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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------

                                    FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM _______________ TO _______________

                        COMMISSION FILE NUMBER 000-22625

                             LASER POWER CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


          DELAWARE                                               95-3423358
(STATE OR OTHER JURISDICTION OF                                (IRS EMPLOYER
INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)

          12777 HIGH BLUFF DRIVE                                    92130
          SAN DIEGO, CALIFORNIA                                   (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 755-0700
                                ----------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          COMMON STOCK, $.001 PAR VALUE
                              (TITLE OF EACH 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 and 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 III of this Form 10-K or any amendment to this
Form 10-K. [X]

    The approximate aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the last sale price of the Common
Stock reported on the NASDAQ National Market System was $12,895,473 as of
December 1, 1999.*

    The number of shares of Common Stock outstanding was 8,629,987 as of
December 1, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

                        (TO THE EXTENT INDICATED HEREIN)

    Registrant's Definitive Proxy Statement to be filed with the Securities and
Exchange Commission (the "Commission") in connection with the 2000 Annual
Meeting of Stockholders to be held on or about March 3, 2000 (the "2000 Annual
Meeting") is incorporated herein by reference into Part III of this Report.

    Certain exhibits filed with the Registrant's Registration Statement on Form
SB-2 (Registration No. 333-24421), as amended, and the Registrant's Registration
Statement on Form S-4 (No. 333-43415), as amended, are incorporated herein by
reference into Part IV of this Report.

------------
*   Excludes 3,421,798 shares of Common Stock held by directors and officers and
    certain stockholders whose beneficial ownership exceeds ten percent of the
    shares outstanding on December 1, 1999. Exclusion of shares held by any
    person should not be construed to indicate that such person possesses the
    power, direct or indirect, to direct or cause the direction of the
    management or policies of the Registrant, or that such person is controlled
    by or under common control with the Registrant.

================================================================================

<PAGE>

    This Annual Report on Form 10-K contains certain forward-looking statements,
and the actual results for Laser Power Corporation ("Laser Power" or the
"Company") may differ materially from those discussed here. Additional
information concerning factors that could cause such a difference can be found
in this Annual Report on Form 10-K in Part I, Item 1 under the caption "Certain
Risk Factors Related to the Company's Business" and elsewhere throughout this
Annual Report.

                                     PART I

ITEM 1.  BUSINESS

    Laser Power designs, manufactures and markets high performance optics for
industrial, medical and military applications. The Company also provides thin
film design and coating services to industrial and military customers. The
Company's laser optics products are sold to laser system OEMs and end users as
original and replacement components in high power CO2 and other lasers. The
Company's infrared optics products are sold primarily to the U.S. government and
its prime contractors for use in night vision and thermal imaging and guidance
systems.

    The Company's laser optics customers use high power CO2 lasers in a variety
of industrial processing applications, such as sheet metal cutting, automobile
body welding, surface hardening for engine components and scribing and drilling
delicate ceramic circuits. The Company also sells high performance laser optics
to medical equipment OEMs for lower power CO2 lasers used in certain therapeutic
and cosmetic procedures, including surgery and skin wrinkle removal. In
addition, the Company has developed very low absorption thin film coatings for
laser optics for various government programs.

    The Company's infrared optics products are primarily windows, window
assemblies and domes. Windows and window assemblies are utilized in thermal
imaging systems that provide night vision, target acquisition and designation
and low altitude navigation capabilities. These systems are installed in various
platforms, including ground vehicles, helicopters and fixed-wing aircraft. Domes
are utilized as a protective cover and infrared filter for various infrared
guided missiles. Missile sizes range from small, man-portable designs to larger
designs mounted on ground vehicles, helicopters and fixed-wing aircraft.

    The Company's core competencies in the manufacture of laser optics and
infrared optics lie in its surface finishing processes and thin film coatings,
and in the growth of a key material used in most of its infrared windows. The
Company believes that its expertise in these areas provides it with a
significant competitive advantage.

RESTRUCTURING PLAN

    In August 1999 the Board of Directors approved a strategic restructuring
plan intended to permit the Company to focus on its core business of the
manufacture and sale of high performance laser and infrared optics and thin film
coatings. As part of the restructuring plan, the Board approved the disposition
of the Company's microlaser manufacturing business and the phase-out of contract
research activities not related to the core optics business. The impact of the
plan to dispose or phase-out these operations is reported as discontinued
operations in the Consolidated Financial Statements for all periods presented.

    On December 16, 1999, the Company concluded a transaction for the sale of
certain of its microlaser operations to Melles Griot, Inc., a unit of Barlow
Scientific Group Ltd. In exchange for the sale of essentially all of the assets
related to the visible microlaser product line, the Company received an initial
payment of approximately $2.0 million. An additional payment will be made in
January 2000, such that the sum of the two payments will approximate the
aggregate net book value of the transferred assets. In addition, the agreement
provides for royalty payments on sales of certain laser products, from October
1, 2000 until September 30, 2003. The maximum amount of royalty payments is
approximately $2.7 million. Royalty payments will be reported as income from
discontinued operations in the period in which they are earned.

    The assets of the Company's inactive 1550nm microlaser product line and the
related contract research operations which will be phased out are stated at
their estimated realizable value on the Consolidated Balance Sheet at September
30, 1999. The Company is actively seeking one or more buyers for these assets.

                                       2
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INDUSTRY AND MARKET OVERVIEW

   INDUSTRIAL AND MEDICAL LASER TECHNOLOGY

    The use of lasers in industrial and medical applications continues to grow
and to expand into new areas. High power CO2 lasers are widely used in
industrial applications, such as welding automobile bodies, scribing delicate
ceramic circuits and sheet metal cutting. CO2 lasers offer greater quality,
speed, flexibility and automation than conventional cutting and welding
technologies. Lower power CO2 lasers are used in various medical procedures,
including surgical, dermatology and ophthalmology applications. Surgical laser
procedures reduce blood loss and post-operative pain compared to other
procedures.

The precision optics which collect, form, reflect and transmit the laser beam
are crucial to a laser's function. In gas lasers, the lasing medium is encased
in a tube with optics at either end. These internal optics may direct the beam
from one tube to another, may turn the beam back on itself to further energize
the lasing medium or may allow part of the beam to exit the tube while turning
the rest of the beam back on itself. In addition to the internal optics, a
number of external optics may be used to deliver the beam for its intended
application. These external optics may include mirrors, beam splitters, focusing
lenses and other special function optics

   INFRARED SENSOR TECHNOLOGY

    Infrared sensors are used in a variety of military and aerospace
applications. Fielded systems range from small, personal use devices such as
range finders and night vision goggles to sophisticated airborne and space-based
imaging and targeting systems. As sensor and signal processing technologies
evolve, infrared-based technology is expected to gain wider acceptance for
commercial applications.

    Infrared optics are critical to the performance of infrared sensor systems.
The typical infrared sensor system utilizes an optic, which acts as a window to
the environment external to the sensor package, such as a flat window or a dome,
and one or more internal optics. External thin film coatings and surfaces of
windows and domes degrade through exposure to the outside environment, and where
practical, these optics are periodically refurbished or replaced. Refurbishment
and replacement of damaged windows represents an important component of the
Company's infrared optics business.

    LARGE APERTURE OPTICS

    The market for thin film design and coating services for large aperture
optics is expected to increase due to increased U.S. government funding for
development of ground, airborne and space based defensive laser weapon systems.
Although the number of fielded systems is likely to be small, design and process
research before and after fielding of these systems is expected to be a
sustainable market.

    High performance thin film coating technology is an enabling technology for
extremely high-energy laser systems. For example, space based systems and ground
based systems with space based optical components might not be feasible without
light weight optics which are dependent on very low absorption thin film
coatings.

PRODUCTS AND SERVICES

   LASER OPTICS PRODUCTS

    The Company produces optics, including total reflectors, output couplers,
beam splitters and lenses, for use in high power industrial, medical, scientific
and military lasers. The Company's expertise in the area of surface finishing
and, in particular, thin film coatings, is critical to producing high
performance laser optics. In general, the performance of an optic is primarily
dependent on the quality of the thin film coating. Thin film coatings include
various reflective coatings for mirrors and transmissive and partially
transmissive coatings for lenses, beam splitters and output couplers. The
Company believes that the high quality of its thin film coatings and its
commitment to customer service enhance its reputation as a supplier of high
power and technically advanced laser optics.

                                       3
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    CO2 LASER OPTICS. Reliable operation of high power CO2 lasers requires high
quality, low absorption optics. The Company supplies substantially all types of
optics used in CO2 lasers and laser systems. Such optics fall broadly into two
categories: transmissive and reflective optics.

    Zinc selenide is the substrate material of choice for high power CO2 laser
transmissive optics such as lenses, output couplers and beam splitters because
of its low absorption of laser energy. Generally, zinc selenide optics with low
absorption thin film coatings are able to handle up to three kilowatts of power.
As laser power increases to the multi-kilowatt range, reflective optics replace
transmissive optics in certain applications.

    Reflective optics (such as folding mirrors, phase shifting mirrors, beam
bending mirrors and focusing mirrors) utilize a highly reflective substrate,
such as copper or silicon. Silicon optics are fabricated by conventional
polishing processes, while copper optics are usually fabricated by single-point
diamond turning, a process which involves cutting by gem quality diamonds to
create a mirror finish. The Company is a leader in the use of single-point
diamond turning methods to produce both standard optics and those with
complicated surfaces such as aspheres, parabolas and hyperbolas, which are used
with higher power CO2 lasers. The Company's fabrication and thin film coating
technologies have earned Laser Power a reputation as a leading manufacturer of
laser optics.

    The Company supplies optics to high power CO2 laser and laser system
manufacturers and to the aftermarket as replacement parts. Because CO2 laser
optics wear or become contaminated, every new laser installed increases the
market for replacement optics. In order to meet this growing aftermarket demand,
the Company provides same day shipment of critical replacement optics for most
high power CO2 lasers.

    OTHER LASER OPTICS. In addition to CO2 laser optics, the Company provides
optics for a variety of industrial and military lasers operating at different
wavelengths.

    MILITARY PRODUCTS AND SERVICES. The Company has developed thin film coatings
for a variety of optics utilized in ongoing U.S. government programs. The
Company has developed very low absorption thin film coatings for uncooled
optics, which are critical to a space-based laser for defense against long range
ballistic missiles. The Company has also developed thin film coatings for use in
ground based and airborne laser defense systems for use against shorter-range
missiles.

    The technology used to produce coatings for optics for these lasers is
derived from technology used by the Company for CO2 laser optics. The Company
believes that participation in these military programs fosters continued
improvement in its optics technology for commercial applications.

    During fiscal year 2000, the Company expects to complete construction of a
large aperture optic thin film coating facility. When complete, the facility
will enable the Company to provide coating services for optics over 80 inches in
diameter. The U.S. government has funded construction of the facility.

   INFRARED OPTICS PRODUCTS

    The Company produces optics for use in infrared systems for night vision
imaging and navigation applications, principally for use by the U.S. government.
These products include monolithic and segmented windows and window assemblies,
focusing optics and missile domes. In addition, the Company provides thin film
design and coating services to customers for military and commercial infrared
applications. Performance of infrared optics is highly dependent on the
durability and optical performance of the thin film coatings applied to the
polished surfaces of the optics. The Company believes that the high quality of
its thin film coatings, along with its in-house capability for growth of
germanium substrates and expertise in high-speed fabrication and polishing
provide it with significant competitive advantages.

                                       4
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    GERMANIUM WINDOWS. The substrate material utilized in optics for a
significant number of infrared systems is germanium. Depending upon the
operating environment, germanium windows may be heated through a metallic grid
applied to the surface of the optic. Windows manufactured by the Company are
utilized in a variety of platforms including the M1 tank and Bradley fighting
vehicle, the AH-64 Apache helicopter, and B-52 and tactical fixed-wing aircraft.
Applications include electronic viewing, night vision, target acquisition and
designation, and low altitude navigation and targeting. The Company supplies
optics during production phases of sensor programs, and provides post-production
repair, refurbishment and replacement services. The Company believes it is the
principal supplier of heated germanium windows for infrared systems utilized by
the U.S. government.

    OTHER WINDOWS. The Company also supplies windows fabricated from materials
other than germanium, such as silicon and zinc sulfide. These products are
manufactured utilizing the same fabrication and thin film coating processes as
are germanium windows. Typically, these products are sold in substantially lower
volumes than germanium windows.

    MISSILE DOMES. The Company manufactures domes for the U.S. Army's Javelin
missile (a shoulder launched infrared guided anti-tank missile), and is
currently in the development or pre-production phase of other U.S. government
missile programs. Missile domes are mounted on the tip of infrared guided
missiles as a protective cover for the underlying sensor system. These optics
are designed to optimize the performance of the sensor system while
accommodating the size and weight limitations of the missile. The resultant dome
shape is difficult to fabricate in a cost-effective manner utilizing
conventional fabrication techniques. The Company has developed and automated
high-speed fabrication and polishing processes, which it believes, have enabled
it to become a leading supplier of missile domes.

