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 September 30, 1999
------------------
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.
---------------------
(exact name of registrant as specified in its charter)
Delaware 59-2058100
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2431 Impala Drive, Carlsbad, CA 92008
------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (760) 602-3300
--------------
(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 September 30, 1999, 13,167,975 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 September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flow for the
Nine Months ended September 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 18
Signatures 19
2
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
Laser Photonics, Inc. and Subsidiaries
ASSETS SEPTEMBER 30, 1999 December 31 ,1998 *
------------------ -------------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 6,619,434 $ 174,468
Accounts receivable, net - 34,676
Receivable from related party 54,600 54,600
Inventory 627,167 458,343
Prepaid expenses 37,268 -
---------------- ----------------
TOTAL CURRENT ASSETS 7,338,469 722,087
PROPERTY AND EQUIPMENT, net 159,686 127,190
PREPAID LICENSE FEE, net 3,083,333 3,458,333
OTHER 75,747 86,412
GOODWILL, NET 86,512 476,273
---------------- ----------------
TOTAL ASSETS $ 10,743,747 $ 4,870,295
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Current portion $ 271,747 $ 620,581
Accounts Payable 777,537 404,666
Accrued payroll and related expenses 398,183 393,339
Other Accrued liabilities 636,260 666,852
Payable to related party 75,180 136,002
Customer Deposits 199,036 -
Deferred Revenue 250,000 343,906
---------------- ----------------
TOTAL CURRENT LIABILITIES 2,607,943 2,565,346
NOTES PAYABLE, LESS CURRENT PORTION 49,334 69,893
Liabilities in excess of assets held for sale 612,322 393,665
---------------- ----------------
Total Liabilities 3,269,599 3,028,904
---------------- ----------------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 131,680 98,957
Additional paid-in-capital 30,063,072 17,439,904
Accumulated Deficit (22,720,604) (15,697,470)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 7,474,148 1,841,391
---------------- ----------------
$ 10,743,747 $ 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 Nine months ended
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
1999 1998 1999 1998
(UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
------------- ------------- ------------- -------------
REVENUES
Sales $ 225,955 $ 422,310 $ 812,820 $ 1,795,578
Other - - 93,906 95,000
------------- ------------- ------------- -------------
225,955 422,310 906,726 1,890,578
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of Sales 345,669 422,119 1,012,051 1,214,736
Selling, General & Administrative 1,584,152 683,815 3,129,974 1,905,341
Research & Development 578,440 27,859 1,256,274 461,168
Depreciation and Amortization 277,385 277,947 826,895 815,407
------------- ------------- ------------- -------------
Total costs and expenses 2,785,646 1,411,740 6,225,194 4,396,652
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (2,559,691) (989,430) (5,318,468) (2,506,074)
Interest Expense 77,952 331,889 1,757,581 418,901
Other expenses (income), net (49,101) 7,367 (52,915) (5,424)
------------- ------------- ------------- -------------
NET LOSS $ (2,588,542) $ (1,328,686) $ (7,023,134) $ (2,919,551)
============= ============= ============= =============
BASIC & DILUTED LOSS PER SHARE $ (0.22) $ (0.14) $ (0.67) $ (0.31)
============= ============= ============= =============
Weighted Average Shares 11,828,780 9,295,694 10,547,130 9,286,285
============ ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Laser Photonics, Inc.
