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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission file number 1-11642
LASER TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-0970494
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7070 South Tucson Way, Englewood, Colorado 80112
(Address of principal executive offices)
(303) 649-1000
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [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]
As of December 26, 2000, the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was $4,800,442.50.
At December 26, 2000, 5,486,220 shares of common stock of the registrant
were outstanding.
Documents Incorporated by Reference: Part III, certain exhibits filed as
part of registrant's S-1 registration statement.
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LASER TECHNOLOGY, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page No.
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PART I.
Item 1. Business.................................................. 1
Item 2. Properties................................................ 18
Item 3. Legal Proceedings......................................... 19
Item 4. Submission of Matters to a Vote of Security Holders....... 20
PART II.
Item 5. Market for Registrant's Common Equity and Related 21
Stockholder Matters.......................................
Item 6. Selected Financial Data................................... 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 23
Item 7A. Qualitative and Quantitative Disclosure About Market 33
Risks.....................................................
Item 8. Financial Statements and Supplementary Data............... 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 33
PART III.
Item 10. Directors and Executive Officers of the Registrant........ 34
Item 11. Executive Compensation.................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and 40
Management................................................
Item 13. Certain Relationships and Related Transactions............ 41
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on 42
Form 8-K..................................................
SIGNATURES.......................................................... 44
PART I.
ITEM 1. BUSINESS
Risk Factors and Cautionary Statements
This report contains "forward-looking statements." Forward-looking
statements in this report are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The Company wishes to
advise readers that actual results may differ substantially from such forward-
looking statements. Forward-looking statements involve risks and uncertainties
including, but not limited to, continued acceptance of the Company's products
in the marketplace, competitive factors, potential changes in the budgets of
federal and state agencies, compliance with current and possible future FDA or
environmental regulations, and other risks detailed in the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission.
Introduction
The Company and its wholly-owned subsidiaries; Laser Communications, Inc.,
Laser Technology, U.S.V.I., Light Solutions Research, Inc. and International
Measurement and Control Company, is engaged in the business of developing,
manufacturing and marketing laser-based measurement instruments using
proprietary technology developed by the Company. The Company was originally
organized in September 1950.
Effective May 30, 1997, Laser Technology, Inc., an Idaho Corp. ("Laser
Technology-Idaho") effected a merger with a newly formed subsidiary, Laser
Technology, Inc., a Delaware corporation ("Laser Technology-Delaware"), for the
principal purpose of changing the corporate domicile of the Company from the
State of Idaho to Delaware. Under the terms of the Merger, Laser Technology-
Idaho merged with and into Laser Technology-Delaware, which became the
surviving corporation, Laser Technology Inc. (the "Company"). The transaction
was accounted for as a recapitalization similar to a pooling of interests and
the merger did not involve any change in the business, properties, management
or capital structure of the Company. Laser Technology-Delaware had no
operations prior to the merger. Stockholders of Laser Technology-Idaho received
the same number of shares of common stock of the Company as previously held in
Laser Technology-Idaho and are entitled to the same stockholder rights and
preferences as they held with the Idaho corporation.
During fiscal 2000, the Company received an ISO 9001 certification for its
manufacturing and operating facilities. ISO certification reflects the
Company's compliance with standards recognized by the Geneva-based
International Organization for Standardization, a worldwide federation of
approximately 130 countries. The ISO 9000 certification series provides a
framework for quality management and quality assurance that is recognized by
most developed countries in the world. ISO 9001 certification recognizes that
the Company's operating facilities and manufacturing procedures provide an
optimal environment for the design, manufacture, and service of quality
products.
The Company's proprietary technology permits a laser to measure to a non-
cooperative, or low reflective surface, using a very low power source. As a
result, the Company's products operate within the requirements of eye safety as
promulgated by the United States Food and Drug Administration (the "FDA").
Despite a very low power source, the Company's laser instruments measure more
rapidly and at longer ranges than corresponding conventional devices. The
Company has also developed proprietary software and circuitry which are
integral to each of the Company's products. The Company's corporate offices are
located at 7070 and 7050 South Tucson Way, Englewood, Colorado 80112, and its
telephone number is (303) 649-1000.
1
Principal Products
Revenues
Historically, the Company's primary product lines have been its Marksman
Laser Speed Detection Systems and Criterion Series of Survey Lasers. Since
fiscal 1995, the Company has expanded these product lines through new product
development including the introduction of second generation instrumentation.
Because of enhancements to the Company's existing products, new product
developments and expanding markets for the Company's technology, the Company
currently organizes and markets its products in four categories: Traffic Safety
products, Survey and Mapping products, Industrial Control products and Consumer
Products.
The following table provides a breakdown of the percentage of net sales of
the Company's product lines. Revenues realized from sales of the Company's less
significant revenue producing products are classified as "Consumer" for
presentation purposes.
Year Ended
September 30,
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2000 1999 1998
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Traffic Safety................................................ 65% 61% 61%
Survey and Mapping............................................ 31 35 34
Industrial Controls........................................... 2 3 2
Consumer...................................................... 2 1 3
The following table provides a breakdown of domestic and foreign revenues as
a percentage of net sales of the Company's products for the periods presented:
Year Ended
September 30,
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2000 1999 1998
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Domestic...................................................... 57% 56% 58%
Foreign....................................................... 43 44 42
See Note 8 to the Company's consolidated financial statements for further
discussion on customers, export sales and concentrations of credit risk.
Traffic Safety Products
Hand-Held Laser Speed Detection Systems
In 1991, the Company developed and commenced commercial manufacturing and
marketing of the "LTI 20-20" laser speed detection system to law enforcement
agencies as a proven method of measuring the speed of motor vehicles. In 1993,
the Company introduced an enhanced version of the LTI 20-20, called the
"Marksman," which incorporates increased range capability, an auto-triggering
system and, as an optional feature, an in-scope display of speed and distance
data. Late in fiscal 1997, the Company introduced the "UltraLyte" second
generation laser speed detection device.
In fiscal 1997, the Company initiated production and marketing of the
UltraLyte 100. Based upon the same pulse laser measurement technology as the
Marksman, the UltraLyte represents the Company's second generation technology
and was designed to reduce the size, weight and manufacturing cost of the
previous model design. In addition, the UltraLyte utilizes standard batteries
as an internal power source. In the same year, the Company developed the
UltraLyte 200, which incorporated an inclinometer, enhancing the surveying
capabilities for use in accident reconstruction and investigation. In fiscal
1998, the Company developed longer-range versions of the UltraLyte, the
UltraLyte 100LR and the UltraLyte 200LR.
2
The Company's hand-held laser speed measurement devices have several
advantages over radar speed measurement devices. As distinguished from radar
devices, the Marksman and UltraLyte can be aimed directly at a specific
vehicle, thereby eliminating the difficulty associated with radar measurement
devices of distinguishing one vehicle from another. Additionally, the Marksman
and UltraLyte measure speed in less than half a second with a laser beam that
spans only three feet at a distance of 1,000 feet and produces almost no
detectable energy beyond the target vehicle. Radar guns, on the other hand, are
generally required to track vehicle speed for several seconds in an attempt to
positively identify a vehicle.
Radar guns also produce a wider beam width of approximately 200 to 400 feet
at a range of 1,000 feet which can readily be detected by the targeted vehicle
as well as other oncoming vehicles equipped with radar detectors. Conventional
radar detectors, which cannot detect the light beam generated by the Marksman
or UltraLyte, have been effective against radar because of the wide beam width
produced by radar devices. This radar beam continues to widen as the distance
from the gun increases and can readily be picked up by a radar detector as much
as a mile away from the radar gun, giving the driver of a vehicle advanced
warning and time to slow down, thus potentially avoiding a speeding ticket.
Consumer laser detectors exist that will detect the Marksman or UltraLyte
only when the vehicle equipped with such a detection device is being targeted.
However, because the measurement period of the Marksman and UltraLyte is less
than half a second, there is no reaction time for the driver to reduce their
speed before the police officer obtains a positive speed reading. As laser
speed enforcement has become more widely used as an effective means of speed
enforcement, a number of consumer laser jamming devices have also entered the
market. Such laser jammers have limited effectiveness against the Company's
products due to the sophisticated nature of the Marksman and UltraLyte's
internal targeting software. In 1995, to combat the use of laser jamming
devices, the Company developed the capability within its products to detect
when a jamming device is potentially in use. This feature has proven to be a
very useful tool to speed enforcement officials in certain jurisdictions where
the use of jamming devices is prohibited.
In 1995, the Company introduced a patented measurement feature known as
"distance-between-cars," or "DBC." This is an optional feature that can be
integrated into the Marksman and UltraLyte's firmware capabilities and is used
to measure the distance and/or time between two traveling vehicles. This
capability has primarily been of interest in international markets where
governments closely monitor vehicle separation to improve traffic safety.
Domestically, with the increased occurrence of "road rage," the ability to
accurately measure the trailing distance of a vehicle may become desirable as
police agencies seek hard evidence for enforcement. Management believes that
the DBC feature addresses this application and increases the utility and
efficiency of the Company's hand-held laser speed measurement products.
Laser DigiCam Photo Laser System
In 1995, the Company began commercial production of the "Laser DigiCam"
photo laser system which integrates a video camera and associated equipment
with the Marksman. The Laser DigiCam system monitors the speed of vehicles in a
specific lane of traffic, and when a speeding vehicle is detected, it takes a
digital picture of the vehicle and prints the speed, time and date on the
picture. This produces positive evidence for generation of a speeding ticket
that can then be mailed to the violator. As an optional feature to this system,
the Company also developed a night illumination system enabling night use of
the Laser DigiCam. The Laser DigiCam system has historically been sold into
international markets, where conventional photo-radar systems have been
accepted as a standard form of traffic enforcement.
The Company has observed a growing interest from international markets for
the incorporation of visual evidence to support a speeding violation. While the
existing Laser DigiCam system accomplishes this task, it is a complex system
which is cost prohibitive to establishing a large customer base. In fiscal
2000, the Company
3
began development of a second generation, lower cost photo laser system known
as the "Micro DigiCam." The Micro DigiCam system is designed to operate with
the UltraLyte, and is a custom integration of the latest low-cost technology in
data acquisition and management. This system takes advantage of the increased
capabilities of current handheld palm-computing platforms, which utilize
"Windows CE" operating systems, to produce the lowest-cost solution for a photo
laser product. The Micro DigiCam is currently in the final stages of
development and is expected to be in production by the second quarter of fiscal
2001.
Traffic Data Collection Modules
In addition to measuring speed, the Marksman and UltraLyte also measure
distance. This feature enables the instruments to be used for a variety of
applications outside of speed enforcement. In 1995, the Company introduced
"QuickMap," a system which allows the use of the Marksman and UltraLyte for
accident investigation and reconstruction. QuickMap is a software module
integrated into a data collector which can be used in conjunction with the
Company's hand-held laser devices to expedite the collection and processing of
data at accident sites and crime scenes. The surveying capabilities of the
Company's UltraLyte 200, which includes an inclinometer, enhances the
instrument's use for accident investigation applications. Currently over 400
agencies and private companies use QuickMap.
During 1999, the Company introduced QuickMap 3D, a substantially enhanced
software version which provides three dimensional data collection and
presentation. This upgrade allows the incorporation of the Company's MapStar
Angle Encoder or Electronic Compass Module into the QuickMap system, increasing
overall utility by providing horizontal angle information into the logged data.
The Company believes this upgrade addresses needs for an expanded accident
investigation market and offers compelling capabilities including elevation
mapping and automatic map creation to existing users.
Another element of traffic safety that has been enhanced by the Company's
technology is the gathering of statistical data. Traffic engineers and law
enforcement officials are able to conduct and document traffic speed surveys
more efficiently using the Marksman and UltraLyte laser speed detection systems
than with conventional methods. In 1993, the Company introduced a statistical
compilation software package known as "SpeedStat." This product gathers and
formats traffic survey data on a portable laptop computer by utilizing a data
communications interface with the Marksman or UltraLyte.
In 1996, the Company improved its statistical data product by introducing
"SpeedStat DC," a companion to QuickMap. Similar to the original SpeedStat
product, SpeedStat DC enables more efficient collection and compilation of
traffic engineering statistics by replacing the laptop computer with a hand-
held data collector. The use of a data collector provides traffic engineers and
law enforcement officials with a more portable and affordable statistical
compilation system.
During fiscal 2000, the Company focussed on upgrading its traffic data
collection modules to make use of the most up-to-date technology. To accomplish
this, both QuickMap 3D and SpeedStat were released in Windows "CE" versions.
This improvement allows both packages to be operated on the most recently
available handheld palm-computing platforms, improving the operator interface
and increasing general utility.
Impulse Accident Investigation Laser
In fiscal 1996, the Company introduced a new generation of lasers for
general distance measurement. The "Impulse" series, while marketed primarily to
the survey and mapping industry, gained quick acceptance in the accident
investigation segment of the law enforcement community. The Impulse is smaller
in size and weight and lower in cost than the Company's Marksman and UltraLyte
laser speed detection systems for this application. Like the UltraLyte 200
model, the Impulse 200 also features an integrated inclinometer that provides
the operator with more detailed mapping measurements. Additionally, the Impulse
is compatible with
4
the QuickMap accident investigation tool, providing a lower cost solution for
users that don't require speed measurement capability.
SpeedAlert Trailer
While the Company primarily markets internally produced pulse-laser
products, steps have been taken to add complementary, externally manufactured
products to expand distribution and increase market penetration. During fiscal
1997, to augment the Company's Traffic Safety business, the "Speed Alert"
automated speed measurement trailer was released. Designed for unattended
operation to encourage voluntary speed compliance, the Company's SpeedAlert
trailer measures and displays vehicle speeds for use within school zones,
suburban neighborhoods, or other areas where increased awareness is desired.
Additionally, the Company's SpeedStat CE product can be combined with the
SpeedAlert, providing statistical data collection for improved operational
efficiency.
VMS 2000 Video Mapping System
In 1999, the Company announced an exclusive agreement with Red Hen Systems
to embed Red Hen's proprietary GPS video mapping technology into products the
Company would potentially market for in-vehicle law enforcement applications.
Due to various business related issues, including, but not limited to pricing
and distribution conflicts, the VMS 2000 project has been abandoned. The
Company will continue to investigate possible market opportunities in this
area, but has no ongoing product development or marketing activities occurring
at this time.
Survey and Mapping Products
Criterion Series of Hand-Held Survey Lasers
The "Criterion" was originally developed in collaboration with the United
States Forest Service in 1992 for use by foresters to accurately and quickly
measure certain aspects of trees to determine harvest volumes and to survey
roads, bridges, hiking trails and campgrounds. The Criterion is a small,
portable laser measurement system consisting of a laser range finder, an
electronic compass and an electronic inclinometer. These components provide the
ability to measure distance, azimuth and inclination and, therefore, the
capability of calculating heights and X,Y,Z coordinates. The Criterion can
record these measurements in seconds as compared to several minutes using
conventional manual methods. Data captured by the Criterion is maintained in
the system in a form ready for computer downloading, which eliminates errors
associated with manually transcribing numbers in the field for future
manipulation.
The Company's second-generation Impulse product line, in most cases, has
replaced the Criterion product line, as discussed below. The Company
discontinued the Criterion line in the latter part of fiscal 1999.
Impulse Series of Hand-Held Survey Lasers
During fiscal 1996, the Company developed a second-generation surveying
instrument, the "Impulse." Other survey lasers on the market, including the
Criterion series, may weigh as much as six pounds. The Impulse, weighing
approximately two pounds, can be carried on a belt clip, and its ergonomic
design allows full operation of the instrument with only one hand. Management
believes that the smaller size and lower price point of the Impulse make the
technology more accessible for an increased number of users and applications in
the survey and mapping industry. The Impulse is also marketed as part of the
Company's Traffic Safety product line for use in accident investigation
applications.
In fiscal 1997, the Company expanded the Impulse product line to include
four new models. The original product line included the "Impulse 100," the
standard distance-only model, and the "Impulse 200," the
5
standard model with an electronic inclinometer. The "Impulse 100 LR" and
"Impulse 200 LR" versions were engineered with the ability to measure longer
distances to low reflective targets than what is possible with the Company's
standard Impulse line. In 1997, the Company also introduced the "Impulse 100
XL" for longer range, lower accuracy applications. The Impulse 100 XL has the
ability to measure distances in excess of 2,000 meters. In 1999, the Company
introduced the "Impulse 200 XL," which offers the same range capability as the
100 XL model but also includes an inclinometer for elevation measurements.
MapStar Modular Measurement System
In fiscal 1998, the Company introduced the MapStar modular measurement
system. The Mapstar system strategy allows a user to combine any of the
Company's Impulse or UltraLyte products with other sensors, data collection
software, and/or accessories. Because of the modular design of the Mapstar
system, such combinations are available to the user, as needed, to meet
individual application needs.
MapStar Digital Compass Module
The first released component of the MapStar system was the Digital Compass
Module ("MSCM"), which debuted in fiscal 1998. The MSCM utilizes flux-gate
technology to measure absolute heading information relative to magnetic north,
and represents a deviation for the Company from its traditional pulse-laser
products. The modular configuration of the MSCM facilitates an easy interface
to most of the Company's Impulse and UltraLyte models. The MSCM completes the
last component (horizontal angle) required for the Impulse to become a complete
three dimensional mapping instrument. With the addition of the MSCM, the
Impulse provides all of the basic measurement capabilities of the original
Criterion 400 at a lower price.
MapStar Angle Encoding Module
In the third quarter of fiscal 2000 the Company began production of the
MapStar Angle-Encoding Module ("MSAE"). The MSAE is a relative angle
measurement device which produces horizontal angle readings to a greater
accuracy than the MSCM. Although the MSAE is not susceptible to magnetic
interference like the MSCM, it does require an angular reference in order to
translate measurements into absolute headings. This newest entry into the
MapStar system enables the Company's products to better penetrate survey and
mapping applications that require higher accuracy such as stock pile surveys
and mine face profiling. The MSAE also offers additional capabilities for
Traffic Safety applications including crush analysis, a concern in accident
investigation. Like the MSCM, the MSAE's modular configuration facilitates an
easy interface to most Impulse and UltraLyte product models.
MapStar Software Modules
In fiscal 1998, the Company introduced the first of its MapStar software
modules, the Transmission and Distribution "T&D" Utility Pac. The software
package is comprised of a field module that runs on a handheld data collector,
and a Windows office-processing module, which downloads and formats the
collected data. The field module links directly to any of the Company's Impulse
model lasers and is designed to assist transmission and distribution engineers
with a variety of measurement and design tasks. The Company's T & D Utility Pac
allows one operator to gather the amount of information it would normally take
two people to do, in about half the time. Moreover, the reflectorless laser
capability of the Impulse increases the safety of gathering this data in
difficult environments.
In fiscal 1999, the Company released "en Campo," a survey and mapping module
designed for use in a variety of applications to include stock pile volumes,
preliminary site surveys, and natural resource mapping. This module operates on
a hand held data collector and provides a low cost, portable field mapping
solution.
6
The en Campo product was designed as a complement to the Company's laser
instruments to provide a full mapping solution for those users that have not
already purchased and adopted a software product for mapping in the areas
listed above.
Integrated Data Collection Solutions
Many market applications require the Company's Survey and Mapping lasers to
be integrated with other hardware and software to provide a complete turnkey
system. To facilitate this integration, the Company began establishing
relationships with manufacturers of complementary hardware and software
products in fiscal 1994. These relationships include the sharing of
distribution channels and new product development.
A relationship of this type was solidified in fiscal 2000 with Tripod Data
Systems ("TDS"). The Company has entered into an agreement to market and sell
TDS's "Solo CE" product, a Geographical Information System ("GIS") mapping
module that can be used with a GPS and/or a laser to map assets quickly. The
Solo CE product provides a complementary solution that will help the Company
gain market share in the "GPS Offset" market. TDS is the largest third-party
software manufacturer and distributor in the Survey and Mapping industry.