STRATEGY

    The Company's strategy is to expand its current precision optics business
through internal growth and industry consolidation, and to expand into related
markets where its technologies and its knowledge of laser and laser system
technologies and applications provide it with a competitive advantage. Key
aspects of the Company's strategy include:

   CONTINUE TO GROW HIGH PERFORMANCE CO2 LASER OPTICS BUSINESS

    The Company's core competencies in the design and manufacture of high
performance laser optics, including its polishing and diamond turning processes
and thin film coatings, have made Laser Power one of the leading suppliers of
such components, especially for high power CO2 lasers. The Company's strategy is
to continually improve quality and customer service while lowering production
costs. The Company believes it is well positioned to meet more stringent
requirements for optics used in higher power CO2 lasers because of its
proprietary and state-of-the-art technologies.

   EXPAND MARKETS FOR HIGH PERFORMANCE OPTICS PRODUCTS

    The Company believes that its technologies have applications in markets not
currently served by the Company. The Company plans to use its technology base
developed for CO2 laser optics and crystal polishing and thin film coating to
produce certain optics for neodymium-YAG lasers and visible lasers. The Company
also plans to enter other non- CO2 infrared markets using CO2 coatings.

   INCREASE MARGINS ON OPTICS PRODUCTS

    The Company has a multifaceted strategy to reduce costs and increase margins
on its optics products. To reduce costs, the Company is consolidating its laser
and infrared optics operations and is increasing the use of automation which
will reduce labor costs and improve yields on certain manufacturing processes.
To increase margins, the Company plans to intensify its sales efforts on higher
margin products and to serve high performance, high margin niches in such
markets as the emerging high power neodymium-YAG laser market.

   SUPPLEMENT PRODUCT DEVELOPMENT ACTIVITIES THROUGH CONTRACT FUNDING

    The Company will opportunistically secure research contracts that will
enhance and advance its products under development.

                                       5
<PAGE>

   EXPAND CAPABILITIES THROUGH STRATEGIC ALLIANCES AND ACQUISITIONS

    Through alliances with other companies, Laser Power has enhanced its high
performance laser optics technologies and broadened its research activities. The
Company will continue to identify and, if possible, acquire technologies or
other companies that complement its current technologies.

SALES AND MARKETING

    As of December 1, 1999, Laser Power employed 19 persons in continuing
operations in sales and marketing at sales offices in the United States and
Belgium. The Company promotes its products to OEM and end user customers through
a multi-faceted program which includes trade journal advertising, catalog
distribution, direct mail promotion, field sales presentations, technical
seminars, trade show exhibits and direct telemarketing. The Company sells its
products through its direct sales force in the United States and Belgium and
through its distributors in the rest of the world.

RESEARCH AND DEVELOPMENT

    The Company believes that its future success depends in large part on its
ability to continue to enhance its existing products and manufacturing processes
and to develop new products and processes. As of December 1, 1999, the Company
had 14 employees in continuing operations performing research and development in
the United States and Belgium. The Company spent $2.4 million during fiscal year
1999 on research and development. The sources of such funds included contracts
with customers as well as internal Company funds.

    The Company continuously develops proprietary manufacturing processes for
optics fabrication and polishing to lower costs and provide a more flexible
manufacturing environment. In addition, the Company continues to improve thin
film designs and processes under programs funded by the Company and certain of
its customers.

    The successful completion of process and product development activities and
the implementation of process changes or transition to manufacture and sale of
any resultant products is dependent on a number of factors. These factors
include availability of capital for investment in process improvements,
determination of demand and appropriate product design, length of development
period, development of appropriate manufacturing processes, product performance
and sales and marketing. There can be no assurance that development of process
improvements or new products will be successfully completed, or that new
products developed by the Company will be commercially available or achieve
market acceptance.
See "Certain Risk Factors Related to the Company's Business."

MANUFACTURING

    The Company manufactures high performance optics and provides sophisticated
thin film design and coating services. Some materials are available only from
single suppliers.

    The Company manufactures optics at its Temecula, California and Mexico
facilities. Thorium fluoride, zinc selenide, zinc sulfide and germanium are
important to the manufacture of optics. The Company purchases all of its thorium
fluoride for use in its low absorption thin film coating processes from Cerac
Incorporated ("Cerac"), which the Company believes is the sole source for high
quality thorium fluoride. Any interruption or cessation of supply by Cerac would
have a material adverse effect on the Company's business, financial condition
and results of operations.

    In the case of zinc selenide and zinc sulfide, critical raw materials in a
significant percentage of the Company's optics products, the Company currently
relies principally on one supplier, the Advanced Materials unit of Rohm and Hass
Company. To date, the Company has not experienced any material difficulties in
the quantity or the quality of the zinc selenide and zinc sulfide delivered. If
any such problem arises in the future, the Company would have to seek an
alternate supplier. However, there can be no assurance that the Company would be
able to secure sufficient inventory of zinc selenide and zinc sulfide to produce
sufficient product to meet its customers' needs. A transition to alternate
arrangements would involve additional costs and delays in production.

                                       6
<PAGE>

    Germanium is mined as a byproduct of zinc mining. Germanium and refined
germanium are available through a limited number of suppliers worldwide. Because
of its status as a byproduct, availability of germanium is linked to the effects
of supply and demand for zinc. Germanium also has other uses such as in solar
panels used in space vehicles and satellites and in certain radar systems.
Changes in demand for and supply of germanium have resulted in significant
fluctuations in price in the past. While the Company attempts to structure its
contracts to protect it from the effects of price increases, there can be no
assurance that future price increases will not materially affect the
profitability of the Company's products which utilize germanium.

    The manufacture of optics is capital intensive. Future manufacturing
capacity requirements may require substantial investment in equipment and
facilities. See "Certain Risk Factors Related to the Company's Business."

PATENTS AND PROPRIETARY RIGHTS

    In general, the Company's optics products do not use design technology,
which is patentable. The Company has filed a patent application for a thin film
design, which it believes, provides a significant competitive advantage in
certain high power CO2 laser applications. However, there can be no assurance
that a patent will be issued.

    The Company has developed certain of its proprietary technology pursuant to
development contracts, including contracts with federal government agencies.
Under standard provisions in government contracts, the government may retain
certain rights in technology developed under such contracts. The Company's
strategy is to continue to develop a significant portion of its proprietary
technology pursuant to funding received from development contracts. There can be
no assurance that the Company will be able to continue to obtain funding for the
development of its proprietary technology, or that, if received, the Company
will obtain rights to such technology sufficient to permit the Company to
develop and market new products or to prevent third parties from using such
technology to compete with the Company.

    In addition to patent protection, Laser Power also relies on copyright
protection, trade secrets, know-how, continuing technological innovation and
licensing opportunities to expand and bolster its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company. These agreements are
intended to enable the Company to protect its proprietary information by
controlling the disclosure and use of technology to which it has rights and
provide for ownership by the Company of proprietary technology developed at the
Company or with the Company's resources. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's trade
secrets or other confidential information in the event of unauthorized use or
disclosure of such information or that adequate remedies would exist in the
event of such unauthorized use or disclosure. The loss or exposure of trade
secrets possessed by Laser Power could have a material adverse effect on the
Company's business, financial condition and results of operations.

    The Company's academic collaborators have certain rights to publish data and
information in which the Company has rights. There is considerable pressure on
academic institutions to publish discoveries in the high technology and physics
fields. There can be no assurance that such publication would not adversely
affect the Company's ability to obtain patent protection for certain
technologies in which it may have a commercial interest.

COMPETITION

    The industries in which the Company sells its products are highly
competitive. Laser Power's competitive position depends upon a number of
factors, including the price and performance of its products, the level of
customer service, the quality of its manufacturing processes, the compatibility
of its products with existing laser and infrared systems and Laser Power's
ability to participate in the growth of emerging technologies. In the laser
optics market, Laser Power primarily competes with II-VI, Inc. ("II-VI"),
Coherent, Inc. ("Coherent") and Sumitomo Electric Industries, Ltd. II-VI
produces its own supply of zinc selenide. The Company uses zinc selenide as the
substrate for 40% to 50% of the CO2 laser optics sold by the Company and
purchases this raw material from the Advanced Materials unit of Rohm and Haas
Corporation. In the infrared optics market, the Company primarily competes with
in-house optical fabrication and thin film coating capabilities of major prime
contractors, such as Raytheon Corporation.

                                       7
<PAGE>

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

    The Company uses or generates certain hazardous substances in its research
and manufacturing facilities. The Company believes that its handling and
disposal of such substances is in material compliance with applicable local,
state and federal environmental, safety and health regulations at each operating
location. The Company invests substantially in proper protective equipment,
process controls and specialized training to minimize risks to employees,
surrounding communities and the environment due to the presence and handling of
such hazardous substances. The Company conducts monthly workplace monitoring
regarding such substances. When exposure problems or potential problems have
been indicated, corrective actions have been implemented and re-occurrence has
been minimal or non-existent. The Company does not carry environmental
impairment insurance.

    The Company uses a low-level radioactive material called thorium fluoride to
manufacture low absorption thin film coatings. The use, storage and disposal of
this material is governed by the State of California which last inspected and
licensed the Company's facilities and procedures in February 1996. All thorium
fluoride-bearing by-products are collected and disposed of at an appropriately
licensed facility.

    The generation, use, collection, storage and disposal of all other hazardous
by-products resulting from the Company's manufacturing of its products and
research and development of new products, such as suspended solids containing
heavy metals or airborne particulates, are believed by the Company to be in
material compliance with local, state and federal regulations. The Company
believes that it possesses all of the permits and licenses required for
operation. Although the Company is not aware of any material environmental,
safety and health problems in its properties or processes, there can be no
assurance that problems will not develop in the future which would have a
material adverse effect on the Company.

BACKLOG

    With the exception of contracts with the U.S. government and its prime
contractors, most customer orders for optics are from stock or for deliveries
within one to two months. Backlog of optics was $13.0 million at September 30,
1999, consisting primarily of backlog for infrared optics. Backlog of research
contracts fluctuates based on the timing of contract awards and was $700,000 at
September 30, 1999.

EMPLOYEES

    As of December 1, 1999, in continuing operations the Company had 207 full
time and 3 part time employees in the United States and 37 full time employees
in its foreign subsidiaries, and 27 full time employees in discontinued
operations in the United States. Of the Company's employees in continuing
operations, in the United States 14 were engaged in marketing, sales and related
customer-support services, 12 in research and development and 184 in operations,
administration and finance. None of the Company's employees is represented by a
labor union or covered by a collective bargaining agreement. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.

EXECUTIVE OFFICERS OF THE REGISTRANT

    The executive officers of the Company are as follows:

<TABLE>
<CAPTION>

                        NAME                            AGE               POSITION
---------------------------------------------------     ---  -------------------------------------------------
<S>                                                     <C>  <C>
Dick Sharman.......................................     65   Chief Executive Officer and Director
Paul P. Wickman....................................     50   Senior Vice President and Chief Financial Officer
Douglas H. Tanimoto, Ph.D..........................     59   President, Research Division and Director
</TABLE>

                                       8
<PAGE>

    DICK SHARMAN has served as Chief Executive Officer of the Company since
December 1998 and as a director of the Company since February 1998. Mr. Sharman
has served as Chairman of the Board, President and Chief Executive Officer of
EMI from 1993 until February 1998 and as Chairman of the Board of its wholly
owned subsidiary, Exotic Materials, Inc., from 1988 until February 1998. From
1988 until June 1996, and again from June 1997 until November 1997, Mr. Sharman
served as President and Chief Executive Officer of Exotic. Mr. Sharman received
an A.A. in Electronics from Orange Coast College.

    PAUL P. WICKMAN has served as Senior Vice President and Chief Financial
Officer of the Company since September 1992. From 1982 to 1992, he served as
Group Vice President, Finance, and Controller of The Titan Corporation, a
diversified high technology company. Mr. Wickman received a B.S. in Accounting
from San Diego State University and is a Certified Public Accountant.

    DOUGLAS H. TANIMOTO, PH.D. has served as President of the Research Division
since 1988 and has served as a director of the Company since 1984. Dr. Tanimoto
intends to retire on or before the 2000 Annual Meeting.

CERTAIN RISK FACTORS RELATED TO THE COMPANY'S BUSINESS

    In addition to those risks identified elsewhere in this Annual Report on
Form 10-K, the Company's business and results of operations are subject to other
risks, including the following risk factors:

POSSIBLE CHANGE OF CONTROL

    In September 1999, II-VI Inc., one of the Company's principal competitors,
publicly announced its willingness to buy the outstanding capital stock of the
Company. The Company's Board of Directors, which had previously been told
privately of such proposal, rejected the public proposal on the grounds that the
proposal did not adequately reflect the value of the Company. The Board of
Directors also re-affirmed its commitment to maximizing stockholder value. The
Board subsequently retained the services of Cruttenden Roth & Company as its
financial advisor and directed Cruttenden Roth to evaluate the proposal by II-VI
and to advise the Board on the proposal and other strategic alternatives that
may be available to the Company. The Board continues to evaluate such
alternatives. II-VI, which as of December 1, 1999 owns approximately 14.6% of
the outstanding voting stock of the Company, has informed the Company that it
intends to propose its own slate of directors for election at the Company's next
annual meeting of stockholders. If a majority of directors elected at the next
annual meeting are nominees of II-VI, II-VI will be able to control the Company
through the newly elected Board of Directors. A II-VI-controlled Board of
Directors could then cause the Company to be sold to II-VI on terms and at a
price that may not maximize stockholder value. There can be no assurance that
the nominees for election to the Board of Directors proposed by the current
Board will be elected directors at the next annual meeting or that if control of
the Company passes to a II-VI-controlled Board, the Company will be sold on
terms consistent with those published in II-VI's proposal. In addition, due to
the time spent and effort expended by the Company's management in addressing the
proposal by II-VI and considering strategic alternatives, the Company's officers
have had less time and effort to conduct the business of the Company. Other
employees of the Company have expressed some concern over the possible change in
control of the Company and how it may effect their personal employment
situations. There can be no assurance that such factors will not have a material
adverse effect on the Company's business, financial condition or results of
operations.

HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT

    The Company has incurred operating losses in the past and, at September 30,
1999, had an accumulated deficit of $9.6 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.

                                       9
<PAGE>

COMPETITION

    In each of the markets that the Company serves, the Company faces
competition from established companies, many of which have substantially greater
financial, engineering, research, development, manufacturing, sales, marketing,
service and support resources, including greater name recognition, a larger
installed base of products and long-standing customer relationships. In
addition, some of the Company's competitors are customers of the Company, which
might have the ability to perform or obtain the capability to perform projects,
which are presently being performed for them by the Company. There can be no
assurance that the Company will be able to maintain the Company's existing
contracts or obtain additional contracts for projects at favorable rates, 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.

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
investments in research and development and to consider from time to time the
strategic acquisition of businesses, products, or technologies complementary to
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.

FUTURE CAPITAL REQUIREMENTS

    Although the Company believes that its existing cash balances 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.

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. If significant variations were to
occur between forecasts and actual orders, the Company may not be able to reduce
its expenses proportionately and in a timely manner, and operating results could
be adversely affected. 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.

                                       10
<PAGE>

EXPOSURE TO GOVERNMENT MARKETS

    Product sales to customers in the defense industry accounted for 54% of
product sales from continuing operations in the fiscal year ended September 30,
1999. These customers in turn generally contract with a governmental entity,
typically the U.S. government. In addition, essentially all of the Company's
contract research and development revenues were derived from contracts with
customers in the defense industry. 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, could have a material adverse effect on the Company's business,
financial condition and operating results.

EXPOSURE TO MAJOR CUSTOMER

    Approximately 31% of the Company's sales from continuing operations in the
fiscal year ended September 30, 1999, were derived from net sales to Lockheed
Martin Corporation. The loss of this major 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.

RISKS ASSOCIATED WITH INTERNATIONAL SALES

    International sales accounted for approximately 25% of the Company's total
revenues from continuing operations in the fiscal year ended ended September 30,
1999 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 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.

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 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 1997, there had been no public market for the Common Stock, and there
can be no assurance that an active public market for the Common Stock will
develop or be sustained. The trading price of the Common Stock could 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
Company or its competitors, general conditions in the optics and laser
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 Common Stock.

                                       11
<PAGE>



ITEM 2.  PROPERTIES

    The Company leases a facility of approximately 44,000 square feet in San
Diego, California, which is used for its headquarters and for certain of its
discontinued operations. This facility is leased through December 31, 2001 and
may be purchased pursuant to an option that may be exercised at the expiration
of the lease with a purchase price equal to the prevailing market value of the
property. As of December 1, 1999 approximately 73% of this facility has been
subleased to unrelated parties under terms which provide for rental periods
expiring concurrently with the Company's master lease, and at rates which in the
aggregate are less than the total cost to the Company. The estimated loss was
expensed in the fiscal year ended September 30, 1998. The Company also leases a
facility in Temecula, California of approximately 60,000 square feet under a
lease agreement that provides for an initial term expiring in June 2007. In
addition to the initial lease term, the lease provides for two additional
five-year terms that are exercisable at the Company's option. The Company has an
option to purchase the Temecula facility at its fair market value at the time
the option is exercised. The Company also leases facilities in Tijuana, Mexico
and Gent, Belgium, consisting of approximately 4,600 and 3,900 square feet,
respectively. The lease on the Mexico facility expires in September 2000, and
the lease on the Belgium facility expires in December 2000. The Company believes
that its leased properties are adequately covered by insurance. The Company
believes that its facilities are adequate for its current and projected needs
and that additional space will be available as needed.

ITEM 3.  LEGAL PROCEEDINGS

    In October 1999, the Company and certain directors of the Company were sued
by Kathy and George Roelofsen, Jonathan Bryrum, and Cheryl Roelofsen, in the
Delaware Chancery Court (ROELOFSEN ET AL. VS. KLIMASEWSKI ET AL, Del. Ch. C.A.
No. 17450NC). The complaint, which purports to be a class action, asserts claims
for purported breaches of fiduciary duty in connection with the Company's
rejection of an acquisition proposal by II-VI. The Company and a number of the
individual defendants have moved to dismiss the complaint. The Company believes
that the claims are without merit and intends to defend itself vigorously.
However, there can be no assurance that the Company will prevail in these
proceedings or that an outcome unfavorable to the Company in these proceedings
will not materially adversely affect the Company's business, financial condition
or results of operations. The Company had previously entered into
indemnification contracts with each of its officers and directors, including the
directors who were named defendants in the complaint. As a result, the Company
is paying the expenses of the directors in defending themselves in this matter
subject to reimbursement under its insurance policies. Subject to certain
limited exceptions, the Company will reimburse the directors for any monetary
damages assessed against the individual directors that are not covered by the
Company's insurance policies. In addition, the conduct of litigation can be
time-consuming and costly. There can be no assurance that these factors will not
materially adversely affect the Company's business, financial condition or
results of operations.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of security holders during the quarter
ended September 30, 1999.

                                       12
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

    (a) The Company's Common Stock was first traded on June 19, 1997 on the
Nasdaq National Market under the symbol LPWR. The following table sets forth,
for the periods indicated, the high and low sales prices per share of the Common
Stock as reported on the Nasdaq National Market:

<TABLE>
<CAPTION>

                                                                                                HIGH    LOW
        <S>                                                                                     <C>    <C>
        FISCAL YEAR ENDED AUGUST 31, 1997                                                       ----    ---
        Fourth Quarter (beginning June 19, 1997)..........................................      7 3/8  5 1/2

        FISCAL YEAR ENDED SEPTEMBER 30, 1998
        First Quarter.....................................................................      9 3/4  5 3/8
        Second Quarter....................................................................      8 7/8  4 5/16
        Third Quarter.....................................................................      5 5/32 3 1/8
        Fourth Quarter....................................................................      4 1/2  1 1/8

        FISCAL YEAR ENDED SEPTEMBER 30, 1999
        First Quarter.....................................................................      2 5/8  1
        Second Quarter....................................................................      1 17/32  1/2
        Third Quarter.....................................................................      1 1/16   17/32
        Fourth Quarter....................................................................      3 1/8    3/4
</TABLE>

    The Company had approximately 309 stockholders of record of its Common Stock
as of September 30, 1999. This number does not reflect the number of beneficial
holders of the Company's Common Stock, which the Company believes to be in
excess of 800 holders. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. The Company's credit agreements restrict the payment of cash dividends.

    (b) 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 through September 30, 1999 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. 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.

                                       13
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

    The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the Notes thereto included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
                                              YEAR ENDED AUGUST 31,           YEAR ENDED SEPTEMBER 30,(2)
                                      ------------------------------------    ---------------------------
                                         1995         1996         1997          1998         1999
                                      ---------    ---------    ----------     ---------    ---------
<S>                                   <C>          <C>          <C>            <C>          <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
   Product sales..............        $ 19,136     $ 25,764     $  29,118      $ 30,035     $ 31,278
   Contract research and
     development..............             460          179           622            81        2,732
                                      ---------    ---------    ----------     ---------    ---------
       Total revenues.........          19,596       25,943        29,740        30,116       34,010
Cost of revenues:
   Product sales..............          13,466       17,356        19,373        22,177       23,059
   Contract research and
     development..............             270          117           418           239        1,820
                                      ---------    ---------    ----------     ---------    ---------
       Total cost of revenues.          13,736       17,473        19,791        22,416       24,879
Gross profit:
Product sales.................           5,670        8,408         9,745         7,858        8,219
   Contract research and
     development                           190           62           204          (158)         912
                                      ---------    ---------    ----------     ---------    ---------
       Total gross profit.....           5,860        8,470         9,949         7,700        9,131
Income (loss) from continuing
  operations..................              94        1,761         2,780        (3,862)       1,639
Loss from discontinued
  operations..................          (1,931)      (1,708)        (505)        (3,169)      (3,126)
Net income (loss) before
  extraordinary items.........        $ (1,837)    $     54     $   2,275      $ (7,032)    $ (1,487)
Net income (loss).............        $ (1,837)    $    173     $   2,275      $ (7,032)    $ (1,487)
Diluted earnings (loss)
  per share(1)................        $   (.38)    $    .03     $     .32      $   (.85)    $   (.18)
Average common shares
  outstanding - Diluted(1)....           4,790        6,573         7,196         8,263        8,454
</TABLE>
<TABLE>
<CAPTION>
                                                          AUGUST 31,                      SEPTEMBER 30,
                                              ----------------------------------     ---------------------
                                                 1995        1996        1997           1998        1999
                                              ---------    --------    ---------     ---------   ---------
<S>                                           <C>          <C>         <C>           <C>         <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents..................   $    834     $ 1,508     $  8,253      $  2,412    $    860
Working capital............................      4,819       6,647       15,202         5,304       5,928
Total assets...............................     14,224      17,159       28,119        24,618      21,908
Long-term debt,
   net of current portion..................      2,922       2,640        3,230           287       3,083
Subordinated convertible debentures........      1,660       1,660        1,660         1,660       1,660
Total stockholders' equity.................      5,809       7,922       17,682        11,233       9,925
------------
</TABLE>

(1) See Note 1 of Notes to Consolidated Financial Statements for a description
    of the computation of net income (loss) per share and the number of shares
    used in the per share calculation.
(2) See the Notes to Consolidated Financial Statements regarding the change in
    fiscal year end and the results of operations for the one-month ended
    September 30, 1997.

                                       14
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

    The following discussion contains forward-looking statements that involve
risks and uncertainties. Laser Power's actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the sections
entitled "Certain Risk Factors Related to the Company's Business" as well as
those discussed elsewhere in this Form 10-K.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER
30, 1998

    REVENUES

    For the fiscal year ended September 30, 1999, product sales were $31.3
million compared to $30.0 million for fiscal 1998, an increase of $1.3 million
or 4%. Contract research and development revenues were $2.7 million for fiscal
1999 compared to $81,000 for fiscal 1998, an increase of $2.6 million. The
increase in product sales was due primarily to increased shipments of infrared
optics on long-term production contracts, partially offset by reduced shipments
of laser optics. Laser optics orders decreased due to delivery delays resulting
from relocation of the laser optic product line to the Company's Temecula,
California facility, and increased competition. The increase in contract
research and development revenues was due to a significant subcontract to design
and construct a large aperture optic thin film coating facility at the Temecula
location, for which there were no revenues in fiscal 1998.

    The Company's ability to increase product sales for fiscal 2000 is dependent
on successful consolidation of optics operations, increased manufacturing
capacity for anticipated customer requirements for infrared optics, and recovery
of laser optics market share. Contract research and development revenues are
expected to decrease due to a shift in focus from facility construction to thin
film coating process development.

   GROSS PROFIT

    Gross profit on product sales was $8.2 million in fiscal 1999 compared to
$7.9 million in fiscal 1999, an increase of $300,000 or 4%. Gross profit on
research and development revenues was $912,000 in fiscal 1999 compared to a
gross loss of $158,000 in fiscal 1998. Gross margin on product sales was 26% in
fiscal 1999 and fiscal 1998. Increased gross margins due to a product mix shift
to infrared optics was offset by the negative impact on gross margin of laser
optic manufacturing inefficiencies related to the relocation to Temecula. Gross
margin on contract research and development revenues was 33% in fiscal 1999.
Losses on fixed price contracts experienced in fiscal 1998 did not recur in
fiscal 1999.

   INTERNAL RESEARCH AND DEVELOPMENT EXPENSE

    Internal research and development expense was $620,000 in fiscal 1999
compared to $870,000 in fiscal 1998, a decrease of $250,000 or 29%. The decrease
was due to a change in focus in development activities from new product
development to process improvement, which is primarily accounted for in cost of
sales. As a percentage of sales, the Company does not expect internal research
and development expense to increase significantly in the near term. In the long
term, increases and decreases as a percentage of sales are less predictable and
depend on a number of factors, including the Company's ability to obtain
contract funding for development of key technologies.

   SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

    Selling, general and administrative expense was $6.5 million in fiscal 1999
and fiscal 1998. A reduction in corporate administrative expense was offset by
an increase in operating unit selling and administrative expenses. The Company
anticipates that these expenses will continue to increase to enable the sales
and marketing activities and information systems infrastructure necessary to
support the Company's long-term growth objectives. However, as a percentage of
sales, these expenses are expected to remain constant or increase moderately.

                                       15
<PAGE>

   INTEREST EXPENSE

    Net interest expense was $342,000 in fiscal 1999 compared to $187,000 in
fiscal 1998, an increase of $155,000 or 83%. The increase was due primarily to
higher average borrowings during fiscal 1999 resulting from capital and other
expenditures related to consolidation of optics operations and use of cash to
fund discontinued operations. Future increase or decrease in interest expense
will depend in part on the time required to dispose of discontinued operations
and the timing of proceeds from disposal.

