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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 26, 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)
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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 March 26, 2000, there were 9,622,150 shares of the Registrant's Common
Stock outstanding.
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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 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
March 26, 2000 (unaudited) and September 30, 1999............... 3
Condensed Consolidated Statements of Operations
(unaudited) for the three months ended March 2000
and 1999 and six months ended March 2000 and 1999............... 4
Condensed Consolidated Statements of Cash Flows
(unaudited) for the six months ended March 2000 and 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
TEM 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LASER POWER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 26, 2000 September 30, 1999
------------------ ------------------
(unaudited)
ASSETS
Current assets:
Cash .................................. $ 2,051 $ 860
Accounts receivable, net............... 5,177 4,488
Inventories, net....................... 5,520 6,500
Other current assets................... 193 330
Net current assets of discontinued
operations............................ 104 570
------------ ------------
Total current assets........... 13,045 12,748
Property and equipment, net............. 7,348 7,094
Intangibles and other assets, net....... 412 419
Net non-current assets of discontinued
operations............................. - 1,647
------------ ------------
Total assets............................ $ 20,805 $ 21,908
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 1,328 $ 2,024
Accrued compensation and related expenses... 1,094 1,529
Other current liabilities................... 949 1,733
Allowance for operating losses of
discontinued ops........................... - 450
Net current liabilities of discontinued
operations................................. - -
Subordinated convertible debentures......... 1,660 -
Current portion of long-term debt........... 442 1,084
------------ ------------
Total current liabilities........... 5,473 6,820
Long-term liabilities........................ 287 420
Long-term debt, less current portion......... 1,158 3,083
Subordinated convertible debentures.......... - 1,660
Stockholders' equity:
Common stock, par value $.001:
Authorized -- 15,000,000 shares
Issued and outstanding
8,579,987 shares at September 30, 1999
and 9,622,215 shares at March 26, 2000... 10 8
Additional paid-in capital.................. 22,605 19,574
Accumulated deficit......................... (8,686) (9,639)
Accumulated other comprehensive loss........ (42) (18)
------------ ------------
Total stockholders' equity.......... 13,887 9,925
------------ ------------
Total liabilities and stockholders' equity.. $ 20,805 $ 21,908
============ ============
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 March Six Months Ended March
------------------------ ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales............................... $ 7,682 $ 7,714 $ 15,743 $ 15,038
Contract research and development........... 525 869 1,034 1,256
--------- --------- --------- ---------
Total revenues...................... 8,207 8,583 16,777 16,294
Costs and expenses:
Cost of product sales....................... 5,721 5,559 11,721 11,021
Contract research and development........... 317 559 614 818
Internal research and development........... 232 112 453 234
Selling, general and administrative......... 1,290 1,226 2,713 3,036
--------- --------- --------- ---------
Total costs and expenses............ 7,560 7,456 15,501 15,109
--------- --------- --------- ---------
Income from operations....................... 647 1,127 1,276 1,185
Interest expense, net....................... 95 183 223 252
--------- --------- --------- ---------
Income (loss) before income taxes............ 552 944 1,053 933
Income taxes................................ 85 5 100 9
--------- --------- --------- ---------
Net income (loss) from continuing operations. 467 939 953 924
Loss from discontinued operations............ - (1,009) - (1,665)
--------- --------- --------- ---------
Net income (loss)............................ $ 467 $ (70) $ 953 $ (741)
========= ========= ========= =========
Basic earnings (loss) per share:
Income (loss) from continuing operations.... $ .05 $ .11 $ .11 $ .11
Loss from discontinued operations........... - (.12) - (.20)
--------- --------- --------- ---------
Net income (loss).......................... $ .05 $ (.01) $ .11 $ (.09)
========= ========= ========= =========
Diluted earnings (loss) per share:
Income (loss) from continuing operations.... $ .05 $ .10
Loss from discontinued operations........... - -
--------- ---------
Net income (loss).......................... $ .05 $ .10
========= =========
Average common shares outstanding - basic.... 9,137 8,424 8,873 8,411
========= ========= ========= =========
Average common shares outstanding -diluted... 10,329 8,424 10,322 8,411
========= ========= ========= =========
</TABLE>
See accompanying notes.