The Company believes that the need for mapping and field data collection is
increasing as utility companies, foresters and government agencies seek more
efficient ways to manage their assets. The Company plans to continue working
with outside software and hardware firms to provide comprehensive solutions to
customer needs.
Industrial Control Products
Industrial Laser Distance Measurement Sensors
In fiscal 1996, the Company completed development of a low cost, industrial
laser distance measurement sensor. Pursuant to a sales contract with Telemotive
Industrial Controls, Inc., ("Telemotive"), a world-leading manufacturer of
radio controls for material handling cranes and industrial vehicles, the
Company developed and manufactures laser sensors for use in collision avoidance
and positioning systems that Telemotive markets under its brand name. This
collision avoidance system allows continuously generated distance measurement
information provided by the Company's laser sensors to be transmitted to a
central processor which integrates the information with computer controls that
slow or stop the crane or vehicle within pre-determined collision or danger
zones.
Ship Docking and Marine Applications
Since fiscal 1997, ship docking system sales have primarily been to system
integrators who purchase only the raw laser sensors and associated interface
components manufactured by the Company for inclusion into more complex dock
management systems. The Company also provides a hand-held laser measurement
instrument for marine applications known as the "Mariner". The Mariner, which
measures the speed and distance of an approaching or departing vessel, is a
derivative of the Marksman product line.
Liquid Level Measurement Sensor Product Development
In 1999 the Company announced it purchased certain assets, technology and
patent rights from Multiwave Sensors, a Canadian company headquartered near
Toronto, Ontario. Multiwave Sensors has designed a sensor which combines fiber
optics with the Company's laser rangefinding technology in a manner that should
facilitate an entry into new industrial markets. The Company intends to
initially develop a fiber optic-coupled laser device which can measure the
level of liquids and solids in storage tanks and processing facilities. In many
such applications, the presence of explosive or volatile liquids has prohibited
the introduction of electronic instrumentation into the measurement process.
7
By utilizing Multiwave Sensors' technology, on which a patent has been
issued, the Company can combine the accuracy and cost-effectiveness of laser
measurement instrumentation with the safety of a fiber optic delivery system.
This eliminates the risk of any electrical spark, because the fiber optic link
enables the laser electronics to be located remotely from the optical elements
placed inside the tank. In combining the two technologies, the Company can
develop instruments which should improve process control in many industries by
providing more frequent and accurate measurements of material level and flow
within various facilities.
Certain engineering and marketing personnel from Multiwave Sensors have
joined the Company as a result of this transaction. Upon completion of the
acquisition, Multiwave was renamed to Light Solutions Research, Inc. ("LSR").
This Canadian subsidiary of the Company will continue the development of an
industrial product line utilizing the technology acquired in the transaction.
Other
Other market applications exist for the Company's pulse laser technology.
The National Aeronautics and Space Administration ("NASA") uses a modified
version of the Marksman on space shuttle missions involving "close proximity
operations." The laser is used to determine the distance and closing speed of
remote objects during satellite deployment or retrieval, or during docking
maneuvers. While NASA is a relatively small customer of the Company, Management
believes that NASA's use of the technology adds to the Company's credibility as
a leader in the laser-based measurement industry.
Consumer Products
Bushnell Yardage Pro Laser Rangefinders
In 1995, the Company completed development of a consumer related laser
rangefinding product, in conjunction with the Bushnell Corporation
("Bushnell"), formerly the Sports Optics Division of Bausch and Lomb. Since
then, the Company has worked with Bushnell to produce a series of new products
which have greater range and are more affordable. These represent a second
generation of consumer laser products being marketed by Bushnell, and have
replaced models of the initial product line.
The Company receives running royalties on cumulative net sales of these
consumer products, has received reimbursement of certain development costs for
the initial development and design, and retains the right to pursue consumer
markets outside the sports technology area. The Yardage Pro product line is
marketed by the Company to price conscious customers within its Survey and
Mapping business units and to law enforcement customers for SWAT applications.
All ownership of patents and trade secrets of the technology underlying the
development of the Yardage Pro product line are retained by the Company. The
Company's royalty and licensing income related to this agreement was
approximately $943,422, $805,000 and $1,013,000 for the fiscal years ended
September 30, 2000, 1999 and 1998, respectively. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Seasonality
Management believes that seasonal effects on sales of its Traffic Safety
products are non-existent. Although the Company's Traffic Safety business is
not of a seasonal nature, sales of its Traffic Safety products may continue to
vary between financial periods based upon the capital procurement processes and
fiscal year budgeting cycles of state and municipal law enforcement agencies.
Historically, the Company has realized a moderate decline in sales of its
Survey and Mapping products in areas affected by colder weather during the
winter months. Royalties resulting from consumer product sales are seasonal in
nature, with the third and fourth quarters of the calendar year producing
increased results due to the Christmas buying season.
8
Manufacturing Operations
The Company's manufacturing operations primarily consist of the assembly,
calibration and testing of its products. Currently, most of the raw components
used in the Company's products are procured from external manufacturers who
supply to the Company's specifications.
Although the Company is not dependent upon any single source of supply,
during the first quarter of fiscal 2001, the Company has experienced difficulty
securing certain product components. This situation could present a temporary
problem in the event that a transition of suppliers is required. Management has
taken steps to remedy this problem, but believes that the incident could have a
material impact on first quarter revenues. The Company is taking appropriate
measures to minimize the risk of this situation.
The Company maintains certain supply arrangements on long lead time items to
purchase inventory as dictated by product sales. Additionally, the Company
believes that there are adequate alternative suppliers for its foreseeable
needs. Most of the Company's products carry a one year limited warranty against
manufacturing defects, with the UltraLyte products having a two year standard
warranty for competitive market reasons. To date, there have been no material
expenditures on warranty claims.
In October 1998, the Company entered into a sublease arrangement on an
adjacent building adding approximately 22,000 square feet which the Company
began using primarily for expanded engineering activities during fiscal 1999.
Management believes that the Company's manufacturing facilities are adequate to
meet production needs throughout the foreseeable future.
Product Research and Development
Research and development costs related to the Company's instrumentation and
proprietary technology are expensed as incurred and included in operating
expenses. During fiscal 2000, the Company continued to direct its research and
development activities on developing new products with Bushnell Corporation
(see Consumer Products) and improving its current product lines as well as
focusing on new product developments. Research and development costs totaled
approximately $1,274,900, $920,600, and $757,000 for the fiscal years ended
September 30, 2000, 1999 and 1998, respectively.
In fiscal 2000, the Company released the MapStar Angle-Encoding Module
("MSAE"), a new addition to the MapStar modular measurement system. The MSAE
measures precise relative horizontal angles and can be used in conjunction with
Impulse 200 and UltraLyte 200 models to produce three dimensional positional
information. This universal product has applications in both the Company's
Traffic Safety and Survey and Mapping markets. During this same period,
development progressed on the "Micro DigiCam," a new low-cost Photo Laser
System that should have a significant impact on international Traffic Safety
sales. The Micro DigiCam is currently in the pre-production stage and is
scheduled for production release in the second quarter of FY2001.
Fiscal 2000 also brought increased development in new technology areas for
the Company. Progress continued on the Liquid Level Measurement Sensor
("LLMS"), a significant product entry into the industrial controls market which
combines the Company's proprietary laser measurement technology with a fiber
optic delivery system. The LLMS represents a new technical milestone for the
Company in regards to measurement precision, and is anticipated to be in
production in the third or fourth quarter of FY2001. A custom Application
Specific Integrated Circuit ("ASIC"), which incorporates proprietary technology
of the Company into a small, low cost semiconductor package was completed in FY
2000. The ASIC design represents years of development experience in the field
of pulse laser measurement, and should allow the Company to make significant
strides in reducing future product size and cost, while maintaining or even
improving performance. The ASIC design was integrated into a new, lower-cost
consumer product for the Bushnell Corporation, which is scheduled for release
in early 2001.
9
Marketing, Distribution and Customers
The Company presently markets its products to three major classes of
customers; International, Domestic Traffic Safety and Domestic Survey and
Mapping. For the fiscal year ended September 30, 2000, the Company's total
foreign shipments accounted for 43% of overall sales, of which Asian and
European shipments comprised 63% collectively. Domestic Traffic Safety,
including state and local law enforcement agencies comprised approximately 32%
of total sales. Sales to the Company's Domestic Survey and Mapping dealer
network comprised 23% of the total. The Company primarily markets its products
using on-site demonstrations, attendance at trade conferences, advertising in
trade magazines and direct mail. See Note 8 of the Company's consolidated
financial statements for further discussion on customers, export sales and
concentrations of credit risk.
Traffic Safety Products
The Company primarily markets its Traffic Safety products domestically to
law enforcement agencies of state and municipal governments. To date, the
Company's sales force serving this market includes six direct field sales
representatives, three inside sales support personnel and a national sales
manager who also covers a field sales territory. Distribution of domestic
Traffic Safety Products is accomplished primarily by direct representation. For
fiscal 2000, the largest domestic customer of the Company's Traffic Safety
Products was the state of Ohio. Other high volume states in 2000 included
California, Oregon, Michigan, Florida, Illinois, Massachusetts, Texas,
Washington, Colorado, Iowa, Wisconsin, Utah, New York, Missouri, New Jersey,
New Hampshire, North Dakota, Indiana, Georgia, Pennsylvania, and Arkansas.
Internationally, the Company markets its Traffic Safety product line through
local foreign distributors to agencies of foreign governments including
municipal law enforcement agencies and transportation ministries. The Company
has established distribution channels for its Traffic Safety products in most
industrialized countries. To date, the Company's foreign distributors in Italy,
the United Kingdom, Malaysia, Korea, Australia, France, Canada and Brazil
account for the highest volume of hand-held laser speed detection systems and
photo-laser systems purchased internationally. As of September 30, 2000, the
Company has established Traffic Safety distribution in forty-two foreign
countries.
In April 1996, the Marksman was certified by the IACP to meet the federal
standard for laser speed measurement devices. Upon receiving IACP
certification, the Marksman was subsequently placed on the IACP Approved
Products List. Products listed on the IACP Approved Products List are more
readily purchased with federal funding available from the United States
Department of Transportation, allowing easier access to law enforcement
agencies who wish to procure such devices. In fiscal 1998, initial compliance
testing of the Company's UltraLyte was completed and both the UltraLyte 100 and
UltraLyte 100 LR models were added to the IACP Approved Products List. Approval
of the UltraLyte 200 models was completed during fiscal 1999 and these products
were also added to the IACP Approved Products List at that time.
Various foreign standards have also been established for laser speed
enforcement equipment. The Marksman has been subject to foreign approvals in
certain areas where such standards exist. To date, the Marksman has been
approved in Germany, the United Kingdom, Austria, Switzerland, Sweden, the
Netherlands, France, Italy, South Africa, Brazil and Chile. The Marksman has
also been tested and approved for use in Canada by the Royal Canadian Mounted
Police ("RCMP"). In fiscal 1997, the Company's second generation UltraLyte was
also approved by the RCMP. In fiscal 1998, the UltraLyte was approved in
Germany and Austria. The UltraLyte received approval in the United Kingdom and
the Netherlands during fiscal 1999. In fiscal 2000, the UltraLyte was approved
in Italy, Chile and Brazil. The UltraLyte continues to be tested in several
other European countries where national approvals are required. Similar to the
domestic market, the UltraLyte is expected to achieve foreign acceptance based
upon previously set performance standards.
In fiscal 1996, the Royal Malaysian Police negotiated a two-year, renewable
contract for the purchase of the Company's Laser DigiCam systems. Sales to this
agency comprised 11% of the Company's Traffic Safety
10
revenues in 1997. No significant sales were made to this customer during fiscal
1998 or 1999. During fiscal 2000, 5.4% of the overall Traffic Safety revenues
were to the Royal Malaysian Police. The Company believes that primary sales
opportunities for the Laser DigiCam are in international markets and intends to
continue marketing the system through its existing international Traffic Safety
distributor network. The Company also continues to monitor the U.S. market for
potential interest in the Laser DigiCam system and will increase its marketing
efforts domestically as the potential of this business segment rises.
Management feels that the introduction of the lower-cost Micro DigiCam in
fiscal 2001 will open up new markets both domestically and internationally for
the photo-laser systems, accessing a customer base previously untouched by the
existing higher-priced systems. In addition, the Company is aware of a trend
occurring in some foreign countries where it may soon be a requirement to
present an image of the violator, along with the results of a speed measurement
device, in order to prosecute a speeding case.
Survey and Mapping Products
The Company's Survey and Mapping products are primarily sold domestically
through its established dealer network, and internationally through its foreign
distributors and dealers. In fiscal 2000, the number of dealers in the
Company's domestic distribution network which market and support its Survey and
Mapping products was approximately one hundred seventy. Internationally the
number of dealers was approximately fifty-two.
Management believes that the introduction of the Impulse series of survey
lasers late in fiscal 1996 provided two immediate marketing benefits to the
Survey and Mapping area. First, the Impulse provides an entry-level, broad use
product for the Company's already identified survey and mapping market
segments, at a reduced size, weight, and price point. Secondly, these same
improvements allow the Company access to broad new general measurement markets
that previously have not considered laser measurement to be a viable option.
These markets include commercial material measurement and estimation,
engineering construction, and landscape design. Additional market opportunities
for the Company's Survey and Mapping product line include the paper, mapping,
mining, environmental, telecommunication, and utility industries. Domestically,
the Company currently markets to such industries through its dealer network
which is directed by a national sales manager and four regional sales managers
To date, the Company's distributors in Canada, Japan, China, Australia and
Germany account for the highest volume of Survey and Mapping products purchased
internationally. The Company currently markets its Survey and Mapping products
through foreign distribution channels to similar industries as those noted
above for domestic distribution. As of September 30, 2000, the Company has
established distributors for its Survey and Mapping product line in
approximately forty-four foreign countries.
Consumer Products
The Company currently participates in the consumer products market primarily
through its relationship with Bushnell. The Yardage Pro product line is
marketed by Bushnell through sporting retail outlets. The Company receives
royalty payments pursuant to a licensing agreement with Bushnell. The Company
also markets the Yardage Pro products within its own business segments as a low
cost option for low accuracy distance measurement applications.
Industrial Control Products
In fiscal 1996, the Company completed development of a low cost, industrial
laser distance measurement sensor, which is currently marketed for industrial
applications. The Company also has an established business relationship with
Telemotive Industrial Controls, Inc., ("Telemotive"), a world leading
manufacturer of radio controls for material handling cranes and industrial
vehicles. Pursuant to a contract with Telemotive, laser sensors developed and
manufactured by the Company are integrated into systems marketed under the
11
Telemotive brand name. In exchange for minimum purchase commitments of the
Company's industrial laser sensors, Telemotive has received exclusive rights to
sell the sensors within the material handling market. Due to Telemotive's
successful introduction of its systems in fiscal 1997, the minimum purchase
commitment was increased in 1998 and 1999, and remained in place in 2000.
Industrial laser sensor sales are expected to continue to positively impact the
Company's fiscal results.
As part of its acquisition of Multiwave Sensors in 1999, certain marketing
personnel have contracted with the Company to build a distribution network for
the upcoming liquid level sensor product. The level sensing market is
traditionally served through a network of manufacturers' representatives and
dealers, and Management believes this approach will likely be best for the
Company's initial entry into the market. Upon the development of prototypes,
these representatives will begin building a network of "beta test sites" and
will recruit additional dealers to establish a national distribution network.
The Company will also consider alliances or distribution arrangements with
established companies currently serving this industry with alternative
technology. Because laser measurement offers performance advantages over other
technologies in particular applications, management believes these companies
may desire access to the Company's product.
Internet Marketing Initiative
In the fourth quarter of 1999 the Company announced a number of moves which
are intended to expand the Company's abilities to interact with current and
potential customers via the Internet. The Company entered into a relationship
with Verio, Inc.("Verio") the world's largest domain-based Web hosting company
and a leading national provider of business Internet services. Verio offers a
broad range of services which allow small and medium-sized businesses to
affordably and effectively develop e-commerce distribution and communications
capabilities.
The Company has maintained an Internet presence through its website since
1995. The relationship with Verio will provide the ability to take full
advantage of the rapidly-expanding e-commerce and marketing capabilities of the
World Wide Web. By providing current and potential customers with 24-hour,
seven-days-per-week access to technical support, product updates, and training
tools over the Internet, the Company will seek to expand its role as a "value-
added" provider of measuring solutions and technology in its identified
markets.
Management expects to develop Internet marketing tools that will allow the
Company to more effectively prospect for new customers and to work with its
existing customers on a pro-active basis. Of equal importance, it is
anticipated that this e-channel will provide the Company with the ability to
more efficiently manage certain aspects of its customer relationships, to
better serve customers at a lower cost. While management does not expect that
the Internet will replace its existing sales force or distribution networks, it
does believe the Internet will enable the Company to off-load certain tasks
from individuals, allowing marketing personnel to focus on such key activities
as account relationships and the pursuit of new customers.
Over time, management believes these e-commerce capabilities may allow it to
introduce products and services which are compatible with the Company's
markets, but which previously have not justified the involvement of a
traditional sales force.
Backlog
As of September 30, 2000 and 1999 the Company had a backlog in sales of
approximately $370,000 and $330,000, respectively, primarily attributable to
sales of its Traffic Safety product line. Fiscal 2000 backorders were scheduled
for delivery during fiscal 2001.
Competition
The Company's hand-held Marksman and UltraLyte laser speed detection systems
compete primarily with hand-held radar speed measurement devices. Although most
of the Company's competitors in the radar industry
12
sell their instrumentation at prices lower than those of the Marksman and
UltraLyte, Management believes that the Marksman and UltraLyte compete
primarily because of their greater effectiveness and versatility compared to
radar speed measurement devices.
Management believes that the introduction of the UltraLyte enables the
Company to better penetrate the radar market due to its lower price point. The
UltraLyte, designed in fiscal 1997, is half the size and weight of the
Company's Marksman, has an internal power source, and, as an optional feature,
an integrated inclinometer enhancing the UltraLyte's surveying functions.
The Company's hand-held laser speed detection devices have the ability to
positively identify specific vehicles and are not detectable by conventional
radar detectors. Additionally, consumer laser detectors and laser jamming
devices are generally ineffective against the Marksman and UltraLyte.
The ranging capabilities of the Company's hand-held laser speed detection
systems are also used by law enforcement agencies to gather measurement
information during accident reconstruction and investigation. In 1995, the
Company introduced QuickMap, which enhanced the Marksman's use by law
enforcement agencies for quickly collecting and processing information at
accident sites and crime scenes. With the introduction of the UltraLyte 200,
the Company further enhanced the surveying capabilities of the laser speed
detection device by integrating in an electronic inclinometer. When used with
the Company's QuickMap product, the UltraLyte 200 becomes both a speed
measurement and mapping instrument.
The Company's laser speed detection instruments provide additional
capabilities distinct from market competitors. SpeedStat, a statistical
compilation software package introduced in 1993, automatically gathers and
formats traffic survey data on a portable computer when used with the Company's
Marksman or UltraLyte. This allows traffic engineers and law enforcement
officials to conduct and document traffic speed surveys more efficiently than
with previous methods. DBC, introduced in 1995, allows the Company's laser
speed detection systems to measure the distance and time between two moving
vehicles. Additionally, the Company's Marksman and UltraLyte incorporate
features to detect when a laser jamming device is in use, which has proven
valuable to law enforcement agencies in jurisdictions where the use of such
devices is prohibited. The ranging capabilities of the Marksman and UltraLyte
are also used by SWAT teams to measure target distances, and in drug
interdiction, to measure tractor trailers for false compartments.
