-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NWK6hh+NPoEWhTq6DNt4yj9tYq8NXTW7rsaKbBFxm9Fmyb1KPaOy9WDo7QUGyU6b yJe/idusIplv0tRFa4yWYg== 0000936392-98-000843.txt : 19980518 0000936392-98-000843.hdr.sgml : 19980518 ACCESSION NUMBER: 0000936392-98-000843 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LASER POWER CORP/FA CENTRAL INDEX KEY: 0000874019 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 953423358 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22625 FILM NUMBER: 98625922 BUSINESS ADDRESS: STREET 1: 12777 HIGH BLUFF DR CITY: SAN DIEGO STATE: CA ZIP: 92130 BUSINESS PHONE: 6197550700 MAIL ADDRESS: STREET 1: 12777 HIGH BLUFF DRIVE CITY: SAN DIEGO STATE: CA ZIP: 92130 10-Q 1 FORM 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 [ ] 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 000-22625 LASER POWER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-3423358 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) 12777 HIGH BLUFF DRIVE SAN DIEGO, CALIFORNIA 92130 (Address of principal executive offices) (Zip Code) (619) 755-0700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of March 31, 1998, there were 8,343,432 shares of the Registrant's Common Stock outstanding. ================================================================================ 2 LASER POWER CORPORATION FORM 10-Q INDEX This report contains forward-looking statements that involve risks and uncertainties. The actual future results of the Company could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, uncertainties regarding market acceptance of new products and product enhancements, delays in the introduction of new products or product enhancements, size and timing of individual orders, competition, general economic conditions in the Company's geographic markets, seasonality of revenues, and the management of the Company's growth, as well as those factors discussed in the Company's Annual Report on Form 10-K and Registration Statement on Form S-4 (No. 333-43415).
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets (unaudited) as of March 31, 1998 and August 31, 1997......................... 3 Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 1998 and February 28, 1997............................. 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the three and six months ended March 31, 1998 and February 28, 1997............................. 5 Notes to Condensed Consolidated Financial Statements (unaudited)........................................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION............................ 7 PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds........................ 12 ITEM 4. Submission of Matters to a Vote of Security Holders.............. 12 ITEM 6. Exhibits and Reports on Form 8-K................................. 12
2 3 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements LASER POWER CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
MARCH 31, 1998 AUGUST 31, 1997 -------------- --------------- ASSETS Current assets: Cash and cash equivalents ........................ $ 4,730 $ 8,253 Accounts receivable, net ......................... 7,189 6,807 Inventories, net ................................. 7,452 5,475 Other current assets ............................. 411 518 -------------- --------------- Total current assets ..................... 19,782 21,053 Property and equipment, net ........................ 8,512 7,080 Intangibles and other assets, net ................. 959 940 -------------- --------------- Total assets ............................. $ 29,253 $ 29,073 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................. $ 3,255 $ 2,687 Accrued liabilities .............................. 5,219 3,133 Current portion of long-term debt ................ 403 446 -------------- --------------- Total current liabilities ................ 8,877 6,266 Long-term debt and deferred rent ................... 3,222 3,465 Subordinated convertible debentures ................ 1,660 1,660 Stockholders' equity: Convertible preferred stock, $.001 par value: Authorized -- 3,000,000 shares Issued and outstanding - None ............... -- -- Common stock, $.001 par value: Authorized -- 15,000,000 shares Issued and outstanding 8,073,742 shares at August 31, 1997 and 8,343,432 shares at March 31, 1998 ........ 8 8 Additional paid-in capital ....................... 19,352 18,543 Foreign currency translation adjustment .......... (62) (51) Accumulated deficit .............................. (3,804) (818) -------------- --------------- Total stockholders' equity ............... 15,494 17,682 -------------- --------------- Total liabilities and stockholders' equity $ 29,253 $ 29,073 ============== ===============
