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 June 30, 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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(Former name, former address and former fiscal year,
if changed since last report)
N/A
---
Indicate by check mark whether the registrant (1) has filed all documents and
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 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
--- ---
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 June 30, 1999, 9,895,684 shares of Common Stock,
par value $.01 per share, were outstanding.
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 June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three and Six Months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flow for the
Six Months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
Exhibits and Reports of Form 8-K 11
Signatures 13
2
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
--------------------
Condensed Consolidated Balance Sheets
Laser Photonics, Inc. and Subsidiaries
ASSETS JUNE 30, 1999 December 31 ,1998 *
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(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 143,005 $ 174,468
Accounts receivable, net 687 34,676
Receivable from related party 54,600 54,600
Inventory 515,882 458,343
Prepaid expenses 57,851 -
------------- -------------
TOTAL CURRENT ASSETS 772,025 722,087
PROPERTY AND EQUIPMENT, net 159,860 127,190
PREPAID LICENSE FEE, net 3,208,333 3,458,333
DEBT ISSUANCE COSTS 90,054 -
OTHER 77,835 86,412
GOODWILL, Net 216,432 476,273
------------- -------------
TOTAL ASSETS $ 4,524,539 $ 4,870,295
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Current portion $ 225,720 $ 620,581
Convertible notes payable 2,380,000 -
Accounts Payable 428,318 404,666
Accrued payroll and related expenses 414,799 393,339
Other Accrued liabilities 801,221 666,852
Payable to related party 132,402 136,002
Customer deposits 115,227 -
Deferred revenue 250,000 343,906
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TOTAL CURRENT LIABILITIES 4,747,687 2,565,346
NOTES PAYABLE, LESS CURRENT PORTION 56,300 69,893
Liabilities in excess of assets held for sale 526,971 393,665
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Total Liabilities 5,330,958 3,028,904
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SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 98,957 98,957
Additional paid-in-capital 19,226,686 17,439,904
Accumulated Deficit (20,132,062) (15,697,470)
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TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (806,419) 1,841,391
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$ 4,524,539 $ 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 Six months ended
JUNE 30, 1999 June 30, 1998 JUNE 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
(UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
REVENUES
Sales $ 333,761 $ 368,768 $ 586,865 $ 1,373,268
Other - - 93,906 95,000
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333,761 368,768 680,771 1,468,268
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of Sales 362,550 325,785 666,382 792,617
Selling, General & Administrative 985,235 617,908 1,545,822 1,221,526
Research & Development 502,552 136,596 677,834 433,309
Depreciation and Amortization 272,994 269,998 549,510 537,460
------------- ------------- ------------- -------------
Total costs and expenses 2,123,331 1,350,287 3,439,548 2,984,912
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (1,789,570) (981,519) (2,758,777) (1,516,644)
Interest Expense 138,083 44,021 1,679,629 87,012
Other expenses (income), net (4,257) (4,472) (3,814) (12,791)
------------- ------------- ------------- -------------
NET LOSS $ (1,923,396) $ (1,021,068) $( 4,434,592) $ (1,590,865)
============= ============= ============= =============
BASIC & DILUTED LOSS PER SHARE $ (0.19) $ (0.11) $ (0.45) $ (0.17)
============= ============= ============= =============
Weighted Average Shares 9,895,684 9,295,694 9,895,684 9,281,631
============= ============= ============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows
Laser Photonics, Inc.