The Company is aware of six other companies that market laser speed
measurement devices. Kustom Signal, Inc., a Kansas company, markets a device
pursuant to a license from the original developers, Laser Atlanta, Inc. and
LaserCraft, Inc. Laser Atlanta, Inc. also began to market its own laser speed
measurement device in 1999. Applied Concepts, Inc., a Texas-based company, and
Monitron International, a company from the United Kingdom, have introduced
laser speed measurement devices. Additionally, Riegl, an Austrian company, and
Jenoptik, a German company, also market laser speed measurement devices in
Europe. See "Patent Licensing Agreements."
The Company presently believes that its hand-held laser speed detection
systems are able to compete within this market based upon their proven
measurement accuracy, positive vehicle identification, limited court challenges
and difficulty in detection by the motorist. The Company also believes that its
ancillary Traffic Safety products address applications that provide a
competitive advantage over other laser speed measurement devices. The Company
feels that its second generation technology provides a significant competitive
advantage by providing lower cost and more ergonomically designed
instrumentation.
Management is aware of competitive photo-laser systems developed by Kustom
Signals, Inc., by Oshung, a Korean company and by Poltech, an Australian
company, which are similar in functionality to the Company's Laser DigiCam. The
Laser DigiCam system also competes in similar markets as conventional photo-
radar systems. Because the Laser DigiCam system has a much narrower beam than
photo-radar systems on the market, the Company believes that the Laser DigiCam
system provides better target identification and increased
13
accuracy. Management intends to continue marketing the Laser DigiCam system at
a sales price below that of high-end radar systems and believes that it can
compete within this market based upon the superior performance of the Laser
DigiCam system as compared to other available systems. The pending release of
the new Micro DigiCam system should provide the Company with an even greater
competitive advantage due to a significantly lower price point. Because of
privacy laws within the U.S., Management believes that primary sales
opportunities for the Laser DigiCam will continue to be in international
markets.
The Company recently became aware of a potential competing product to the
QuickMap accident investigation system. A new speed laser mapping system
developed and marketed by Laser Atlanta, Inc. has just been released, but
currently the Company has limited knowledge of the product, and is not aware of
any significant sales to date. Several competing products exist for the
Company's SpeedAlert trailer, including products marketed by Kustom Signals,
Inc., Applied Concepts, Inc., MPH Industries, Inc., Decatur Electronics and
Mighty Movers. Management believes the SpeedAlert product provides an enhanced
overall design compared to the competitors, and that the Company's price point
for the product is competitive in the marketplace. In addition, the SpeedAlert
is currently the only unit that is supplied with a Windows "CE" based
statistics program for gathering traffic survey data.
Historically, the Company's Survey and Mapping products compete with
traditional measurement devices. In the domestic market there are two known
competitors with laser measurement devices specifically designed for Survey and
Mapping applications. One by Laser Atlanta, Inc., and a second device recently
released by LaserCraft, Inc. Management also believes that the Company may
compete in international markets with instruments developed and marketed by
Riegl, an Austrian company, Jenoptik, a German company and MDL, located in the
United Kingdom. The Company competes within this market based upon the quality
of information generated by its Survey and Mapping products and the time saving
features they provide as compared to traditional instruments. Additionally,
Management believes that the Company's Impulse series of Survey and Mapping
lasers compete within this market because of their reduced size, weight and
price point as compared to other systems.
The Company's MapStar compass module competes with a similar product
marketed by MDL, but provides greater accuracy and functionality as compared to
the competing unit. The only known competition for the Mapstar angle encoder
module ("MSAE") is a product marketed by Laser Atlanta, Inc.
The industrial laser distance sensors marketed through Telemotive were
developed to replace existing radio frequency ("RF") based distance measuring
devices. Pursuant to the terms of the existing contract, Telemotive has
exclusive rights to the material handling market for any laser sensors
developed under the contract by the Company, in return for minimum guaranteed
purchases of the sensors.
The Company believes that its industrial sensors will continue to compete
with traditional measuring devices including radar and RF based systems, and in
certain international markets, primarily Europe, with laser distance
measurement instruments. Management intends to compete in these markets based
on the unique measurement capabilities of its industrial laser sensors and
because of their reduced size, weight and lower price point.
The Company's consumer products mar5keted by Bushnell compete primarily with
products developed by Asia Optical, Inc., a Taiwan-based company and marketed
by Nikon, a Japan-based company.
Patents
Certain processes by which the Company is able to produce its products are
largely proprietary. The Company believes that patent protection of its
technology and products that result from internal research and development
efforts is important to the potential commercialization of the Company's
technology. The
14
Company continually attempts to protect its proprietary technology by obtaining
patent application protection, relying on trade secret laws and executing non-
disclosure and confidentiality agreements with its employees and persons that
have access to its proprietary technology.
Costs associated with patents are capitalized and amortized over their
estimated useful life of 15 to 17 years. Patent costs capitalized totaled
approximately $148,000, $298,000, and $159,000 for the fiscal years ended
September 30, 2000, 1999 and 1998 respectively. $196,000 of the 1999 patent
costs was related to the acquisition of the Multiwave technology.
To date, the Company has filed thirty-eight patent applications related to
its various product lines with the United States Patent and Trademark Office in
order to protect its current technology. Of this total, thirteen are
continuations of previous applications. To date, thirty-one of these patents
have been issued to the Company. Ownership of an additional U.S. patent was
acquired as part of the Multiwave Sensors transaction.
One patent, expiring in March 2011, relates to the Company's Criterion
series of survey lasers providing coverage of forestry applications that
include height and diameter measurement of trees. The Company has also been
issued two patents, expiring in October 2011, on its original laser speed
detection instrument. A fourth patent issued, expiring in May 2012, relates to
a mechanical interface between one of the Company's Criterion hand-held survey
lasers and an electronic theodolite, enabling the instruments to remain
precisely aligned while sighting remote targets.
In fiscal 1996, a fifth patent was issued, expiring in June 2013, relating
to the Company's Survey and Mapping product line which incorporates the
Company's proprietary "Walkabout" software that enables field data collection
in the G.I.S. mapping process. Additionally, the Company was granted a patent
on its technology providing the capability of transmitting data using pulses of
light generated from the Company's laser range-finders. This patent expires in
July 2013. A seventh patent was issued, expiring in November 2013, related to
the low cost design aspects of the consumer product developed for Bushnell.
During fiscal 1997, two patents were issued on the Company's proprietary
technology related to the consumer range-finding instrumentation developed for
Bushnell. These patents expire in March 2014 and July 2014. Additionally, the
Company was issued a patent, expiring in April 2014, related to its Traffic
Safety product line associated with the method for measuring distance and time
between traveling vehicles (DBC). The company was also granted a patent,
expiring in December 2014, related to the Company's QuickMap accident
investigation system.
During fiscal 1998, one patent was issued expiring in December 2014 which
was a continuation on an existing patent related to the Company's consumer
range-finder. Three patents were issued related to the design and proprietary
technology developed for the Impulse. These patents expire in February 2014,
July 2014 and August 2014. Two patents were issued related to the UltraLyte,
one on the laser jammer detection feature, which will expire in February 2014,
and another noting the incorporation of tilt sensing capabilities within a
laser speed measuring device and subsequently conducting 3D dimensional
accident reconstruction, which will expire in September 2014. One patent was
issued related to increased range performance in fog for marine applications
and will expire in July 2014.
During fiscal 1999, a patent was issued expiring in January 2015 which is
related to circuit design within the Company's consumer range-finder products.
Another patent was issued expiring August 2016 related to the Company's
industrial laser range-finder currently used for in-plant collision avoidance
applications. One patent was issued expiring August 2016 related to the design
of the Company's Impulse product. Two patents were issued expiring in August
2016 related to the design and operation of the Company's MapStar modular
measurement system. The Company was also granted a patent expiring in March
2016 related to the Company's Laser Digicam system used for speed detection and
image capture of moving vehicles.
15
During fiscal 2000, one patent was issued expiring in August of 2017
relating to the Company's low-cost consumer product design technology. Another
patent issued expiring in August 2017 related to a lower cost technique for
producing an industrial sensor. The Company was issued a third patent expiring
in July 2017 related to an industrial sensor design. A fourth patent was issued
expiring in January 2017 related to performance improvements for a laser sensor
shooting through fog. A patent was also issued expiring in March 2018 related
to laser bow sight consumer product. Another patent was issued expiring in July
2018 related to a method for remotely measuring target reflectivity. A seventh
patent was issued expiring in April 2018 related to technology acquired in the
Multiwave Sensor transaction, referencing a remote sensor head.
To date eight additional United States patent applications have been filed,
five of which are continuations of previously issued patents. Two of these new
patents apply to the Company's Traffic Safety photo-laser products, one applies
to the Company's Survey and Mapping products, two reference Industrial products
and one has applications across multiple product lines, including consumer,
Traffic Safety and Survey and Mapping. The last patent represents a new
technology development for the Company, with potential in both the Survey and
Mapping and Traffic Safety markets.
Additionally, the Company extends many of its domestic patent filings into
foreign applications. During fiscal 2000, two foreign patents expiring in 2017
were issued, one related specifically to the Company's Traffic Safety products,
and another to the multiple markets of Survey and Mapping, consumer and Traffic
Safety. The Company also has thirty-four patents pending in foreign countries
related to U.S. patents issued or applications filed.
Patent Licensing Agreements
In 1995, the Company, in conjunction with Bushnell, formerly the Sports
Optics Division of Bausch and Lomb, completed development of the Yardage Pro
400 consumer laser range finder. This product, formerly known as the LyteSpeed
400, initiated a whole line of consumer products which are manufactured and
marketed by Bushnell to certain sporting markets, primarily the hunting and
golfing industries. Pursuant to the agreement with Bushnell, the Company
retains all ownership of patents and trade secrets of the technology underlying
the development of these products and has been issued seven patents related to
this technology.
In September 1996, the Company agreed to license to Kustom Signals, Inc.
("Kustom") and LaserCraft, Inc., ("LaserCraft"), a patent relating to the
Company's hand-held laser speed detection system (the "Patent"). Kustom markets
a laser speed measurement device along with radar speed measurement devices and
other traffic safety equipment. In fiscal 1996, the Company gave notice to
Kustom that it was potentially infringing the Patent by making and selling
laser-based speed measurement devices manufactured for them by LaserCraft.
While Kustom and LaserCraft have not acknowledged infringement of the Patent,
they entered into the License Agreement, whereby the Company granted Kustom and
LaserCraft the nonexclusive rights to manufacture and sell laser-based speed
measurement devices incorporating features covered by claims of the Patent. In
consideration for the License Agreement, the Company received a prepayment of
licensing fees for a predetermined number of licensed devices sold by Kustom,
and receives license fees for each licensed device sold by Kustom.
Additionally, the Company will receive running license fees for each licensed
device sold by LaserCraft, except for those devices that are manufactured for
Kustom for resale.
In November 1997, the Company and Bushnell entered into a licensing
agreement with Tasco Sales, Inc., ("Tasco"), whereby the Company and Bushnell
agreed to license certain patents related to the Yardage Pro consumer laser
range-finder. Tasco markets a laser range-finder, developed by Asia Optical, a
Taiwanese Company that competes with the Yardage Pro series of range-finders.
The Company and Bushnell have agreed to provide Tasco with the nonexclusive
rights to market a laser range-finder incorporating certain features covered by
claims of patents held by the Company and Bushnell. Pursuant to this agreement,
the Company and Bushnell receive licensing fees based on a percentage of
Tasco's gross sales.
16
In June 1997, the Company agreed to license to Applied Concepts, Inc.,
("ACI"), a patent relating to the Company's hand-held laser speed detection
system. Under this agreement, the Company granted ACI the nonexclusive right to
manufacture and sell laser-based speed measurement devices incorporating
features covered by the claims of the patent. In consideration of the license
agreement, the Company receives licensing fees as a percentage of net sales on
each licensed device sold by ACI. ACI has never acknowledged infringement of
the patent in question and is currently in discussions with the Company
regarding the license agreement.
In January 1998, the Company entered into a license agreement with Bushnell
and Blount, Inc. ("Blount"), whereby the Company and Bushnell agreed to license
certain patents related to the Yardage Pro product line which enables Blount to
market a competitive product into the consumer sports market. This product is
manufactured by Asia Optical, a Taiwanese company. Together, the Company and
Bushnell receive running royalties on the net sales of Blount products.
In September 1998, the Company agreed to license to MPH Industries, Inc.,
("MPH"), a patent relating to the Company's hand-held laser speed detection
system. MPH has added a laser speed measurement device to their current line of
radar instruments. Pursuant to the agreement, the Company granted MPH the
nonexclusive rights to manufacture and sell laser-based speed measurement
devices incorporating features covered by the claims of the patent. In
consideration for the license agreement, the Company will receive license fees
as a percentage of sales on each licensed device sold by MPH.
In July of 1999, the Company entered into an exclusive agreement with Red
Hen Systems ("Red Hen"), which granted the Company a license to embed Red Hen's
proprietary GPS video mapping technology into products the Company would
potentially market for in-vehicle law enforcement applications. Due to various
business related issues, including, but not limited to pricing and distribution
conflicts, this project has been abandoned. As a result of this development,
the agreement with Red Hen has been declared null and void.
In 1999, the Company agreed to enter into a license agreement with Laser
Atlanta Optics, Inc. ("LA") a patent relating to the Company's hand-held laser
speed detection system. To date, the agreement has not been finalized.
Government Regulation
The Company's laser products emit optical energy in a narrow spectrum and
are regulated by the United States Food and Drug Administration ("FDA") and
subject to approval by certain foreign governments. FDA regulations impose eye
safety requirements on the Company's products and governments of most foreign
countries have similar regulations. The Marksman and UltraLyte comply with FDA
Class 1 eye safety regulations and have been given similar international
ratings by laboratories in Austria and Germany.
Due to FDA involvement in international standardization efforts for laser
products with the International Electrotechnical Commission ("IEC"), the
Company is aware of certain changes under consideration by the FDA that may
affect current FDA regulated emission limits of Class 1 pulsed lasers. Although
there is no assurance of this, Management does not believe that such proposed
changes will impact the Company's sales or results of operations.
In 1995, the National Highway Traffic Safety Administration ("NHTSA"),
working in conjunction with the National Institute of Standards and Technology
("NIST"), completed a national standard for performance specifications for
laser speed measurement devices and established a laboratory testing facility
at the University of California-Davis. In April 1996, the Marksman was
certified by the International Association of Chiefs of Police ("IACP") to meet
the federal standard for laser speed measurement devices and, was subsequently
placed on the IACP Approved Products List. During fiscal 1998, the UltraLyte
100 and UltraLyte 100 LR completed compliance testing and were added to the
IACP Approved Products List. The UltraLyte 200 and UltraLyte 200 LR completed
testing during fiscal 1999 and were also added to the IACP Approved Products
List.
17
Historically, there were four states within the U.S. that required the
passage of specific state legislation to enable the use of new technological
developments in speed enforcement. As of September 30, 2000, legislation has
been passed approving the use of laser-based speed measurement devices as an
acceptable means of speed enforcement in Florida, North Carolina and Virginia.
Management is currently unable to ascertain when legislation will be passed in
Pennsylvania and there is no assurance that such legislation will be passed.
Management recognizes that many foreign countries have centralized law
enforcement and purchasing regulations requiring stringent performance and
accuracy standards. Management primarily acknowledges that Western Europe
purchasing authorities adhere to such performance and accuracy standards. The
Company's laser speed detection products are subject to approval by certain
foreign governments where regulatory controls exist for speed enforcement
equipment. The Company has received approval for the Marksman from government
agencies in Germany, the United Kingdom, Austria, Switzerland, Sweden, the
Netherlands, France, Italy, South Africa, Brazil and Chile. The Marksman and
UltraLyte have also been tested and approved in Canada by the Royal Canadian
Mounted police. The UltraLyte has been approved in Germany, Austria, the United
Kingdom, the Netherlands, Italy and Chile, and is currently being tested in
several other European countries.
Historically, the Company's laser speed measurement devices have been
subject to court acceptance as a viable means of speed measurement in
jurisdictions where they are used. To date, the Marksman has been accepted by
courts in over forty states and in over fifteen foreign countries. In June
1996, the Superior Court of New Jersey ruled in a specific case that
insufficient test data had been presented to the court and ruled to not allow
the instrument to be used in that court's jurisdiction. As a result, new
testing was subsequently completed by the New Jersey State Police and the New
Jersey Department of Transportation which was submitted to the court at a
second hearing held in New Jersey in October 1997. In March 1998, the Superior
Court of New Jersey ruled that state and municipal government agencies in the
jurisdiction of the court will be allowed to use the Company's Marksman / LTI
20-20 series of laser speed guns in their vehicular law enforcement efforts. In
November 1999, the New Jersey State Court of Appeals upheld the decision of the
Superior Court of New Jersey.
Employees
Management considers the Company's employees to be a valuable asset to
continuing success, and feels the relations between the Company and its
employees are good. As of September 30, 2000, the Company employed eighty-one
persons, consisting of eleven management personnel, twenty-two employees
engaged in the sales and marketing activities of the Company, thirteen
engineering personnel, twenty-four production related personnel, four employees
in customer service and seven administrative and office personnel. In addition
to its full-time employees, the Company uses the services of one contractual
design engineer and one contractual marketing representative.
ITEM 2. PROPERTIES
As of September 30, 2000, The Company's facilities located in Englewood,
Colorado provided approximately 47,000 square feet under a lease agreement
expiring in July 2003. In total, the Company's facilities comprise 16,000
square feet of production space, 12,000 square feet allocated to research and
development activities, 13,000 square feet is allocated to marketing and
administrative activities and 6,000 square feet that has been subleased.
18
ITEM 3. LEGAL PROCEEDINGS
On February 10, 1999 a securities class action complaint entitled Moshe
Rosenfeld, On Behalf of Himself and All Others Similarly Situated, vs. Laser
Technology, Inc., David Williams, Pamela Sevy, Dan H. Grothe and H. DeWorth
Williams, was filed in the United States District Court, District of Colorado
(Case no. 99-Z-266). The Complaint alleged that the Company and certain of its
officers and directors violated federal securities laws, particularly
Sections10(b) and 20 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"). Specifically, the complaint alleged that the Company's financial
statements were false and misleading during the "class period" (February 12,
1996 to December 23, 1998) and that the Company made certain false or
misleading statements regarding the Company's financial statements during this
period.
The Company believes the action was premised in part on the resignation of
the Company's independent accountant, BDO Seidman, LLP ("BDO"), on December 21,
1998, and the resignation of the members of the Audit Committee of the Board of
Directors on January 7, 1999. The resigning members of the Audit Committee
comprised the Special Audit Committee (the "Special Committee"). They resigned
from the Board of Directors as a result of disagreements between management and
the Special Committee. BDO also withdrew its opinions on the previously issued
certified financial statements for the fiscal years 1993, 1994, 1995, 1996 and
1997. At the time of BDO's resignation, the Special Committee was conducting an
independent investigation into the Company's accounting records and alleged
irregularities relating to the Company's accounting records. Following the
announcement of the resignation of BDO and withdrawal of five years of audited
financial statements, the American Stock Exchange suspended trading in the
Company's shares on December 23, 1998. Trading was resumed on March 22, 1999.
In its complaint, the plaintiff alleged that the resignation of BDO and the
three directors was due to the Company's alleged unreliable and misleading
financial statements. Plaintiff's complaint further alleged violations of
Section 10(b) of the 1934 Act and Rule 10b-5 promulgated thereunder.
Five additional securities class actions and one stockholder's derivative
suit were filed against the Company and certain of its former and present
officers and directors. All cases were filed in the United States District
Court for the District of Colorado and were consolidated.
On October 6, 1999, the Company announced that it had entered into an
"agreement in principle" for the settlement of all the aforementioned actions.