See accompanying notes. 3 4 LASER POWER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------------- ----------------------------------- MARCH 31, 1998 FEBRUARY 28, 1997 MARCH 31, 1998 FEBRUARY 28, 1997 -------------- ----------------- -------------- ----------------- Revenues: Product sales ........................... $ 8,287 $ 6,513 $ 16,065 $ 13,695 Contract research and development ....... 1,103 1,566 2,502 3,129 -------------- ----------------- -------------- ----------------- Total revenues .................. 9,390 8,079 18,567 16,824 Costs and expenses: Cost of product sales ................... 5,973 4,398 11,732 9,463 Contract research and development ....... 936 1,185 2,041 2,500 Internal research and development ....... 623 290 1,335 547 Selling, general and administrative ..... 1,927 1,549 3,878 3,022 Acquisition and related ................. 2,000 -- 2,000 -- -------------- ----------------- -------------- ----------------- Total costs and expenses ........ 11,459 7,422 20,986 15,532 -------------- ----------------- -------------- ----------------- Income (loss) from operations ............. (2,069) 657 (2,419) 1,292 Interest expense, net ..................... 56 119 105 224 -------------- ----------------- -------------- ----------------- Income (loss) before income taxes ......... (2,125) 538 (2,524) 1,068 Income taxes .............................. 73 15 160 32 -------------- ----------------- -------------- ----------------- Net income (loss) ......................... $ (2,198) $ 523 $ (2,684) $ 1,036 ============== ================= ============== ================= Basic earnings (loss) per share ........... $ (0.27) $ 0.08 $(.0.33) $ 0.17 ============== ================= ============== ================= Diluted earnings (loss) per share ......... $ (0.27) $ 0.08 $(.0.33) $ 0.15 ============== ================= ============== ================= Average common shares outstanding - Basic . 8,221 6,246 8,160 6,236 ============== ================= ============== ================= Average common shares outstanding - Diluted 8,221 6,851 8,160 6,844 ============== ================= ============== =================
See accompanying notes. 4 5 LASER POWER CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
SIX MONTHS ENDED ------------------------- MARCH 31, FEBRUARY 28, 1998 1997 --------- ------------ OPERATING ACTIVITIES Net income (loss) from operations .......................... $ (2,684) $ 1,036 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ............................ 898 610 Other .................................................... 2,723 (342) Changes in operating assets and liabilities .............. (2,720) 261 --------- ------------ Net cash provided by (used in) operating activities (1,783) 1,565 INVESTING ACTIVITIES Additions to property and equipment ........................ (2,213) (1,922) Increase in intangibles and other assets ................... (81) (159) --------- ------------ Net cash used in investing activities ............. (2,294) (2,081) FINANCING ACTIVITIES Deferred costs of initial public offering .................. (5) (51) Payments on borrowings ..................................... (215) (275) Proceeds from borrowings ................................... -- 1,216 Net proceeds from issuance and repurchase of stock ......... 828 56 --------- ------------ Net cash provided by financing activities ......... 608 946 --------- ------------ Net increase (decrease) in cash and cash equivalents ....... (3,469) 430 Cash and cash equivalents at beginning of the period ....... 8,199 978 --------- ------------ Cash and cash equivalents at end of the period ............. $ 4,730 $ 1,408 ========= ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest ................... $ 175 $ 321 ========= ============
See accompanying notes. 5 6 LASER POWER CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and, in the opinion of management, contain all adjustments necessary to present fairly the consolidated financial position as of March 31, 1998 and the consolidated results of operations for the three and six months ended March 31, 1998 and February 28, 1997. On February 27, 1998, the Company acquired EMI Acquisition Corp. ("EMI"). The Company issued 2,021,178 shares of its common stock based on a 1.8511 exchange formula described in its Registration Statement on Form S-4 (No. 333-43415) and has accounted for the merger as a pooling-of-interests. Accordingly, the condensed consolidated financial statements for the periods prior to the merger have been retroactively restated as if the combining companies had been combined for all periods presented. The Company incurred transaction costs of $736,000 and accrued current and future costs of $1,264,000 in connection with a plan to restructure and integrate its existing optics operations with EMI operations. On December 6, 1997, the Company's Board of Directors approved the change of the Company's fiscal year end from August 31 to September 30, 1997. For the month of September, the Company recorded a net loss of $302,000 on revenues of $1,750,000. Total assets of the Company were $21,000,000 at September 30, 1997. Certain information and footnote disclosures normally included in financial statements have been omitted or condensed. These condensed consolidated financial statements should be read in conjunction with the financial information included in the Company's Registration Statement on Form S-4 filed with the Securities and Exchange Commission. The results of operations for the periods ended March 31, 1998 are not necessarily indicative of the results that may be attained for the entire fiscal year. 2. EARNINGS (LOSS) PER SHARE The income (loss) per share information was computed applying the requirements of recently effective Statement of Financial Accounting Standards No. 128 and SEC staff accounting bulletin No. 98. Basic earnings per share considers the weighted average number of common shares outstanding and the assumed conversion of outstanding preferred stock to common stock. Diluted earnings per share considers the shares included as Basic shares outstanding and the dilutive effects of stock options and warrants to purchase common stock. 3. INVENTORIES (UNAUDITED) (IN THOUSANDS)