Six months ended
JUNE 30, 1999 JUNE 30, 1998
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (4,434,592) $ (1,590,865)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and Amortization 549,512 537,460
Amortization of debt issuance costs 48,779 -
Beneficial conversion feature and amortization of discount on
convertible notes payable 1,512,292 -
Compensation recognized upon issuance of stock options 299,650 -
Stock options issued for services 2,607 -
Stock issued to pay legal fees - 20,000
Changes in operating assets and liabilities:
Current assets 32,694 149,386
Current liabilities 88,840 244,413
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NET CASH USED IN OPERATING ACTIVITIES (1,900,218) (639,606)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (44,553) (100,508)
Advances from related parties - -
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NET CASH USED IN INVESTING ACTIVITIES (44,553) (100,508)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (398,053) (96,039)
Payments on related party notes payable (11,160) -
Advances from related parties 7,560 -
Proceeds from notes payable 101,561 -
Proceeds from convertible notes 2,380,000 -
Debt issuance costs (166,600) -
Proceeds from issuance of common stock - 35,751
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,913,308 (60,288)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (31,463) (800,402)
CASH AND CASH EQUIVALENTS, beginning of period 174,468 1,225,932
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CASH AND CASH EQUIVALENTS, end of period $ 143,005 $ 425,530
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The condensed consolidated balance sheets as of June 30, 1999, the related
condensed consolidated statements of operations for the three and six months
ended June 30, 1999 and 1998, and cash flows for the six months ended June 30,
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 of normal recurring accruals, necessary to present
fairly the financial position of Laser Photonics, Inc. and subsidiaries as of
June 30, 1999, the results of their operations for the three and six months
ended June 30, 1999 and 1998 and cash flows for the six months ended June 30,
1999 and 1998. The results of operations for the three and six months ended June
30, 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
---------
Inventory consists of the following:
June 30, 1999 December 31, 1998
----------------- -----------------
Raw Materials $ 266,738 $ 209,199
Work in Process 249,144 249,144
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$ 515,882 $ 458,343
================= =================
3. ASSETS HELD FOR SALE
--------------------
On January 4, 1999, the Company entered into an agreement with a third party to
sell certain assets of its non-excimer laser business operations, subject to the
assumption of $1,200,000 of liabilities. The completion of the transaction is
still pending. 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
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
JUNE 30, December 31,
1999 1998
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ASSETS
Accounts receivable $ 130,298 $ 140,000
Inventories 368,517 452,761
Prepaid expenses and other assets 58,040 73,789
Property and equipment 116,174 139,785
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TOTAL ASSETS 673,029 806,335
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LIABILITIES
Accounts payable 799,726 810,272
Accrued payroll and related expenses 54,083 43,776
Accrued property taxes 111,962 111,962
Other accrued liabilities 106,369 106,130
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 $ 526,971 $ 393,665
=============== ===============
Revenues of the related operations were $331,000 and $368,000 for the three
months ended June 30, 1999 and 1998, respectively and $583,000 and $773,000 for
the six months ended June 30, 1999. Losses from the related operations were
$2,136,000 and $299,000 for the three months ended June 30, 1999 and 1998,
respectively and $2,473,000 and $586,000 for the six months ended June 30, 1999
and 1998, respectively.
4. CONVERTIBLE NOTES PAYABLE
-------------------------
On 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 was paid on July 27, 1999 and is included in other
accrued liabilities. 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. On August 2, 1999, the
convertible notes were voluntarily converted into common stock at $2.00 per
share plus a warrant for every two 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
LASER PHOTONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
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.
5. STOCKHOLDERS EQUITY
-------------------
In June 1999, the stockholders of the company voted to increase the authorized
number of shares of common stock to 25,000,000, to adopt the Company's 1999
Stock Option Plan and to reserve up to 1,250,000 shares of common stock for
issuance under the 1998 Stock Option Plan.
6. SUBSEQUENT EVENTS
-----------------
In July 1999, the Company commenced an offering of 2,222,222 shares of common
stock at a price of $4.50 per share for gross proceeds of $10,000,000. In
connection with the offering, the Company will pay a commission to Pennsylvania
Merchant Group (PMG) of 8% of the gross proceeds raised plus $25,000 for
expenses. In addition, for each $1,000,000 of gross proceeds, PMG will receive a
warrant to purchase 10,000 shares of common stock at $4.50 per share.
8
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
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 six months ended June 30, 1999 decreased by $787,497 to
$680,771 compared to $1,468,268 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.
Revenues for the three months ended June 30, 1999 were $333,761 compared to
$368,768 for the three months ended June 30, 1998. The decrease was due to a
decrease in sales of scientific and medical lasers from the Company's Florida
and Massachusetts operations.
Gross margins were 2.1% for the six months ended June 30, 1999 compared to 46.0%
for the six months ended June 30, 1998. Gross margins were (8.6%) for the three
months ended June 30, 1999 compared to 11.7% for the three months ended June 30,
199. The decrease in gross margins was due to reduced sales prices and
unabsorbed overhead from reduced volumes in 1999.
Operating expenses increased by $580,871 for the six months ended June 30, 1999
compared to the six months ended June 30, 1998 and $736,279 for the three months
ended June 30, 1999 compared to the six months ended June 30, 1998. The increase
was due to increases in consulting and professional fees and increased funding
of research and development activities offset by reductions in operations
pending the sale of East Coast operations.
Interest expense increased by $1,592,617 for the six months ended June 30, 1999
compared to the six months ended June 30, 1998. The increase was the result of
the recognition of the beneficial conversion feature and amortization of the
discount on the convertible notes payable of $1,561,071. Interest expense
increased by $94,062 for the three months ended June 30, 1999 compared to the
three months ended June 30, 1998, due to interest and amortization of discount
on the convertible notes payable.
