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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-11642
LASER TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-0970494
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7070 SOUTH TUCSON WAY, ENGLEWOOD, COLORADO 80112
(Address of principal executive offices)
(303) 649-1000
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
Title of each class Name of exchange on which registered
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<S> <C>
Common Stock, $.01 par value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 10, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was $0.
At March 10, 1999, 4,994,551 shares of common stock of the registrant were
outstanding.
Documents Incorporated by Reference: Part III, certain exhibits filed as
part of registrant's S-1 registration statement.
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LASER TECHNOLOGY, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page No.
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PART I.
Item 1. Business.................................................. 1
Item 2. Properties................................................ 16
Item 3. Legal Proceedings......................................... 16
Item 4. Submission of Matters to a Vote of Security Holders....... 17
PART II.
Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters....................................... 17
Item 6. Selected Financial Data................................... 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 20
Item 8. Financial Statements and Supplementary Data............... 28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 29
PART III.
Item 10. Directors and Executive Officers of the Registrant........ 29
Item 11. Executive Compensation.................................... 32
Security Ownership of Certain Beneficial Owners and
Item 12. Management................................................ 34
Item 13. Certain Relationships and Related Transactions............ 35
PART IV.
Exhibits, Financial Statement Schedules and Reports on
Item 14. Form 8-K.................................................. 36
SIGNATURES.......................................................... 38
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PART I.
ITEM I. BUSINESS
Risk Factors and Cautionary Statements
This report contains "forward-looking statements." Forward-looking
statements in this report are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The Company wishes to
advise readers that actual results may differ substantially from such forward-
looking statements. Forward-looking statements involve risks and uncertainties
including, but not limited to, continued acceptance of the Company's products
in the marketplace, competitive factors, potential changes in the budgets of
federal and state agencies, compliance with current and possible future FDA or
environmental regulations, and other risks detailed in the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission.
Introduction
The Company and its wholly-owned subsidiaries; Laser Communications, Inc.,
Laser Technology, U.S.V.I., and International Measurement and Control Company,
is engaged in the business of developing, manufacturing and marketing laser-
based measurement instruments using proprietary technology developed by the
Company. The Company was originally organized in September 1950.
Effective May 30, 1997, Laser Technology, Inc., (the Company) effected a
merger with a newly formed subsidiary, Laser Technology, Inc., a Delaware
corporation ("Laser Technology-Delaware"), for the principal purpose of
changing the corporate domicile of the Company from the State of Idaho to
Delaware. Under the terms of the Merger, the Company's Idaho corporate entity
("Laser Technology-Idaho") merged with and into Laser Technology-Delaware,
which became the surviving corporation, and Laser Technology-Idaho ceased to
exist. The transaction was accounted for as a recapitalization similar to a
pooling of interests and the merger did not involve any change in the
business, properties, management or capital structure of the Company. Laser
Technology-Delaware had no operations prior to the merger. Stockholders of
Laser Technology-Idaho received the same number of shares of common stock of
Laser Technology-Delaware as previously held in Laser Technology-Idaho and are
entitled to the same stockholder rights and preferences as they held with the
Idaho corporation.
The Company's proprietary technology permits a laser to measure to a non-
cooperative, or low reflective surface, using a very low power source. As a
result, the Company's products operate within the requirements of eye safety
as promulgated by the United States Food and Drug Administration (the "FDA").
Despite a very low power source, the Company's laser instruments measure more
rapidly and at longer ranges than corresponding conventional devices. The
Company has also developed proprietary software and circuitry which are
integral to each of the Company's products. The Company's executive offices
are located at 7070 and 7050 South Tucson Way, Englewood, Colorado 80112, and
its telephone number is (303) 649-1000.
Principal Products
Revenues
Historically, the Company's primary product lines have been its Marksman
Laser Speed Detection Systems and Criterion Series of Survey Lasers. Since
fiscal 1995, the Company has expanded these product lines through new product
development including the introduction of second generation instrumentation.
Because of enhancements to the Company's existing products, new product
developments and expanding markets for the Company's technology, the Company
currently organizes and markets its products in three categories: Traffic
Safety products, Survey and Mapping products, and Ship Docking Aid Systems.
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The following table provides a breakdown of the percentage of net sales of
the Company's product lines. Revenues realized from sales of the Company's
less significant revenue producing products are classified as "Other" for
presentation purposes.
<TABLE>
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Year Ended September 30,
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1998 1997 1996
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<S> <C> <C> <C>
Traffic Safety.......... 61% 51% 57%
Survey and Mapping...... 34 43 34
Ship Docking Aid
Systems................ 2 3 8
Other................... 3 3 1
</TABLE>
The following table provides a breakdown of domestic and foreign revenues as
a percentage of net sales of the Company's products for the periods presented:
<TABLE>
<CAPTION>
Year Ended September 30,
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1998 1997 1996
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<S> <C> <C> <C>
Domestic................................. 61% 53% 51%
Foreign.................................. 39 47 49
</TABLE>
See Note 9 to the Company's consolidated financial statements for further
discussion on customers, export sales and concentrations of credit risk.
Traffic Safety Products
Hand-Held Laser Speed Detection Systems
In 1991, the Company developed and commenced commercial manufacturing and
marketing of the "LTI 20-20" laser speed detection system to law enforcement
agencies as a proven method of measuring the speed of motor vehicles. In 1993,
the Company introduced an enhanced version of the LTI 20-20, called the
"Marksman," which incorporates increased range capability, an auto-triggering
system and, as an optional feature, an in-scope display of speed and distance
data. Late in fiscal 1997, the Company introduced the "UltraLyte" second
generation laser speed detection device.
In fiscal 1997, the Company initiated production and marketing of the
UltraLyte 100. Based on the same pulse laser measurement technology as the
Marksman, the UltraLyte represents the Company's second generation technology
and was re-engineered in fiscal 1997 to reduce the size, weight and
manufacturing cost of the Company's Marksman. The UltraLyte also incorporates
an internal power source. Concurrent with the development of the UltraLyte
100, the Company developed the UltraLyte 200, which expanded the capabilities
of the UltraLyte 100 by incorporating a tilt sensor, enhancing the surveying
capabilities of the UltraLyte for use in accident reconstruction and
investigation. In fiscal 1998, the Company developed a longer-range version of
the UltraLyte expanding the UltraLyte product line to include the UltraLyte
100LR and the UltraLyte 200LR.
The Company's hand-held laser speed measurement devices have several
advantages over radar speed measurement devices. As distinguished from radar
devices, the Marksman and UltraLyte can be aimed directly at a specific
vehicle, thereby eliminating the difficulty associated with radar measurement
devices of distinguishing one vehicle from another. Additionally, the Marksman
and UltraLyte measure speed in one-third of a second with a laser beam that
spans only three feet wide at a distance of 1,000 feet and disperses after
hitting its target vehicle. Radar guns, on the other hand, are generally
required to track vehicle speed for several seconds in an attempt to
positively identify a vehicle.
Radar guns also produce a wider beam width of approximately 200 to 400 feet
at a range of 1,000 feet which can readily be detected by the targeted vehicle
as well as other oncoming vehicles equipped with radar detectors. Conventional
radar detectors, which cannot detect the light beam generated by the Marksman
or UltraLyte, have been effective against radar because of the wide beam width
produced by radar devices. This
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radar beam continues to widen as the distance from the gun increases and can
readily be picked up by a radar detector as much as a mile away from the radar
gun, giving the driver of a vehicle warning time to slow down and thus avoid
receiving a speeding ticket. However, the shorter acquisition time to measure
vehicle speeds and significantly reduced beam width of the Company's hand-held
laser speed detection devices does not permit vehicles, other than the
targeted vehicle, to detect the Marksman or UltraLyte's laser beam and, in any
event, does not provide the targeted vehicle sufficient time to slow down in
advance of being detected.
Consumer laser detectors exist that will detect the Marksman or UltraLyte
only when the vehicle equipped with such a detection device is being targeted.
However, because the measurement period of the Marksman and UltraLyte is only
one-third of a second, there is no reaction time for the driver to reduce
their speed before the police officer obtains a positive speed reading. As
laser speed enforcement has become more widely used as an effective means of
speed enforcement, a number of consumer laser jamming devices have also
entered the market. Such laser jammers have limited effectiveness against the
Company's products due to the sophisticated nature of the Marksman and
UltraLyte's internal targeting software. In 1995, to combat the use of laser
jamming devices, the Company developed the capability within its products to
detect when a jamming device is in use. This feature has proven to be a very
useful tool to speed enforcement officials in certain jurisdictions where the
use of jamming devices is prohibited.
Laser DigiCam Photo Laser System
In 1995, the Company began commercial production of the "Laser DigiCam"
photo laser system which integrates a video camera and associated equipment
with the Marksman. The Laser DigiCam monitors the speed of each vehicle in a
specific lane of traffic. When the Laser DigiCam system detects a speeding
vehicle, it takes a digital picture of the vehicle, prints the speed, time and
date on the picture, and the ticket can then be mailed to the violator. As an
optional feature to this system, the Company also developed a night
illumination system enabling night use of the Laser DigiCam.
Traffic Data Collection Modules
In addition to measuring speed, the Marksman and UltraLyte also measure
distance. This feature enables the Marksman and UltraLyte to be used for a
variety of applications outside of speed enforcement. These ranging
capabilities are used by law enforcement officials for accident investigation
and reconstruction. In 1995, the Company introduced "QuickMap," a system which
enhances the use of the Marksman and UltraLyte for this application. QuickMap
is a software module integrated to a data collector which can be used in
conjunction with the Company's hand-held laser devices to expedite the
collection and processing of data at accident sites and crime scenes. The
surveying capabilities of the Company's newly introduced UltraLyte 200, which
includes an inclinometer, enhances the UltraLytes use for accident
investigation applications. Currently over 350 agencies and private companies
use QuickMap. In the second quarter of 1999, the Company will introduce
QuickMap 3D, a substantially enhanced software upgrade. The Company believes
this upgrade address needs for an expanded accident investigation market and
offers compelling capabilities including elevation mapping and automatic map
creation to existing users.
In 1995, the Company introduced "DBC," an optional feature that can be
integrated into the Marksman and UltraLyte's firmware capabilities which is
used to measure the distance and/or time between traveling vehicles. In many
parts of the world where the distance between vehicles is monitored closely to
improve traffic safety, local governments have the need to measure the
distance and/or time between vehicles. Management believes that the DBC
feature addresses this application and increases the utility and efficiency of
the Company's hand-held laser speed measurement products.
Traffic engineers and law enforcement officials are also able to conduct and
document traffic speed surveys more efficiently using the Marksman and
UltraLyte laser speed detection systems than with conventional methods. In
1993, the Company introduced a statistical compilation software package,
"SpeedStat." This product, when combined with the Marksman or UltraLyte,
gathers and formats traffic survey data on a portable computer via a serial
cable interface.
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In 1996, the Company introduced "SpeedStat DC," a companion product to
QuickMap in its Traffic Data Collection Module series. Similar to the
Company's original SpeedStat product, SpeedStat DC enables more efficient
collection and compilation of traffic engineering statistics. However,
SpeedStat DC incorporates the same hand-held data collector used in the
Company's QuickMap system replacing the need for a laptop computer, which
provides traffic engineers and law enforcement officials with a more portable
and affordable statistical compilation system.
Impulse Accident Investigation Laser
In fiscal 1996, the Company introduced a new generation of lasers for
general distance measurement. The "Impulse" series, while marketed primarily
to the survey and mapping industry, gained quick acceptance in the accident
investigation segment of the law enforcement community. The Impulse is smaller
in size and weight and lower in cost than the Company's Marksman laser speed
detection system for this application. The Impulse also features an electronic
tilt sensor that provides the operator with more accurate mapping
measurements. Additionally, when linked with the QuickMap accident
investigation collection module, the Impulse becomes a fully electronic
mapping system.
SharpShot Series of Laser Range Finders
In fiscal 1996, the Company began initial marketing of a laser range finder
for tactical operations and S.W.A.T. applications. The "SharpShot" is a light
weight, user friendly range finder that was developed from the Company's
technology underlying its Impulse survey laser and is able to measure
distances at longer ranges than the standard Impulse. Additionally, optional
tilt sensor capabilities exist that can provide height and inclination data.
While the Company's SharpShot laser range finder represents a peripheral
market of the Company's Traffic Safety product line, Management believes that
sufficient market potential exists for the SharpShot for use in tactical law
enforcement and military applications.
SpeedAlert Trailer
While the Company primarily markets pulse-laser products produced by the
Company, to expand distribution of its products and to further market
penetration, the Company has added complementary products manufactured by
others. In fiscal 1997, to augment the Company's Traffic Safety business, the
Company began selling an automated speed measurement trailer, "Speed Alert."
Designed for unattended operation to encourage voluntary speed compliance, the
Company's SpeedAlert trailer measures and displays vehicle speeds for use
within school, heavy traffic or other critical traffic zones. Additionally,
the Company's SpeedStat DC can be interfaced with the SpeedAlert allowing
improved statistics compilation.
Survey and Mapping Products
Criterion Series of Hand-Held Survey Lasers
The "Criterion" was originally developed in collaboration with the United
States Forest Service in 1992 for use by foresters to accurately and quickly
measure certain aspects of trees to determine board feet and to survey roads,
bridges, hiking trails and campgrounds. The Criterion is a small, portable
laser measurement system consisting of a laser range finder, an electronic
compass and an electronic inclinometer providing the capabilities of measuring
distance, azimuth and inclination and, therefore, is capable of calculating
heights and X,Y,Z coordinates. The Criterion can record these measurements in
seconds as compared to several minutes using conventional manual methods. Data
captured by the Criterion is maintained in the system in a form ready for
computer downloading, which eliminates errors associated with manually
transcribing numbers in the field for future manipulation.
The Company's second generation Impulse product line, in most cases,
replaces its former Criterion product line, as discussed below. While the
Company intends to sell the Criterion in specialized cases, sales of the
Company's Criterion comprise a small portion of the Company's Survey and
Mapping revenues.
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Impulse Series of Hand-Held Survey Lasers
During fiscal 1996, the Company developed a second generation surveying
instrument, the "Impulse." The Impulse is approximately one-third the size and
weight of the Company's Criterion series of survey lasers and also has a lower
price point. Other survey lasers on the market, including the Company's own
Criterion series, weigh approximately six pounds. The Impulse, weighing
approximately two pounds, can be carried on a belt clip and its ergonomic
design allows full operation of the instrument with only one hand. Management
believes that the smaller size and lower price point of the Impulse make the
technology more accessible for an increased number of users and applications
in the survey and mapping industry. The Impulse is also marketed as part of
the Company's Traffic Safety product line for use in accident investigation
applications.
In fiscal 1997, the Company expanded the Impulse product line to include
four new models. The "Impulse 100" is identical to the flagship Impulse model
but without a tilt sensor. While unable to compute heights or inclination
measurements, the Impulse 100 offers a more affordable alternative to
customers who solely require distance measurement. The "Impulse 100 and 200
LR" models were engineered with the ability to measure longer distances than
that of the Company's standard Impulse model to low reflective targets. In
1997, the Company also introduced the "Impulse XL" for military applications.
The Impulse XL has the ability to measure distances in excess of 2,000 meters.
MapStar Modular Laser System
In fiscal 1998, the Company introduced the MapStar modular laser system. The
MapStar system strategy allows a user to combine any of the Company's Impulse
or UltraLyte products with other sensors, data collection software, and/or
accessories. Because of the modular design of the MapStar system, such
combinations are available by the user, as needed , to meet individual user
needs.
MapStar Digital Compass Module
Also in fiscal 1998, the Company introduced the MapStars digital electronic
compass ("DCM"). The modular configuration of the DCM facilitates an easy
interface to any of the Company's different Impulse models. The DCM completes
the last component (horizontal angle) required for the Impulse to become a
complete mapping instrument. With the addition of the MapStar, the Impulse
provides all of the capabilities of the Criterion at a lower price. As a
result, it is expected that the Criterion will ultimately be replaced by the
Company's Impulse line of survey lasers over the next twelve months.
MapStar Software Modules
In fiscal 1998, the Company introduced the first of its MapStar software
modules, the Transmission and Distribution "T & D" Utility Pac. The software
package is comprised of a field module that runs on a handheld data collector,
and a Windows office-processing module, which downloads and formats the
collected data. The field module links directly to any of the Company's
Impulse model lasers. Designed to assist transmission and distribution
engineers with a variety of measurement and design tasks, the Company's T & D
Utility Pac allows one man to gather the amount of information it use to take
two people, in half the time. Moreover, the reflectorless laser capability
enables this data to be gathered more safely and in difficult environments.
Integrated Data Collection Solutions
Many market applications require the Company's Survey and Mapping lasers to
be integrated with other hardware and software to provide a complete turn-key
system. To facilitate this integration, the Company began establishing
relationships with manufacturers of complementary hardware and software in
fiscal 1994. These relationships include the sharing of distribution channels
and new product development. The Company believes that the need for mapping
and field data collection is increasing as utility companies, foresters and
government agencies seek more efficient ways to manage their assets. The
Company plans to continue working with outside software and hardware firms to
provide comprehensive solutions to customer needs.
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Industrial and Marine Products
Industrial Laser Distance Measurement Sensors
In fiscal 1996, the Company completed development of a low cost, industrial
laser distance measurement sensor. Pursuant to a sales contract with
Telemotive Industrial Controls, Inc., ("Telemotive"), a world leading
manufacturer of radio controls for material handling cranes and industrial
vehicles, the Company developed and manufactures laser sensors for use in
collision avoidance and positioning systems which Telemotive markets under its
brand name. This collision avoidance system allows continuously generated
distance measurement information provided by the Company's laser sensors to be
transmitted to a central processor which integrates the information with
computer controls that slow or stop the crane or vehicle within pre-determined
collision or danger zones.
Ship docking and Marine Applications
In fiscal 1995, the Company introduced the "DAS100 Ship Docking Aid System,"
a dock-based measurement system that assists ship captains and pilots in
docking maneuvers by measuring and recording a ship's closing speed and
distance and transmitting this data to the bridge of the ship. In fiscal 1997,
the Company expanded its Ship Docking Aid Systems product line by adding a
hand-held laser measurement system, the "Mariner".
Other
Other market applications exist for the Company's pulse laser technology.
The National Aeronautics and Space Administration (NASA) uses modified
versions of the Marksman for use on space shuttle missions involved in docking
procedures to determine target distance and closing speed when shuttle
missions perform docking procedures. While NASA is a relatively small customer
of the Company, Management believes that NASA's use of the Company's
technology adds to the Company's credibility as a technology leader in the
laser-based measurement industry.
Seasonality
Management believes that seasonal effects on sales of its Traffic Safety
products are non-existent. Although the Company's Traffic Safety business is
not of a seasonal nature, sales of its Traffic Safety products may continue to
vary between financial periods based on the capital procurement processes and
fiscal year budgeting cycles of state and municipal law enforcement agencies.