   INCOME TAXES

    Income taxes were $11,000 in fiscal 1999 compared to $249,000 in fiscal
1998, a decrease of $238,000 or 96%. The tax provision in 1998 was due to
taxable income of EMI for the period prior to the merger of EMI and the Company.
The Company has substantial federal and state tax operating loss carryforwards
available for future periods. The availability of these carryforwards may be
limited by the application of rules relating to a change in control as a result
of the merger with EMI and the completion of the Company's initial public
offering of Common Stock in August 1997.

FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED AUGUST 31,
1997

   REVENUES

    For the fiscal year ended September 30, 1998, product sales were $30.0
million compared to $29.1 million for fiscal 1997, an increase of $.9 million or
3%. Contract research and development revenues were $81,000 for fiscal 1998
compared to $623,000 for fiscal 1997, a decrease of $542,000 or 87%. The
increase in product sales was due primarily to shipments of infrared optics on
long-term production contracts. The decrease in contract research and
development revenues was primarily due to a reduction in commercial laser and
optics technology development contracts.

   GROSS PROFIT

    Gross profit on product sales was $7.9 million in fiscal 1998 compared to
$9.7 million in fiscal 1997, a decrease of $1.8 million or 19%. Gross loss on
research and development revenues was $158,000 in fiscal 1998 compared to a
gross profit of $204,000 in fiscal 1997, a decrease of $.4 million. Gross margin
on product sales was 26% in fiscal 1998 compared to 33% in fiscal 1997. The
decrease in gross margin was primarily due to manufacturing inefficiencies and
reduced selling prices in the laser optics product line. A gross loss was
experienced on contract research and development revenues in fiscal 1998 due to
costs incurred to complete a fixed price development contract.

   INTERNAL RESEARCH AND DEVELOPMENT EXPENSE

    Internal research and development expense was $870,000 in fiscal 1998 and
$916,000 in fiscal 1997.

   SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

    Selling, general and administrative expense was $6.5 million in fiscal 1998
compared to $5.8 million in fiscal 1997, an increase of $.7 million or 12%. The
increase was due to the increased expense of being a publicly held company after
the Company's IPO in June 1997.

   INTEREST EXPENSE

    Net interest expense was $187,000 in fiscal 1998 compared to $254,000 in
fiscal 1997, a decrease of $68,000 or 27%. The decrease was due primarily to
income from investment of the net proceeds of the Company's initial public
offering, partially offset by increased borrowings for capital
investments.

                                       16
<PAGE>

   INCOME TAXES

    Income taxes were $249,000 in fiscal 1998 compared to $185,000 in fiscal
1997, an increase of $64,000 or 35%. The increase was due to increased taxable
income of EMI prior to its merger with the Company. The Company's effective tax
rate in fiscal 1997 was reduced substantially by the utilization of federal and
state tax net operating loss carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

    The Company completed its initial public offering in August 1997, raising
approximately $8.1 million, net of offering costs. Prior to the public offering,
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, from issuance of subordinated debentures
and capital equipment leasing and bank debt.

    In November 1999, the Company entered into a credit agreement with a unit of
Wells Fargo Bank. The new credit agreement provides for a $4 million working
capital line of credit, subject to a borrowing base, and a $1.95 million term
loan to be amortized over 5 years. The Company utilized the proceeds of the term
loan and an initial draw on the working capital line to retire its debt to Wells
Fargo Bank under a prior credit agreement. The new credit agreement also
provides for a capital equipment financing facility, and for a reduction in
interest rates in the event that the net proceeds of the sale of its
discontinued operations exceeds $2,000,000. The credit agreement expires in
November 2002. The amount due under the working capital line is classified as
long-term debt in the Consolidated Balance Sheet at September 30, 1999, and is
secured by substantially all of the assets of the Company.

    Cash provided by operating activities of continuing operations was $2.7
million in fiscal 1999 compared to cash used of $454,000 in fiscal 1998 and cash
provided of $2.8 million in 1997. The primary reasons for the use of cash in
1998 were expenses related to the merger with EMI and subsequent integration
activities, and the restriction of $1 million in cash in connection with renewal
of a bank credit agreement. The Company's new credit agreement does not provide
for a restriction on cash.

    Cash used in investing activities of continuing operations was $2.2 million
in fiscal 1999 compared to $2.9 million and $3.0 million in fiscal 1998 and
1997, respectively. The decrease in 1999 is due to reduced requirements for
plant expansion and process automation investments. The Company expects capital
equipment investment to be lower in the near term.

    Cash used in financing activities of continuing operations was $391,000 in
fiscal 1999 compared to cash provided of $1.9 million and $8.6 million for
fiscal 1998 and 1997, respectively. Cash usage in 1999 was primarily the net
reduction of debt. For fiscal 1998, the primary sources of financing were bank
borrowings and exercise of stock options. For fiscal 1997, the primary source of
financing was the public offering. The Company had $1.7 million outstanding on
its line of credit under its new credit agreement at December 1, 1999.

    The Company believes that its current cash balance together with other
sources of liquidity will satisfy its cash requirements for at least the next
twelve months.

YEAR 2000

    Many older computer software programs refer to years in terms of their last
two digits only. Such programs may interpret the year 2000 to mean the year 1900
instead. If not corrected, these programs could cause date-related transaction
failures. This problem is often referred to as the "Year 2000" issue.

    The Company recognizes the need to ensure that the Year 2000 issue will not
impact its operations. The Company does not believe that it has an exposure to
the Year 2000 issue with respect to its own products. As of December 1, 1999,
the Company has determined that all of its 215 critical systems are Year 2000
ready. The Company also has contacted critical suppliers and customers to
determine the status of their Year 2000 readiness programs. The Company has
requested that each critical supplier and customer provide information with
respect to their efforts to address the Year 2000 issue. Based primarily on
reliance on representations and certifications provided by these vendors and
customers, the Company has not identified any material customer or vendor
exposure to the Y2K issue.

                                       17
<PAGE>

    To date, the Company's expenditures on such corrective actions and surveys
have not been material and the Company does not expect to incur material costs
in the future related to addressing the Year 2000 issue. The Company does not
have the financial resources to maintain higher than normal levels of inventory
and to take other actions to insulate itself from disruption to its suppliers
and customers caused by their failure to achieve Year 2000 compliance. Although
the Company does not believe that it has an exposure to the Year 2000 issue with
respect to its own products, there can be no assurance that failure of software
upgrades and fixes provided to it by third parties for microprocessor software
which supports critical operations, or that failure of its critical suppliers
and customers to adequately address the Year 2000 issue in a timely fashion,
will not result in a material adverse effect on the Company's business,
financial condition or operating results.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company's market risk disclosures pursuant to item 7A. are not material
and are therefore not required.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The financial statements and supplementary data of the Company required by
this item are filed as exhibits hereto, are listed under Item 14(a)(1) and (2),
and are incorporated herein by reference.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

    None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The information required by this item with respect to directors of the
Company is incorporated by reference to Registrant's Definitive Proxy Statement
to be filed with the Commission in connection with the 2000 Annual Meeting (the
"Proxy Statement") under the headings "Nominees" and "Directors." The
information required by this section with respect to Executive Officers is set
forth under Part I, Item 1, "Business--Executive Officers of the Registrant."

ITEM 11.  EXECUTIVE COMPENSATION

    The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by this item is incorporated by reference to the
Proxy Statement under the heading "Certain Transactions."

                                       18
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a)(1) Index to Consolidated Financial Statements:

    The consolidated financial statements required by this item are submitted in
a separate section beginning on page 21 of this Annual Report on Form 10-K.
<TABLE>
          <S>                                                                                    <C>
          Report of Ernst & Young LLP, Independent Auditors...................................   22
          Consolidated Balance Sheets at September 30, 1999 and September 30, 1998............   23
          Consolidated Statements of Operations for the years ended
             September 30, 1999, September 30, 1998 and August 31, 1997
             and the one month ended September 30, 1997.......................................   24
          Consolidated  Statements of Stockholders' Equity for the years ended
             September 30, 1999, September 30, 1998 and August 31, 1997
             and the one month ended September 30, 1997.......................................   25
          Consolidated Statements of Cash Flows for the years ended
             September 30, 1999, September 30, 1998 and August 31, 1997
             and the one month ended September 30, 1997.......................................   26
          Notes to Consolidated Financial Statements..........................................   27
</TABLE>

    (2) All schedules have been omitted because they are not applicable or
        required, or the information required to be set forth therein is
        included in the Financial Statements or notes thereto.

    (b) The Registrant filed no reports on Form 8-K during the fourth quarter of
        the fiscal year ended September 30, 1999.

    (c) Exhibits

 EXHIBIT        EXHIBIT
FOOTNOTE        NUMBER                   DESCRIPTION
--------        ------                   -----------
  (7)            2.1       Asset Purchase Agreement dated December 16, 1999
                           between Registrant and Melles Griot, Inc.
  (1)            3.1       Registrant's Amended and Restated Certificate of
                           Incorporation
  (6)            3.2       Registrant's Amended and Restated Bylaws
  (1)            4.1       Reference is made to Exhibits 3.1 and 3.2
  (1)            4.2       Form of Common Stock Certificate of Registrant
  (6)            4.3       Rights Agreement dated as of October 15, 1999 between
                           Laser Power Corporation and American Securities
                           Transfer & Trust, Inc.
  (6)            4.4       Registrant's Certificate of Designation of Series A
                           Junior Participating Preferred Stock
  (6)            4.5       Form of Rights Certificate
  (1)           10.1       Form of Indemnity Agreement entered into between
                           Registrant and its directors and executive officers
  (1)(3)        10.2       Registrant's Second Amended and Restated 1981 Stock
                           Option Plan (the "1981 Plan")
  (1)           10.3       Incentive Stock Option Agreement Under Registrant's
                           1981 Plan
  (1)(3)        10.4       Registrant's 1993 Stock Option Plan (the "1993 Plan")
  (1)           10.5       Form of Incentive Stock Option Agreement under the
                           1993 Plan
  (1)           10.6       Form of Nonstatutory Stock Option Agreement under the
                           1993 Plan
  (1)(3)        10.7       Registrant's 1997 Equity Incentive Plan (the "1997
                           Plan")
  (1)           10.8       Form of Incentive Stock Option Agreement under the
                           1997 Plan
  (1)           10.9       Form of Nonstatutory Stock Option Agreement under the
                           1997 Plan
  (1)(3)        10.10      Registrant's Employee Stock Purchase Plan
  (1)           10.11      Form of Warrant issued by Registrant in favor of
                           certain directors of Registrant and attached schedule

                                       19
<PAGE>

 EXHIBIT        EXHIBIT
FOOTNOTE        NUMBER                   DESCRIPTION
--------        ------                   -----------

  (1)(2)        10.12      Cooperative Development and License Agreement between
                           Proxima Corporation and Registrant dated January 11,
                           1994
  (1)           10.13      Registration Rights Agreement between Registrant,
                           Union Miniere Inc. and Proxima Corporation dated June
                           9, 1997
  (1)(2)        10.14      Assignment Agreement between Registrant and ATx
                           Telecom Systems, Inc. dated September 30, 1996
  (1)(3)        10.15      Form of Employment Agreement and attached schedule
  (1)           10.16      Lease dated August 30, 1984 between the Registrant
                           and Highlands Park Partnership and amendments thereto
  (4)           10.17      Building Lease dated October 25, 1991, as amended,
                           between Exotic Materials, Inc. and Reisung
                           Enterprises, Inc.
  (4)(3)        10.18      Employment Agreement between Exotic Materials, Inc.
                           and Dick Sharman dated December 5, 1997.
  (4)(3)        10.19      Employment Agreement between Exotic Materials, Inc.
                           and Robert N. Haro dated December 5, 1997.
  (5)           10.20      Credit Agreement dated February 1, 1999 between the
                           Company and Wells Fargo Bank and related promissory
                           notes
                10.21      Credit Agreement dated November 24, 1999 between the
                           Company and Wells Fargo Business Credit and related
                           promissory notes
  (1)           21.1       Subsidiaries of the Registrant
                23.1       Consent of Ernst & Young LLP, Independent Auditors
                24.1       Power of Attorney. Reference is made to page 39
                27.1       Financial Data Schedule

------------

(1)   Filed as an exhibit to the Registrant's Registration Statement on Form
      SB-2 (No. 333-24421) or amendments thereto and incorporated herein by
      reference.

(2)   Certain confidential portions deleted pursuant to Order Granting
      Application Under the Securities Act of 1933, as amended, and Rule 406
      thereunder respecting Confidential Treatment dated June 12, 1997.

(3)   Indicates management or compensatory plan or arrangement required to be
      identified pursuant to item 14(a)(3).

(4)   Filed as an exhibit to Registrant's Registration Statement on Form S-4
      (No. 333-43415) or amendments thereto and incorporated herein by
      reference.

(5)   Filed as an exhibit to Registrant's quarterly report on Form 10-Q for the
      quarter ending March 28, 1999 and incorporated herein by reference.

(6)   Filed as an exhibit to Registrant's current report on Form 8-K on October
      19, 1999 and incorporated herein by reference.

(7)   The attachments listed in the index to the Asset Purchase Agreement were
      omitted pursuant to Item 601(b)(2) of Regulation S-K. Registrant hereby
      undertakes to furnish supplementally a copy of any omitted attachment to
      the Commission upon request.



