Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission File Number 0-11635
LASER PHOTONICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-2058100
(State or other jurisdiction (I.R.S. Employer ID No.)
of incorporation or organization)
12351 Research Parkway, Orlando, Florida 32826
(Address of principal executive offices)
Registrant's telephone number, including area code: (407) 281-4103
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Each Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
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 ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PROCEEDING FIVE YEARS.
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO ___
The market value of the Registrant's Common Stock, $0.01 par value per share,
held by nonaffiliates was $13,130,303 based upon the average of the bid and
asked prices at closing on May 1, 1996. Beneficial ownership of stock rules
adopted pursuant to Section 13 of the Securities Exchange Act of 1934 were used
to exclude Common Stock owned by directors and officers, some of whom may not
be held to be affiliates upon judicial determination.
As of May 1, 1996, there were 5,530,380 shares of "New" Common Stock
outstanding.
PART I
ITEM 1 BUSINESS
I. Overview
Laser Photonics, Inc., a Delaware corporation organized in 1980, (the
"Company"), designs, develops, manufactures and markets solid-state, diode and
gas laser systems and accessories for use in both "Medical" and "Scientific"
applications.
In addition, through its 76% owned Acculase, Inc. subsidiary acquired in
May of 1995, the Company is engaged in the development of proprietary excimer
laser and fiberoptic equipment and techniques directed toward the treatment of
coronary heart disease.
On May 12, 1995, the Company emerged from reorganization under Chapter
11 of the Federal Bankruptcy Act, and became a 75% owned subsidiary of
Helionetics, Inc., of Van Nuys, California.
The following table sets forth certain financial information as to laser
products for the identified application for the last three fiscal years to
unaffiliated customers:
May 23, January 1,
1995 to 1995, to
December 31, May 22, Year Ended December 31
1995 1995 1994 1993
---- ---- ---- ----
Medical Sales $ 294,086 $ 208,749 $1,906,752 $2,469,163
Scientific Sales(1) 1,114,373 1,033,065 3,807,867 3,620,996
----------- ----------- ---------- ----------
Total Sales 1,408,459 1,241,814 5,714,619 6,090,159
Gross Profit or Loss
Medical(2) 21,232 7,361 389,176 (1,520,193)
Gross Profit or Loss
Scientific 105,072 27,894 790,144 161,549
----------- ----------- ---------- ----------
Total Gross Profit 126,304 35,255 1,179,320 (1,358,644)
- - - ------------
(1) Includes LAI, which is operated as a Division.
(2) Above medical margin provides COS for Acculase of $30,174, thereby
reducing LPI margin accordingly. This is the first year with Acculase
data in the 10-K as 76.1% was acquired as of May 22, 1995.
The Company's strategy is to apply its extensive solid-state and excimer
laser expertise to develop a broad base of laser products focused on medical
and scientific applications. The Company believes that solid-state and excimer
laser technology provides the basis for reliable cost effective systems that
will increasingly be used in connection with less invasive, less traumatic
surgical procedures.
2
II The Company's 1995 Reorganization
The Company filed a Petition for Reorganization under chapter 11 of the
Federal Bankruptcy Act on May 13, 1994. (Case No. 94-02608-611 - Federal
Bankruptcy Court - Middle District, Florida) (the "Reorganization"). An order
was issued on May 12, 1995 (the "Effective Date"), confirming the Company's
Third Amended Plan of Reorganization (the "Plan") pursuant to this proceeding.
During the pendency of the Reorganization, Helionetics, acquired all
rights to the secured claims of Sun Bank, one of the principal creditors,
whose claims were secured by virtually all property of the Estate, and
originally totaled approximately $237,240. (After paydown pursuant to cash
collateral and adequate protection orders, these claims totaled approximately
$146,000 plus legal fees.)
Helionetics, in addition, loaned a total of $300,000 to the Debtor
during the pendency of the Reorganization for working capital purposes.
On or prior to the Effective Date, Helionetics contributed to the
Company the sum of $1 million dollars in cash, which funds were utilized as
the source for all immediate cash payments under the Plan.
In addition, on the Effective Date, Helionetics transferred to the
Company, ownership of approximately 76% of the outstanding common stock of
Acculase, Inc., and Helionetics further committed to fund the cost of research
and development of Acculase's excimer laser technology for a minimum of two
years.
As a "Proponent" of the Plan, Helionetics in exchange for this infusion
of cash and transfer of Acculase shares, received 3,750,000 shares of "New
Common Stock" of the Company issued in the reorganization, which in the
aggregate totaled 75% of the Company's 5,000,000 shares of outstanding "New
Common Stock" as of the Effective Date.
[The remainder of this page left blank intentionally.]
3
III. The Company's Business Areas
A. Medical Applications and Products.
1. Overview. Lasers have been used by physicians for many years
as surgical tools for specific applications such as gynecology,
gastroenterology and ophthalmology because of their precision and ability to
coagulate or vaporize tissue. Recently, applications have been developed in
connection with less invasive, less traumatic surgical procedures, such as
endoscopy and laparoscopy, which have expanded the use of fiber optically
coupled laser systems in medicine. The use of minimally invasive endoscopic
and laparoscopic procedures have begun to replace certain conventional open
surgical procedures. The new less invasive procedures deliver laser energy
through a small optical fiber to cut, coagulate, or vaporize tissue and
usually results in reduced hospital stays by reducing attendant blood loss and
trauma associated with conventional open surgery.
The development of new laser wavelengths and fiber delivery systems
which allows physicians to develop new minimally invasive techniques to treat
conditions that previously required open surgery. Urologists are using lasers
to treat prostate disease, (BPH) and to fragment kidney and biliary stones with
no damage to the surrounding soft tissue and dermatologists are using lasers to
treat benign vascular and pigmented lesions of the skin such as spider veins
and port wine stains, moles and tatoos.
The Company has used its base of solid-state technology to develop a
number of products for use in these emerging applications. The Company has
developed and is commercially marketing a solid- state surgical Nd:YAG laser
system and accessories for which FDA clearances have been received. The
Company has also developed an alexandrite laser lithotriptor for which it
received FDA clearance (April 1993) to commercially market.
2. Medical Laser Products. Set forth below is a brief summary of
the Company's current medical laser systems:
(1) Ruby Laser System. The use of solid-state laser systems has
also expanded into new application areas such as dermatology for the treatment
of benign pigmented lesions of the skin such as nevus of ota, moles, age spots
and tatoos. This new application represents an extension of the Company's
scientific ruby laser technology, a technology which was one of the earliest
laser systems developed for commercial use. Laser energy created by the ruby
laser is highly absorbed by pigmented lesions but poorly absorbed by normal
skin. Using the laser system, therefore, allows the physician to treat
effectively the skin lesion without anesthesia and without causing normal
pigmented changes or scarring. The Company began manufacturing and shipping
these systems in August 1991 on a private label basis for a customer who
received FDA clearance to market the laser for tatoo removal. Shipments
continued through early 1993 when the OEM Manufacturing/Distribution Agreement
with the customer officially terminated.
(2) Nd:YAG Laser Systems. During the 1980's, the CO2 gas laser
began to be replaced as the "workhorse" of the industry by the Nd:YAG Laser
System. Major complaints with the CO2 were the cumbersome delivery mechanism
(an articulating arm) and its inability to coagulate tissue or to deliver
energy through a fluid medium. The Nd:YAG energy could be delivered through a
small flexible optical fiber, could be effectively used in a fluid medium, and
was effective in cutting, coagulating and vaporizing tissue. As new
accessories (contact fibers) and new procedures (endoscopy) are developed, the
use of the Nd:YAG system as a surgical tool continues to expand.
In 1990, the Company received FDA clearances to market commercially
100, 60, and 45 watt Nd:YAG systems and accessories for use in general
surgery. These systems are used in traditional applications such as
gynecology as well as in endoscopic and laparoscopic procedures such as laser
laparoscopic cholecystectomy (gallbladder removal). New endoscopic and
laparoscopic procedures have generated significant interest among general
surgeons in the use of lasers for surgery.
4
(3) Alexandrite Laser System. Laser induced shockwave lithotripsy
("LISL"), or the use of laser energy to break up kidney and biliary stones,
also represents a new application of medical lasers. The Company believes
that LISL offers a reliable cost effective adjunct or alternative to surgery
or extracorporeal shockwave lithotripsy ("ESWL") for the treatment of kidney
and biliary stones. ESWL uses externally generated shock waves that
noninvasively pass through the skin and fragment the stone, allowing it to be
passed by the patient. ESWL equipment is expensive to purchase and install
and may not be usable in treating certain stones in the lower two-thirds of
the ureter which are shielded by the pelvic bone.
LISL requires a minimally invasive endoscopic procedure or percutaneous puncture
to allow access to the stone. A small optical fiber is passed through the
endoscope or percutaneous catheter until it reaches the stone. Laser energy is
transmitted through the optical fiber and causes the stone to fragment into
small particles which can be expelled naturally. LISL can be used to fragment
stones in areas which are not easily treated by ESWL or following ESWL
treatment when fragments become lodged or are not small enough to be expelled
naturally.
In April 1993, the Company received FDA clearance to market its solid-state
alexandrite lithotriptor for the treatment of kidney stones in the renal and
urinary tract. Clearance to market the lithotriptor was also received in Japan
in late 1995.
(4) Acculase Excimer Laser. The company's subsidiary,Acculase,
Inc., is involved in the development of excimer laser technology for
Transmyocardial Revascularization (TMR) (See section entitled "Acculase" for
details.) The Company anticipates that its FDA qualified manufacturing
facility will be utilized in the production of the Acculase excimer laser
assuming succssful clinical evaluations are completed.
3. Principal Markets & Methods of Distribution. The Company's
marketing strategy is to define specific target markets and to modify existing
products or design new products to meet perceived market demand. The Company
markets its medical laser systems principally through independent distributors
and representatives to large hospitals, small community hospitals, and
freestanding outpatient surgery centers throughout the United States. The
Company promotes its medical products through attendance at trade shows and
exhibits, advertising in medical journals, and direct mail programs to the
medical community.
The following classes of medical products contributed total revenues
annually equal to 15% or more of total revenues:
1995 1994 1993
Sales Sales Sales
----- ----- -----
Nd:YAG Lasers (1) $851,740 $1,640,647
(1) Did not account for 15% of sales in 1995
4. Sources and Availability of Raw Materials. To date, the Company
has not experienced any difficulty in obtaining solid state laser rods,
optical, electro-optical, electronic or any other components and raw materials
for its products, most of which are available from multiple sources which are
well-established in the industry, although because of the Company's financial
constraints certain suppliers have required the Company to pay COD for
materials.
5. Seasonal Factors- Medical Lasers. Seasonality is not a
significant factor in medical laser sales. Budgetary cycles and funding are
spread out in various hospitals, chains and organizations so that funding is
not as cyclical as in the scientific laser market.
5
6. Working Capital Items - Medical Lasers. The Company is required
by the FDA under GMP guidelines to carry certain inventories for emergency
medical service. Typically, major service problems must be responded to within
24 hours. The Company estimates that $250,000 of service inventory is on hand
at any given time for emergency response.
The Company does not provide the right to return units. In some cases,
demonstration equipment is sent to the customer prior to the sale to determine
suitability. In rare cases the Company has allowed returns when accompanied by
a substantial restocking fee.
All customers are on 30 day payment terms with approved credit. Some
distributors have been granted 60 day terms on a case by case basis.
7. Dependence on a New Customers. The Company did not have sales
to a single customer in excess of 10% of total sales in 1995.
8. Back Log Orders. As of December 31, 1995, the Company had an
approximate backlog of $60,000 in orders believed to be firm for its medical
lasers. All of the backlog orders at December 31, 1995 are expected to be
filled during 1996.
