-----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, ED2tv1TvSlpl1AMiWluL4QPZtSTCAmqbQnfkcOswg+i2kCCafnq3RDae6BZ+ZVPj SIhzMQMfU16fXbAYZwRvBA== 0000909012-98-000099.txt : 19980317 0000909012-98-000099.hdr.sgml : 19980317 ACCESSION NUMBER: 0000909012-98-000099 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980316 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LASER MASTER INTERNATIONAL INC CENTRAL INDEX KEY: 0000700892 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 112564587 STATE OF INCORPORATION: NY FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-76262-NY FILM NUMBER: 98566237 BUSINESS ADDRESS: STREET 1: 1000 FIRST STREET CITY: HARRISON STATE: NJ ZIP: 07029 BUSINESS PHONE: 2014827200 MAIL ADDRESS: STREET 1: 1000 FIRST ST CITY: HARRISON STATE: NJ ZIP: 07029 FORMER COMPANY: FORMER CONFORMED NAME: LASER CRAFT INDUSTRIES INC DATE OF NAME CHANGE: 19850423 10-K 1 ANNUAL REPORT FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended Commission file number - ------------------------- ---------------------- November 30, 1997 2-76262-NY Laser Master International,Inc. ------------------------------- (Exact name of registrant as specified in its charter) New York 11-2564587 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1000 First Street, Harrison, N.J. 07029 --------------------------------- ----- (Address of principal executive Offices) (Zip Code) (201) 482-7200 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock Par Value $.01 Per Share Nasdaq Bulletin Board -------------------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: None ---- (Title of Class) (Title of Class) 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. YES X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common Stock - Par Value $.01 10,615,380 ----------------------------- ---------- Class Outstanding Shares Aggregate Market Value of Non-Affiliate Stock at January 31, 1998 - --------------------------------------------------------------------- approximately $3,485,190. ------------------------- PART I Item 1. BUSINESS (a) General: The Company was founded in 1981 and prints for the textile industry and the gift wrap paper industry. The company sells its products and services nationwide thru its direct sales force and resellers. In addition the company has a real estate division that owns the factory building in Harrison, New Jersey. The building 247,000 square feet of which 49% is rented to two unaffiliated tenants and 51% is rented to Flexo-Craft Prints Inc. Flexo-Craft Prints Inc. is the printing company and is engaged in the use of a computerized laser system to accomplish Flexographic printing for industrial and commercial printing and engraving, and counts among its customers large corporations, some of which are listed on the NY Stock Exchange. Flexo-Craft (Process) The principal operation of Flexo-Craft is to utilize a ZED laser in its process. A laser is a device which emits a "coherent" wavelength (color). A large degree of control is thus afforded, and as a consequence, an exceptionally high density of power can be delivered to a well-defined area by focusing the light energy. Using a computer driven system the laser beam makes grooves in the form of designs and patterns onto a rubber material. The rubber material is then sealed on a steel or aluminum cylinder which is then placed on a printing press. In the heat transfer printing process the ink is injected into the grooves using a computer driven process and then the rubber coated cylinder prints on heat transfer paper. The heat transfer paper is sold to manufacturers who then seal it onto textile materials. The same process is used for gift wrap paper except that the paper itself is the final product. One of the six color presses prints heat transfer paper and the other six color press prints gift wrap paper. The new eight color press can print either paper and in addition can allow the company to print for the wallpaper, home furnishings, carpet and other industries. It also is three times faster than the newest six color press. The Company either accepts patterns from the customer or can design its own patterns using a computerized color separating system. In addition the Company has a extensive supply of rubber coated cylinders with designs already engraved which can be used numerous times and for many years. INDUSTRY SEGMENT INFORMATION During the last two fiscal years ending November 30, 1997 and 1996, the following is a listing of the percentage of revenue which contributed toward the total revenue of the Company. 1997 l996 ---- ---- Heat Transfer 55% 57% Gift Wrap 42% 40% Roll Covering 3% 3% ---- ---- Total % 100% 100% The Company does not consider itself to be in a seasonal business; however prior to the Christmas Season, its Christmas gift wrap business tends to increase in the percentage of volume during the season. -2- COMPETITION Flexo Craft is subject to competition insofar as the laser engraving application to industrial and commercial printing engraving is concerned. There is no assurance that other companies with far greater resources will not engage in the same business as Flexo Craft. Flexo Craft competes with a major competitor in the use of the laser in its business. There are three other companies who engage in a business similar to that of the Company. In addition, Flexo Craft competes with many other companies who use conventional methods of processing, which do not include the use of the laser. The Company presently sells to approximately 150 customers. The Company does not depend upon one customer or a few that would materially