On December 10, 1999, a Stipulation of Settlement was executed by the parties
and filed with the Court, on October 19, 2000; the Court issued its Final
Judgment and Order of Dismissal With Prejudice in the action. As a provision of
the Final Judgment, the Court ordered the Company to issue 475,000 shares of
its common stock and pay $850,000 in the settlement of the action. Following
the appropriate hearing, the Court found that the aggregate settlement amount
and other terms of the settlement reflected a good faith settlement of the
actions. The Company reached an agreement with its insurance carrier whereby
$740,000 of the cash portion of the settlement was paid by the carrier into the
settlement escrow account. The remaining $110,000 in cash was paid into the
settlement escrow account by certain individuals involved in the settlement,
including the Company. The 475,000 shares were also issued and delivered to the
settlement escrow account. These shares are equal to approximately 9.5% of the
Company's total shares currently outstanding.
Pursuant to the settlement, the 475,000 shares are free from restriction and
will be distributed at various times, commencing on a date to be determined by
the plaintiff's and their counsel. One-third of the shares will be distributed
from the escrow account initially, one-third 60 days after the initial
distribution, and the final third 120 days from the initial distribution.
As a condition of the settlement, the Company is released from all future
claims and actions by the plaintiffs and class members related to the pending
actions. The costs of the settlement together with projected legal expenses
involved in completing the settlement have been accrued in the Company's 1999
financial statements except for $18,430, which was recorded during fiscal 2000.
19
On February 8, 2000, the Company filed a complaint against Nikon, Inc.
("Nikon") in U.S. District Court for the District of Colorado (Civ. No. 00-B-
272) for selling and using a product infringing one of the Company's patents.
On July 26, 2000, the Company amended the complaint to include allegations that
Nikon's conduct infringed a second patent obtained by the Company. On August 9,
2000, Nikon filed an answer and counterclaims, seeking a declaratory judgment
that Nikon did not infringe the patents, that the patents are invalid and
unenforceable, and that Nikon has been damaged by willful and unfounded
assertions of infringement by the Company. The counterclaims do not quantify
the damages sought. On September 28, 2000, upon a stipulated motion to
withdraw, the Court ordered the dismissal, without prejudice to reassertion, of
the counterclaims asserting that the patents-in-suit are invalid and
unenforceable.
The Company is vigorously prosecuting the lawsuit and defending the
counterclaims. The parties have just begun formal discovery in this matter, and
the Company recently filed a motion seeking to amend the complaint to add as a
defendant Nikon's Taiwanese supplier, Asia Optical Co., Inc. The Court has not
yet ruled on this motion. A trial is scheduled for March 25, 2002. The Company
and Nikon have agreed to attempt to resolve this dispute with the help of a
mediator and are currently working on a mediation schedule.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter ended September
30, 2000.
20
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On August 6, 1997, the Company announced that it would not extend the
expiration date of its outstanding Redeemable Warrants, which expired on
January 11, 1998. Under the terms of the Redeemable Warrants, each Redeemable
Warrant represented the right of the holder to purchase one share of the
Company's Common Stock at an exercise price of $6.00 per share, subject to
adjustments, at any time prior to the close of business on January 11, 1998.
The Company had the right to redeem the Redeemable Warrants in whole for
cancellation at a price of $0.05 each, by written notice mailed to each holder
thirty (30) days prior to the redemption date. Such notice of redemption could
only be given within ten (10) days following any period of thirty (30)
consecutive trading days during which the closing sale price of the Company's
shares of Common Stock exceeds $8.00 per share.
Because of the Company's announcement, the Redeemable Warrants that were not
exercised by the holders thereof or redeemed by the Company prior to January
11, 1998, expired by their terms and the holders have no further exercise
rights. All of the outstanding Redeemable Warrants expired unexercised on
January 11, 1998.
Following the Company's change of corporate domicile from the State of Idaho
to the State of Delaware, the Company has authorized 2,000,000 shares of
Preferred Stock, par value $.01 per share, which shares of Preferred Stock may
be issued in various series and shall have preference as to dividends and to
liquidation of the Company. The Board of Directors of the Company may establish
the specific rights, preferences, voting privileges and restrictions of such
Preferred Stock, or any series thereof. To date, no shares of Preferred Stock
have been issued.
The Company's common stock is listed on the American Stock Exchange ("LSR").
As of September 30, 2000, 5,235,867 common shares were outstanding and the
Company had approximately 424 shareholders of record which figure does not take
into account those shareholders whose certificates are held by nominees. The
following table sets forth the range of high and low sale prices of the common
stock for each calendar quarterly period as reported on the American Stock
Exchange.
Stock Prices
High Low
----- -----
2000
First Quarter.................................................. $4.00 $1.31
Second Quarter................................................. 2.38 1.50
Third Quarter.................................................. 1.81 1.25
Fourth Quarter****............................................. 1.63 0.88
1999
First Quarter**................................................ $3.25 $1.25
Second Quarter................................................. 2.18 1.31
Third Quarter.................................................. 2.06 1.13
Fourth Quarter***.............................................. 1.62 1.18
1998
First Quarter.................................................. $4.43 $2.87
Second Quarter................................................. 4.06 3.12
Third Quarter.................................................. 5.93 3.31
Fourth Quarter*................................................ 3.87 2.87
- --------
* The 1998 fourth quarter reflects the high and low sale prices of the
Company's common stock reported by the American Stock Exchange through
December 23, 1998. On that date, trading in the Company's stock was
suspended. Trading was resumed on March 22, 1999.
21
** The 1999 first quarter reflects the suspension of trading until March 22,
1999 (see above).
*** The 1999 fourth quarter reflects the high and low sale prices through
December 27, 1999.
**** The 2000 fourth quarter reflects the high and low sale prices through
December 27, 2000.
Dividends
The Company currently intends to retain earnings to finance its operations,
therefore, the Company has not declared or paid cash dividends in the past, nor
does the Company anticipate that it will distribute cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company should be read in
conjunction with the financial statements and notes thereto and the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The financial data set forth below has been derived from the
audited financial statements of the Company for the years ended 2000, 1999,
1998, 1997 and 1996. See "Review of Accounting Procedures."
Years Ended
------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Statement of Operations
Data:
Net sales.............. $12,720,299 $11,814,654 $11,801,293 $ 9,308,768 $ 9,504,119
Cost of goods sold..... 5,802,123 5,845,387 5,554,037 4,093,285 4,330,193
Gross profit........... 6,918,176 5,969,267 6,247,256 5,215,483 5,173,926
Royalty and licensing
income................ 959,015 932,796 1,242,732 868,931 401,121
Total operating
income................ 7,877,191 6,902,063 7,489,988 6,084,414 5,575,047
Operating expenses..... 7,361,190 8,211,854 6,205,024 5,342,067 4,058,908
Settlement and
Restructuring Costs... 2,071,257
Income (loss) from
operations............ 516,001 (3,381,048) 1,284,964 742,347 1,516,139
Interest income, net... 59,211 9,009 115,535 163,955 235,771
Income (loss) before
taxes on income....... 575,212 (3,372,039) 1,400,499 906,302 1,751,910
Taxes on income........ 233,800 (985,934) 504,000 312,000 580,000
Net income (loss)...... 341,412 (2,386,105) 896,499 594,302 1,171,910
Net income per common
share:
Basic earnings (loss)
per common share...... .07 (.48) .18 .12 .22
Weighted average shares
outstanding........... 5,011,220 4,994,622 4,985,902 4,998,351 5,209,981
Diluted earnings per
common share.......... .06 (.48) .15 .10 .15
Diluted average shares
outstanding........... 5,642,720 4,994,622 5,981,235 5,918,934 7,875,898
September 30,
------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Balance Sheet Data:
Working capital........ $ 6,918,219 $ 5,753,229 $ 8,434,703 $ 7,803,965 $ 7,697,763
Total assets........... 10,863,213 11,211,708 12,515,957 11,144,626 10,650,583
Short-term debt,
including current
maturities of long-
term debt............. 83,727 91,621 76,564 -- --
Long-term debt less
current Maturities.... 14,364 114,400 159,549 -- --
Total stockholders'
equity................ 9,026,166 8,678,243 11,044,810 10,154,361 9,683,983
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the three most recent fiscal years, the
percentage relationship to net sales of principal items in the Company's
Statement of Operations. It should be noted that percentages discussed
throughout this analysis are stated on an approximate basis.
Years Ended
September 30,
-----------------
2000 1999 1998
---- ---- ----
Net sales................................................. 100% 100% 100%
Cost of goods sold........................................ 46 49 47
--- --- ---
Gross profit.............................................. 54 51 53
Royalty and licensing income.............................. 8 7 11
Total operating income.................................... 62 58 64
Operating expenses........................................ 58 69 53
Settlement and Restructuring Costs........................ 0 17 0
Income (loss) from operations............................. 4 (28) 11
Interest income, net...................................... 1 0 1
Taxes on income........................................... 2 (8) 4
--- --- ---
Net income (loss)......................................... 3% (20%) 8%
=== === ===
The following table provides a breakdown of the net sales and respective
percentages of net sales of the Company's various product lines. Sales of the
Company's less significant revenue producing products are classified as "Other"
for presentation purposes.
Years Ended September 30,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
Traffic Safety....................... $ 8,332,207 $ 7,237,259 $ 7,148,563
Percentage of revenues............... 65% 61% 61%
Survey and Mapping................... $ 3,877,196 4,069,023 3,990,523
Percentage of revenues............... 31% 35% 34%
Industrial Controls.................. $ 241,810 353,915 271,160
Percentage of revenues............... 2% 3% 2%
Consumer............................. 269,086 154,551 391,047
Percentage of revenues............... 2% 1% 3%
----------- ----------- -----------
Total Revenues....................... 12,720,299 11,814,654 $11,801,293
=========== =========== ===========
Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September
30, 1999
Net sales for the fiscal year ended September 30, 2000 ("2000") were
$12,720,299 compared to $11,814,654 realized during the fiscal year ended
September 30, 1999 ("1999"), representing a 7.7% increase. In 2000, significant
increases in the Company's Traffic Safety and Consumer product sales had the
greatest impact on total revenues. These increases helped offset decreases in
Survey and Mapping and Industrial product sales.
Sales of the Company's Traffic Safety products increased 15% from $7,237,259
in 1999 to $8,332,207 in 2000. Domestic Traffic Safety product sales decreased
0.4% from $4,023,828 in 1999 to $4,009,206 in 2000 primarily due to the
reallocation of state funding in the southeast region. International Traffic
Safety product
23
sales increased 34.5% from $3,213,431 in 1999 to $4,323,001 in 2000 due to
increased implementation of laser products as government agencies have realized
the positive benefits resulting from the use of the UltraLyte series of lasers.
The recent approval for use of the UltraLyte in several countries allows
distributors to order the Company's speed measurement products for use as a
mainstream traffic enforcement tool rather than just evaluation and
homologation purposes.
Overall sales of the Company's Survey and Mapping products decreased 4.7% in
2000 to $3,877,196 from $4,069,023 in 1999. Domestic Survey and Mapping product
sales increased 27% to $2,906,542 in 2000 from $2,288,239 in 1999 primarily due
to a restructuring of the segment's sales force, providing improved service and
support to domestic dealers and a stronger presence at trade shows.
International sales of the Company's Survey and Mapping products decreased
45.5% from $1,780,784 in 1999 to $970,654 in 2000. International sales were
negatively impacted by the strong dollar, the delay in the recovery of the
Asian economy, the discontinuation of the Criterion laser series and increased
competition in Europe.
International sales of the Company's products in 2000 were $5,524,974
compared to $5,146,480 realized in 1999. Sales internationally comprised
approximately 43% of the Company's total revenues in 2000 compared to 44% of
total revenues in 1999.
Gross profit as a percentage of sales was 54% in 2000 compared to 51% for
1999. The increase in gross profit margins in 2000 was primarily due to a more
profitable product mix. Increased profitability was due to improving sales of
second generation products such as the UltraLyte series, increased output on
the production line and a reduction in specific materials cost.
Royalty income earned in 2000 is derived primarily from the Company's
agreement with Bushnell for sales of the Yardage Pro series of consumer laser
range finders, in addition to other licensees. Royalty income increased
approximately 2.8% to $959,015 in 2000 from $932,796 in 1999. The increase in
royalty income during 1999 was due primarily to a stabilization of the Bushnell
product line, along with the exit of some market competitors. Management
believes that royalty income received from its current licensing arrangements
will continue to positively impact the Company's results of operations. See
"Royalty and Licensing Income."
Total operating expenses decreased approximately 10.4% to $ 7,361,190 in
2000 from $10,283,111 in 1999. Decreased operating expenses realized in 2000 as
compared to 1999 can be attributed to lower executive, administrative and legal
expenses associated with the absence of litigation, a reduction in staff and
improvements in operational processes to increase efficiency. Operating profit
before legal and severance costs associated with restructuring of management
and employees was equal to $692,956.
Increased sales and gross profit margins combined with the decrease in
operating and litigation-related expenses in 2000 resulted in a net income for
the year. Combined with income earned on investments of $59,211 and $9,009 in
2000 and 1999, respectively, the Company realized an income before taxes of
$575,212 in 2000 compared to loss before taxes of $3,372,039 in 1999. After
taxes on income, the Company realized a net income of $341,412 or $.07 basic
earnings per share in 2000 compared to net loss of $2,386,105, or $.48 basic
earnings per share in 1999.
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September
30, 1998
Net sales for the fiscal year ended September 30, 1999 ("1999") were
$11,814,654 compared to $11,801,293 realized during the fiscal year ended
September 30, 1998 ("1998"), representing a 0.1% increase. In 1999, increased
volume sales of the Company's Traffic Safety products and increases in the
Survey and Mapping product sales were offset by decreases in the Consumer and
miscellaneous sales.
Sales of the Company's Traffic Safety products increased 1.2% from
$7,148,563 in 1998 to $7,237,259 in 1999. Domestic Traffic Safety product sales
increased 6.5% from $3,777,215 in 1998 to $4,023,828 in 1999
24
while International Traffic Safety product sales decreased 4.7% from $3,371,348
in 1998 to $3,213,431 in 1999. Domestic Traffic Safety sales continued to
benefit from second-generation products such as the UltraLyte, and,
internationally, sales were down slightly due to fluctuations in the purchasing
cycles of government agencies.
Sales of the Company's Survey and Mapping products increased 2.0% in 1999 to
$4,069,023 from $3,990,523 in 1998. While domestic Survey and Mapping product
sales decreased 15.8% to $2,288,239 in 1999 from $2,716,084 in 1998,
international sales of the Company's Survey and Mapping products increased
39.7% from $1,274,439 in 1998 to $1,780,784 in 1999. Domestic Survey and
Mapping sales decreased as the Company transitioned to new sales management and
sales personnel while international sales of the Company's Survey and Mapping
products increased in 1999 due to the recovery from the previous economic
downturn within the Asian market.
International sales of the Company's products in 1999 were $5,146,480
compared to $4,955,263 realized in 1998. International sales comprised
approximately 44% of the Company's total revenues in 1999 compared to 42% of
the Company's total revenues in 1998. International sales of the Company's
products are expected to continue to comprise a significant portion of its
revenues.
Gross profit as a percentage of sales was 51% in 1999 compared to 53% for
1998. The decrease in gross profit margins in 1999 was primarily due to a
write-off of obsolete inventory along with the impact of decreased inventory
investment in Work in Process and Finished Goods on the amount of overhead
absorbed by ending inventory. As the total amount of investment in Work in
Process and Finished Goods decreased by over $700,000, the amount of related
overhead that could be absorbed in ending inventory likewise decreased,
increasing cost of sales during the period of the inventory decrease, resulting
in a decrease in gross profit margins.
Royalty income earned in 1999 from the Company's licensees primarily related
to the Company's agreement with Bushnell on sales of the Yardage Pro series of
laser range finders marketed by Bushnell. Royalty income decreased
approximately 25% to $932,796 in 1999 from $1,242,732 in 1998. The decrease in
royalty income during 1999 was due primarily to Bushnell transitioning to new
product models and a competitor of Bushnell's selling an unsuccessful product
into the market at significantly reduced prices as it exited the category,
negatively impacting Bushnell's revenues. Royalty income began to recover
during the fiscal fourth quarter and management believes that royalty income
received from its current licensing arrangements will continue to positively
impact the Company's results of operations. See "Royalty and Licensing Income."
Total operating expenses increased approximately 32% to $ 8,211,854 in 1999
from $6,205,024 in 1998, exclusive of Settlement and Restructuring costs (see
below). Increased operating expenses realized in 1999 as compared to 1998 can
be attributed to both non-recurring charges to income, and ongoing operating
costs. Non-recurring costs amounted to a total of approximately $1,100,000.
Significant factors included increased audit fees associated with the re-audit
of fiscal years 1993-1997, increased allowance for doubtful accounts, write-
down of selling samples and equipment, write-down of obsolete plant, property
and equipment, and pre-restructuring salary expenses. Increases to on-going
operating costs can largely be attributed to increased research and development
costs associated with new personnel, increased advertising costs, increases in
the Company's medical and directors and officers insurance, increased
depreciation expense, and increased rent associated with expanded facility
leases. The Company anticipates that operating expenses will decrease in the
upcoming year as the one-time costs are not repeated and management works to
bring expenses better in line with revenues.
Litigation related costs incurred in 1999 were related to the costs of legal
defense and settlement of the class action lawsuits and Securities and Exchange
Commission investigation conducted during the year. The litigation and SEC
matters were substantially resolved during 1999 and those costs were not
expected to be repeated in 2000 although $18,430 was expensed in 2000. The
Restructuring costs were related to the
25
termination of employment of the former Chief Executive Officer and Chief
Financial Officer of the Company. All of the aforementioned costs were accrued
as fiscal 1999 expenses.
Decreased royalty income and decreased gross profit margins combined with
the increase in operating and litigation-related expenses in 1999 to result in
a net loss for the year. Combined with income earned on investments of $9,009
and $115,535 in 1999 and 1998, respectively, the Company realized a loss before
taxes of $3,372,039 in 1999 compared to income before taxes of $1,400,499 for
the comparable 1998 period. After taxes on income, the Company realized a net
loss of $2,386,105 or $.48 basic earnings per share in 1999 compared to net
income of $896,499, or $.18 basic earnings per share in 1998.
Foreign Sales
Foreign sales of the Company's products were 43%, 44% and 42% for the fiscal
years ended September 30, 2000, 1999 and 1998, respectively. Management
believes that foreign sales of the Company's products will continue to comprise
a significant portion of its revenues. The Company requires that all
international sales be paid for with U.S. dollars. An increase in the value of
the U.S. dollar relative to other currencies could make the Company's products
less competitive in those markets.
Research and Development Costs
Research and development costs related to the continual development of the
Company's products are expensed as incurred and included in operating expenses.
Research and development costs totaled approximately $1,274,900, $921,000 and
$757,000 for the years ended September 30, 2000, 1999 and 1998, respectively.
Year to year increases in research and development expenditures are primarily
attributable to increased product development and investments in pure research
to provide for significant future technology and product advancements.
Management anticipates a continued, controlled increase in research and
development costs as the engineering department is positioned to support and
facilitate future Company growth.
Cost associated with the Company's patents are capitalized and amortized
over their estimated useful life of 15 to 17 years. Patent costs capitalized
totaled approximately $148,000, $298,000 and $160,000 for the fiscal years
ended September 30, 2000, 1999 and 1998, respectively.
Income Taxes
Under the provisions of SFAS No. 109, the Company's policy is to provide
deferred income taxes related to inventories and other items that result in
differences between the financial reporting and tax basis of assets and
liabilities and a net operating loss carryforward. As a result, at September
30, 2000, the Company has recorded a deferred tax asset totaling $60,000. Based
upon the Company's history of taxable income and its projections for future
earnings, Management believes that it is more likely than not that sufficient
taxable income will be generated in the foreseeable future to realize the
deferred tax asset. See note 6 to the Company's consolidated financial
statements.
