SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-11365
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LASER PHOTONICS, INC.
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(exact name of registrant as specified in its charter)
Delaware 59-2058100
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2431 Impala Drive, Carlsbad, CA 92008
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (760) 602-3300
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N/A
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(Former name, former address and former fiscal year, if changed since
last report)
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No____
As of March 31, 1999, 9,895,684 shares of Common Stock, par value $0.01 per
share, were outstanding.
1
INDEX
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Page
Number
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets
as of March 31, 1999 (unaudited) and December 31, 1998.............3
Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 1999 and 1998 (unaudited).............4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1999 and 1998 (unaudited).............5
Notes to Condensed Consolidated Financial Statements...............6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations...................8
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K..................................10
Signatures........................................................11
2
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
LASER PHOTONICS, INC. AND SUBSIDIARIES
ASSETS MARCH 31, 1999 December 31, 1998 *
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 1,416,297 $ 174,468
Accounts receivable, net 68,977 34,676
Receivable from related party 54,600 54,600
Inventory 491,717 458,343
Prepaid expenses 78,149 -
------------------- -----------------
TOTAL CURRENT ASSETS 2,109,740 722,087
Property and Equipment, net 134,774 127,190
Prepaid license fee, net 3,333,333 3,458,333
Debt issuance costs 138,833 -
Other 79,924 86,412
Goodwill, net 346,352 476,273
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TOTAL ASSETS $ 6,142,956 $ 4,870,295
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Current portion $ 542,277 $ 620,581
Convertible notes payable 2,380,000 -
Accounts payable 315,827 404,666
Accrued payroll and related expenses 335,809 393,339
Other accrued liabilities 769,665 666,852
Payable to related party 128,622 136,002
Customer deposits 102,628 -
Deferred revenue 250,000 343,906
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TOTAL CURRENT LIABILITIES 4,824,828 2,565,346
Notes Payable, less current portion 54,012 69,893
Liabilities in excess of assets held for sale 449,396 393,665
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TOTAL LIABILITIES 5,328,236 3,028,904
SHAREHOLDERS' EQUITY
Common stock 98,957 98,957
Additional paid-in-capital 18,924,429 17,439,904
Accumulated deficit (18,208,666) (15,697,470)
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TOTAL SHAREHOLDERS' EQUITY 814,720 1,841,391
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$ 6,142,956 $ 4,870,295
=================== =================
*Condensed from audited financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
Condensed Consolidated Statements of Operations
LASER PHOTONICS, INC. AND SUBSIDIARIES
Three months ended
----------------------------------
MARCH 31, March 31,
1999 1998
(UNAUDITED) (Unaudited)
REVENUES
Sales $ 253,104 $ 1,004,500
Other 93,906 95,000
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Total revenues 347,010 1,099,500
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COSTS AND EXPENSES
Cost of Sales 303,832 466,832
Selling, General & Administrative 560,587 603,618
Research & Development 175,282 296,713
Depreciation and Amortization 276,516 267,462
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Total costs and expenses 1,316,217 1,634,625
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LOSS FROM OPERATIONS (969,207) (535,125)
Interest Expense 1,541,546 42,991
Other expense (income), net 443 (8,319)
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NET LOSS $ (2,511,196) $ (569,797)
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BASIC & DILUTED LOSS PER SHARE $ (0.25) $ (0.06)
=============== ================
Weighted Average Shares 9,895,684 9,267,083
=============== ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
Condensed Consolidated Statements of Cash Flows
LASER PHOTONICS, INC.
Three months ended
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MARCH 31, March 31,
1999 1998
(UNAUDITED) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,511,196) $ (569,797)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 272,138 267,462
Stock issued to pay legal fees - 20,000
Interest related to beneficial conversion feature 1,512,292 -
Changes in operating assets and liabilities:
Current assets (98,255) 85,482
Current liabilities (146,796) (107,838)
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NET CASH USED IN OPERATING ACTIVITIES (971,817) (304,691)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (10,151) (68,216)
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NET CASH USED IN INVESTING
ACTIVITIES (10,151) (68,216)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (141,449) (74,129)
Payments on payable to related party (7,380) -
Payments for debt and warrant issuance costs (166,600) -
Proceeds from issuance of convertible notes payable and warrants 2,380,000 -
Proceeds from other notes payable 159,226 -
Proceeds from issuance of common stock - 35,751
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,223,797 (38,378)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1,241,829 (411,285)
CASH AND CASH EQUIVALENTS, beginning of period 174,468 1,225,932
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CASH AND CASH EQUIVALENTS, end of period $ 1,416,297 $ 814,647
================ ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LASER PHOTONICS, INC. AND SUBSIDIARIES
March 31, 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The condensed consolidated balance sheet as of March 31, 1999 and the related
condensed consolidated statements of operations and cash flows for the three
months ended March 31, 1999 and 1998, have been prepared by the Company without
audit. In the opinion of management, the condensed consolidated financial
statements contain all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the financial position of Laser Photonics,
Inc. and subsidiaries as of March 31, 1999, and the results of their operations
and their cash flows for the three months ended March 31, 1999 and 1998 The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's report on Form
10-K for the year ended December 31, 1998.