4
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LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six Months Ended March
-------------------------------
2000 1999
OPERATING ACTIVITIES ------------ ------------
Net income (loss) from continuing operations. $ 953 $ (741)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization.............. 519 755
Other current assets and current
liabilities............................... (805) 667
Changes in other assets and liabilities.... (840) (1,165)
------------ ------------
Net cash used in operating activities
of Continuing operations................ (173) (484)
Net cash used in operating activities
of Discontinued operations.............. (439) (2)
------------ ------------
Net cash used in operating activities.... (612) (486)
INVESTING ACTIVITIES
Additions to property and equipment.......... (766) (784)
Changes in other assets and liabilities...... - -
------------ ------------
Net cash used in investing activities
of continuing operations................ (766) (784)
Net cash provided by (used in)
investing activities of discontinued
operations.............................. 2,102 (48)
------------ ------------
Net cash provided by (used in) investing
activities.............................. 1,336 (832)
FINANCING ACTIVITIES
Payments on borrowings....................... (2,566) (1,287)
Proceeds from borrowings..................... - 2,131
Net proceeds from issuance of stock 3,033 67
------------ ------------
Net cash provided by financing
activities.............................. 467 911
------------ ------------
Net increase (decrease) in cash and cash
equivalents................................. 1,191 (407)
Cash at beginning of the period.............. 860 2,412
------------ ------------
Cash at end of the period.................... $ 2,051 $ 2,005
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..... $ 47 $ 201
============ ============
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 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
consolidated financial position as of March 26, 2000 and the consolidated
results of operations for the three and six fiscal months ended March 26, 2000
and March 28, 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 March 26, 2000 are not necessarily indicative of the results that may be
attained for the entire fiscal year.
The Company reports quarterly results using a thirteen week fiscal period,
but reports annual results using a September 30 year-end.
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 is 1.5% above the lender's prime rate until net proceeds from the sale of
discontinued operations exceeds $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.
4. INVENTORIES (in thousands)
The components of inventory at March 26, 2000 and September 30, 1999 are as
follows:
March 26, 2000 September 30, 1999
-------------- ------------------
(unaudited)
Raw materials....................... $ 3,134 $ 3,405
Work in progress.................... 2,533 3,009
Finished goods...................... 1,413 1,483
------------ ------------
Subtotal....................... 7,080 7,897
Reserves............................ (1,560) (1,397)
------------ ------------
Inventories, net.................... $ 5,520 $ 6,500
============ ============
6
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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 to be 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 March Six Months Ended March
------------------------ ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales.................................. $ - $ 837 $ 602 $ 1,333
Contract research and development.............. 150 418 467 922
--------- --------- --------- ---------
Total revenues......................... 150 1,255 1,069 2,255
Costs and expenses:
Cost of product sales.......................... - 999 584 1,321
Contract research and development.............. 168 338 414 738
Internal research and development.............. 4 348 123 762
Selling, general and administrative............ 77 579 387 1,099
--------- --------- --------- ---------
Total costs and expenses............... 249 2,264 1,508 3,920
--------- --------- --------- ---------
Loss from discontinued operations................ (99) (1,009) (439) (1,665)
Interest expense, net.......................... - - - -
--------- --------- --------- ---------
Loss before income taxes......................... (99) (1,009) (439) (1,665)
Income taxes................................... - - - -
--------- --------- --------- ---------
Net loss from discontinued operations............ $ (99) $ (1,009) $ (439) $ (1,665)
========= ========= ========= =========
</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 $21,000 and $95,000 for the three months ending March 2000
and 1999 respectively, and $117,000 and $190,000 for the six months ending March
2000 and 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 any of the discontinued operations
and the use of proceeds from such sale to repay debt, and is representative of
projected future interest expense. 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 six month periods ending March 26, 2000 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.
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 six month period
ended March 26, 2000 amounting to $439,000 has been charged to this accrual.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Revenues
For the three months ended March 26, 2000, revenues were $8,207,000 compared
to $8,583,000 for the prior year, a decrease of $376,000 or 4%, principally due
to reduced subcontract activity in a project to develop thin-film coating
capability for large optics. For the six months ended March 26, 2000 revenues
were $16,777,000 compared to $16,294,000 for the prior year, an increase of
$483,000 or 3%. During the 6 months ended March 26, infra-red and laser optics
revenues increased 5% offset by reduced subcontract activity.
Gross Profit
For the three months ended March 26, 2000, gross profits were $2,169,000, or
26.4% of revenues; compared to $2,465,000, or 28.7% of revenues, for the prior
year, a decrease of $296,000 or 2.3% of revenue. For the six months ended March
26, 2000, gross profits were $4,442,000, or 26.5% of revenues; compared to
$4,455,000, or 27.3% of revenues, a decrease of $13,000 or 0.9% of revenue. The
decline in gross profit as a percent of revenues during the six months ended
March 26, 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 March 26, 2000, internal research and development
expense was $232,000 compared to $112,000 for the prior year. For the six months
ended March 26, 2000, expenses were $453,000 compared to $234,000 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 March 26, 2000, selling, general and
administrative expenses were $1,290,000 compared to $1,226,000 for the prior
year, an increase of $64,000. The increase was due to costs of relocating the
Company's offices. For the six months ended March 26, 2000, expenses were
$2,713,000 compared to $3,036,000 for the prior year, a decrease of $323,000 or
11%. The decrease was due to a reduction in administrative staff and other
non-staff expenses. Selling, general and administrative expense is not expected
to materially change as a percentage of sales in the near term.