Liquidity and Capital Resources
The Company's working capital at September 30, 2000 was $6,918,219 as
compared to working capital of $6,443,030 at September 30, 1999, an increase of
$475,189. The increase in working capital at September 30, 2000 is primarily
related to the net income of $341,412 and a net decrease of $1,182,709 in
trade, income tax and royalty receivables, partially offset by the use of
working capital of $148,387 for capitalized patent costs,
26
an increase of inventory of $249,127, a reduction in long-term debt of $100,036
and a net reduction in accounts payable and accrued expenses of $588,488. The
Company's present working capital is expected to adequately meet the Company's
needs for at least the next twelve months.
For the year ended September 30, 2000, cash provided by operating activities
was $1,727,170. A net income of $341,412, reductions of receivables of
$1,182,709 and deferred taxes of $288,000, along with depreciation and
amortization of $563,452, offset the increase in inventories of $249,127 and
net decrease in accounts payable and accrued expenses of $588,488. Cash used in
investing activities of $1,790,434 which was primarily used for the purchase of
property and equipment in the amount of $195,967; purchase of investments of
$1,909,814 and $148,387 used for capitalization of patent costs, offset with
proceeds from investment maturities of $450,139 and sale of property &
equipment of $13,595. For the year ended September 30, 2000 cash and cash
equivalents decreased $171,194.
For the year ended September 30, 1999, cash provided by operating activities
was $97,310. Reductions in accounts receivable of $826,484 and inventories of
$1,010,228, increases to accruals (primarily related to the pending litigation
settlement) of $1,092,410 offset the net loss for the year of $2,386,105. Cash
used in investing activities of $298,728 resulted from increased cash from
investment maturities of $499,347, which was primarily used for the purchase of
property and equipment in the amount of $500,215, and $297,860 was used to
protect the Company's proprietary technology. For the year ended September 30,
1999 cash and cash equivalents decreased $231,510.
For the year ended September 30, 1998, cash provided by operating activities
was $86,602. Net income of $896,499 and increased accounts payable of $244,769
was used to expand inventories of $1,059,060 to meet anticipated production
demand. Cash used in investing activities of $280,024 resulted from increased
cash from investment maturities of $454,757, which were primarily used for the
purchase of property and equipment in the amount of $576,185, and $158,596 was
used to protect the Company's proprietary technology. In August 1998 the
Company financed a new car fleet arrangement which primarily allowed for cash
provided by financing activities of $230,063. Also in 1998, the Company
received $46,750 in proceeds from the exercise of stock options related to the
Company's qualified Incentive Stock Option plan and reinvested $52,800 pursuant
to the Company's Stock Repurchase Program. For the year ended September 30,
1998 cash and cash equivalents increased $36,641.
Other
During fiscal 1997, the Company expanded its facilities pursuant to the
Company's rights for additional expansion space under its current lease
agreements to provide additional office and production space. Additionally, in
1997, the Company expended capital to fully integrate and automate its
information systems management and accounting software in preparation of future
growth.
In November 1998, pursuant to a sublease agreement on adjacent space from an
unrelated party, the Company leased an additional 23,000 square feet under a
lease agreement expiring in July 2002. To complete the Company's facility
expansion in fiscal 1999, the Company spent approximately $250,000 in leasehold
improvements. The Company believes that its current and planned facilities are
adequate to meet the Company's needs throughout the foreseeable future.
Management believes that the Company's business centered around its Traffic
Safety product line is not seasonal in nature. However, due to fiscal budgeting
practices of foreign and domestic law enforcement agencies, sales of the
Company's Traffic Safety products may vary between financial periods.
Historically, the Company has realized a moderate decline in sales of its
Survey and Mapping products in areas affected by colder weather in the winter
months. Royalty income has historically fluctuated between financial periods in
conjunction with seasonal cycles of Bushnell's sales into the golf and hunting
segments.
27
In order to reduce the impact of currency fluctuations, all of the Company's
foreign sales are made in U.S. currency. The Company generally enforces the use
of letters of credit and wire transfers in most of its credit arrangements with
most foreign distributors to reduce the risk of uncollected accounts
receivable. In 1999, in conjunction with a review of the accounts receivable
balances, the Company increased its allowance for doubtful accounts to $250,000
to address some potential collectibility issues with some of the Company's
foreign accounts that were not sold using letters of credit. In fiscal 2000 the
company accrued a bad debt allowance of $112,670 to cover the risk of
uncollectable accounts receivable at September 30, 2000.
Effect of Inflation
The Company believes that it will experience increased costs due to the
effect of inflation on the cost of labor, material and supplies, and equipment
acquisitions. However, such inflationary effects are not expected to have a
material impact on the Company's revenues, gross profit or results of
operations for at least the next twelve months.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that displays with
the same prominence as other financial statements. SFAS No. 131 supersedes SFAS
No. 14 "Financial Reporting for Segments of a Business Enterprise." SFAS No.
131 establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of the standard,
management has been unable to fully evaluate the impact, if any, the standard
may have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by implementation of the
standards.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No 132. "Employers' Disclosures about Pensions and
other Postretirement Benefits" which standardizes the disclosure requirements
for pensions and other Postretirement benefits and requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. SFAS No. 132 is effective for
years beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not readily
available. Management believes the adoption of this statement will have no
material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15,
28
1999. Management believes the adoption of this statement will have no material
impact on the Company's financial statements.
Review of Accounting Procedures
On October 28, 1998, the Company's Board of Directors established a Special
Audit Committee (the "Special Committee") to independently investigate the
Company's accounting records and certain irregularities relating to the
Company's accounting records. Following its investigation, the Special
Committee was to report the results to the Board.
On December 21, 1998, BDO Seidman, LLP ("BDO") resigned as the Company's
independent accountant citing for its reasons (i) that the Company's internal
controls could not be relied upon to develop financial statements; (ii)
information had come to BDO's attention indicating that they could no longer
rely on management's representations; and (iii) it concluded that the above
events materially impacted the reliability of the financial statements for the
fiscal years ending September 30, 1993, 1994, 1995, 1996 and 1997. Therefore,
BDO was unwilling to be associated with the above mentioned financial
statements and withdrew its opinions on those years.
On January 7, 1999, a Special Meeting of the Board of Directors (the
"Special Meeting") was held for the purpose of receiving the report and
recommendations from the Special Committee. The Special Committee made several
proposals including, but not limited to, (i) asking that certain directors and
executive officers, including the Chief Executive Officer and Chief Financial
Officer, tender their resignations; (ii) that the Company's President pay to
the Company all amounts, if any due from him to the Company; (iii) that the
Company hire a new Chief Executive Officer and Chief Financial Officer from
outside the Company and search for and retain a reputable accounting firm that
is completely independent from the Company's officers and/or directors; and
(iv) that certain directors agree to place their shares of the Company's common
stock into a voting trust or other arrangement whereby such shares may be voted
in accordance with management's direction. The Special Committee further
suggested that upon the implementation of the above recommendations, the
composition of the Board of Directors be revised to provide for three inside
and three independent directors. It was also recommended that in the event the
Chief Executive Officer and Chief Financial Officer did resign, each be offered
a consulting agreement with the Company.
Following the presentation and proposals by the Special Committee, those
directors not on the Special Committee made a counter-proposal. Without
responding to the counter-proposal, the three members of the Special Committee
informed the Board of their intent to resign from the Special Committee and
from the Board of Directors. Each of the resigning directors submitted letters
to the Company's Board dated January 11, 1999 confirming their resignations.
Each cited as the reason for his resignation as the refusal of the other
members of the Board to accept the proposals of the Special Committee.
The Board of Directors first created the Special Committee to investigate
certain situations that took place in fiscal years 1993 and 1994 relating to
transactions between LTI Australia and the Company. LTI Australia, formerly
known as Kurringa Pty. Ltd. ("LTIA"), has been a customer of the Company since
1992. LTIA and the Company are not affiliated through ownership or management.
In December 1992, during fiscal year ended September 30, 1993, the Company sold
one hundred (100) units of its hand-held Marksman to LTIA for $370,000 (the
"December 1992 Sale"). The Company booked the transaction as a sale with a
corresponding account receivable.
At August 31, 1993, the balance due on LTIA's account was $310,452. On that
date, the Company and LTIA entered into an Agreement that provided, among,
other things, that LTIA would pay in full in ninety (90) days, the $310,452
then owing from the December 1992 Sale. The Agreement stated that the Company
was granting LTIA an extension so LTIA could (i) complete necessary approvals
for the Marksman in certain areas of Australia, (ii) expand marketing efforts
in the South Pacific and Southeast Asia, and (iii) supply the Company with a
photo laser system that the Company would distribute outside of Australia. The
Agreement
29
also stated that in return for the extension, LTIA would sell the photo laser
system to the Company at a fifty percent (50%) discount off LTIA's anticipated
wholesale price. The Agreement further provided that the Company would ship to
LTIA an additional 100 Marksmans by the end of September 1993 to fulfill an
order LTIA expected in October 1993 from its customer. The terms of the
Agreement provided that LTIA was to make payment for the units within sixty
(60) days after delivery to the end user. The Company shipped 100 Marksman
units to LTIA on approximately September 30, 1993, for the total price of
$370,000 (the "September 1993 Sale"). This transaction was booked by the
Company as a sale with a corresponding account receivable.
Both the December 1992 Sale and September 1993 Sale were recorded by the
Company as gross sales for fiscal year 1993. During fiscal 1993, LTIA paid
approximately $150,128 on its account receivable at the Company. As of
September 30, 1993, the balance of LTIA's account receivable was $686,525.
On or about July 20, 1994, LTIA and the Company entered into a Purchase
Agreement whereby the Company agreed to pre-purchase from LTIA twenty (20)
photo laser systems for the discounted price of $10,500 per unit. This
represented a further discount from the price of $12,500 per unit that LTIA had
agreed to in the August 31, 1993 Agreement. The Purchase Agreement further
provided that the Company would pay for the photo laser systems by reducing
LTIA's receivable by $210,000. LTIA's receivable was reduced by this amount on
August 24, 1994.
In approximately June 1994, LTIA began returning to the Company certain of
the Marksman units for which it had not paid. Between June 1994 and March 1996,
LTIA returned all 100 units from the September 1993 Sale and an additional
thirty (30) units. The Company did not reduce LTIA's account receivable upon
the return of the units. Rather, two corporate officers and directors, David
Williams and Jeremy Dunne, transmitted personal funds to the Company which were
then applied to reduce the LTIA account receivable. From September 26, 1994 to
September 28, 1995, Mr. Williams and Mr. Dunne paid to the Company $184,298 and
$131,250 respectively. To the best knowledge of the Company, Mr. Dunne believed
that his payment of $131,250 was an advance to LTIA to support its development
of the Australian market and to assist LTIA during a period when it was
experiencing cash flow problems. Further, to the best knowledge of the Company,
David Williams and Pamela Sevy, the Company's Chief Financial Officer, at the
time, were the only Company officers or directors who were aware that the
aforementioned payments were used to reduce the LTIA account receivable.
Mr. Williams and Mr. Dunne each personally borrowed the funds they
transmitted to the Company that were applied to the LTIA account receivable. In
some instances the interest and principal payments on Messrs. Williams and
Dunne's loans were paid by the Company. These payments were authorized by Mr.
Williams and Ms. Sevy. In most instances the interest and principal payments
paid by the Company were debited to the Company's officer receivable account of
Mr. Williams or Mr. Dunne, respectively. In April 1997, the Company paid
$98,676 to Norwest Bank of Arapahoe to repay a loan that Mr. Williams had taken
out to pay on the LTIA account receivable. In making the payment to the bank,
the Company also paid a $25,000 prior loan of Mr. Williams. The Company charged
the entire $98,676, which included the $25,000, to Mr. Williams' personal
account receivable at the Company. The interest paid by the Company totaled
approximately $16,000. Interest payments made by the Company were not reported
as income to Mr. Williams because it was believed that the Company was repaying
monies owed to Mr. Williams. In September 1997, H. DeWorth Williams, the
brother of David Williams and a director of the Company, made a personal loan
to David Williams in the amount of $165,000. DeWorth William's check for
$165,000 was made payable to the Company and the funds were used by David
Williams to reduce his personal account receivable at the Company. None of
these transactions were reported as a related party transaction in the
Company's annual report on Form 10-K for the fiscal year ended September 30,
1997.
During fiscal 1995, the Company determined that the photo laser systems that
were pre-purchased from LTIA pursuant to the Purchase Agreement did not meet
performance requirements. Accordingly, the Company discontinued its efforts
with LTIA related to developing the photo laser system and did not take
delivery of the
30
20 units. Therefore, on or about September 14, 1995, the Company reversed the
$210,000 credit previously applied to the LTIA account for the pre-purchase of
the photo laser systems.
Approximately 90 of the units returned by LTIA between June 1994 and March
1996 were resold through the Company on Company invoices, but the sales were
not recorded on the Company's books. Rather, the sales proceeds were deposited
into an account established at Colorado National Bank ("CNB"), under the
Company's name. The funds in the account were intended to repay David Williams
for his funds advanced on behalf of LTIA. Sales proceeds were used to reduce
LTIA's account receivable or to repay those funds which Messrs. Williams and
Dunne had transmitted to the Company to reduce LTIA's receivable.
The CNB account was established in May 1995, although not authorized by the
Company's Board of Directors. The CNB account was not disclosed to the
Company's auditors during fiscal 1995, 1996, 1997 or 1998. Also, to the best
knowledge of the Company, David Williams and Ms. Sevy were the only Company
officers or directors who were aware of the purpose of the CNB account.
However, the Company is aware that two other employees, including one person
that became the Company's controller, knew of the existence and purpose of the
CNB account. The employees did not disclose the account to the Board of
Directors or to the Company's auditors. These employees were also involved in
the creation and processing of certain invoices for transactions related to the
CNB account. Sales proceeds from the returned and resold units were transferred
from the CNB account to the Company's regular cash operating account.
The remaining ten units from the September 1993 Sale plus approximately
thirty additional units from the December 1992 Sale, were also sold. However,
these sales were inadvertently recorded as new Company sales with no cost of
goods sold being attributed to the sales. The Company is presently unable to
identify specifically approximately fifteen of these units, although it is
believed that the proceeds from the sale of these sales were also recorded as
new sales by the Company.
In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. David Williams and Ms. Sevy applied the proceeds from the
sale to reduce Mr. Williams' account receivable by $50,000 in consideration for
monies he had transmitted to the Company to reduce the LTIA receivable and,
that due to the resale of returned units by the Company were considered
unrecoverable by him. Subsequently, the Company reversed this transaction,
debited Mr. Williams' account receivable for $50,000, and recorded the sale as
revenues to the Company. The Company then reduced Mr. Williams' account
receivable by $50,000 to recognize the monies he had transmitted to the Company
to reduce the LTIA receivable. It is further believed that the Company may owe
additional monies to Mr. Williams. Mr. Williams has agreed to forgive any
monies owed to him due to the resale of his units by the Company.
Being fully aware of the facts and allegations presented by the Special
Committee, those directors at the Special Meeting not on the Special Committee
were concerned with the Special Committee's time schedule in bringing on a new
auditor and the projected time frame to complete the new audited financial
statements for the fiscal year ended September 30, 1998. The Special Committee
had not engaged a new auditor and suggested that once a new auditor was
engaged, the time frame to complete the audit could take up to six months. The
remaining directors believed that it would be in the best interest of the
Company and its shareholders to engage a new auditor as soon as possible in
order to promptly complete and publish the Company's financial statements for
fiscal year 1998.
The remaining directors also believed that the Company's President did not
owe any monies to the Company as implied by the Special Committee. Further, the
remaining directors believed that it was not necessary to have certain
directors place their shares of the Company's stock into a voting trust.
On January 11, 1999, the Company's Board of Directors approved the
appointment of and formally engaged Jones, Jensen and Company, Certified Pubic
Accountants, now known as H.J. Associates ("HJA"), as the Company's principal
accountant. Following its appointment, HJA completed the audit of the Company's
financial statements for the fiscal years ended September 30, 1998, 1997 and
1996. HJA also reviewed the
31
financial controls of the Company and made recommendations to the Board of
Directors and performed an audit as of September 30, 1995, 1994 & 1993.
On February 19, 1999, the Board of Directors accepted the resignations of
David Williams as President and Chief Executive Officer, and, Pamela Sevy as
Chief Financial Officer. Mr. Williams and Ms. Sevy and the Board agreed that
their resignations would be effective immediately upon the filing of the 1998
Form 10-K. Mr. Williams and Ms. Sevy subsequently resigned as employees of the
Company on October 25, 1999.
Management believes that there was not any negative impact upon the
Company's overall reported financial results for its 1994, 1995, 1996, 1997 and
1998 fiscal years. Certain sales previously recorded in fiscal year 1993 should
have been more properly recorded in fiscal years 1995, 1996 and 1997. However,
combined sales and earnings for these fiscal years will not be affected and
there was no material cumulative effect to the financial statements for these
periods. Any adjustments made to prior year statements have had no effect on
the Company's financial statements for fiscal years 1998 or 1999.
The following table demonstrates the changes to revenues from the sale of
the 100 units pursuant to the September 1993 Sale as though the sales of the
units were recorded in later periods when the units were resold. The table also
demonstrates the effect on net income in each period had such sales and gross
margin contribution to net income been recorded in the period in which the
resale occurred rather than in fiscal 1993.
The sales value of the 130 units returned was approximately $488,000. Of the
130 units returned, ninety of the units, or approximately $369,000, were sold
through the CNB account to repay Messrs. Williams and Dunne or applied towards
LTIA's account receivable. Forty of the units were sold inadvertently as new
Company sales. The following table reflects the sale of one hundred fifteen
units, the number specifically identifiable as having been sold as a new sale
or through the CNB account. The table does not reflect the resale of the
remaining fifteen units because of the Company's inability to identify those
specific units and the table takes into effect approximately $30,000 in
discounts granted on returned and resold units.
The table reflects all identifiable units for which sales revenue may have
been more fairly reported in a later period. The Company believes that all
funds have been accounted for from the sale or resale of the units. The Company
further believes that no individuals personally benefited from any of the
transactions.
Years Ended
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Statement of Operations
Data:
Net sales as
reported............. $9,292,637 $9,306,777 $8,225,776 $5,303,299 $4,813,227
Adjustments to net
sales................ 16,131 197,342 102,805 -- (401,278)
Adjusted net sales.... 9,308,768 9,504,119 8,328,581 5,303,299 4,411,949
Net income as reported
(1).................. 585,430 1,063,372 704,132 59,106 965,246
Adjusted net income... 594,302 1,171,910 817,218 59,106 744,543
Earnings per share.... $ .12 $ .20 $ .14 $ .01 $ .20
Adjusted earnings per
share................ $ .12 $ .22 $ .16 $ .01 $ .16
- --------
(1) During fiscal 1993, the Company recorded a non-recurring extraordinary
charge of $567,000 as a loss related to the early extinguishment of debt.
The computation of adjusted net income and earnings per share data for
fiscal 1993 does not take into effect such reduction in net income, as it
does not relate to the Company's results from operations.
Risk Factors and Cautionary Statements
This report contains "forward-looking statements." Forward-looking
statements in this report are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The Company wishes to
advise readers that actual results may differ substantially from such forward-
looking
32
statements. Forward-looking statements involve risks and uncertainties
including, but not limited to, continued acceptance of the Company's products
in the marketplace, competitive factors, potential changes in the budgets of
federal and state agencies, compliance with current and possible future FDA or
environmental regulations, and other risks detailed in the Company's
Registration Statement on Form S-1 as filed the Securities and Exchange
Commission.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS
This item is not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is contained in the consolidated
financial statements appearing in Item 14 of this report. Such information is
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
BDO Seidman, LLP ("BDO") served as the Company's independent accountant for
the years ended September 30, 1992 through 1997. On December 21, 1998, BDO
resigned as independent accountant for the Company, citing the following
reportable events:
1. The Company's internal controls could not be relied upon to develop
financial statements.