Certain reclassifications have been made to the prior year's condensed
consolidated financial statements to conform with the current presentation. Such
reclassifications had no effect on net loss.
2. INVENTORY
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Inventory consists of the following:
March 31, December 31,
1999 1998
Raw Materials $ 242,573 $ 209,199
Work in Process 249,144 249,144
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TOTAL INVENTORY $ 491,717 $ 458,343
================= ==============
3. ASSETS HELD FOR SALE
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The Company has entered into a letter of intent with a third party to sell
certain assets of its non-excimer laser business operations, subject to the
assumption of certain liabilities. The completion of the transaction is subject
to numerous items, including but not limited to, the execution of a final
written agreement. The assets and liabilities attributed to this transaction
have been classified in the condensed consolidated balance sheet as liabilities
in excess of assets held for sale. The amounts included in the financial
statements consists of the following:
6
MARCH 31, December 31,
1999 1998
ASSETS
Accounts receivable $ 140,000 $ 140,000
Inventories 430,229 452,761
Prepaid expenses and other assets 53,152 73,789
Property and equipment 127,223 139,785
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TOTAL ASSETS 750,604 806,335
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LIABILITIES
Accounts payable 775,669 810,272
Accrued payroll and related expenses 64,009 43,776
Accrued property taxes 111,962 111,962
Other accrued liabilities 120,500 106,130
Note payable 127,860 127,860
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TOTAL LIABILITIES $ 1,200,000 $ 1,200,000
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LIABILITIES IN EXCESS OF ASSETS
HELD FOR SALE $ 449,396 $ 393,665
================= ==============
Revenues of the related operations were $252,000 and $405,000 for the three
months ended March 31, 1999 and 1998, respectively. Loss from the related
operations was $337,000 and $287,000, respectively.
4. CONVERTIBLE NOTES PAYABLE
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As of March 31, 1999, the Company issued to various investors securities
consisting of: (i) $2,380,000 principal amount of 7% Series A Convertible
Subordinated Notes (the "Subordinated Notes"); and (ii) common stock purchase
warrants to purchase up to 595,000 shares of Common Stock (the "Unit Warrants").
Interest accrued through June 15, 1999 is payable on June 15, 1999. The
principal amount plus interest accrued from June 15, 1999 is due on December 15,
1999 or upon subsequent equity financing which raises net proceeds of at least
$2,380,000. The Subordinated Note holders may convert the Subordinated Notes and
accrued and unpaid interest thereon, if any, into shares of Common Stock at any
time prior to maturity into shares of Common Stock at a conversion price of
$2.00 per share. The Subordinated Notes provide that the conversion price is to
be adjusted in the event that the Company issues share of Common Stock for
consideration of less than $2.00 per share. In such event, the per share
conversion price will be adjusted to the issue price of such additionally issued
shares of Common Stock.
The Unit Warrants are exercisable into an initial 297,500 shares of Common Stock
at any time after purchase until March 31, 2004. The balance of the Unit
Warrants are exercisable into an additional 297,500 shares of Common Stock (the
"Contingent Shares") if the Unit holder has voluntarily converted at least a
portion of the principal amount of the Subordinated Note that make up a portion
of the Unit into shares of Common Stock. The amount of Contingent Shares that
may be acquired by a Unit Warrant holder will be proportionate to the ratio of
the amount of principal of the Subordinated Notes which are converted into
shares of Common Stock over the original principal amount of the Subordinated
Notes. The exercise price of the Unit Warrants is $2.00 per share of Common
Stock. The Unit Warrants provide that they may be adjusted in the event that the
Company issues shares of Common Stock for consideration of less than $2.00 per
share. In such event, the per share exercise price of the Unit Warrants will be
adjusted to the issue price of such additionally issued shares of Common Stock.