affect its sales, however, the loss of a certain number of its customers would have a material effect upon the business of the company. The Company has approximately three to four competitors in its Heat Transfer Business; approximately twelve in its Gift Wrap Business; and two to three in its Roll Covering Business. The Company competes with its competitors principally with respect to the quality of its product and the ability of the Company to deliver its product on a timely basis to its customers. Generally, price is not the most significant factor with respect to a customer, as the customer is most interested in the quality of the product delivered to it. The Company does not have sales representatives and maintains a sales staff of six individuals who visit the customers of the Company on a national basis. EMPLOYEES The Company currently has employed seventy-eight people, of which five are in Management and seventy are Members of Local 1718 of the United Production Workers. The Company generally enjoys favorable relations with its union employees, and has not in its history had any strike or any work stoppage. OTHER INFORMATION The Company is not dependent on a single customer or a limited number of customers. No material portion of the Company's business is subject to government contracts. Compliance with federal, state or local environmental protection laws has no material affect on the capital expenditures, earnings or competitive position of the Company. Backlog of orders: Dollar amount of backlog and percentage expected to be filled during the fiscal year. As of: November 30, 1997 $2,500,000 100% November 30, 1996 2,000,000 100% -3- The backlog of orders, as stated, is not affected by the seasonal cycle of the industry throughout the year. The Company filled all of its backlog orders during its last fiscal year ended November 30, 1997 and anticipated being able to fill all it current backlog orders during its fiscal year ending November 30, 1998. Flexo Craft orders are generally subject to cancelable purchase orders or contracts. The rate of cancellation of orders has been insignificant. Although the stated backlog may be used as a guideline in determining the orders which may be delivered, the backlog is subject to change by reason of several factors, including possible cancellation, and should not be relied upon as being necessarily indicative of the company's revenues or profits within the indicated period, or otherwise. ITEM 2. PROPERTIES The Company owns all the issued and outstanding common stock of Harrison Realty Corp., which is the owner of the real property, plant and office facility of the Company. The building owned by Harrison Realty Corp. is a single story industrial building located at 1000 First Street, Harrison, New Jersey. The building was constructed in 1994 and is fully detached and contains a sprinkler system and heavy duty electrical wires, required by the Company's Flexo Craft facilities for use in its printing process. The building area is approximately 240,000 square feet, which is 51% utilized by the Company. The building has an existing mortgage in the sum of $1,895,000 as well as a second mortgage for $606,667. This building is approximately five times larger than the company's previous facility in Brooklyn. In addition since everything is on a single floor the company will be able to operate much more efficiently in the future. The Company currently has two tenants who are not affiliated with the Company, and have executed leases at 1000 First Street. Information about the tenants of Harrison Realty Corp. can be found in Note 1 to the financial statements. ITEM 3. LITIGATION There are no proceedings contemplated or threatened by any Government or agency against the Company of any of its Subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The quarterly high and low prices of the Company's common stock are as follows: (1) The Company's common shares are quoted on the Nasdaq Bulletin Board. -4- (2) The quarterly high and low prices of the Company's common stock as traded were as follows: 1997 1996 High Low High Low ----- ----- ------ ---- First Quarter 1-1/2 7/8 2 3/4 Second Quarter 3/4 1/2 3-1/8 1-1/8 Third Quarter 1/2 3/8 2-1/4 1-1/8 Fourth Quarter 11/16 5/16 1-1/2 21/32 (3) The approximate number of shareholders of record on November 30, 1997 was 585. (4) No cash dividends have ever been declared nor are any expected in the near future. (5) Mr. Mendel Klein is the owner of 3,625,000 shares. Pursuant to Rule 144 of the 1933 SEC ACT, he is permitted to sell 7,725 shares in every six month period. The offering of these shares could have an adverse effect on the market price of the stock. ITEM 6. SELECTED FINANCIAL DATA - fiscal year ended 11/30/97 11/30/96 11/30/95 11/30/94 11/30/93 ----------- ---------- ---------- ---------- ---------- Revenues $12,007,663 $11,499,811 $8,800,394 $8,270,936 $9,347,934 Net Income $ (573,484) $ 362,119 $(178,957) $ 276,471 $ 771,837 Earnings Per Share (.06) .04 (.03) .05 .13 Cash Dividend declared per common share -0- -0- -0- -0- -0- At Year End: Totl Assets $15,224,075 $15,967,150 $13,861,245 $14,842,777 $8,251,805 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRINTING SEGMENT Net sales for the year ended November 30, 1997 totaled $11,660,251 as compared to $11,118,846 for the year ended November 30, 1996, for an increase of 5%. Management attributes the increase in sales to the fact that the company began to enter new markets for its printed paper products such as home furnishings. As the 8 color press begins to contribute in 1998 management is expecting