Historically, the Company has realized a small decline in sales of its Survey
and Mapping products in areas affected by colder weather during the winter
months.
Manufacturing Operations
The Company's manufacturing operations primarily consist of the assembly,
calibration and testing of its products. Currently, most of the components
used in the manufacture of the Company's products are manufactured by others
to the Company's specifications. The Company is not dependent upon any single
source of supply and has no long-term supply agreements. The Company maintains
certain supply agreements on long lead time items to purchase inventory as
dictated by product sales. Additionally, the Company believes that there are
adequate alternative suppliers for its foreseeable needs. All of the Company's
products carry a one year limited warranty against manufacturing defects. To
date, there have been no material expenditures on warranty claims.
In fiscal 1997, pursuant to the Company's rights for additional expansion
space under its existing lease arrangements, the Company expanded its
manufacturing facility to meet anticipated production demand. Additionally, in
1997, the Company enhanced its manufacturing operations by installing a fully
integrated manufacturing software package which improved production
efficiencies and fully integrated the Company's manufacturing facilities with
the Company's accounting systems.
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In October 1998, the Company entered into a sublease arrangement on an
adjacent building adding approximately 23,000 square feet which the Company
intends to use primarily for expanded research and development and
manufacturing activities during fiscal 1999 and beyond. Management believes
that the Company's manufacturing facilities are adequate to meet the Company's
needs throughout the foreseeable future.
PRODUCT RESEARCH AND DEVELOPMENT
Research and development costs related to the Company's instrumentation and
proprietary technology are expensed as incurred and included in operating
expenses. During fiscal 1998, the Company continued to direct its research and
development activities on improving its current product lines as well as
focusing on new product developments. Research and development costs totalled
approximately $757,000, $664,000 and $514,000 for the fiscal years ended
September 30, 1998, 1997 and 1996, respectively.
In fiscal 1993, the Company completed development of the Marksman, an
upgraded version of its former LTI 20-20 laser speed detection system. The
Company also completed the development of a statistical compilation software
package, SpeedStat, used to collect traffic survey statistics. The Company
also expanded its surveying product line by introducing three new models of
its Criterion survey lasers.
In fiscal 1994, the Company completed development of the Criterion 100TM, an
enhancement to the Criterion product line that integrates a Criterion ranging
laser with a surveying theodolite. Additionally, in conjunction with a
privately held software development firm, the Company completed the co-
development of a laser-based mapping system, Laser Walkabout. The Laser
Walkabout system is comprised of a Criterion survey laser, a hand-held data
collector and comprehensive field and office software. This system, combined
with a global positioning system ("GPS") receiver, is used to record the
locations and attributes of remote objects for the generation of computerized
mapping. During fiscal 1994, the Company also completed development of
technology that provides the ability to transfer data using pulses of light
generated by the Company's laser ranging equipment. This technology eliminates
the problems associated with radio frequency communication.
During fiscal 1995, the Company completed development of several new
functions and features centered around the Company's Traffic Safety product
line for use within the law enforcement market. These developments include
QuickMap for accident reconstruction and investigation, DBC for time and
distance measurement between vehicles, and a laser jammer detector built into
the Marksman's software capabilities, as an optional feature provided to law
enforcement agencies to strengthen the Marksman's use in traffic speed and
safety enforcement. These features are also inherent in the Company's second
generation UltraLyte introduced in fiscal 1997.
In 1995, the Company also completed development of the Laser DigiCam photo
laser system, built around the Company's Marksman speed detection laser. The
Laser DigiCam system targets a specific area on a roadway and monitors the
speed of each vehicle that passes through the beam of the laser. When the
Laser DigiCam detects a speeding vehicle, it takes a picture of the vehicle
and prints the time, date and speed on a video frame and stores the
information digitally on the hard disk of its internal computer. The photo
images can be printed at the site or they can be stored for subsequent
processing. As an optional feature to this system, the Company also completed
development of a night illumination system enabling night use of the Laser
DigiCam. Additionally in 1995, the Company completed development of the DAS100
Ship Docking Aid System in cooperation with SeaRiver Maritime, Inc., formerly
Exxon Shipping Company, and a private engineering firm. The DAS100 assists
ship captains and pilots in docking maneuvers by measuring a ship's closing
speed and distance to the dock, and transmitting this data to the bridge of
the ship.
In 1995, the Company, in conjunction with Bushnell Corporation ("Bushnell"),
formerly the Sports Optics Division of Bausch and Lomb, completed development
of a consumer related product, the "LyteSpeed,"
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subsequently renamed the "Yardage Pro 400," which is produced and marketed by
Bushnell to certain sporting markets, primarily the hunting and golfing
industries. In fiscal 1997, the Company completed development of the "Yardage
Pro 800" providing increased ranging capabilities surpassing that of the
Yardage Pro 400. In 1997 the Company worked with Bushnell to develop the
Yardage Pro 600 which is a compact version of the Yardage Pro with maximum
range of approximately 600 yards. The Company receives running royalties on
cumulative net sales of this product, has received development costs for the
initial development and design and retains the right to pursue markets outside
the sports technology area. The Company retains all ownership of patents and
trade secrets of the technology underlying the development of the Yardage Pro.
The Company's royalty and licensing income related to this agreement was
approximately $1,013,000, and $854,000 for the fiscal years ended September
30, 1998 and 1997, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In fiscal 1996, the Company completed development of two new, second
generation laser-based instruments. These second generation instruments have
several characteristics in common including smaller size, lighter weight and
substantially lower manufacturing costs than their predecessors. During the
latter half of fiscal 1996, the Company completed the design and development
of the "Impulse," part of the Company's Survey and Mapping product line. The
Impulse provides range, inclination and height measurements in an instrument
one-third of the weight and size of the Company's Criterion Series of Survey
Lasers. Also, in fiscal 1996, the Company completed development of an
industrial laser sensor for use in collision avoidance and positioning systems
in industrial applications.
During fiscal 1997, the Company completed development of enhanced Impulse
models which use specialized hardware and firmware that offer varying levels
of maximum range and accuracy. In fiscal 1997, the Company also completed
development of the UltraLyte, a second generation laser speed detection device
introduced during the 1997 fourth quarter as part of its Traffic Safety
product line. Similar to the Impulse, the UltraLyte is smaller in size and
weight and has been engineered to lower manufacturing costs. Additionally, the
UltraLyte was designed to incorporate an internal power source, in-scope data
display similar to the Marksman, and, as an optional feature, an inclinometer
for enhanced accident investigation capabilities. In fiscal 1997, the Company
also completed development of the Mariner, a laser measurement device designed
to serve customers within the marine industry.
During fiscal 1998, the Company developed the "MapStar," a digital compass
module ("DCM") that comes in a modular configuration that interfaces to any of
the seven Impulse models. With the addition of the DCM, the Impulse provides
the ability to measure distance and vertical and horizontal angles. In fiscal
1998, the Company also developed two longer range UltraLyte models, the
UltraLyte 100 XL and the UltraLyte 200 XL, as part of its Traffic Safety
product line.
In fiscal 1998, the Company introduced the first of its MapStar software
modules, the T&D Utility Pac. The software package is comprised of a field
module that runs on a handheld data collector, and a Windows office processing
module that downloads and formats the collected data. The field module links
directly to any of the Company's Impulse model lasers.
Designed to assist transmission and distribution engineers with a variety of
measurement and design tasks, T&D Utility Pac allows one man to gather the
amount of information it used to take two people, in half the time. Moreover,
the reflectorless laser capability enables this data to be gathered more
safely and in difficult environments.
In addition to the T&D Utility Pac, the Company is currently developing a
variety of other software packages to enhance the MapStar module system.
During fiscal 1999, the Company expects to release "en Campo," a survey and
mapping module designed for use in a variety of applications to include stock
pile volumes, preliminary site surveys, and natural resource mapping.
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Marketing, Distribution and Customers
The Company presently markets its products to three major classes of
customers. For the fiscal year ended September 30, 1998, the Company's foreign
distributors accounted for 39% of sales, of which the Company's Asian and
European distributors comprised 23% collectively. North American sales to
local law enforcement agencies comprised approximately 34%. Additionally,
sales to the Company's North American Survey and Mapping dealer network
comprised 26%. The Company primarily markets its products using on-site
demonstrations, attendance at trade conferences, advertising in trade
magazines and direct mail. See Note 9 to the Company's consolidated financial
statements for further discussion on customers, export sales and
concentrations of credit risk.
Traffic Safety Products
The Company primarily markets its Traffic Safety products domestically to
law enforcement agencies of state and municipal governments. To date, the
Company's sales force serving this market includes seven direct sales
representatives, three inside sales support personnel and a national sales
manager. Distribution of domestic Traffic Safety Products is primarily by
direct representation. As of September 30, 1998, the largest domestic customer
of the Company's hand-held laser speed detection systems has been the state of
Ohio. Other high volume states include Florida, California, New York,
Michigan, Massachusetts, Wisconsin, Oregon, Washington, and Hawaii.
Internationally, the Company markets its Traffic Safety product line through
its foreign distributors for use by agencies of foreign governments including
local law enforcement agencies and transportation ministries. The Company has
established distribution channels for its Traffic Safety products in most
industrialized countries. To date, the Company's foreign distributors in
Austria, France, Germany, the United Kingdom, Canada, Korea, Italy and
Malaysia account for the highest volume of hand-held Marksman laser speed
detection systems and Laser DigiCam photo-laser systems purchased
internationally. As of September 30, 1998, the Company has established
distribution in over thirty-seven foreign countries.
In 1995, the National Institute of Standards and Technology ("NIST") in
conjunction with the National Highway Traffic Safety Administration ("NHTSA")
completed a national minimum model performance specification related to police
traffic laser speed measurement devices such as the Marksman. Once the
standard was completed, the IACP contracted with the University of California-
Davis to establish a laboratory test site. In October 1995, when the testing
facility was complete, the Company submitted the Marksman for compliance
testing in order to be placed on the IACP Approved Products List. In 1996, the
Marksman was certified by the IACP to meet the federal standard for laser
speed measurement devices. Upon receiving IACP certification, the Marksman was
subsequently placed on the IACP approved products list.
Products listed on the IACP approved products list allow easier access to
federal funds from the United States Department of Transportation for law
enforcement agencies to purchase laser speed detection devices. In fiscal
1998, compliance testing of the Company's UltraLyte was completed and the
UltraLyte was added to the IACP approved products list. Approval of the
Company's UltraLyte LR models are expected to be completed during the first
half of fiscal 1999.
Various foreign standards have also been established for laser speed
enforcement equipment. The Marksman has been subject to foreign approvals in
certain areas where such standards exist. To date, the Marksman has been
approved in Germany, the United Kingdom, Austria, Switzerland, Sweden, the
Netherlands, France and Italy. The Marksman has also been tested and approved
for use by the Royal Canadian Mounted Police ("RCMP") in Canada. In fiscal
1997, the Company's second generation UltraLyte was also approved by the RCMP.
In fiscal 1998, the UltraLyte was approved in Germany and Austria. The
UltraLyte is also being tested in a number of other European countries and in
Korea. Similar to the domestic market, the UltraLyte is expected to achieve
foreign acceptance based on previously set performance standards.
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Laser DigiCam Photo-Laser System
In fiscal 1995, the Company completed development of the Laser DigiCam
photo-laser system and delivered its first substantial order for this system
to the Royal Malaysian Police. During fiscal 1996, the Royal Malaysian Police
was a significant customer comprising approximately 19% of the Company's
overall Traffic Safety revenues. In fiscal 1996, the Royal Malaysian Police
negotiated a two-year, renewable contract for the purchase of the Company's
Laser DigiCam systems. The Company's first order pursuant to this agreement
was delivered in September 1996. During fiscal 1997, a second order was
delivered pursuant to the Company's two-year contract with this agency
comprising 11% of the Company's Traffic Safety revenues in 1997. No
significant sales were made to this customer during fiscal 1998.
The Company believes that primary sales opportunities for the Laser DigiCam
are in international markets. Management intends to continue marketing the
Laser DigiCam system internationally through its existing network of
distributors currently marketing the Company's Traffic Safety product line.
The Company continues to assess the potential of the U.S. market for the
DigiCam System. The Company intends to incrementally increase its marketing
efforts domestically as the potential of this business segment rises within
the U.S. market.
Survey and Mapping Products
The Company's Survey and Mapping products are primarily sold domestically
through its dealer network, and internationally through its foreign
distributors and dealers. As with the Company's Traffic Safety products,
Management continually endeavors to expand its Survey and Mapping products
distribution channels and strategic alliances.
In fiscal 1998, the number of dealers in the Company's domestic distribution
network supporting its Survey and Mapping product line was approximately
ninety-five, and internationally was approximately fifty.
Management believes that the introduction of the Impulse Series of Survey
Lasers late in fiscal 1996 provided two immediate marketing benefits. First,
the Impulse provides an entry-level, broad use product for the Company's
already identified survey and mapping market segments, at a reduced size and
weight, and lower price point. Secondly, these size, weight, and retail cost
reductions allow the Company to access broad new general measurement markets
that have not previously considered laser measurement a viable option. These
markets include engineering construction, commercial material measurement and
estimation, and landscape design. Sales of the Company's Survey and Mapping
product line to other markets include the paper, mapping, mining,
environmental, telecommunication, and utility industries. Domestically, the
Company currently markets to such industries through its domestic dealer
network which is managed by the Company's National Sales Manager and five
direct sales managers. Criterion sales have slowed considerably over the last
few years as the Company's second generation Impulse gains wider market
acceptance. The Company expects to phase the Criterion out of production over
the next twelve months. During the second quarter of fiscal 1999, the Company
expects to deliver a volume Criterion order that, for the most part, will
liquidate the Company's Criterion inventory at normal profit margins. The
Company intends to continue to provide service to existing customers.
To date, the Company's foreign distributors in Japan, Taiwan, Australia,
Europe and Canada account for the highest volume of Survey and Mapping
products purchased internationally. The Company currently markets its Survey
and Mapping products overseas to similar industries through its foreign
distribution channels. As of September 30, 1998, the Company has established
distributors for its Survey and Mapping product line in fifty foreign
countries.
Industrial and Marine Products
In fiscal 1996, the Company completed development of a low cost, industrial
laser distance measurement sensor which the Company currently markets for
industrial laser sensor applications. Pursuant to a contract with Telemotive
Industrial Controls, Inc., ("Telemotive"), a world leading manufacturer of
radio controls for material handling cranes and industrial vehicles, laser
sensors developed and manufactured by the Company are integrated
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into systems marketed under the Telemotive brand name. In exchange for minimum
purchase commitments of the Company's laser sensors by Telemotive, Telemotive
has received exclusive rights to sell the Company's industrial laser sensors
within the material handling market. Due to Telemotive's successful
introduction of its systems in fiscal 1997, Telemotive increased its minimum
purchase commitment in fiscal 1998. Industrial laser sensor sales are expected
to continue to positively impact the Company's fiscal 1999 results of
operations.
Development of the Company's first industrial laser sensors related to its
agreement with Telemotive has resulted in a low cost, laser distance
measurement sensor that the Company believes has other applications in the
industrial measurement market.
In 1995, SeaRiver Maritime, Inc., formerly Exxon Shipping Company, completed
a favorable evaluation of the DAS100. The Company began more aggressively
marketing its Ship Docking Aid Systems during the latter half of fiscal 1995
resulting in the award of a contract to furnish laser sensors for ship docking
systems to Martin Marietta Corporation ("MMC"), a subsidiary of Lockheed
Martin. Pursuant to the terms of the contract, delivery was made during the
Company's first and second quarters of fiscal 1996 contributing 8% to the
Company's overall fiscal 1996 revenues. Because of the specialized nature of
the ship docking industry, management expects sales of Ship Docking Aid
Systems to greatly fluctuate between financial periods. The Company continues
to market the DAS 100 system in North and South America. The Company is also
working to develop new markets for its laser sensors for a number of different
marine and industrial applications.
Backlog
As of September 30, 1998 and 1997, the Company had a backlog in sales of
approximately $331,000 and $160,000, respectively, primarily attributable to
sales of its Traffic Safety product line. 1998 backorders were delivered
during the first quarter of fiscal 1999. The Company intends to continually
evaluate inventory and production demands to fill orders as received.
Competition
The Company's hand-held Marksman and UltraLyte laser speed detection systems
compete primarily with hand-held radar speed measurement devices. Although
most of the Company's competitors in the radar industry sell their
instrumentation at prices lower than those of the Marksman and UltraLyte,
Management believes that the Marksman and UltraLyte compete primarily because
of their greater effectiveness and accuracy compared to radar speed
measurement devices.
Management believes that the introduction of the UltraLyte enables the
Company to better penetrate the radar market due to its lower price point. The
UltraLyte, re-designed in fiscal 1997, is half the size and weight of the
Company's Marksman, has an internal power source, and, as an optional feature,
an integrated inclinometer enhancing the UltraLytes' surveying functions.
The Company's hand-held laser speed detection devices have the ability to
positively identify specific vehicles and are not detectable by conventional
radar detectors. Additionally, consumer laser speed detectors and laser
jamming devices are generally ineffective against the Marksman and newly
introduced UltraLyte.
The ranging capabilities of the Company's hand-held laser speed detection
systems are also used by law enforcement agencies to gather measurement
information during accident reconstruction and investigation. In 1995, the
Company introduced QuickMap, which enhanced the Marksman's use by law
enforcement agencies for quickly collecting and processing information at
accident sites and crime scenes. With the introduction of the
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UltraLyte 200, the Company enhanced the surveying capabilities of the
Company's laser speed detection device by integrating an inclinometer into the
UltraLyte. With the inclination capability, the UltraLyte becomes both a speed
measurement and mapping instrument, when used in conjunction with the
Company's QuickMap.
The Company's Marksman and UltraLyte also provide other capabilities
distinct from its competitors. SpeedStat, a statistical compilation software
package introduced in 1993, when combined with the Company's Marksman or
UltraLyte, automatically gathers and formats traffic survey data on a portable
computer allowing traffic engineers and law enforcement officials to conduct
and document traffic speed surveys more efficiently using the Marksman or
UltraLyte than with conventional methods. DBC, introduced in 1995, allows the
Company's laser speed detection systems to measure the distance and time
between vehicles. Additionally, the Company's Marksman and UltraLyte
incorporate features to detect when a laser jamming device is in use, which
has proven valuable to law enforcement agencies in jurisdictions where the use
of laser jamming devices is prohibited. The ranging capabilities of the
Marksman and UltraLyte are also used by SWAT teams to measure target
distances, and in drug interdiction, to measure truck trailers for false
compartments.
The Company is aware of four other companies that market laser speed
measurement devices. Kustom Signal, Inc. markets a device pursuant to a
license from the developer, Laser Atlanta, Inc. Applied Concepts, a Texas
based company, is in the initial stages of introducing a laser speed
measurement device. Additionally, Riegl, an Austrian company, and Jenoptik, a
German company, also market laser speed measurement devices in Europe. Such
competition has not, however, had a material impact on the Company's sales of
its Traffic Safety products. See "Patent Licensing Agreements."