Nine months ended
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (7,023,134) $ (2,919,551)
Adjustments to reconcile net loss to net cash used in
Depreciation and Amortization 826,895 815,407
Allowance for doubtful accounts 14,415 (3,000)
Amortization of debt issuance costs 67,004 -
Beneficial conversion feature and amortization of discount on
Convertible notes payable 1,512,292 296,875
Compensation recognized upon issuance of stock options 299,650 -
Stock options issued for services 2,607 -
Stock issued to pay legal fees - 20,000
Shares issued to pay interest 1,644 -
Changes in operating assets and liabilities:
Current assets 3,184 (22,473)
Current liabilities 452,253 310,398
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (3,843,190) (1,502,344)
---------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (36,988) (116,291)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (36,988) (116,291)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (473,213) (155,003)
Payments on related party notes payable (72,162) -
Advances from related parties 11,340 -
Proceeds from notes payable 86,485 -
Proceeds from convertible notes 2,380,000 1,000,000
Debt issuance costs (166,600) -
Proceeds from exercise of warrants 18,750 -
Proceeds from issuance of common stock 8,540,544 35,751
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,325,144 880,748
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 6,444,966 (737,887)
CASH AND CASH EQUIVALENTS, beginning of period 174,468 1,225,932
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 6,619,434 $ 488,045
============= =============
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
September 30, 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The condensed consolidated balance sheets as of September 30, 1999, the related
condensed consolidated statements of operations for the three and nine months
ended September 30, 1999 and 1998, and cash flows for the nine months ended
September 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 September 30, 1999, the results of their operations for the three and nine
months ended September 30, 1999 and 1998 and cash flows for the nine months
ended September 30, 1999 and 1998. The results of operations for the three and
nine months ended September 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:
September 30, 1999 December 31, 1998
------------------ -----------------
Raw Materials $ 378,023 $ 209,199
Work in Process 249,144 249,144
----------------- -----------------
$ 627,167 $ 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
September 30, 1999
SEPTEMBER 30, December 31,
1999 1998
----------------- --------------
ASSETS
Accounts receivable $ 73,020 $ 140,000
Inventories 359,542 452,761
Prepaid expenses and other assets 49,372 73,789
Property and equipment 105,744 139,785
----------------- --------------
TOTAL ASSETS 587,678 806,335
----------------- --------------
LIABILITIES
Accounts payable 772,703 810,272
Accrued payroll and related expenses 82,623 43,776
Accrued property taxes 111,962 111,962
Other accrued liabilities 104,852 106,130
Note payable 127,860 127,860
----------------- --------------
TOTAL LIABILITIES $ 1,200,000 $ 1,200,000
----------------- --------------
LIABILITIES IN EXCESS OF ASSETS
HELD FOR SALE $ 612,322 $ 393,665
================= ==============
Revenues of the related operations were $224,000 and $351,000 for the three
months ended September 30, 1999 and 1998, respectively and $807,000 and
$1,125,000 for the nine months ended September 30, 1999 and 1998. Losses from
the related operations were $379,000 and $53,000 for the three months ended
September 30, 1999 and 1998, respectively and $932,000 and $524,000 for the nine
months ended September 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
September 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.
On August 9, 1999, the Company completed an offering of 2,068,972 shares of
common stock at a price of $4.50 per share for gross proceeds of $9,310,374. In
connection with the offering, the Company paid 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
THIS REPORT, INCLUDING THE DISCLOSURES BELOW CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES,"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS DISCLOSED IN THE
"RISK FACTORS" SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1998, WHICH IS INCORPORATED HEREIN BY THIS REFERENCE.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes included elsewhere
in this Report.
OVERVIEW OF BUSINESS OPERATIONS
The Company is engaged in the development of proprietary excimer laser
and fiber optic equipment and techniques directed toward the treatment of
cardiovascular and vascular disease and the treatment of psoriasis. The Company
anticipates developing such equipment and technologies to treat other medical
problems as well as non-medical applications. However, no assurance to this
effect can be given.
On May 13, 1994, the Company filed a Petition for Reorganization (the
"Bankruptcy Proceeding") under Chapter 11 of Title 11 of the United States
Bankruptcy Code on May 13, 1994, Case No. 94-02608-611 - Federal Bankruptcy
Court Middle District, Florida (the "Bankruptcy Court"). An order was issued on
May 22, 1995 confirming the Company's Third Amended Plan of Reorganization (the
"Bankruptcy Reorganization" or the "Plan"). The Company was subsequently
authorized to conduct its business operations as a debtor-in-possession subject
to the jurisdiction of the Bankruptcy Court. On May 22, 1995, the Company's Plan
was confirmed by the Bankruptcy Court. The implementation of the terms of the
Plan resulted in the Company's adoption of "fresh start" accounting. The Plan
provided, that in exchange for the forgiveness of certain unsecured debt, the
Company issued to unsecured creditors shares of the Company's Common Stock such
that, following the issuance of all Common Stock to be issued under the Plan,
the unsecured creditors owned 1,000,000 shares of the Company's Common Stock,
representing 20% of the issued and outstanding Common Stock of the Company. The
shares of Common Stock of the Company's prior existing stockholders were
cancelled and reissued into 250,000 shares of Common Stock, which represented 5%
of the then total issued and outstanding shares of Common Stock.
The Plan further provided that Helionetics, Inc. ("Helionetics") of Van
Nuys, California, transfer to the Company 76.1% of the common stock of Acculase,
Inc., a California corporation ("Acculase"). Further, during the pendency of the
Bankruptcy Proceeding, Helionetics contributed $1,000,000 in cash to the
Company, which funds were utilized for cash payments under the Plan, and
Helionetics lent the Company $300,000 to fund the cost of research and
development of the Company's excimer lasers, which loan has been repaid. Under
the Plan, Helionetics received 3,750,000 shares of Common Stock of the Company,
which represented 75% of the then total issued and outstanding shares of Common
Stock.
