10-Q 1 d51395_10q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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 No. 1-11642 LASER TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) DELAWARE 84-0970494 (State or other jurisdiction of (I.R.S. employer identification number) incorporation or organization) 7070 SOUTH TUCSON WAY, ENGLEWOOD, COLORADO 80112 (Address of principal executive offices) (303) 649-1000 (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 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|. At June 30, 2002, 5,710,867 shares of common stock of the Registrant were outstanding. INDEX PART I: FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements............................................. 2 Consolidated Balance Sheets.................................. 2 Consolidated Statements of Operations........................ 4 Consolidated Statements of Cash Flows........................ 5 Notes to Consolidated Financial Statements................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 10 Results of Operations........................................ 10 Liquidity and Capital Resources.............................. 12 Forward Looking and Cautionary Statements.................... 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 12 PART II: OTHER INFORMATION Item 1. Legal Proceedings................................................ 13 Item 2. Changes in Securities and Use of Proceeds........................ 13 Item 3. Defaults upon Senior Securities.................................. 13 Item 4. Submission of Matters to a Vote of Security Holders.............. 13 Item 5. Other Information................................................ 13 Item 6. Exhibits and Reports on Form 8-K................................. 13 1 LASER TECHNOLOGY, INC. Consolidated Balance Sheets ASSETS

See accompanying notes to the consolidated financial statements 2 LASER TECHNOLOGY, INC. Consolidated Balance Sheets LIABILITIES AND STOCKHOLDERS' EQUITY

See accompanying notes to the consolidated financial statements 3 LASER TECHNOLOGY, INC. Consolidated Statements of Operations For the Three and Nine Months Ended June 30, 2002 and 2001 (Unaudited)

See accompanying notes to the consolidated financial statements 4 LASER TECHNOLOGY, INC. Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents For the Nine Months Ended June 30, 2002 and June 30, 2001 (Unaudited)

See accompanying notes to the consolidated financial statements 5 LASER TECHNOLOGY, INC. Notes to Consolidated Financial Statements (Information for the three and nine months ended June 30, 2002 is unaudited) NOTE 1 - Summary of Significant Accounting Policies a. Basis of Presentation The consolidated financial statements presented are those of Laser Technology, Inc. and its wholly-owned subsidiaries; Laser Communications, Inc., Laser Technology, U.S.V.I., Light Solutions Research, Inc. and International Measurement and Control Company. Laser Technology, Inc. is presently engaged in the business of developing, manufacturing and marketing laser based measurement instruments. In the opinion of management, the unaudited financial statements reflect all adjustments, consisting only of normal recurring accruals necessary for a fair presentation of (a) the consolidated statements of operations for the nine month and three month periods ended June 30, 2002 and 2001, (b) the consolidated financial position at June 30, 2002, and (c) the consolidated statements of cash flows for the nine month periods ended June 30, 2002 and 2001. The accounting policies followed by the Company are set forth in the Notes to the Consolidated Financial Statements of the Company for the fiscal year ended September 30, 2001. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. b. Earnings Per Share SFAS No. 128 provides for the calculation of "Basic" and "Diluted" income (loss) per share. Basic income (loss) per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution of securities that could share in the earnings of an entity that were outstanding for the period. The following is provided to reconcile the earnings per share calculation:

Per Share Amounts 6

c. Operating Segments The Company's primary operating segments for the three and nine months ended June 30, 2002 and 2001 were as follows:

d. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities. The new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Accounting for changes in the values of those derivatives depends on the intended use of the derivatives and whether they qualify for hedge accounting. SFAS 133, as amended by SFAS 137 and SFAS 138, was adopted as of April 1, 2001. We believe the adoption of this statement will have no material impact on our financial statements. In June 2001, the FASB issued SFAS 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS 141 also specifies criteria that intangible assets acquired in a purchase method business combination must be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimatable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. We adopted SFAS 141 upon issuance and SFAS 142 effective April 1, 2001. The adoption of SFAS 141 did not affect our consolidated financial statements. The adoption of SFAS 142 resulted in a write down of patents of $14,945. Accordingly, income before changes in accounting estimates did not change, net income decreased by $14,945, basic earnings per share did not change, and diluted earnings per share did not change. 8 On August 16, 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for fiscal years beginning after June 15, 2002. It requires that obligations associated with the retirement of a tangible long-lived asset be recorded as a liability when those obligations are incurred, with the amount of the liability initially measured at fair value. Upon initially recognizing an accrued retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Although we have not completed the process of determining the effect of this new accounting pronouncement, we currently expect that the effect of SFAS No. 143 on our consolidated financial statements, when it becomes effective, will not be significant. In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Although SFAS 144 supersedes SFAS 121, it retains many of the fundamental provisions of SFAS 121. SFAS 144 also supersedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting-the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in APB 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of, by sale, abandonment, or in a distribution to owners, or is classified as held for sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. We believe the adoption of SFAS 144 will not have a significant effect on our consolidated financial statements. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations for the Three and Nine Months Ended June 30, 2002 and June 30, 2001 For the three and nine months ended June 30, 2002 and 2001, the following table provides the percentage relationship to net sales of principal items in the Company's Consolidated Statements of Operations. It should be noted that percentages discussed throughout this analysis are stated on an approximate basis.

Revenues The following sales analysis provides information as to the percentage of net sales of the Company's primary product lines. Revenues realized from sales of the Company's less significant revenue producing product lines are classified as "Other" for presentation purposes.