The Company presently believes that its hand-held laser speed detection
systems are able to compete within this market based upon their accuracy in
speed readings, positive vehicle identification, and the difficulty that
motorists have in detecting the laser beam generated by the Marksman and
UltraLyte. The Company also believes that its ancillary Traffic Safety
products address applications that provide a competitive advantage over other
laser speed measurement devices. The Company also believes that its second
generation technology provides a significant competitive advantage to the
Company by providing lower cost and more ergonomically designed
instrumentation.
Management is aware of camera systems similar in functionality to the
Company's Laser DigiCam developed by Kustom Signals, Inc., and by Poltech, an
Australian company, that compete with the Company's Laser DigiCam. The Laser
DigiCam photo laser system also competes with photo-radar systems. Because the
Laser DigiCam system has a much narrower beam than photo-radar systems on the
market, the Company believes that the Laser DigiCam system provides better
target identification and increased accuracy. Management intends to continue
marketing the Laser DigiCam system at a sales price below that of high-end
radar systems. Management believes that it can compete within this market
based upon price and quality of information derived from the Laser DigiCam
system as compared to competing systems. Because of Federal right to privacy
laws, Management believes that primary sales opportunities for the Laser
DigiCam will be in international markets.
The Company's Survey and Mapping products compete with traditional
measurement devices, and a laser measurement device developed and marketed by
Laser Atlanta, Inc., which is designed specifically for survey and mapping
applications. Management also believes that it may compete in international
markets with instruments developed and marketed by Riegl, an Austrian company,
and Jena, a German company and MDL, located in the United Kingdom. The Company
competes within this market based upon the quality of information generated by
its Survey and Mapping products and the time saving features provided by these
systems as compared to other traditional systems. Additionally, Management
believes that the Company's Impulse series of Survey and Mapping lasers
compete within this market because of their reduced size and weight and lower
price point compared to competing systems. The Company's MapStar compass
module competes due to its greater accuracy and functionality as compared to a
compass attachment marketed by MDL.
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The Industrial Laser Distance Sensors developed for Telemotive were
developed to replace existing radio frequency ("RF") based distance measuring
devices previously developed and marketed by Telemotive. Pursuant to the terms
of the Company's contract with Telemotive, Telemotive has exclusive rights to
the industrial laser sensors developed under this contract for the material
handling market in return for minimum guaranteed purchases of the Company's
laser sensors.
The Company believes that its industrial sensors will continue to compete
with traditional measuring devices including radar and RF based systems, and
in certain international markets, primarily Europe, with laser distance
measurement instruments developed and marketed by Riegl, an Austrian company.
The Company competes in these markets based on the unique measurement
capabilities of its industrial laser sensors and because of their reduced
size, weight and lower manufacturing costs.
The Company is aware of several companies that provide other shipdocking aid
systems including Marimatech A.S., Koden Electronics Company and Tokimee.
Management believes that it can compete within this market based upon the
Company's advanced technology and lower cost position as compared to other
systems. Since the Company manufactures the laser sensors integrated into its
docking systems Management believes that it will maintain lower manufacturing
costs as compared to other systems.
Patents
Certain processes by which the Company is able to produce its products are
largely proprietary. The Company believes that patent protection of its
technology and products that result from the Company's research and
development efforts, are important to the possible commercialization of the
Company's technology. The Company continually attempts to protect its
proprietary technology by obtaining patent application protection and relying
on trade secret laws and non-disclosure and confidentiality agreements with
its employees and persons that have access to its proprietary technology.
Costs associated with patents are capitalized and amortized over their
estimated useful life of 15 to 17 years. Patent costs capitalized totaled
approximately $160,000, $185,000, and $116,000 for the fiscal years ended
September 30, 1998, 1997, and 1996 respectively.
Additionally, the Company extends most of its domestic patent filings into
foreign applications. During fiscal 1998, one foreign patent, expiring in
November 2015, was issued in Australia related to the Company's consumer
product technology .
To date, the Company has filed thirty-two patent applications related to its
various product lines with the United States Patent and Trademark Office in
order to protect its current technology. These applications include three
applications which are continuations of previous applications. To date,
eighteen of these patents have been issued.
One patent, expiring in March 2011, relates to the Company's Criterion
Series of Survey Lasers providing coverage of the Criterion in forestry
applications that include height and diameter measurement of trees. The
Company has also been issued two patents, expiring in October 2011, on its
laser speed detection instrument. A fourth patent issued, expiring in May
2012, relates to a mechanical interface between one of the Company's Criterion
hand-held survey lasers and an electronic theodolite enabling the instruments
to remain vertically aligned while the instruments are adjusted.
In fiscal 1996, a fifth patent was issued, expiring in June 2013, relating
to the Company's Survey and Mapping product line which incorporates the
Company's proprietary "Walkabout" software that enables field data collection
in the G.I.S. mapping process. Additionally, the Company was granted a patent
on its technology providing the capability of transmitting data using pulses
of light generated from the Company's laser range-finders. This patent expires
in July 2013. A seventh patent was issued, expiring in November 2013, related
to the consumer instrumentation developed for Bushnell.
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During fiscal 1997, two patents were issued on the Company's proprietary
technology related to consumer range-finding instrumentation developed for
Bushnell. These patents expire in March 2014 and July 2014. Additionally, the
Company was issued a patent, expiring in April 2014, related to its Traffic
Safety product line associated with the method for measuring distance and time
between traveling vehicles. The Company was also granted a patent, expiring in
December 2014, related to the Company's QuickMap accident investigation
system.
During fiscal 1998, one patent was issued expiring in December 2014 which
was a continuation on an existing patent related to the Company's consumer
range-finder. Three patents were issued related to the design and proprietary
technology developed for the Impulse. These patents expire in February 2014,
July 2014 and August 2014. Two patents were issued related to the UltraLyte,
one on a Jam Detector feature, which will expire in February 2014, and another
incorporating tilt sensing capabilities within a laser speed measuring device
and subsequently conducting three dimensional accident reconstruction which
will expire in September 2014. One patent was issued related to increased
range performance in fog for marine applications and will expire in July 2014.
To date fourteen additional patent applications have been filed. Three are
continuations of previously issued patents, three relate to the Company's
Traffic Safety products, five are related to the Company's Survey and Mapping
products, two relate to the Company's industrial product line and one is
related to a consumer product.
Patent Licensing Agreements
In 1995, the Company, in conjunction with Bushnell, formerly the Sports
Optics Division of Bausch and Lomb, completed development of the Yardage Pro
laser range finder, formerly the LyteSpeed, which is marketed and produced by
Bushnell to certain sporting markets, primarily the hunting and golfing
industries. The Company retains all ownership of patents and trade secrets of
the technology underlying the development of these products and has been
issued three patents related to this technology.
In September 1996, the Company agreed to license to Kustom Signals, Inc.
("Kustom") and LaserCraft, Inc., ("LaserCraft"), a patent relating to the
Company's hand-held laser speed detection system (the "Patent"). Kustom
markets a laser speed measurement device along with radar speed measurement
devices and other traffic safety equipment. In fiscal 1996, the Company gave
notice to Kustom that it was potentially infringing the Patent by making and
selling laser-based speed measurement devices manufactured for them by
LaserCraft. While Kustom and LaserCraft have not acknowledged infringement of
the Patent, they entered into the License Agreement, whereby the Company
granted Kustom and LaserCraft the nonexclusive rights to manufacture and sell
laser-based speed measurement devices incorporating features covered by claims
of the Patent. In consideration for the License Agreement, the Company
received a prepayment of licensing fees for a predetermined number of licensed
devices sold by Kustom, and receives license fees for each licensed device
sold by Kustom. Additionally, the Company will receive running license fees
for each licensed device sold by LaserCraft, except for those devices that are
manufactured by LaserCraft for Kustom for resale.
In November 1997, the Company and Bushnell entered into a licensing
agreement with Tasco Sales, Inc., ("Tasco"), whereby the Company and Bushnell
agreed to license certain patents related to the Yardage Pro. Tasco markets a
laser range-finder, developed by Asia Optical, a Taiwanese Company that
competes with the Yardage Pro series of range-finders. The Company and
Bushnell have agreed to provide Tasco with the nonexclusive rights to market a
laser range-finder incorporating certain features covered by claims of patents
held by the Company and Bushnell. Pursuant to this agreement, the Company and
Bushnell receive licensing fees based on a percentage of Tasco's gross sales.
In June 1997, the Company agreed to license to Applied Concepts, Inc.,
("ACI"), a patent relating to the Company's hand-held laser speed detection
system. Under this agreement, the Company granted ACI the nonexclusive right
to manufacture and sell laser-based speed measurement devices incorporating
features covered by the claims of the patent. In consideration of the license
agreement, the Company receives licensing fees as a percentage of net sales on
each licensed device sold by ACI.
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In January 1998, the Company entered into a license agreement with Bushnell
and Blount, Inc. ("Blount") whereby the Company and Bushnell agreed to license
certain patents related to the Yardage Pro which enables Blount to market a
competitive product into the consumer sports market. This product is
manufactured by Asia Optical a Taiwanese company. Together, the Company and
Bushnell receive running royalties on the net sales of Blount products.
In September 1998, the Company agreed to license to MPH Industries, Inc.,
("MPH"), a patent relating to the Company's hand-held laser speed detection
system. MPH has added a laser speed measurement device to their current line
of radar instruments. Pursuant to the agreement, the Company granted MPH the
nonexclusive rights to manufacture and sell laser-based speed measurement
devices incorporating features covered by the claims of the patent. In
consideration for the license agreement, the Company will receive license fees
as a percentage of sales on each licensed device sold by MPH. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Royalty and Licensing Income."
Government Regulation
The Company's laser products emit a laser light beam and are regulated by
the FDA and subject to approval by certain foreign governments. FDA
regulations impose eye safety requirements on the Company's products and
governments of some foreign countries have similar regulations. The Marksman
and UltraLyte comply with FDA Class 1 eyesafety regulations and have been
rated Class 1 eyesafe by laboratories in Austria and Germany.
Due to FDA involvement in international standardization efforts for laser
products with the International Electrotechnical Commission ("IEC"), the
Company is aware of certain changes under consideration by the FDA that may
affect current FDA regulated emission limits of Class 1 pulsed lasers.
Although there is no assurance of this, Management does not believe that such
proposed changes will impact the Company's sales or results of operations.
In 1995, the National Highway Traffic Safety Administration ("NHTSA")
working in conjunction with the National Institute of Standards and Technology
("NIST"), completed a national standard for performance specifications for
laser speed measurement devices and established a laboratory testing facility
at the University of California-Davis for testing of laser speed measurement
devices. In October 1995, the Company submitted a Marksman unit for testing.
In April 1996, the Marksman was certified by the International Association of
Chiefs of Police ("IACP") to meet the federal standard for laser speed
measurement devices. Upon receiving IACP certification, the Marksman was
subsequently placed on the IACP Approved Products List. This list is comprised
of speed enforcement products which have passed the national standard. During
fiscal 1998, the UltraLyte completed compliance testing and was added to the
IACP approved products list. The UltraLyte XL is expected to complete testing
during the first half of fiscal 1999.
Historically, there were four states within the U.S. that required the
passage of specific state legislation to enable the use of new technological
developments in speed enforcement. As of September 30, 1998, legislation has
been passed approving the use of laser-based speed measurement devices as an
acceptable means of speed enforcement in Florida, North Carolina and Virginia.
Management is currently unable to ascertain when legislation will be passed in
Pennsylvania and there is no assurance that such legislation will be passed.
Management also recognizes that many foreign countries have centralized law
enforcement and purchasing regulations requiring stringent performance and
accuracy standards. Management primarily acknowledges that Western Europe
purchasing authorities adhere to such performance and accuracy standards. The
Company's laser speed detection products are subject to approval by certain
foreign governments where regulatory controls exist for speed enforcement
equipment. The Company has received approval for the Marksman from government
agencies in Germany, the United Kingdom, Austria, Sweden, Switzerland, the
Netherlands, France and Italy. The Marksman and UltraLyte have also been
tested and approved by the Royal Canadian Mounted police in Canada. The
UltraLyte has been approved in Germany and Austria and is currently being
tested in a number of other European countries and Korea.
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Historically, the Company's laser speed measurement devices have been
subject to court acceptance as a viable means of speed measurement in
jurisdictions where they are used. To date, the Marksman has been accepted by
courts in over forty states and in over fifteen foreign countries. In June
1996, the Superior Court of New Jersey ruled in a specific case that
insufficient test data had been presented to the court and ruled to not allow
the instrument to be used in that court's jurisdiction. As a result, new
testing was subsequently completed by the New Jersey State Police and the New
Jersey Department of Transportation which was submitted to the court at a
second hearing held in New Jersey in October 1997. In March 1998, the Superior
Court of New Jersey ruled that state and municipal government agencies in the
jurisdiction of the court will be allowed to use the Company's LTI 20-20
series of laser speed guns in their vehicular law enforcement efforts.
EMPLOYEES
Management considers the relations between the Company and its employees to
be good. As of September 30, 1998, the Company employed ninety-two persons,
consisting of eight management personnel, twenty-nine employees engaged in the
sales and marketing activities of the Company, twelve engineering personnel,
twenty-eight production related personnel and fifteen administrative and
office personnel. In addition to its full-time employees, the Company uses the
services of two contractual marketing representatives and also uses the
services of two contract engineers providing mechanical design and
documentation services related to the Company's research and development
activities.
ITEM 2. PROPERTIES
As of September 30, 1998, The Company's facilities located in Englewood,
Colorado provided approximately 24,000 square feet under a lease agreement
expiring in July, 2003.
In November 1998, pursuant to a sublease agreement on adjacent space from an
unrelated party, the Company leased an additional 23,000 square feet under a
lease agreement expiring in July 2002. This expansion encompasses the growing
needs of the Company's research and development activities and manufacturing
facility requirements. In total, the Company's facilities comprise 22,000
square feet of production space, 12,000 square feet allocated to research and
development activities and 13,000 square feet is allocated to marketing and
administrative activities. As a result of the Company's space expansion in
fiscal 1999, the Company intends to expend approximately $140,000 in leasehold
improvements. Such leasehold improvements are not expected to materially
impact the Company's working capital or results of operations.
ITEM 3. LEGAL PROCEEDINGS
On February 10, 1999, a securities class action entitled Moshe Rosenfeld, On
Behalf of Himself and All Others Similarly Situated, vs. Laser Technology,
Inc., David Williams, Pamela Sevy, Dan N. Grothe and H. DeWorth Williams, was
filed in the United States District Court, District of Colorado (Case no. 99-
Z-266). The Complaint alleges that the Company and certain of its officers and
directors violated federal securities laws, particularly Sections 10(b) and 20
of the Securities Exchange Act of 1934, as amended (the "1934 Act").
Specifically, the complaint alleges that the Company's financial statements
were false and misleading during the "class period" (February 12, 1996 to
December 23, 1998) and that the Company made certain false or misleading
statements regarding the Company's financial statement during this period. The
individual named defendants are directors and/or executive officers of the
Company.
The action appears to have followed and be premised on the resignation of
the Company's independent accountant, BDO Seidman, LLP ("BDO"), on December
21, 1998, and the resignation of three members of the Audit Committee of the
Board of the Board of Directors. The resigning members of the Audit Committee
were members of the Special Audit Committee (the "Special Committee"), who
also resigned from the Board of Directors on January 7, 1999 as a result of
disagreements between management and the Special Committee. BDO also withdrew
its opinions on the previously issued certified financial statements for the
fiscal years 1993, 1994, 1995, 1996 and 1997. At the time of BDO's
resignation, the Special Committee was conducting an independent
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investigation into the Company's accounting records and alleged irregularities
relating to the Company's accounting records. Following the announcement of
the resignation of BDO and withdrawal of five years of audited financial
statements, the American Stock Exchange suspended trading in the Company's
shares on December 23, 1998.
On January 7, 1999, a Special Meeting of the Board of Directors (the
"Special Meeting") was held for the purpose of receiving the report and
recommendations from the Special Committee. At the Special Meeting, the
Special Committee made several proposals including, but not limited to, asking
for the resignation of the Company's Chief Executive Officer and Chief
Financial Officer. Following the presentation by the Special Committee of its
findings and proposed actions, those directors not serving on the Special
Committee made a counter proposal. Without responding to the counter-proposal,
the individuals on the Special Committee then informed the Board of Directors
of their intent to resign from the Special Committee and from the Board of
Directors.
In its complaint, the plaintiff contends that the resignation of BDO and the
three directors is due to the Company's alleged unreliable and misleading
financial statements. Plaintiff's complaint further alleges violations of
Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder. The
action specified the period from February 12, 1996 through December 23, 1998
as the "class period."
The Company has not had ample time to fully review the complaint nor to
determine the extent of any possible liability or material damage to the
Company. The Company further believes that the allegations set forth in the
complaint are groundless and without merit and it intends to vigorously defend
against the action.
The Company is aware of at least five additional class action suits that
have been filed recently against the Company. As of the date hereof, the
Company has received two of the complaints in the five actions, and the
Company believes that the actions parallel the one described above. The
Company intends to vigorously defend against all of the actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter ended
September 30, 1998.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On August 6, 1997, the Company announced that it would not extend the
expiration date of its outstanding Redeemable Warrants, which expired on
January 11, 1998. Under the terms of the Redeemable Warrants, each Redeemable
Warrant represented the right of the holder to purchase one share of the
Company's Common Stock at an exercise price of $6.00 per share, subject to
adjustments, at any time prior to the close of business on January 11, 1998.
The Company had the right to redeem the Redeemable Warrants in whole for
cancellation at a price of $0.05 each, by written notice mailed to each holder
thirty (30) days prior to the redemption date. Such notice of redemption could
only be given within ten (10) days following any period of thirty (30)
consecutive trading days during which the closing sale price of the Company's
shares of Common Stock exceeds $8.00 per share.
Because of the Company's announcement, the Redeemable Warrants that were not
exercised by the holders thereof or redeemed by the Company prior to January
11, 1998, expired by their terms and the holders have no further exercise
rights. All of the outstanding Redeemable Warrants expired unexercised on
January 11, 1998.
Following the Company's change of corporate domicile from the State of Idaho
to the State of Delaware, the Company has authorized 2,000,000 shares of
Preferred Stock, par value $.01 per share, which shares of
17
<PAGE>
Preferred Stock may be issued in various series and shall have preference as
to dividends and to liquidation of the Company. The Board of Directors of the
Company may establish the specific rights, preferences, voting privileges and
restrictions of such Preferred Stock, or any series thereof. To date, no
shares of Preferred Stock have been issued.
The Company's common stock is listed on the American Stock Exchange ("LSR").
As of September 30, 1998, 4,994,551 common shares were outstanding and the
Company had approximately 639 shareholders of record which figure does not
take into account those shareholders whose certificates are held by nominees.