During April, 1997, Helionetics filed a voluntary petition of
reorganization (the "Helionetics Reorganization") with the United States
Bankruptcy Court in the Central District of California for protection under
Chapter 11 of Title 11 of the United States Bankruptcy Code. As a result, the
Company wrote off its $662,775 receivable from Helionetics as of December 31,
1996. In connection with the Helionetics Reorganization, Helionetics disposed of
all of its holdings of the Company's Common Stock. No persons who were
shareholders of the Company immediately before the reorganization have at
present any controlling interest in the Company. On September 30, 1997,
Pennsylvania Merchant Group ("PMG"), the Company's investment banker, purchased
from the Helionetics bankruptcy estate, a note payable from Acculase to
Helionetics in the amount of $2,159,708, including accrued interest. During
October, 1997, PMG sold the note to the Company for 800,000 shares of Common
Stock.
9
Acculase was founded in 1985 for the purpose of commercializing
products that utilize its proprietary excimer laser and fiberoptic technologies.
Acculase has focused primarily on the development of medical products for the
treatment of coronary heart disease.
The Company believes that excimer laser technology provides the basis
for reliable cost-effective systems that will increasingly be used in connection
with a variety of applications. The Company is engaged in the development of
proprietary excimer laser and fiberoptic equipment and techniques directed
initially toward the treatment of coronary heart disease and psoriasis, as well
as other medical applications.
The Company's initial medical applications for its excimer laser
technology are intended to be used in the treatment of cardiovascular disease
and psoriasis. The Company's cardiovascular and vascular applications are in
connection with an experimental procedure known as Transmyocardial
Revascularization ("TMR"), in which the Company's TMR laser system (the "TMR
System") is currently in Phase I Human Clinical trials. The Company and Baxter
Healthcare Corporation ("Baxter") are engaged in a strategic alliance in the
development and marketing of excimer laser products for TMR. The Company began
testing its excimer laser system for psoriasis in 1998 with a Dose Response
Study under Institutional Review Board ("IRB") approval. The final data from the
study was collected in December, 1998. This data served as the basis for the
510(k) submission to the United States Food and Drug Administration ("FDA") on
August 4, 1999. No assurance can be given as to when or if the FDA will issue
the 510(k).
The Company has entered into an agreement ("the MGH Agreement") with
Massachusetts General Hospital ("MGH"), pursuant to which the Company obtained
an exclusive, worldwide, royalty-bearing license from MGH to commercially
develop, manufacture, use and sell products, utilizing certain technology of
MGH, related to the diagnosis and treatment of certain dermatological conditions
and diseases, particularly psoriasis. On March 17, 1998, the Company entered
into a clinical trial agreement (the "Clinical Trial Agreement") with MGH to
evaluate the use of excimer laser light to treat psoriasis.
To facilitate the Company's focus on excimer laser technology, as of
January 4, 1999, the Company entered into an agreement (the "Asset Purchase
Agreement") for the sale of certain assets of the Company and the Company's
wholly-owned subsidiary, Laser Analytics, Inc., a Massachusetts corporation
("Laser Analytics"), which provides that the buyer of the assets (the "Buyer")
will pay and/or assume an aggregate of $1,200,000 of the accrued and unpaid
accounts payable and/or other debts of the Company. No assurance can be given
that the Buyer will complete the purchase under the Asset Purchase Agreement,
and if not, the Company intends to close down such operation. In such an event
the Company would have to pay all of the obligations which are otherwise to be
assumed by the Buyer.
BASIS FOR PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements filed elsewhere herein have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business, and, where
applicable, in conformity with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code," issued in November,
1990, by the American Institute of Certified Public Accountants ("SOP 90-7").
Under the provisions of SOP 90-7 and in connection with the
confirmation of the Bankruptcy Reorganization on May 22, 1995, the Company was
required to adopt fresh start reporting as of May 23, 1995, since the
reorganization value (approximate fair value at the date of reorganization) was
less than the total of all post-petition liabilities and allowed claims, and
holders of existing voting shares before May 23, 1995 received less than 50% of
the voting shares of the emerging entity. Accordingly, the consolidated
statements of operations for the period from January 1, 1995 to May 22, 1995
reflects the effects of the forgiveness of debt resulting from the confirmation
of the Bankruptcy Reorganization and the adjustments to restate assets and
liabilities to reflect the reorganization value.