to be able to enter additional markets. The 8 color press was finally completely and successfully upgraded and repaired by the manufacturer in January 98. The 8 color press which was delivered and assembled in 1995 had no impact on sales this year but is beginning to make an impact in 1998 and will significantly increase sales in the future. The new 8 color press was expected to contribute towards sales and profits in 1997 but still needed further modifications and upgrading which has now been finished. The Company expects to operate more efficiently in 1998 and management anticipates a solid increase in sales. -5- Gross profit percentage for 1997 was 22% compared to 31% for the year before. This was a result of disruptions in the printing process due to the repeated problems from the 8 color press. Selling expenses were 7% of sales compared to 14% in the previous year. The Company EC significantly reduced selling expenses to control costs as it became apparent that there would be production limitations due to the problems with the 8 color press. REAL ESTATE SEGMENT Rental income for the years 1997 compared to 1996 decreased 8%. During 1997 the operating (loss) from the real estate division was ($ 28,199) compared to ($ 74,489) in 1996. The Company had substantial start up expenses in the new factory building in Harrison, New Jersey in 1996. The Company has two unaffiliated tenants with monthly rental income of $28,855. This segment expects to be profitable in the future now that the start up expenses and renovation period is over. CORPORATE EXPENSES General and administrative expenses for fiscal 1997 were 16% of sales as compared to 10% of sales for the preceding year. The increase was due to the fact the company upgraded its computer system which resulted in training costs and computer software costs and non-recurring expenses of professional fees and consultants. A Interest and finance charges paid by the Company during fiscal 1997 decreased slightly from the previous year due to the fact that the company's average debt level decreased from the previous year. The Company does not expect any significant additional borrowings for the upcoming year. LIQUIDITY AND CAPITAL RESOURCES: The Company ended its fiscal year with a current ration of 1.87 compared to 2.34 in the previous year end. Working capital and cash aggregated approximately 2,434,079 and 412,353 respectively at November 30, 1997 as compared to 3,179,239 and 396,777 respectively at November 30, 1996. The Company believes its financial position at November 30, 1997 will enable it to take advantage of any new opportunities that may arise. In fiscal 1997 cash flow provided from operations was $ 818,809 compared to $(1,237,428) in 1996. The decrease in inventory levels is primarily attributable to decreased inventory levels necessary to support shorter lead times in obtaining raw materials. Accounts receivable decreased by $347,845 which was because of the fact that the company is collecting faster and is stricter on giving credit terms. Accounts payable increase of $125,475 was because of the company's ability to obtain better credit terms because of its improved payment history. Net cash used by investing activities during 1997 was $176,964 which was primarily because of fixed assets acquisitions. Management does not anticipate any significant capital expenditures in 1998. Net cash used by financing activities during 1997 was $626,269. This was primarily because the company reduced debt levels. The Company anticipates that its capital resources provided from its cash flow from operations and anticipated financing will be sufficient to meet its financing requirements for at least the next 12 month period. - 6 - Inflationary Impact: Since the inception of operation, inflation has not significantly affected the operating results of the company. However, inflation and changing interest rates have had a significant effect on the economy in general and therefore could affect the operating results of the company in the future. - 7 - ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LASER MASTER INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Pages ------ Report of Independent Auditors ----------------------------- 10 Consolidated Balance Sheets - November 30, 1997 ------------ 11-12 Consolidated Statements of Operations for the Fiscal Years ended 1997 & 1996 ----------------------------------------- 13 Consolidated Statements of Stockholders Equity for the Fiscal Years ended 1997 & 1996 ---------------------------- 14 Consolidated Statements of Cash Flows for the Fiscal Years ended 1997 & 1996 ----------------------------------------- 15 Notes to Consolidated Financial Statements ----------------- 16-25 All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required to because the required information is included in the financial statements or notes thereto. - 8 - LASER MASTER INTERNATIONAL, INC. ANNUAL REPORT FISCAL YEAR ENDED NOVEMBER 30, 1997 -9- GOLDSTEIN AND MORRIS CERTIFIED PUBLIC ACCOUNTANTS, P.C. 36 WEST 44TH STREET NEW YORK, NEW YORK 10036 EDWARD B. MORRIS TELEPHONE (212) 789-9800 ALAN J. GOLDBERG FACSIMILE (212) 789-8090 - --------------- ALBERT M. GOLDSTEIN REPORT OF INDEPENDENT PUBLIC ACCOUNTANT The Board of Directors and Stockholders Laser Master International, Inc. and wholly owned subsidiaries We have audited the accompanying consolidated balance sheet of Laser Master International, Inc. and subsidiaries as of November 30, 1997 and the related consolidated statements of operations, stockholders equity and cash flows for the two years ended November 30, 1997. These consolidated financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Laser Master International, Inc. and subsidiaries as of November 30, 1997 and the consolidated results of its operations and its cash flows for the two years ended November 30, 1997 in conformity with generally accepted accounting principles. New York, New York February 26, 1998 /s/ Goldstein and Morris - 10 - LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30 1997 ---- ASSETS CURRENT ASSETS: Cash in Bank $ 412,353 Short Term Investments- Note 23 462,625 Accounts Receivable-Net Notes 4 2,237,504 Merch. Invent.