The following table sets forth the range of high and low sale prices of the
common stock for each calendar quarterly period as reported on the American
Stock Exchange.
Stock Prices
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1998
First Quarter..................................................... $4.43 $2.87
Second Quarter.................................................... 4.06 3.12
Third Quarter..................................................... 5.93 3.31
Fourth Quarter*................................................... 3.87 2.87
1997
First Quarter..................................................... $5.38 $3.62
Second Quarter.................................................... 4.00 3.25
Third Quarter..................................................... 4.00 3.19
Fourth Quarter.................................................... 4.00 2.75
1996
First Quarter..................................................... $7.62 $3.87
Second Quarter.................................................... 8.44 5.50
Third Quarter..................................................... 6.69 4.12
Fourth Quarter.................................................... 4.56 3.50
</TABLE>
- --------
* The 1998 fourth quarter reflects the high and low sale prices of the
Company's common stock reported by the American Stock Exchange through
December 22, 1998. On December 23, 1998, trading in the Company's stock was
suspended. With regards to the halt in trading of the Company's common
stock, the American Stock Exchange has advised the Company that the trading
halt will continue pending a review of the Company's audited financial
statements and its continued listing eligibility.
Dividends
The Company currently intends to retain earnings to finance its operations,
therefore, the Company has not declared or paid cash dividends in the past,
nor does the Company anticipate that it will distribute cash dividends in the
foreseeable future.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company should be read in
conjunction with the financial statements and notes thereto and the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The financial data set forth below has been derived from the
audited financial statements of the Company for the years ended 1998, 1997 and
1996. The financial data set forth below for the years ended 1995 and 1994 is
derived from the Company's unaudited financial statements. See "Review of
Accounting Procedures."
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.................. $11,801,293 $9,308,768 $9,504,119 $8,328,581 $5,303,299
Cost of goods sold......... 5,554,037 4,093,285 4,330,193 3,910,735 2,527,322
Gross profit............... 6,247,256 5,215,483 5,173,926 4,417,846 2,775,977
Royalty and licensing
income.................... 1,242,732 868,931 401,121 -- --
Total operating income..... 7,489,988 6,084,414 5,575,047 4,417,846 2,775,977
Operating expenses......... 6,205,024 5,342,067 4,058,908 3,375,151 2,766,426
Income from operations..... 1,284,964 742,347 1,516,139 1,042,695 9,551
Interest income, net....... 115,535 163,955 235,771 157,523 86,555
Income before taxes on
income.................... 1,400,499 906,302 1,751,910 1,200,218 96,106
Taxes on income............ 504,000 312,000 580,000 383,000 37,000
Net income................. 896,499 594,302 1,171,910 817,218 59,106
Basic earnings per common
share..................... .18 .12 .22 .16 .01
Weighted average shares
outstanding............... 4,985,902 4,998,351 5,209,981 4,989,600 5,008,381
Diluted earnings per common
share..................... .15 .10 .15 .11 --
Diluted average shares
outstanding............... 5,981,235 5,918,934 7,875,898 7,338,600 7,181,631
</TABLE>
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....... $8,434,703 $7,803,965 $7,698,674 $7,834,363 $7,247,133
Total assets.......... 12,515,957 11,144,626 10,663,459 8,998,295 8,366,463
Short-term debt,
including current
maturities of long-
term debt............ 76,564 -- -- -- 59,517
Long-term debt less
current maturities... 159,549 -- -- -- 150,075
Total stockholders'
equity............... 11,044,810 10,154,361 9,683,983 8,472,282 7,655,064
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the three most recent fiscal years, the
percentage relationship to net sales of principal items in the Company's
Statement of Operations. It should be noted that percentages discussed
throughout this analysis are stated on an approximate basis.
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Net sales............................ 100% 100% 100%
Cost of goods sold................... 47 44 46
----------- ---------- ----------
Gross profit......................... 53 56 54
Royalty and licensing income......... 11 9 4
Total operating income............... 64 65 58
Operating expenses................... 53 57 43
Income from operations............... 11 8 15
Interest income, net................. 1 2 3
Taxes on income...................... 4 3 6
----------- ---------- ----------
Net income........................... 8% 7% 12%
=========== ========== ==========
The following table provides a breakdown of the net sales and respective
percentages of net sales of the Company's various product lines. Sales of the
Company's less significant revenue producing products are classified as
"Other" for presentation purposes.
<CAPTION>
Years Ended September 30,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Traffic Safety....................... $ 7,148,563 $4,788,403 $5,456,688
Percentage of revenues............... 61% 51% 57%
Survey and Mapping................... 3,990,523 4,006,730 3,175,031
Percentage of revenues............... 34% 43% 34%
DAS100 Ship Docking Aid System....... 271,160 261,876 763,930
Percentage of revenues............... 2% 3% 8%
Other................................ 391,047 251,759 108,470
Percentage of revenues............... 3% 3% 1%
----------- ---------- ----------
Total Revenues....................... $11,801,293 $9,308,768 $9,504,119
=========== ========== ==========
</TABLE>
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September
30, 1997
Net sales for the fiscal year ended September 30, 1998 ("1998") were
$11,801,293 compared to $9,308,768 realized during the fiscal year ended
September 30,1997 ("1997"), representing a 27% increase in sales over the
previous year. Sales growth in 1998 was primarily attributable to increased
volume sales of the Company's Traffic Safety products resulting from improved
distribution and the introduction of second generation products.
Sales of the Company's Traffic Safety products increased 49% from $4,788,403
in 1997 to $7,148,563 in 1998. Fiscal 1998 Traffic Safety sales began to
benefit from second generation products such as the UltraLyte and,
internationally, sales of the Company's first generation Marksman continued to
be strong in Europe and Korea while approvals are being completed related to
the Company's second generation UltraLyte.
20
<PAGE>
Sales of the Company's Survey and Mapping products declined slightly in 1998
to $3,990,523 from $4,006,730. Domestic Survey and Mapping product sales
increased 20% to $2,712,277 in 1998 from $2,251,495 in 1997, International
sales of the Company's Survey and Mapping products decreased 38% from
$1,755,235 in 1997 to $1,274,439 in 1998. International sales of the Company's
Survey and Mapping products declined in 1998 due to the economic downturn
within the Asian market.
International sales of the Company's products in 1998 were $4,645,787
compared to $4,399,638 realized in 1997. International sales comprised
approximately 39% of the Company's total revenues in 1998 compared to 47% in
1997. During 1998, international Traffic Safety sales increased 41% to
$3,371,348 from $2,397,161 realized in 1997. Management believes that sales of
the Company's Traffic Safety products to Pacific Rim areas have not been
affected by the current Asian economic crisis but that international sales of
the Company's Survey and Mapping products have been impacted adversely.
Management intends to continue to evaluate the market potential of the
Company's products during this economic downturn. International sales of the
Company's products are expected to continue to comprise a significant portion
of its revenues.
Gross profit as a percentage of sales was 53% for 1998 compared to 56% in
1997. The decrease in gross profit margins in 1998 was primarily due to lower
gross margins on sales of the Company's first generation products, primarily
the Marksman sold internationally. During the 1998 fourth quarter, the Company
took a one time charge of approximately $100,000 relating to cost variances
which it had accumulated in its inventory costing system related to the
Company's recent implementation of its new, fully integrated manufacturing
software package. As the Company continues to implement this system, these
standard cost variances will no longer occur because the accounting system was
refined in the fiscal 1998 fourth quarter to better accumulate those costs.
Additionally, during the fourth quarter of fiscal 1998, Management agreed to
sell approximately $140,000 at cost of inventory components to its newly
contracted board assembly house for the purposes of future turnkey board
processing from this supplier.
Management recognizes that competitive pressure may affect the Company's
gross profit margins. Such impact from reduced selling prices is expected to
be offset by reduced manufacturing costs on second generation products.
Competitive pressure impacted the Company's gross profit margins in 1998, as
older generation products, primarily the Marksman, continued to be sold in
high volumes internationally. Sales of the Company's first generation products
at higher manufacturing costs continue as a result of the length of time
required related to the approval processes for the Company's UltraLyte within
certain foreign markets. During 1998, the UltraLyte was approved for use as a
viable means of speed enforcement in Germany and Austria and is currently
being tested in a number of other European countries and Korea.
As second generation products become a larger percentage of overall sales,
Management expects gross margins to improve. The Company anticipates that
gross profit margins on international sales will remain consistent with those
realized domestically on its second generation products. However, Management
believes that gross profit margins on high volume international sales of its
laser speed detection systems, primarily the Marksman, may be less than those
realized domestically due to reduced selling prices on high volume orders and
higher manufacturing costs related to the Marksman. The Company minimizes the
effect of currency fluctuations by requiring payment in U.S. funds.
Royalty income earned in 1998 from the Company's licensees primarily related
to the Company's agreement with Bushnell on sales of the Yardage Pro series of
laser range finders marketed by Bushnell. Royalty income rose approximately
44% to $1,242,732 in 1998 from $868,931 realized in 1997. Management believes
that royalty income received from its current licensing arrangements will
continue to positively impact the Company's results of operations. See
"Royalty and Licensing Income."
Total operating expenses increased approximately 16% to $6,205,024 in 1998
from $5,342,067 for the comparable 1997 period. Increased operating expenses
realized in 1998 as compared to 1997 primarily related to increased personnel
requirements. As a percentage of net sales, total operating expenses decreased
to 53% in 1998 from 57% in 1997. Decreased operating expenses as a percentage
of sales is attributable to increased sales and the leveling of expenses
related to the development of the Company's infrastructure in the prior year
period.
21
<PAGE>
The Company anticipates that operating expenses will continue to increase to
support the Company's continued growth as the Company's sales increase.
However, Management believes that operating expenses will continue to decline
as a percentage of sales, now that the Company's investment in infrastructure
is substantially complete.
Improved royalty income partially offset the increase in operating expenses
in 1998. Combined with income earned on investments of $115,535 and $163,955
in 1998 and 1997, respectively, the Company realized income before taxes on
income of $1,400,499 in 1998 compared to income before taxes on income of
$906,302 for the comparable 1997 period. After taxes on income, the Company
realized net income of $896,499, or $.18 basic earnings per share in 1998
compared to $594,302, or $.12 basic earnings per share, realized in 1997.
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September
30, 1996
Net sales for the fiscal year ended September 30, 1997 ("1997") were
$9,308,768 compared to $9,504,119 realized during the fiscal year ended
September 30, 1996 ("1996"). Decreased volume sales of the Company's Ship
Docking aid sensors were offset by increased Survey and Mapping sales. Larger
sales of the Company's ship docking systems were realized in 1996 as compared
to 1997, due to the Company's completion of its contract with Lockheed Martin
in 1996. Management expects that sales of its Ship Docking Aid Systems will
greatly fluctuate between financial periods due to the specialized nature of
the maritime industry.
Decreased sales of the Company's Ship Docking Aid systems were offset by
increased Survey and Mapping sales of the Company's products. Survey and
Mapping sales rose 26% to $4,006,730 in 1997 from $3,175,031 in 1996 due to
increased volume sales of the second generation Impulse series of survey
lasers. As market penetration of the Company's second generation Impulse
expanded, sales of the Company's Criterion slowed as the Impulse replaced
first generation technology.
Traffic Safety sales in 1997 were $4,788,403 compared to $5,456,688 realized
in 1996 representing a 14% decrease in the Company's overall Traffic Safety
revenues. The decline in Traffic Safety sales in 1997 compared to 1996 was
primarily related to lower international sales of the Company's Traffic Safety
products. Despite lower international revenues, domestic sales of Traffic
Safety products rose 5% to $2,375,111 in 1997 compared to 1996 domestic
Traffic Safety sales of $2,270,931, primarily due to the introduction of the
UltraLyte, the Company's second generation Marksman laser speed detection
device, during the latter half of fiscal 1997.
Gross profit as a percentage of sales was 56% for 1997 compared to 54% in
1996. The increase in gross profit was due to lower manufacturing costs
related to the Company's second generation Impulse and UltraLyte, designed to
reduce manufacturing costs and improve production efficiency.
Total operating expenses increased approximately 32% to $5,342,067 in 1997
from $4,058,908 for the comparable 1996 period. As a percentage of net sales,
total operating expenses rose to 57% in 1997 from 43% in 1996. Increased
operating expenses realized in 1997 primarily related to the Company's
increased distribution efforts and consultant fees related to the
implementation of the Company's fully integrated JD Edwards business software
package which improved the Company's internal control systems. During fiscal
1997, the Company invested in building its direct sales force for its domestic
Traffic Safety and Survey and Mapping business segments. As a result, the
Company incurred increased operating expenses including increased compensation
expense due to increased personnel, and higher advertising and travel expenses
related to accelerated marketing efforts over the previous year.
Royalty income from the licensing of the Company's proprietary technology
rose 117% to $868,931 in 1997 from $401,121 realized in 1996. Increased
royalty income realized in 1997 partially offset the increase in operating
expenses incurred in 1997. Combined with income earned on investments of
$163,955 and $235,771 in 1997 and 1996, respectively, the Company realized
income before taxes on income of $906,302 in 1997 compared to income before
taxes on income of $1,751,910 for the comparable 1996 period. After taxes on
income, the Company realized net income of $594,302, or $.12 basic earnings
per share, in 1997 compared to $1,171,910, or $.22 basic earnings per share,
in 1996. See "Patent Licensing Agreements".
22
<PAGE>
FOREIGN SALES
Foreign sales of the Company's products were 39%, 47%, and 49% for the
fiscal years ended September 30, 1998, 1997 and 1996, respectively. Management
believes that foreign sales of the Company's products will continue to
comprise a significant portion of its revenues. The Company requires that all
international sales be paid for with U.S. dollars. An increase in the value of
the U.S. dollar relative to other currencies could make the Company's products
less competitive in those markets.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to the continual development of the
Company's products are expensed as incurred and included in operating
expenses. Research and development costs totaled approximately $757,000,
$664,000, and $514,000 for the years ended September 30, 1998 1997 and 1996,
respectively. Year to year increases in research and development expenditures
are primarily attributable to increased personnel costs related to increased
personnel requirements. Management anticipates continued increases in research
and development costs as the Company continues to develop new products and
enhance existing ones.
Cost associated with the Company's patents are capitalized and amortized
over their estimated useful life of 15 to 17 years. Patent costs capitalized
totaled approximately $160,000, $185,000 and $116,000 for the fiscal years
ended September 1998, 1997, and 1996, respectively.
INCOME TAXES
Under the provisions of SFAS No. 109, the Company's policy is to provide
deferred income taxes related to inventories and other items that result in
differences between the financial reporting and tax basis of assets and
liabilities. As a result, at September 30, 1998, the Company has recorded a
deferred tax asset totaling $87,000. Based upon the Company's history of
taxable income and its projections for future earnings, Management believes
that it is more likely than not that sufficient taxable income will be
generated in the foreseeable future to realize the deferred tax asset. See
note 6 to the Company's consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs have been satisfied primarily through
the Company's public offering consummated in January 1993 (which provided
$6,313,881 in net proceeds to the Company, after deduction of underwriting
discounts and related offering expenses) and cash flow from operations. The
Company's working capital at September 30, 1998 was $8,434,703 as compared to
working capital of $7,803,965 at September 30, 1997. The Company's present
working capital is expected to adequately meet the Company's needs for at
least the next twelve months.
For the year ended September 30, 1998, cash provided by operating activities
was $86,602. Net income of $896,499 and increased accounts payable of $244,769
was used to expand inventories by $1,059,060 to meet anticipated production
demand. Cash used in investing activities of $280,024 resulted from increased
cash from investment maturities of $454,757 net of investments purchased,
which were primarily used for the purchase of property and equipment in the
amount of $576,185, and $158,596 was used to protect the Company's proprietary
technology. In August 1998 the Company financed a new car fleet arrangement
which primarily provided the cash from financing activities of $230,063. Also
in 1998, the Company received $46,750 in proceeds from the exercise of stock
options related to the Company's qualified Incentive Stock Option plan and
reinvested $52,800 pursuant to the Company's Stock Repurchase Program. For the
year ended September 30, 1998 cash and cash equivalents increased $36,641.
For the year ended September 30, 1997, net income of $594,302 offset cash
used in operating activities of $93,705 and was primarily used to finance an
increase of $570,154 in trade accounts receivable. Additionally, $221,268 was
used to expand inventories to meet anticipated production demand. Cash used in
investing activities of $1,068,793 primarily related to the reinvestment of
unused cash reserves of $1,297,465 and $453,851
23
<PAGE>
was used for the purchase of property and equipment and leasehold improvements
related to the expansion of the Company's facilities. Cash used in financing
activities of $123,924 related primarily to the purchase of shares of the
Company's common stock, recorded at cost. For the year ended September 30,
1997 cash and cash equivalents decreased $1,295,294.
For the year ended September 30, 1996, cash provided by operating activities
was $310,212. Net income of $1,171,910 combined with an increase of $511,465
in accounts payable and accrued expenses was used to finance an increase in
trade accounts receivable of $1,028,760 and $284,029 was used to expand
inventories. Cash provided by investing activities of $421,716 was primarily
attributable to proceeds, after reinvestment, from the sale of investments of
$1,169,914, of which $632,437 was used for the purchase of property and
equipment and leasehold improvements related to the Company's facility
expansion in December 1995. Cash flows of $78,210 used in financing
activities, resulted from proceeds received from the exercise of employee
stock options pursuant to the Company's Equity Incentive Plan of $39,791, less
payments on long-term debt and related party debt. For the year ended
September 30, 1996, cash and cash equivalents increased $653,718.
Other
During fiscal 1997, the Company expanded its facilities pursuant to the
Company's rights for additional expansion space under its current lease
agreements to provide additional office and production space. Additionally, in
1997, the Company expended capital to fully integrate and automate its
information systems management and accounting software in preparation of
future growth.
In November 1998, pursuant to a sublease agreement on adjacent space from an
unrelated party, the Company leased an additional 23,000 square feet under a
lease agreement expiring in July 2002. To complete the Company's facility
expansion in fiscal 1999, the Company intends to expend approximately $140,000
in leasehold improvements. Such leasehold improvements are not expected to
materially impact the Company's working capital or results of operations. The
Company believes that its current and planned facilities are adequate to meet
the Company's needs throughout the foreseeable future.
Management believes that the Company's business centered around its Traffic
Safety product line is not seasonal in nature. However, due to fiscal
budgeting practices of foreign and domestic law enforcement agencies, sales of
the Company's Traffic Safety products may vary between financial periods.
Historically, the Company has realized a small decline in sales of its Survey
and Mapping products in areas affected by colder weather in the winter months.
Additionally, due to the sophisticated nature of the Company's Marine
products, Management expects sales of these systems to greatly fluctuate
between financial periods.