2. Information had come to BDO's attention indicating that they could no
longer rely on management's representations.
3. BDO concluded that the above events materially impacted their
liability of the financial statements for the fiscal years ending September
30, 1993, 1994, 1995, 1996 and 1997. Therefore, BDO was unwilling to be
associated with the above mentioned financial statements and withdrew its
opinions on those years.
Commencing October 28, 1998, the Audit Committee of the Company's Board of
Directors conducted an investigation of the Company's accounting systems and
procedures. During the pendency of the investigation, the Company appointed an
interim Chief Financial Officer who reported directly to the Audit Committee
and instituted additional internal controls to ensure the integrity of the
investigation and the Company's financial reporting processes.
The Company filed with the Commission a report on Form 8-K dated December
28, 1998 disclosing the resignation of BDO. The Form 8-K was amended on January
4, 1999 to include the letter from BDO addressed to the Commission stating
whether it agreed with the statements made by the Company in the Form 8-K.
On January 11, 1999, the Company's Board of Directors approved the
appointment of and formally engaged Jones, Jensen & Company, Certified Public
Accountants ("JJ&C"), as the Company's principal accountant. Thereupon, JJ&C
began auditing the Company's financial statements for the fiscal years ended
September 30, 1998, 1997 and 1996. JJ&C has also performed a review of the
financial controls of the Company and made recommendations to the Board of
Directors. JJ&C is now know as H.J. & Associates.
During the Company's two most recent fiscal years and subsequent interim
period, prior to engaging JJ&C, the Company did not consult JJ&C regarding
either (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements; or (ii) any matter that was
either the subject of a disagreement or a reportable event, except to the
extent necessary for JJ&C to complete its client acceptance procedures.
33
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 27, 2000, the executive officers and directors of the Company
are as follows:
Eric A. Miller........... 34 President, Chief Executive Officer and Director
Jeremy G. Dunne.......... 43 Vice President and Director
Roosevelt Rogers......... 41 Vice President
H. DeWorth Williams...... 65 Director
Walter R. Keay........... 63 Director
Edward F. Cowle.......... 44 Director
William P. Behrens....... 62 Director
Nicholas J. Cooney....... 65 Director
Elizabeth A. Hearty...... 33 Secretary
The Company's Board of Directors filed a definitive proxy statement with the
Securities and Exchange Commission on January 20, 2000, nominating for re-
election its current board of Directors, consisting of three officers of the
Company (Blair Zykan, Brian Abeel an Jeremy Dunne), and three non-officer
directors (Edwin Phelps, Stephen Bamberger and DeWorth Williams).
On February 23, 2000, a shareholder group comprised of Mr. Williams and
several other shareholders filed a proxy statement with the SEC proposing that
Messrs. Phelps and Bamberger be replaced by two nominees named in the second
proxy, Nicholas J. Cooney, Esq. and William P. Behrens.
On February 28, 2000 Mr. Zykan resigned from the Board of Directors,
effective March 1, 2000 Mr. Zykan resigned as President and C.E.O. In his
resignation letter, Mr. Zykan stated that he was opposed to the proposal
contained in the second proxy statement and if that proxy effort were
successful, he did not believe he would be able to effectively operate the
Company's business. Mr. Phelps, Chairman of the Board, submitted his
resignation effective March 10, 2000.
On March 2, 2000, Messrs. Abeel and Bamberger resigned their positions from
the Board of Directors. Mr. Abeel also resigned as Chief Financial Officer.
At a Board of Directors meeting March 3, 2000, William P. Behrens, Edward F.
Cowle and Walter R. Keay were named to the Board, filling three of the four
recent vacancies. The Board of Directors subsequently appointed Eric A. Miller
as President and Chief Executive Officer, and Roosevelt Rogers as Vice
President.
On March 8, 2000 the Board of Directors appointed Mr. Nicholas J. Cooney
fill the final vacancy. Eric A. Miller was appointed to the Board of Directors
on May 8, 2000. The appointment of Mr. Miller increases the number of directors
to seven.
The Company's directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Pursuant to the Director Plan, as of September 30, 2000, options to purchase
30,000 shares were granted and are outstanding to each of five non-employee
directors at exercise prices ranging from $1.75 to $4.25 per share. In
addition, the Company reimburses each Director's out of pocket expenses
incurred in connection with their duties as directors. Under the Stock Option
Plan for Non-Employee Directors (the "Director Plan"), each non-employee
director and each newly elected non-employee director is entitled to an option
to purchase 30,000 shares of the Company's common stock. The exercise price of
each option is the fair market value of the Company's Common Stock at the date
of grant.
34
Each officer of the Company serves at the discretion of the Board of
Directors. There are two committees of the Company's Board of Directors. As of
September 30, 2000, the Audit Committee consisted of Mr. Walter R. Keay and Mr.
Edward F. Cowle and the Compensation Committee consisted of Mr. H. DeWorth
Williams, Mr. William P. Behrens and Mr. Nicholas J. Cooney.
Eric A. Miller. Mr. Miller has been employed by the Company since 1988 and
has served on the Company's Executive Committee since 1993. He was appointed as
President and Chief Executive Officer of the Company in March 2000. Mr. Miller
served as Engineering Manager from 1993 to 2000 and was an engineer with the
Company from 1988 to 1993. From 1985 to 1987, Mr. Miller was an engineering
assistant with Sokol Crystal Products, a radio communications equipment company
in Glendale, Arizona. Mr. Miller graduated in 1987 from DeVry Institute of
Technology in Phoenix, Arizona with a B.S. Degree in Electronics.
Jeremy G. Dunne. Mr. Dunne has been employed by the Company since 1986 and
currently serves as Chief Technical Officer. From 1981 to 1986, Mr. Dunne was
chief engineer for Hydrographic Services, International in Southborough Kent,
England, a company that performs software and system design for the
hydrographic surveying industry. From 1980 to 1981, Mr. Dunne was an electrical
engineering technician with Plessy Marine, Ltd. in Ilford Essex, England, a
manufacturer of electronic instrumentation. Mr. Dunne earned a B.A. Degree in
Electrical Engineering from the University of Cambridge, Cambridge, England.
Mr. Dunne agreed to a Securities and Exchange Commission order issued on March
20, 2000 to not cause any violations of Section 13(a) of the Securities
Exchange Act.
Roosevelt Rogers. Mr. Rogers has been employed by the Company since 1996 and
is currently General Sales Director. Mr. Rogers was appointed as Vice President
of the Company in March 2000. From 1992 to 1996, Mr. Rogers was a Product
Manager with MPH Industries, Inc., a subsidiary of MPD, Inc. in Owensboro,
Kentucky, and from 1990 to 1992, he was Regional Sales Manager with Tech
Systems, Inc.; Mobile Video Recording Systems in Atlanta, Georgia. Mr. Rogers
was a State Trooper with the Georgia State Patrol in Atlanta, Georgia from 1982
to 1990, and was a police officer with the Roswell Police Department in
Roswell, Georgia from 1977 to 1982. Mr. Rogers attended Brescia College in
Owensboro, Kentucky studying Business Administration.
H. DeWorth Williams. Mr. Williams is the owner of Williams Investment
Company and has been a financial consultant for more than thirty years. During
this time, Mr. Williams has been instrumental in facilitating and completing
several mergers, acquisitions, business consolidations and underwritings.
Mr. Williams is the brother of the Company's former President, David Williams.
Mr. Williams agreed to a Securities and Exchange Commission order issued on
March 20, 2000 to not cause any violations of Section 13(a) of the Securities
Exchange Act.
Walter R. Keay. Mr. Keay has been employed for over 35 years in the
securities industry. He is presently President of Knickerbocker Capital, Inc.,
an investment banking consulting firm in Pennsylvania. From 1987 through 1999,
he was founder and President of Knickerbocker Securities, Inc., a member of the
National Association of Securities Dealers. Knickerbocker Securities was the
Company's underwriter when it was initially listed on the American Stock
Exchange in 1993. Prior to forming Knickerbocker Securities, Mr. Keay was
Director of Corporate Finance for various New York Stock Exchange member firms.
Prior to engaging in investment banking, Mr. Keay was a securities analyst,
working extensively with large conglomerate type corporations, both as an
analyst and in the area of mergers and acquisitions. He graduated from Brown
University with a B.A. Degree in Economics and did graduate work at New York
University School of Business Administration.
Edward F. Cowle. Mr. Cowle has been self employed in financial public
relations from 1994 to the present, assisting public companies with financial
and investment banking activities. From 1992 to 1994, Mr. Cowle was a Senior
Vice President--Investments with Paine Webber in New York City and from 1991 to
1992, he was a Registered Representative with Bear Stearns & Company, also in
New York City. During 2000, Mr. Cowle became a director of GreatBio
Technologies, Inc., a public company located in Rochester,
35
New York, involved in the development of certain medical devices related to the
implantable cardiac pacemaker. Mr. Cowle graduated from Fairleigh Dickinson
University in Madison, New Jersey in 1978 with a B.A. Degree in English,
American Studies. Mr. Cowle also attended Vermont Law School in South Royalton,
Vermont from 1978 to 1979.
William P. Behrens. Mr. Behrens has been employed by Ernst & Company since
1965, where he has served in several positions, including Chief Executive
Officer (1998 to present); Chairman of the Board of Investec Ernst & Company
International Brokerage Ltd. (1990); Senior Managing Director and CEO (1989);
and General Manager (1971). Mr. Behrens has been a partner of Investec Ernst &
Company since 1975, and was appointed to the Executive Committee in 1980. Since
1999, he has served as Chief Executive Officer of Investec Ernst & Company. Mr.
Behrens has been actively involved in the securities industry for his entire
professional life, and has served in numerous professional capacities,
including positions as a member of the American Stock Exchange Nominating
Committee (1997-1999); a member of the Nominating Committee of the National
Securities Clearing Corp. (NSCC) (1993-1994); a member of the Board of
Directors of NSCC (1988-1991); a member of the American Stock Exchange
Nominating Committee (1987-1988); an American Stock Exchange Official (1985-
present); Vice-Chairman of the Board of Options Clearing Corporation (1985-
1986); a director of Options Clearing Corporation (1981-1984); Chairman of the
Securities Industry Association, Operations Committee (1981-1983), and Vice
Chairman of the National Association of Securities Dealers, Inc., District #10,
Business Conduct Committee (currently). Mr. Behrens graduated from Bernard
Baruch College--City University of New York.
Nicholas J. Cooney. Mr. Cooney has been principally self-employed in three
areas for several years--as an attorney, concentrating in corporate and
finance; as a professional arbitrator and mediator; and as an investment
banker. Since 1982, Mr. Cooney has been engaged as a sole proprietor in the
practice of law in the State of New York, where he was licensed to practice law
in 1960. From 1994 to 1999, Mr. Cooney was affiliated as an investment banking
executive with Knickerbocker Securities, Inc., a small investment banking firm
in New York City. Mr. Cooney was involved for a period of over 25 years in the
legal affairs of three major corporations--Kidde, Inc., formerly known as
Walter Kidde & Co., Inc., as a consultant (1982-1988); Ingersoll-Rand Company
(1971-1982), where as assistant company counsel, he was responsible for the
legal matters of two groups having in excess of $500 million in annual sales;
and American Express Company, as a staff attorney (1962-1971). Prior to his
corporate affiliations, Mr. Cooney was associated with the Wall Street law firm
of Lowenstein, Pitcher, Hotchkiss, Amman & Parr (now merged under the name
Whitman Breed Abbott & Morgan) (1961-1962). Since 1994, Mr. Cooney has served
as a contract arbitrator for the Building Service Industry in the New York City
area. Mr. Cooney is an active arbitrator for the Commercial Panel of the
American Arbitration Association. Mr. Cooney received his Juris Doctorate
degree from Fordham University School of Law in 1960, and his Bachelor of
Science degree from Fordham College in 1957.
Elizabeth Hearty. Ms. Hearty joined the Company in September 1999 and has
served as the Company's Controller. In March 2000, Ms. Hearty was appointed
Corporate Secretary of the Company. Prior to joining the Company, Ms. Hearty
was President and Director of DataVision Security Services in Englewood,
Colorado from 1996 to 1999. From 1990 to 1996, she served as Controller of
InterCap Funds, Joint Venture. Ms. Hearty received a B.S. degree in accounting
from the University of Colorado in 1989.
ITEM 11. EXECUTIVE COMPENSATION
Employment Agreements
On April 8, 1999, the Company entered into an employment agreement with its
newly appointed President, Blair Zykan. Under the terms of the agreement, Mr.
Zykan agreed to serve as President and C.E.O. for a period of three years for a
base annual salary of $97,000 and certain other fringe benefits. In addition,
Mr. Zykan was entitled to an annual cash bonus. The agreement also provided for
the grant of stock purchase options to purchase 75,000 shares of the Company's
common stock at $3.25 per share, exercisable for a period
36
of ten years. In addition, Mr. Zykan was granted a deferred share award of
25,000 shares of the Company stock, vesting one third upon grant and one third
on the anniversary date of the agreement in each of the next two years.
Further, the agreement provided that in the event of a change of control of the
Company and certain other specific triggering events, the Company was to pay
Mr. Zykan a lump sum payment of 2.99 times his base salary at the time of the
change of control. This agreement was terminated with the resignation of Mr.
Zykan on March 1, 2000.
The Company also entered into an employment agreement dated November 1, 1999
with its Executive Vice President and Chief Financial Officer, Brian Abeel. Mr.
Abeel's agreement was for a period of three years for a base annual salary of
$95,000 and certain other fringe benefits. Mr. Abeel was also entitled to an
annual cash bonus. The agreement also provided for the grant of stock purchase
options to purchase 45,000 shares of the Company's common stock at $1.375 per
share, exercisable for a period of ten years. Mr. Abeel retained his options
granted as a Director to purchase 30,000 shares of the Company's stock at $3.25
per share, exercisable for a period of ten years. In addition, Mr. Abeel was
granted a deferred share award of 25,000 shares of the Company stock, vesting
one third upon grant and one third on the anniversary date of the agreement in
each of the next two years. Further, the agreement provided that in the event
of a change of control of the Company and certain other specific triggering
events, the Company would pay Mr. Abeel a lump sum payment of 2.99 times his
base salary at the time of the change of control. This agreement was terminated
with the resignation of Mr. Abeel effective May 1, 2000.
The Company has not entered into any new employment agreements as of
September 30, 2000. However, April 2000, the Company entered into a consulting
agreement with Knickerbocker Capital, Inc., whose principle is Walter R. Keay,
Director, to provide certain consulting services to The Company.
Cash Compensation
The following table sets forth a summary of cash and non-cash compensation
for each of the last three fiscal periods ended September 30, 2000, 1999, and
1998, with respect to the Company's Chief Executive Officer and former Chief
Executive Officer. No other executive officer of the Company has earned a
salary greater than $100,000 annually for any of the periods depicted.
Summary Compensation Table
Name and Principal Other Annual Restricted All Other
Position Year Salary Bonus Compensation Stock Award Compensation
- ------------------ ---- --------- ------- ------------ ----------- ------------
Eric A. Miller,......... 2000 $ 83,455 17,664 -- -- --
President, C.E.O., 1999 * -- -- -- --
Director 1998 * -- -- -- --
Jeremy Dunne,........... 2000 $ 98,116 21,308 -- -- --
Vice President and 1999 -- -- -- -- --
Director 1998 -- -- -- -- --
Roosevelt Rogers,....... 2000 $ 53,750 $58,750
Vice President 1999 * -- -- -- --
1998 * -- -- -- --
Blair Zykan,............ 2000 $ 82,952 8,333***
Former President, 1999 $ 87,018 $ -- $15,844 8,333*** $--
C.E.O. 1998 ** -- -- -- --
David Williams,......... 2000
Former President, 1999 $ 100,608 -- -- -- --
C.E.O. 1998 92,500 -- -- -- --
37
The preceding table does not include any amounts for non-cash compensation,
including personal benefits. The Company believes that the value of such non-
cash benefits and compensation paid during the periods presented did not exceed
the lesser of $50,000 or 10% of the cash compensation reported.
- --------
* Mr. Miller and Mr. Rogers were not officers of the Company during 1999 or
1998.
** Mr. Zykan was not an officer of the Company during 1998. In 1999 he was paid
commissions of $15,844 prior to being named President and C.E.O.
*** During 1999 Mr. Zykan entered into an employment agreement that provided
for a Deferred Share Award of 25,000 shares of stock in the Company,
vesting one third at the date of grant and one third each year thereafter
until fully vested.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money
Fiscal Year End Fiscal Year End
Name and Principal Position Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------- ------------------------- -------------------------
David Williams,......... 68,250/none $0/none
Former President,
C.E.O. (1)
Blair Zykan, ........... 0/none $0/none
Former President,
C.E.O. (2)
Eric A. Miller,......... 72,000/none $0/none
President, C.E.O.,
Director (3)
Roosevelt Rogers,....... 36,000/none $0/none
Vice President (4)
Jeremy Dunne,........... 118,250/none $0/none
Vice President,
Director (5)
- --------
(1) On June 3, 1994, the Company granted options to purchase 68,250 shares of
the Company's common stock to David Williams, President and CEO, pursuant
to the Company's Equity Incentive Plan. The options are non-transferable
and vest annually in three equal installments over a three-year period. As
of September 30, 2000, all options were fully vested.
(2) On June 3, 1994, the Company granted options to purchase 51,000 shares of
the Company's common stock to Blair Zykan pursuant to the Company's Equity
Incentive Plan. The options were non-transferable and vested annually in
three equal installments over a three-year period. As of September 30,
2000, all options were fully vested. On February 23, 1999, the Company
granted Mr. Zykan options to purchase 75,000 shares of the Company's common
stock, pursuant to the Company's Equity Incentive Plan. As of September 30,
2000, all of Mr. Zykan's options have cancelled with his resignation March
1, 2000.
(3) On June 3, 1994, the Company granted options to purchase 42,000 shares of
the Company's common stock to Eric Miller pursuant to the Company's Equity
Incentive Plan. The options are non-transferable and vested annually in
three equal installments over a three-year period. As of September 30,
2000, all options were fully vested. On May 19, 2000, the Company granted
Mr. Miller options to purchase 30,000 shares of the Company's common stock,
pursuant to the Company's Equity Incentive Plan. The options are non-
transferable and vested annually in three equal installments over a three-
year period. As of September 30, 2000, no options were vested.
(4) On December 31, 1997, the Company granted options to purchase 6,000 shares
of the Company's common stock to Roosevelt Rogers pursuant to the Company's
Equity Incentive Plan. The options are non-transferable and vested annually
in three equal installments over a three-year period. As of September 30,
2000, 4,000 options were fully vested; the remaining 2,000 options will
become fully vested on December 31, 2000. On May 19, 2000, the Company
granted Mr. Rogers options to purchase 30,000 shares of the Company's
common stock, pursuant to the Company's Equity Incentive Plan. The options
38
are non-transferable and vested annually in three equal installments over a
three-year period. As of September 30, 2000, no options were vested.
(5) On June 3, 1994, the Company granted options to purchase 68,250 shares of
the Company's common stock to Jeremy Dunne pursuant to the Company's Equity
Incentive Plan. The options are non-transferable and vested annually in
three equal installments over a three-year period. As of September 30,
2000, all options were fully vested. On May 19, 2000, the Company granted
Mr. Dunne options to purchase 50,000 shares of the Company's common stock,
pursuant to the Company's Equity Incentive Plan. The options are non-
transferable and vested annually in three equal installments over a three-
year period. As of September 30, 2000, no options were vested.
Equity Incentive Plan
In 1994, the Company adopted an equity incentive plan, the "Employee Plan"
which provides for the issuance of options to key employees and consultants of
the Company to purchase up to an aggregate of 530,000 shares of the Company's
Common Stock at the fair market value of the stock at the date of grant, based
on the closing sale price of the Common Stock on the American Stock Exchange on
such date. The Employee Plan also allows for the grant of stock options,
restricted stock awards, stock units, stock appreciation rights and other
grants to all Company eligible employees and consultants.