10 Comparison of Three-Months Ended June 30, 2002 and the Three-Months Ended June 30, 2001 Net sales in the third quarter ended June 30, 2002 decreased 18% to $2,714,487 from $3,312,326 realized in the third quarter ended June 30, 2001. Traffic Safety sales increased 1% to $1,973,247 from $1,950,710. North American Traffic Safety sales decreased 14% to $1,137,421 from $1,320,439 reflecting the termination of sales of lasers for industrial applications to an individual customer in the second quarter of 2002. This decrease was offset by a 33% increase in international Traffic Safety sales to $835,827 from $630,271 which reflected increased spending by certain foreign governments. Survey and Mapping sales declined 52% to $456,493 in 2002 as compared to $958,569 realized in 2001. North American sales declined 59% to $317,756 from $769,891. Shrinkage in demand from the telecom industry for GIS equipment contributed to the decline. International Survey and Mapping sales decreased by 27%, to $138,737 from $188,677 as competing sales of conventional survey equipment and lower cost rangefinders for the GIS market restrained our sales. Overall, international sales accounted for 36% of net sales totaling $980,832 in the third quarter 2002, up from 25% of net sales at $818,949 in the same quarter a year ago. Higher traffic safety sales to certain governments accounted for the increase. The third quarter of 2002 ended with a backlog of orders totaling $1,145,880 of which $590,535 will be shipped before the end of the current fiscal year and $555,345 is scheduled for delivery over the next twelve months. Higher unit costs reduced gross margins which narrowed slightly to 53% of sales in the third quarter versus 56% of sales in the same period a year earlier. Royalty and licensing income from the Company's licensees was $175,353, in the third quarter of 2002 compared to $199,075 in 2001. The continued sales of lower priced units by our licensee reduced their aggregate dollar sales which resulted in a 12% decrease in our royalty income. Total operating expenses increased 3% to $1,776,588 for the 2002 third quarter from $1,730,165 for the comparable 2001 period. Although sales, marketing and administrative expenses were reduced, they were offset by increased research and development expenses and patent litigation expenses. The third quarter of 2002 ended with an operating loss of $161,579 as compared to net income of $314,066 in 2001. Net loss after interest and taxes was $88,781 compared to net income of $240,531 a year ago, or a net loss of 0.02 per basic share compared net income of 0.04 per basic share the prior year. Comparison of Nine Months Ended June 30, 2002 and the Nine Months Ended June 30, 2002 Net sales for the first nine months of 2002 were $7,415,294, down 16% from $8,782,360 during the first nine months of 2001. Traffic Safety sales decreased 6% during the first nine months of 2002 to $5,068,100, compared to $5,363,916 a year earlier. This was primarily due to lower International Traffic Safety sales, which declined 12% to $2,025,421 from $2,301,935. Although international demand for our products picked up in the third quarter due to increased spending by foreign governments, it was not sufficient to offset a slowndown earlier in the year. North American Traffic Safety sales remained virtually constant at $3,042,680 compared with $3,061,981 for the first nine months of 2001. Survey and Mapping sales decreased 36% to $1,664,957 for the first nine months of 2002 compared to $2,586,515 realized in the comparable 2001 period. North American Survey and Mapping sales decreased 42% to $1,078,751 from $1,849,493. Demand for GIS related equipment continues to decline due to over capacity and reduced spending by the telecom industry which directly affects our product sales. International Survey and Mapping sales declined 21% to $586,205 from $737,022 reflecting competition from conventional survey equipment, low cost range finders and subdued economic activity. International sales comprised 36% of net sales during the first nine months of 2002 as compared to 35% for the corresponding 2001 period. Foreign sales of the Company's products are expected to continue to account for a significant portion of the Company's revenues. Gross profit as a percentage of net sales declined to 50% for the first nine months of 2002 compared to 54% for the first nine months of 2001. Higher sales volume and lower materials cost positively impacted gross margins a year ago. On a year to year basis, royalties decreased 12% to $521,241 for the first nine months of 2002 from $588,951 realized in 2001 reflecting a lower per unit sales price by our licensee. Total operating expenses increased modestly to $5,146,859 for the first nine months of 2002 from $5,132,011 for the first nine months of 2001. Reduced marketing, sales and administrative expenses were partially offset by increased legal and research and development costs. As a percentage of net sales, total operating expenses increased to 69% for the first nine months of 2002 from 58% for the first nine months of 2001. The nine months of 2002 ended with an operating loss of $883,458 compared to net income of $163,109 in 2001. Net loss after interest and taxes for the first nine months was $528,076 compared to a net income of $197,437 a year ago, or a net loss of 0.09 a basic share compared to a net profit of 0.04 a basic share the prior year. 11 Liquidity and Capital Resources Our net working capital at June 30, 2002 was $7,908,129 as compared to working capital of $8,201,411 at September 30, 2001, a decrease of $293,282. Current assets exceeded current liabilities by a ratio of 10 to 1. Furthermore, the acid test ratio (ratio of current assets minus inventories and prepaid expenses to liabilities) was 6 to 1. Thus, the present working capital is expected to adequately meet our needs for at least the next twelve months. An increase in prepaid expenses and other assets of $246,601 and a net loss of $528,076 were the largest items that required funding. Patent costs and purchases