9. Competition. The laser industry is very complex and fragmented
because of the specialized nature of laser products and the differing
applications required by purchasers of lasers and laser systems. Although the
Company believes its laser products incorporate state-of-the-art technology,
the laser industry is subject to intense competition and rapid technological
change. Many of the Company's competitors are manufacturers which are
substantially larger than the Company and have substantially greater financial
and personnel resources. To the extent the Company's products are incorporated
into systems for medical and scientific applications, the Company indirectly
competes with hundreds of suppliers of devices employing other technologies,
and also those which employ lasers as a principal component. An element of the
Company's competitive strength is its ability to attract and retain qualified
technical personnel. See "Employees".
The Company believes the primary competitive factors within the surgical
laser market are the level of customer support, training, price, product
reliability, and breadth of product line. The Company believes that it offers
a broad product line, flexible OEM capabilities, and provides through its
distributors and in-house capabilities a high level of customer service and
training. The Company believes that its medical products are competitively
priced compared to competing laser products and that its products based on
solid-state technology are very reliable. Although the Company has manufactured
surgical YAG laser systems and components on a private label basis for a number
of years, as an entrant into this market under the Laser Photonics label, the
Company must establish its reputation as a direct provider of products to the
medical community.
10. Product Warranties. The Company's standard warranty period on
most products, except consumables, which have a ninety day warranty period, is
one year for parts and labor. Selected medical products have a 12 month parts
only warranty. During the warranty period, the Company pays shipping charges
one way. The Company has established a reserve for warranty costs based upon
the estimated costs to be incurred.
11. Research and Development. During 1995, the Company continued
its efforts to become a key manufacturer and supplier of laser systems and
accessories. The Company received FDA approval on several laser systems in
1992, and in 1993 received clearance on its Alexandrite Lithotriptor
Stonelaser.
The Company research and development emphasis has shifted from pure
research to product modification and development to meet new market demands.
The Company's strategy is to utilize and modify its existing laser and
component base to develop new products and applications in targeted medical and
scientific markets. In addition to internal development, the Company may take
advantage of opportunities, if they arise, in the current laser market
environment of consolidation and market
6
specialization by continuing to seek out and acquire both products and
technology at a cost the Company believes to be lower than internal
development. The Company does not have any present acquisition plans. Because
the Company products are focused in specific niche scientific and medical
markets, the Company does not believe the decline in R&D expenditures will
impact the Company's abilities to be competitive in its markets.
In February 1989, The Company acquired Laser Analytics, Inc., a
wholly-owned subsidiary of Spectra Physics. Since the acquisition, the Company
has funded continued development efforts focused primarily on improvements in
the production of tunable infrared laser diodes. In 1990, the Company signed a
joint technology licensing agreement with the General Motors Research Lab. This
technology uses a spectrometer based on the Company tunable infrared laser
diode to measure naturally occurring, non-radioactive stable isotopes in
exhaled breath. These measurements are useful in diagnosing such medical
problems as diabetes, lung and liver dysfunction, digestive tract diseases, such
as the detection of helicobactor pylori which has been shown to be a precursor
to liver and stomach cancer. The Company is continuing research and
development efforts on this product but does not anticipate commercial sales
from this product in the next twelve months. The Company has, however, shipped
a second generation preproduction unit to Scotland to begin formal evaluation
of its isotope ratio systems against the current industry "gold standard" mass
spectrometer. Preliminary results indicate that the laser diode based isotope
ratio systems compare favorably against the results of the current industry
"gold" standard mass spectrometer.
12. Environmental Concerns - Medical Lasers. Laser Photonics'
medical lasers are not thought to cause any environmental concerns. All
medical lasers are solid-state construction so no hazardous gases or liquid
dyes are used in their operation or manufacture. In winter months, medical
laser cooling systems are filled with an ethelyne glycol and water mixture to
prevent freezing during shipment. This mixture must be removed and discarded
upon installation.
Acculase excimer lasers utilize Xenon-Chloride gas as a lasing medium.
The chlorine component of this gas is extremely corrosive and must be handled
with care. Although only a small quantity of gas is present in each laser,
proper handling is essential for safe operation. Depleted gas is reacted prior
to disposal. Excimer lasers are common in hospitals and laboratories and the
disposal and handling of these gases is well known. The use of these gases is
not expected to impact the desirability of these lasers. Excimer lasers used
in PRK (photorefractive radial keratectomy) use similar gases. These lasers are
also in widespread use.
[The remainder of this page left blank intentionally.
7
B. Scientific Applications and Products.
1. Overview. The Company's scientific products are sold into niche
markets for use principally in applications such as spectroscopy, calibration,
alignment, and ultra-fast event measurement by universities, government, and
private industry research labs.
The Company manufactures and markets scientific products based on a wide
range of technologies which include: nitrogen laser systems, nitrogen pumped
dye laser systems, solid state mid infrared laser systems, CO2 laser systems,
as well as laser diodes and laser diode spectrometers.
2. Scientific Laser Systems. Set forth below is a brief summary of
the Company's current scientific laser systems:
(1) Nitrogen Laser and Nitrogen Pumped Dye Laser Systems. The
Company's nitrogen/dye laser uses an ultraviolet laser beam that when exposed
to certain dyes creates a visible wavelength that is tunable over a wide range
of frequencies. This feature makes them extremely useful to chemists who do
spectroscopic studies of materials that absorb or react to specific wavelengths
of light. The main features of this product line are tunability, reliability,
stability, ease of operation and low cost. The Company's sealed nitrogen lasers
are now being used in OEM commercial applications. In 1995, the Company
received two significant quantity orders from a foreign government for nitrogen
lasers to be used in the currency printing process. Machine vision systems and
mass spectrometer manufacturers are also using nitrogen lasers in quantity.
(2) Solid State Mid Infrared Laser Systems. The Company's
solid-state scientific product line consists of a broad range of laser system
products (Nd:YAG, Nd:GLASS, Ti:SAPPHIRE). Each product within this line has
unique wavelength and performance characteristics which are useful in
laboratory research in holography, plasma diagnostics, and bathimetry (ocean
mapping).
(3) CO2 and CO Laser Systems. The Company's CO2 and CO laser
technology covers a broad range of infrared laser applications requiring unique
characteristics and can be categorized into two main classifications - low and
high power infrared. The low power infrared gas scientific laser products are
designed for use in spectroscopy. As such, they are very stable, sensitive
instruments, which have recently also been used commercially for remote sensing
and gas trace analysis. The high power products are used for spectroscopy as
well as light industrial applications such as thin film cutting and plastic and
metal making.
(4) Diode Laser Systems. The Company's tunable diode lasers are
based on lead- salt semiconductor technology for use in advanced research such
as high resolution molecular spectroscopy, combustion diagnostic studies and
atmospheric chemistry. These are "high end" instruments designed for research
which requires a high level of sophistication and performance. These lasers
are sold both as a standardized unit, and as a customized unit. In addition,
the Company has designed a system using the tunable diode laser technology for
pollution monitoring applications.
3. Principal Markets & Methods of Distribution. The Company
markets its scientific products through a direct sales force in the United
States and through a network of distributors outside of the United States,
principally to universities, governmental research labs and large companies.
The Company promotes its scientific products through attendance at trade shows,
advertising in scientific journals and industry magazines, and direct mail
programs to the scientific research community.
The following classes of scientific products contributed total revenues
annually equal to 15% or more of total revenues:
8
1995 1994 1993
Sales Sales Sales
----- ----- -----
Nitrogen/Dye Lasers 762,581 1,043,122 n/a
4. Sources and Availability of Raw Materials-Scientific Lasers.
Laser Photonics believes its relationship with vendors of materials for
scientific lasers is good. As a result of the Company's reorganization, most
vendors operate on a C.O.D. basis. This has not significantly affected the
willingness of vendors to work with the Company on an ongoing basis. Most
major components, including laser crystals, optics and electro-optic devices
are available from a variety of sources. The company does not rely on sole
source vendors. Cash flow constraints are the main limiting factors in parts
availability.
5. Seasonal Factors - Scientific Lasers. The scientific laser
market is affected mainly by the government budget cycle. A majority of the
company's scientific laser sales are funded by government agencies such as the
National Science Foundation, the National Institute of Health, Department of
Energy and Department of Defense. The second and third quarters are typically
the heaviest for booking orders. Approved funding is usually allocated late
in the first quarter or early in the second quarter each year. The Company
typically sees an increase in bookings at this time . The government fiscal
year ends on September 30 of each year. Bookings typically increase at this
time as researchers scramble to spend funding before it is cut off.
6. Working Capital Items - Scientific Lasers The Company is not
required by any regulatory body to keep inventories on hand to meet service or
delivery issues. Certain raw materials have lead times of greater than sixteen
weeks. The Company keeps a safety stock of these items when appropriate. The
Company estimates that less than $100,000 of current inventory is set aside for
safety stock.
The Company does not provide the right to return units . In some cases,
demonstration equipment is sent to the customer prior to the sale to determine
suitability. In rare cases the Company has allowed returns when accompanied
by a substantial restocking fee.
All customers are on 30 day payment terms with approved credit. Some
distributors have been granted 60 day terms on a case by case basis.
7. Dependence on New Customers. The Company did not have sales to
a single customer in excess of 10% of total sales in 1995.
8. Back Log Orders. As of December 31, 1995, the Company had an
approximate backlog of $1,200,000 in orders believed to be firm for its
scientific lasers. All of the backlog orders at December 31, 1995 are
expected to be filled during 1996.
9. Competition. The Company believes that the primary competitive
factors within the scientific market are the level of customer support and
training, price,product reliability, and breadth of product line. The Company
believes that it offers one of the broadest product lines available in the
scientific laser industry and provides through its direct sales force and
in-house service capabilities a high level of customer service. The Company
believes that its scientific products are competitively priced compared to
competing laser products and that its products are very reliable. Because the
Company has purchased existing, well established product lines, which now
comprise most of its scientific business, the Company has the advantage of
selling scientific products which are well known and have established
reputations for quality and performance.
10. Product Warranties - Scientific Lasers. The Company's standard
warranty on scientific lasers is twelve months parts and labor, except
consumables, which have a ninety day
9
warranty. Most scientific lasers can easily be returned to the factory for
repair due to their small size and weight. During the warranty period, the
Company pays shipping charges one way. The Company has established a reserve
for warranty costs based upon the estimated costs to be incurred over the
warranty period of the Company's products.
11. Research and Development. In 1993, the Company's Analytics
Division received from NASA a Phase II Small Business Innovative Research
Development grant in the amount of $500,000 for the production of Tunable
Diode Lasers for Airborne Spectrometers used for atmospheric sensing. This
grant is for two years, research commenced in June 1993, and was successfully
completed in June of 1995.
12. Environmental Concerns - Scientific Lasers. The Company does
not knowingly use any products known to harm the environment. All solvents
and cleaners are biodegradable. Cooling systems, where applicable, use CFC
free refrigerant.
The Company's Analytics Division produces lead-salt diodes. The
manufacturing process used to produce the state-of-the-art lasers is a complex
process in which many different types of materials are used to produce
sophisticated lasers. Many of these materials must be processed in a laboratory
environment. The quantity of materials is small (the Analytics Division is
classified as a Very Small Quantity Generator). This division has chemical
management programs which are designed to provide a safe work environment for
all employees and to ensure compliance with all Federal, State and Local
regulations related to the use and disposal of chemicals in the work
environment.
[The remainder of this page left blank intentionally.]
10
C. Acculase, Inc.
On May 12, 1995, the Company acquired 76% of the outstanding stock of
Acculase, Inc., a development stage company.