                                       20
<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

<S>                                                                                        <C>
Report of Ernst & Young LLP, Independent Auditors.......................................   22

Consolidated Balance Sheets at September 30, 1999 and September 30, 1998................   23

Consolidated Statements of Operations for the years ended September 30, 1999,
September 30, 1998 and August 31, 1997 and the one month ended September 30, 1997.......   24

Consolidated Statements of Stockholders' Equity for the years ended September 30, 1999,
September 30, 1998 and August 31, 1997 and the one month ended September 30, 1997.......   25

Consolidated Statements of Cash Flows for the years ended September 30, 1999,
September 30, 1998 and August 31, 1997 and the one month ended September 30, 1997.......   26

Notes to Consolidated Financial Statements..............................................   27
</TABLE>




                                       21
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Laser Power Corporation

    We have audited the accompanying consolidated balance sheets of Laser Power
Corporation at September 30, 1999 and September 30, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years ended September 30, 1999, September 30, 1998 and August 31,
1997 and the one month ended September 30, 1997. These 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Laser Power
Corporation at September 30, 1999 and September 30, 1998, and the consolidated
results of its operations and its cash flows for the years ended September 30,
1999, September 30, 1998 and August 31, 1997 and the one month ended September
30, 1997, in conformity with generally accepted accounting principles.


                                                     /s/ Ernst & Young, LLP

                                                     ERNST & YOUNG LLP


San Diego, California
December 4, 1999



                                       22
<PAGE>

                                       LASER POWER CORPORATION

                                     CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                               SEPTEMBER 30,     SEPTEMBER 30,
                                                                                   1999              1998
                                                                               ------------      ------------
<S>                                                                            <C>               <C>
ASSETS
Current assets:
    Cash and cash equivalents...........................................       $   859,927       $ 2,412,327
    Restricted cash.....................................................                 -         1,000,000
    Accounts receivable, net............................................         4,488,460         4,760,828
    Inventories, net....................................................         6,499,710         6,134,525
    Other current assets................................................           329,709           521,254
    Net current assets of discontinued operations.......................           570,027           880,610
                                                                               ------------      ------------
        Total current assets............................................        12,747,833        15,709,544
Property and equipment, net.............................................         7,094,233         6,096,847
Intangibles and other assets, net.......................................           418,907           442,354
Net non-current assets of discontinued operations.......................         1,647,208         2,369,468
                                                                               ------------      ------------
        Total assets....................................................       $21,908,181       $24,618,213
                                                                               ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable....................................................       $ 2,023,763       $ 1,939,636
    Accrued compensation and related expenses...........................         1,529,649         1,106,641
    Other current liabilities...........................................         1,732,680         2,931,470
    Allowance for operating losses of discontinued operations...........           450,000                 -
    Current portion of long-term debt...................................         1,083,778         4,427,811
                                                                               ------------      ------------
        Total current liabilities.......................................         6,819,870        10,405,558
Long-term liabilities...................................................           420,120         1,032,472
Long-term debt..........................................................         3,082,809           286,838
Subordinated convertible debentures.....................................         1,660,000         1,660,000
Stockholders' equity:
    Common stock, par value $.001:
        Authorized -- 15,000,000 shares
        Issued and outstanding 8,579,987 shares in 1999, and 8,398,455
          shares in 1998................................................             8,580             8,398
    Additional paid-in capital..........................................        19,573,531        19,416,298
    Accumulated deficit.................................................        (9,638,986)       (8,152,304)
    Accumulated other comprehensive loss................................           (17,743)          (39,047)
                                                                               ------------      ------------
    Total stockholders' equity..........................................         9,925,382        11,233,345
                                                                               ------------      ------------
        Total liabilities and stockholders' equity......................       $21,908,181       $24,618,213
                                                                               ============      ============


                                                 See accompanying notes.
</TABLE>

                                                           23
<PAGE>
<TABLE>

                                                 LASER POWER CORPORATION

                                          CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                                             ONE MONTH
                                                       YEAR ENDED          YEAR ENDED          ENDED            YEAR ENDED
                                                      SEPTEMBER 30,       SEPTEMBER 30,     SEPTEMBER 30,       AUGUST 31,
                                                           1999               1998               1997              1997
                                                      --------------     --------------     --------------    --------------
<S>                                                   <C>                <C>                <C>               <C>
Revenues:
   Product sales..............................        $  31,278,196      $  30,034,601      $   2,531,442     $  29,117,915
   Contract research and development..........            2,731,981             81,274             36,240           622,514
                                                      --------------     --------------     --------------    --------------
      Total revenues..........................           34,010,177         30,115,875          2,567,682        29,740,429
Costs and expenses:
   Cost of product sales......................           23,059,310         22,176,606          1,517,015        19,372,937
   Contract research and development..........            1,820,026            239,402             36,488           418,076
   Internal research and  development.........              619,752            869,518             48,561           915,926
   Selling, general and administrative........            6,519,791          6,479,216            725,298         5,814,390
   Merger and integration.....................                    -          3,778,000                  -                 -
                                                      --------------     --------------     --------------    --------------
     Total costs and expenses.................           32,018,879         33,542,742          2,327,362        26,521,329
                                                      --------------     --------------     --------------    --------------
Income (loss) from operations.................            1,991,298         (3,426,867)           240,320         3,219,100
   Interest expense, net......................              341,798            186,893              5,962           254,077
                                                      --------------     --------------     --------------    --------------
Income (loss) before income taxes.............            1,649,500         (3,613,760)           234,358         2,965,023
   Income taxes...............................               10,547            248,642            129,800           184,758
                                                      --------------     --------------     --------------    --------------
Income (loss) continuing operations...........            1,638,953         (3,862,402)           104,558         2,780,265
Loss from discontinued operations.............           (2,475,635)        (3,169,210)          (178,116)         (505,049)
  Loss on disposal, including estimated
    loss during disposal period of $450,000...             (650,000)                 -                  -                 -
                                                      --------------     --------------     --------------    --------------
Net income (loss).............................        $  (1,486,682)     $  (7,031,612)     $     (73,558)    $   2,275,216
                                                      ==============     ==============     ==============    ==============
Basic earnings (loss) per share:
  Income (loss) from continuing operations....        $         .19      $        (.47)     $         .01     $         .50
  Loss from discontinued operations...........                 (.37)              (.38)              (.02)             (.09)
                                                      --------------     --------------     --------------    --------------
    Net income (loss).........................        $        (.18)     $        (.85)     $        (.01)    $         .41
                                                      ==============     ==============     ==============    ==============
Diluted earnings (loss) per share:
  Income (loss) from continuing operations....        $         .19      $        (.47)     $         .01     $         .39
  Loss from discontinued operations...........                 (.37)              (.38)              (.02)             (.07)
                                                      --------------     --------------     --------------    --------------
    Net income (loss).........................        $        (.18)     $        (.85)     $        (.01)    $         .32
                                                      ==============     ==============     ==============    ==============

Average common shares outstanding:
  Basic.......................................            8,454,000          8,263,000          8,099,000         5,592,000
                                                      ==============     ==============     ==============    ==============
  Diluted.....................................            8,454,000          8,263,000          8,099,000         7,196,000
                                                      ==============     ==============     ==============    ==============

</TABLE>

                                                 See accompanying notes.


                                                           24
<PAGE>
<TABLE>

                                                 LASER POWER CORPORATION
                                     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                          YEARS ENDED SEPTEMBER 30, 1999, SEPTEMBER 30, 1998 AND AUGUST 31, 1997
                                          AND ONE MONTH ENDED SEPTEMBER 30, 1997

<CAPTION>

                                      Convertible                                                           Accumulated
                                     Preferred Stock        Common Stock          Additional                  Other
                                  ---------------------- ----------------------    Paid-In     Accumulated Comprehensive
                                    Shares      Amount     Shares      Amount      Capital       Deficit   Income/(Loss)    Total
                                  ----------- ---------- ----------- ---------- ------------- ------------- ----------- ------------
<S>                               <C>         <C>        <C>         <C>        <C>           <C>           <C>         <C>
Balance at August 31, 1996.......  1,610,891  $ 201,361   5,049,259  $   5,049  $ 10,290,004  $ (3,093,617) $  123,222  $ 7,526,019
  Issuance of common  stock......          -          -      95,373         95       117,405             -           -      117,500
  Issuance of common stock in
    initial public offering......          -          -   1,897,500      1,898     8,121,868             -           -    8,123,766
  Conversion of preferred
    stock........................ (1,610,891)  (201,361)  1,193,252      1,193       200,168             -           -            -
  Repurchase of common stock.....          -          -    (161,642)      (161)     (186,672)            -           -     (186,833)
  Comprehensive income (loss):
     Net income..................          -          -           -          -             -     2,275,216           -    2,275,216
     Foreign currency
      translation adjustment.....          -          -           -          -             -             -    (173,798)    (173,798)
        Comprehensive income.....          -          -           -          -                           -           -    2,101,418
                                  ----------- ---------- ----------- ---------- ------------- ------------- ----------- ------------
Balance at August 31, 1997.......          -          -   8,073,742      8,074    18,542,773      (818,401)    (50,576)  17,681,870
  Transition period (Note 1).....          -          -           -          -       (13,216)     (302,291)     13,385     (302,122)
                                  ----------- ---------- ----------- ---------- ------------- ------------- ----------- ------------
Balance at September 30, 1997....          -          -   8,073,742      8,074    18,529,557    (1,120,692)    (37,191)  17,379,748
  Issuance of common stock
   for exercised options.........          -          -     291,142        291       718,213             -           -      718,504
  Employee stock
   purchase plan.................          -          -      33,571         33       111,528             -           -      111,561
  Issuance of warrants for services        -          -           -          -        57,000             -           -       57,000
  Comprehensive loss:
    Net loss.....................          -          -           -          -             -    (7,031,612)          -   (7,031,612)
    Foreign currency
     translation adjustment......          -          -           -          -             -             -      (1,856)      (1,856)
        Comprehensive loss.......          -          -           -          -             -             -           -   (7,033,468)
                                  ----------- ---------- ----------- ---------- ------------- ------------- ----------- ------------
Balance at September 30, 1998....          -          -   8,398,455      8,398    19,416,298    (8,152,304)    (39,047)  11,233,345
  Employee stock
   purchase plan.................          -          -     181,532        182       157,233             -           -      157,415
  Comprehensive income (loss):
    Net loss.....................          -          -           -          -             -    (1,486,682)          -   (1,486,682)
    Foreign currency
     translation adjustment......          -          -           -          -             -             -      21,304       21,304
        Comprehensive loss.......          -          -           -          -             -             -           -   (1,465,378)
                                  ----------- ---------- ----------- ---------- ------------- ------------- ----------- ------------
Balance at September 30, 1999....          -  $       -   8,579,987  $   8,580  $ 19,573,531  $ (9,638,986) $  (17,743) $ 9,925,382
                                  =========== ========== =========== ========== ============= ============= =========== ============

</TABLE>

                                                 See accompanying notes.

                                                           25
<PAGE>
<TABLE>

                                                 LASER POWER CORPORATION

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                                                     ONE MONTH
                                                                     YEAR ENDED SEPTEMBER 30,           ENDED         YEAR ENDED
                                                                  -------------------------------    SEPTEMBER 30,     AUGUST 31,
                                                                      1999              1998            1997            1997
                                                                  -------------     -------------   -------------   -------------
<S>                                                               <C>               <C>             <C>             <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations....................      $  1,638,953      $ (3,862,402)   $    104,558    $  2,780,265
Adjustment to income (loss) to account for
  overlapping periods (Note 1)..............................                 -                 -        (228,733)              -
Adjustments to reconcile income (loss) to net
  cash provided by (used in) operating activities:
    Depreciation and amortization...........................         1,276,779         1,582,785          93,038       1,053,211
    Loss on disposal of property and equipment and
     impairment of long-lived assets........................                 -         1,250,505               -               -
    Long-term liabilities...................................          (612,352)          803,548          (5,871)        (70,452)
    Warrants issued for services............................                 -            57,000               -               -
    Changes in operating assets and liabilities:
      Restricted cash.......................................         1,000,000        (1,000,000)              -               -
      Accounts receivable...................................           272,368           408,122         355,289        (613,503)
      Inventories...........................................          (365,185)         (637,568)       (181,632)     (1,061,258)
      Other current assets..................................           191,545           (13,595)        (41,439)       (153,761)
      Accounts payable......................................            84,127          (471,499)         77,104         418,245
      Accrued compensation and related expenses.............           423,008          (403,841)         47,006         414,404
      Other current liabilities.............................        (1,198,790)        1,832,686          30,778          56,285
                                                                  -------------     -------------   -------------   -------------
 Net cash provided by (used in) operating activities
  of continuing operations..................................         2,710,453          (454,259)        250,098       2,823,436
 Net cash used in operating
  activities of discontinued operations.....................        (1,871,621)       (4,055,785)        (77,935)       (599,317)
                                                                  -------------     -------------   -------------   -------------
 Net cash provided by (used in) operating activities........           838,832        (4,510,044)        172,163       2,224,119

INVESTING ACTIVITIES
Additions to property and equipment.........................        (2,226,006)       (2,852,776)        (92,341)     (3,144,787)
Changes in intangibles and other assets.....................            (3,408)           (7,202)            500           4,923
                                                                  -------------     -------------   -------------   -------------
Net cash used in investing activities
  of continuing operations..................................        (2,229,414)       (2,859,978)        (91,841)     (3,139,864)
Net cash provided by (used in) investing activities
  of discontinued operations................................           228,829          (316,097)        (89,411)       (417,797)
                                                                  -------------     -------------   -------------   -------------
Net cash used in investing activities.......................        (2,000,585)       (3,176,075)       (181,252)     (3,557,661)

FINANCING ACTIVITIES
Proceeds from borrowings....................................         1,349,097         3,504,476               -       1,354,835
Payments on borrowings......................................        (1,897,159)       (2,435,446)        (30,845)       (801,623)
Net proceeds from issuance of stock in conjunction
  with initial public offering..............................                 -                 -               -       8,123,766
Net proceeds from issuance and repurchase of stock..........           157,415           830,065         (13,216)        (69,333)
                                                                  -------------     -------------   -------------   -------------
Net cash provided by (used in) financing activities
  of continuing operations..................................          (390,647)        1,899,095         (44,061)      8,607,645
                                                                  -------------     -------------   -------------   -------------
Net increase (decrease) in cash and cash equivalents........        (1,552,400)       (5,787,024)        (53,150)      7,274,103
Cash and cash equivalents at beginning of the period........         2,412,327         8,199,351       8,252,501         978,398
                                                                  -------------     -------------   -------------   -------------
Cash and cash equivalents at end of the period..............      $    859,927      $  2,412,327    $  8,199,351    $  8,252,501
                                                                  =============     =============   =============   =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest....................      $    574,000      $    619,000    $     17,000    $    548,000
                                                                  =============     =============   =============   =============
Cash paid during period for income taxes....................      $      9,000      $    241,000    $          -    $     48,000
                                                                  =============     =============   =============   =============
</TABLE>


                                                      See accompanying notes.