10
In adopting fresh start reporting, the Company was required to
determine its reorganization value, which represented the fair value of the
Company before considering liabilities and the approximate amount a willing
buyer would pay for the assets of the Company immediately after the Bankruptcy
Reorganization. The reorganization value was based upon the consideration given
by Helionetics to acquire a 75% interest in the Company. The purchase price of
$1,894,122 was determined based upon cash paid and the carrying value of the
76.1% interest in Acculase previously owned by Helionetics, which was
transferred to the Company in connection with the Bankruptcy Reorganization.
All assets and liabilities were restated to reflect their
reorganization value in accordance with procedures specified in Accounting
Principles Board Opinion 16 "Business Combinations," as required by SOP 90-7.
The portion of the reorganization value that could not be attributed to specific
tangible or identified intangible assets was classified as reorganization value
in excess of amounts allocable to identifiable assets ("Reorganization
Goodwill") and was being amortized over five years. Because of the magnitude of
the Company's losses since emerging from the Bankruptcy Reorganization, the
balance of the Reorganization Goodwill was written off as of December 31, 1996.
In addition, the accumulated deficit of the Company was eliminated, and
its capital structure was recast in conformity with the Bankruptcy
Reorganization. As such, the consolidated balance sheets of the Company as of
September 30, 1999 and 1998, and the consolidated statements of operations for
nine (9) month and three (3) month periods ended September 30, 1998 and 1999,
reflect in effect, a new entity for financial reporting purposes, as of May 23,
1995, with assets, liabilities, and a capital structure having carrying values
not comparable with periods prior to May 23, 1995.
The Company's consolidated income statements for the nine (9) month and
three (3) month periods ended September 30, 1999 and 1998, which form a part of
the Company's consolidated financial statements for such periods, reflect the
consolidated results of operations of Laser Photonics, Laser Analytics and
Acculase.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE (9) MONTHS AND THREE (3) MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998. Total revenues for the nine (9) months ended
September 30, 1999 decreased approximately 52.0% to $906,726 from $1,890,578 for
the nine (9) months ended September 30, 1998. Total revenues for the nine (9)
months ended September 30, 1999 and 1998 primarily consisted of: (i) sales of
$812,820 and $1,195,578, in the respective nine (9) month periods, of the
Company's scientific and medical lasers from the operations of the Company's
Florida and Massachusetts facilities, and (ii) revenues of $93,906 and $695,000,
in the respective nine (9) month periods, relating to the sale of the Company's
excimer lasers to Baxter and the recognition of payments made by Baxter to
commercialize the Company's excimer lasers in connection with the Baxter
Agreement. Revenues on sales of medical and scientific lasers decreased in the
nine (9) months ended September 30, 1999 from the corresponding period ended
September 30, 1998 due to reduced volume of sales and discounting on sales of
medical and scientific lasers in connection with the Company's focusing its
marketing efforts on its excimer laser systems.
Total revenues for the three (3) months ended September 30, 1999
decreased approximately 46.5% to $225,955 from $422,310 for the three (3) months
ended September 30, 1998. Total revenues for the three (3) months ended
September 30, 1999 and 1998 primarily consisted of sales of the Company's
scientific and medical lasers from the operations of the Company's Florida and
Massachusetts facilities. Revenues on sales of medical and scientific lasers
decreased in the three (3) months ended September 30, 1999 from the
corresponding period ended September 30, 1998 due to reduced volume of sales and
discounting on sales of medical and scientific lasers in connection with the
Company's focusing its marketing efforts on its excimer laser systems.
Total costs and expenses during the nine (9) months ended September 30,
1999 increased approximately 41.6% to $6,225,194 from $4,396,652 during the nine
(9) months ended September 30, 1999. Total costs and expenses during the three
(3) months ended September 30, 1999 increased approximately 97.3% to $2,785,646
from $1,411,740 during the three (3) months ended September 30, 1999.Total costs
and expenses include: (i) cost of sales, (ii) selling, general and
administrative expenses, (iii) research and development, and (iv) depreciation
and amortization, as follows:
11
Cost of sales during the nine (9) months ended September 30, 1999
decreased approximately 16.7% to $1,012,051 from $1,214,736 during the nine (9)
months ended September 30, 1999. Cost of sales during the three (3) months ended
September 30, 1999 decreased approximately 18.1% to $345,669 from $422,119
during the three (3) months ended September 30, 1999. This decrease primarily
resulted from reduced sales and higher costs in connection with the development
of the Company's excimer laser system.
As a result, cost of sales as a percentage of sales increased to
approximately 111.6% in the nine (9) months ended September 30, 1999 from 64.3%
in the nine (9) months ended September 30, 1998, and increased to approximately
153.0% in the three (3) months ended September 30, 1999 from 100.0% in the three
(3) months ended September 30, 1998.