Acculase was founded in 1985 for the purpose of commercializing
products that utilize its proprietary excimer laser and fiberoptic
technologies. Acculase has focused primarily on the development of medical
products for the treatment of coronary heart disease. Two products have been
under development, one being an excimer laser system for performing
transmyocardial revascularization (TMR), a procedure that creates new channels
for blood to flow to ischemic, or oxygen-starved, heart muscle. The other
product is an excimer laser angioplasty system for removing atherosclerotic
blockages from coronary arteries.
1. Acculase Transmyocardial Revascularization System. Acculase has
under development an excimer laser and fiberoptic system for the treatment of
coronary heart disease in a procedure called transmyocardial revascularization
(TMR). Rather than opening narrowed coronary arteries, the Acculase TMR
system is intended to treat ischemic myocardium (oxygen-starved heart tissue)
directly. This is accomplished by lasing small channels through ischemic areas
of the heart such that the channels connect directly with the left ventricle,
which is a reservoir of oxygen-rich blood. These channels thus provide new
pathways for blood flow into the heart muscle.
Acculase met with representatives of the U.S. Food and Drug
Administration (FDA) in January, 1995 to discuss preclinical data submission
requirements necessary to initiate human trials of its TMR system. Since this
meeting, animal testing of the Acculase TMR system has been performed in
collaboration with several heart research institutions in the U.S.,culminating
in a study at The New York Hospital Cornell Medical center which will serve as
the pre-clinical basis for an Investigative Device Exemption (IDE) that is
expected to be submitted to the FDA in mid-1996.
This IDE, if approved, will allow Phase I human clinicals to begin at
the New York Hospital Cornell Medical Center under the direction of Dr. Todd
Rosengart,MD, and at the Hospital of the Good Samaritan in Los Angles,
California under the direction of Dr. Gregory Louis Kay,MD.
The IDE submission will be for the AccuLase TMR system to be used in an
open heart procedure. The Phase I study will only include patients that are
suffering from ischemia and angina, but who are not candidates for coronary by
pass grafts (CABG) or for balloon angioplasty. Protocols detailing the
surgical procedure with its midpoints and endpoints (monitoring and reporting
of patient outcomes) are being developed at the two institutions.
There are an estimated 120,000 people worldwide per year who qualify
for TMR under the conditions set forth above. Depending upon the outcomes of
the Phase I study, the company may petition the Phase II studies be expanded
to a multi-site study (more than 10 institutions) and expand the procedure to
include patients who are candidates for incomplete CABG revascularization.
This will greatly expand the patient base.
Funding for the Phase I trials is expected to largely be offset by
government and insurance reimbursement. The federal Health Care Finance
Administration (HCFA) has approved laser procedures used in surgery for
reimbursement, and has paid reimbursement to a competitive TMR system
undergoing clincal trials. HCFA is expected to review TMR reimbursement and
clarify its reimbursement status by October 1996. If the petition for
expansion of the studies to include incomplete CABG revascularizations is
approved, the reimbursement for the procedure will be offset by the current
reimbursement for the CABG procedure.
Acculase has in process a review of existing patents in the area of its
TMR Laser held by other companies which could impact or even perhaps preclude
in some markets the ability of Acculase to commercialize its TMR System,
except pursuant to licensed rights which might have to be negotiated.
11
2. Laser Angioplasty System Acculase also has developed a laser
angioplasty system that is proposed to be used to treat atherosclerotic
blockages of the coronary arteries during a surgical bypass operation. The
Company believes that the major advantage of its laser angioplasty system over
competing therapies is the ability to remove vessel blockages without causing
significant injury to neighboring healthy tissues. Since the trauma caused by
the procedure should be minimal, it is hoped that the body's healing response,
which contributes to renarrowing at the treatment site, will be reduced.
The "intraoperative" laser angioplasty system was developed for the
purpose of collecting proof of principle information needed to qualify the
novel design of its catheter and fiberoptics. Acculase obtained clearance to
perform Phase 1 of a human clinical study for its intraoperative laser
angioplasty, but has placed research on hold while it expands its research on
its TMR Laser.
3. Anticipated Markets. Acculase's anticipated markets for its
medical products are hospitals located in the U.S. and around the world.
According to a Bear Stearns' report dated January 27, 1995, the
potential world-wide market for TMR could exceed $2 billion. This target
market size is comprised of estimates for three different classes of patients
who may derive benefit from the TMR procedure, namely inoperable patients ($360
million), patients requiring a second bypass operation ($270 million), and
patients who might benefit from TMR used in conjunction with bypass surgery
($1,455 billion). As noted in this report, the potential advantages of TMR
over bypass graft surgery consist of its potential to: (a) reduce initial
procedure cost; (b) reduce the time patients spend in intensive care; and (c)
shorten patient recovery times.
Acculase believes that the market for its laser angioplasty devices
also is large. A November 1992 report by Hambrecht & Quist projected the
worldwide market for percutaneous transluminal coronary angioplasty (PTCA)
catheter equipment in 1995 to be over $1 billion. Since TMR can be performed
adjunctively to PTCA, the TMR market would be expanded by this additional
market which the Bear Sterns report did not cover. The Bear Sterns report did
not cover situations where a laser fiber optic procedure could be performed,
such as the AccuLase system.
Since Acculase is still in the development stage with its products,
there is no assurance it will be able to successfully develop these products,
prove up their anticipated benefits, obtain required governmental approvals
for their use, and reach anticipated markets ahead of competing technologies
and competitors.
4. Working Capital. Acculase will require significant infusions
of working capital over the next 12 months to continue clinical trials and
continue development on its two principal products, estimated in the range of
$1,000,000 to $2,000,000. The sources of and terms for such capital are
uncertain at this date. The Company parent, Helionetics, has informed the
Company that it has the ability to fund Acculase through Phase II human
clinical trials.
5. Sources and Availability of Raw Materials. Acculase uses raw
materials that may be obtained from a number of different vendors. Therefore,
Acculase believes that there are adequate sources and availability of all raw
materials required to commercialize its products.
6. Patents, Trademarks, etc. Acculase has received four U.S.
Patents. The first patent, which was issued in January 1990, provides patent
protection until 2007 and covers Acculase's base excimer laser design. The
second patent, which was issued in May 1990, provides patent protection until
2007 and covers a liquid filled flexible laser light guide. The third patent,
which was issued in May 1991, provides patent protection until 2007, and
covers a means of measuring optical fiber power output. The fourth patent,
which was issued in September 1991, provides patent protection until 2008 and
relates to the laser to optical fiber coupling apparatus used in the Acculase
Laser. Acculase also has one U.S. patent application pending relating to a
proprietary laser catheter design, which application was initially denied and
now is on appeal.
Acculase also received patents for its base excimer laser design in
Australia in November 1991,
12
Canada in December 1992, and Israel in February 1993. The Australian,
Canadian, and Israeli patents provide protection until August 2004, December
2009, and August 2008, respectively. Patent applications are pending in these
countries and in Japan for a fiber optic laser catheter design.
7. Competition. Numerous competitors, many with resources more
significant than that of Acculase, have developed and continue to develop
products for the treatment of coronary heart disease. Acculase faces
competition from balloon angioplasty, atherectomy devices, other laser
angioplasty devices, stents, TMR and pharmaceutical companies.
8. Number of Persons Employed. Acculase currently has two full
time employees. With the expansion of its work on laser angioplasty and TMR,
the number of employees will be increased commensurate with projects
undertaken and the ability of the parent Company to provide additional
capital.
D. Employees
The Company, including Acculase, as of December 31, 1995, employed a
total of 45 persons. The Company has no union employees.
E. Patents, Trademarks, Licenses, Franchises and Concessions Held
The Company holds several United States patents on various items of
laser equipment and components. The Company does not, however, consider the
ownership of patents essential to its operations. In general, the Company
relies upon its engineering, development and manufacturing know- how and the
creative skills of its personnel, rather than upon patent protection to
establish and maintain its industry position. In addition, the Company treats
its design and technical data as confidential and relies on internal
nondisclosure safeguards, such as confidentiality agreements, and on laws
protecting its trade secrets, to seek to protect what it regards as
proprietary information.
F. Government Regulation
The Company is subject to the Radiation Control for Health and Safety
Act with laser radiation safety regulations administered by the Center for
Devices and Radiological Health ("CDRH") of the FDA. These regulations require
laser manufacturers to file new product and annual reports, to maintain quality
control, product testing and sales records, to incorporate certain design and
operating features in lasers sold to end users and to certify and label each
laser sold (except those sold to OEM customers) as belonging to one of four
classes, based on the level of radiation from the laser that is accessible to
users. Various warning labels must be affixed and certain protective devices
installed, depending on the class of the product. CDRH is empowered to seek
fines and other remedies for violations of the regulatory requirements. To
date, the Company has filed the documentation with CDRH for its laser products
requiring such filing, and has not experienced any difficulties or incurred
significant costs in complying with such regulations.
Medical devices incorporating lasers are subject to extensive FDA
regulations governing the use and marketing of such devices. FDA conducts
on-site inspections to insure compliance with good manufacturing practice.
The FDA conducted a no-notice compliance inspection in September 1991, and the
Company received no written deficiencies in its Quality Assurance program.
[The remainder of this page left blank intentionally.
13
ITEM 2. PROPERTIES
The Company currently occupies approximately 12,000 square feet of
office and light manufacturing space at its headquarters in Orlando, Florida,
at a monthly rent of $11,000 per month, with a 120 day termination clause.
The Company signed a new lease for 16,800 square feet of space in Sanford,
Florida in June, 1996. Build-out and relocation are expected to be complete
in September, 1996.
The Company's Analytics Division occupies approximately 10,600 square
feet of office and light manufacturing space in Andover, Massachusetts, with
an unexpired term of 16 months. The Company recently subleased approximately
5,400 square feet to another company.
Acculase presently leases approximately 5,400 square feet of office and
laboratory space in San Diego, California on a month to month basis, at a
monthly rental of $4,719.
ITEM 3. LEGAL PROCEEDINGS
The Company together with its parent company, Helionetics, Inc., filed
on July 19, 1995, a civil complaint in Superior Court of Los Angeles County,
Case No. BC 131 749, against U.S. Surgical Corporation and others. The
Complaint seeks over $2,500,000 compensatory damages and unspecified punitive
damages. The Defendants removed the case to the U.S. District Court for the
Central District of Connecticut under Case No. 95-5513 RAP (RNBx). The
Company expects this to be a significant and protracted litigation. The
Company does not know whether it will prevail in this litigation although it
believes it has a meritorious cause of action. The Company believes the cost
of litigation will have no material effect on subsequent earnings of the
Company.
On June 25, 1996, the Company was advised by the Securities and
Exchange Commission that the staff is recommending a cease and desist action
against the Company for alleged securities law violations in 1992 and early
1993. The alleged events occured prior to the Company's Chapter 11
Reorganization and involves events which occurred prior to the change in the
Company's management and Directors. The current Management and Directors have
no connection with this SEC proceeding. Neither injunctive nor monetary
damages are sought. The Company will likely enter into a short consent decree
to put this old matter to rest.
The Company is not involved in any other material litigation and all
current litigation is deemed to be in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
[The remainder of this page left blank intentionally.]
14
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's "new" common stock, post Chapter 11 reorganization, has
been quoted on the Electronic Bulletin Board since March, 1996 under the stock
symbol "LSPT". The company's "old" stock, pre-Chapter 11 reorganization, was
also quoted on the Electronic Bulletin Board in 1993, and during the period
from May 13, 1994 to May 12, 1995, while the Company was in a Chapter 11
bankruptcy proceeding, in the "pink sheets" under the stock symbol "LAPHQ".
The stock was not quoted during this period.
