Dr. Rama Rao

RRCM


EXCEL

Financial Physics

financial physics

Read this in-depth Study of the
Hedge Fund Industry

Hedge fund book

buy!

Praise for the book

"A provocative study that makes one think about the future structure of the hedge fund industry. A timely study released as major deals are coming to light."

Lois Peltz, Managing Editor-MAR/HEDGE

"Exceptionally solid work, clear reasoning and well documented. Conclusions are both logical and insightful."

Hunt Taylor, Executive Director- Tass Management, Inc.

"This report addresses the rising tide of wealth in the U.S. and the bright future for alternative asset managers going into the next century. It also suggests we may begin to see a consolidation among alternative asset managers similar to what has been occurring in the traditional asset management industry over the last decade."

H. Bruce McEver, President-Berkshire Capital Corp.

"I read the report with admiration and recognition. It presents a very credible vision of the future of the hedge fund industry."

Arthur J. Samberg, Chairman & CEO- Dawson-Samberg Capital Management, Inc.

"This is a wonderful report on the hedge fund industry and the evolution concept is well articulated. We believe one day it will be considered imprudent not to hedge. Interestingly, Harvard, Yale, Stanford and Duke Universities already subscribe to that philosophy."

E. Lee Hennessee-Hennessee Hedge Fund Advisory Group

"This report puts a unique perspective on the hedge fund industry, and shares insight that was not previously available anywhere."

Peter W. Testaverde Jr., Partner Financial Services Group- Goldstein Golub Kessler & Co.

1994 ANNUAL REPORT

Results of Operation
 
Years Ended December 31,
 
1994
1993
1992*
1991
1990
Net sales and sevices
$33,550,842
$29,027,825
$5,163,514
$250,073
$402,656
Net earnings (loss)
$1,890,279
$2,878,419
($8,566,668)
($1,209,286)
($112,177)

Net earnings (loss per share
Primary
Fully diluted

$0.22
$0.22

$0.41
$0.37
$2.03
$2.03
$0.47
$0.47
$0.07
$0.07

Weighted average common and
common eqivalent
shares outstanding
Primary
Fully diluted

7,901,749
8,720,815

6,423,987
7,814,039
4,211,371
4,211,371
2,591,902
2,591,902
1,600,000
1,600,000
Common Stock cash dividends
-
-
-
-
-
Preferred stock cash dividends
$187,981
$268,258
-
-
-
 
Balance Sheet
 
Years Ended December 31,
 
1994
1993
1992
1991
1990
Total assets
$33,082,983
$23,909,923
$16,464,721
$2,689,483
$308,042

Total liabilities

$9,727,602
$8,959,774
$10,637,416
$4,16,169
$434,651
Working capital (deficiency)
$20,963,663
$12,196,774
$3,074,953
$2,051,855
$296,606
Stockholders' equity (deficit)
$23,355,381
$14,950,139
$5,827,305
$2,273,314
$126,609
Long-term debt
$3,348,141
$2,958,880
$3,083,880
$83,880
$8,487
 
*Includes operations for Quantronics from the date of acquisition (October 1, 1992) throught December 31, 1992
 
President's Letter to Shareholders, Customers and Employees

I would like to share with you our corporate accomplishments, strategies and goals. For the vision to become reality, this should be your vision too. I will be candid in reporting to you our business activities to the extent legally permitted. Our guideline is to tell you the business facts that we would want to know if our positions were reversed.

HISTORICAL PERSPECTIVE
Before I report Excel’s performance for the fiscal year 1994, I would like to draw your attention to the Company history. As you may recall, Excel completed the acquisition of Quantronix during the fourth quarter of 1992. At that time, Quantronix had an annualized revenue base of approximately $20 million, significantly lower than their 1991 revenues of $29.1 million and their record revenues of $31 million in 1990. After Excel’s management took control of the Company, it was not only able to reverse the trend of declining revenues but also implemented a complete turn-around from an operational loss to an operational profit. Excel reported revenues of $29 million for the fiscal year 1993 and established a new high in revenues for the year 1994.

We are proud of our accomplishments to date. If there is one underlying core value that has always said "Excel", it is our determination and goal to build a company of significant size. Excel was merely a start-up operation in 1991 with less than $1 million in revenue. Then we seized the opportunity to acquire a $20 million unprofitable operation and turned the operation to profitability in record time. Thus, we virtually created a foundation for the Company and its shareholders.

 

BUSINESS STRATEGY

Since 1992, Excel has been guided by two basic business strategies; (a) diversification and (b) industry consolidation.

Diversification

The business approach that distinguishes Excel from other niche laser companies is that we manufacture and market core solid state laser products for a variety of uses in the commercial (industrial, semiconductor, scientific), medical (dental), and consumer markets. The past poor financial performance of most laser companies has clearly indicated that a single market niche is not sufficient for a company to make consistent and sustained financial progress in terms of profitable growth. Excel believes that its strategy of “integrated diversity” will provide financial stability through cost sharing, economy of scale, and improved gross-margins, In addition, we believe that the commercial sector of our business should provide a solid foundation, the medical sector will provide near term growth opportunity, and the consumer sector, long term growth opportunity.

