)
Income taxes ...................... - - - -
-------- -------- -------- --------
Net loss from discontinued operations $ 0 ($ 481) ($ 439) ($1,898)
======== ======== ======== ========
</TABLE>
Corporate overhead expenses, historically allocated and charged to
discontinued operations, were reversed and allocated back to continuing
operations because those expenses were not considered to be directly
attributable to discontinued operations. Expenses allocated back to continuing
operations totaled $243,000 for the three months ending June 1999, and $387,000
and $1,342,000 for the nine months ending July 2000 and June 1999 respectively.
Interest expense attributable to discontinued operations includes an
allocation of interest on general corporate credit facilities. Interest is
allocated to discontinued operations based on the expected reduction in interest
expense that should occur upon the sale of the discontinued operations and the
use of proceeds from such sale to repay debt. The Company believes this approach
is substantially the same as if this debt was assumed by the buyer. All interest
expense for the three and nine month periods ending July 2, 2000 and June 27,
1999 was allocated to continuing operations.
The consolidated balance sheets reflect the assets and liabilities of
discontinued operations as current or non-current assets based on the original
classification of the accounts, except that current liabilities are netted
against current assets and non-current liabilities are netted against
non-current.
7
<PAGE>
The accrual for the estimated pre-tax losses of $450,000 to be incurred
during the expected disposal period is presented separately in the accompanying
consolidated balance sheet for September 30, 1999, and excludes corporate
overhead and interest allocation. The pre-tax loss for the nine month period
ended July 2, 2000 amounting to $439,000 has been charged to this accrual.
6. PENDING MERGER TRANSACTION
As previously reported on Form 8-K on June 29, 2000, the Company and
II-VI Incorporated entered into an Agreement and Plan of Merger (the
"Agreement"), as a result of which the Company will become a wholly owned
subsidiary of II-VI Incorporated. Under the terms of the agreement, as amended,
each outstanding share of the Company will be converted into the right to
receive $2.89 per share in cash and .052 shares of II-VI Incorporated common
stock. The Agreement protects the value of the II-VI common stock consideration
by providing a minimum value of $2.26 per .052 shares and limits the maximum
value to $2.76 per .052 shares, thereby providing total merger consideration of
$5.15 to $5.65 per share of the Company's Common Stock. To the extent that the
value of the II-VI common stock is below $2.26 per .052 shares, II-VI has agreed
to make up the difference in cash. Pursuant to a press release dated August 9,
2000, II-VI announced that the actual value of the consideration to be received
by Laser Power shareholders who tendered their shares in the tender offer which
expired on August 11, 2000, would be $3.08 in cash and .052 shares of II-VI
common stock. The Agreement and Tender Offer are more fully discussed on Form
8-K filed by the Company June 29, 2000, on Schedule 14D9/A filed by the Company
August 2, 2000 and on Form TO-T/A filed by II-VI Incorporated on August 2, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Revenues
For the three months ended July 2, 2000, revenues were $7,643,000
compared to $8,659,000 for the prior year, a decrease of $1,016,000 or 12%,
principally due to reduced subcontract activity in a project to develop
thin-film coating capability for large optics. For the nine months ended July 2,
2000 revenues were $24,420,000 compared to $24,953,000 for the prior year, a
decrease of $533,000 or 2%. The decrease in quarterly and year to date sales is
principally related to reduced activity in a thin film coating contract.
Gross Profit
For the three months ended July 2, 2000, gross profits were $1,892,000,
or 24.8% of revenues; compared to $2,275,000, or 26.3% of revenues, for the
prior year, a decrease of $383,000 or 4% of revenue. For the nine months ended
July 2, 2000, gross profits were $6,333,000, or 25.9% of revenues; compared to
$6,730,000, or 27.0% of revenues, a decrease of $397,000 or 2% of revenue. The
decline in gross profit as a percent of revenues during the nine months ended
July 2, 2000 compared to the prior year, is due to an activity reduction in the
thin-film coating contract and a shift in infra-red product mix.
Internal Research and Development Expense
For the three months ended July 2, 2000, internal research and
development expense was $387,000 compared to $139,000 for the prior year. For
the nine months ended July 2, 2000, expenses were $839,000 compared to $373,000
for the prior year. The increase was due to substantial increases in laser optic
manufacturing process development. The Company expects that internal research
and development expense will remain at or below current levels for the remainder
of the fiscal year.