-Note 2 and 5 1,947,440 Prepaid Expenses 64,722 Loans Receivable 127,347 ----------- TOTAL CURRENT ASSETS 5,251,991 ----------- FIXED ASSETS:- Note 2 Factory Building and Improvements - Note 6 4,976,808 Land - Factory Site 215,000 Mach'y & Equip. - Note 7 8,124,395 Engraving Invent. - Note 9 878,456 Installation Cost 942,797 Furniture & Fixtures 131,956 ----------- Total 15,269,412 Less: Accumulated Depreciation - Note 8 5,558,589 ----------- TOTAL FIXED ASSETS 9,710,823 ----------- OTHER ASSETS: Deferred Charges - Note 3 80,177 Restricted Cash - Note 25 181,084 ----------- TOTAL OTHER ASSETS 261,261 ----------- TOTAL ASSETS $15,224,075 =========== The accompanying notes to financial statements are an integral part of this statement and should be in conjunction herewith. -11- LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30 1997 ---- LIABILITIES CURRENT LIABILITIES: Accounts Payable $ 941,222 Accrued Expenses and Taxes Payable 208,029 Loan Payable - Note 18 1,113,660 Current Portion of Long Term Debt - Note 17 555,001 ----------- TOTAL CURRENT LIABILITIES 2,817,912 ----------- LONG TERM LIABILITIES: Long Term Debt, Net of Current Portion - Note 17 4,776,666 ----------- TOTAL LONG TERM LIABILITIES 4,776,666 ----------- TOTAL LIABILITIES 7,594,578 ----------- COMMITTMENTS & CONTINGENCIES - Notes 9&10 STOCKHOLDERS' EQUITY: Capital Stock-Authorized 50,000,000 shares - $.01 par value Issued & Outstanding - 10,615,380 shares 106,154 Additional Capital Paid in Excess of Par 5,424,412 Unrealized Gain on Securities 10,000 Retained Earnings 2,088,931 ----------- TOTAL STOCKHOLDERS' EQUITY 7,629,497 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,224,075 =========== The accompanying notes to financial statements are an integral part of this statement and should be read in conjunction herewith. -12- LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDING NOVEMBER 30 NOVEMBER 30 1997 1996 ---- ---- REVENUES Product Revenues $11,660,251 $11,118,846 Rental Income 347,412 380,966 ----------- ----------- TOTAL REVENUES 12,007,663 11,499,812 COST OF SALES Cost of Product Revenues 9,017,036 7,646,450 Cost of Rental Income 315,458 276,050 ----------- ----------- TOTAL COST OF SALES 9,332,494 7,922,500 ----------- ----------- GROSS PROFIT 2,675,169 3,577,312 OPERATING EXPENSES Selling Expenses 946,437 1,662,596 Gen'l & Adm Expenses 1,990,722 1,164,100 Non-recurring exp-moving - 33,554 ----------- ----------- TOTAL OPERATING EXPENSES 2,937,159 2,860,250 ----------- ----------- OPERATING INCOME (261,990) 717,062 ----------- ----------- Interest Expense 421,337 455,050 Investment and Other Income (71,827) (138,123) ----------- ----------- Income Before Inc. Tax Exp. (611,500) 400,135 Provision for Income Taxes (38,016) 38,016 ----------- ----------- NET INCOME (LOSS) (573,484) 362,119 =========== =========== Earnings (Loss) Per Share $ (.06) $ .04 =========== =========== Weighted Average Number of Common Shares Outstanding 10,494,990 8,166,468 =========== =========== The accompanying notes to financial statements are an integral part of this statement and should be read in conjunction herewith. -13- LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS' OF STOCKHOLDER'S EQUITY THE YEAR ENDED NOVEMBER 30, 1997 & 1996 Common Additional Common Stock Paid-In Retained Unrealized Shares Amount Capital Earnings Gain Total ------ ------ ------- -------- ---- ----- Balance 12/1/95 5,958,335 59,583 $2,141,984 2,300,296 $4,501,863 - ---------------------------------------------------------------------- * 4,416,265 44,163 $3,134,836 $3,178,999 Year ended 11/30/96 362,119 362,119 - ---------------------------------------------------------------------- Bal. 11/96 10,374,600 $103,746 $5,276,820 $2,662,415 $8,042,981 - ---------------------------------------------------------------------- Year ended 11/30/97 *240,780 *2,408 *147,592 (573,484) 10,000 (413,484) - ---------------------------------------------------------------------- Bal. 11/97 10,615,380 $106,154 $5,424,412 $2,088,931 $10,000 $7,629,497 * Issuance of common stock at $1 per share in private placement net of costs. The accompanying notes to financial statements are an integral part of this statement and should be read in conjunction herewith. -14- LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS' OF CASH FLOWS FOR THE YEARS ENDED NOVEMBER 30 NOVEMBER 30 1997 1996 ---- ---- Cash flows from operating activities: Net Income $ (573,484) $ 362,119 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation Expense 492,277 470,574 Amortization Expense 10,607 10,508 Increase (Decrease) in cash flows from operations resulting from changes in: Accounts Receivable 347,845 (281,088) Inventories 165,754 (1,407,229) Prepaid Expenses (24,995) 50,381 Sundry Receivable (127,347) - Accounts Payable 125,475 (426,152) Accrued Expenses 402,677 (16,641) ----------- ----------- Net cash provided by Operations 818,809 (1,237,428) ----------- ----------- Cash flows from investing activities: Net (Purchase) of short term