The Company has historically realized minimal bad debts and maintains
approximately a 30-60 day receivable collection period. In order to reduce the
impact of currency fluctuations, all of the Company's foreign sales are made
in U.S. currency. The Company generally enforces the use of letters of credit
and wire transfers in most of its credit arrangements with foreign
distributors to reduce the risk of uncollected accounts receivable. Since
1992, an allowance for doubtful accounts of $10,000 has been recorded. From
fiscal 1993 through fiscal 1998, in total, the Company has realized bad debt
expense of $25,389.
Year 2000
During the year ended September 30, 1997, the Company converted its computer
systems to be year 2000 compliant (e.g., to recognize the difference between
'99 and '00 as one year instead of negative 99 years). Management believes
that the majority of the Company's updated computer system is Year 2000
compliant for both information technology ("IT") and non-IT systems. The
Company continues to evaluate Year 2000 compliance and does not anticipate any
material expenditures related to the conversion process.
24
<PAGE>
The Company also continues to evaluate whether it will have Year 2000 issues
relating to any third parties with which it has or may have a material
relationship. Management believes that most, if not all third parties with
which the Company has a material relationship, are, or will be Year 2000
compliant. The Company does not anticipate any material expenditures related
to Year 2000 compliance by any third party.
Effect of Inflation
The Company believes that it will experience increased costs due to the
effect of inflation on the cost of labor, material and supplies, and equipment
acquisitions. However, such inflationary effects are not expected to have a
material impact on the Company's revenues, gross profit or results of
operations for at least the next twelve months.
New Accounting Pronouncements
The Financial Accounting Standard Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129 "Disclosures of Information About an
Entity's Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than was previously used in accordance with
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128
provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. SFAS No. 129 establishes
standards for disclosing information about an entity's capital structure. SFAS
No. 128 and SFAS No. 129 are effective for financial statements issued for
periods ending after December 15, 1997. Their implementation did not have a
material effect on the financial statements. SFAS No. 128 and 129 were adopted
by the Company for the fiscal year ended September 30, 1998.
The Financial Accounting Standards Board has also issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that displays
with the same prominence as other financial statements. SFAS No. 131
supersedes SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that public
companies report financial information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It
also establishes standards for disclosure regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of a company about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of the standard,
management has been unable to fully evaluate the impact, if any, the standard
may have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation of the
standards.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No 132. "Employers' Disclosures about Pensions
and other Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other Postretirement benefits and requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis. SFAS No. 132 is
effective for years beginning after December 15, 1997 and requires comparative
25
<PAGE>
information for earlier years to be restated, unless such information is not
readily available. Management believes the adoption of this statement will
have no material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management believes the
adoption of this statement will have no material impact on the Company's
financial statements.
Review of Accounting Procedures
The following relates to the internal investigation of the Company's
accounting procedures and how they relate to transactions between LTI
Australia and the Company. LTI Australia, formerly known as Kurringa Pty. Ltd.
("LTIA"), has been a customer of the Company since 1992. LTIA and the Company
are not affiliated through ownership or management. In December 1992, during
fiscal year ended September 30, 1993, the Company sold one hundred (100) units
of its hand-held Marksman to LTIA for $370,000 (the "December 1992 Sale"). The
Company booked the transaction as a sale with a corresponding account
receivable.
As of August 31, 1993, the balance due on LTIA's account was $310,452. On
that date, the Company and LTIA entered into an Agreement that provided,
among, other things, that LTIA would pay in full in ninety (90) days, the
$310,452 then owing from the December 1992 Sale. The Agreement stated that the
Company was granting LTIA an extension so LTIA could (i) complete necessary
approvals for the Marksman in certain areas of Australia, (ii) expand
marketing efforts in the South Pacific and Southeast Asia, and (iii) supply
the Company with a photo laser system that the Company would distribute
outside of Australia. The Agreement also stated that in return for the
extension, LTIA would sell the photo laser system to the Company at a fifty
percent (50%) discount off LTIA's anticipated wholesale price. The Agreement
further provided that the Company would ship to LTIA an additional 100
Marksmans by the end of September 1993 to fulfill an order LTIA expected in
October 1993 from its customer. The terms of the Agreement provided that LTIA
was to make payment for the units within sixty (60) days after delivery to the
end user. The Company shipped 100 Marksman units to LTIA on approximately
September 30, 1993, for the total price of $370,000 (the "September 1993
Sale"). This transaction was booked by the Company as a sale with a
corresponding account receivable.
Both the December 1992 Sale and September 1993 Sale were recorded by the
Company as gross sales for fiscal year 1993. During fiscal 1993, LTIA paid
approximately $150,128 on its account receivable at the Company. As of
September 30, 1993, the balance of LTIA's account receivable was $686,525.
On or about July 20, 1994, LTIA and the Company entered into a Purchase
Agreement whereby the Company agreed to pre-purchase from LTIA twenty (20)
photo laser systems for the discounted price of $10,500 per unit. This
represented a further discount from the price of $12,500 per unit that LTIA
had agreed to in the August 31, 1993 Agreement. The Purchase Agreement further
provided that the Company would pay for the photo laser systems by reducing
LTIA's receivable by $210,000. LTIA's receivable was reduced by this amount on
August 24, 1994.
In approximately June 1994, LTIA began returning to the Company certain of
the Marksman units for which it had not paid. Between June 1994 and March
1996, LTIA returned all 100 units from the September 1993 Sale and an
additional thirty (30) units. The Company did not reduce LTIA's account
receivable upon the return of the units. Rather, two corporate officers and
directors, David Williams and Jeremy Dunne, transmitted personal funds to the
Company which were applied to reduce the LTIA account receivable. From
September 26, 1994 to September 28, 1995, Mr. Williams and Mr. Dunne paid to
the Company $184,298 and $131,250 respectively. To the best knowledge of the
Company, Mr. Dunne believed that his payment of $131,250 was an advance to
LTIA to support its development of the Australian market and to assist LTIA
during a period when it was experiencing cash flow problems. Further, to the
best knowledge of the Company, Mr. Williams and Pamela Sevy, the Company's
Chief Financial Officer, were the only Company officers or directors who were
aware that the aforementioned payments were used to reduce the LTIA account
receivable.
26
<PAGE>
Mr. Williams and Mr. Dunne each personally borrowed the funds they
transmitted to the Company that were applied to the LTIA account receivable.
In some instances the interest and principal payments on Messrs. Williams' and
Dunne's loans were paid by the Company. These payments were authorized by Mr.
Williams and Ms. Sevy. In most instances the interest and principal payments
paid by the Company were debited to the Company's officer receivable account
of Mr. Williams or Mr. Dunne, respectively. In April 1997, the Company paid
$98,676 to Norwest Bank of Arapahoe to repay a loan that Mr. Williams had
taken out to pay on the LTIA account receivable. In making the payment to the
bank, the Company also paid a $25,000 prior loan of Mr. Williams. The Company
charged the entire $98,676, which included the $25,000, to Mr. Williams'
personal account receivable at the Company. The interest paid by the Company
totaled approximately $16,000. Interest payments made by the Company were not
reported as income to Mr. Williams because it was believed that the Company
was repaying monies owed to Mr. Williams. In September 1997, H. DeWorth
Williams, the brother of David Williams and a director of the Company, made a
personal loan to David Williams in the amount of $165,000. DeWorth William's
check for $165,000 was made payable to the Company and the funds were used by
David Williams to reduce his personal account receivable at the Company. None
of these transactions were reported as a related party transaction in the
Company's prior annual report on Form 10-K.
During fiscal 1995, the Company determined that the photo laser systems that
were pre-purchased from LTIA pursuant to the Purchase Agreement did not meet
performance requirements. Accordingly, the Company discontinued its efforts
with LTIA related to developing the photo laser system and did not take
delivery of the 20 units. Therefore, on or about September 14, 1995, the
Company reversed the $210,000 credit previously applied to the LTIA account
for the pre-purchase of the photo laser systems.
Approximately 90 of the units returned by LTIA between June 1994 and March
1996 were resold through the Company on Company invoices, but the sales were
not recorded on the Company's books. Rather, the sales proceeds were deposited
into an account established at Colorado National Bank ("CNB"), under the
Company's name. The funds in the account were intended to repay David Williams
for his funds advanced on behalf of LTIA. Sales proceeds were used to reduce
LTIA's account receivable or to repay those funds which Messrs. Williams and
Dunne had transmitted to the Company to reduce LTIA's receivable.
The CNB account was established in May 1995, although not authorized by the
Company's Board of Directors. The CNB account was not disclosed to the
Company's auditors during fiscal 1995, 1996, 1997 or 1998. Also, to the best
knowledge of the Company, David Williams and Ms. Sevy were the only Company
officers or directors who were aware of the purpose of the CNB account.
However, the Company is aware that two other employees, including one person
that became the Company's controller, knew of the existence and purpose of the
CNB account. The employees did not disclose the account to the Board of
Directors or to the Company's auditors. These employees were also involved in
the creation and processing of certain invoices for transactions related to
the CNB account. Sales proceeds from the returned and resold units were
transferred from the CNB account to the Company's regular cash operating
account.
The remaining ten units from the September 1993 Sale plus approximately
thirty additional units from the December 1992 Sale, were also sold. However,
these sales were inadvertently recorded as new Company sales with no cost of
goods sold being attributed to the sales. The Company is presently unable to
identify specifically approximately fifteen of these units, although it is
believed that the proceeds from the sale of these sales were also recorded as
new sales by the Company.
In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. David Williams and Ms. Sevy applied the proceeds from the
sale to reduce Mr. Williams' account receivable by $50,000 in consideration
for monies he had transmitted to the Company to reduce the LTIA receivable
and, that due to the resale of returned units by the Company were considered
unrecoverable by him. Subsequently, the Company reversed this transaction,
debited Mr. Willliams' account receivable for $50,000, and recorded the sale
as revenues to the Company. The Company then reduced Mr. Williams' account
receivable by $50,000 to recognize the monies he had transmitted to the
Company to reduce the LTIA receivable. It is further believed that the Company
may owe additional monies to Mr. Williams. Mr Williams has agreed to forgive
any monies owed to him due to the resale of his units by the Company.
27
<PAGE>
The following table demonstrates the changes to revenues from the sale of
the 100 units pursuant to the September 1993 Sale as though the sales of the
units were recorded in later periods when the units were resold. The table
also demonstrates the effect on net income in each period had such sales and
gross margin contribution to net income been recorded in the period in which
the resale occurred rather than in fiscal 1993.
The sales value of the 130 units returned was approximately $488,000. Of the
130 units returned, ninety of the units, or approximately $369,000, were sold
through the CNB account to repay Messrs. Williams and Dunne or applied towards
LTIA's account receivable. Forty of the units were sold inadvertently as new
Company sales. The following table reflects the sale of one hundred fifteen
units, the number specifically identifiable as having been sold as a new sale
or through the CNB account. The table does not reflect the resale of the
remaining fifteen units because of the Company's inability to identify those
specific units and the table takes into effect approximately $30,000 in
discounts granted on returned and resold units.
The table reflects all identifiable units for which sales revenue may have
been more fairly reported in a later period. The Company believes that all
funds have been accounted for from the sale or resale of the units. The
Company further believes that no individuals personally benefitted from any of
the transactions.
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales as
reported............. $9,292,637 $9,306,777 $8,225,776 $5,303,299 $4,813,227
Adjustments to net
sales................ 16,131 197,342 102,805 -- (401,278)
Adjusted net sales.... 9,308,768 9,504,119 8,328,581 5,303,299 4,411,949
Net income as reported
(1).................. 585,430 1,063,372 704,132 59,106 965,246
Adjusted net income... 594,302 1,171,910 817,218 59,106 744,543
Earnings per share.... $.12 $.20 $.14 $.01 $.20
Adjusted earnings per
share................ $.12 $.22 $.16 $.01 $.16
</TABLE>
- --------
(1) During fiscal 1993, the Company recorded a non-recurring extraordinary
charge of $567,000 as a loss related to the early extinguishment of debt.
The computation of adjusted net income and earnings per share data for
fiscal 1993 does not take into effect such reduction in net income as it
does not relate to the Company's results from operations.
Risk Factors and Cautionary Statements
This report contains "forward-looking statements." Forward-looking
statements in this report are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The Company wishes to
advise readers that actual results may differ substantially from such forward-
looking statements. Forward-looking statements involve risks and uncertainties
including, but not limited to, continued acceptance of the Company's products
in the marketplace, competitive factors, potential changes in the budgets of
federal and state agencies, compliance with current and possible future FDA or
environmental regulations, and other risks detailed in the Company's
Registration Statement on Form S-1 as filed the Securities and Exchange
Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is contained in the consolidated
financial statements appearing in Item 14 of this report. Such information is
incorporated by reference.
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
BDO Seidman, LLP ("BDO") served as the Company's independent accountant for
the years ended September 30, 1992 through 1997. On December 21, 1998, BDO
resigned as independent accountant for the Company, citing the following
reportable events:
1. The Company's internal controls could not be relied upon to develop
financial statements.
2. Information had come to BDO's attention indicating that they could no
longer rely on management's representations.
3. BDO concluded that the above events materially impacted their
liability of the financial statements for the fiscal years ending September
30, 1993, 1994, 1995, 1996 and 1997. Therefore, BDO was unwilling to be
associated with the above mentioned financial statements and withdrew its
opinions on those years.
Commencing October 28, 1998, the Audit Committee of the Company's Board of
Directors conducted an investigation of the Company's accounting systems and
procedures. During the pendency of the investigation, the Company appointed an
interim Chief Financial Officer who reported directly to the Audit Committee
and instituted additional internal controls to ensure the integrity of the
investigation and the Company's financial reporting processes.
The Company filed with the Commission a report on Form 8-K dated December 28,
1998 disclosing the resignation of BDO. The Form 8-K was amended on January 4,
1999 to include the letter from BDO addressed to the Commission stating whether
it agreed with the statements made by the Company in the Form 8-K.
On January 11, 1999, the Company's Board of Directors approved the
appointment of and formally engaged Jones, Jensen & Company, Certified Public
Accountants ("JJ&C"), as the Company's principal accountant. Thereupon, JJ&C
began auditing the Company's financial statements for the fiscal years ended
September 30, 1998, 1997 and 1996. JJ&C has also been retained to review the
financial controls of the Company and to make recommendations to the Board of
Directors.
During the Company's two most recent fiscal years and subsequent interim
period, prior to engaging JJ&C, the Company has not consulted JJ&C regarding
either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements; or (ii) any matter that was
either the subject of a disagreement or a reportable event, except to the
extent necessary for JJ&C to complete its client acceptance procedures.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 24, 1999, the executive officers and directors of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Blair Zykan*.......................... 38 President and Chief Executive Officer
David Williams*....................... 43 President and Chief Executive Officer
Pamela Sevy*.......................... 34 Chief Financial Officer
Jeremy G. Dunne....................... 41 Vice President and Director
Dan N. Grothe......................... 61 Secretary and Director
H. DeWorth Williams................... 63 Director
Brian Abeel........................... 40 Director
</TABLE>
- --------
* Mr. Williams and Ms. Sevy tendered their resignations as a director and
executive officer of the Company, effective February 24, 1999 following the
filing of the Form 10-K. Mr. Zykan was appointed as the new President and Chief
Executive Officer, also effective immediately following the filing of the Form
10-K.
On October 28, 1998, the Company's Board of Directors established the Special
Audit Committee (the "Special Committee") comprised of then directors Richard
B. Sayford, F. James Lynch and William R. Carr. The Board directed the Special
Committee to independently investigate the Company's accounting records and
29
<PAGE>
certain irregularities relating to the Company's accounting records. Following
its investigation, the Special Committee was to report the results to the
Board. In connection with its investigation, the Special Committee retained
independent legal counsel, who in turn, retained an interim Chief Financial
Officer who was to report directly to the Special Committee and instituted
internal controls to ensure the integrity of the investigation and the
Company's financial reporting process.
On December 21, 1998, BDO Seidman, LLP ("BDO") resigned as the Company's
independent accountant for those reasons set forth in Item 9 above. On January
7, 1999, a Special Meeting of the Board of Directors (the "Special Meeting")
was held for the purpose of receiving the report and recommendations from the
Special Committee. The Special Committee proposed that certain directors and
executive officers tender their resignations and that the Company's President
pay to the Company all amounts, if any due from him to the Company. The
Special Committee further proposed that the Company hire a new Chief Executive
Officer and Chief Financial Officer from outside the Company and search for
and retain a reputable accounting firm that is completely independent from the
Company's officers and/or directors. The Special Committee also proposed that
certain directors agree to place their shares of the Company's common stock
into a voting trust or other arrangement whereby such shares may be voted in
accordance with management's direction. It was further suggested that upon the
implementation of the above recommendations, the composition of the Board of
Directors be revised to provide for three inside and three independent
directors. The Special Committee then recommended that in the event the Chief
Executive Officer and Chief Financial Officer did resign, each be offered a
consulting agreement with the Company.
Following the presentation and proposals by the Special Committee, those
directors not on the Special Committee made a counter-proposal. Without
responding to the counter-proposal, the individuals on the Special Committee
informed the Board of their intent to resign from the Special Committee and
from the Board of Directors. Each of the resigning directors, F. James Lynch,
Richard B. Sayford and William R. Carr, submitted letters to the Company's
Board dated January 11, 1999 confirming their resignations. Each of the
resigning directors cited as the reason for his resignation as the refusal of
the other members of the Board to accept the proposals of the Special
Committee.
The Board of Directors first created the Special Committee to investigate
certain situations that took place in fiscal years 1993 and 1994. Being fully
aware of the facts and allegations presented by the Special Committee, those
directors at the Special Meeting not on the Special Committee were concerned
with the Special Committee's time schedule in bringing on a new auditor and
the projected time frame to complete the new audited financial statements for
the fiscal year ended September 30, 1998. The Special Committee had not
engaged a new auditor and suggested that once a new auditor was engaged, the
time frame to complete the audit could take up to six months. The remaining
directors believed that it would be in the best interest of the Company and
its shareholders to engage a new auditor as soon as possible in order to
promptly complete and publish the Company's financial statements for fiscal
year 1998.
The remaining directors also believe that the Company's President does not
owe any monies to the Company as implied by the Special Committee. Further,
the remaining directors believe that under the current circumstances, it is
not necessary to have certain directors place their shares of the Company's
stock into a voting trust.
Based upon the report from the Special Committee, the current Board of
Directors believes that there will not be any negative impact upon the
Company's overall reported financial results for its 1994, 1995, 1996, 1997
and 1998 fiscal years. Certain sales previously recorded in fiscal year 1993
should have been more properly recorded in fiscal years 1994, 1995 and 1996.
However, combined sales and earnings for these fiscal years will not be
affected and there will be, no material cumulative effect to the financial
statements for these periods. Any adjustments made to prior year statements
will have no effect on the Company's financial statements for fiscal year
1998.