Laser Photonics "old" stock - LAPHQ
1995
Closing sales Q-1 Q-2 Q-3 Q-4
------------- --- --- --- ---
High None None None 1/8
Low None None None 1/8
1996 - LAPHQ
Closing sales Q-1
------------- ---
High 0.29
Low 0.22
Such market quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not necessarily represent actual
transactions.
The Registrant's "new" stock (LSPT) was quoted as follows on June 21,
1996:
Bid Price High Low
--------- ---- ---
6 1/4 5 1/2
As of May 1, 1996, there were 880 record holders of the Company's New
Common Stock. No dividends have been declared or paid in the Company's
history. The Company presently intends to retain future earnings, if any, in
order to provide funds for use in the operation and expansion of its businesses
and, accordingly, does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
The charts and graphs on the following page reflect the price and volume of the
Company's "new" stock since trading began on March 1, 1996
[The remainder of this page left blank intentionally.]
Laser Photonics, Inc.
Stock prices and volume
1996
[GRAPH]
[GRAPH]
LASER PHOTONICS INC
Weekly stock prices
Ticker: LSPT
Date Volume High/Ask Low/Bid Close/Avg
03/01/96 1,800 6 1/2 6 1/8 6 1/8
03/15/96 30,600 6 1/2 5 1/2 6
03/22/96 386,500 7 7/8 6 7 7/8
03/29/96 247,000 8 7 5/16 8
04/04/96 33,900 8 1/4 7 3/4 7 3/4
04/12/96 67,700 8 1/4 7 3/4 8 1/16
04/19/96 97,500 8 1/2 8 8 1/8
04/26/96 80,200 8 3/8 7 1/4 7 1/4
05/03/96 32,300 7 1/2 7 1/4 7 3/8
05/10/96 46,300 8 1/8 7 1/4 7 3/4
05/17/96 64,900 7 7/8 7 7 1/4
05/24/96 267,000 7 5/8 6 6 1/4
05/31/96 269,700 6 1/2 6 6 1/4
06/07/96 243,400 6 5/8 5 3/4 6 1/4
06/14/96 123,700 6 3/8 5 3/4 5 3/4
06/21/96 63,100 6 1/4 5 1/2 5 1/2
16
ITEM 6. SELECTED FINANCIAL DATA
The following summary of certain financial information relating to the Company
for each of the three years in the period ended December 31, 1995 have been
derived from the financial statements of the Company. Such information should
be read in conjunction with the financial statements and notes thereto
included elsewhere in this report.
May 23, January 1,
1995 to 1995 to Year Ending December 31
December 31, May 22, -----------------------------------------------------------
1995 1995 1994 1993 * 1992 * 1991
---- ---- ---- ---- ---- ----
Net Sales 1,408,459 1,241,814 $5,714,619 6,090,159 $8,503,278 $11,118,149
Net Income (Loss) (2,123,814) 4,839,456 (2,233,829) (3,717,909) (3,662,995) (1,375,173)
Net Income (Loss) (0.42) 0.77 (0.35) (0.58) (0.68) (0.31)
per share
Weighted Average 5,000,000 6,312,112 6,312,112 6,360,579 5,350,527 4,412,629
shares
outstanding(2)
Total Assets 5,796,468 1,714,844 2,143,821 4,511,304 10,634,418 13,005,051
Long-term Debt 866,516 -- -- 3,872,200 6,708,844 8,229,030
and Capital Lease
obligations
Liabilities subject to -- 7,564,469 7,929,852 -- -- --
compromise
Shareholders' 686,214 (7,404,460) (6,643,063) (4,409,234) (1,398,391) (407,030)
equity (deficit)
Working Capital (565,322) (99,108) 959,994 (1,823,426) 1,759,167 3,192,147
Current Ratio 0.68 0.93 2.12 -- 1.33 1.52
* Derived from unaudited financial statements
[The remainder of this page left blank intentionally.]
- - - -----------
(1) Includes extraordinary gain of $5,768,405
(2) Common stock equivalents and convertible issues are anti-dilutive and
therefore not included in weighted average shares outstanding the years
when the Company incurred losses.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Selected Financial Data included in Item 6 hereto and to the Consolidated
Financial Statements and related Notes included in Item 8 hereto.
Financial Condition
Basis for Preparation of Financial Statements
The accompanying consolidated financial statements have been prepared on
a going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business and, where
applicable, in conformity with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code," issued in November
1990, by the American Institute of Certified Public Accountants ("SOP 90-7").
Under the provisions of SOP 90-7, the Company is required to adopt fresh
start reporting as of May 23, 1995 since the reorganization value (approximate
fair value at the date of reorganization) was less than the total of all
postpetition liabilities and allowed claims, and holders of existing voting
shares before the Effective Date received less than 50% of the voting shares of
the emerging entry. Accordingly, the statement of operations for the period
ended May 22, 1995 reflects the effects of the forgiveness of debt resulting
from the confirmation of the Plan and the effects of the adjustments to restate
assets and liabilities to reflect the reorganization value.
In addition, the accumulated deficit of the Company was eliminated and
its capital structure was recast in conformity with the approved Plan. As
such, the consolidated financial statements of the Company as of December 31,
1995 and for the period from May 23, 1995 to December 31, 1995 represent that
of the Successor Company which, in effect, is a new entity for financial
reporting purposes with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods. The consolidated balance
sheet as of December 31, 1994 and the accompanying consolidated financial
statements for the period from January 1, 1995 to May 22, 1995 and the years
ended December 31, 1994 and 1993 represent that of the Predecessor Company.
Outlook for 1996
The Company's business areas continue to improve. In the medical
market, the Company is recently signed a contract for ruby lasers for
dermatology applications valued at $1.5 million over the next twelve months.
The ML300 Alexandrite laser lithotriptor has received approval for marketing in
Japan and is expected to begin generating sales in the fourth quarter of 1996.
The Company's Analytics Division in Andover, MA has a record backlog
approaching $1.3 million. The Company recently received an initial order from
a Japanese association of electronics manufacturers subsidized by MITI
(Ministry of International Trade and Industry) for development of a diode laser
based system for semiconductor process monitoring. The goal of the program is
to develop a plasma based etching process on the level of 0.15 micron
resolution. The Company's diode laser system is used to measure, analyze and
control the plasma reaction. This program will generate approximately $600,000
in sales in the remainder of 1996, and once complete, should generate several
million dollars in sales over the following two years.
The Company's Acculase subsidiary is anticipating FDA approval to begin
human clinical trials sometime in the third quarter of 1996. While Acculase is
not expected to generate revenues for the remainder of 1996, the Acculase
technology represents a significant revenue opportunity in the next two to
three years and beyond. Additionally, Acculase' development comes at a low cost
to the Company. As part of the plan of reorganization, Helionetics is
responsible for funding Acculase for a two year period
18
following the confirmation date. With an estimated market in excess of $600
million, and, in management's opinion, the technical superiority of the
product, the upside potential of Acculase far exceeds the short term burden
that Acculase' costs have on the Company's net profits.
The remainder of this discussion as to operational improvements and cash
needs pertains to the Company's scientific and medical divisions only and is
exclusive of Acculase.
In the first four months of 1996, the Company continued to improve its
cost control program. As a result, even though revenue was down $344,611 or
30% from the same period in 1995, net income improved by $449,081, or 69%.
Cash flow problems continue to affect the Company's ability to meet sales
projections as parts shortages have hindered normal production.
The Company has taken steps to alleviate the cash flow problems including
financing through a factor. For the remainder of 1996, the Company expects to
generate additional capital through further loans from Helionetics, Inc. and
perhaps the sale of additional securities and/or the exercise of outstanding
stock warrants. Management is optimistic that through one or more of these
sources, capital will be provided to acquire the inventory needed to reduce the
backlog of sales and generate cash.
Given the current backlog, the new orders pending and the current
booking rate, and assuming cash constraints are removed, the Company's
scientific and medical divisions, exclusive of Acculase, could show an
operating profit in the third and fourth quarters of 1996. Based on the
Company's current budget, the Company can break even with yearly sales of
approximately $4 million. In May of 1996, the Company shipped approximately
$330,000 of product even with severe cash constraints. Continuing this
shipment rate will meet the break even point for the last two quarters of 1996.
The combination of a strong backlog, reduced costs, and tighter controls should
have a positive impact on the Company's potential profitability.
[The remainder of this page left blank intentionally.
19
Results of Operations
Although results of operations are given for 1995, 1994 and 1993, the results of
operations in 1995 are not comparable to to those of 1994 and prior years due
to the Company's adoption of fresh start reporting and the inclusion of
Acculase.
The following table sets forth, for the periods indicated, certain selected
financial information as a percentage of total sales:
% % %
1995 1994 1993
---- ---- ----
Sales 100 100 100
Cost of Sales 94 79 114
Gross Profit 6 21 (14)
Selling, general and 99 30 60
administrative expenses
Research and development 13 8 20
expenses
Income (Loss) from (105) (17) (94)
operations
Other Income 2 (13) 43
Interest Expense (12) (7) (16)
Extraordinary Income 218 -- --
Net Income (Loss) 103 (37) (67)
[The remainder of this page left blank intentionally.
20
Year Ended December 31, 1995
The results of operations in 1995 are not compared herein to those of
1994 or prior years due to the Company's adoption of fresh start accounting.
The company had cash flow problems throughout the entire year, both
before and after its Chapter 11 reorganization. This resulted in the inability
to purchase inventory and therefore consummate sales. At year-end there was a
sales backlog of $708,435 of which approximately $375,000 could have been sold
during 1995. The cash flow problems directly resulted in a revenue reduction.
Many improvements were initiated during 1995 as to reduced staffing,
product selection, cost controls, budgets, planning, etc. Management believes
the financials have not yet reflected these accomplishments, but will do so in
the future.
In addition, the Company acquired Acculase, Inc. as a part of the Plan
of Reorganization. This acquisition is in a start-up phase. Acculase is
awaiting FDA approval to begin clinical trials. As a result, Acculase
generates no revenues and has a substantial impact on the financials. Acculase'
operations are highlighted separately.
During the twelve months ended December 31, 1995, the company recorded a
net operating loss of ($3,052,763) exclusive of the gain from reorganization
of $5,768,405. As mentioned previously, severe cash flow limitations affected
the Company's ability to purchase parts and also affected the cost of parts as
quantity discounts could not be realized. Cost of sales was therefore affected
accordingly.
Sales for the year were $1,241,814 prior to confirmation and $1,408,459
post-confirmation and resulted in a gross margin of $161,559 including the
Acculase loss of ($30,174).
Selling, General and Administration costs totalled $2,611,616, of which
Acculase, for the seven month period totalled $711,369 leaving a balance of
$1,900,247 for LPI alone. The Company maintained its position with regards to
SG&A expenses but implemented improvements in medical costs, and rent expense
which will be fully realized in 1996. This benefit will be allocated to all
departments on a basis consistent with prior allocation policy.
Research and Development totalled $332,396. The Company's R&D policy
during 1995 was to focus on reducing existing product's costs and on product
improvement. Due to cash limitations, no new product development was
undertaken.
As previously mentioned, on May 23, 1995, Laser Photonics acquired
Acculase. Since Acculase was acquired during 1995, there is not any comparable
data. The Acculase Profit & Loss included in Laser Photonics consolidation is
as indicated:
Revenue 0
Cost of Sales 30,174
--------
Gross Margin (30,174)
Selling, General & Administration 711,369
Interest Expense 105,942
Net Income (Loss) (847,485)
21
Year Ended December 31, 1994 Compared to December 31,1993
During the twelve months ended December 31, 1994, the Company recorded a
net loss of $2,233,829 as compared to a net loss of $3,717,909 for the same
period in 1993. A significant decrease in selling, general and administrative
expenses ($2,005,748) as well as decreases in the level of expenditures for
research and development programs ($753,369), accounted for the reduction in
loss, period to period.