MARCH 31, 1998 AUGUST 31, 1997 -------------- --------------- Raw materials ....... $ 3,528 $ 2,121 Work in progress .... 2,978 2,626 Finished goods ...... 946 728 -------------- --------------- $ 7,452 $ 5,475
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Revenues For the three and six months ended March 31, 1998, product sales were $8,287,000 and $16,065,000 compared to $6,513,000 and $13,695,000 for the three and six months ended February 28, 1997, an increase of $1,774,000 or 27% for the three months and $2,370,000 or 17% for the six months ended March 31, 1998. Contract research and development revenues were $1,103,000 and $2,502,000 for the three and six months ended March 31, 1998 compared to $1,566,000 and $3,129,000 for the three and six months ended February 28, 1997, a decrease of $463,000 or 30% for the three months and $627,000 or 20% for the six months ended March 31, 6 7 1998. The majority of the growth in product sales for the three and six months is due to a transition to higher volume production under long-term contracts for optics for thermal imaging systems and increased sales of new and replacement optics for industrial and medical lasers. Also contributing to the growth in product sales were initial production shipments of microlasers, for which shipments were negligible in the prior year. The decrease in contract revenues for the three and six months is due primarily to a lower level of contract funding for development of commercial microlaser display technology. A number of factors will determine whether the Company will be able to sustain or increase the current level of product sales, including price competition in laser optics markets, uncertainties in foreign markets and currency exchange rates, the timing of exercise of customer options on long-term production contracts for optics for thermal imaging systems, and the ability to successfully increase manufacture and sale of microlaser products. For the remainder of fiscal 1998, contract research and development revenues are expected to be lower than the prior year because of the lower level of funding for commercial microlaser display development. Gross Profit Gross profit on product sales was $2,314,000 and $4,333,000 for the three and six months ended March 31, 1998 compared to $2,115,000 and $4,232,000 for the three and six months ended February 28, 1997, an increase of $199,000 or 9% for the three months and $101,000 or 2% for the six months. Gross profit on research and development revenues was $167,000 and $461,000 for the three and six months ended March 31, 1998 compared to $381,000 and $629,000 for the three and six months ended February 28, 1997, a decrease of $214,000 or 56% for the three months and $168,000 or 27% for the six months. Gross margin on product sales was 28% and 27% for the three and six months ended March 31, 1998 compared to 32% and 31% for the three and six months ended February 28, 1997. The decrease in gross margin is primarily due to a change in mix of optics products towards products with higher material cost content and to a lesser extent to manufacturing start-up costs for microlaser products. Gross margin on contract research and development revenues was 15% and 18% for the three and six months ended March 31, 1998 compared to 24% and 20% for the three and six months ended February 28, 1997. The decrease in gross margin is due primarily to cost overruns on several display development contracts. The Company's ability to maintain or improve its existing margins is dependent on a number of factors, including the ability to manufacture or purchase raw materials and purchased components at costs and prices lower than currently paid by the Company, the successful implementation of automated fabrication processes in its optics operations, and improvements in yield and growth in volume in its microlaser operations. Gross margins on contract research and development revenues are expected to fluctuate over time due to uncertainties inherent in determining the amount of effort required to meet customer expectations. Internal Research and Development Expense Internal research and development expense was $623,000 and $1,335,000 for the three and six months ended March 31, 1998 compared to $290,000 and $547,000 for the three and six months ended February 28, 1997, an increase of $333,000 or 115% for the three months and $788,000 or 144% for the six months. The increase was due to increased microlaser research and development activities for both existing and new products, and to development of microlaser manufacturing processes. The Company expects that internal research and development expense will remain at current levels for the remainder of the fiscal year. Selling, General and Administrative Expense Selling, general and