Consolidation

There are major challenges and opportunities facing our industry. The billion dollar laser industry is very fragmented. We have identified in the U.S. approximately 47 players with an average annual revenue of $5 - 6 million. Although many have niche positions, most are unprofitable and few are individually large enough to possess the financial resources required to have staying power. Excel would like to play a central role in consolidating and restructuring the laser industry. By acquiring laser companies with complementary capabilities -customers, markets or technology - Excel can grow to a size that would allow greater synergism in procurement, manufacturing, marketing and service support. The new company emerging from such restructuring could have greater value than the sum of the individual operations.

 
RESULTS OF 1994

Revenues for the year increased to $33.6 million from $29 million in the prior year, an increase of 16%. Pre-tax earnings for the year were approximately $2.7 million compared to $2.9 million for the prior year. The net earnings after-tax for 1994 were $ 1.9 million and $.22 per share as compared to $2.9 million and $37 per share for 1993. The company believes 1994 earnings were satisfactory, but unexciting.

The decrease in net earnings in 1994 compared to 1993 was attributable to: 1) an increase in the effective income tax rate from 0% to 30%, 2) a 12% increase in the number of shares, and 3) a two percentage point decrease in the pre-tax profit margins. Excel did not pay any significant taxes in the prior year due primarily to the utilization of net operating loss (NOL) carryforwards. The large number of shares is due primarily to the exercise of the Company’s Class A Warrants in May 1994. The decrease in pre-tax margins relates to a larger than expected initial manufacturing cost associated with the launch of dental lasers in Germany and laser welders in the U. S., higher semiconductor R & D costs in building third generation photomask repair systems (DRS III) and a higher cost of goods for our DRS II sales in 1994 versus 1993.

 

PRODUCTIVITY

Today, operational efficiency is of paramount importance. Whether you are talking about autos, airlines, computers or lasers, efficiency is the byword in the 1990’s. We simply can not lose our focus or our determination to continue to force our costs down and improve our margins. There is simply no respite from this task, not this year, not in the future. To quantify the results of this effort, one useful measure is to look at

overall corporate productivity, measured by sales per employee. Excel’s productivity per employee was approximately $171,000 in 1994 compared to $151,000 in 1993, an increase of 13%. To the best of our knowledge, today, no major competitor of ours is as productive as we are in terms of sales generated per employee.

This increase in productivity did not come about by luck or accident. It was a result of a host of efforts, strategies and just plain hard work by a lot of talented, dedicated and highly motivated Excel people.

 

BUSINESS UNIT’S PERFORMANCE

We made significant progress during 1994 in reorganizing the Company into Strategic Business Units (SBU) based on the markets and customers we serve. Each SBU objective is to be profitable in its own right and to contribute to the profitable growth of the Company. Each SBU focuses on its own customers, competitors and product development.

Each business unit, with the exception of dental, was profitable and contributed to the earnings of the Company. Our industrial business unit for marking application was the largest contributor to the Company’s operating earnings in 1994. The semiconductor business unit was the second followed by the spare parts business unit, optical business unit, and scientific/OEM business unit. The dental business

unit incurred significant losses due to the introduction of the dental laser in Germany and the laser welder in the U. S. We are hopeful that their operating results will improve in 1995.

In terms of contribution to the profitable growth of the Company, each location had its own distinct dynamics in 1994. The New York operation, where we manufacture and market semiconductor, scientific and dental products, significantly contributed to the growth of revenue. The Florida operation, where we manufacture and market industrial laser marking products was the greatest contributor to earnings. The California operation where we manufacture and market optical products generated the most cash.

In terms of margins, each location pretty much held both their gross margins and profit margins with the exception of New York where margins began to slip. Gross margins, at whatever level, reflect a balancing act between two sometimes conflicting goals; competitiveness and growth. However, one has more control over operating expenses below-the-line, at least in the intermediate and long term. At the time of this writing, we are in the process of implementing a major cost reduction program in our New York location. We are hoping the impact of this new cost structure should be reflected in the second half of 1995.

 

GLOBAL ECONOMY

In 1994, international sales accounted for 28% of our total revenues. Most gratifying was our performance in Germany. Although much of Europe has been in a deep recession for sometime, the Excel experience in 1994 was different. The primary reason for this growth was approval of our dental laser and increased sales of the product in Germany in 1994.

 

BALANCE SHEET

We are fortunate to possess a healthy balance sheet. Our per-share book value increased more than 26% during 1994. Over the last three years since Excel became a public company, the book value has grown from $0.88 to $2.95 or at a rate of over 50% compounded annually.