investments (57,402) (49,839) Fixed Assets (93,406) (1,299,303) Other Assets 1,860 (22,024) Deferred Taxes (38,016) 38,016 Unrealized Gain 10,000 - ------------ ----------- Net Cash used in Investing (176,964) (1,333,150) ----------- ----------- Cash flow provided from (used for) financing activities: Proceeds from Capital 150,000 3,178,999 Proceeds from Debt 1,234 150,000 Repayments of Debt (777,503) (1,170,390) ----------- ----------- Net cash provided by financing activities (626,269) 2,158,609 ----------- ----------- Net increase (decrease) in cash 15,576 (411,969) Cash at beginning of year 396,777 808,746 ----------- ----------- Cash at end of year $ 412,353 $ 396,777 =========== =========== The accompanying notes to financial statements are an integral part of this statement and should be read in conjunction herewith. -15- LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS NOTE 1. GENERAL The company was founded in 1981 and prints for the textile industry and the gift wrap paper industry. The company sells its products and services nationwide through its direct sales force and resellers. In addition the Company has a real estate division that rents space in the factory buildings owned by the Company. Name and brief description of companies under common control: a. FLEXO-CRAFT PRINTS INC. The company has for approximately 15 years been engaged in the business of commercial printing and engraving, utilizing a laser technique. The company principally prints an extensive line of patterns and designs which are sold to industrial customers engaged in the manufacture of textile products and gift wrap paper. b. PASSPORT PAPERS INC. & EAST RIVER ARTS INC. These Companies are Sales Corporations which sell products printed by Flexo Craft Prints Inc. They each sell under their own labels and in their respective markets. c. HARRISON REALTY CORP. This company owns and operates a 240,000 sq. ft. factory building in Harrison, New Jersey. There are two unaffiliated tenants currently occupying 49% of the space. One tenant occupies 62,600 sq. ft. and pays $14,338 per month plus utilities and water with the lease expiring June 30, 1999. The other tenant occupies 53,600 sq. ft. and pays $14,517 per month plus utilities and water with the lease expiring January 1, 2000. Each of these two tenants are responsible for their percentage of real estate tax increases for the terms of their leases. The cost of the land, buildings and improvements is $4,773,388 and the accumulated depreciation is $455,031 at November 30, 1997. There is no contingent rental income for any of the periods in which an income statement is presented. The minimum rental income expected from noncancellable leases: At November 30, ----------------------------------------------------------- 1998 $ 346,260 1999 274,570 Subsequent years 14,517 ----------------------------------------------------------- Minimum Rental Payments $ 635,347 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (a) The consolidated financial statements include the accounts of Laser Master International Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. -16- LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (b) Revenue Recognition: Sales are recorded when title passes (either at shipment or customer acceptance). Rental Income is earned based on tenant occupancy per leases on the accrual basis. (c) Inventory valuation: Inventories are stated at the lower of cost (first-in, first-out) or market. (d) Depreciation of fixed assets is calculated on the straight line method based on estimated useful lives of 31-1/2 years for buildings and improvements and 10 to 30 years for machinery, equipment and furniture. Maintenance and repairs are charged to expenses as incurred. (e) Income Taxes: Income taxes are computed in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". This statement requires the use of the asset and liability approach for financial accounting and reporting of income taxes. Under this method, deferred tax assets and liabilities are recognized on temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. Deferred income taxes and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the income. Valuation allowances are established, if necessary to reduce the deferred tax asset that will, more likely than not, be realized. Income tax expense is the current tax payable or refundable for the period plus or minus the next change in the deferred tax assets or liabilities. (f) Use of Estimates: Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, The disclosure of contingent assets and liabilities, and the reported revenues and expenses. (g) Concentrations of Credit Risk for Cash The company's cash balances, including restricted cash, which are maintained in various banks are insured up to $100,000 for each bank by the Federal Deposit Insurance Corporation. The balances at times, may exceed these limits. (h) Fair Value of Financial Instruments The carrying value amounts of cash, prepaid expenses, accrued expenses and loans payable approximate fair value because of the short maturity of these items. It is not practical to estimate the fair value of long term debt because quoted market prices do not exist and estimates could not be made through other means. - 17 - LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS NOTE 3. DEFERRED CHARGES The above account consists principally of costs that were incurred upon the financing of the Company's factory building in Harrison, New Jersey and the new eight color printing press. The financing was done through a tax exempt bond issue through the New Jersey