On January 11, 1999, the Company's Board of Directors approved the
appointment of and formally engaged Jones, Jensen and Company, Certified Pubic
Accountants ("JJ&C"), as the Company's principal accountant. The
30
<PAGE>
Board believes JJ&C to be a reputable accounting firm and completely
independent from the Company's officers and/or directors. Following its
appointment, JJ&C completed the audit of the Company's financial statements
for the fiscal years ended September 30, 1998, 1997 and 1996. JJ&C has also
been engaged to review the financial controls of the Company and to make
recommendations to the Board of Directors and to audit September 30, 1995,
1994 & 1993.
On February 19, 1999, the Board of Directors accepted the resignations of
David Williams as President and Chief Executive Officer, and, Pamela Sevy as
Chief Financial Officer. Mr. Williams and Ms. Sevy and the Board have agreed
that their resignations will be effective immediately upon the filing of this
Form 10-K. The Board also nominated Blair Zykan as the Company's new President
and Chief Executive Officer effective immediately after the filing of their
Form 10-K.
On February 23, 1999, the Board of Directors appointed Brian Abeel to fill
one of the vacancies on the Board from the resignations of the previous
directors. The Board is continuing its search to find qualified directors to
fill the remaining vacancies. The Board is also actively searching to fill the
position of Chief Financial Officer due to the resignation of Ms. Sevy. In the
interim, Dan Grothe will be acting Chief Financial Officer.
The Company's directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
In June 1994, the Company adopted a Stock Option Plan for Non-Employee
Directors (the "Director Plan"). The Director Plan provides for the grant of
options to purchase 30,000 shares of the Company's common stock to each member
of the Company's Board of Directors who is not an employee of the Company, and
a grant of options to purchase 30,000 shares to each non-employee director who
is newly elected to the Board after the effective date of the plan. The
exercise price in each case is the fair market value of the Company's Common
Stock at the date of grant, based on the closing sale price of the Common
Stock on the American Stock Exchange on such date. Pursuant to the Director
Plan, as of September 30, 1998, options to purchase 30,000 shares were granted
and are outstanding to each of four non-employee directors at exercise prices
ranging from $3.06 to $4.94 per share. In addition, the Company reimburses
each Director's out of pocket expenses incurred in connection with their
duties as directors.
Each officer of the Company serves at the discretion of the Board of
Directors. There are two committees of the Company's Board of Directors. As of
September 30, 1998, the Audit Committee consisted of Mr. Carr, Mr. Lynch and
Mr. Sayford; and the Compensation Committee consisted of Mr. H. Deworth
Williams, Mr. Lynch and Mr. Sayford. Since the resignations of Messrs.
Sayford, Lynch and Carr, the Company is in the process of naming additional
members of these Committees.
Jeremy G. Dunne. Mr. Dunne has been employed by the Company since 1986. From
1981 to 1986, Mr. Dunne was a chief engineer for Hydrographic Services,
International in Southbrough Kent, England, a company that performs software
and system design for the hydrographic surveying industry. From 1980 to 1981,
Mr. Dunne was an electrical engineering technician with Plessy Marine, Ltd. in
Ilford Essex, England, a manufacturer of electronic instrumentation. Mr. Dunne
earned a B.A. Degree in Electrical Engineering from the University of
Cambridge, Cambridge, England.
Dan N. Grothe. In May 1993, Mr. Grothe became a full time employee of the
Company directing certain marketing activities focused on improving marketing
to federal and municipal government agencies. From 1989 to May of 1993, Mr.
Grothe was self employed as a financial advisor to corporations doing business
with government agencies. Mr. Grothe was a vice president at Hanifen Imhoff,
Inc., Denver, Colorado, working primarily as a tax-exempt bond underwriter.
Mr. Grothe also serves as President of the Company's wholly-owned subsidiary,
Laser Communications, Inc., heading marketing efforts of the Company's DAS100
Ship Docking Aid Systems.
Blair Zykan. Mr. Zykan has been with the Company since March of 1993. From
1993 to 1998, Mr. Zykan served as Vice President of Sales and Marketing,
responsible for North America before adding global responsibility for the
Company's Survey and Mapping products in 1996. In August 1998, Mr. Zykan was
31
<PAGE>
promoted as the Company's Chief Operating Officer. On February 24, 1999, Mr.
Zykan filled the vacancy created by the resignation of Mr. Williams as
President and Chief Executive Officer. From 1983 to 1993, Mr. Zykan served in
a variety of sales and sales management positions with Armstrong World
Industries, a global manufacturer of interior finishing products. Mr. Zykan is
a 1983 graduate of Franklin & Marshall College with a B.A. in Economics.
H. DeWorth Williams. Mr. Williams is the owner of Williams Investment
Company and has been a financial consultant for more than twenty years. During
this time, Mr. Williams has been instrumental in facilitating and completing
several mergers, acquisitions, business consolidations and underwritings.
Mr. Williams is the brother of the Company's President, David Williams.
Brian Abeel. Mr. Abeel is currently Co-President of Spectra Lux Corporation,
a leading manufacturer of edge-lighted displays for commercial and military
aircraft applications. He serves on the boards of Spectra Lux Corporation,
Aviosupport, Inc., a spares aftermarket distributor to the world's airlines,
and is a founding shareholder and board member of Avio Corporation, a holding
company for both organizations. From 1988 to 1989, Mr. Abeel served as Vice
President, Finance of Amerifresh. Mr. Abeel holds a B.A. degree in business
administration from the University of Washington and in 1984 passed his CPA
exam.
ITEM 11. EXECUTIVE COMPENSATION
EMPLOYMENT AGREEMENTS
In July 1992, the Company entered into an employment agreement with Jeremy
Dunne, pursuant to which Mr. Dunne receives an annual base salary subject to
increases at the discretion of the Board of Directors. In 1998, this agreement
was renewed for another five years. The employment agreement prohibits Mr.
Dunne from directly or indirectly competing with the Company for a period of
three years following termination of his employment.
CASH COMPENSATION
The following table sets forth a summary of cash and non-cash compensation
for each of the last three fiscal periods ended September 30, 1998, 1997 and
1996, with respect to the Company's Chief Executive Officer. No executive
officer of the Company has earned a salary greater than $100,000 annually for
any of the periods depicted.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------ ---- ------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
David Williams, 1998 $92,500 $-- $-- $--
President, C.E.O. 1997 90,525 -- -- --
1996 84,600 -- -- --
</TABLE>
The preceding table does not include any amounts for noncash compensation,
including personal benefits, paid to David Williams. The Company believes that
the value of such noncash benefits and compensation paid
to David Williams during the periods presented did not exceed the lesser of
$50,000 or 10% of the cash compensation reported for him.
32
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
FISCAL YEAR END FISCAL YEAR END
NAME AND PRINCIPAL
POSITION EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------ ------------------------- -------------------------
<S> <C> <C>
David Williams, 68,250/none $0/none
President, C.E.O. (1)
</TABLE>
- --------
(1) On June 3, 1994, the Company granted options to purchase 68,250 shares of
the Company's common stock to David Williams, President and CEO, pursuant
to the Company's Equity Incentive Plan. The options are non-transferable
and vest annually in three equal installments over a three-year period. As
of September 30, 1998, all options were fully vested.
Equity Incentive Plan
In 1994, the Company adopted an equity incentive plan, the "Employee Plan"
which provides for the issuance of options to key employees and consultants of
the Company to purchase up to an aggregate of 530,000 shares of the Company's
Common Stock at the fair market value of the stock at the date of grant, based
on the closing sale price of the Common Stock on the American Stock Exchange
on such date. The Employee Plan also allows for the grant of stock options,
restricted stock awards, stock units, stock appreciation rights and other
grants to all Company eligible employees and consultants.
On February 24, 1998, Stockholders approved a proposal to amend the
Company's Equity Incentive Plan ("Employee Plan"). For each fiscal year
beginning October 1, 1997 and through the fiscal year beginning October 1,
2003 (seven years), a number of shares of stock equal to two percent of the
total number of issued and outstanding shares of stock as of September 30 of
the fiscal year immediately preceding such year shall become available for
issuance under the Employee Plan. In addition, any unused portion of shares of
stock remaining from those reserved as of September 30, 1997 and any unused
portion of the two percent limit for any fiscal year shall be added to the
aggregate number of shares of stock available for issuance in each fiscal year
under the Employee Plan. In no event except as subject to adjustment pursuant
to certain sections of the Employee Plan, more than 1,000,000 shares of stock
shall be cumulatively available for issuance pursuant to the exercise of the
Incentive Options.
As of September 30, 1998, the total number of shares of Common Stock subject
to all awards under the Employee Plan could not exceed 634,164.
As of September 30, 1998, options to purchase 505,000 shares of the
Company's common stock were outstanding, at exercise prices ranging from $2.87
to $5.25 per share of which 456,083 options were exercisable at September 30,
1998. The options are non-transferable and primarily vest annually in three
equal installments over a three year period. The options expire five or ten
years from the date of grant or, if sooner, three months after the holder
ceases to be an employee of the Company (subject to certain exceptions
contained in the Employee Plan).
Non-Employee Director Stock Option Plan
In 1994, the Company also adopted a stock option program for non-employee
directors (the "Director Plan"). The Director Plan provides for the grant of
options to purchase 30,000 shares of the Company's Common Stock at the
effective date of the plan to each member of the Company's Board of Directors
who is not an employee of the Company, and a grant of options to purchase
30,000 shares to each non-employee director who is newly elected to the Board
after the effective date of the Director Plan. The maximum number of shares
that may be subject to options issued under the Director Plan is 120,000. The
exercise price in each case is the fair market value of the Common Stock on
the date of grant, determined in the same manner as under the Employee
33
<PAGE>
Plan. As of September 30, 1998, pursuant to the Director Plan, options to
purchase 30,000 shares have been granted to each outside director at exercise
prices ranging from $3.06 to $4.94 per share. Options granted under the
Director Plan vest one-third each year for three years and expire ten years
after the date of grant, or, if sooner, three months after the holder ceases
to be a director of the Company (subject to certain exceptions contained in
the Director Plan). At September 30, 1998, 120,000 options were outstanding
and exercisable pursuant to the Director Plan. The resigning directors have
three months to exercise their options.
The total number of shares and type of security subject to these plans and
to any awards under these plans are subject to adjustment in the case of stock
splits, stock dividends and similar actions by the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best knowledge of the
Company, as of March 10, 1999 with respect to each person known by the Company
to beneficially own more than 5% of the Company's outstanding Common Stock,
each director and all directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY OWNERSHIP
NAME OWNED (1)
- ---- ------------ ----------
<S> <C> <C>
Jeremy G. Dunne (2) ................................... 414,500 8.2%
2686 E. Otero Place
Littleton, Colorado 80122
Blair Zykan (3) ....................................... 58,810 1.0%
8750 East Otero Circle
Englewood, Colorado 80112
Dan N. Grothe (4) ..................................... 42,000 .8%
6837 South Elizabeth Street
Littleton, Colorado 80122
H. DeWorth Williams (5) ............................... 579,157 11.6%
P.O. Box 2148
Park City, Utah 84060
David Williams (6) .................................... 398,686 7.9%
1501 W. Dry Creek Road
Littleton, Colorado 80210
Directors and officers as a group (4 persons) (7)...... 1,577,662 31.5%
</TABLE>
- --------
(1) Percentage ownership is calculated separately for each person on the basis
of the actual number of outstanding shares as of February 24, 1999 and
assumes the exercise of options held by such person (but not by anyone
else) exercisable within sixty days.
(2) Includes 68,250 shares, which may be acquired by Mr. Dunne pursuant to the
exercise of stock options exercisable within sixty days.
(3) Includes 51,000 shares, which may be acquired by Mr. Zykan pursuant to the
exercise of stock options exercisable within sixty days.
(4) Includes 33,000 shares, which may be acquired by Mr. Grothe pursuant to
the exercise of stock options exercisable within sixty days.
(5) Includes 30,000 shares, which may be acquired by Mr. Williams pursuant to
the exercise of stock options exercisable within sixty days.
(6) Includes 68,250 shares, which may be acquired by Mr. Williams pursuant to
the exercise of stock options exercisable within sixty days.
(7) Includes 182,250 shares, which may be acquired by the Company's officers
or directors within sixty days pursuant to the exercise of stock options
at various prices.
34
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. The sale was initially recorded by the Company at a $0
sales price. The Company's Controller became aware of the transaction after it
was completed. David Williams and Pamela Sevy, the Company's President and
Chief Financial Officer, respectively, applied the proceeds from the sale to
reduce Mr. Williams' account receivable at the Company by $50,000. This was in
consideration for monies Mr. Williams had transmitted to the Company to reduce
the LTIA receivable and, that due to the resale of returned units by the
Company, were considered unrecoverable by him. Subsequently, the Company
reversed this transaction, debited Mr. Williams account receivable for $50,000,
and recorded the sale as revenues to the Company. The Company then reduced Mr.
Williams' account receivable by $50,000 to recognize the monies he had
transmitted to the Company to reduce the LTIA receivable remaining unrecovered
by him.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. FINANCIAL STATEMENTS.
The consolidated financial statements included in this item are indexed on
page F-1 "Index to Consolidated Financial Statements."
2. FINANCIAL STATEMENT SCHEDULES AND SUPPLEMENTARY INFORMATION REQUIRED TO BE
SUBMITTED.
<TABLE>
<C> <S> <C>
Schedule II Valuation and Qualifying Accounts.......................... F-22
</TABLE>
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
35
<PAGE>
3. Exhibit list.
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Securities Exchange Commission. The
Company shall furnish copies of exhibits for a reasonable fee (covering the
expense of furnishing copies) upon request.
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
----------- ------------
<C> <S>
3.3 (6) Articles of Incorporation for the State of Delaware
3.4 (6) By-Laws of Registrant
3.5 (6) Certificate of Merger
4.1 (1) Specimen Common Stock Certificates of Registrant
10.1 (1) Promissory Note, Secured Note and Warrant Agreement dated as of
February 21, 1991 between Registrant and Plaza Resources Company
10.2 (1) Amendment to the Promissory Note, Secured Note and Warrant
Agreement dated as of October 24, 1991 between the Registrant and
Plaza Resources Company
10.3 (1) Letter Agreement dated July 17, 1992 between Registrant and Plaza
Resources Company Including Amendments dated September 23, 1992,
December 1, 1992, December 22, 1992, and January 7, 1993
10.4 (1) Lease Agreement for Registrant's Principal Place of Business
10.5 (1) Non-Competition and Secrecy Agreement dated July 15, 1990 between
Registrant and David Williams, President of Registrant
10.6 (1) Non-Competition and Secrecy Agreement dated July 15, 1990 between
Registrant and Jeremy Dunne, Vice President of Registrant
10.8 (1) Employment Agreement between Registrant and Jeremy Dunne
10.9 (1) Non-Disclosure/Confidentiality Agreement between Registrant and
Certain Other Key Employees
10.14(2) Amendment to Lease to Include New Facility
10.15(3) Employee Stock Option Plan
10.16(3) Non-Employee Director Plan
16.0 (4) Letter from BDO Seidman, LLP
17.1 (5) Resignation of Director Letter--Richard D. Sayford
17.2 (5) Resignation of Director Letter--F. James Lynch
17.3 (5) Resignation of Director Letter--William R. Carr
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated by reference to the Company's Form S-1 registration
statement, file no. 1-11642.
(2) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended September 30, 1993.
(3) Incorporated by reference to the Company's Form 10-Q for the period ended
June 30, 1994.
(4) Incorporated by reference to the Company's amended Form 8-K January 4,
1999.
(5) Incorporated by reference to the Company's Form 8-K January 19, 1999.
(6) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended September 30, 1997.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarter ended
September 30, 1998.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Laser Technology, Inc.
/s/ Jeremy G. Dunne
March 10, 1999 By __________________________________
Jeremy G. Dunne
Vice President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Jeremy G. Dunne Vice President and March 10, 1999
- ------------------------------------- Director
Jeremy G. Dunne
37
<PAGE>
LASER TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.................. F-2
Consolidated Balance Sheets......................................... F-3
Consolidated Statements of Operations............................... F-4
Consolidated Statements of Stockholders' Equity..................... F-5
Consolidated Statements of Cash Flows............................... F-6
Notes to Consolidated Financial Statements.......................... F-7--F-21
Financial Statement Schedule--Schedule II--Valuation and Qualifying
Accounts........................................................... F-22
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders and Board of Directors
Laser Technology, Inc. and Subsidiaries
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Laser
Technology, Inc. and subsidiaries as of September 30, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for years ended September 30, 1998, 1997 and 1996. We have also audited
the schedule listed in the accompanying index. These consolidated financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Laser Technology, Inc. and subsidiaries at September 30, 1998 and 1997 and
the results of their operations and their cash flows for each of the years
ended September 30, 1998, 1997 and 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the schedule presents fairly, in
all material respects, the information set forth therein.