Selling general and administrative expenses during the nine (9) months
ended September 30, 1999 increased approximately 64.3% to $3,129,974 from
$1,905,341 during the nine (9) months ended September 30, 1998. This increase
primarily resulted from increases in consulting and professional fees, offset by
reductions in personnel and overhead in the Company's Florida and Massachusetts
operations pending the closing of the Asset Purchase Agreement.
Selling general and administrative expenses during the three (3) months
ended September 30, 1999 increased approximately 131.7% to $1,584,152 from
$683,815 during the three (3) months ended September 30, 1998. This increase
primarily resulted from increases in consulting and professional fees, offset by
reductions in personnel and overhead in the Company's Florida and Massachusetts
operations pending the closing of the Asset Purchase Agreement.
Research and development during the nine (9) months ended September 30,
1999 increased to $1,256,274 from $461,168 during the nine (9) months ended
September 30, 1998. Research and development during the three (3) months ended
September 30, 1999 increased to $578,440 from $27,859 during the three (3)
months ended September 30, 1998. This increase primarily related to the
increased amount of funds available for research expenses during the quarter.
Research and development expenses in the nine (9) month and three month periods
ended September 30, 1999 primarily related to the development of the Company's
psoriasis laser system and to additional testing related to meet CE Mark and
Underwriter's Laboratory ("UL") standards for the Company's excimer lasers.
Depreciation and amortization during the nine (9) months ended
September 30, 1999 increased to $826,895 from $815,407 during the nine (9)
months ended September 30, 1998. Depreciation and amortization during the three
(3) months ended September 30, 1999 decreased to $277,385 from $277,947 during
the three (3) months ended September 30, 1998. These amounts primarily related
to the amortization of the prepaid license fee from Baxter and the depreciation
of newly acquired equipment in 1998.
Other expenses increased during the nine (9) months ended September 30,
1999 to $1,704,666 from $413,477 during the nine (9) months ended September 30,
1998. This increase in other expenses between the respective periods resulted
primarily from a charge to interest expenses of $1,579,296 related to the
conversion feature and amortization of the discount of the Convertible Notes and
$178,285 of other interest expense during the nine (9) months ended September
30, 1999, as compared to $418,901 of interest expense during the nine (9) months
ended September 30, 1998.
Other expenses increased during the three (3) months ended September
30, 1999 to $28,851 from $339,256 during the three (3) months ended September
30, 1998. This increase in other expenses between the respective periods
resulted primarily from a charge to interest expenses of $18,225 related to the
conversion feature and amortization of the discount of the Convertible Notes and
$59,727of other interest expense during the three (3) months ended September 30,
1999, as compared to $331,889 of interest expense during the three (3) months
ended September 30, 1998.
12
As a result of the foregoing, the Company experienced a net loss of
$7,023,134 during the nine (9) months ended September 30, 1999, as compared to a
net loss of $2,919,551 during the nine (9) months ended September 30, 1998. The
Company also experienced a net loss from operations of $5,318,468 during the
nine (9) months ended September 30, 1999, as compared to a net loss from
operations of $2,506,074 during the nine (9) months ended September 30, 1998.
Further, as a result of the foregoing, the Company experienced a net loss of
$2,588,542 during the three (3) months ended September 30, 1999, as compared to
a net loss of $1,328,686 during the three (3) months ended September 30, 1998.
The Company also experienced a net loss from operations of $2,559,691 during the
three (3) months ended September 30, 1999, as compared to a net loss from
operations of $989,430 during the three (3) months ended September 30, 1998. See
"Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES. At September 30, 1999, the ratio of
current assets to current liabilities was 2.81 to 1.00 compared to 0.28 to 1.00
at December 31, 1998.
The Company has historically financed its operations through the use of
working capital provided from operations, loans and equity and debt financing.
The Company's cash flow needs for the nine (9) months ended September 30, 1999
were primarily provided from operations, loans and equity financing.
The Company experienced severe cash flow problems during the first six
(6) months of 1997 and throughout 1996 and 1995. These cash flow problems
limited the Company's ability to purchase materials and parts incorporated in
the Company's laser products, and further restricted the Company's ability to
purchase such materials at volume discounts, thereby reducing revenues from
potential sales and gross profits from concluded sales. New management
instituted policies of cost controls, improved product selection, staff
reduction, budgeting and corporate planning in 1997, which increased the
Company's business efficiencies, including decreases in cost of sales as a
percentage of sales, reduction in net losses and losses from operations and the
focusing on a business plan aimed at excimer laser products which management
believes has greater potential of success than the Company's laser products
preceding the Bankruptcy Reorganization.