administrative expense was $1,927,000 and $3,878,000 for the three and six months ended March 31, 1998 compared to $1,549,000 and $3,022,000 for the three and six months ended February 28, 1997, an increase of $378,000 or 24% for the three months and $856,000 or 28% for the six months. The increase is due to the additional expense related to the Company becoming publicly held in June 1997 and to higher sales and marketing expense for microlaser products. Selling, general and administrative expense are not expected to increase significantly as a percentage of sales in future periods. Acquisition and Restructuring Expense In connection with its acquisition of EMI, the Company incurred transaction costs of $736,000 and accrued current and future costs of $1,264,000 in connection with a plan to restructure and integrate its existing optics operations with EMI operations. All of these expenses, which are non-recurring, were recognized during the three months ended March 31, 1998. 7 8 Interest Expense Net interest expense was $56,000 and $105,000 for the three and six months ended March 31, 1998 compared to $119,000 and $224,000 for the three and six months ended February 28, 1997, a decrease of $63,000 or 53% for the three months and $119,000 or 53% for the six months. The decrease was due primarily to the retirement of debt and investment of cash from proceeds of an initial public offering completed in June 1997 (IPO). The Company expects interest expense to increase as it continues to invest in fixed assets and working capital through utilization of available cash and long-term bank borrowings. Income Taxes Income taxes were $73,000 and $160,000 for the three and six months ended March 31, 1998 compared to $15,000 and $32,000 for the three and six months ended February 28, 1997, an increase of $58,000 or 387% for the three months and $128,000 or 400% for the six months. The increase is due to the provision for income taxes for EMI for periods prior to acquisition by the Company. In the past, the Company's effective tax rate has been reduced substantially by the utilization of federal and state tax net operating loss carryforwards. The future availability of carryforwards for any specific period will be limited by the application of rules relating to change of control as a result of the completion of the IPO and the acquisition of EMI in February 1998. LIQUIDITY AND CAPITAL RESOURCES The Company completed the IPO in June 1997, raising approximately $8,100,000 net of offering costs. Prior to the IPO, the Company satisfied its liquidity requirements primarily from cash generated from operating activities and the net proceeds of private sales of preferred and common stock and, to a lesser extent, the issuance of subordinated debentures and capital equipment leasing and bank debt. Cash used in operating activities was $2,684,000 for the six months ended March 31, 1998 compared to cash provided by operations of $1,036,000 for the six months ended February 28, 1997, a reduction in cash of $3,720,000. The primary reason for the change was the operating loss sustained for the six month period. Cash used in investing activities was $2,294,000 for the six months ended March 31, 1998 compared to $2,081,000 for the six month periods ended February 28, 1997, an increase in investment of $213,000. The change is due primarily to additions to property and equipment for manufacturing operations. For the full year, the Company expects to invest more in capital equipment than in the prior year. Cash provided by financing activities was $608,000 for the six months ended March 31, 1998 compared to $946,000 for the six months ended February 28, 1997. The primary source of cash in the current year is the exercise of employee stock options, while in the prior year the primary source was bank borrowings. For the remainder of the year, the Company expects the primary source of cash to be additional bank borrowings to finance additions to property and equipment. The Company believes that its current cash balance together with other sources of liquidity and anticipated cash provided by operations and bank borrowings will satisfy its cash requirements for at least the next twelve months. RISK FACTORS Fluctuation in Quarterly Performance The Company has experienced and expects to continue to experience significant fluctuations in its quarterly results. The Company may incur significant losses in the future due to product design, development, manufacturing and marketing expenditures, especially in connection with its microlasers and microlaser based products. If significant variations were to occur between forecasts and actual orders with respect to the Company's business, the Company may not be able to reduce its expenses proportionately and in a timely manner, and operating results could be adversely affected. Such variations have occurred in the past and could occur again in the future as a result of increases in development expenditures for proposed new products, product 8 9 introductions by competitors, changes in customer ordering patterns and other factors. In addition, the Company's ability to fill orders in a timely and responsive manner is dependent upon maintaining adequate manufacturing capacity and significant