Sales for the year ended December 31, 1994 were $5,714,619 or $375,740
less than the same period in 1993. Medical sales declined by approximately
$655,828 when compared to 1993 due to a softening in the medical market and the
loss of the Company's distribution contract with Surgilase, Inc.
Sales of the Company's scientific products decreased by $11,146 for the
year ended December 31, 1994 to $3,807,867.
Gross profit increased by $1,894,774 from ($665,454) in 1993 to
$1,229,320 in 1994.
Selling, general and administrative expenses decreased by $2,005,748, as
a result of reduced general and administrative personnel, and reduced
advertising, travel and commission expenses.
Research and development expenses decreased by $753,369 to $477,404 for
the year ended December 31, 1994. This decrease was the direct result of
reduced development expenditures as the Company changed its engineering focus
to concentrate on existing product improvement and cost reduction.
Interest expense decreased in 1994 by 59% or $581,617 to $406,673, as
compared to $988,290 for 1933. This decrease was primarily due to termination
of the Orlando facility lease as the Company was not in a position to exercise
its purchase option.
Year Ended December 31, 1993 Compared to December 31, 1992
During the year ended December 31, 1993, the Company incurred a net loss
of ($3,717,909) as compared to a net loss of ($3,662,995) for 1992. The
increased loss for 1993 as compared to 1992 was the result of an increase in
cost of sales resulting from adjustments to correct inventory valuations, and
adjustments to correct reported gross sales.
Sales for the year ended December 31, 1993 of $6,090,159 decreased by
$2,413,119 from $8,503,278 for 1992 due primarily to a large technology sale in
1992. The Company sold the manufacturing rights of an ophthalmic laser to a
Japanese customer for $1.75 million.
Sales of medical systems increased by $3,611,387 from ($1,007,206) for
the year ended December 31, 1992 to $2,604,181 for 1992.
Sales of scientific products decreased by $811,166 during the year ended
December 31, 1993 to $3,819,013 as compared to $4,630,179 for 1992.
Gross margin decreased by $1,588,409 for the year ended December 31,
1993 to ($665,454) in 1993 from $922,955 in 1992 as a result of recognized
inventory adjustments and sales corrections.
Selling, general and administrative expenses increased by $252,731.
Research and development expenses increased by $329,172 to $1,230,773
for the year ended December 31, 1993 as compared to $901,601 for 1992.
Interest expense decreased for the year ended December 31, 1993 by
$157,990 to $988,290 as compared to $1,146,280 for 1992.
22
Liquidity and Capital Resources - 1995
As Of December 31, 1995, cash increased by $7,179, and working capital
decreased by $2,798,211. As previously stated this was due to acquisition of
Acculase current liabilities, Acculase intercompany obligations to Helionetics,
convertible debt (converted to stock in 1996) and an additional inventory
reserve. In addition, the unsecured debt prepetition was previously treated as
long term debt.
Laser Photonics (and Acculase) operating loss totalled $2,782,453 of
which $847,485 is attributed to Acculase. The Laser Photonics operating loss
increased by only $268,778, even though gross revenue reduced by $3,064,346.
Accounts receivable at year end was $256,370. The Company has
experienced very little difficulty with collections and feels that an improved
collection effort has helped keep accounts receivable at a low level.
Net Fixed Assets were $537,122 of which $324,001 is attributed solely to
the Acculase acquisition.
Current liabilities at year end were $1,763,201. This consists of the
inclusion of Acculase short term liabilities and the intercompany debt to
Helionetics, conversion of long term debt to short term debt and high current
liabilities due to the cash flow shortage previously mentioned.
Long term debt was $866,516 . This is primarily due to the Internal
Revenue Service debt, and other priority debts post confirmation.
The Company's plan to resolve its immediate cash needs includes accounts
receivable and inventory financing, perhaps further loans from Helionetics,
Inc. and perhaps the sale of additional securities and/or the exercise of
outstanding stock warrants. Management is optimistic that through one or more
of these sources, capital will be provided to acquire the inventory needed to
reduce the backlog of sales and generate cash.
The Company needs to consider long term cash needs due to further
product enhancement and FDA clinical trials within the Acculase subsidiary.
This will have to be resolved through the sale of stock in a secondary
offering, joint development with an outside partner or further investment by
Helionetics, Inc. Helionetics is obligated by the Plan of Reorganization to
fund Acculase through May, 1997.
[The remainder of this page left blank intentionally.]
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Part II, Item 8, is submitted as a separate section of this Form
10-K.
Registrant has "unaudited" Financial Statements for its fiscal years
ended December 31, 1992 and 1993. As a result of Registrant's operations prior
to filing for protection under Chapter 11 of the Bankruptcy Act, and
subsequently its operation as a Debtor in Possession inside a Chapter 11
proceeding, accounting records were not maintained in a manner to support an
audit. In March of 1995, Registrant was informed by its former outside
accountant, Coopers & Lybrand, that the status of Registrant's accounting
records would not support an audit of 1992 and 1993 operations (Letter of March
22, 1995, attached as an Exhibit to Form 10-K filed for the Registrant's 1994
fiscal year, and by this reference incorporated herein). As a result,
Registrant is unable to provide "audited" Financial Statements for 1992 and
1993, without undue and overburdening expense and delay, which would seriously
jeopardize Registrant's business, and would utilize liquid capital urgently
required to carry Registrant's business forward.
On this basis, Registrant has supplied "unaudited" Financial Statements
which Registrant's management believe in good faith to accurate and fairly
represent the operations of Registrant for fiscal 1992 and fiscal 1993.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company does not have audited financial statements for its 1993
fiscal year because in the judgment of its former outside account, its
accounting records were not maintained in a manner which would permit an audit.
(See Item 8 and Exhibit 99(iii) hereto.)
Effective February 16, 1996, the Board of Directors of the Company
decided to change the Company's independent accountant. The independent
accountant who was previously engaged as the principal accountant to audit the
Company's financial statements was Corbin & Wertz Certified Public
Accountants. The report of Corbin & Wertz covering the Company's 1994
consolidated financial statements contained a going concern qualification.
Other than the foregoing, the report on the financial statements of the
Company for fiscal 1994 did not contain any adverse opinion or disclaimer of
opinion, or was not qualified or modified as to uncertainty, audit scope, or
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
The Company has retained the accounting firm of Hein + Associates, LLP,
to serve as the Company's principal accountant to audit the Company's
financial statements. This engagement was effective March 6, 1996. Prior to
its engagement as the Company's principal independent accountant, Hein +
Associates, LLP had not been consulted by the Company either with respect to
the application of accounting principles to a specified transaction or the
type of audit opinion that might be rendered on the Company's financial
statements or on any matter which was the subject of any prior disagreement
between the Company and its previous certifying accountant.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company and certain
information regarding them are as follows:
Year
Became
Name Age Director Position
- - - ---- --- -------- --------
Bernard 64 1995 Director, Chairman
B. Katz of the Board,
E. Maxwell 59 1995 Director
Malone
Chaim 51 1995 Director and Chief
Markheim Financial Officer
Steven 40 1995 Director, President
Qualls and Chief
Executive Officer
Each of the Company's directors has been elected or appointed to serve
until the next annual meeting of stockholders and until his respective
successor has been elected and qualified. The Company's executive officers
are elected at each annual meeting of the Board of Directors. There are no
family relationships between any directors or any directors or executive
officers.
Bernard B. Katz was appointed to the Board of Directors of the Company
pursuant to the Plan of Reorganization. Mr. Katz resigned as Chief Executive
Officer of the Company effective January 15, 1996. Mr. Katz is a Director of
Helionetics, Inc., and has served as Chairman of its Board of Directors for
more than the last five years. He is also the spouse of Susan E. Barnes, a
principal shareholder of Helionetics, Inc. Mr. Katz received a Certificate of
Industrial Management from Wayne State University. He also received a
Certificate of Executive Management, from the Graduate School of Business at
UCLA, in Los Angeles, California.
E. Maxwell Malone was appointed to the Board of Directors of the
Company pursuant to the Plan of Reorganization. Mr. Malone has been a
director of Helionetics, Inc. and has served as its Chief Executive Officer
for more than the last five years. Mr. Malone holds a degree in Mathematics
and a Masters Degree in Mathematical Economics from Southern Illinois
University.
Chaim Markheim was appointed to the Board of Directors of the Company
pursuant to the Plan of Reorganization. Mr. Markheim is a director of
Helionetics, Inc. and has served as Helionetics' Chief Operating Officer since
May, 1992. Mr. Markheim acted as business consultant to a diversified group of
small corporations, including Definicon and Helionetics, from 1986 to 1992.
Mr. Markheim is a Certified Public Accountant in the State of California. Mr.
Markheim holds a Bachelor of Science Degree in Accounting from California
State University, at Northridge.
Steven Qualls was appointed to the Board of Directors of the Company
pursuant to the Plan of Reorganization. Mr. Qualls has been an employee of
the Company since 1987. He has served as General Manager since 1993. He has
served as a director and Chief Operating Officer since May 1995 and as
President and Chief Executive Officer since January 15, 1996. Mr. Qualls
previously served as
25
Director of Corporate Development, and Scientific Sales Manager for the
Company. Mr. Qualls holds an MBA from the Crummer Graduate School of Business
at Rollins College in Winter Park, Florida, and received a BS in Physics from
the University of Central Florida.
Other Information
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock of the Company. The Company was in a Chapter 11 Reorganization proceeding
during 1994, and as a result the Company received no filing of such forms. In
June, 1996, the Company received an initial report from Helionetics, Inc., its
majority shareholder.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid and accrued
by the Company during its last three fiscal years to the executive officers to
whom it paid in excess of $100,000, including cash and issuance of securities.
Long Term Compensation(1)
Annual Compensation Awards Payouts
--------------------------------------- -------------------- -----------------
Name Annual Restricted Other
and Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
- - - -------- ---- ------ ----- ------ ------- ---- ------- ------
1995 None
Paul Cattermole
Pres. & CEO 1994 104,769 -0- 104,769 -0- -0- -0- -0-
1993 None
Summary Compensation Table(1)
Annual Compensation
Name and Other Annual
Principal Position Year Salary Bonus Compensation
- - - ------------------- ---- ------ ----- ------------
1995 n/a n/a n/a
Paul Cattermole 1994 104,769 -0- -0-
1993 n/a n/a n/a
The Company also reimburses all travel, entertainment and auto expenses of the
executive officers incurred in connection with activities of the Company.
(1) After recognition of the effect of Confirmation of Registrant's Plan of
Reorganization.
26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership as of December 31, 1995, of the Company's common stock, by any person
who is known to the Company to be the beneficial owner of more than 5% of the
Company's voting securities and by each director, by executive officers, and by
officers and directors of the Company as group, on the basis that all securities
provided to be issued under the Company's Plan of Reorganization, confirmed on
May 12, 1995, have been issued.
Name and Number of Percentage
Address Shares of Class
- - - ------- ------ --------
Steven Qualls 666 0.02%
Helionetics, Inc.
6849 Hayvenhurst
Van Nuys, California
91406(1) 3,750,000 75%
- - - -----------
(1) Messrs. Bernard B. Katz, E. Maxwell Malone, and Chaim Markheim are
Directors of the Company, and are also three of the five Directors of
Helionetics, Inc., the Company's principal shareholder.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. The Company emerged from a Chapter 11 Reorganization on May 12, 1995,
pursuant to which 75% of its outstanding New Common Stock pursuant to the Plan
of Reorganization was issued to Helionetics, Inc.