Economic Development Authority. These costs include EDA fees, legal fees, other professional fees and other closing costs. The costs are being amortized over the length of the loans based on using a straight line method of amortization. NOTE 4. ACCOUNTS RECEIVABLE - NET The allowance for doubtful accounts is $254,500 for the year ended November 30, 1997. NOTE 5. INVENTORIES Inventories are summarized as follows: 1997 ---------- Raw material & components $ 606,762 Work-in-process 203,340 Finished goods 1,137,338 ---------- $1,947,440 ========== NOTE 6. FACTORY BUILDING AND IMPROVEMENTS One of the wholly owned subsidiaries of the company, Harrison Realty Corp. owns the factory building in Harrison, New Jersey. The factory building is 240,000 sq. ft. of which 49% is rented to unaffiliated tenants. The building has a lst mortgage on it from Fleet Bank and the New Jersey EDA as well as a 2nd mortgage from Fleet Bank. NOTE 7. MACHINERY AND EQUIPMENT The machinery and equipment is owned by the wholly owned subsidiary Flexo-Craft Prints Inc. It consists of various pieces of heavy equipment, the acquisition of which has been financed on an individual basis at the time of purchases and installation. For details of these encumbrances, reference is made to the consolidated schedule of total debt. NOTE 8. INCOME TAXES The components of the deferred tax asset (liability) are summarized as follows: 1997 ---------- Tax credit carryforwards ---------------- $ 83,787 Net operating loss carryforwards--------- 174,018 Allowance for doubtful accounts---------- 86,530 ---------- Gross deferred tax assets---------------- 344,335 ---------- Deferred Tax Liabilities: Accelerated depreciation ---------------- 183,621 ---------- Total net deferred tax assets ----------- 160,714 Less: Valuation Allowance (160,714) ---------- Net deferred tax assets ----------------- $ - ========== - 18 - LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS CARRYFORWARD OF NET OPERATING LOSSES The company has available as benefits to reduce future Federal income taxes, subject to applicable limitations, the following net operating loss carry-forwards and tax credits: Tax Net Year Operating Loss Investment Expires Carryforward Tax Credit ------- -------------- --------------- 1998 $ - $ - 1999 - 83,787 2000 - - 2001 - - 2011 21,459 - 2013 511,818 - -------- -------------- --------------- Total $ 533,277 $ 83,787 ============== =============== RECONCILIATION BETWEEN STATUTORY TAX RATE AND EFFECTIVE TAX RATE Fiscal Year Ended 11/30/97 11/30/96 -------- -------- Prov. computed at statutory rate $ - $ 136,046 Tax effect of loss carryforward - (136,046) Deferred Income Tax (38,016) 38,016 --------- ---------- Provision for Income Taxes $ (38,016) $ 38,016 ========= ========= NOTE 9. EMPLOYMENT CONTRACTS The Company has entered into a five year employment agreement with the company's Chairman of the Board, President and Treasurer commencing May 1996. Under the agreement, Mr. Klein's annual salary will be $125,000. In addition he has the right to purchase 240,000 shares of common stock each year at $1 per share for a five year period. The Company has also entered into employment contracts for the services of three key employees for a period of five years from May 1996, each for an annual salary of $50,000. Each of the three key employees received options to purchase 115,000 shares each year for five years at $1.00 per share. The total number of options for each employee is 575,000. NOTE 10. CONTINGENT LIABILITIES The Company is contingently liable to Fleet Bank for letters of credit in the amount of $4,825,972 issued in conjunction with the New Jersey Tax Exempt Bonds which financed the company's new factory building and 8 color press. Fleet Bank has a lst lien on the assets of Harrison Realty and 2nd and 3rd liens on the assets of Flexo-Craft. Per the loan agreement the company is prohibited from paying cash dividends. The loan agreement to Fleet Bank contains various covenants. The Company was not in compliance with one of these covenants, however a waiver from the bank was received. - 19 - LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS NOTE 11. EARNINGS (LOSS) PER SHARE Earnings (loss) per common and common equivalent share have been computed using the weighted average share of common stock and common stock equivalents outstanding provided that the effect is not anti-dilutive. NOTE 12. PENSION PLAN The Company has a non contributory defined benefit pension plan covering all eligible employees begun in 1993. The plan provides for normal retirement at age 65, or at least age 62 with 30 years of service, and optional early retirement. The benefits payable under the plan are generally determined on the basis of an employees length of service and earnings. The Company's funding policy is to make annual contributions to the extent such contributions are actuarially determined and tax deductible. The plan covers all salaried and hourly employees of the Company except those covered under a collective bargaining agreement. Eligible employees participate in the plan after completing one year of service and attaining age 21. The benefit formula is 22.75% of average pay plus 22.75% average pay in excess of covered compensation reduced proportionately for years of service less than 35. Pension Plan Assets are primarily invested in short and intermediate term cash investments. Assumptions: The present value of benefits used to determine the net periodic pension cost, the projected benefit obligation and the accumulated benefit obligation are based on the following actuarial information: 