Selling, General and Administrative Expense
For the three months ending July 2, 2000, selling, general and
administrative expenses were $915,000 compared to $1,630,000 for the prior year,
an decrease of $715,000. For the nine months ended July 2, 2000, expenses were
$3,628,000 compared to $5,011,000 for the prior year, a decrease of $1,383,000
or 28%. The decrease was due to a reduction in administrative staff and other
non-staff expenses, elimination of the Company's Del Mar, California facility
and efficiencies from the Company's strategic focus on its Precision Optics
business. Selling, general and administrative expense is not expected to
materially change as a percentage of sales in the near term.
8
<PAGE>
Interest Expense
For the three months ending July 2, 2000, interest expense was $107,000
compared to $87,000 for the prior year, an increase of $20,000. For the nine
months ending July 2, 2000 interest expense was $330,000 compared to $241,000
for the prior year an increase of $89,000. The increase was due to the
allocation of interest to discontinued operations and the acceleration of
$90,000 of interest in connection with the early retirement of the convertible
subordinated debentures. The Company does not expect interest expense to change
materially in the near term since the reduction in interest resulting from the
application of proceeds will be offset by higher interest rates on its floating
rate debt and interest on new borrowings to finance capital additions.
Termination Fee and Related Merger Costs
During the three months ended July 2, 2000 the Company incurred
$2,221,000 in costs associated with the pending merger transaction with II-VI
Incorporated. Included in these costs are legal and professional service fees
and a $2,000,000 breakup fee paid Union Miniere in connection with terminating a
merger agreement in favor of a superior proposal by II-VI Incorporated.
Income Taxes
Except for alternate minimum taxes, US federal income taxes are not
material due to the application of tax loss carry forwards in the current year
and net losses in prior years. The availability of US federal tax loss carry
forwards for any specific future period may be limited by the application of the
rules relating to change of ownership. The Company has utilized its state and
foreign tax loss carry forwards and is now providing for such taxes. Previously,
the Company's effective tax rate has been reduced by the utilization of federal,
state and foreign net operating loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
In November 1999, the Company entered into a credit agreement with
Wells Fargo Bank. The credit agreement expires in November 2002, is secured by
substantially all the Company assets, and provides a $4 million working capital
line of credit, subject to a borrowing base, a $1.95 million term loan amortized
over 5 years and a capital equipment financing facility. The amount due under
the working capital line is classified as long-term debt in the Condensed
Consolidated Balance Sheet. The Company utilized term loan proceeds and an
initial draw on the working capital line to retire debt under a prior credit
agreement. The credit agreement provided a 0.5% interest rate reduction on the
working capital line and term loan, after the net proceeds from the sale of
discontinued operations exceeds $2,000,000. The Company received the rate
reduction April 1, 2000.
Cash provided by continuing operations was $379,000 for the nine months
ended July 2, 2000, compared to a use of $1,498,000, or the prior year, a
$1,877,000 source of cash created by profit improvement and decreases in
inventory offset by additional accounts receivable, reductions in current
liabilities and merger costs.
Cash used in investing activities of continuing operations was
$1,730,000 for the nine months ended July 2, 2000 compared to $1,832,000 for the
prior year, a decrease of $102,000. The Company has made substantial investments
in property and equipment for its manufacturing operations and plans to continue
investing in property and equipment for the balance of the fiscal year.
Cash used by financing activities was $964,000 for the nine months
ended July 2, 2000 compared to cash provided of $806,000 for the prior year, a
decrease of $1,770,000. During the nine months ended July 2 2000, the Company
received $3,069,000 from the exercise of warrants and common stock options. The
Company used proceeds from the issuance of stock and cash received from the sale
of discontinued operations to repay borrowings and to fund capital expenditures.
The Company believes that its current cash balance together with other
sources of liquidity are adequate to satisfy its cash requirements for at least
the next 12 months. The Company's current credit agreement limits its investment
in capital equipment and debt financing from other sources.