On February 24, 1998, Stockholders approved a proposal to amend the
Company's Equity Incentive Plan ("Employee Plan"). For each fiscal year
beginning October 1, 1997 and through the fiscal year beginning October 1, 2003
(seven years), a number of shares of stock equal to two percent of the total
number of issued and outstanding shares of stock as of September 30 of the
fiscal year immediately preceding such year shall become available for issuance
under the Employee Plan. In addition, any unused portion of shares of stock
remaining from those reserved as of September 30, 1997 and any unused portion
of the two percent limit for any fiscal year shall be added to the aggregate
number of shares of stock available for issuance in each fiscal year under the
Employee Plan. In no event except as subject to adjustment pursuant to certain
sections of the Employee Plan, more than 1,000,000 shares of stock shall be
cumulatively available for issuance pursuant to the exercise of the Incentive
Options.
As of September 30, 2000, the total number of shares of Common Stock subject
to all awards under the Employee Plan could not exceed 843,265.
As of September 30, 2000, options to purchase 661,500 shares of the
Company's common stock were outstanding, at exercise prices ranging from $1.44
to $5.25 per share of which 561,501 options were exercisable at September 30,
2000. The options are non-transferable and primarily vest annually in three
equal installments over a three year period. The options expire five or ten
years from the date of grant or, if sooner, three months after the holder
ceases to be an employee of the Company (subject to certain exceptions
contained in the Employee Plan).
On October 1, 2000, the maximum number of shares of Common Stock subject to
all awards under the Employee Plan increased to 948,149. In November 2000 the
Company granted employees options to purchase 176,600 shares of the Company's
common stock at an exercise price of $1.38 per share. The options are non-
transferable and primarily vest annually in three equal installments over a
three year period. The options expire five or ten years from the date of grant
or, if sooner, three months after the holder ceases to be an employee of the
Company (subject to certain exceptions contained in the Employee Plan).
Non-Employee Director Stock Option Plan
In 1994, the Company also adopted a stock option program for non-employee
directors (the "Director Plan"). The Director Plan provides for the grant of
options to purchase 30,000 shares of the Company's Common Stock at the
effective date of the plan to each member of the Company's Board of Directors
who is not an employee of the Company, and a grant of options to purchase
30,000 shares to each non-employee
39
director who is newly elected to the Board after the effective date of the
Director Plan. The maximum number of shares that may be subject to options
issued under the Director Plan was initially 120,000. The exercise price in
each case is the fair market value of the Common Stock on the date of grant,
determined in the same manner as under the Employee Plan.
April 21, 2000 the shareholders approved the amendment to the Laser
Technology, Inc. Non-Employee Director Option Plan to increase the number of
shares available for issuance under the plan by 120,000 shares. As of September
30, 2000, pursuant to the amended Director Plan, options to purchase 30,000
shares have been granted to each outside director at exercise prices ranging
from $1.75 to $4.25 per share. Options granted under the Director Plan vest
one-third each year for three years and expire ten years after the date of
grant, or, if sooner, three months after the holder ceases to be a director of
the Company (subject to certain exceptions contained in the Director Plan). At
September 30, 2000, 150,000 options were outstanding and 30,000 were
exercisable pursuant to the Director Plan.
The total number of shares and type of security subject to these plans and
to any awards under these plans are subject to adjustment in the case of stock
splits, stock dividends and similar actions by the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best knowledge of the
Company, as of December 27, 1999 with respect to each person known by the
Company to beneficially own more than 5% of the Company's outstanding Common
Stock, each director and all directors and officers as a group.
Number of
Shares
Beneficially Percentage
Name Owned Ownership (1)
---- ------------ ------------
Jeremy G. Dunne (2).............................. 417,000 7.5%
2686 E. Otero Place
Littleton, Colorado 80122
Eric A. Miller (3)............................... 75,500 1.4%
4540 S. Jason Street
Englewood, Colorado 80110
H. DeWorth Williams (4).......................... 609,007 11.0%
P.O. Box 2148
Park City, Utah 84060
David Williams (5)............................... 388,686 7.0%
1501 W. Dry Creek Road
Littleton, Colorado 80210
Edward F. Cowle.................................. 196,625 3.6%
6 East 45th Street 10th Floor
New York, NY 10017
William P. Behrens............................... 7,500 0.1%
1 Battery Park Plaza
New York, NY 10004
Nicholas J. Cooney............................... 10,000 0.2%
116 Central Park South
New York, NY 10019
40
Number of
Shares
Beneficially Percentage
Name Owned Ownership (1)
---- ------------ ------------
Roosevelt Rogers (6)............................. 6,000 0.1%
9830 South Rosemont Ave
Bldg 10 Apt# 202
Lonetree, CO 80124
Plaza Resources Company (7)...................... 356,250 6.1%
GEICO Plaza
Washington, DC 20076
Directors and officers as a group (8 persons)
(8)............................................. 1,321,632 23.4%
- --------
(1) Percentage ownership is calculated separately for each person on the basis
of the actual number of outstanding shares as of December 27, 2000 and
assumes the exercise of options held by such person (but not by anyone
else) exercisable within sixty days.
(2) Includes 68,250 shares, which may be acquired by Mr. Dunne pursuant to the
exercise of stock options exercisable within sixty days.
(3) Includes 42,000 shares, which may be acquired by Mr. Miller pursuant to the
exercise of stock options exercisable within sixty days.
(4) Includes 30,000 shares, which may be acquired by Mr. Williams pursuant to
the exercise of stock options exercisable within sixty days.
(5) Includes 68,250 shares, which may be acquired by Mr. Williams pursuant to
the exercise of stock options exercisable within sixty days.
(6) Includes 6,000 shares, which may be acquired by Mr. Rogers pursuant to the
exercise of stock options exercisable within sixty days.
(7) Includes 356,250 shares issuable upon exercise of the PRC Warrants. PRC is
a wholly owned subsidiary of Geico Corporation. See Note 5 to the Company's
Consolidated Financial Statements.
(8) Includes 146,250 shares, which may be acquired by the Company's officers or
directors within sixty days pursuant to the exercise of stock options at
various prices.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company currently has a marketing and consulting agreement with Laser
Innovations International, Inc., whose principal is Mr. David Williams. Mr.
Williams is the beneficial owner of more than 5% of the Company's outstanding
Common Stock and was formerly President and a Director of the Company. Laser
Innovations sells the Company's products to certain international markets and
its sales comprised 22% of the Company's total sales during fiscal 2000.
Two members of the Company's Board of Directors, H. DeWorth Williams and
Edward F. Cowle (the "Directors") intend to enter into a joint venture
relationship with GHF International Trading, Ltda, a Brazilian company ("GHF").
GHF is associated with Laser Technology as a dealer for the Company's traffic
safety products and has been distributing the products in Brazil for
approximately the last five years. During fiscal 2000, GHF purchased products
from the Company in the amount of approximately $260,000. GHF has been seeking
investment capital to further develop the market for the Company's products in
Brazil and the Directors intend to provide such capital investment. The
Directors intend to consummate the transaction during the Company's 2001 second
quarter.
41
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial statements.
The consolidated financial statements included in this item are indexed on
page F-1 "Index to Consolidated Financial Statements."
2. Financial statement schedules and supplementary information required to
be submitted.
Schedule I--Valuation and Qualifying Accounts........................... F-22
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
3. Exhibit list.
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Securities Exchange Commission. The
Company shall furnish copies of exhibits for a reasonable fee (covering the
expense of furnishing copies) upon request.
Exhibit No Exhibit Name
---------- ------------
3.3(6) Articles of Incorporation for the State of Delaware
3.4(6) By-Laws of Registrant
3.5(6) Certificate of Merger
4.1(1) Specimen Common Stock Certificates of Registrant
10.1(1) Promissory Note, Secured Note and Warrant Agreement dated as of
February 21, 1991 between Registrant and Plaza Resources Company
10.2(1) Amendment to the Promissory Note, Secured Note and Warrant
Agreement dated as of October 24, 1991 between the Registrant and
Plaza Resources Company
10.3(1) Letter Agreement dated July 17, 1992 between Registrant and Plaza
Resources Company Including Amendments dated September 23, 1992,
December 1, 1992, December 22, 1992, and January 7, 1993
10.4(1) Lease Agreement for Registrant's Principal Place of Business
10.5(1) Non-Competition and Secrecy Agreement dated July 15, 1990 between
Registrant and David Williams, President of Registrant
10.6(1) Non-Competition and Secrecy Agreement dated July 15, 1990 between
Registrant and Jeremy Dunne, Vice President of Registrant
10.8(1) Employment Agreement between Registrant and Jeremy Dunne
10.9(1) Non-Disclosure/Confidentiality Agreement between Registrant and
Certain Other Key Employees
10.14(2) Amendment to Lease to Include New Facility
10.15(3) Employee Stock Option Plan
10.16(3) Non-Employee Director Plan
42
Exhibit No Exhibit Name
---------- ------------
10.17(7) Employment Agreement between Registrant and Blair Zykan
10.18(7) Employment Agreement between Registrant and Brian Abeel
16.0(4) Letter from BDO Seidman, LLP
17.1(5) Resignation of Director Letter--Richard D. Sayford
17.2(5) Resignation of Director Letter--F. James Lynch
17.3(5) Resignation of Director Letter--William R. Carr
21.1(7) Subsidiaries
27.1 Financial Data Schedule
- --------
(1) Incorporated by reference to the Company's Form S-1 registration statement,
file no. 1-11642.
(2) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended September 30, 1993.
(3) Incorporated by reference to the Company's Form 10-Q for the period ended
June 30, 1994.
(4) Incorporated by reference to the Company's amended Form 8-K January 4,
1999.
(5) Incorporated by reference to the Company's Form 8-K January 19, 1999.
(6) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended September 30, 1997.
(7) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended September 30, 1999.
(b) Reports on Form 8-K:
The Registrant filed no reports on Form 8-K during the quarter ended
September 30, 2000.
43
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Laser Technology, Inc.
/s/ Eric A. Miller
By: _________________________________
Eric A. Miller
President and Chief Executive
Officer
December 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Jeremy G. Dunne Vice President and December 29, 2000
______________________________________ Director
Jeremy G. Dunne
/s/ Elizabeth Hearty Controller, Secretary December 29, 2000
______________________________________
Elizabeth Hearty
/s/ H. DeWorth Williams Director December 29, 2000
______________________________________
H. DeWorth Williams
/s/ Edward F. Cowle Director December 29, 2000
______________________________________
Edward F. Cowle
/s/ Walter R. Keay Director December 29, 2000
______________________________________
Walter R. Keay
/s/ William P. Behrens Director December 29, 2000
______________________________________
William P. Behrens
/s/ Nicholas J. Cooney Director December 29, 2000
______________________________________
Nicholas J. Cooney
44
LASER TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors Report................................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to the Consolidated Financial Statements.............................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Laser Technology, Inc. and Subsidiaries
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Laser
Technology, Inc. and Subsidiaries as of September 30, 2000 and 1999 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended September 30, 2000, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Laser Technology, Inc. and Subsidiaries at September 30, 2000 and 1999 and
the consolidated results of their operations and their cash flows for the years
ended September 30, 2000, 1999 and 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, the schedule attached presents
fairly, in all material respects, the information set forth therein.
HJ & Associates, LLC
Salt Lake City, Utah
November 17, 2000
F-2
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
------------------------
2000 1999
----------- -----------
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents........................... $ 585,882 $ 757,076
Investments (Note 2)................................ 2,159,936 700,261
Trade accounts receivable (Note 8), less allowance
of $112,670 and $250,000 for doubtful accounts..... 2,724,344 2,826,460
Income tax refund receivable........................ -- 686,000
Royalties receivable................................ 1,697 396,290
Inventories (Note 3)................................ 3,096,862 2,847,735
Deferred income tax benefit (Note 6)................ 60,000 348,000
Income tax prepayment............................... 28,927 166,919
Prepaids and other current assets................... 83,254 133,354
----------- -----------
Total Current Assets................................ 8,740,902 8,862,095
----------- -----------
PROPERTY AND EQUIPMENT, (NET) (Note 4)............... 1,155,165 1,504,449
----------- -----------
OTHER ASSETS
Long-term investments (Note 2)...................... -- --
Other assets........................................ 967,146 845,164
----------- -----------
Total Other Assets.................................. 967,146 845,164
----------- -----------
TOTAL ASSETS....................................... $10,863,213 $11,211,708
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable.................................... $ 790,260 $ 578,015
Accrued expenses.................................... 948,696 1,749,429
Notes payable--current (Note 10).................... 83,727 91,621
----------- -----------
Total Current Liabilities........................... 1,822,683 2,419,065
----------- -----------
LONG-TERM DEBT
Notes payable (Note 10)............................. 14,364 114,400
----------- -----------
Total Long-Term Debt................................ 14,364 114,400
----------- -----------
Total Liabilities.................................. 1,837,047 2,533,465
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 5)
Preferred stock; par value $0.01; 2,000,000 shares
authorized; -0- and -0- shares issued and
outstanding, respectively.......................... -- --
Common stock; par value $0.01; 25,000,000 shares
authorized, 5,235,867 and 5,244,201 shares issued
and outstanding, respectively...................... 52,359 52,442
Additional paid-in capital.......................... 9,695,302 9,708,245
Stock subscription receivable....................... -- (19,537)
Treasury stock at cost, 224,650 and 224,650 shares,
respectively....................................... (194,259) (194,259)
Retained earnings................................... (527,236) (868,648)
----------- -----------
Total Stockholders' Equity.......................... 9,026,166 8,678,243
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $10,863,213 $11,211,708
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30,
------------------------------------
2000 1999 1998
----------- ----------- -----------
SALES, NET (Note 8)...................... $12,720,299 $11,814,654 $11,801,293
COST OF GOODS SOLD....................... 5,802,123 5,845,387 5,554,037
----------- ----------- -----------
Gross Profit........................... 6,918,176 5,969,267 6,247,256
----------- ----------- -----------
OTHER REVENUES
Royalty and licensing revenues........... 959,015 932,796 1,242,732
----------- ----------- -----------
Total Other Revenues................. 959,015 932,796 1,242,732
----------- ----------- -----------
TOTAL OPERATING INCOME................... 7,877,191 6,902,063 7,489,988
OPERATING EXPENSES
Restructuring and litigation cost...... -- 2,071,257 --
General and administrative............. 7,361,190 8,211,854 6,205,024
----------- ----------- -----------
Total Operating Expenses............. 7,361,190 10,283,111 6,205,024
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS............ 516,001 (3,381,048) 1,284,964
INTEREST INCOME, NET..................... 59,211 9,009 115,535
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........ 575,212 (3,372,039) 1,400,499
Income tax expense (benefit) (Note 6).... 233,800 (985,934) 504,000
----------- ----------- -----------
NET INCOME (LOSS)........................ $ 341,412 $(2,386,105) $ 896,499
=========== =========== ===========
BASIC INCOME (LOSS) PER SHARE............ $ 0.07 $ (0.48) $ 0.18
=========== =========== ===========
DILUTED INCOME (LOSS) PER SHARE.......... $ 0.06 $ (0.48) $ 0.15
=========== =========== ===========
BASIC WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING............................. 5,011,220 4,994,622 4,985,902
=========== =========== ===========
DILUTED WEIGHTED AVERAGE SHARES.......... 5,642,720 4,994,622 5,981,235
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
------------------ Paid-In Treasury Subscription Retained
Shares Amount Capital Stock Receivable Earnings Total
--------- ------- ---------- --------- ------------ ----------- -----------
Balance, September 30,
1997................... 5,208,201 $52,082 $9,622,780 $(141,459) $ -- $ 620,958 $10,154,361
Exercise of stock
options................ 11,000 110 46,640 -- -- -- 46,750
Purchase of treasury
stock.................. -- -- -- (52,800) -- -- (52,800)
Net income for the year
ended September 30,
1998................... -- -- -- -- -- 896,499 896,499
--------- ------- ---------- --------- -------- ----------- -----------
Balance, September 30,
1998................... 5,219,201 52,192 9,669,420 (194,259) -- 1,517,457 11,044,810
Shares issued for
deferred award......... 25,000 250 38,825 -- (19,537) -- 19,538
Net loss for the year
ended September 30,
1999................... -- -- -- -- -- (2,386,105) (2,386,105)
--------- ------- ---------- --------- -------- ----------- -----------
Balance, September 30,
1999................... 5,244,201 52,442 9,708,245 (194,259) (19,537) (868,648) 8,678,243
Resolution of deferred
award.................. (8,324) (83) (12,943) -- 19,537 -- 6,511
Net income for the year
ended September 30,
2000................... -- -- -- -- -- 341,412 341,412
--------- ------- ---------- --------- -------- ----------- -----------
Balance, September 30,
2000................... 5,235,867 $52,359 $9,695,302 $(194,259) $ -- $ (527,236) $ 9,026,166
========= ======= ========== ========= ======== =========== =========== === ===
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ 341,412 $(2,386,105) $ 896,499
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization....... 563,452 541,824 374,388
Bad debt expense.................... 24,551 256,278 --
Stock issued for deferred services.. 6,511 19,538 --
Deferred income taxes............... 288,000 (261,000) (6,000)
Loss on sale of equipment........... 3,201 -- --
Changes in operating assets and
liabilities:
Trade accounts and other
receivables........................ 763,565 (115,794) (318,465)
Royalties receivable................ 394,593 28,235 (8,877)
Inventories......................... (249,127) 1,010,228 (1,059,060)
Other assets........................ 179,500 (88,304) (36,652)
Accounts payable and accrued
expenses........................... (588,488) 1,092,410 244,769
----------- ----------- -----------
Net Cash Provided by Operating
Activities....................... 1,727,170 97,310 86,602
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment............................ 13,595 -- --
Purchases of property and equipment... (195,967) (500,215) (576,185)
Purchases of investments.............. (1,909,814) -- (800,525)
Proceeds from sale of investments..... 450,139 499,347 1,255,282
Patent costs paid..................... (148,387) (297,860) (158,596)
----------- ----------- -----------
Net Cash (Used In) Investing
Activities....................... (1,790,434) (298,728) (280,024)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of related party payable.... -- -- --
Proceeds from note payable............ -- 68,361 248,497
Payments on long-term debt............ (107,930) (98,453) (12,384)
Proceeds from exercise of stock
options.............................. -- -- 46,750
Purchase of treasury stock............ -- -- (52,800)
----------- ----------- -----------
Net Cash Provided by (Used In)
Financing Activities............. (107,930) (30,092) 230,063
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (171,194) (231,510) 36,641
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR................................ 757,076 988,586 951,945
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $ 585,882 $ 757,076 $ 988,586
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
CASH PAID FOR:
Interest.............................. $ 13,000 $ 19,800 $ 3,065
Income taxes.......................... $ 4,000 $ 120,000 $ 465,000
SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Stock issued for deferred services.... $ 6,511 $ 19,538 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 1--ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements presented are those of Laser
Technology, Inc. (the "Company") and its wholly-owned subsidiaries, Laser
Communications, Inc. and Light Solutions Research, Inc. All significant
intercompany transactions have been eliminated. Laser Technology, Inc. is
engaged in the business of developing, manufacturing, and marketing laser based
measurement instruments.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
b. Cash and Cash Equivalents
For purposes of financial statement presentation, the Company considers all
highly liquid investments with a maturity of three months or less, from the
date of purchase, to be cash equivalents.
c. Concentrations of Risk
The Company maintains checking accounts at financial institutions located in
Colorado. The accounts are insured by the Federal Deposit Insurance Corporation
up to $100,000 each. The amounts held for the Company occasionally exceed that
amount.
d. Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, investments, trade accounts receivable, royalties receivable,
accounts payable and accrued expenses approximated fair value because of the
immediate or short-term maturity of these instruments.
e. Investments
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." All marketable equity and debt securities have
been categorized as trading securities. Trading securities, consist primarily
of actively traded equity and debt securities, are stated at fair value.