1. Mortality 1983-A 2. Discount Rate: 7.50% Compounded Annually 3. Withdrawal Not used 4. Salary Projection: 3% per year 5. Return on Plan Assets: 7.50% Compounded Annually 6. Increase in 415 Limit: 3.0% Asset Valuation Method: Fair Market Value Net Periodic Pension Cost for Fiscal Year Ended: 11/30/97 11/30/96 ---------- ---------- 1. Service Cost $ 13,983 $ 11,458 2. Interest Cost 15,037 12,769 3. Return on assets 29,788 14,454 4. Net Amort. & deferral 22,046 10,277 --------- ---------- Net Pension Cost $ 21,278 $ 20,050 ========= ========== - 20 - LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS Reconciliation of Funding Status: 11/30/97 11/30/96 --------- --------- 1. Projected Benefit Obligation $(229,916) $(194,484) 2. Assets at Fair Value 215,000 155,210 3. Funding Status (14,516) (39,274) 4. Unrecognized Net Transition Obligation 71,618 76,226 5. Unrecognized Prior Service Cost - - 6. Unrecognized Net (Gain)/Loss as of November 30 32,217 (20,791) 7. Prepaid/(Accrued) Pension Expense 24,885 16,161 Additional Liability as of November 30, 11/30/97 11/30/96 --------- --------- 1. Projected Accumulated Benefit Obligation $ 212,204 $ 182,508 2. Fair Value of Assets 215,000 155,210 3. Projected Funded Status (2,796) 27,298 4. Prepaid/(Accrued) Pension Exp. 24,885 16,161 5. Additional Liability - 43,459 For financial reporting purposes a pension plan is considered unfunded when the fair value of the plan assets is less than the accumulated benefit obligation. When that is the case a minimum pension liability must be recognized for the sum of the unfunded amount plus any prepaid pension cost. An intangible asset can be recorded as an offset to the extent of unrecognized prior service cost and unrecognized transitional obligation. NOTE 13. LONG TERM DEBT 11/30/97 ----------- Mortgage Payable - Fleet Bank - Requires monthly principal payments of $3,889 plus interest at 9% per annun. maturing 11/30/02 - Collateralized by 2nd mortgage on factory bldg. 606,667 NJ EDA Tax Exempt Bond - 72% of Libor Rate- Effect. rate 5.5% -Monthly principal payments begin 8/1/96 thru 7/31/04 at $33,750 per month- Collateralized by the 8 color printing press 2,830,000 NJ EDA Tax Exempt Bond - 72% of Libor Rate- Monthly principal payments begin 8/1/95 thru 7/31/14 approx. $9,000 per month Effective rate 5.5% - Collateralized by factory building Harrison, New Jersey 1,895,000 ----------- Total 5,331,667 Less current portion 555,001 ----------- Total $ 4,776,666 =========== - 21 - LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS DEBT MATURITIES IN THE FIVE YEAR PERIOD FOLLOWING NOVEMBER 30, 1997 11/30/98 $ 1,663,660 11/30/99 561,668 11/30/00 561,668 11/30/01 561,668 11/30/02 561,668 Thereafter $ 2,559,995 NOTE 14. LOAN PAYABLE The Company has a line of credit with Merrill Lynch in the amount of $2,500,000. The interest rate is at 30 day commercial paper plus 2.6% with a rate at 8.2% at 11/30/97. The loan is collateralized by accounts receivable. NOTE 15. INDUSTRY SEGMENT INFORMATION 11/30/97 11/30/96 Sales to Unaffiliated Customers: ----------- ----------- Printing $11,660,251 $11,118,846 Real Estate 347,412 380,966 ----------- ----------- Total 12,007,663 11,499,812 Earnings (loss) from Operations: Printing (545,285) 436,608 Real Estate (28,199) (74,489) ----------- ----------- Total (573,484) 362,119 Identifiable Assets: Printing 9,870,234 10,002,677 Real Estate 5,191,808 5,105,329 ----------- ----------- Total 15,062,042 15,108,006 Capital Expenditures: Printing 6,927 812,965 Real Estate 86,479 433,796 ----------- ----------- Total 93,406 1,246,761 Depreciation & Amortization Exp. Printing 347,177 325,863 Real Estate 145,100 144,711 ----------- ----------- Total $ 492,277 $ 470,574 =========== =========== NOTE 16. SHORT TERM INVESTMENTS In 1995 the company adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The cumulative effect of the adoption of SFAS 115 did not have a material impact on the company. The company has classified its entire investment portfolio as available-for-sale. Available-for-sale securities are stated at fair value with unrealized gains and losses included in shareholders equity. The amortized cost of debt securities is adjusted for amortization of premiums and accrection of discounts to maturity. Such amortization is included in interest income. Realized gains and losses are included in other income (expense). The cost of securities sold is based on the specific identification method. - 22 - LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS NOTE 17. RESTRICTED CASH Restricted cash consists of short term United States Treasury Bill Fund with 30 day maturities. The account is restricted for the purpose of funding a sinking fund toward the payment of NJ EDA obligations. NOTE 18. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: 1997 1996 --------- --------- Interest $ 423,219 $ 453,164 NOTE 19. LOANS RECEIVABLE Consists of amounts due from officers which are due on demand with interest at the prime lending rate. NOTE 20. STOCK OPTIONS In 1995, the Financial Accounting Standard Board issued Statements of Financial Accounting Standards No. 123 (SFAS 123). "Accounting for Stock-Based Compensation". SFAS 123 provides companies with the option of expensing the "fair value" of stock options granted. With regard to the Company's stock options, no accounting is made until such time as the options are exercised unless the option price is less than the fair value of Company stock on the grant date. The Company does not intend to change its current accounting method regarding stock options. Therefore, SFAS 123 will not impact