Jones, Jensen & Company
Salt Lake City, Utah
January 27, 1999
F-2
<PAGE>
LASER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 988,586 $ 951,945
Investments........................................ 509,807 1,023,431
Trade accounts receivable (Note 8), less allowance
of $10,000 for doubtful Accounts.................. 3,652,944 3,334,479
Royalties receivable............................... 424,525 415,648
Inventories (Note 3)............................... 3,857,963 2,798,903
Deferred income tax benefit (Note 6)............... 87,000 81,000
Prepaids and other current assets.................. 225,476 188,824
----------- -----------
Total current assets............................. 9,746,301 8,794,230
Property and equipment, net of accumulated
depreciation and amortization (Note 4).............. 1,517,416 1,291,899
Long-term investments................................ 676,294 617,427
Other assets......................................... 575,946 441,070
----------- -----------
$12,515,957 $11,144,626
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $ 752,417 $ 660,736
Accrued expenses................................... 482,617 329,529
Current maturities of long-term debt (Note 8)...... 76,564 --
----------- -----------
Total current liabilities........................ 1,311,598 990,265
Long-term debt, less current maturities (Note 8)..... 159,549 --
----------- -----------
Total liabilities................................ 1,471,147 990,265
----------- -----------
Commitments and Contingencies (Note 7)
Stockholders' equity (Note 5):
Preferred stock, $.01 par value-shares authorized
2,000,000;
shares issued--none............................... -- --
Common stock, $.01 par value--shares authorized
25,000,000;
shares issued 5,219,201 and 5,208,201............. 52,192 52,082
Additional paid-in capital......................... 9,669,420 9,622,780
Treasury stock at cost, 224,650 and 209,850
shares............................................ (194,259) (141,459)
Retained earnings.................................. 1,517,457 620,958
----------- -----------
Total stockholders' equity....................... 11,044,810 10,154,361
----------- -----------
$12,515,957 $11,144,626
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-3
<PAGE>
LASER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Net sales (Note 9)........................... $11,801,293 $9,308,768 $9,504,119
Less cost of goods sold...................... 5,554,037 4,093,285 4,330,193
----------- ---------- ----------
Gross profit................................. 6,247,256 5,215,483 5,173,926
Royalty and licensing income................. 1,242,732 868,931 401,121
----------- ---------- ----------
Total operating income....................... 7,489,988 6,084,414 5,575,047
Operating expenses........................... 6,205,024 5,342,067 4,058,908
----------- ---------- ----------
Income from operations....................... 1,284,964 742,347 1,516,139
Interest income, net......................... 115,535 163,955 235,771
----------- ---------- ----------
Income before taxes on income................ 1,400,499 906,302 1,751,910
Taxes on income (Note 6)..................... 504,000 312,000 580,000
----------- ---------- ----------
Net income................................... $ 896,499 $ 594,302 $1,171,910
=========== ========== ==========
Basic earnings per common share.............. $ .18 $ .12 $ .22
=========== ========== ==========
Weighted average shares outstanding.......... 4,985,902 4,998,351 5,209,981
=========== ========== ==========
Diluted earnings per common share............ $ .15 $ .10 $ .15
=========== ========== ==========
Diluted average shares outstanding........... 5,981,235 5,918,934 7,875,898
=========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-4
<PAGE>
LASER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Additional Retained
----------------- Paid-In Treasury Earnings
Shares Amount Capital Stock (Deficit) Total
--------- ------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1995................... 5,078,368 $50,784 $9,584,287 $ (17,535) ($1,145,254) $ 8,472,282
Exercised stock
options.............. 9,833 98 39,693 -- -- 39,791
Net income for the
year................. -- -- -- -- 1,171,910 1,171,910
--------- ------- ---------- --------- ----------- -----------
Balance, September 30,
1996................... 5,088,201 50,882 9,623,980 (17,535) 26,656 9,683,983
Concurrent exercise of
stock options and
purchase of treasury
stock................ 120,000 1,200 (1,200) (120,000) -- (120,000)
Purchase of treasury
stock................ -- -- -- (3,924) -- (3,924)
Net income for the
year................. -- -- -- -- 594,302 594,302
--------- ------- ---------- --------- ----------- -----------
Balance, September 30,
1997................... 5,208,201 52,082 9,622.780 (141,459) 620,958 10,154,361
Exercised stock
options.............. 11,000 110 46,640 -- -- 46,750
Purchase of treasury
stock................ -- -- -- (52,800) -- (52,800)
Net income for the
year................. -- -- -- -- 896,499 896,499
--------- ------- ---------- --------- ----------- -----------
Balance, September 30,
1998................... 5,219,201 $52,192 $9,669,420 $(194,259) $ 1,517,457 $11,044,810
========= ======= ========== ========= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-5
<PAGE>
LASER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income............................ $ 896,499 $ 594,302 $ 1,171,910
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation and amortization......... 374,388 288,447 184,119
Deferred income taxes................. (6,000) (29,000) (6,000)
Changes in operating assets and
liabilities:
Trade accounts receivable........... (318,465) (570,154) (1,028,760)
Royalties receivable................ (8,877) (228,455) (78,035)
Inventories......................... (1,059,060) (221,268) (284,029)
Other assets........................ (36,652) 52,762 (160,458)
Accounts payable and accrued
expenses........................... 244,769 19,661 511,465
----------- ----------- -----------
Cash provided by (used in) operating
activities............................. 86,602 (93,705) 310,212
----------- ----------- -----------
Investing activities:
Purchases of property and equipment... (576,185) (453,851) (632,437)
Purchases of investments.............. (800,525) (1,297,465) (631,117)
Proceeds from sale of investments..... 1,255,282 867,880 1,801,031
Patent costs paid..................... (158,596) (185,357) (115,761)
----------- ----------- -----------
Cash provided by (used in) investing
activities............................. (280,024) (1,068,793) 421,716
----------- ----------- -----------
Financing activities:
Related party payable................. -- (8,872) (108,538)
Proceeds from note payable............ 248,497 -- --
Payments on long-term debt............ (12,384) -- (9,463)
Proceeds from exercise of stock
options.............................. 46,750 -- 39,791
Purchase of treasury stock............ (52,800) (123,924) --
----------- ----------- -----------
Cash provided by (used in) financing
activities............................. 230,063 (132,796) (78,210)
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................ 36,641 (1,295,294) 653,718
Cash and cash equivalents, beginning of
year................................... 951,945 2,247,239 1,593,521
----------- ----------- -----------
Cash and cash equivalents, end of year.. $ 988,586 $ 951,945 $ 2,247,239
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.............................. $ 3,065 $ 1,130 $ 860
Income taxes.......................... 465,000 317,000 487,000
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
F-6
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
NOTE 1--Organization and Description of Business
Presentation and Principles of Consolidation
The consolidated financial statements presented are those of Laser
Technology, Inc. (the "Company") and its wholly-owned subsidiaries, Laser
Communications, Inc., Laser Technology, U.S.V.I., and International Measurement
and Control Company. All significant inter-company transactions have been
eliminated. Laser Technology, Inc. is engaged in the business of developing,
manufacturing, and marketing laser based measurement instruments.
Effective May 30, 1997, Laser Technology, Inc. an Idaho corporation ("Laser
Technology-Idaho"), was merged into a newly formed subsidiary, Laser
Technology, Inc., a Delaware corporation ("Laser Technology-Delaware), with
Laser Technology-Idaho ceasing to exist, for the principal purposes of (a)
changing the corporate domicile of the Company from the State of Idaho to
Delaware, and (b) adopting certain changes to the Company's corporate charter.
The transaction was accounted for as a recapitalization similar to a pooling of
interests and the merger did not involve any change in the business,
properties, management or capital structure of the Company. Laser Technology-
Delaware had no operations prior to the merger. The stockholders of Laser
Technology-Delaware received the same number of shares of common stock as they
previously held in Laser Technology-Idaho.
NOTE 2--Summary of Significant Accounting Policies
a. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
b. Cash and Cash Equivalents
For purposes of financial statement presentation, the Company considers all
highly liquid investments with a maturity of three months or less, from the
date of purchase, to be cash equivalents.
c. Concentrations of Risk
The Company maintains a checking account at financial institutions located in
Colorado. The account is insured by the Federal Deposit Insurance Corporation
up to $100,000. The amounts held for the Company occasionally exceed that
amount.
d. Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, investments, trade accounts receivable, royalties receivable,
accounts payable and accrued expenses approximated fair value because of the
immediate or short-term maturity of these instruments.
F-7
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
e. Investments
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." All marketable equity and debt securities have
been categorized as available for sale as the Company does not have the
positive intent to hold them to maturity or does not intend to trade them
actively. These securities are stated at fair value which approximates cost.
At September 30, 1998 and 1997 investments consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current--
U.S. Government Obligations............................ $ 509,807 $1,023,431
---------- ----------
Non-current:
Municipal Bonds........................................ 566,724 529,589
U.S. Government Obligations............................ 109,570 87,838
---------- ----------
Total Non-Current...................................... 676,294 617,427
---------- ----------
Total Investments...................................... $1,186,101 $1,640,858
========== ==========
</TABLE>
f. Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first out (FIFO) method.
g. Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using straight-line and accelerated methods over the
estimated useful lives of the related assets, primarily from five to seven
years.
h. Patents and Amortization
Patents are carried at cost and when granted, are amortized over their
estimated useful lives of 15 to 17 years. The carrying value of patents is
periodically reviewed and impairments, if any, are recognized when the expected
future benefit to be derived from individual intangible assets is less than its
carrying value.
i. Research and Development Costs
Research and development costs related to the Company's laser measurement
instruments are expensed as incurred and included in operating expenses.
Research and development costs totaled $757,000 $664,000, and $514,000 for the
years ended September 30, 1998, 1997 and 1996.
j. Taxes on Income
Under the provisions of SFAS No. 109, the Company's policy is to provide
deferred income taxes related to property and equipment, inventories and other
items that result in differences between the financial reporting and tax basis
of assets and liabilities.
k. Earnings Per Share
During the Company's fiscal year ended 1998, the Company implemented
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 provides for the calculation of
F-8
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
"Basic" and "Diluted" earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity that were outstanding for the period,
similar to fully diluted earnings per share.
l. Stock Options
The Company applies Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for all stock option plans. Under APB Opinion 25, compensation cost
is recognized for stock options granted to employees when the option price is
less than the market price of the underlying common stock on the date of grant.
SFAS Statement No. 123, "Accounting for Stock-Based Compensation," requires
the Company to provide pro forma information regarding net income as if
compensation cost for the Company's stock option plans had been determined in
accordance with the fair value based method prescribed in SFAS No. 123. To
provide the required pro forma information, the Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes option-
pricing model.
m. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer. The Company's
general sales terms allow for a 1% discount in 10 days/net 30 days. Other than
to customers deemed creditworthy, international sales primarily require
immediate payment or a letter of credit (see Note 9). Royalties and licensing
fees are recognized when earned in accordance with the specific terms of each
agreement.
n. Advertising
Advertising expenses are charged to operations in the period in which they
are incurred. Advertising expense for the years ended September 30, 1998, 1997
and 1996 was approximately $419,000, $381,000 and $301,000.
o. Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents. At September 30, 1998 and 1997, cash and cash equivalents included
money market and mutual fund accounts of approximately $475,000 and $206,000.
p. New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129 "Disclosures and Information About an
Entity's Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than was previously used in accordance with APB
Opinion No. 15, "Earnings Per Share".
SFAS No. 128 provides for the calculation of "Basic" and "Diluted" earnings
per share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share,
reflects the
F-9
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
potential dilution of securities that could share in the earnings of an entity,
similar to fully diluted earning per share. SFAS No. 129 establishes standards
for disclosing information about an entity's capital structure. SFAS No. 128
and SFAS No. 129 are effective for financial statements issued for periods
ending after December 15, 1997. In fiscal 1998, the Company adopted SFAS No.
128 which did not have a material impact on the Company's financial statements.
The implementation of SFAS No. 129 did not have a material effect on the
Company's financial statements.
The Financial Accounting Standards Board has also issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that displays with
the same prominence as other financial statements. SFAS No. 131 supersedes SFAS
No. 14 "Financial Reporting for Segments of a Business Enterprise." SFAS No.
131 establishes standards for the way that public companies report financial
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of the standard, management has
been unable to fully evaluate the impact, if any, the standard may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
In February 1998, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standard (SFAS) No 132. "Employers'
Disclosures about Pensions and other Postretirement Benefits" which
standardizes the disclosure requirements for pensions and other Postretirement
benefits and requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis. SFAS No. 132 is effective for years beginning after December 15, 1997
and requires comparative information for earlier years to be restated, unless
such information is not readily available. Management believes the adoption of
this statement will have no material impact on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Insturments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15,1999. Management believes the adoption
of this statement will have no material impact on the Company's financial
statements.
q. Reclassifications
Certain reclassifications have been made to the 1997 financial statements to
conform to the current year's presentation.
F-10
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Finished goods........................................... $1,175,229 $ 896,381
Work-in-process.......................................... 1,315,925 840,877
Raw materials and supplies............................... 1,366,809 1,061,645
---------- ----------
$3,857,963 $2,798,903
========== ==========
NOTE 4--Property and Equipment
Property and equipment consisted of the following:
<CAPTION>
September 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Shop equipment........................................... $ 861,614 $ 791,692
Office equipment......................................... 742,132 614,381
Leasehold improvements................................... 456,272 447,807
Automobiles.............................................. 460,308 208,524
Furniture/fixtures....................................... 288,093 183,967
---------- ----------
2,808,419 2,246,371
---------- ----------
Less accumulated depreciation and amortization........... 1,291,003 954,472
---------- ----------
$1,517,416 $1,291,899
========== ==========
</TABLE>
Depreciation expense was $350,668 and $275,227 for the years ended September
30, 1998 and 1997.
NOTE 5--Stockholders' Equity
Capital Stock
At September 30, 1998, the Company had 981,250 common shares reserved or
available for issuance as follows:
<TABLE>
<S> <C>
Common Shares:
Equity Incentive Plan................................................. 505,000
Non-Employee Director Stock Option Plan............................... 120,000
Warrants:
PRC warrants.......................................................... 356,250
-------
981,250
=======
</TABLE>
Preferred Stock
Laser Technology is authorized to issue 2,000,000 shares of preferred stock
by action of the Company's Board of Directors. The Board of Directors is
authorized, without further action by stockholders, to determine the voting
rights, dividend rights, dividend rates, liquidation preferences, redemption
provisions, conversion or exchange rights and other rights, preferences,
privileges and restriction of any unissued series of preferred stock and the
number of shares constituting such series. The Company has no current plans to
issue any preferred stock.
F-11
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Treasury Stock
(a) In connection with the Company's merger into Delaware, stockholders
objecting to the proposed merger were entitled to the right to dissent and
appraisal rights of stockholders as allowed by Idaho law. Upon completion of
the merger, the Company purchased the dissenting stockholders stock.
Cumulatively, nine stockholders, representing 1,082 shares of the Company's
common stock, exercised their right to dissent and received $3,924 in total
which has been recorded as Treasury Stock.
(b) In April 1997, 120,000 shares of common stock were issued to three
employees at $3.00 per share, under a cashless exercise of unqualified options
previously granted in April 1992. Concurrent with the exercise of these options
such shares were purchased by the Company at the fair market value of $4.00 per
share and recorded as Treasury Stock.
(c) In April 1998, the Company acquired 14,800 shares into Treasury at $3.56
per share related to the Company's stock repurchase program.
Public Offering
During January 1993, the Company completed a public offering consisting of
the sale of 1,552,000 units at an offering price of $5.00 per unit. Each unit
consisted of one share of the Company's common stock and one redeemable
warrant. Each redeemable warrant entitles the holder to purchase one share of
common stock upon the payment of $6.00, subject to adjustment, until January
11, 1998. The redeemable warrants are subject to redemption. The securities
comprising the units are currently separate and transferable.
As part of the public offering, the Company sold to the underwriter
nonredeemable warrants to purchase 138,000 units. Each nonredeemable warrant
allows for purchase of one share of common stock and one redeemable warrant,
upon the payment of $8.25, subject to adjustment, until January 11, 1998. The
redeemable warrants exercisable under these underwriter's warrants are
exercisable at $9.90 per share and are identical to the redeemable warrants
issued with the units under the public offering.
Additionally, in connection with the offering, the Company sold to an
unrelated partnership, 100,000 redeemable warrants at a price of $.10 per
warrant.
On August 6, 1997, the Company announced that it would not extend the
expiration date of its outstanding Redeemable Warrants, which were due to
expire on January 11, 1998. Because of the Company's announcement, Redeemable
Warrants that were not exercised by the holders thereof expired by their terms
and the holders have no further exercise rights.
PRC Warrants
Under a previously existing loan agreement, the Company granted Plaza
Resources Company ("PRC") the right to purchase specified quantities of defined
products at the Company's cost, as well as granting PRC warrants to purchase
shares of the Company's stock. The warrant agreement grants PRC the right to
purchase a total of 356,250 shares of common stock at $3.00 per share for a ten
year period. See summary of accounting policies for treatment of warrants in
computation of diluted income per share.
Equity Incentive Plan
The Company has an Equity Incentive Plan (the "Employee Plan") for the
purpose of providing key employees and consultants with added incentives to
continue in the service of the Company and to create in such employees and
consultants a more direct interest in the future operations of the Company. The
Employee
F-12
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plan permits the grant of stock options, restricted stock awards, stock
appreciation rights, stock units and other grants to all of the Company's
eligible employees and consultants.
The Employee Plan is administered by the Compensation Committee of the Board
of Directors. The committee has the authority to determine the employees or
consultants to whom awards will be made, the amount of the awards, and the
other terms and conditions of the awards.
The grant of stock options under the Employee Plan is intended either to
qualify as "incentive stock options" under the Internal Revenue Code or "non-
qualified options" not intended to qualify. Stock options are granted at a
price not less than 100% of the fair market value on the date the option is
granted.
Under the Employee Plan, 505,000 shares of the Company's common stock are
reserved for issuance. Options granted to Employees vest at the rate of one-
third per year and are fully vested after three years of continuous employment
from the date of grant. As of September 30, 1998, options outstanding at
exercise prices ranging from $3.08 to $5.25 per share of which 456,083 options
were exerciseable at September 30, 1998.
Non-Employee Director Stock Option Plan
In 1994, the Company adopted a Non-Employee Director Stock Option Plan (the
"Director Plan") for the purpose of providing non-employee directors with added
incentives to continue in the service of the Company and a more direct interest
in the future operations of the Company.
Under the terms of the Director Plan, non-employee directors on the effective
date of the Director Plan and each non-employee director elected thereafter
receive options to purchase 30,000 shares of common stock. Stock options are
granted at a price not less than 100% of the fair market value on the date the
option is granted.
Under the Director Plan 120,000 shares of the Company's common stock are
reserved for issuance. Such options granted to non-employee directors of the
Company vest at the rate of one-third per year and are fully vested after three
years of continuous service from the date of grant. As of September 30, 1998
options to purchase 120,000 shares of the Company's common stock were
outstanding and exercisable at exercise prices ranging from $3.06 to $4.94 per
share of which 120,000 options were exercisable at September 30, 1998.
Unqualified Stock Options
In April 1992, the Company granted options to purchase an aggregate of
120,000 shares of its common stock to three employees for services rendered. In
April 1997, such shares were issued under a cashless exercise of these options.
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), requires the Company to provide pro forma information regarding net
income and net income per share as if compensation costs for the Company's
stock option plans and other stock awards had been determined in accordance
with the fair value based method prescribed in SFAS No. 123. The Company
estimates the fair value of each stock award at the grant date by using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants, respectively; dividend yield of zero percent for
all years; expected volatility of 35 percent for all years; risk-free interest
rates of 5.9 to 6.0 percent and expected lives of 5 years.
F-13
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the accounting provisions of SFAS No. 123, the Company's net income
would have been decreased by the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Net income:
As reported.................................................. 896,499 $585,430
Pro forma.................................................... 895,849 564,123
Net income per share:
As reported.................................................. 0.18 $ 0.12
Pro forma.................................................... 0.18 0.11
</TABLE>
During the initial phase-in period of SFAS 123, the effect on pro forma
results are not likely to be representative of the effects on pro forma results
in future years since options vest over several years and additional awards
could be made each year.