inventories of raw material and finished optics for replacement orders. The Company has experienced capacity constraints in the past which have resulted in delays in order fulfillment and reduced gross margins. Future delays in order fulfillment could lead to declines in product sales. If product sales or prices were to decline substantially, inventory writedowns could occur. Price reductions or increases in material costs could also have an adverse effect on the Company's business, financial condition and results of operations. A portion of the Company's business consists of both a small number of large contracts which are awarded on an irregular schedule, and a large number of small contracts which are spread over the year. The timing of awarding large contracts could cause significant fluctuations in the Company's operating results. In addition, the Company's quarterly performance could be adversely affected by continuing consolidation in the defense industry and the resultant impact on historical customers and their procurement activities. History of Operating Losses and Accumulated Deficit The Company has made substantial investments in research and development and incurred significant start-up costs related to manufacture and sale of microlaser products. As a result, the Company incurred operating losses in the three and six months ended March 31, 1998, and, at March 31, 1998, had an accumulated deficit of $3.8 million. The development, sales, marketing and support of new products will require continued substantial expenditures for the foreseeable future, which could result in additional operating losses. The Company has funded a substantial portion of its product development efforts through development contracts. Any failure by the Company to maintain its external funding sources could result in increased operating losses. There can be no assurance that the Company will maintain its external funding sources or be profitable in the future or that present capital and any funds provided by operations will be sufficient to fund the Company's future capital requirements. Integration of Operations If the Company is to realize the anticipated benefits of its acquisition of EMI, EMI's operations must be integrated and combined efficiently. The process of rationalizing management services, administrative organizations, facilities, management information systems, employee compensation and benefits and other aspects of operations, while managing a larger and geographically expanded entity, will present a significant challenge to the management of the Company. There can be no assurance that the integration process will be successful or that the anticipated benefits of the business combination will be fully realized. The dedication of management resources to such integration may distract attention from the day-to-day business of the Company. The difficulties of integration may be increased by the necessity of coordinating geographically separated organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. There can be no assurance that there will not be substantial costs associated with the integration process, that such activities will not result in a decrease in revenues or that there will not be other material adverse effects of these integration efforts. Such effects could materially reduce the short-term earnings of the Company. The Company has recorded a charge of approximately $2 million, to reflect the transaction and integration costs incurred and expected to result from the acquisition of EMI. There can be no assurance that the Company will not incur additional charges in subsequent quarters to reflect costs associated with the acquisition. Competition The industries in which the Company sells its products, and will sell its products under development, are highly competitive. In each of the markets it serves, the Company faces intense competition from established competitors, many of which have substantially greater financial, engineering, research and development, manufacturing, sales, marketing, service and support resources, including greater name recognition, a larger installed base of products and longer standing customer relationships. There can be no assurance that the Company will be able to compete successfully in the laser optics, laser and laser systems industries in the future, that the Company will be able to make the technological advances necessary to maintain its competitive position or that its new products will receive market acceptance. In addition, there can be no assurance that technological changes or development efforts by the Company's competitors will not render the Company's products or technologies obsolete or uncompetitive. Development Risks Relating to Microlaser Technologies The Company has devoted substantial resources to developing its microlasers and future microlaser based products. To date, sales of the Company's microlasers have been limited to low level production quantities. Other microlasers and microlaser based products are still in the early stages of development. There can be no assurance that the Company's microlasers will be successfully designed into customers' products or that such microlasers will achieve widespread market acceptance. There