9
<PAGE>
RISK FACTORS
PENDING MERGER TRANSACTION
As previously reported on Form 8-K on June 29, 2000, the Company and
II-VI Incorporated entered into an Agreement and Plan of Merger (the
"Agreement"), as a result of which the Company will become a wholly owned
subsidiary of II-VI Incorporated. The offer period closed August 11, 2000 and
the Company believes II-VI Incorporated will complete the offer on August 15,
2000, resulting in II-VI holding approximately 88% of the shares of the Company,
followed by the subsequent merger of II-VI Acquisition Corp. into the Company in
accordance with the Agreement.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
The Company has incurred operating losses in the past and, at July 2,
2000, had an accumulated deficit of $10.1 million. The development, sales,
marketing and support of new products will require continued expenditures for
the foreseeable future, which could result in 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.
COMPETITION
In each of the markets that the Company serves, the Company faces
competition from established companies, many of which have substantially greater
financial, engineering, research, development, manufacturing, sales, marketing,
service and support resources, including greater name recognition, a larger
installed base of products and long-standing customer relationships. In
addition, some of the Company's competitors are customers of the Company, which
might have the ability to perform or obtain the capability to perform projects,
which are presently being performed for them by the Company. There can be no
assurance that the Company will be able to maintain the Company's existing
contracts or obtain additional contracts for projects at favorable rates, 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.
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 existing
processes. As a result, the Company expects to continue to make 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.
FLUCTUATION IN QUARTERLY PERFORMANCE
The Company has experienced and expects to continue to experience
fluctuations in its quarterly results. The Company may incur significant
expenses in the future due to product design, development, manufacturing and
marketing expenditures. If significant variations were to occur between
forecasts and actual orders, the Company may not be able to reduce its expenses
proportionately and in a timely manner, and operating results could be adversely
affected. 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.
10
<PAGE>
EXPOSURE TO GOVERNMENT MARKETS
Product sales to customers in the defense industry accounted for 50% of
product sales from continuing operations for the nine months ended July 2, 2000.
These customers in turn generally contract with a governmental entity, typically
the U.S. government. Many defense programs are subject to funding approval and
can be modified or terminated with no warning upon the determination of a
legislative or administrative body. The loss or failure to obtain certain
contracts could have a material adverse effect on the Company's business,
financial condition and operating results. In addition, the loss of a major
government customer or any significant reduction or delay in orders by such
customer, could have a material adverse effect on the Company's business,
financial condition and operating results.
EXPOSURE TO MAJOR CUSTOMERS
Approximately 30% of the Company's sales from continuing operations
during the nine months ended July 2, 2000, were derived from net sales to
Lockheed Martin Corporation. The loss of this major customer, or any significant
reduction or delay in orders by such customer, would have a material adverse
effect on the Company's business, financial condition and operating results.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales provided approximately 28% of the Company's
revenues from continuing operations during the nine months ended July 2, 2000,
and the Company expects international sales will continue to account for a
substantial portion of total revenues. 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, 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.
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 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 1997, there had 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 optics and laser
industries and other events or factors. Also, speculation concerning the
potential acquisition of the Company could cause significant and rapid changes
in trading volume and price of the Common Stock. See "Pending Merger
Transaction". 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.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
As reported on Form 8-K on June 19, 2000, a complaint naming Laser
Power Corporation and certain current and former directors of the company as
defendants was served on the Corporation June 13, 2000. The Complaint seeks to
assert a breach of fiduciary duty claim, and requests class action relief. It is
styled C. OLIVER BURT, III V. LASER POWER CORP., et al., Case No. GIC 749273
(San Diego Superior Court). The Corporation believes that the Complaint lacks
merit, and intends to vigorously defend the action.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
There were four reports under ITEM 5 "Other Events" on Form 8-K during
the quarter ended July 2, 2000. On June 2, the Company reported that it had
entered into an agreement and plan of merger with Union Miniere. On June 15,
2000, the Company reported the receipt of a competing offer from II-VI
Incorporated, which the Company judged superior to the offer received from Union
Miniere. On June 19, 2000, the Company reported the commencement of certain
litigation, more fully reported under ITEM 1. 'Legal Proceedings' on this Report
10Q. On June 29, 2000 the Company reported that it had terminated the agreement
and plan of merger with Union Miniere, paid the requisite breakup fee, and
entered into an agreement and plan of merger with II-VI Incorporated.
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: May 10, 2000 /S/ Bernard J. Brady
-----------------------------------
Bernard J. Brady
Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
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