                                                                26
<PAGE>

                             LASER POWER CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   BUSINESS AND BASIS OF PRESENTATION

    Laser Power Corporation ("Laser Power" or the "Company") designs,
manufactures and markets high performance optics for industrial, medical and
military applications. The Company's laser optics products are sold to laser
system OEMs and end users as original and replacement components in high power
CO2 and other lasers. The Company's infrared optics products are sold to various
government agencies and to prime contractors of these agencies, and are used
primarily in infrared imaging systems. The company also provides thin film
design and coating services for industrial and military applications.

    The accompanying consolidated financial statements present the financial
position, results of operations and cash flows of Laser Power Corporation (the
"Company") and its subsidiaries, EMI Acquisition Corp. ("EMI"), Laser Power
Optics de Mexico S.A. de C.V. ("Laser Power Mexico") and Laser Power Europe N.V.
("LPE"). EMI operates through its subsidiary Exotic Materials, Inc. (doing
business as Exotic Electro-Optics - "Exotic"). Exotic manufactures infrared
optic products principally for the aerospace and defense markets in the United
States. LPE operates primarily as the European sales and distribution center for
the Company. Laser Power Mexico performs a portion of the laser optic
manufacturing and does not sell products to unaffiliated customers. All
significant inter-company accounts and transactions have been eliminated in
consolidation.

   DISCONTINUED OPERATIONS

    During fiscal 1999, the Company's Board of Directors adopted a plan to sell
its microlaser operations and to phase out certain contract research operations.
Operations to be sold or phased out are reported as discontinued operations. The
Company expects to conclude a transaction for the sale of a majority of the
assets of discontinued operations by December 31, 1999.
<TABLE>

    The results of discontinued operations were as follows:
<CAPTION>

                                                      YEAR ENDED         YEAR ENDED        YEAR ENDED
                                                     SEPTEMBER 30,      SEPTEMBER 30,      AUGUST 31,
                                                         1999               1998              1997
                                                     ------------       ------------      ------------
<S>                                                  <C>                <C>               <C>
Revenues:
   Product sales.......................              $ 2,217,204        $ 1,034,830       $   277,796
   Contract research and development...                1,821,431          3,411,997         5,533,280
                                                     ------------       ------------      ------------
       Total revenues..................                4,038,635          4,446,827         5,811,076
Costs and expenses:
   Cost of product sales...............                2,117,178          1,189,054           705,013
   Contract research and development...                1,466,620          3,088,957         4,431,107
   Internal research and development...                1,319,457          1,930,230           461,250
   Selling, general and administrative.                1,392,489          1,288,307           556,313
                                                     -----------         ----------        ----------
       Total costs and expenses........                6,295,744          7,496,548         6,153,683
                                                     -----------          ---------        ----------
Loss from operations...................               (2,257,109)        (3,049,721)         (342,607)
   Interest expense, net...............                  218,526            119,489           162,442
                                                     ------------       ------------      ------------
Income (loss) before income taxes......               (2,475,635)        (3,169,210)         (505,049)
   Income taxes........................                        -                  -                 -
                                                     ------------       ------------      ------------
Net loss from discontinued operations..               (2,475,635)        (3,169,210)         (505,049)
  Loss on disposal, including estimated
   loss during disposal period of $450,000              (650,000)                 -                 -
                                                     ------------       ------------      ------------
Net loss...............................              $(3,125,635)       $(3,169,210)      $  (505,049)
                                                     ============       ============      ============
</TABLE>

    Corporate overhead expenses, historically allocated and charged to
discontinued operations, were reversed and allocated back to continuing
operations because those expenses were not considered to be directly
attributable to discontinued operations. Expenses allocated back to continuing
operations totaled $219,000, $119,000 and $162,000 in fiscal 1999, 1998 and
1997, respectively.

                                       27
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

    Interest expense attributable to discontinued operations includes an
allocation of interest on general corporate credit facilities. Interest is
allocated to discontinued operations based on the expected reduction in interest
expense that should occur upon the sale of any of the discontinued operations
and the use of proceeds from such sale to repay debt, and is representative of
projected future interest expense. The Company believes this approach is
substantially the same as if the buyer assumed this debt.

    Assets and liabilities of discontinued operations have been reflected in the
consolidated balance sheets as current or non-current assets based on the
original classification of the accounts, except that current liabilities are
netted against current assets and non-current liabilities are netted against
non-current assets. Net non-current assets also reflect a valuation allowance of
$200,000 to recognize the estimated loss on disposal. The summary of assets and
liabilities of discontinued operations are presented in the "Selected Balance
Sheet Detail" footnote.

    The accrual for the estimated pre-tax losses to be incurred during the
expected disposal period of $450,000 is presented separately in the accompanying
consolidated balance sheet for fiscal 1999. Such amount excludes corporate
overhead and interest allocation.

   CHANGE IN FISCAL YEAR

    The Company changed its fiscal year end from August 31 to September 30
effective for the fiscal year ended September 30, 1998.

    ACQUISITION OF EMI

    In February 1998, the Company merged with EMI. The Company issued 2,021,178
shares of its common stock based on a 1.8511 ratio of exchange. The Company has
accounted for the merger as a pooling-of-interests; accordingly, the
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's August 31, 1997 financial statements include
the EMI financial statements for the year ended September 30, 1997.

    The consolidated results of operations of EMI for the three months ended
December 31, 1996 were utilized in the 1997 fiscal period. Summarized
information for the three months ended December 31, 1996 is as follows
(unaudited, in thousands):


    Total revenues..................................................    $ 3,122
    Operating expenses..............................................    $ 2,697
    Income before extraordinary item................................    $   384

    The consolidated financial statements for the year ended August 31, 1997
include the year ended September 30, 1997 for EMI. The consolidated financial
statements for the one month ended September 30, 1997 include EMI's net income
as follows:


    Laser Power..................................................    $ (302,291)
    EMI..........................................................       228,733
                                                                     -----------
    Net loss.....................................................    $  (73,558)
                                                                     ===========

    Total revenues and income (loss) of Laser Power and EMI from continuing
operations for the periods preceding the acquisition were as follows (in
thousands):
<TABLE>
<CAPTION>

                                                                      LASER POWER      EMI     COMBINED
                                                                      -----------      ---     --------
    <S>                                                                <C>          <C>        <C>
    Five months ended February 28, 1998 (unaudited):
       Total revenues............................................      $  6,969     $ 5,474    $ 12,443
       Income (loss) from continuing operations..................      $ (1,225)    $   469    $   (756)

    Year ended August 31, 1997:
       Total revenues............................................      $ 17,541     $12,199    $ 29,740
       Income from continuing operations.........................      $  1,233     $ 1,521    $  2,754
</TABLE>

                                       28
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


   MERGER AND INTEGRATION CHARGE

    During 1998, the Company recorded a merger and integration charge of
approximately $3.8 million related to the Company's merger with EMI and plan to
move its laser optics operations from San Diego, California to Temecula,
California. This charge included approximately $1.0 million related to an
abandonment of a portion of the San Diego facilities lease, $1.3 million related
to impairment of long-lived assets, $800,000 for acquisition costs and $700,000
related to severance for 26 employees, including three senior officers. The
remaining merger and integration accrual balance at September 30, 1999 amounts
to $1.0 million, which is for remaining employee severance and abandonment of a
portion of the San Diego facilities lease.

   REVENUES

    Product sales are recorded upon shipment. Revenue on long-term (generally
spanning more than twelve months) fixed price contracts is recognized utilizing
the units-of-delivery method of accounting. Under such method, revenues are
recognized as units are shipped. The costs attributable to units shipped are
based upon the actual cost of those units. Losses expected to be incurred on
long-term contracts in progress are charged to operations when identified.
Revenues from research and development contracts are recognized using the
percentage-of-completion method based on the ratio of costs incurred to date to
total estimated costs. Provisions are made to recognize any anticipated losses
on contracts when losses become evident.

    Total product revenues from continuing operations from government contracts
and subcontracts were $16,905,000, $14,491,000, and $12,485,000 in 1999, 1998
and 1997, respectively. Total contract revenues from continuing operations from
government contracts and subcontracts were $2,638,000, $8,000, and $401,000 in
1999, 1998 and 1997, respectively.

   CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

    Cash and cash equivalents consist of cash and highly liquid investments with
maturities of three months or less when purchased.

   INVENTORIES

    Inventories are stated at lower of cost (first-in, first-out) or market.
Market is based upon estimated net realizable value.

   DEPRECIATION AND AMORTIZATION

    Machinery, equipment and office furniture are depreciated over their
estimated useful lives (3 to 15 years) on the straight-line method and leasehold
improvements are amortized over the useful life of the asset or the lease term,
whichever is less.

    Intangible assets consist primarily of goodwill and patents. Goodwill is
amortized over 20 years and patents are amortized over the shorter of the
estimated useful life or the legal life. Amortization of patents is initiated
when the related technology is ready for commercial release.

   USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

                                       29
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


   CONCENTRATION OF CREDIT RISK

    The Company sells its products primarily to industrial and medical equipment
companies, and to U.S. government agencies and their prime contractors.
Financial instruments that potentially subject the Company to credit risk
consist principally of cash equivalents and trade receivables. The Company
invests in a variety of financial instruments and limits exposure with any one
issuer. The Company performs periodic credit evaluations of its customers and
has not experienced significant losses with respect to its accounts receivable.
As of September 30, 1999, the carrying value of cash equivalents and trade
receivables approximated estimated fair value.

   IMPAIRMENT OF LONG-LIVED ASSETS

    The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

   ACCOUNTING FOR STOCK-BASED COMPENSATION

    As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has
elected the current intrinsic value-based method and the pro forma effect of
using the fair value-based method to account for stock-based compensation in its
financial statements.

   NET INCOME (LOSS) PER SHARE

    Net income (loss) per share is computed using "Basic EPS" and "Diluted EPS"
as required by Statement of Financial Accounting Standards No. 128, Earnings per
Share ("SFAS 128"), which supersedes APB Opinion 15. Basic EPS includes no
dilution and is based on weighted-average common shares outstanding for the
period. Diluted EPS reflects the potential dilution of stock options,
convertible preferred stock and warrants to purchase common stock. For loss
periods, these common equivalent shares are excluded from the Diluted EPS
computation as their effect would be antidilutive.

   FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments, including cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, are carried at cost, which management
believes approximate fair value because of the short-term maturity of these
instruments. Long term debt bears interest at a variable rate, and therefor is
carried at fair value.

   COMPREHENSIVE INCOME

    As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes rules for the reporting and
display of comprehensive income and its components; the company has disclosed
its comprehensive income as a component of its statement of stockholders'
equity.

   SEGMENT REPORTING

    As of January 1, 1998, the Company adopted SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers. The Company has determined that its continuing operations are
only in one segment and has disclosed information related to its discontinued
operations elsewhere in these Notes to Consolidated Financial Statements.
Accordingly, the adoption of this statement has no impact on the Company's
financial statements.

                                       30
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


   EFFECT OF NEW ACCOUNTING STANDARDS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which will be
effective January 1, 2001. This statement establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. The Company believes
the adoption of SFAS No. 133 will not have a material effect on the financial
statements.