Net loss increased to $4,434,592 for the six months ended June 30, 1999 compared
to $1,590,865 for the six months ended June 30, 1998 and $1,923,396 for the
three months ended June 30, 1999 compared to $1,021,068 for the three months
ended June 30, 1998. The increase in the net loss was due to the increases in
operating expenses, the increase in interest expense and decreases in revenues
partially offset by reduction in operating costs.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1999, the Company had cash and cash equivalents of $143,005 which
is a decrease of $31,463 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.
9
Capital expenditures in the three months ended June 30, 1999 of $44,553 related
to purchases of equipment and leasehold improvements to support the excimer
laser operations.
Cash flows provided by financing activities for the six months ended March 31,
1999 of $1,913,308 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.
10
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
- ------
The Annual Meeting of Stockholders of Laser Photonics, Inc., was held in
Carlsbad, California on June 22, 1999. The following matters were submitted to a
vote of stockholders:
1. To elect the Board of Directors, to serve until the next Annual
Meeting of Stockholders of the Company or until their successors are
elected and qualify, subject to their prior death, resignation or
removal.
2. To adopt and approve a Restated Certificate of Incorporation and
Restated Bylaws of the Company to (a) adopt certain measures affecting
stockholders' rights and adopting certain "anti-takeover" provisions
in connection with changes of control of the Company including (i) the
division of the Board of Directors into three classes to be elected
for separate terms of office, and (ii) supermajority requirements of
66 2/3% of the voting power of all issued and outstanding shares of
voting stock with respect to the amendment, change or repeal of
certain provisions of the proposes Restated Certificate of
Incorporation and Bylaws, (b) permitting extensive indemnification of
officers and directors, and (c) authorizing a class of up to 2,000,000
shares of Preferred Stock.
3. To consider and vote to increase the authorized number of shares of
Common Stock to 25,000,000.
4. To adopt the Company's 1999 Stock Option Plan and to reserve up to
500,000 shares of the Company's Common Stock for issuance under the
1999 Stock Option Plan.
5. To approve the form of indemnification agreements between the Company
and the members of the Company's Board of Directors.
6. To ratify the appointment of Hein + Associates LLP, as independent
public accountants for the Company for the year ending December 31,
1999.
Stockholders of record at the close of business on May 18, 1999 were entitled to
notice of, and to vote at, the meeting.
The following is a summary of the results of that meeting:
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Name of Director Result Votes For Votes Withheld Total
Warwick Alex Charlton Elected 6,571,417 12,211 6,583,628
Raymond A. Hartman Elected 6,573,416 10,482 6,583,898
Chaim Markheim Elected 6,573,416 10,482 6,583,898
John J. McAtee Elected 6,573,416 10,482 6,583,898
Alan R. Novak Elected 6,573,416 10,482 6,583,898
Harry Mittelman Elected 6,573,416 10,482 6,583,898
Steven Girgenti Elected 6,572,800 10,828 6,583,628
PROPOSAL NO. 2 - APPROVAL OF RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
The Adoption of the restated Certificate of Incorporation was not approved since
only 3,315,316 shares were deemed present for purposes of this proposal.
11
PROPOSAL NO. 3 - APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Proposal Result Votes For Votes Against Votes Withheld Total
Approved the amendment to the Company's
Certificate of Incorporation to increase
the authorized number of shares to
25,000,000 6,499,573 69,258 14,797 6,583,628
PROPOSAL NO. 4 - ADOPTION OF STOCK 1999 STOCK OPTION PLAN
The adoption of the 1999 Stock Option Plan was not approved since only 3,315,316
shares were deemed present for purposes of this proposal.
PROPOSAL NO. 5 - APPROVAL OF INDEMNIFICATION FORM
Proposal Result Votes For Votes Against Votes Withheld Total
Approved the form of an indemnification
agreement between the Company and the
Company's Board of Directors 6,535,737 29,227 18,664 6,583,628
PROPOSAL NO. 6 - RATIFICATION OF APPOINTMENT OF PUBLIC ACCOUNTANT
Proposal Result Votes For Votes Against Votes Withheld Total
Ratified the appointment of Hein +
Associates LLP, Certified Public
Accountants, as the Company's
independent accountants 5,688,171 881,537 13,920 6,583,628
Item 5 Other Information None
- ------
Item 6 Exhibits and Reports on Form 8-K
- ------
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K None
12
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.
---------------------
(Registrant)
Date: August 9, 1999 By: /S/Raymond A. Hartman
---------------------------------------
Raymond A. Hartman
Chief Executive Officer
Date: August 9, 1999 By: /S/Chaim Markheim
-------------------------------------------
Chaim Markheim
Chief Financial Officer