Due to the limited financial resources of the Company, the Company's
strategy changed in 1997 to focus its efforts on the Company's excimer laser
technology and expertise in order to develop a broad base of excimer laser and
excimer laser delivery products for both medical and non-medical applications.
To facilitate the Company's new focus on excimer laser technology, the Company
is in the process of selling all of the Company's non-excimer laser business. As
of January 4, 1999, the Company entered into the Asset Purchase Agreement, which
is scheduled to close by the end of 1999 although no assurances can be given as
to when or whether such closing will occur. The Asset Purchase Agreement
provides that the Buyer will pay and/or assume an aggregate of $1,200,000 of the
accrued and unpaid accounts payable and/or other debts of the Company. The
Company intends to transfer to the Buyer certain assets of Laser Photonics and
Laser Analytics, which are related to the Company's non-excimer laser business.
The closing of the Asset Purchase Agreement has been delayed by reason of the
difficulties being experienced by the Buyer in finding financing to complete the
purchase. The Company has orally extended the closing from month to month while
the Buyer continues to pursue the required financing. During the pendency of the
closing, since January, 1999, the Buyer has been funding any negative cash flow
of the operations of Laser Analytics from his own funds.
13
Management's decision to sell the assets of the Company business
operations not related to the Company's excimer laser technology will result in
the divestiture of the Company's business operations, which have generated
approximately 73.3% of the Company's revenues for the period from January 1,
1998 through September 30, 1999. At September 30, 1999 and December 31, 1998,
total assets related to the Company's non-excimer laser business operations,
which are the subject of the Asset Purchase Agreement, were $587,678 and
$806,335, respectively, and total liabilities were $1,200,000 and $1,200,000,
respectively, at each such date. Revenues from such operations for the nine (9)
months ended September 30, 1999 and 1998 were $807,000 and $1,125,000,
respectively, and for the years ended December 31, 1998, 1997 and 1996 were
$1,580,000, $2,960,000 and $2,901,000, respectively. Loss from the related
operations during the corresponding nine (9) month periods were $932,000 and
$524,000, respectively, and during the corresponding annual periods were
$996,000, $647,000 and $926,000, respectively. As of the date of this Report,
the Company has received $153,435 as a deposit against the purchase price. No
assurance can be given that the Buyer will complete the purchase under the Asset
Purchase Agreement, or, if not, that the Company will be able to find an
alternative on as favorable terms to the Company as the Asset Purchase
Agreement. If the proposed transaction should not close, then the Company
intends to close down such operations and the Company would have to pay all the
obligations related to the Company's non-excimer laser business operations,
which are proposed to be assumed by the Buyer.
Although the Company has developed strategic alliances with Baxter
related to the Company's excimer lasers, there can be no assurances that the
Company will ever develop significant revenues or profitable operations with
respect to this new business plan.
From September, 1997 through September, 1999, the Company issued
certain securities, including shares of Common Stock and other derivative
securities convertible or exercisable into shares of Common Stock, in order to
finance the Company's business operations. All of the shares of Common Stock and
the shares of Common Stock underlying such derivative securities are being
registered in this Report.
Cash and cash equivalents were $6,619,434, as of September 30, 1999, as
compared to $174,468, as of December 31, 1997. This increase was primarily
attributable to the receipt of $2,380,000 in cash proceeds from the offering of
the Convertible Notes in March, 1999 and of $9,310,374 from the gross proceeds
of an equity offering of the Company's securities in August, 1999, offset by
$3,843,190 of net cash used in operations during the nine (9) months ended
September 30, 1999.