Realized and unrealized gains and losses are included in income.
F-7
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At September 30, 2000 and 1999, trading securities consisted of the
following:
2000 1999
---------- --------
Current
Mutual funds.......................................... $ 589,491 $ --
Money market funds.................................... 270,785 --
Municipal bonds....................................... 588,353 570,128
U.S. Government obligations........................... 711,307 130,133
---------- --------
Total current....................................... 2,159,936 700,261
---------- --------
Non-Current............................................. -- --
---------- --------
Total Investments................................... $2,159,936 $700,261
========== ========
The Company recognized realized losses of $10,074 and $-0- for September 30,
2000 and 1999. Also, the Company recorded unrealized gain (loss) of $14,289 and
$(6,904) for September 30, 2000 and 1999.
f. Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method. The Company has accrued an allowance for
obsolete inventory of approximately $140,000.
g. Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using straight-line method over the estimated useful
lives of the related assets, ranging from two to ten years.
h. Patents and Amortization
Patents are carried at cost and when granted, are amortized over their
estimated useful lives of 15 to 17 years. The carrying value of patents is
periodically reviewed and impairments, if any, are recognized when the expected
future benefit to be derived from individual intangible assets is less than its
carrying value.
i. Research and Development Cost
Research and development costs related to the Company's laser measurement
instruments are expensed as incurred and included in operating expenses.
Research and development costs totaled $1,274,900, $920,600 and $757,000 for
the years ended September 30, 2000, 1999 and 1998, respectively.
j. Taxes on Income
Under the provisions of SFAS No. 109, the Company's policy is to provide
deferred income taxes related to property and equipment, inventories, net
operating losses and other items that result in differences between the
financial reporting and tax basis of assets and liabilities.
k. Basic Income (Loss) Per Share
SFAS No. 128 provides for the calculation of "Basic" and "Diluted" income
(loss) per share. Basic income (loss) per share includes no dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted income
F-8
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(loss) per share reflects the potential dilution of securities that could share
in the earnings of an entity that were outstanding for the period. Fully
diluted loss per share for September 30, 1999 is not materially different from
basic loss per share because the diluted shares would be antidilutive.
l. Stock Options
The Company applies Accounting Principles Board ("APB") Option 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for all stock option plans. Under APB Opinion 25, compensation cost
is recognized for stock options granted to employees when the option price is
less than the market price of the underlying common stock on the date of grant.
SFAS Statement No. 123, "Accounting for Stock-Based Compensation" requires
the Company to provide pro forma information regarding net income as if
compensation cost for the Company's stock option plans had been determined in
accordance with the fair value based method prescribed in SFAS No. 123. To
provide the required pro forma information, the Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes option-
pricing model.
m. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer. The Company's
general sales terms allow for a 1% discount in 10 days/net 30 days.
International sales primarily require immediate payment or a letter of credit,
other than to customers deemed creditworthy (see Note 8). Royalties and
licensing fees are recognized when earned in accordance with the specific terms
of each agreement.
n. Advertising
Advertising expenses are charged to operations in the period in which they
are incurred. Advertising expense for the years ended September 30, 2000, 1999
and 1998 was approximately $322,000, $352,000 and $419,000, respectively.
o. Reclassifications
Certain reclassifications have been made to the 1999 financial statements to
conform to the current year's presentation.
NOTE 3--INVENTORIES
Inventories consisted of the following:
September 30, 2000
---------------------
2000 1999
---------- ----------
Finished goods........................................ $ 676,779 $ 771,298
Work-in-process....................................... 879,630 977,517
Raw materials and supplies............................ 1,540,453 1,098,920
---------- ----------
Total............................................... $3,096,862 $2,847,735
========== ==========
F-9
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 30,
----------------------
2000 1999
---------- ----------
Shop equipment....................................... $ 598,524 $ 570,757
Office equipment..................................... 965,790 842,451
Leasehold improvements............................... 684,159 684,159
Automobiles.......................................... 281,489 313,415
Furniture/fixtures................................... 337,543 305,274
---------- ----------
2,867,505 2,716,056
Less accumulated depreciation and amortization....... (1,712,340) (1,211,607)
---------- ----------
Total.............................................. $1,155,165 $1,504,449
========== ==========
Depreciation expense was $528,455 and $513,182 for the years ended
September 30, 2000 and 1999, respectively.
NOTE 5--STOCKHOLDERS' EQUITY
Capital Stock
At September 30, 2000, the Company had 985,417 shares reserved or available
for issuance as follows:
Common Shares:
Equity Incentive Plan.............................................. 509,167
Non-Employee Director Stock Option Plan............................ 120,000
Warrants:
PRC warrants....................................................... 356,250
-------
Total............................................................ 985,417
=======
Preferred Stock
Laser Technology is authorized to issue 2,000,000 shares of preferred stock
by action of the Company's Board of Directors. The Board of Directors is
authorized, without further action by stockholders, to determine the voting
rights, dividend rights, dividend rates, liquidation preferences, redemption
provisions, conversion or exchange rights and other rights, preferences,
privileges and restriction of any unissued series of preferred stock and the
number of shares constituting such series. The Company has no current plans to
issue any preferred stock.
Treasury Stock
(a) In connection with the Company's merger into Delaware, stockholders
objecting to the proposed merger were entitled to the right to dissent and
appraisal rights of stockholders as allowed by Idaho law. Upon completion of
the merger, the Company purchased the dissenting stockholders stock.
Cumulatively, nine stockholders, representing 1,082 shares of the Company's
common stock, exercised their right to dissent and received $3,924 in total
which has been recorded as Treasury Stock.
(b) In April 1997, 120,000 shares of common stock were issued to three
employees at $3.00 per share, under a cashless exercise of unqualified options
previously granted in April 1992. Concurrent with the exercise
F-10
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of these options such shares were purchased by the Company at the fair market
value of $4.00 per share and recorded as Treasury stock.
(c) In April 1998, the Company acquired 14,800 shares into the treasury at
$3.56 per share.
PRC Warrants
Under a previously existing loan agreement, the Company granted Plaza
Resources Company ("PRC") the right to purchase specified quantities of defined
products at the Company's cost, as well as granting PRC warrants to purchase
shares of the Company's stock. The warrant agreement grants PRC the right to
purchase a total of 356,250 shares of common stock at $3.00 per share for a ten
year period. See summary of accounting policies for treatment of warrants in
computation of diluted income per share.
Equity Incentive Plan
The Company has an Equity Incentive Plan (the "Employee Plan") for the
purpose of providing key employees and consultants with added incentives to
continue in the service of the Company and to create in such employees and
consultants a more direct interest in the future operations of the Company. The
Employee plan permits the grant of stock options, restricted stock awards,
stock appreciation rights, stock units and other grants to all of the Company's
eligible employees and consultants.
The Employee Plan is administered by the Compensation Committee of the Board
of Directors. The committee has the authority to determine the employees or
consultants to whom awards will be made, the amount of the awards, and the
other terms and conditions of the awards.
The grant of stock options under the Employee plan is intended either to
qualify as "incentive stock options" under the Internal Revenue Code or "non-
qualified options" not intended to qualify. Stock options are granted at a
price not less than 100% of the fair market value on the date the option is
granted.
Under the Employee Plan, 738,548 shares of the Company's common stock are
reserved for issuance. Options granted to employees vest at the rate of one-
third per year and are fully vested after three years of continuous employment
from the date of grant. As of September 30, 2000, options to purchase 691,500
shares of the Company's common stock were outstanding, at exercise prices
ranging from $1.63 to $5.25 per share of which 448,916 and 597,332 options were
exercisable at September 30, 2000 and 1999, respectively.
Non-Employee Director Stock Option Plan
In 1994, the Company adopted a Non-Employee Director Stock Option Plan (the
"Director Plan") for the purpose of providing non-employee directors with added
incentives to continue in the service of the Company and a more direct interest
in the future operations of the Company.
Under the terms of the Director Plan, non-employee directors on the
effective date of the Director Plan and each non-employee director elected
thereafter shall receive options to purchase 30,000 shares of common stock.
Stock options are granted at a price no less than 100% of the fair market value
on the date the option is granted.
Under the Director Plan 240,000 shares of the Company's common stock are
reserved for issuance. Such options granted to non-employee directors of the
Company vest at the rate of one-third per year and are fully vested after three
years of continuous service from the date of grant. As of September 30, 2000
and 1999, options to purchase 150,000 and 120,000 shares, respectively, of the
Company's common stock were outstanding at exercise prices ranging from $1.56
to $5.25 per share of which 100,000 options were exercisable.
F-11
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unqualified Stock Options
In April 1992, the Company granted options to purchase an aggregate of
120,000 shares of its common stock to three employees for services rendered. In
April 1997, such shares were issued under a cashless exercise of these options.
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), requires the Company to provide pro forma information regarding net
income and net income per share as if compensation costs for the Company's
stock option plans and other stock awards had been determined in accordance
with the fair value based method prescribed in SFAS No. 123. The Company
estimates the fair value of each stock award at the grant date by using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants, respectively; dividend yield of zero percent for
all years; expected volatility of 84 percent for all years; risk-free interest
rates of 6.0 percent and expected lives of 10 years.
Under the accounting provisions of SFAS No. 123, the Company's net income
would have been decreased by the pro forma amounts indicated below:
2000 1999
----- -----------
Net loss:
As reported............................................. $ -- $(2,386,105)
Pro forma............................................... -- (2,723,956)
Net income per share:
As reported............................................. $ -- $ (0.48)
Pro forma............................................... -- (0.55)
During the initial phase-in period of SFAS 123, the effect on pro forma
results are not likely to be representative of the effects on pro forma results
in future years since options vest over several years and additional awards
could be made each year.
A summary of the status of the Company's stock option plans as of September
30, 2000 and 1999 and changes during the years ending on those dates is
presented below:
2000 1999
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- -------- --------
Outstanding, beginning of year....... 833,250 $3.45 630,000 $4.18
Granted............................ 240,000 1.71 350,000 2.39
Canceled........................... (261,750) 3.28 (146,750) 4.34
Exercised.......................... -- -- -- --
-------- ----- -------- -----
Outstanding, end of year............. 811,500 $2.99 833,250 $3.45
-------- ----- -------- -----
Exercisable, end of year............. 561,501 $3.52 597,332 $3.90
-------- ----- -------- -----
Weighted average fair value of
options and warrants granted during
the year............................ $1.71 $2.09
===== =====
F-12
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Outstanding Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 9/30/00 Life Price at 9/30/00 Price
------------------------ ----------- ----------- -------- ----------- --------
$1.44 - 1.90............ 410,000 9.16 $1.79 170,000 $1.90
2.00 - 2.87............ 6,000 7.10 2.87 6,000 2.87
3.50 - 3.89............ 30,250 5.85 3.81 20,251 3.77
4.00 - 4.25............ 356,250 3.68 4.67 356,250 4.25
4.36 - 4.39............ 4,000 5.75 4.39 4,000 4.39
5.00 - 5.25............ 5,000 4.33 5.25 5,000 5.25
------- ---- ----- ------- -----
$1.44 - 5.25............ 811,500 6.81 $3.27 561,501 $4.11
======= ==== ===== ======= =====
NOTE 6--TAXES ON INCOME
For the years ended September 30, 2000, 1999 and 1998 the provision for
federal and state income taxes consisted of the following:
2000 1999 1998
-------- --------- --------
Current:
Federal...................................... $ -- $ -- $450,000
State........................................ 3,500 3,000 60,000
Deferred:
Federal...................................... 230,300 (988,934) (6,000)
State........................................ -- -- --
-------- --------- --------
$233,800 $(985,934) $504,000
======== ========= ========
A reconciliation of income taxes at the federal statutory rate to the
effective tax rate is as follows:
2000 1999 1998
-------- --------- --------
Net operating losses.......................... $ -- $(988,934) $ --
Income taxes computed at the federal statutory
rate......................................... 203,800 -- 444,000
State income taxes, net of federal benefit.... 30,000 3,000 60,000
Other, net.................................... -- -- --
-------- --------- --------
Taxes on income............................... $233,800 $(985,934) $504,000
======== ========= ========
The types of temporary differences between the tax basis of assets and
liabilities that give rise to a significant portion of the deferred tax asset
and their approximate tax effect are as follows:
September 30,
------------------
2000 1999
-------- --------
Future deductions:
Net operating losses................................... $ 75,600 $328,450
Inventories (Uniform Capitalization Rules)............. (7,800) 17,550
Other, net............................................. (7,800) 2,000
-------- --------
$ 60,000 $348,000
======== ========
F-13
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company believes that it is more likely than not that it will realize
the deferred tax asset. Therefore, no valuation allowance has been provided.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In 1999, a class action lawsuit was filed against the Company alleging a
misrepresentation of the Company's financial results, thereby artificially
inflating the price of the Company's stock. The exposure to liability is
approximately $1,474,000. The Company has sought a resolution to these lawsuits
by agreeing in principle to settle pending approval by the shareholders. In
April 2000, the Company approved a stipulation of settlement. In October 2000,
the Courts approved the settlement. The settlement requires the Company to pay
$850,000 and issue 475,000 shares of common stock to the plaintiffs, for a
total cost of $1,453,675. The company's insurance carrier will pay $740,000 of
the cash settlement. The Company had previously accrued for the settlement cost
in the fiscal year ending September 30, 1999. Associated with this allegation,
the Company incurred legal and consulting fees of approximately $1,360,000.
The Company was involved in an investigating proceeding by the Securities
and Exchange Commission (SEC) regarding an inquiry into the Company's
accounting treatment of certain transactions in the mid 1990's. In December
1999, the Company satisfactorily settled the investigating proceeding with the
SEC.
On October 25, 1999, the Company terminated the employment of the former CFO
and CEO of the Company and accrued a severance agreement of $122,451 and
$85,372, respectively. The agreement provides that the Company will be
responsible for the first $25,000 of legal fees incurred by the two former
officers in connection with the litigation and SEC proceedings.
Retirement Plan
Effective January 1, 1997, the Company adopted a defined contribution 401k
profit sharing plan (the "Plan"). Eligible employees, as defined, may
contribute up to 15% of their annual compensation. Under the Plan, the Company
may make discretionary matching contributions up to 100% of an employee's
contribution and may make discretionary profit sharing contributions. For the
year ended September 30, 2000 and 1999, no contributions were made by the
Company to the Plan.
Facility Leases
The Company has various operating lease agreements for office and
manufacturing facilities that expire through May 31, 2003. Rent expense under
operating lease agreements was $312,526, $349,000 and $181,000 for the years
ended September 30, 2000, 1999 and 1998.
As of September 30, 2000, future minimum lease payments under operating
lease agreements are as follows:
2001............................................................... $ 362,000
2002............................................................... 372,000
2003............................................................... 167,000
2004............................................................... --
Thereafter......................................................... --
---------
$ 901,000
=========
F-14
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8--CUSTOMERS, EXPORT SALES AND CONCENTRATIONS OF RISK
The Company operates primarily in one industry segment which includes the
manufacturing and marketing of laser speed and distance measurement
instruments.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
investments and trade accounts receivable.
The Company invests temporary cash in demand deposits, certificates of
deposit, money market accounts and mutual funds with qualified financial
institutions and in securities backed by the United States government. Such
deposit accounts at times may exceed federally insured limits. The Company has
not experienced any loss in such accounts. Cash concentration risks at
September 30, 2000 and 1999 were $558,666 and $403,029, respectively.
The Company markets its laser measurement instruments to three major classes
of customers. The Company's trade accounts receivable subject to credit risk
from those customers are as follows at September 30, 2000 and 1999:
2000 1999
---------- ----------
Foreign distributors (a)............................. $1,174,946 $1,738,112
State and local municipalities (b)................... 528,919 613,488
U.S. government agencies (c)......................... 72,672 44,770
Other receivables.................................... 1,060,477 680,090
---------- ----------
2,837,014 3,076,460
Less allowance for doubtful accounts................. (112,670) (250,000)
---------- ----------
Total.............................................. $2,724,344 $2,826,460
========== ==========
(a) To date, the Company's foreign sales are transacted primarily through
distributors.
(b) The Company's domestic sales of its laser speed instruments have been
primarily to state and local law enforcement agencies. These agencies are
dispersed across geographic areas.
(c) Domestically, the Company's sales of its laser distance measurement
systems are transacted primarily through distributors.
For the year ended September 30, 2000, 1999 and 1998, no single customer
accounted for more than 10% of sales.
A summary of the Company's sales by geographic area is as follows:
2000 1999 1998
------------ ----------- -----------
Foreign sales:
Asia.................................. $ 1,071,282 $ 1,623,560 $ 1,118,000
Europe................................ 2,403,590 1,926,670 1,537,000
Canada................................ 533,975 616,648 748,000
Australia............................. 733,415 585,878 984,000
Other................................. 782,712 393,724 568,263
------------ ----------- -----------
Total foreign sales..................... 5,524,974 5,146,480 4,955,263
Domestic sales.......................... 7,195,325 6,668,174 6,846,030
------------ ----------- -----------
$ 12,720,299 $11,814,654 $11,801,293
============ =========== ===========
The Company has no foreign assets.
F-15
LASER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 9--RELATED PARTY TRANSACTIONS
In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. David Williams and Pamela Sevy, the Company's former
President and Chief Financial Officer, respectively, applied the proceeds from
the sale to reduce Mr. Williams' account receivable to the Company by $50,000.
This was in consideration for monies Mr. Williams had transmitted to the
Company to reduce the LTIA receivable and, that due to the resale of returned
units by the Company, were considered unrecoverable by him. Subsequently, the
Company reversed this transaction, debited Mr. Williams account receivable for
$50,000 and recorded the sale as revenues to the Company. The Company then
reduced Mr. Williams' account receivable by $50,000 to recognize the monies he
had transmitted to the Company to reduce the LTIA receivable remaining
unrecovered by him.
NOTE 10--NOTES PAYABLE
Notes payable consisted of the following:
September 30,
------------------
2000 1999
-------- --------
Note payable to a corporation dated April 16, 1999, 8%
interest rate, secured by equipment, 36 monthly
principal and interest payments of $2,097.............. $ 37,866 $ 59,649
Note payable to a bank dated July 6, 1998, 7.9% interest
rate, secured by vehicles, with 36 monthly principal
and interest payments of $7,725........................ 60,225 146,372
-------- --------
Total notes payable..................................... 98,091 206,021
-------- --------
Less: current portion................................. (83,727) (91,621)
-------- --------
Total Long-Term Debt.................................... $ 14,364 $114,400
======== ========
Maturities of long-term debt are as follows:
2001................................................................. $83,727
2002................................................................. 14,364
2003................................................................. --
2004................................................................. --
2005................................................................. --
-------
Total.............................................................. $98,091
=======
NOTE 11--SUBSEQUENT EVENTS
In November 2000, the Company granted employees options to purchase 176,600
shares of the Company' common stock at an exercise price of $1.38 per share.
The options are non-transferable and primarily vest annually in three equal
installments over a three year period. The options expire five or ten years
from the date of the grant or, if sooner, three months after the holder ceases
to be an employee of the Company, subject to certain exceptions contained in
the Employee Plan.
F-16
LASER TECHNOLOGY, INC.
SCHEDULE I--VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
Additions
Balance Charged to Balance
at Beginning Costs and at End
of Year Expenses Deductions of Year
------------ ---------- ---------- --------
Year Ended September 30, 1998..... $ 10,000 $ 4,470 $ (4,470) $ 10,000
Year Ended September 30, 1999..... 10,000 256,277 (16,277) 250,000
Year Ended September 30, 2000..... $250,000 $24,551 $(161,881) $112,670
F-17