In May 1994, the Company called its Class A Warrants. Approximately, 1.24 million warrants were converted to Common Stock at $6.00 per share. The Company has received in excess of $7 million of cash. This has significantly increased our cash position which should allow us to take full advantage of opportunities for growth via strategic acquisition and alliance.


 

The balance sheet is an important financial measure that indicates assets (resources a Company owns), liabilities (obligation to others) and equity (the owners investment). The importance of financial ratios are not so much ratios themselves, but rather their relevance to the financial strength of the Company and industry opportunities. Excel is highly leveraged in both its current and long-term positions. The Company’s current ratio which compares current assets to current liabilities, is greater than four to one; the higher the ratio, the more capacity there is to pay current liabilities. The Company’s long term debt ratio which compares long term debt to equity, is less than 15%; the lower the percentage, the greater the Company’s financial health and operating freedom.
 
CAMBRIDGE ACQUISITION

I am happy to report a successful and important acquisition at the time of this writing! We target companies for acquisition based on certain economic characteristics of a business along with certain management philosophy. It is often difficult to find this combination, but we were able to achieve this with Cambridge Technology. We acquired Cambridge Technology in February of 1995. Bruce Rohr, Cambridge’s Founder and President, has done an excellent job in building this profitable company.

Cambridge is primarily engaged in the manufacturing of laser scanners - an essential component used to move a laser beam with speed and great precision. They have been one of our suppliers for our industrial marking products. These products have both commercial and consumer applications.

This acquisition should not only allow us to enhance our present market position in the industrial laser marking business but as well allow us to expand into new consumer markets such as laser assisted manufacturing, digitized x-ray imaging and entertainment laser light shows and displays. We expect Cambridge to have more than $6 million in sales in 1995 and we would not be surprised if pre-tax operational earnings of this business topped $1 million. Bruce Rohr will remain as President of Cambridge and he will operate the business exactly as he did before the merger.

WHERE DO WE GO FROM HERE?

What we have going for us now is a growing collection of laser businesses that possess economic characteristics ranging from good to terrific. Our belief is that laser products are today where personal computers were ten years ago - poised for explosive, sustained growth impacting every aspect of our daily lives.

In the long term outlook, Excel’s outstanding strengths will continue to be its management team, healthy balance sheet and its strategies of integrated diversity and industry consolidation. Our near term target is to increase our revenues and earnings over time by 25%. It means doubling every three years. This is a tough goal, but one that we strive to achieve, In the past, we have criticized the management practices of shooting the arrows of performance and then painting the target ( wherever the point of the arrow happened to hit). We will instead risk embarrassment by painting first and shooting later. In 1992, we had annualized revenues of $20 million and we are hoping that it will exceed $40 million in 1995, but there are no guarantees.

We believe, during the course of 1994, our overall operational pre-tax profit margins seem to have stabilized in the 8-10% range excluding one time charges or expenses. Now our hope is to try to keep or improve the profit margins. Our corporate objective for each of the manufacturing subsidiaries is to attain a minimum profit level of 15% pre-tax before corporate allocations. Our corporate allocation in the past has ranged from 4-5% of revenues and our objective for 1995 is to bring this down to 2-3%.

To accomplish these goals, we will not only need to maintain our present market position, but increase our market share, improve our operational efficiency and grow via external acquisition. In the mean time, we will resist doing something marginally because we are "long" on cash.

ANNUAL SHAREHOLDERS MEETING

The 1995 Excel annual shareholders meeting will be held on Friday, June 16, 1995. The meeting will be at the Sheraton Smithtown Hotel (516-231-1100) near our Long Island NY facility, After the meeting, there will be a guided tour of Excel for the attendees and their guests.

I hope you can join us in the shareholder meeting. With your help, we created Excel’s past...join us in our journey as we build its future.

Very truly yours,

Rama Rao,

CEO & Chairman of the Board



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31,1994 

Commission File Number 0-19306

EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
        Delaware 
        (State or other jurisdiction of
Incorporation or Organization) 
  11-2780242

(I.R.S. Employer Identification No.)

  45 Adams Ave.   
Hauppauge, NY 11788 
(Address of Principal Executive Offices)
(516) 273-6900
(Registrant’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001 per share

Series 1 Redeemable Convertible Preferred Stock, par value $.001 per share

Class B Common Stock Purchase Warrants

(Titles of Classes)

Indicate by check mark whether the registrant (1) has filed all reports 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part Ill of this From 10-K or any amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the Registrant was $28,586,526 based on the average bid and ask price as reported by NASDAQ on March 27,1995.

The number of shares of the Registrant’s common stock outstanding as of March 27,1995 was: 8,192,633.

The number of shares of the Registrant’s Series 1 convertible preferred stock outstanding as of March 27,1995 was: 467,352.

The number of the Registrant’s Class B warrants outstanding as of March 27,1995 was: 1,132,498.

DOCUMENTS INCORPORATED BY REFERENCE:

None.