As of September 30, 1999, the Company had long-term borrowings in the
aggregate amount of $49,334, less the current portion. As of December 31, 1998,
the Company had long-term borrowings in the aggregate amount of $69,893, less
the current portion. The decrease in long-term borrowings relates to payments of
certain scheduled obligations, including: (a) obligations payable in the total
amount of $282,259, pursuant to the Plan, to former members of the Board of
Directors of the Company. The notes related to those obligations went into
default in the first quarter of 1999. The Company paid these notes from the
proceeds of the $2,380,000 Convertible Note offering received by the Company in
April, 1999, which notes were converted into equity of the Company on August 2,
1999; (b) promissory notes payable in the total amount of $165,298, pursuant to
the Plan, to the former unsecured creditors of the Company. Interest accrues at
the prime rate and is payable quarterly until October 1, 1999. This promissory
note is delinquent, as of the date of this Report; (c) secured promissory notes
payable in the total amount of $127,860 (which are included in the financial
statements in liabilities in excess of assets held for sale) pursuant to the
Plan, to Novatis Corp., formerly known as CIBA-GEIGY. Interest accrues at the
rate of 10% per annum and is payable quarterly through May 5, 1997, and,
thereafter, with monthly principal and interest payments of $6,384 through May,
1999. This promissory note is secured by the assets of Laser Analytics. This
promissory note is delinquent, as of the date of this Report, and is anticipated
to be assumed by the Buyer of the Laser Analytics assets. In the event the Buyer
does not close on the purchase of the Laser Analytics assets, the Company will
continue to be obligated to pay this promissory note; (d) a promissory note
payable to the U.S. Treasury for delinquent taxes in the amount of $63,831. This
note bears interest at the rate of 9% per annum, payable in monthly principal
and interest installments of $5,000 through December, 1999. This promissory note
is secured by all assets of the Company. This promissory note is current, as of
the date of this Report; (e) unsecured promissory notes payable to various
creditors in the aggregate amount of $104,791. These notes are payable with
interest at 9% per annum, in various monthly principal and interest installments
through July, 2000. These promissory notes are current, as of the date of this
Report; (f) a secured promissory note in the amount of $22,519, payable to Laser
Center of America, with interest at the rate of 9% per annum, in monthly
installments of principal and interest of $1,258, through January, 2001. This
promissory note is current, as of the date of this Report; and (g) an unsecured
promissory note in the amount of $66,394, payable to the lessor of the Carlsbad
facility, with interest at 10% per annum, in monthly installments of principal
and interest of $1,775 through December 31, 2002. The payments on this
promissory note are current.
14
Net cash used in operating activities was $3,843,190 and $1,502,344 for
the nine (9) months ended September 30, 1999 and 1998, respectively. Net cash
used in operating activities during the nine (9) months ended September 30, 1999
primarily consisted of net losses, offset by depreciation and amortization,
increases in interest related to the conversion features of the Convertible
Notes, compensation recognized upon the issuance of stock options and increases
in net current assets and decreases in net current liabilities. Net cash used in
operating activities during the nine (9) months ended September 30, 1998
primarily consisted of net losses and decreases in current net assets, offset by
depreciation and amortization, increases in interest related to the conversion
features of the Convertible Notes, stock issued to pay fees for legal services
and decreases in current net liabilities.
Net cash used in investing activities was $36,988 and $116,291 for the
nine (9) months ended September 30, 1999 and 1998, respectively. The Company
utilized $36,988 during the nine (9) months ended September 30, 1999 and
$116,291 during the nine (9) months ended September 30, 1998, to acquire
equipment for the Company's business operations.
Net cash provided by financing activities was $10,325,144 and $880,748
during the nine (9) months ended September 30, 1999 and 1998, respectively. In
the nine (9) months ended September 30, 1999, the Company received $2,380,000 in
proceeds from the offering of the Convertible Notes, $8,540,544 from the
proceeds of the issuance of Common Stock in August, 1999, $11,340 from the
proceeds of payments of certain related party notes payable, $18,750 upon the
exercise of warrants into 12,500 shares of Common Stock, and $86,485 from the
proceeds of other notes payable, which was offset by the utilization of $473,213
for payment of certain debts, $72,162 for payment of certain related party notes
payable and $166,600 for certain costs related to the issuance of the
Convertible Notes and the Unit Warrants. In the nine (9) months ended September
30, 1998, the Company received proceeds of $1,000,000 from a convertible bridge
loan in July and August, 1998, which was converted into 500,000 shares of Common
Stock in December, 1998, and $35,751 of proceeds from the issuance of Common
Stock, which was offset by the utilization of $155,003 to pay certain debts.
In March, 1999, the Company issued to 38 accredited investors
$2,380,000 of units of its securities (the "Units"), each Unit consisting of:
(i) $10,000 principal amount of Convertible Notes; and (ii) common stock
purchase warrants to purchase up to 2,500 shares of Common Stock (the "Unit
Warrants"). Interest accruing on the Convertible Notes through June 15, 1999, is
payable on June 15, 1999. Interest accrued as of the earlier of the Due Date or
December 15, 1999, is payable on the earlier of the Due Date or December 15,
1999. On July 27, 1999, the Convertible Note holders converted the Convertible
Notes and accrued and unpaid interest thereon into 1,190,819 shares of Common
Stock at a conversion price of $2.00 per share. On March 29, 1999, the price of
the Common Stock was $4.63. The Company used the proceeds of this financing to
fund marketing, research and development, the purchase of equipment relating to
the manufacture of the Company's excimer lasers, other operating activities, and
the payment of certain liabilities.
On August 9, 1999, the Company completed the an offering of 2,068,972
shares of Common Stock at a price of $4.50 per share, resulting in aggregate
gross proceeds to the Company of $9,310,374 (the "August 9, 1999 Financing").