2.       SELECTED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>


                                                                                SEPTEMBER 30,      SEPTEMBER 30,
                                                                                    1999                1998
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
Accounts receivable:
 Trade..........................................................................$  4,895,642       $  5,159,103
 Reserves.......................................................................    (407,182)          (398,275)
                                                                                -------------      -------------
                                                                                $  4,488,460       $  4,760,828
                                                                                =============      =============
 Inventories:
 Raw materials..................................................................$  3,404,834       $  2,231,389
 Work in progress...............................................................   3,008,989          3,257,916
 Finished goods.................................................................   1,483,003          1,260,040
                                                                                -------------      -------------
                                                                                   7,896,826          6,749,345
 Reserves.......................................................................  (1,397,116)          (614,820)
                                                                                -------------      -------------
                                                                                $  6,499,710       $  6,134,525
                                                                                =============      =============
 Property and equipment, at cost:
 Machinery and equipment........................................................$ 10,647,510       $ 10,541,369
 Leasehold improvements.........................................................   2,040,634            683,348
 Office furniture and equipment.................................................     497,629            929,481
                                                                                -------------      -------------
                                                                                  13,185,773         12,154,198
 Less accumulated depreciation and amortization.................................  (6,091,540)        (6,057,351)
                                                                                -------------      -------------
                                                                                $  7,094,233       $  6,096,847
                                                                                =============      =============
 Intangibles and other assets:
 Goodwill in foreign subsidiary.................................................$    549,100       $    549,100
 Other..........................................................................     365,379            361,967
                                                                                -------------      -------------
                                                                                     914,479            911,067
 Less accumulated amortization..................................................    (495,572)          (468,713)
                                                                                -------------      -------------
                                                                                $    418,907       $    442,354
                                                                                =============      =============
Net current assets of discontinued operations:
  Accounts receivable, net......................................................$    922,586       $    898,891
  Inventories, net..............................................................     484,739            738,953
  Other current assets..........................................................      24,197             25,842
  Accounts payable..............................................................    (306,279)          (294,122)
  Accrued compensation and related expenses.....................................    (327,243)          (198,436)
  Other current liabilities.....................................................    (227,973)          (290,518)
                                                                                -------------      -------------
                                                                                $    570,027       $    880,610
                                                                                =============      =============
Net non-current assets of discontinued operations:
  Property and equipment, net...................................................$  1,452,263       $  1,991,451
  Patents and licenses..........................................................     394,945            378,017
  Reserve for valuation.........................................................    (200,000)                 -
                                                                                -------------      -------------
                                                                                $  1,647,208       $  2,369,468
                                                                                =============      =============
</TABLE>


                                       31
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


3. LONG-TERM DEBT AND OTHER FINANCING AGREEMENTS

Long-term debt consists of the following:
<TABLE>
<CAPTION>


                                                                                SEPTEMBER 30,      SEPTEMBER 30,
                                                                                    1999               1998
                                                                                -------------      -------------
  <S>                                                                           <C>                <C>
  Promissory note...............................................................$     39,015       $     57,058
  Term note payable to bank.....................................................   2,846,134          2,814,877
  Note payable to bank..........................................................     840,743                  -
  Equipment line of credit from bank............................................           -          1,504,466
  Other equipment financing.....................................................     436,115            330,328
  Other.........................................................................       4,580              7,920
                                                                                -------------       ------------
                                                                                   4,166,587          4,714,649
  Less current portion..........................................................  (1,083,778)        (4,427,811)
                                                                                -------------      -------------
                                                                                $  3,082,809       $    286,838
                                                                                =============       ============
</TABLE>

    In November 1999, the Company entered into a new credit agreement with a
unit of Wells Fargo Bank. The credit agreement provides for a revolving line of
credit of $4,000,000, subject to a borrowing base limitation, with an annual
interest rate of 1.5% above the bank's prime rate. The credit agreement includes
a term loan of $1,950,000 amortized over 60 months commencing October 31, 1999
with interest at 1.5% above the bank's prime rate, and a $750,000 equipment
financing facility with interest at 2% above the bank's prime rate. The credit
agreement expires on October 31, 2002 unless renewed. In connection with the new
agreement, the Company paid in full the existing term note payable and note
payable with the bank amounting to approximately $3,642,000. The agreement
includes a .25% facility fee. The agreement provides for a reduction in the
interest rate applied to amounts outstanding under the line of credit and the
term loan of 0.5% in the event that the net proceeds from the sale of
discontinued operations received prior to June 30, 2000 is at least $2,000,000.
All borrowings under the new credit agreement are secured by accounts
receivable, inventory, and property and equipment. The agreement contains
restrictive covenants, which include limitations on losses, maintenance of
minimum tangible net worth, debt equity and cash flow ratios, as well as
restrictions on capital and lease expenditures, additional borrowings and
payments of dividends. In addition, penalties are due on a declining scale in
the event that the Company terminates the agreement prior to the expiration of
its term.

    Other equipment financing agreements are payable in monthly installments of
principal and interest through April 2004. Borrowings under these financing
agreements are secured by specific equipment, with interest at rates ranging
from 9.75% to 12.00% at September 30, 1999.

    In November 1987, the Company obtained debt and equity financing from Union
Miniere ("Union"). The Company issued 483,333 shares of common stock for
$1,053,000 cash (net of stock issuance costs of $107,000) and subordinated
convertible debentures amounting to $1,340,000. In December 1988, the Company
issued an additional $320,000 of subordinated convertible debentures to Union.
In March 1997, the maturity date of the debentures was extended to November 2,
2000 and the conversion rate for which the debentures are convertible into
common stock was set at $4.625 per share (358,918 shares). The debentures are
subordinated to all bank borrowings and interest is payable semi-annually at an
annual rate equal to 1% above a bank's prime rate (9.25% at September 30, 1999)
subject to a minimum rate of 5 -1/2% and a maximum rate of the lesser of 11.5%
or the maximum rate permitted by law. The debentures provide for restrictive
covenants similar to those of the bank borrowings. At September 30, 1999, the
Company was not in compliance with one of these covenants; however, a waiver has
been obtained from Union.


                                       32

<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


    All subordinated convertible debentures and long-term debt of the Company
bear an adjustable interest rate and are carried at the principal value of the
liability, which approximates fair value. Principal maturities on the
subordinated convertible debentures and long-term debt, for each of the years
ending subsequent to September 30, 1999 are as follows:

     2000.......................................................    $ 1,084,000
     2001.......................................................      2,723,000
     2002.......................................................        906,000
     2003.......................................................      1,087,000
     2004.......................................................         27,000
     Thereafter.................................................              -
                                                                    ------------
                                                                    $ 5,827,000
                                                                    ============

4. INCOME TAXES

    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation allowances are
established when the realization of deferred tax assets is uncertain. The
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>

                                                                             YEAR ENDED SEPTEMBER 30,
                                                                        ------------------------------------
                                                                           1999                     1998
                                                                        ------------            ------------
        <S>                                                             <C>                     <C>
        Deferred tax assets:
          Tax basis operating loss and credit carryforwards....         $ 4,693,000             $ 4,817,000
          Impairment loss......................................           1,141,000                       -
          Accrued expenses and reserves........................           1,004,000                       -
          Other................................................                   -                 518,000
                                                                        ------------            ------------
        Total deferred tax assets..............................           6,838,000               5,335,000
                                                                        ------------            ------------
        Deferred tax liability:
          Depreciation.........................................            (866,000)                (55,000)
          Intangibles..........................................            (181,000)               (243,000)
                                                                        ------------            ------------
        Total deferred tax liabilities.........................          (1,047,000)               (298,000)
                                                                        ------------            ------------
        Net deferred tax assets................................           5,791,000               5,037,000
        Valuation allowance....................................          (5,791,000)             (5,037,000)
                                                                        ------------            ------------
        Net deferred tax accounts..............................         $         -             $         -
                                                                        ============            ============
</TABLE>
<TABLE>
<CAPTION>

                                                 YEAR ENDED SEPTEMBER 30,
                                             -------------------------------             YEAR ENDED
                                                 1999              1998               AUGUST 31, 1997
                                             -------------     -------------        ------------------
        <S>                                  <C>               <C>                    <C>
        Pretax income (loss):
           United States.............        $ (1,557,457)     $ (6,983,277)          $  2,289,323
           Foreign...................              81,322           200,307                170,651
                                             -------------     -------------          -------------
                                             $ (1,476,135)     $ (6,782,970)          $  2,459,974
                                             =============     =============          =============

    Significant components of the provision for income taxes are as follows:

                                                 YEAR ENDED SEPTEMBER 30,
                                             -------------------------------           YEAR ENDED
                                                  1999              1998            AUGUST 31, 1997
                                             -------------     -------------        ---------------
        Current:
           Federal...................        $          -      $    177,000           $    139,500
           Foreign...................                   -                 -                 12,836
           State.....................              10,547            71,642                 32,422
                                             -------------     -------------          -------------
        Total income tax provision...        $     10,547      $    248,642           $    184,758
                                             =============     =============          =============
</TABLE>

                                       33
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


    A reconciliation of the effective tax rates and the statutory federal income
tax rate is as follows:

<TABLE>
<CAPTION>

                                                      YEAR ENDED SEPTEMBER 30,
                                                    ---------------------------              YEAR ENDED
                                                         1999          1998               AUGUST 31, 1997
                                                    ------------- -------------           ---------------
        <S>                                              <C>           <C>                       <C>
        Tax at U.S. statutory rate..............         (35.0%)       (35.0%)                    35.0%
        State income taxes, net of federal
          benefit...............................            .5%           .7%                       .9%
        Higher effective income
          taxes of other countries..............            -             -                        (.5%)
        Change in valuation allowance...........          35.0%         38.0%                    (30.0%)
        Other, net..............................            -             -                        1.1%
                                                    ------------- -------------           ---------------
                                                           0.5%          3.9%                      6.5%
                                                    ============= =============           ================
</TABLE>


    At September 30, 1999, the Company has net operating loss carryforwards for
federal and California income tax purposes of approximately $11,442,000 and
$3,066,000, respectively, which may be applied against future taxable income.
The federal carryforwards will begin to expire in 2001 unless previously
utilized. The California carryforwards begin to expire in 2000.

    The Company also has investment tax credit, research and development credit,
targeted jobs tax credit, alternative minimum tax credit and California
manufacturers investment credit carryforwards at September 30, 1999 aggregating
approximately $648,000 These tax credit carryforwards will begin to expire in
2000.

    Due to the Tax Reform Act of 1986, the Company's ability to use the net
operating loss and tax credit carryforwards could be limited in the event of a
cumulative change in ownership of more than 50% occurring within a three year
period.

5. STOCKHOLDERS' EQUITY

   COMMON STOCK WARRANTS

    Periodically, the Company will issue warrants to purchase common stock to
outside directors and consultants in lieu of stock options. During the three
years ended September 30, 1999, 46,664 warrants at an exercise price of $4.50
per share were issued to outside directors, which are fully exercisable.
Warrants to purchase 324,996 shares of common stock at $3.00 to $7.33 per share
are outstanding at September 30, 1999 including 185,000 warrants at a price
range of $7.15 to $7.33 per share issued to representatives of the underwriters
in conjunction with the initial public offering and for periodic advisory
services. During 1999, 23,332 warrants were cancelled. The outstanding warrants
expire from June 2002 to December 2006.

   STOCK OPTION PLANS

    The Company's 1981 Stock Option Plan was approved by the Board of Directors
and stockholders in 1981, as amended (the "1981 Plan"). The Company's 1993 Stock
Option Plan (the "1993 Plan") was approved by the Board of Directors and
stockholders in September 1993. The exercise prices of options granted were not
less than fair market value of the stock on the date of grant. The options vest
over a five-year period commencing on the date of grant in annual increments of
twenty percent and are exercisable for a period of ten years after the date of
grant. The Board of Directors has terminated the 1981 and 1993 Plans and no
additional shares will be granted thereunder, but outstanding options remain
exercisable and continue to vest in accordance with their terms until they
terminate.

    On March 25, 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan"). The 1997 Plan provides for incentive stock options and stock
appreciation rights appurtenant thereto for employees (including officers and
employee directors), and nonstatutory stock options, stock appreciation rights
appurtenant thereto, stock bonuses and rights to purchase restricted stock for
employees (including officers and employee directors) and non-employee directors
and consultants. The 1997 Plan is administered by the Board of Directors, or a
Committee appointed by the Board, which determines the option awards to be
granted, including exercise prices, number of shares subject to the awards and
the exercisability thereof, provided that such terms comply with the provisions
of the plan.

                                       34
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

    The term of stock options granted under the 1997 Plan may not exceed 10
years. The exercise price of options granted under the 1997 Plan is determined
by the Board of Directors, but in the case of an incentive stock option, cannot
be less than 100% of the fair market value of the common stock on the date of
grant and in the case of a non- statutory stock option, cannot be less than 85%
of the fair market value of the common stock on the date of grant. Options
granted under the plans vest at the rate specified in the option agreement. The
Board has authorized and reserved an aggregate of 1,000,000 shares of common
stock for issuance under the Plan.

    On December 5, 1998 the Company repriced to $3.00 per share, which price was
above the closing market price per share on the date of the repricing, 267,329
options that had original exercise prices ranging from $3.50 to $7.00 per share.