2. Bernard Katz, Chairman of the Board of Directors of the Company, is also
Chairman of the Board of Directors of Helionetics, Inc. E. Maxwell Malone and
Chaim Markheim, Directors and Officers of the company, are Chief Executive
Officer and Chief Operating Officer, respectively, as well as Directors, of
Helionetics, Inc.
3. Conversion of $300,000 in Convertible Debt
In July of 1995, the Company sold an aggregate of $300,000 in six month
convertible, secured Notes in a private transaction to two offshore
corporations, Signal Hill N.V. and Faversham Corp., N.V. ($150,000 each). Of
the resulting proceed, $100,000 was retained by the Company and $200,000 was
paid to Helionetics toward the accruing Helionetics debt owed by the Company to
Helionetics. The Notes bore interest at 12% per annum, and provided that the
holders could convert into an aggregate of 352,534 shares of the Common Stock
of Laser Photonics, Inc. at a conversion price of $0.96 per share.
As additional consideration, Laser Photonics issued transferable 5 year
Warrants attached to the Notes, for an aggregate of 500,000 shares of Laser
Photonics common stock, exercisable at an exercise price of $0.625 per share,
with antidilution protection, callable in whole or in part at the option of the
Company at $0.01 per Warrant. These warrants expired in 1995 due to the
Company's meeting of certain filing requirements. The Noteholders were also
granted a transferable one year option to purchase 134,000 additional shares at
$2.25 per share, 134,000 shares at $3.00 per share, and 137,000 shares at $3.75
per share, to be delivered either by Laser Photonics, or by Helionetics at its
option.
On February 1, 1996, the notes, representing the principal of said note
and accrued interest thereon, were converted into an aggregate 332,534 shares
of the Company's Common Stock at a conversion price of $0.96 per share, which
shares were issued to the offshore Noteholders pursuant to
27
exemption from registration under the Securities Act of 1933, in reliance on
Regulation S promulgated thereunder by the SEC.
4. Conversion of $200,000 in Convertible Debt
In November of 1995, the Company sold an aggregate of $200,000 in six
month convertible, secured Notes, in a private transaction to Westinshire
Corporation N.V. an offshore corporation. Of the resulting proceeds, $100,000
was retained by the Companyand $100,000 was paid to Helionetics toward the
accruing Helionetics debt owed by the Company to Helionetics.
The Notes bore interest at 12% per anum, and provided that the holders could
convert the principal of said Note and accrued interest thereon into an
aggregate of 104,241 shares of the Common Stock of Laser Photonics, at a
conversion price of $1.00 per share.
On April 1, 1996, these Notes were converted into a total of 104,241 shares of
the Company's Common Stock, which shares were issued to the offshore Noteholder
pursuant to exemption from registration under the Securities Act of 1933, in
reliance on Regulation S promulgated thereunder by the SEC.
5. Key Man Option Plan
On January 2, 1996, the Company adopted The Laser Photonics, Inc. 1995
Non Qualified Option Plan for key employees, officers, directors and
consultants, and provided for up to 500,000 options to be issued thereunder.
The option exercise price is not less than 100 percent of market value on the
date granted, 40% of granted Options vest immediately, and may be exercised
immediately; 30% vest and may be exercised beginning 12 months after grant; and
the remaining 30% vest and may be exercised beginning 24 months from Grant.
No options may be exercisd more than ten years after grant, options are
not transferable (other than at death), and in the event of complete
termination "For Cause" (other than death or disability) or ""Voluntary"
termination, all "unvested" options automatically terminate.
On January 2, 1996, a total of 335,000 options were issued at an option
exercise price of $1.50 per share to directors and to certain key employees and
consultants.
The following chart outlines the options granted to individual officers,
directors and key employees:
Options
Options Exercised Exercise Date
Granted as of 7/1/96 Price Granted
------- ------------ ----- -------
Bernard B. Katz, 50,000 0 $1.50 February 1, 1996
Chairman of the Board
E. Maxwell Malone, 50,000 0 $1.50 February 1, 1996
Director
Chaim Markheim, CFO 50,000 0 $1.50 February 1, 1996
Steven Qualls, CEO 60,000 0 $1.50 February 1, 1996
Donald G. Davis 20,000 0 $1.50 February 1, 1996
Ray Hartman 60,000 0 $1.50 February 1, 1996
Ed Renfer 30,000 0 $1.50 February 1, 1996
Marcus Hilding 15,000 0 $1.50 February 1, 1996
6. Issuance of Shares to Susan E. Barnes in Consideration for Lease
Guarantee
On February 22, 1996, the Company agreed to issue privately, 25,000
shares of the Company's Common Stock to Susan E. Barnes. Ms. Barnes is the
wife of Bernard B. Katz, (Director and Chairman of the Board of Laser
Photonics, Inc. and Helionetics, Inc.), and is a principal shareholder of
Helionetics. The shares are to be issued to Ms. Barnes in consideration for
her personal guaranty of $81,000 in lease
28
obligations associated with the Company's Andover facility lease, which personal
guaranty she secured by a pledge of 391,360 shares of her personally owned
Helionetics, Inc. Common Stock.
7. Issuance of Shares to KB Equities
In February , 1996, the Company agreed to issue to KB Equities, 50,000
shares of the Company's Common Stock for services in connection with raising
$1.5 million to finance the Company's emergence from Chapter 11, at a value of
$1.00 per share. KB Equities is wholly owned by Susan Barnes, the wife of
Bernard B. Katz, the Company's Chairman of the Board.
[The remainder of this page left blank intentionally.
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(1) List of Financial Statements and
(2) Schedules.
The financial statements and financial statement schedules are filed as a
separate section to this Form 10-K.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(3)(i) Articles of Incorporation, as Amended*
(3)(ii) Bylaws *
10.1 Lease Agreement Andover Plant *
10.2 Lease Agreement Orlando Plant *
10.3 Lease Agreement, Acculase San Diego Facility *
10.4 Patent License Agreement between Company and Patlex Corporation *
21. List of Subsidiaries of Registrant
Name Address
- - - ---- -------
Laser Analytics 200 Bullfinch Drive
Andover, MA 01810-1124
Acculase, Inc. 6865 Flanders Drive, Suite G
San Diego, CA 92121
99(i) Registrant's Third Amended Plan of Reorganization *
99(ii) Order Confirming Registrant's Third Amended Plan of Reorganization, as
modified *
99(iii) Letter of March 22, 1995 from Coopers & Lybrand, directed to Laser
Photonics, Inc. *
* Incorporated by reference to Exhibits filed with Form 10-K for the
Registrant's 1994 fiscal year.
30
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Laser Photonics, Inc. are included in
Item 8:
Balance Sheets at December 31, 1995, 1994 and 1993.
Statement of Operations for the years ended December 31, 1995, 1994 and
1993.
Statements of Shareholders' Equity (Deficit) for years ended December 31,
1995, 1994 and 1993.
Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993.
Notes to Financial Statements.
The following financial statement schedules of Laser Photonics, Inc. are
included in Item 14(d):
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
Pursuant to the requirements of Section 13 or 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 PHOTONICS, INC.
By /s/ Steven A. Qualls
---------------------------
Steven A. Qualls
Chief Executive Officer
Date: July 17, 1996
31
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 dates indicated.
Signature Title Date
- - - --------- ----- ----
/s/ Bernard B. Katz Chairman of the Board July 17, 1996
- - - -------------------------
Bernard B. Katz
/s/ Chaim Markheim Chief Financial Officer July 17, 1996
- - - -------------------------- Director
Chaim Markheim
President and
/s/ Steven Qualls Chief Executive Officer July 17, 1996
- - - -------------------------- Director
Steven Qualls
/s/ Robert Gibson Controller July 17, 1996
- - - -------------------------- Principal Accounting Officer
Robert Gibson
Laser Photonics, Inc. and Subsidiaries
Consolidated Financial Statements
For the Years Ended
December 31, 1995 and 1994
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report .............................................. 2
Consolidated Balance Sheets - December 31, 1995 and 1994 .................. 3
Consolidated Statements of Operations - For the Period from May 23, 1995
through December 31, 1995, the Period from January 1, 1995 through May
22, 1995 and the Year Ended December 31, 1994 ......................... 4
Consolidated Statement of Stockholders' Equity - For the Period from May 23,
1995 through December 31, 1995, the Period from January 1, 1995
through May 22, 1995 and the Year Ended December 31, 1994 ............. 5
Consolidated Statements of Cash Flows - For the Period from May 23, 1995
through December 31, 1995, the Period from January 1, 1995 through May
22, 1995 and the Year Ended December 31, 1994 ......................... 6
Notes to Consolidated Financial Statements ................................ 7
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Laser Photonics, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Laser Photonics,
Inc. as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the periods from May 23, 1995 through
December 31, 1995, and January 1, 1995 through May 22, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Laser Photonics, Inc. as of
December 31, 1995, and the results of their operations and their cash flows for
the periods from May 23, 1995 through December 31, 1995, and January 1, 1995
through May 22, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1, on May 22, 1995, the Bankruptcy Court entered an order
confirming the Plan of Reorganization. Accordingly, the accompanying
consolidated financial statements have been prepared in conformity with AICPA
Statement of Position 90-7, "Financial Reporting for Entities in Reorganization
and the Bankruptcy Code," for the Successor Company as a new entity with
assets, liabilities, and a capital structure having carrying values not
comparable with prior periods.
HEIN + ASSOCIATES LLP
Denver, Colorado
April 23, 1996, except for the second paragraph of Note 3, as to which the date
is July 17, 1996.
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1995 1994
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 61,086 $ 49,337
Available-for-sale securities -- 63,942
Accounts receivable, net of allowance for doubtful accounts
of $100,000 in 1995 and $217,591 in 1994 256,369 505,934
Inventories 855,864
1,146,013
Prepaid expenses and other assets 24,560 51,800
------------ ------------
Total current assets 1,197,879 1,817,026
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $162,892 in 1995 and $3,017,539 in 1994 537,122 295,142
PATENT COSTS, net of accumulated amortization of $24,624 75,613 --
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES, net of
accumulated amortization of $562,991 2,035,421 --
REORGANIZATION GOODWILL, net of accumulated amortization
of $222,600 1,914,425 --
OTHER ASSETS 36,008 31,653
------------ ------------
TOTAL ASSETS $ 5,796,468 $ 2,143,821
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES NOT SUBJECT TO COMPROMISE:
Notes payable - current portion $ 97,191 $ --
Accounts payable 680,456 102,609
Accrued payroll and related expenses 352,558 55,179
Other accrued liabilities 632,996 699,244
------------ ------------
Total current liabilities 1,763,201 857,032
NOTES PAYABLE - LONG-TERM 866,516 --
CONVERTIBLE DEBENTURES 500,000 --
LIABILITIES SUBJECT TO COMPROMISE -- 7,929,852
DUE TO PARENT COMPANY 1,935,612 --
DEPOSITS 44,925 --
COMMITMENTS AND CONTINGENCIES (Notes 3, 8, and 10)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 10,000,000 shares authorized
5,000,000 and 6,312,112 shares outstanding in 1995 and 1994,
respectively 50,000 63,121
Additional paid-in capital 2,760,028 11,318,259
Accumulated deficit (2,123,814) (18,024,443)
------------ ------------
Total stockholders' equity (deficit) 686,214 (6,643,063)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,796,468 $ 2,143,821
============ ============
The accompanying notes are an integral part to these
consolidated financial statements.