A summary of the status of the Company's stock option plans as of September
30, 1998 and 1997 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year........... 650,750 $4.22 746,500 $4.05
Granted................................ 22,000 3.08 34,250 3.83
Canceled............................... (31,750) 4.33 (10,000) 4.49
Exercised.............................. (11,000) 4.25 (120,000) 3.00
------- ----- -------- -----
Outstanding, end of year................. 630,000 4.18 650,750 $4.22
------- ----- -------- -----
Exercisable, end of year................. 576,083 4.22 571,000 $4.23
------- ----- -------- -----
Weighted average fair value of options
and warrants granted During the year.... $1.82 $0.89
===== =====
</TABLE>
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices At 9/30/98 Life Price at 9/30/98 Price
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.00-3.25............... 53,000 7.55 $3.09 31,333 $3.07
3.50-3.87............... 35,250 3.44 3.79 18,250 3.71
4.00-4.25............... 482,500 5.69 4.25 479,000 4.25
4.39-4.91............... 41,500 7.09 4.81 37,666 4.84
4.94-5.25............... 17,750 7.56 5.17 9,834 5.17
------- ---- ----- ------- -----
$3.00-5.25............... 630,000 5.86 $4.18 576,083 $4.22
======= ==== ===== ======= =====
</TABLE>
F-14
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6--Taxes on Income
For the years ended September 30, 1998, 1997 and 1996 the provision for
federal and state income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $450,000 $323,000 $541,000
State......................................... 60,000 18,000 45,000
Deferred:
Federal....................................... (6,000) (27,000) (6,000)
State......................................... -- (2,000) --
-------- -------- --------
$504,000 $312,000 $580,000
======== ======== ========
A reconciliation of income taxes at the federal statutory rate to the
effective tax rate is as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income taxes computed at the federal statutory
rate........................................... $444,000 $305,000 $559,000
State income taxes, net of federal benefit...... 60,000 12,000 42,000
Other, net...................................... -- (5,000) (21,000)
-------- -------- --------
Taxes on income................................. $504,000 $312,000 $580,000
======== ======== ========
</TABLE>
The types of temporary differences between the tax basis of assets and
liabilities that give rise to a significant portion of the deferred tax asset
and their approximate tax effect are as follows:
<TABLE>
<CAPTION>
September 30,
---------------
1998 1997
------- -------
<S> <C> <C>
Future deductions:
Inventories (Uniform Capitalization Rules)................... $85,000 $79,000
Other, net................................................... 2,000 2,000
------- -------
$87,000 $81,000
======= =======
</TABLE>
The Company believes that it is more likely than not that it will realize the
deferred tax asset. Therefore, no valuation allowance has been provided.
NOTE 7--Commitments and Contingencies
Subsequent Events
Legal Proceedings
On February 10, 1999 a securities class action entitled Moshe Rosenfeld, On
Behalf of Himself and All Others Similarly Situated, vs. Laser Technology,
Inc., David Williams, Pamela Sevy, Dan N. Grothe and H. DeWorth Williams, was
filed in the United States District Court, District of Colorado (Case no. 99-Z-
266). The Complaint alleges that the Company and certain of its officers and
directors violated federal securities laws, particularly Sections 10(b) and 20
of the Securities Exchange Act of 1934, as amended (the "1934 Act").
Specifically, the complaint alleges that the Company's financial statements
were false and misleading during the "class period" (February 12, 1996 to
December 23, 1998) and that the Company made certain false or misleading
statements regarding the Company's financial statements during this period. The
individual named defendants are directors and/or executive officers of the
Company.
F-15
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The action appears to have followed and be premised on the resignation of the
Company's independent accountant, BDO Seidman, LLP ("BDO"), on December 21,
1999, and the resignation of three members of the Audit Committee of the Board
of Directors. The resigning members of the Audit Committee were members of the
Special Audit Committee (the "Special Committee"), who also resigned from the
Board of Directors on January 7, 1999 as a result of disagreements between
management and the Special Committee. BDO also withdrew its opinions on the
previously issued certified financial statements for the fiscal years 1993,
1994, 1995, 1996 and 1997. At the time of BDO's resignation, the Special
Committee was conducting an independent investigation into the Company's
accounting records and alleged irregularities relating to the Company's
accounting records. Following the announcement of the resignation of BDO and
withdrawal of five years of audited financial statements, the American Stock
Exchange suspended trading in the Company's shares on December 23, 1998.
On January 7, 1999, a Special Meeting of the Board of Directors (the "Special
Meeting") was held for the purpose of receiving the report and recommendations
from the Special Committee. At the Special Meeting, the Special Committee made
several proposals including, but not limited to, asking for the resignation of
the Company's Chief Executive Officer and Chief Financial Officer. Following
the presentation by the Special Committee of its findings and proposed actions,
those directors not serving on the Special Committee made a counter proposal.
Without responding to the counter-proposal, the individuals on the Special
Committee then informed the Board of Directors of their intent to resign from
the Special Committee and from the Board of Directors.
In its complaint, the plaintiff contends that the resignation of BDO and the
three directors is due to the Company's alleged unreliable and misleading
financial statements. Plaintiff's complaint further alleges violations of
Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder. The action
specifies the period from February 12, 1996 through December 23, 1998 as the
"class period".
The Company has not had ample time to fully review the complaint nor to
determine the extent of any possible liability or material damage to the
Company. The Company further believes that the allegations set forth in the
complaint are groundless and without merit and it intends to vigorously defend
against the action.
The Company is aware of at least five additional class action suits that have
been filed recently against the Company. As of the date hereof, the Company has
received two of the complaints in the five actions, and the Company believes
that the actions parallel the one described above. The Company intends to
vigorously defend against all of the actions.
Retirement Plan
Effective January 1, 1997, the Company adopted a defined contribution 401k
profit sharing plan (the "Plan"). Eligible employees, as defined, may
contribute up to 15% of their annual compensation. Under the Plan, the Company
may make discretionary matching contributions up to 100% of an employee's
contribution and may make discretionary profit sharing contributions. For the
year ended September 30, 1998 no contributions were made by the Company to the
Plan.
Facility Leases
The Company has various operating lease agreements for office and
manufacturing facilities that expire through May 31, 2003. Rent expense under
operating lease agreements was $181,000, $145,000 and $119,000 for the years
ended September 30, 1998, 1997 and 1996.
F-16
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of September 30, 1998 future minimum lease payments under operating lease
agreements are as follows:
<TABLE>
<S> <C>
1999............................................................. $124,000
2000............................................................. 114,000
2001............................................................. 122,000
2002............................................................. 130,000
2003............................................................. 137,000
Thereafter....................................................... --
--------
$627,000
========
</TABLE>
NOTE 8--NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Note payable to a bank dated July 6, 1998, 7.9% interest rate,
secured by vehicles, with 36 monthly principal and interest
payments of $7,725............................................. $236,113
--------
Total notes payable............................................. 236,113
--------
Less: current portion.......................................... (76,564)
--------
Total Long-Term Debt............................................ $159,549
========
Maturities of long-term debt are as follows:
1998.......................................................... $ 76,564
1999.......................................................... 82,898
2000.......................................................... 76,651
2001.......................................................... --
2002.......................................................... --
--------
Total......................................................... $236,113
========
</TABLE>
NOTE 9--CUSTOMERS, EXPORT SALES AND CONCENTRATIONS OF CREDIT RISK
The Company operates primarily in two industry segments which includes the
manufacturing and marketing of laser speed and distance measurement
instruments.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
investments, and trade accounts receivable.
The Company invests temporary cash in demand deposits, certificates of
deposit, money market accounts and mutual funds with quality financial
institutions and in securities backed by the United States government. Such
deposit accounts at times may exceed federally insured limits. The Company has
not experienced any losses in such accounts. Cash concentration risks at
September 30, 1998 and 1997 were $328,187 and $560,510, respectively.
F-17
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company markets its laser measurement instruments to three major classes
of customers. The Company's trade accounts receivable subject to credit risk
from those customers are as follows at September 30, 1998:
<TABLE>
<S> <C>
Foreign distributors (a)............................................ $1,513,827
State and local municipalities (b).................................. 729,568
U.S. government agencies (c)........................................ 83,119
Other receivables................................................... 1,336,430
----------
3,662,944
Less allowance for doubtful accounts................................ 10,000
----------
$3,652,944
==========
</TABLE>
- --------
(a) To date, the Company's foreign sales are transacted primarily through
distributors. Generally, foreign sales require immediate payment or
establishment of a letter of credit.
(b) The Company's domestic sales of its laser speed instruments have been
primarily to state and local law enforcement agencies. These agencies are
dispersed across geographic areas.
(c) Domestically, the Company's sales of its laser distance measurement systems
have been to U.S. Governmental Agencies.
For the year ended September 30, 1997, one customer accounted for 11% of
sales. For the years ended September 30, 1998 and 1996, no single customer
accounted for more than 10% of sales.
A summary of the Company's sales by geographic area is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Foreign sales:
Asia........................................ $ 1,123,000 $2,364,000 $2,187,000
Europe...................................... 1,597,000 641,000 1,233,000
Canada...................................... 748,000 795,000 552,000
Australia................................... 984,000 378,000 326,000
Other....................................... 193,787 221,638 490,119
----------- ---------- ----------
Total foreign sales........................... 4,645,787 4,399,638 4,788,119
Domestic sales................................ 7,155,506 4,909,130 4,716,000
----------- ---------- ----------
$11,801,293 $9,308,768 $9,504,119
=========== ========== ==========
</TABLE>
The Company has no foreign assets.
NOTE 10--Related Party Transactions
In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. David Williams and Pamela Sevy, the Company's President
and Chief Financial Officer, respectively, applied the proceeds from the sale
to reduce Mr. Williams' account receivable at the Company by $50,000. This was
in consideration for monies Mr. Williams had transmitted to the Company to
reduce the LTIA receivable and, that due to the resale of returned units by the
Company, were considered unrecoverable by him. Subsequently, the Company
reversed this transaction, debited Mr. Williams account receivable for $50,000,
and recorded the sale as revenues to the Company. The Company then reduced Mr.
Williams' account receivable by $50,000 to recognize the monies he had
transmitted to the Company to reduce the LTIA receivable remaining unrecovered
by him.
F-18
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--Prior Period Adjustment
Adjustments made to the financial statements of the Company have resulted
from the internal investigation of the Company's accounting procedures and how
they relate to transactions between LTI Australia and the Company. LTI
Australia, formerly known as Kurringa Pty. Ltd. ("LTIA"), has been a customer
of the Company since 1992. LTIA and the Company are not affiliated through
ownership or management. In December 1992, during fiscal year ended September
30, 1993, the Company sold one hundred (100) units of its hand-held Marksman
to LTIA for $370,000 (the "December 1992 Sale"). The Company booked the
transaction as a sale with corresponding accounts receivable.
As of August 31, 1993, the balance due on LTIA's account was $310,452. On
that same date, the Company and LTIA entered into an Agreement that provided,
among other things, that LTIA would pay in full in ninety (90) days, the
$310,452 then owing from the December 1992 Sale. The Agreement stated that the
Company was granting LTIA an extension so LTIA could (i) complete necessary
approvals for the Marksman in certain areas of Australia, (ii) expand
marketing efforts in the South Pacific and Southeast Asia, and (iii) supply
the Company with a photo laser system that the Company would distribute
outside of Australia. The Agreement also stated that in return for the
extension, LTIA would sell the photo laser system to the Company at a fifty
percent (50%) discount off LTIA's anticipated wholesale price. The Agreement
further provided that the Company agreed to ship to LTIA an additional 100
Marksman by the end of September 1993 to fulfill an order LTIA expected in
October 1993 from its customer. A term of the Agreement provided that LTIA was
to make payment for the units within sixty (60) days after delivery to the end
user. The Company shipped 100 Marksman units to LTIA on approximately
September 30, 1993, for the total price of $370,000 (the "September 1993
Sale"). This transaction was booked by the Company as a sale with a
corresponding account receivable.
Both the December 1992 Sale and September 1993 Sale were recorded by the
Company as gross sales for fiscal year 1993. During fiscal 1993, LTIA paid
approximately $150,128 on its account receivable to the Company. As of
September 30, 1993, the balance of LTIA's account receivable was $686,525.
On or about July 20, 1994, LTIA and the Company entered into a Purchase
Agreement whereby the Company agreed to pre-purchase from LTIA twenty (20)
photo laser systems for the discounted price of $10,500 per unit. This
represented a further discount from the price of $12,500 per unit that LTIA
had agreed to in the August 31, 1993 Agreement. The Purchase Agreement further
provided that the Company would pay for the photo laser systems by reducing
LTIA's receivable by $210,000. LTIA's receivable was reduced by this amount on
August 24, 1994.
In approximately June 1994, LTIA began returning to the Company certain of
the Marksman units for which it had not paid. Between June 1994 and March
1996, LTIA returned all 100 units from the September 1993 Sale and an
additional thirty (30) units. The Company did not reduce LTIA's account
receivable upon the return of the units. Rather, two corporate officers and
directors, David Williams and Jeremy Dunne, transmitted personal funds to the
Company which were applied to reduce the LTIA account receivable. From
September 26, 1994 to September 28, 1995, Mr. Williams and Mr. Dunne paid to
the Company $184,298 and $131,250 respectively. To the best knowledge of the
Company, Mr. Dunne believed that his payment of $131,250 was an advance to
LTIA to support its development of the Australian market and to assist LTIA
during a period when it was experiencing cash flow problems. Further, to the
best knowledge of the Company, Mr. Williams and Pamela Sevy, the Company's
Chief Financial Officer, were the only Company officers or directors who were
aware that the aforementioned payments were used to reduce the LTIA account
receivable.
Mr. Williams and Mr. Dunne each personally borrowed the funds they
transmitted to the Company that were applied to the LTIA account receivable.
In some instances the interest and principal payments on Messrs. Williams' and
Dunne's loans were paid by the Company. These payments were authorized by Mr.
Williams and Ms. Sevy. In most instances the interest and principal payments
paid by the Company were debited to the
F-19
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's officer receivable account of Mr. Williams or Mr. Dunne,
respectively. In April 1997, the Company paid $98,676 to Norwest Bank of
Arapahoe to repay a loan that Mr. Williams had taken out to pay on the LTIA
account receivable. In making the payment to the bank, the Company also paid a
$25,000 prior loan of Mr. Williams. The Company charged the entire $98,676,
which included the $25,000, to Mr. Williams' personal account receivable at
the Company. The interest paid by the Company totaled approximately $16,000.
Interest payments made by the Company were not reported as income to Mr.
Williams because it was believed that the Company was repaying monies owed to
Mr. Williams. In September 1997, H. DeWorth Williams, the brother of David
Williams and a director of the Company, made a personal loan to David Williams
in the amount of $165,000. DeWorth William's check for $165,000 was made
payable to the Company and the funds were used by David Williams to reduce his
personal account receivable at the Company. None of these transactions were
reported as a related party transaction in the Company's prior annual report
on Form 10-K.
During fiscal 1995, the Company determined that the photo laser systems that
were pre-purchased from LTIA pursuant to the Purchase Agreement did not meet
performance requirements. Accordingly, the Company discontinued its efforts
with LTIA related to developing the photo laser system and did not take
delivery of the 20 units. On or about September 14, 1995, the Company reversed
the $210,000 credit previously applied to the LTIA account for the pre-
purchase of the photo laser systems.
Approximately ninety of the units returned by LTIA between June 1994 and
March 1996 were resold through the Company on Company invoices, but the sales
were not recorded on the Company's books. Rather, the sales proceeds were
deposited into a Company account established at Colorado National Bank ("CNB")
under the Company's name. The funds in the account were intended to repay
David Williams for his funds advanced on behalf of LTIA. Sales proceeds were
used to reduce LTIA's account receivable or to repay those funds which Messrs.
Williams and Dunne had transmitted to the Company to reduce LTIA's receivable.
The CNB account was established in May 1995, although not authorized by the
Company's Board of Directors. The CNB account was not disclosed to the
Company's auditors during fiscal 1995, 1996, 1997 or 1998. Also, to the best
knowledge of the Company, David Williams and Ms. Sevy were the only Company
officers or directors who were aware of the purpose of the CNB account.
However, the Company is aware that two other employees, including one person
that became the Company's controller, knew of the existence and purpose of the
CNB account. The employees did not disclose the account to the Board of
Directors or to the Company's auditors. These employees were also involved in
the creation and processing of certain invoices for transactions related to
the CNB account.
The remaining ten units from the September 1993 Sale plus approximately
thirty additional units from the December 1992 Sale, were also sold. However,
these sales were inadvertently recorded as new Company sales with no cost of
goods sold being attributed to the sales. The Company is presently unable to
identify specifically approximately fifteen of these units, although it is
believed that the proceeds from the sale of these units were also recorded as
new sales by the Company.
In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. David Williams and Ms. Sevy applied the proceeds from the
sale to reduce Mr. Williams' account receivable by $50,000 in consideration
for monies he had transmitted to the Company to reduce the LTIA receivable
and, that due to the resale of returned units by the Company were considered
unrecoverable by him. Subsequently, the Company reversed this transaction,
debited Mr. Willliams' account receivable for $50,000, and recorded the sale
as revenues to the Company. The Company then reduced Mr. Williams' account
receivable by $50,000 to recognize the monies he had transmitted to the
Company to reduce the LTIA receivable. Mr. Williams has agreed to forgive any
monies owed him due to the resale of his units by the Company.
The following table demonstrates the changes to revenues from the sale of
the 100 units pursuant to the September 1993 Sale, although had the sales of
the units been recorded in later periods when the units were
F-20
<PAGE>
LASER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
resold. The table also demonstrates the effect on net income in each period had
such sales and gross margin contribution to net income been recorded in the
period in which the resale occurred rather than in fiscal 1993.
The sales value of the 130 units returned was approximately $488,000. Of the
130 units returned, ninety of the units, or approximately $369,000, were sold
through the CNB account to repay Messrs. Williams and Dunne or applied towards
LTIA's account receivable. Forty of the units were sold inadvertently as new
Company sales. The following table reflects the sale of one hundred fifteen
units, the number specifically identifiable as having been sold as a new sale
or through the CNB account. The table does not reflect the resale of the
remaining fifteen units because of the Company's inability to identify those
specific units and the table takes into effect approximately $30,000 in
discounts granted on returned and resold units.
The table reflects all identifiable units for which sales revenue may have
been more fairly reported in a later period. The Company believes that all
funds have been accounted for from the sale or resale of the units. Ther
Company further believes that no individuals personally benefitted from any of
the transactions.
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales as
reported............. $9,292,637 $9,306,777 $8,225,776 $5,303,299 $4,813,227
Adjustments to net
sales................ 16,131 197,342 102,805 -- (401,278)
Adjusted net sales.... 9,308,768 9,504,119 8,328,581 5,303,299 4,411,949
Net income as reported
(1).................. 585,430 1,063,372 704,132 59,106 965,246
Adjusted net income... $ 594,302 $1,171,910 817,218 59,106 744,543
Earnings per share.... $.12 $.20 $.14 $.01 $.20
Adjusted earnings per
share................ $.12 $.22 $.16 $.01 $.16
</TABLE>
- --------
(1) During fiscal 1993, the Company recorded a non-recurring extraordinary
charge of $567,000 as a loss related to the early extinguishment of debt.
The computation of adjusted net income and earnings per share data for
fiscal 1993 does not take into effect such reduction in net income as it
does not relate to the Company's results from operations.
F-21
<PAGE>
LASER TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Allowance for doubtful accounts
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance
at Beginning Costs and at End
of Year Expenses Deductions of Year
------------ ---------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended September 30, 1996....... 10,000 -- -- 10,000
Year Ended September 30, 1997....... 10,000 3,665 (3,665) 10,000
Year Ended September 30, 1998....... 10,000 4,470 (4,470) 10,000
</TABLE>
F-22