The following table summarizes stock option and warrant activity:
<TABLE>
<CAPTION>
                                                                                                    WEIGHTED
                                                                                                     AVERAGE
                                                                                                     EXERCISE
                                                                          NUMBER OF    PRICE PER    PRICE PER
                                                                            SHARES        SHARE       SHARE
                                                                          -----------  -----------  ---------
        <S>                                                                <C>         <C>          <C>
        Outstanding at August 31, 1996................................     1,278,497   $  .22-4.50  $    3.40
          Granted.....................................................       666,776     1.05-3.00       5.02
          Exercised...................................................             -             -       -
          Canceled....................................................       (35,329)    3.00-4.50       3.37
                                                                          -----------  -----------  ---------
        Outstanding at August 31, 1997................................     1,909,944      .22-7.15       3.97
          Granted.....................................................       502,000     3.25-7.33       4.39
          Exercised...................................................      (243,880)     .22-3.00       2.67
          Canceled....................................................      (275,524)    1.22-6.50       4.50
                                                                          -----------  -----------  ---------
        Outstanding at September 30, 1998.............................     1,892,540      .56-7.33       4.17
          Granted.....................................................       180,250      .75-2.00       1.65
          Canceled....................................................      (261,537)    1.55-4.94       3.03
                                                                          -----------  -----------  ---------
        Outstanding at September 30, 1999.............................     1,811,253     $.56-7.33  $    3.61
                                                                          ===========  ===========  =========
</TABLE>

    At September 30, 1999, the weighted-average exercise price of outstanding
stock options and warrants is $3.18 and $5.56, respectively, and 1,351,026
options and warrants are exercisable.

    Adjusted pro forma information regarding net income (loss) is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes method for option pricing with the following weighted-average
assumptions: volatility of 0.559; risk-free interest rate range from 5.4% to
6.2%; dividend yield of 0%; and a weighted average expected life of the options
of 6 years. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>

                                                                                    YEAR ENDED
                                                                   ----------------------------------------------
                                                                   SEPTEMBER 30,    SEPTEMBER 30,     AUGUST 31,
                                                                       1999             1998              1997
                                                                   -------------    -------------   -------------
        <S>                                                        <C>              <C>             <C>
        Adjusted pro forma net income (loss)................       $ (2,109,000)    $ (7,683,000)   $  2,025,000
        Adjusted pro forma diluted net income
          (loss) per share..................................       $       (.25)    $       (.92)   $        .28

</TABLE>


                                       35
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


   EMPLOYEE STOCK PURCHASE PLAN

    On March 25, 1997 the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 250,000 shares of common stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the IRS Code. Under the Purchase Plan, the Board
has authorized participation by eligible employees, including officers, in
periodic offerings following the commencement of the Purchase Plan. The initial
offering under the Purchase Plan commenced on the closing of the Company's
initial public offering and terminated on February 28, 1998. Sequential
six-month offerings have occurred since that date. The Purchase Plan permits the
purchase of shares of common stock at the end of each offering period at 85% of
the lesser of the price of the common stock on the first day of the offering
period and the last day of the offering period. During 1999, 181,532 shares were
issued to employees under this Plan at an average price of $.87 per share.

    The Company does not have sufficient shares reserved to satisfy the expected
requirement for the offering period ending February 29, 2000. The Board of
Directors has authorized an increase in the number of shares reserved for
issuance under the Purchase Plan of 100,000 shares, subject to stockholder
approval at the next annual meeting of stockholders. In the event the increase
in shares authorized is not approved, or approval occurs after the end of the
offering period, the Company will allocate shares to the participants. The
Purchase Plan would then become inactive until such time as stockholders approve
an increase in shares reserved for issuance.

    Effective October 15, 1999, the Company designated 150,000 shares of
Preferred Stock as Series A Junior Participating Preferred Stock and declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of common stock. Each Right entitles a Stockholder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock at an
exercise price of $10.00, subject to adjustment. The Rights are only exercisable
when a person or group of affiliated or associated persons (an Acquiring Person)
acquires or obtains the right to acquire 15% or more of the Company's
outstanding Common Stock or announces a tender or exchange offer that would
result in an Acquiring Person beneficially owning more than 15% or more of the
Company's outstanding shares. In the event any person becomes an Acquiring
Person, each holder of a Right, other than Rights beneficially owned by the
Acquiring Person, will thereafter have the right to receive on exercise that
number of shares of common stock of the Company, or, in certain business
combinations, of the acquiring company, having a market value of two times the
exercise price of the Right. The Rights expire on October 15, 2009 unless
extended prior thereto by the Board, or earlier redeemed or exchanged by the
Company.

   SHARES RESERVED FOR FUTURE ISSUANCE

    The following shares of common stock are reserved for future issuance at
September 30, 1999:


        Subordinated convertible debentures......................       358,918
        Stock options:
          Granted and outstanding................................     1,486,257
          Reserved for future grants.............................       543,852
        Warrants.................................................       324,996
        Stock Purchase Plan......................................        34,897
                                                                     -----------
                                                                      2,748,920
                                                                     ===========


                                       36
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


6. EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted earnings
per share (in thousands):
<TABLE>
<CAPTION>


                                                                                            YEAR ENDED
                                                                            ---------------------------------------------
                                                                            SEPTEMBER 30,   SEPTEMBER 30,     AUGUST 31,
                                                                                1999           1998              1997
                                                                            ------------    ------------     ------------
     <S>                                                                    <C>             <C>              <C>
     Numerator:
      Numerator for basic and diluted earnings per share --
         income (loss) available to common stockholders.........            $    (1,487)    $    (7,032)     $     2,275
                                                                            ============    ============     ============
     Denominator:
       Denominator for basic earnings per share --
         weighted-average shares................................                  8,454           8,263            5,592
       Effect of dilutive securities:
          Stock options and warrants............................                      -               -              634
          Convertible preferred stock...........................                      -               -              970
                                                                            ------------    ------------     ------------
       Dilutive potential common shares.........................                      -               -            1,604
       Denominator for diluted earnings per share -
         adjusted weighted-average shares and assumed
         conversions............................................                  8,454           8,263            7,196
                                                                            ============    ============     ============
     Basic earnings per share...................................            $      (.18)    $      (.85)     $       .41
                                                                            ============    ============     ============
     Diluted earnings per share.................................            $      (.18)    $      (.85)     $       .32
                                                                            ============    ============     ============
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

   LEASE COMMITMENTS

    The Company leases its operating, office and other facilities as well as
certain vehicles and equipment under non-cancellable operating leases. The
operating and office facilities leases contain escalation clauses and options
for renewal and extend through June 2007.


    Future minimum rental payments (excluding common area maintenance charges)
required under the operating leases for each of the remaining fiscal years
ending subsequent to September 30, 1999 are as follows:


        2000..............................................     $   857,000
        2001..............................................         632,000
        2002..............................................         452,000
        2003..............................................         391,000
        2004..............................................         357,000
        Thereafter........................................         977,000
                                                               -----------
                                                               $ 3,666,000
                                                               ===========

    Rent expense was $1,191,000, $1,528,000, and $1,063,000 for the years ended
September 30, 1999, September 3, 1997 and August 31, 1997, respectively.

8. GEOGRAPHIC INFORMATION

    The Company designs, manufactures and markets high performance optics for
industrial, processing, medical, aerospace and defense markets. Export sales
from U.S. continuing operations to unaffiliated customers located principally in
Europe and the Asia Pacific region amounted to 13%, 30%, and 33% of total
revenue in 1999, 1998 and 1997, respectively.

    Information with respect to the Company's continuing operations by
significant geographic area is set forth below. Transfers between geographic
areas have been shown at the agreed upon transfer price. All transactions
denominated in foreign currency have been translated at the average exchange
rates during the period.

                                       37
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

    The identifiable assets located in the United States include assets located
in Mexico, which are not considered significant.

<TABLE>
<CAPTION>

                                                                            YEAR ENDED SEPTEMBER 30, 1999
                                                          -------------------------------------------------------------------
                                                              UNITED                                           CONSOLIDATED
                                                              STATES            EUROPE       ELIMINATIONS          TOTAL
                                                          ---------------  --------------- ---------------    ---------------
<S>                                                       <C>              <C>             <C>                <C>
Sales to unaffiliated customers.........................  $   29,270,046   $    4,740,131  $            -     $   34,010,177
Transfers between geographic areas......................       2,037,483                -      (2,037,483)                 -
                                                          ---------------  --------------- ---------------    ---------------
Total revenue...........................................  $   31,307,529   $    4,740,131  $   (2,037,483)    $   34,010,177
                                                          ===============  =============== ===============    ===============
Income (loss) before income taxes.......................  $    1,586,605   $       81,322  $      (18,427)    $    1,649,500
                                                          ===============  =============== ===============    ===============
Identifiable assets.....................................  $   26,556,347   $    2,146,119  $   (6,794,285)    $   21,908,181
                                                          ===============  =============== ===============    ===============


                                                                            YEAR ENDED SEPTEMBER 30, 1998
                                                          -------------------------------------------------------------------
                                                              UNITED                                           CONSOLIDATED
                                                              STATES            EUROPE       ELIMINATIONS          TOTAL
                                                          ---------------  --------------- ---------------    ---------------
Sales to unaffiliated customers.........................  $   25,759,723   $    4,356,152  $            -     $   30,115,875
Transfers between geographic areas.....................        2,192,342                -      (2,192,342)                 -
                                                          ---------------  --------------- ---------------    ---------------
Total revenue...........................................  $   27,952,065   $    4,356,152  $   (2,192,342)    $   30,115,875
                                                          ===============  =============== ===============    ===============
Income (loss) before income taxes.......................  $   (3,762,730)  $      200,307  $      (51,337)    $   (3,613,760)
                                                          ===============  =============== ===============    ===============
Identifiable assets.....................................  $   23,965,886   $    2,387,980  $   (1,735,653)    $   24,618,213
                                                          ===============  =============== ===============    ===============


                                                                            YEAR ENDED AUGUST 31, 1997
                                                          -------------------------------------------------------------------
                                                              UNITED                                           CONSOLIDATED
                                                              STATES            EUROPE       ELIMINATIONS          TOTAL
                                                          ---------------  --------------- ---------------    ---------------
Sales to unaffiliated customers.........................    $ 26,020,906     $  3,719,523    $          -       $ 29,740,429
Transfers between geographic areas......................       1,391,125                -      (1,391,125)                 -
                                                          ---------------  --------------- ---------------    ---------------
Total revenue...........................................    $27,412,031      $  3,719,523    $ (1,391,125)      $ 29,740,429
                                                          ===============  =============== ===============    ===============
Income before income taxes..............................    $  2,780,753     $    170,651    $     13,619       $  2,965,023
                                                          ===============  =============== ===============    ===============
Identifiable assets.....................................    $ 27,763,976     $  2,009,946    $ (1,655,280)      $28,118,642
                                                          ===============  =============== ===============    ===============

</TABLE>


9.       EMPLOYEE BENEFIT PLAN

The Company has a defined contribution plan (the "Plan") covering substantially
all employees that have been employed for at least 90 days and meet certain age
requirements. Employees may contribute up to 16% of their compensation per year
(subject to a maximum limit by federal tax law). The Company is obligated to
make matching contributions equal to 50% of the employee's contribution up to a
maximum of 6% of the employee's compensation. At the discretion of the Board of
Directors, the Company may make additional contributions. Prior to its merger
with the Company, EMI had a defined contribution plan with contributions based
on a profit-sharing formula. Subsequent to the merger, the EMI plan was
terminated and participant balances rolled over into the Company's plan. The
Company's contributions charged to continuing operations, which include
contributions to the EMI plan prior to its termination, were $197,000, $381,000
and $275,000 for the years ended September 30, 1999, September 30, 1998 and
August 31, 1997, respectively.


10.      SUBSEQUENT EVENT

In October 1999, the Company and certain directors of the Company were sued by a
group of shareholders. The complaint asserts claims as a class action for
purported breaches of fiduciary duty in connection with the Company's rejection
of an acquisition proposal. The Company and a number of the individual
defendants have moved to dismiss, and no briefing schedule has been set for the
motion. No trial date has been scheduled. Management believes such claims are
without merit and intends to vigorously defend its position if required.



                                       38
<PAGE>
                             LASER POWER CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Diego, County of
San Diego, State of California, on the 29th day of December, 1999.

                                        LASER POWER CORPORATION


                                        By   /s/ PAUL P. WICKMAN
                                          --------------------------------------
                                                Paul P. Wickman, Jr.
                                            SENIOR VICE PRESIDENT AND CHIEF
                                                 FINANCIAL OFFICER

                                POWER OF ATTORNEY

    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dick Sharman and Paul P. Wickman, Jr., or any of
them, his attorney-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any amendments to this Report, and to file the same,
with exhibits thereto and other documents in connections therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

    Pursuant to the requirements of the Securities Exchange 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.
<TABLE>
<CAPTION>


                SIGNATURE                                  TITLE                                        DATE
                ---------                                  -----                                        ----
<S>                                         <C>                                                 <C>
             /s/ DICK SHARMAN               Chief Executive Officer and Director                December 29, 1999
----------------------------------------    (Principal Executive Officer)
               Dick Sharman

            /s/ PAUL P. WICKMAN             Senior Vice President and Chief Financial Officer   December 29, 1999
----------------------------------------    (Principal Financial and Accounting Officer)
           Paul P. Wickman, Jr.

         /s/ ROBERT G. KLIMASEWSKI          Chairman of the Board                               December 29, 1999
----------------------------------------
           Robert G. Klimasewski

          /s/ DOUGLAS H. TANIMOTO           Director                                            December 29, 1999
----------------------------------------
        Douglas H. Tanimoto, Ph.D.

          /s/ WILLIAM G. FREDRICK           Director                                            December 29, 1999
----------------------------------------
            William G. Fredrick

            /s/ JOHN C. STISKA              Director                                            December 29, 1999
----------------------------------------
              John C. Stiska

           /s/ ROBERT P. PERKINS            Director                                            December 29, 1999
----------------------------------------
             Robert P. Perkins

</TABLE>


                                       39