-3-
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DEBTOR-IN-
REORGANIZED POSSESSION
MAY 23, 1995 JANUARY 1,
TO 1995 TO
DECEMBER 31, MAY 22, DECEMBER 31,
1995 1995 1994
----------- ----------- -----------
SALES $ 1,408,459 $ 1,241,814 $ 5,714,619
COSTS AND EXPENSES:
Cost of sales 1,282,155 1,206,559 4,535,299
Selling, general and administrative 1,872,541 739,075 1,700,119
Research and development 196,185 136,211 477,404
----------- ----------- -----------
3,350,881 2,081,845 6,712,822
----------- ----------- -----------
LOSS FROM OPERATIONS (1,942,422) (840,031) (998,203)
OTHER INCOME (EXPENSE):
Unrealized loss on available-for-sale securities -- -- (256,577)
Interest expense, net (150,109) (175,677) (406,673)
Reorganization expense -- -- (602,318)
Other (31,283) 86,759 29,942
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM
(2,123,814) (928,949) (2,233,829)
----------- ----------- -----------
Extraordinary item - gain from reorganization -- 5,768,405 --
----------- ----------- -----------
NET INCOME (LOSS) $(2,123,814) $ 4,839,456 $(2,233,829)
=========== =========== ===========
LOSS PER SHARE $ .42
===========
WEIGHTED AVERAGE SHARES 5,000,000
===========
The accompanying notes are an integral part to these
consolidated financial statements.
-4-
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1995
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------
BALANCES, January 1, 1994 $ 6,312,112 $ 63,121 $ 11,318,259 $(15,790,614) $ (4,409,234)
Net loss (2,233,829) (2,233,829)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1994 6,312,112 63,121 11,318,259 (18,024,443) (6,643,063)
Net income -- -- -- 4,839,456 4,839,456
Elimination of old stockholders' interest,
and accumulated deficit (6,312,112) (63,121) (11,318,259) 13,184,987 1,803,607
Issuance of new shares 5,000,000 50,000 2,760,028 -- 2,810,028
------------ ------------ ------------ ------------ ------------
BALANCES, May 22, 1995 5,000,000 50,000 2,760,028 -- 2,810,028
Net loss -- -- -- (2,123,814) (2,123,814)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1995 $ 5,000,000 $ 50,000 $ 2,760,028 $ (2,123,814) $ 686,214
============ ============ ============ ============ ============
The accompanying notes are an integral part to these
consolidated financial statements.
-5-
LASER PHOTONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD
PERIOD FROM
FROM JANUARY 1,
MAY 23, 1995 1995 FOR THE
THROUGH THROUGH YEAR ENDED
DECEMBER 31, MAY 22, DECEMBER 31,
1995 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,123,814) $ 4,839,456 $(2,233,829)
Adjustments to reconcile net cash used by
operating activities:
Depreciation and amortization 695,900 43,010 253,312
Allowance for doubtful accounts (141,200) 23,604 141,941
Loss on disposal of property and equipment -- -- 9,674
Gain on sale of marketable securities (86,759) -- --
Unrealized loss on marketable securities -- -- 256,577
Gain on reorganization -- (5,768,405) --
Changes in operating assets and liabilities:
Accounts receivable 296,348 70,808 45,953
Inventories 312,874 (31,422) 732,240
Prepaid expenses and other assets 37,838 (10,552) 65,839
Accounts payable 382,733 89,779 102,609
Accrued liabilities (776,797) 777,632 754,423
Deposits 44,925 (50,000) --
Liabilities subject to compromise -- -- (969,364)
Due to parent company (199,189) -- --
----------- ----------- -----------
Net cash used by operating activities (1,557,141) (16,090) (840,625)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment (4,702) (17,286) (13,633)
Proceeds from disposal of property and equipment -- -- 5,880
Acquisition of patents (11,845) -- --
Proceeds from sale of marketable securities 150,701 -- --
Other assets -- -- 49,594
----------- ----------- -----------
Net cash provided by (used in) investing activities 134,154 (17,286) 41,841
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on liabilities subject to compromise -- -- (9,126)
Proceeds from convertible debt 500,000 -- --
Payments on notes payable (31,888) -- --
Decrease in debt issuance costs -- -- 327,318
Cash proceeds from issuance of new shares -- 1,000,000 --
----------- ----------- -----------
Net cash provided by financing activities 468,112 1,000,000 318,192
----------- ----------- -----------
NET DECREASE IN CASH (954,875) 966,624 (480,592)
CASH, at beginning of period 1,015,961 49,337 529,929
----------- ----------- -----------
CASH, at end of period $ 61,086 $ 1,015,961 $ 49,337
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash paid during the year for:
Interest $ 204,260 $ 169,125 $ 17,622
=========== =========== ===========
Income taxes -- -- --
=========== =========== ===========
Reorganization items:
Elimination of old equity $ 8,500,961
Record fixed assets at fair value (425,834)
Contribution of Acculase assets and liabilities 892,882
Reorganization goodwill (2,136,829)
Elimination of debt (6,343,613)
Other (487,567)
The accompanying notes are an integral part to these
consolidated financial statements.
-6-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
Nature of Operations - Laser Photonics, Inc. and subsidiaries (the
Company) is principally engaged in the development, manufacture and
marketing of laser systems and accessories for medical and scientific
applications and, through its 76% owned subsidiary, Acculase, Inc., is
developing eximer laser and fiber optic equipment and techniques directed
toward the treatment of coronary heart disease.
The Company is a 75% owned subsidiary of Helionetics, Inc. (Helionetics).
Bankruptcy Filing and Plan of Reorganization - On May 13, 1994, the
Company filed a voluntary petition of reorganization with the U.S.
Bankruptcy Court in the Middle District of Florida (the Bankruptcy Court)
for protection under Chapter 11 of Title 11 of the U.S. Bankruptcy Code
(the Bankruptcy Code). The Company was subsequently authorized to conduct
its business operations as a debtor-in-possession subject to the
jurisdiction of the Bankruptcy Court.
On May 22, 1995, the Company's Plan of Reorganization (the Plan) was
confirmed by the Bankruptcy Court. The implementation of the terms of the
Plan resulted in the Company's adoption of "fresh start" accounting as
described in Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code." The Plan included, among
other things, the following provision:
(a) Helionetics, Inc. paid the Company $1,000,000 in cash,
$215,000 in expenses, and transferred to the Company all
of Helionetics' rights and interest in and to 76.1% of
the common stock of Acculase, Inc. In exchange for the
foregoing consideration, the Company issued to
Helionetics shares of the Company's new common stock such
that, following the issuance of all stock to be issued
under the Plan, Helionetics owned 75% of new common stock
of the Company.
(b) In exchange for the forgiveness of certain unsecured
debt, the Company issued to unsecured creditors shares of
the Company's new stock such that, following the issuance
of all new stock to be issued under the Plan, the
unsecured creditors owned 20% of new common stock of the
Company.
(c) The existing shareholders of the Company had their shares
cancelled in exchange for the issuance of shares of the
Company's new common stock equal to 5% of the new common
stock of the Company.
The acquisition of Acculase has been accounted for as a purchase and the
results of operations of Acculase have been included in the consolidated
financial statements as of May 23, 1995.
The following pro forma information presents a summary of consolidated
results of operations of the Company and Acculase as if the acquisition
had occurred at the beginning of 1994, with pro forma adjustments to give
effect to the amortization of goodwill. They do not purport to be
indicative of the
-7-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
results of operations which actually would have resulted had the
combination been in effect on January 1, 1995 and 1994 or the future
results of operations of the consolidated entities.
1995 1994
----------- -----------
Net sales $ 2,650,273 $ 5,714,619
=========== ===========
Loss before extraordinary item $(4,050,040) $(2,898,207)
=========== ===========
Net income (loss) $ 1,718,365 $(2,898,207)
=========== ===========
Loss per share before extraordinary item $ (.81) $ (.58)
=========== ===========
Net earnings (loss) per share $ .34 $ (.58)
=========== ===========
Fresh Start Reporting - Under the provisions of SOP 90-7, the Company is
required to adopt fresh start reporting as of May 22, 1995 since the
reorganization value (approximate fair value at the date of
reorganization) was less than the total of all postpetition liabilities
and allowed prepetition claims, and holders of existing voting shares
before the effective date received less than 50% of the voting shares of
the emerging entity. Accordingly, the statement of operations for the
period ended May 22, 1995 reflects the effects of the forgiveness of debt
resulting from confirmation of the plans of reorganization and the effects
of the confirmation of the Plan and the effects of the adjustments to
restate assets and liabilities to reflect the reorganization value of
reorganized Laser Photonics, Inc.
In adopting fresh start reporting, the Company was required to determine
its reorganization value, which represents the fair value of the entity
before considering liabilities and approximates the amount a willing buyer
would pay for the assets of the Company immediately after its emergence
from Chapter 11 status. The reorganization value is based upon the
consideration given by Helionetics to acquire a 75% interest in the
Company. The purchase price of $1,894,122 was determined based upon cash
paid and the carrying value of the 76.1% interest in Acculase owned by
Helionetics.
All assets and liabilities are restated to reflect their reorganization
value in accordance with procedures specified in Accounting Principles
Board Opinion 16 "Business Combinations" (APB 16) as required by SOP 90-7.
The portion of the reorganization value that could not be attributed to
specific tangible or identified intangible assets has been classified as
reorganization value in excess of amounts allocable to identifiable assets
and is being amortized over five years.
In addition, the accumulated deficit of the Company was eliminated and its
capital structure was recast in conformity with the approved plan. As
such, the consolidated financial statements of the Company as of December
31, 1995 and for the seven and one half months then ended represent that
of the Successor Company which, in effect, is a new entity with assets,
liabilities and a capital structure having carrying values not comparable
with prior periods. The consolidated balance sheet as of December 31, 1994
and the accompanying consolidated financial statements for the five and
one half months ended
-8-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 22, 1995 and the years ended December 31, 1994 and 1993 represent that
of the Predecessor Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, Laser
Analytics, Inc., and Acculase, Inc. All significant intercompany balances
and transactions have been eliminated in consolidation.
Statement of Cash Flows - For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Impact of Recently Issued Accounting Standards - In March 1995, the
Financial Accounting Standards Board issued a new statement titled
"Accounting for Impairment of Long-Lived Assets." This new standard is
effective for years beginning after December 15, 1995 and would change the
Company's method of determining impairment of long-lived assets. Although
the Company has not performed a detailed analysis of the impact of this
new standard on the Company's financial statements, the Company does not
believe that adoption of the new standard will have a material effect on
the financial statements.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). The
new statement is effective for fiscal years beginning after December 15,
1995. FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on fair value. Companies that do not adopt
the fair value accounting rules must disclose the impact of adopting the
new method in the notes to the financial statements. Transactions in
equity instruments with non-employees for goods or services must be
accounted for on the fair value method. The Company currently does not
intend to adopt the fair value accounting prescribed by FAS 123, and will
be subject only to the disclosure requirements prescribed by FAS 123.
However, the Company intends to continue its analysis of FAS 123 and may
elect to adopt its provisions in the future.
Revenue Recognition - Revenues are recognized upon shipment of products to
customers.
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives (ranging from 3 to 7
years) of the respective assets. The cost of normal maintenance and
repairs is charged to operating expenses as incurred. Material
expenditures which increase the life of an asset are capitalized and
depreciated over the estimated remaining useful life of the asset. The
cost of properties sold, or
-9-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
otherwise disposed of, and the related accumulated depreciation or
amortization are removed from the accounts, and any gains or losses are
reflected in current operations.
Intangible Assets - Patents are carried at cost less accumulated
amortization which is calculated on the straight-line basis over the
estimated useful lives of the assets, not to exceed 40 years.
Reorganization goodwill represents the portion of the reorganization value
that could not be attributed to specific tangible or identified intangible
assets. The balance is being amortized over 5 years.
Excess of cost over net assets of acquired companies represents the
goodwill recorded by Helionetics for the purchase of Acculase that has
been "pushed down" to the Company. The balance is being amortized over 5
years.