The Company paid PMG a commission of 8% of the gross proceeds, or $744,830, plus
$25,000 for reimbursement of offering expenses, and issued to PMG warrants to
purchase 93,104 shares of Common Stock at an exercise price of $4.50 per share.
On the date of the closing of the August 9, 1999 Financing, the price of the
Company's Common Stock was $4.75 per share. The Company has used the proceeds of
this financing to pay marketing expenses, research and development expenses and
for working capital.
15
Upon completion of the development of the psoriasis product, the
Company anticipates the need for as much as $45,000,000 to 50,000,000, in
addition to the proceeds of the August 9, 1999 Financing. As of the date of this
Report, the Company is exploring with PMG and other investment bankers the
method and timing for the additional financing required to accomplish the
rollout of the Company's psoriasis product. No assurance can be given that
additional financing will become available to the Company, or at all, or that
the business of the Company will ever achieve profitable operations. Further,
any additional financing may be senior to the Company's Common Stock or result
in significant dilution to the holders of the Company's Common Stock. In the
event the Company does not receive any such financing or generate profitable
operations, management may have to suspend or discontinue its business activity
or certain components thereof in its present form or cease operations
altogether.
The Company's ability to expand business operations is currently
dependent on financing from external sources. There can be no assurance that
changes in the Company's research and development plans or other changes
affecting the Company's operating expenses and business strategy will not result
in the expenditure of such resources before such time or that the Company will
be able to develop profitable operations prior to such date, or at all, or that
the Company will not require additional financing at or prior to such time in
order to continue operations and product development. There can be no assurance
that additional capital will be available on terms favorable to the Company, if
at all. To the extent that additional capital is raised through the sale of
additional equity or convertible debt securities, the issuance of such
securities could result in additional dilution to the Company's stockholders.
Moreover, the Company's cash requirements may vary materially from those now
planned because of results of research and development, product testing, changes
in the focus and direction of the Company's research and development programs,
competitive and technological advances, the level of working capital required to
sustain the Company's planned growth, litigation, operating results, including
the extent and duration of operating losses, and other factors. In the event
that the Company experiences the need for additional capital, and is not able to
generate capital from financing sources or from future operations, management
may be required to modify, suspend or discontinue the business plan of the
Company.
SEASONAL FACTORS
Seasonality is not a significant factor in medical laser sales.
Budgetary cycles and funding are spread out in various hospitals, chains and
organizations, so that funding is not as cyclical as in the scientific laser
market.
IMPACT OF INFLATION
The Company has not operated in a highly inflationary period, and its
management does not believe that inflation has had a material effect on sales or
expenses.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
as of December 31, 1999. SFAS No. 133 establishes standards for reporting
financial and descriptive information regarding derivatives and hedging
activity. Since the Company does not have any derivative instruments, this
standard will have no impact on the Company's financial position or results of
operations.
FASB 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" and FASB 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," were issued in 1998 and are not expected to
impact the Company's future financial statement disclosures, results of
operations or financial position.
16
YEAR 2000
One of the major challenges facing any company whose products or
services rely on the operation of computers or other equipment containing
computer chips is the issue of Year 2000 compliance. Many existing computer
programs use only two digits to identify a year in the date field. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000. The Company and third parties with which the Company does
business rely on numerous computer programs in their day-to-day operations. The
Company is evaluating the Year 2000 issue as it relates to the Company's
internal computer systems and third party computer systems with which the
Company interacts. The Company expects to incur internal staff costs as well as
consulting and other expenses related to these issues of no more than $10,000.
These costs will be expensed as incurred. In addition, the appropriate course of
action may include replacement or an upgrade of certain systems or equipment.
The Company plans to commence a program to contact its vendors and customers to
determine their compliance with the Year 2000 issue. The Company anticipates
that such program will be completed by the end of the third quarter of 1999.
There can be no assurance that the Year 2000 issues will be resolved in 1999.
The Company does not expect the Year 2000 issue to have a significant adverse
impact on the Company's business, operating results and financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is not currently exposed to market risks due to changes in
interest rates and foreign currency rates and therefore the Company does not use
derivative financial instruments to address risk management issues in connection
with changes in interest rates and foreign currency rates.
17
PART II. OTHER INFORMATION
Item 1 Legal Proceedings: See December 31, 1998 10-K
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Item 2 Changes in Securities None
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Item 3 Defaults Upon Senior Securities None
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Item 4 Submission of Matters to Vote of Security Holders None
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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
18
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: November 22, 1999 By: /S/ Chaim Markheim
-----------------------------
Chaim Markheim
Chief Financial Officer
19