7
Gross proceeds from the securities were $2,380,000. Of these proceeds, $396,667
has been allocated to the warrants. The market price of the Company's common
stock on the commitment date was $2.75 per share, resulting in a beneficial
conversion of $0.75 per share. The aggregate amount of the beneficial conversion
was $1,115,625. The discount on the notes related to the beneficial conversion
and warrants was charged to interest expense on the date of issuance.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forwarding looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenues and earnings from operations of the Company. Factors that could cause
actual results to differ materially include, in addition to other factors
identified in this report, reliance on a major customer, ability to
commercialize and market its products, and other risks factors detailed in the
Company's Securities and Exchange Commission ("SEC") filings including the "Risk
Factors" section in the Company's Form 10-K for the year ended December 31,
1998. Readers of this report are cautioned not to put undue reliance on "forward
looking" statements which are, by their nature, uncertain as reliable indicators
of future performance. The Company disclaims any intent or obligation to
publicly update these "forward looking" statements, whether as a result of new
information, future events, or otherwise.
Results of Operations
- - - - ---------------------
Revenues for the three months ended March 31, 1999 decreased by $752,490 to
$347,010 compared to $1,099,500 in the prior period. The decrease was due to a
decrease in sales of scientific and medical lasers from the Company's Florida
and Massachusetts operations and the non-recurring milestone payment in the
prior period in the amount of $695,000 pursuant to the Baxter Agreement.
Gross margins were 12.4% for the three months ended March 31, 1999 compared to
57.5% for the three months ended March 31, 1998. The decrease in gross margins
was due to reduced sales prices and unabsorbed overhead from reduced volumes in
1999.
Operating expenses decreased by $155,408 for the three months ended March 31,
1999 compared to the three months ended March 31, 1998 due to reductions in
operations pending the sale of east coast operations.
Interest expense increased by $1,498,555 for the three months ended March 31,
1999 compared to the three months ended March 31, 1998 The increase was the
result of the recognition of beneficial conversion feature on the notes payable
of $1,512,292.
Net loss increased to $2,511,196 for the three months ended March 31, 1999
compared to $569,797 for the three months ended March 31, 1998. The increase in
the net loss was due to the increases in operating expenses and decreases in
revenues partially offset by reduction in operating costs.
8
Liquidity and Capital Resources
- - - - -------------------------------
As of March 31, 1999, the Company had cash and cash equivalents of $1,416,297
which is an increase of $1,241,829 since December 31, 1998. The Company has
utilized cash generated from the sale of convertible notes payable to fund
marketing, research and development, and other operating activities, as well as
investments in operating assets to support anticipated sales of excimer lasers
to Baxter and to pay off certain liabilities.
Capital expenditures in the three months ended March 31, 1999 of $10,151 related
to purchases of equipment and leasehold improvements to support the excimer
laser operations.
Cash flows provided by financing activities for the three months ended March 31,
1999 of $2,223,797 was due to the issuance of convertible notes payable for
proceeds of $2,380,000 and proceeds from the issuance of other notes offset by
debt issuance costs and principal payments on debt.
YEAR 2000
- - - - ---------
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's, or
its suppliers' and customers' computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has developed plans to address issues related to the impact on its
computer systems of the year 2000. Financial and operational systems have been
assessed and plans have been developed to address systems modification
requirements. The financial impact of making the required systems changes is not
expected to be material to the Company's consolidated financial position,
liquidity or results of operations.
Neither the Company nor its subsidiaries has initiated formal communications
with significant suppliers and large customers to determine the extent to which
those third parties' failure to remedy their own Year 2000 Issues would
materially effect the Company and its subsidiaries. The Company has not received
any indications from its suppliers and large customers that the Year 2000 Issue
may materially effect their ability to conduct business and the Company has no
current plans to formally undertake such an assessment.
9
LASER PHOTONICS, INC. AND SUBSIDIARIES
March 31, 1999
PART II. OTHER INFORMATION
Item 1 Legal Proceedings: See December 31, 1998 10-K
Item 2 Changes in Securities None
Item 3 Defaults Upon Senior Securities None
Item 4 Submission of Matters to Vote of
Security Holders None
Item 5 Other Information None
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K None
10
LASER PHOTONICS, INC. AND SUBSIDIARIES
March 31, 1999
Signatures to Form 10-Q
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
LASER PHOTONICS, INC.
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(Registrant)
Date: May 21, 1999 By: /S/Raymond A. Hartman
---------------------------------
Raymond A. Hartman
Chief Executive Officer
Date: May 21, 1999 By: /S/Chaim Markheim
---------------------------------
Chaim Markheim
Chief Financial Officer
11