Accrued Warranty Costs - Estimated warranty costs are provided for at the
time of sale of the warranted product. The Company extends warranty
coverage for one year from the time of sale.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
Research and Development - Research and development costs are charged to
operations in the period incurred.
Concentrations of Credit Risk - Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk
(whether on or off balance sheet) that arise from financial instruments
exist for groups of customers or counterparties when they have similar
economic characteristics that would cause their ability to meet
contractual obligations to be similarly effected by changes in economic or
other conditions described below. In accordance with FASB Statement No.
105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk, the credit risk amounts shown do not take into account the
value of any collateral or security.
The Company operates primarily in one industry segment and a geographic
concentration exists because the Company's customers are generally located
in the United States. Financial instruments that subject the Company to
credit risk consist principally of accounts receivable.
At December 31, 1995, accounts receivable totaled $356,369 and the Company
has provided an allowance for doubtful accounts of $100,000. The Company
performs periodic credit evaluations on its customers' financial condition
and believes that the allowance for doubtful accounts is adequate.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair values of the
Company's financial instruments, which
-10-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
includes all cash, accounts receivables, accounts payable, long-term debt,
and other debt, approximates the carrying value in the financial
statements at December 31, 1995.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Fourth Quarter Adjustments - During the fourth quarter of 1995, the
Company recorded an adjustment to record amortization of reorganization
goodwill of approximately $223,000, as well as an adjustment to increase
the reserve for inventory obsolescence of approximately $294,000.
Loss Per Share - Loss per share for the Successor Company is computed
using the weighted average number of common shares outstanding during the
period. Common stock equivalents have been excluded from the computation
because their effect would be antidilutive. The earnings (loss) per share
prior to reorganization is not presented as the results are not meaningful
due to debt discharge, the issuance of new common stock and fresh start
reporting.
3. BASIS OF PRESENTATION:
The consolidated financial statements have been prepared on a going
concern basis, which contemplates, among other things, the realization of
assets and the satisfaction of liabilities in the normal course of
business.
The Company has suffered continuing losses from operations and has a
working capital deficit. The Company has recently emerged from bankruptcy
and its operations do not currently generate sufficient cash flow to meet
its anticipated future obligations. Operations for the first five months
of 1996 have resulted in continued losses. Management has taken several
actions in response to these conditions. In May 1996, the Company began
factoring its accounts receivable, which management believes will provide
the cash flow needed to pay vendors currently and obtain raw materials
necessary to fulfill sales orders. In July 1996, the Company obtained two
sales contracts which the Company believes will allow it to generate
positive cash flow for the second half of 1996. In June 1996, holders of
options issued in conjunction with the convertible notes agreed to
exercise options to purchase 268,000 shares of common stock for proceeds
of approximately $700,000 within ten days of the filing of the Company's
1995 Form 10-K. Upon exercise of the options, Helionetics has agreed to
convert no less than $2.1 million of funds owed it by the Company into
restricted common stock of the Company at $3 per share. In addition, the
spouse of the Company's chairman has represented that she will fund any
and all deficit operations and cash flows until the Company returns to
profitability. Management believes that these actions will allow the
Company to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
-11-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES:
Inventories are as follows:
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
Raw materials $ 477,456 $ 266,950
Work-in-process 310,623 756,940
Finished goods 67,785 122,123
----------- -----------
$ 855,864 $ 1,146,013
=========== ===========
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
Machinery and equipment $ 662,977 $ 392,439
Furniture and fixtures 37,037 2,920,242
700,014 3,312,681
Less accumulated depreciation (162,892) (3,017,539)
----------- -----------
$ 537,122 $ 295,142
=========== ===========
6. LIABILITIES SUBJECT TO COMPROMISE:
Liabilities subject to compromise as a result of filing for protection
under Chapter 11 of the U.S. Bankruptcy Code consist of the following at
December 31, 1994:
Notes and loans payable $5,405,900
Accounts payable 1,087,410
Accrued liabilities 473,490
Debt to Helionetics 436,124
Taxes payable 469,018
Leases payable 57,910
----------
$7,929,852
==========
These amounts were settled or restructured in May 1995 upon
confirmation of the Plan.
-12-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. NOTES PAYABLE, LONG-TERM DEBT, AND CONVERTIBLE DEBENTURES:
Notes payable and long-term debt consists of the following at
December 31, 1995:
Note payable - directors and unsecured creditors, interest at
prime rate, quarterly interest only payments beginning
October 1, 1995, principal due October 1, 1999, unsecured. $ 447,897
Note payable - creditor, interest 10%, monthly interest only
payments through May 5, 1997, thereafter monthly interest and
principal payments of $6,384 through May 1999, unsecured. 138,368
Note payable - U.S. Treasury, interest 9%, payable in monthly
principal and interest installments of $5,000 through December
1999, unsecured. 201,978
Notes payable - various creditors, interest at 9%, payable in
various monthly principal and interest installments
through July 2000, unsecured. 83,183
Note payable - creditor, interest at 9%, payable in monthly
principal and interest installments of $1,258 through
January 2001, collateralized by personal property of the
Company. 60,640
Note payable - bank, interest at 9.75%, payable in monthly
principal and interest installments of $636 through
February 1999, unsecured. 21,641
Note payable - creditor, interest at 7.5%, due on demand,
unsecured. 10,000
---------
963,707
Less current maturities (97,191)
---------
$ 866,516
=========
Aggregate maturities required on long-term debt at December 31, 1995 are
due in future years as follows:
1996 $ 97,191
1997 111,339
1998 150,382
1999 567,318
2000 and thereafter 37,477
---------
$ 963,707
=========
-13-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July and November 1995, the Company sold an aggregate of $500,000 in
six month convertible, secured notes in a private transaction to four
offshore corporations. Of the resulting proceeds, $100,000 was retained by
the Company, $100,000 was paid to Helionetics in compensation for its
corporate guarantee and pledge of collateral, and $100,000 was paid to
Helionetics toward the accruing Helionetics debt owed by the Company to
Helionetics.
The notes bear interest at 12% per annum, with principal and interest all
due and payable on maturity. The notes are collateralized by the corporate
guarantee of Helionetics, the Company's parent, coupled with a pledge of
300,000 shares of Tri-lite, Inc. (a subsidiary of Helionetics) stock and
500,000 shares of the Company's common stock held by Helionetics.
The notes provide that the holders may convert into an aggregate of
512,500 shares of the common stock of the Company, at a conversion price
of $0.96 per share. In January and April 1996, the notes were converted to
shares of common stock of the Company.
8. DUE TO PARENT COMPANY:
Helionetics has been financing the working capital needs of the Company
and Acculase. The amounts financed are due on demand with interest at the
prime rate plus 2%.
Helionetics is a defendant in class action litigation seeking substantial
damages allegedly resulting from the purported violation of Federal
securities laws. The ultimate outcome of these actions is not presently
determinable; however, in the opinion of management of Helionetics, the
ultimate outcome of these actions will not have a material impact on the
Company's financial statements.
9. STOCKHOLDERS' EQUITY:
On January 2, 1996, the Company adopted the 1995 Non-Qualified Option Plan
for key employees, officers, directors, and consultants, and provided for
up to 500,000 options to be issued thereunder. The option exercise price
is not less than 100% of market value on the date granted, 40% of granted
options vest immediately and may be exercised immediately; 30% vest and
may be exercised beginning 12 months after grant; and the remaining 30%
vest and may be exercised beginning 24 months from grant.
No options may be exercised more than 10 years after grant, options are
not transferable (other than at death), and in the event of complete
termination "for cause" (other than death or disability) or "voluntary"
termination, all "unvested" options automatically terminate.
In January 1996, the Board approved the grant of options to certain key
employees and consultants, to purchase 335,000 shares of common stock. On
the date of grant, 110,000 options will be vested and the balance will
vest over two years. the options were granted with an exercise price of
$1.50 per share and are exercisable through January 2006.
-14-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 1996, the Board approved the grant of options to consultants
to purchase 62,500 shares of common stock. The options were granted with
an exercise price of $2.50 per share, are fully vested and are exercisable
through February 2001.
In February 1996, the Company agreed to issue privately, 25,000 shares of
the Company's common stock to the spouse of a Director and Chairman of the
Board of the Company and Helionetics, who is also a principal shareholder
of Helionetics. The shares are to be issued to this individual in
consideration for her personal guaranty of $81,000 in lease obligations
associated with the Company's Andover facility lease, which personal
guaranty she collateralized by a pledge of 391,360 shares of her
personally owned Helionetics common stock.
Also in February 1996, the Board approved the issuance of 50,000 shares of
common stock to the Company's chairman for consulting services rendered in
1995 and 1996, and 98,500 shares of common stock to consultants for
services rendered during 1995. The accompanying financial statements
include accrued expenses of $173,125 as of December 31, 1995, representing
the agreed-upon value of the services rendered.
In conjunction with the issuance of convertible notes payable in 1995, the
Company issued transferable five year warrants attached to the notes, for
an aggregate of 500,000 shares of the Company's common stock, exercisable
at an exercise price of $0.625 per share. Said warrants have antidilution
protection, are nonexercisable for the first six months after issuance,
and provide that the notes may be tendered in whole or in part in payment
of the warrant exercise price.
Upon the Company's filing of its Form 10-K, the warrants become callable
in whole or in part at the option of the Company at $0.01 per warrant.
The noteholders were given a one year "Right of First Refusal" to purchase
Company securities sold in reliance of Regulation S or Regulation D under
the Securities Act of 1933, or pursuant to an S-8 Registration under the
Act, which are proposed to be: (i) issued by the company; or (ii) sold by
Helionetics; (including both common stock and any security convertible
into common stock). Excluded are 100,000 shares of common stock, any
underwritten public offering, any sale to a bona fide strategic party, any
stock distribution by Helionetics to its shareholders, any
Helionetics/Company intercompany financing, and any issuance under any
employee stock option or bonus plans.
The noteholders were also granted a transferable one year option to
purchase 375,000 additional shares of the Company's common stock,
exercisable 134,000 shares at $2.25 per share, 134,000 shares at $3.00 per
share, and 137,000 shares at $3.75 per share. Shares deliverable upon
option exercise are to be provided either by the Company as new issuance
shares, or by Helionetics out of the block of shares it holds for
investment, at the sole option of Helionetics.
-15-
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES:
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
Deferred tax assets:
Accounts receivable, principally due to
allowances for doubtful accounts $ 37,000 $ 82,000
Tax credit carryforwards -- 704,000
Compensated absences, principally due to
accrual for financial reporting purposes 12,000 12,000
Warranty reserve, principally due to accrual
for financial reporting purposes 35,000 58,000
Net operating loss carryforwards 2,149,000 6,312,000
Inventory obsolescence reserve 517,000 659,000
Other -- 1,000
------------ ------------
Total gross deferred tax assets 2,750,000 7,828,000
Less valuation allowance (2,750,000) (7,828,000)
------------ ------------
Net deferred tax assets -- --
============ ============
At December 31, 1995, Laser Photonics and Acculase had net operating loss
carryforwards of approximately $5,700,000 and $10,001,500, which expire in
various years through 2010. These net operating losses are subject to
annual limitations imposed by the Internal Revenue Code due to change in
control of the Companies.
11. COMMITMENTS:
The Company leases its main facility under a month-to-month operating
lease which requires monthly payments of $11,000. Its subsidiary leases
its facility under a non-cancelable operating lease which expires during
fiscal 1997. Rental expense for these leases amounted to $302,800 and
$465,076 for the years ended December 31, 1995 and 1994, respectively. The
future annual minimum payments under the non-cancelable lease are as
follows:
Year Ended December 31,
-----------------------
1996 $ 78,000
1997 64,000
------------
142,000
Less amounts representing sublease income (54,000)
Minimum lease payments $ 88,000
============
-16-