can also be no assurance that the Company will successfully develop additional microlaser or microlaser based products or that any products under development will achieve commercial sales volumes. The Company believes that it will be necessary to continue to reduce the cost of manufacturing and to broaden the variety of wavelengths provided by its microlasers to achieve commercial acceptance. If the Company is unable to successfully gain market acceptance of its microlasers and microlaser based products, its business, operating results and financial condition will be materially and adversely affected. Dependence On New Products and Processes To meet its strategic objectives, the Company must continue to develop, manufacture and market new products, develop new processes and improve its existing processes. As a result, the Company expects to continue to make significant investments in research and development and to consider from time to time the strategic acquisition of businesses, products, or technologies complementary to 9 10 the Company's business. The success of the Company in developing, introducing and selling new and enhanced products depends upon a variety of factors, including product selection, timely and efficient completion of product design and development, timely and efficient implementation of manufacturing and assembly processes, effective sales and marketing and product performance in the field. There can be no assurance that the Company will be able to develop and introduce new products or enhancements to its existing products and processes in a manner that satisfies customer needs or achieves market acceptance. The failure to do so would have a material adverse effect on the Company's business, financial condition and results of operations. Limited Microlaser Manufacturing Experience; Scale-Up Risk The Company has no experience in producing microlasers other than in low level production quantities. The Company's microlasers are assembled from component parts at the Company's San Diego facility. The Company purchases component parts for its microlasers, including laser crystals, nonlinear crystals and diode lasers, from various sources around the world. However, none of the Company's suppliers of microlaser component parts has experience in supplying components with the Company's specifications at increased volumes. The Company does not have long term or volume purchase agreements with any of its suppliers and currently purchases components on a purchase order basis. There can be no assurance that these suppliers will be able to provide components to the Company in the quantities, with the quality or at the prices necessary for production quantities of the Company's products and products under development. The Company is increasing its manufacturing capacity to polish and coat crystals and to perform the required complex assembly steps. Such an increase in its manufacturing capacity will require significant scale-up expenditures and additions to the Company's facilities. In the event the Company is unable to locate sufficient sources of microlaser component parts, or is unable to expand its manufacturing capacity to produce microlasers and microlaser based products, the Company will not be able to manufacture its products on commercially reasonable terms, if at all, which would have a material adverse effect on the Company's business, financial condition and results of operations. Limited Microlaser Sales, Marketing and Distribution Experience The Company has only limited experience marketing and selling its microlasers, and does not have experience marketing and selling such products in commercial quantities. The Company intends to sell its microlasers and microlaser based products through a direct sales force in North America and a direct sales force and distributors in Europe. In Asia, the Company intends to sell its microlasers and microlaser based products primarily through agreements with distributors or representatives, although the Company has not entered into any such agreements or arrangements to date. To the extent that the Company enters into distribution or representation arrangements for the sale of its microlasers and microlaser based products, the Company will be dependent upon the efforts of third parties. There can be no assurance that the Company will be able to build a direct sales force or marketing organization for microlasers or microlaser based products, that establishing such a direct sales force or marketing organization will be cost effective, or that the Company's sales and marketing efforts will be successful. There can be no assurance that the Company will be able to enter into agreements with distributors or representation arrangements on a timely basis, if at all, or that such distributors or representatives will devote adequate resources to selling the Company's microlasers and microlaser based products. Failure to build an effective sales and marketing organization or to establish effective distribution or representation arrangements for the Company's microlaser products would have a material adverse effect on the Company's business, financial condition and results of operations. Exposure to Government Markets Approximately 45% of the Company's