Interest Expense
For the three months ending March 26, 2000, interest expense was $95,000
compared to $183,000 for the prior year, a decrease of $88,000. For the six
months ending March 26, 2000 interest expense was $223,000 compared to $252,000
for the prior year a decrease of $29,000. The decrease was primarily due to the
application of proceeds from the sale of discontinued operations and proceeds
from the exercise of stock options and warrants to the repayment of debt. 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.
Income Taxes
Income tax is not material due to the application of tax net loss
carryforwards in the current year and the net loss in the prior year. 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 for any specific period will be limited by
the application of rules relating to change of control as a result of prior
issuances of common stock.
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. At March 26, 2000 no balance is outstanding on the
working capital line. 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 provides for 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.
8
<PAGE>
Cash used by continuing operations was $173,000 for the six months ended
March 26, 2000, compared to a use of $484,000, for the prior year, a $311,000
decrease in uses of cash. The decrease was primarily due to profit improvement
and decreases in inventory offset by additional accounts receivable and
reductions in current liabilities.
Cash used in investing activities of continuing operations was $766,000 for
the six months ended March 26, 2000 compared to $784,000 for the prior year, a
decrease of $18,000. 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 provided by financing activities was $467,000 for the six months ended
March 26, 2000 compared to cash provided of $911,000 for the prior year, a
decrease of $444,000. During the six months ended March 26 2000, the Company
received $3,033,000 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.
RISK FACTORS
POSSIBLE CHANGE OF CONTROL
In September 1999, II-VI Inc., one of the Company's principal competitors,
published its willingness to buy the outstanding capital stock of the Company.
The Company's Board of Directors, which had previously been told privately of
such proposal, rejected the public proposal on the grounds that the proposal did
not adequately reflect the value of the Company. The Board of Directors also
re-affirmed its commitment to maximizing stockholder value. The Board
subsequently retained the services of Cruttenden Roth & Company as its financial
advisor and directed Cruttenden Roth to evaluate the proposal by II-VI and to
advise the Board on the proposal and other strategic alternatives that may be
available to the Company. As of March 1, 2000 II-VI Inc. owned approximately 13%
of the outstanding voting stock of the Company. In addition, as of April 6,
2000, Union Miniere USA, Inc., owns approximately 9.9% of the outstanding voting
stock of the Company. The Company has engaged in preliminary discussions with
multiple potential bidders for the Company. On February 2, 2000, the Company
announced that it had discontinued discussions because none of the potential
bidders appeared to be prepared to offer to acquire Laser Power at price levels
comparable to recent market values for the Company's common stock. Due to the
time and effort expended by the Company's management addressing the II-VI
proposal, considering strategic alternatives and engaging in potential
acquisition discussions, the Company's officers have had less time and effort to
conduct the business of the Company. Other employees of the Company have
expressed some concern over the possible change in control of the Company and
how it may effect their personal employment situations. There can be no
assurance that such factors will not have a material adverse effect on the
Company's business, financial condition or results of operations.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
The Company has incurred operating losses in the past and, at March 26,
2000, had an accumulated deficit of $8.7 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.
9
<PAGE>
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.
EXPOSURE TO GOVERNMENT MARKETS
Product sales to customers in the defense industry accounted for 50% of
product sales from continuing operations in the six months ended March 26, 2000.
These customers in turn generally contract with a governmental entity, typically
the U.S. government. In addition, essentially all of the Company's contract
research and development revenues were derived from contracts with customers in
the defense industry. Many times, governmental 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 six months ended March 26, 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 accounted for approximately 27% of the Company's total
revenues from continuing operations during the six months ended March 26, 2000,
and the Company expects that 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 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.
10
<PAGE>
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 "Possible Change of
Control". 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.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The legal matter discussed in Part I, Item 3 of the Company's Annual Report
on Form 10-K for fiscal year ended September 30, 1999, (ROELOFSEN ET AL. VS.
KLIMASEWSKI ET AL., Del. Ch. C.A. No. 17450NC) has been dismissed by the
plaintiffs without prejudice. Other than the legal fees and expenses paid by the
Company in the defense of this matter as described in the Annual Report, the
claim did not result in any financial liability to the Company and no settlement
or other accommodation was paid to the plaintiffs.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on February 25,
2000 in San Diego, California.
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.
Candidate Votes in favor Votes withheld
--------------------- -------------- --------------
William G. Frederick 2,445,017 2,077,400
Robert G. Klimasewski 2,445,017 2,077,400
Robert P. Perkins 2,677,033 1,845,384
Dick O. Sharman 2,682,033 1,840,384
John C. Stiska 3,005,351 1,517,066
PROPOSAL II - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Votes in favor Votes against Votes abstained
-------------- ------------- ---------------
4,258,797 263,210 500
ITEM 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
12
<PAGE>
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)
13
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