of fixed assets required an additional $159,682 of cash. Adjustments to reconcile net income to cash provided by operating activities were depreciation and amortization of $375,115, a write down of Patents of $14,945 with a loss on disposal of property and equipment of $4,416. The operating activities that provided cash were a reduction of inventory of $1,196,245 and a reduction in accounts receivable of $1,022,486. The other material item that decreased cash was a reduction of accounts payable and accrued expenses of $45,323. For the nine months ended June 30, 2002, a net cash decrease of $159,682 from investing activities was due to the purchase of property and equipment of $110,076 and patent costs of $49,606. After repayments of $14,611 on long term debt and capital leases, the increase from operating activities of $1,793,207 produced a net increase in cash and equivalents of $1,618,914. When added to cash on hand at the beginning of the fiscal year, total cash and equivalents at June 30, 2002 stood at $3,260,500. Thus, cash and equivalents alone exceeded total liabilities by $2,385,458 at the end of the period. At June 30, 2001, we had working capital of $7,937,487 compared to $6,918,219 at September 30, 2000. Current assets exceeded current liabilities by a ratio of 8.2 to 1. Furthermore, the acid test ratio was in excess of 4 to 1. Inventory, the largest item that required financing, stood at $4,432,369 at June 30, 2001, up $1,341,507 from September 30, 2000. Inventory expansion reflected stocking of certain outsourced assemblies and an increase in other raw materials. Prepaid insurance, fees and expenses required an additional $90,014 of funding. The operating activities that provided cash were a net income of $197,437, depreciation of $442,530 and a reduction in accounts receivable of $193,713. The only other items that reduced cash were an increase in accounts payable and accrued expenses of $16,327. A net cash increase of $1,913,367 from investing activities was due to the conversion of investment accounts into working capital. After expending $612,045 on operating activities and $77,524 on long term debt and capital leases, there was a net increase in cash and equivalents of $1,223,798. When added to cash on hand at the beginning of the nine month period, total cash and equivalents at June 30, 2001 stood at $1,809,680. Thus, cash and equivalents alone comfortably exceeded total liabilities of $1,107,776 at the end of the period. Forward-Looking and Cautionary Statements Forward-looking statements in this report are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company wishes to advise readers that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties including but not limited to, continued acceptance of the Company's products in the marketplace, competitive factors, potential changes in the budgets of federal and state agencies, compliance with current and possible future FDA or environmental regulations, and other risks detailed in the Company's periodic report filings with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures About Market Risk This Item is not applicable. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings On February 8, 2000, we filed a complaint against Nikon, Inc. in U.S. District Court for the District of Colorado (Civ. No. 00-B-272), for selling and using a product infringing one of our patents. On July 26, 2000, we amended the complaint to include allegations that Nikon's conduct infringed a second patent obtained by us. On May 24, 2001, we amended the complaint to add allegations that Nikon and Asia Optical Co, Inc. are infringing a third patent issued to us in May 2001. Nikon and Asia Optical have filed an answer and counterclaims, seeking a declaratory judgment that the Defendants did not infringe the patents, that the patents are invalid and unenforceable, and that the Defendants have been damaged by willful and unfounded assertions of infringement by us. The counterclaims do not quantify the damages sought. Efforts to resolve the matter through court ordered mediation have not been successful. We are vigorously prosecuting the lawsuit. On July 18, 2002, the Court heard legal argument from the parties in support of their proposed claim constructions. The Court indicated that it would issue a prompt ruling. In March 2002, Bushnell Performance Optics of Overland Park, Kansas filed a lawsuit against us in the District Court of Johnson County, Kansas (Case No. 02 CV 1498). The lawsuit alleges breach of contract and unauthorized surcharges on a certain technical component. Bushnell is asking for $350,000 in damages. We have filed with the Court an answer containing several counterclaims whereby we allege, among other claims, a breach of contract by Bushnell, fraud and defamation, and also ask for an injunction against Bushnell. Although management believes Bushnell's suit is without merit and that we will prevail, settlement discussions have been initiated with the possibility of obtaining a business resolution as an alternative to a lengthy legal proceeding. Notwithstanding the lawsuit, we continue to conduct business with Bushnell under the terms of our current contract. Item 2. Changes in Securities and Use of Proceeds This Item is not applicable. Item 3. Defaults upon Senior Securities This Item is not applicable Item 4. Submission of Matters to a Vote of Security Holders This Item is not applicable to the Company. Item 5. Other Information This Item is not applicable to the Company. Item 6. Exhibits and Reports on Form 8-K Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13 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 TECHNOLOGY, INC. 7070 South Tucson Way Englewood, Colorado 80112 Date: August 14, 2002 By /s/ Eric A Miller -------------------- ----------------------------------------- Eric A. Miller President and Chief Executive Officer Date: August 14, 2002 By /s/ Elizabeth Hearty -------------------- ----------------------------------------- Elizabeth Hearty Controller, Corporate Secretary 14

LASER TECHNOLOGY INC 10-Q