product sales are derived from customers in the defense industry. These customers in turn generally contract with a governmental entity, typically the U.S. government. Many times, governmental programs are subject to funding approval and can be modified or terminated with no warning upon the determination of a legislative or administrative body. The loss or failure to obtain certain contracts could have a material adverse effect on the Company's business, financial condition and operating results. In addition, the loss of a major government customer, or any significant reduction or delay in orders by such customer, would have a material adverse effect on the Company's business, financial condition and operating results. Future Capital Requirements Although the Company believes that its existing cash balances and anticipated cash flow from operations and bank borrowings and available lines of credit will be sufficient to meet its capital requirements for at least the next 12 months, the Company may seek additional equity or debt financing to compete effectively in the markets it serves. The timing and amount of the Company's capital requirements cannot be precisely determined at this time and will depend on a number of factors, including the demand for the Company's products and products under development. There can be no assurance that such additional financing will be available when needed, or, if available, will be on terms satisfactory to the Company. If additional funds are raised by issuing equity securities, further dilution to the then existing stockholders will result. Risks Associated With International Sales International sales accounted for approximately 37% of the Company's total revenues in each of the quarters ended March 31, 1998 and February 28, 1997, respectively, and the Company expects that international sales will continue to account for a substantial portion of total revenues. The Company may continue to expand its operations outside of the United States and to enter additional international 10 11 markets, both of which will require significant management attention and financial resources. International sales are subject to inherent risks, including unexpected changes in regulatory requirements, tariffs and other trade barriers, political and economic instability in foreign markets, difficulties in staffing and management and integration of foreign operations, longer payment cycles, greater difficulty in accounts receivable collection, currency fluctuations and potentially adverse tax consequences. Since substantially all of the Company's foreign sales are denominated in U.S. dollars, the Company's products may also become less price competitive in countries in which local currencies decline in value relative to the U.S. dollar. The Company's business and operating results may also be materially and adversely affected by lower sales levels which typically occur during the summer months and the calendar year end in Europe and certain other overseas markets. The sales of many of the Company's OEM customers are dependent on international sales, which increases the Company's exposure to the risks associated with international sales. While the Company has not been materially affected by the recent turmoil in Asian markets to date, there can be no assurance that such turmoil will not in the future negatively affect the Company's business and operating results. 11 12 Environmental, Health and Safety Concerns The Company is subject to a variety of federal, state and local governmental regulations related to the storage, use and disposal of hazardous materials used by the Company in connection with the manufacture of laser optics. Both the governmental regulations and the costs associated with complying with such regulations are subject to change in the future. There can be no assurance that any such change will not have a material adverse effect on the Company's business, financial condition and results of operations. The Company makes investments in protective equipment, and continually reviews and monitors process controls, manufacturing procedures and training to minimize the risks to employees, surrounding communities and the environment due to the presence and handling of such hazardous materials. The failure to properly handle such materials could lead to harmful exposure to employees or to the improper discharge of hazardous materials. Since the Company does not carry environmental impairment insurance, such a failure could result in a material adverse effect on the Company's business, financial condition and results of operations. Volatility of Stock Price Until June 1997, there had been no public market for the Company's common stock, and there can be assurance that an active public market for the Company's common stock will develop or be sustained. The trading price of the Company's common stock has been in the past, and will continue to be, subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant orders, changes in earning estimates by analysts, announcements of technological innovations or new products by the combined company or its competitors, general conditions in the combined company's industries and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in