future operating results. In addition the quoted market price was below the option price on the grant date so no expense would have been recorded. A summary of option transactions, including those options granted pursuant to the terms of certain employment and other agreements, is as follows: Option Weighted Average Shares Exercise Price ------------ ----------------- Balance, Dec. 1, 1995 - - Granted 1,920,000 1.05 Exercised - - Cancelled - - ------------ ---------------- Balance, Nov. 30, 1996 1,920,000 1.05 Granted 345,000 1.00 Exercised - - Cancelled (100,000) (1.00) ------------ ---------------- Balance, Nov. 30, 1997 2,165,000 1.05 ============ ================ -23- LASER MASTER INTERNATIONAL, INC. AND WHOLLY OWNED SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS A summary of options outstanding as of November 30, 1997 is as follows: Weighted Average Exercise Remaining Number of Shares Number Outstanding Price Contractual Life Exercisable - ------------------ ----- ---------------- ----------- 100,000 2.00 .4 Years 100,000 2,065,000 1.00 3.4 Years 1,345,000 --------- --------- 2,165,000 1,445,000 ========= ========= Warrants to Purchase Common Stock - --------------------------------- At November 30, 1997, the Company had outstanding warrants as follows: Number Exercise Expiration of Shares Price Date --------- -------- ------------ 300,000 $1.00 May 10, 1999 500,000 $2.00 May 10, 1999 The company has stock plans approved by the shareholders, which provide for the granting of options and restricted stock to officers, key employees and consultants. Options are granted at no less than fair market value on the date of grant and become exercisable in increments, in some instances partially conditioned on the attainment of specific performance objectives, and expire five years from the date of grant. -24- ITEM 9. DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURES ----------------------------------------------------- NONE - 25 - PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT Name Age Position Term - ---- --- -------- ---- Mendel Klein 65 President, Treasurer 1 Year Chairman of the Board Leah Klein 62 Vice-President, 1 Year Secretary, Director Mirel Spitz 39 Vice-President, 1 Year Director Mendel Klein and Leah Klein are spouses. Mirel Spitz is their daughter. ITEM 11. REMUNERATION OF DIRECTORS AND OFFICERS Capacity in which remuneration Name was received Annual Salary - ---- ------------ ------------- Mendel Klein President, Treasurer, Chairman $125,000 of the Board Leah Klein Vice-President, Secretary, Director -0- Mirel Spitz Vice President, Director, -0- Office Manager Mr. Mendel Klein, pursuant to an employment contract entered into with the company, which became effective upon completion of the public offering, is entitled to receive an annual salary of $125,000. Additionally, Mr. Klein will participate in group life, accident and hospitalization insurance, provided for all key employees, and he will have the use of a company owned automobile. No other officer or director has a contract of employment with the company. There are no consulting agreements in existence between the company and any officers. - 26 - ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners Name and Address Number of Percent Title of Class of Beneficial Owner Shares Owned of Class - -------------- ------------------- ------------ -------- Common Stock Mendel Klein 3,625,000 35% $0.01 Par Value 38 Harrison Avenue Brooklyn, N.Y. 11211 Set forth above is certain information concerning persons or firms who are known by the Company to own beneficially more than 5% of the Company's common stock and voting shares on March 6, 1998. (b) Security Ownership of Management None, other than Mendel Klein, listed above. (c) Changes in Control The Company knows of no contractual arrangements which may at a subsequent date result in a change in control of the company. - 27 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) Financial Statements, Financial Statement Schedules, and Exhibits 1. Financial Statements. See Item 8 for the Financial Statements of the Company filed as a part hereof (Exhibits omitted) 2. Financial Statement Schedules. See Item 8 for the Financial Statement Schedules of the Company filed as a part hereof. -28- OFFICERS: Mendel Klein, President, Treasurer Leah Klein, Vice President & Secretary Mirel Spitz, Vice President DIRECTORS: Mendel Klein, Chairman Leah Klein, Director Muriel Klein, Director AUDITORS: Goldstein and Morris, Certified Public Accountants, P.C. COUNSEL: Baratta & Goldstein, P.C. TRANSFER AGENT: American Stock Transfer Company - 29 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, Laser Master International Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LASER MASTER INTERNATIONAL INC. BY /s/ Mendel Klein ------------------------------ Mendel Klein, President and Chief Financial Officer Dated: March 9, 1998 Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the dates indicated. /s/ Mendel Klein - ---------------------- Mendel Klein, Director March 9, 1998 /s/ Leah Klein - ---------------------- Leah Klein, Director March 9, 1998 Mirel Spitz - ---------------------- Mirel Spitz, Director March 9, 1998 - 30 - EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS NOV-30-1997 DEC-01-1997 NOV-30-1997 412,353 462,625 2,492,004 254,500 1,947,440 5,251,991 15,269,412 5,558,589 15,224,075 2,817,912 4,776,666 0 0 5,530,566 2,098,931 15,224,075 11,660,251 12,007,663 9,332,494 12,269,653 0 0 421,337 (611,500) (38,016) (573,484) 0 0 0 (573,484) (.06) (.06)
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