industries similar or related to that of the Company and that have been unrelated to the operating performance of those companies. These market fluctuations may materially and adversely affect the market price of the Company's common stock. PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds (d) On June 18, 1997, the Company's Form SB-2 registration statement (File no. 333-24421) was declared effective by the Securities and Exchange Commission. The registration statement, as amended, covered the offering of 1,650,000 shares of the Company's common stock, $.001 par value. The offering commenced on June 19, 1997 and the sale to the public of 1,650,000 shares of Common Stock at $5.50 per share was completed on June 24, 1997 for an aggregate price of $9,075,000. The registration statement covered an additional 247,500 shares of common stock that the underwriters had the option to purchase solely to cover over-allotments. The managing underwriters for the offering were Cruttenden Roth Incorporated and L.H. Friend, Weinress, Frankson & Presson, Inc. On August 6, 1997, the underwriters exercised their option to purchase all 247,500 additional shares of common stock. A total of 1,897,500 shares of common stock were sold in the offering at an aggregate price of $10,436,250. All of the shares sold in the offering were sold by the Company. Expenses incurred by the Company in connection with the issuance and distribution of Common Stock in the offering included underwriting discounts, commissions and allowances of $965,353 and other expenses of $1,365,566 12 13 Total offering expenses of $2,330,919 resulted in net offering proceeds to the Company of $8,105,331. No expenses were paid to directors, officers or affiliates of the Company or 10% owners of any class of equity securities of the Company. Of the net offering proceeds to the Company of $8,105,331, through March 31, 1998, approximately $700,000 had been used for repayment of certain term loans and amounts outstanding under its line of credit with Wells Fargo Bank N.A., approximately $200,000 had been used for the mandatory repayment of certain term loans owed to Proxima, approximately $900,000 had been used for general corporate purposes, approximately $700,000 had been used for acquisition related costs, approximately $1,500,000 had been used for the purchase of certain machinery and equipment, approximately $400,000 had been used for facilities expansion and improvements and approximately $800,000 had been used for enhancement of internal research and development capabilities. No payments were made to directors, officers or affiliates of the Company or 10% owners of any class of equity securities of the Company, other than compensation payments to officers of the Company. Approximately $2,900,000 of the net offering proceeds remain as working capital, primarily in the form of cash equivalents with approximately $1,700,000 held as temporary investments. ITEM 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of the Company (the "Annual Meeting") was held on January 30, 1998 in San Diego, California. PROPOSAL I - ELECTION OF DIRECTORS Each of the candidates listed below was duly elected to the Board of Directors at the Annual Meeting by the tally indicated.
CANDIDATE VOTES IN FAVOR VOTES WITHHELD --------- -------------- -------------- Glenn H. Sherman, Ph.D. 5,184,336 7,115 Douglas H. Tanimoto, Ph.D. 5,184,336 7,115 William G. Fredrick 5,184,336 7,115 Robert G. Klimasewski 5,184,336 7,115 Richard C. Laird 5,184,336 7,115 Kenneth E. Olson 5,184,336 7,115 John C. Stiska 5,184,336 7,115
PROPOSAL II - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS VOTES IN FAVOR VOTES AGAINST VOTES ABSTAINED -------------- ------------- --------------- 5,187,110 2,900 1,441 A special meeting of stockholders was held on February 26, 1998. At this meeting the proposals to (i) approve and adopt an Agreement and Plan of Reorganization, dated as of December 23, 1997, among the Company, LPC Acquisition Subsidiary, Inc., ("SUB"), and EMI Acquisition Corp., a California corporation ("EMI") and (ii) to approve the merger of SUB with and into EMI were each ratified. The results of voting for each of the above proposals was 3,211,554 shares for, 150 shares against, and 4,803 abstentions. ITEM 6. Exhibits and Reports on Form 8-K (a) EXHIBIT INDEX 27.1 Financial Data Schedule (b) REPORTS ON FORM 8-K Current Report on Form 8-K dated March 13, 1998 reporting under Item 2 ("Acquisition or Disposition of Assets") that the Company had completed its acquisition of EMI Acquisition Corp., pursuant to an Agreement and Plan Reorganization, dated December 23, 1997, as amended February 9, 1998. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LASER POWER CORPORATION Date: May 15, 1998 /s/ Paul P. Wickman, Jr. ----------------------------------- Paul P. Wickman, Jr. Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 14 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1998 OCT-01-1997 MAR-31-1998 4,730 0 7,361 (172) 7,452 19,782 16,763 (8,251) 29,253 8,877 1,660 0 0 8 (62) 29,253 16,065 18,567 11,732 13,773 7,213 0 105 (2,524) 160 (2,684) 0 0 0 (2,684) (0.33) (0.33) SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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