|SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549


FORM 10-K


(Mark One)
|---------------------------------------------------------------------------------

|[X] | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|--- | ------------------------------------------------

|THE
SECURITIES AND EXCHANGE ACT OF 1934


FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 2001


OR
|-------------------------------------------------------------------------------------------

|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|----- | ----------------------------------------------------

|THE
SECURITIES EXCHANGE ACT OF 1934


Commission
file number 1-11642


LASER
TECHNOLOGY, INC.(Exact name
of registrant as specified in its charter)
|---------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 
|------------------------------- | 
|Delaware                        | 
|(State or other jurisdiction of | 
|incorporation or organization)  | 

|7070 South
Tucson Way, Englewood, Colorado 80112(Address of
principal executive offices)


(303) 649-1000(Registrants
telephone number including area code)
|------------------------------------------------------------------------------------------------------------------------------------------------------------

|Securities registered pursuant to Section 12(b) of the Act:
|-----------------------------------------------------------
|Title of each class                                        
|Common Stock, $.01 par value                               

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


Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes [X] No [_]


Indicate 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]


State
the aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the common equity was sold, or the average
bid and asked prices of such common equity, as of a specified date within 60
days prior to the date of filing:


As
of December 12, 2001, the aggregate market value of the registrants
common stock held by non-affiliates of the registrant was $5,710,867.


At
December 12, 2001, 5,710,867 shares of common stock of the registrant were
outstanding.


Documents
Incorporated by Reference: None
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|LASER
TECHNOLOGY, INC.


FORM 10-K
ANNUAL REPORT
|------------------------------------------------

|TABLE OF CONTENTS
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|Page No.         
|PART I           
|Item 1.          
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|Item 2.          
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|Item 3.          
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|Item 4.          
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|PART II          
|Item 5.          
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|Item 6.          
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|Item 7.          
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|Item 7A.         
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|Item 8.          
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|Item 9.          
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|PART III         
|Item 10.         
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|Item 11.         
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|Item 12.         
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|Item 13.         
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|PART IV          
|Item 14.         
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|2
|-

|PART I.
|-------

|Item 1. | Business
|------- | --------

|Forward-Looking
and Cautionary Statements


This
report contains certain forward-looking statements. These statements relate to
future events or our future financial performance and involve known and unknown
risks and uncertainties. These factors may cause our companys, or our
industrys actual results, levels of activity, performance or
achievements to be materially different from those expressed or implied by the
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as may,
will should,
expects, intends, plans,
anticipates, believes, estimates, predicts, potential, continue,
or the negative of these terms or other comparable terminology.


These
statements are only predictions. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.


Introduction


We
are engaged in the business of developing, manufacturing and marketing laser-based measurement instruments. Our
instruments employ proprietary technology developed by us.


In
fiscal 2000, we received an ISO 9001 certification for our manufacturing and
operating facilities. ISO certification reflects our compliance with standards
recognized by the Geneva-based International Organization for Standardization, a
worldwide federation of approximately 130 countries. ISO certification also
provides a framework for quality management and quality assurance recognized by
most developed countries. Having received certification, our operating
facilities and manufacturing procedures are recognized as providing an optimal
environment for the design, manufacture, and service of quality products. In
fiscal 2001 we were re-certified for ISO 9001 compliance.


Our
proprietary technology permits a laser to measure to a non-cooperative, or low
reflective surface, using a very low power source. As a result, our products
operate within the requirements of eye safety promulgated by the United States
Food and Drug Administration. Despite a very low power source, our laser
instruments measure more rapidly and at longer ranges than corresponding
conventional devices. We have also developed proprietary software and circuitry
integral to each of our products.


Our
corporate offices are located at 7070 and 7050 South Tucson Way, Englewood,
Colorado 80112, and our telephone number is (303) 649-1000.


Principal
Products


Historically,
our primary product lines have been the Marksman Laser Speed Detection Systems
and Criterion Series of Survey Lasers. Since fiscal 1995, we have expanded these
product lines through new product development including the introduction of
second generation instrumentation. Because of enhancements to our existing
products, new product development and expanding markets for our technology, we
currently organize and market our products in four categories: Traffic Safety,
Survey and Mapping, Industrial Control and Consumer products.


The
following table provides a breakdown of the percentage of net sales of our
product lines. Revenues realized from sales of our less significant revenue
producing products are classified as Consumer products for presentation
purposes.
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|                    | Year EndedSeptember 30,
|------------------- | -----------------------
|
|Traffic Safety      |                        
|Survey and Mapping  |                        
|Industrial Controls |                        
|Consumer            |                        

|3
|-

|The
following table provides a breakdown of domestic and foreign revenues as a
percentage of net sales of our products for the periods presented:
|-------------------------------------------------------------------------------------------------------------------------------------------------

|         | Year EndedSeptember 30,
|-------- | -----------------------
|
|Domestic |                        
|Foreign  |                        

|Traffic Safety
Products


Hand-Held
Laser Speed Detection Systems


In
1991, we developed and commenced commercial manufacturing and marketing of the
LTI 20-20 laser speed detection system. In 1993, we introduced an enhanced
version of the LTI 20-20, called the Marksman. In fiscal 1997, we introduced the
UltraLyte second-generation laser speed detection device. The UltraLyte was
designed to reduce the size, weight and manufacturing cost of the previous model
design. Soon after we developed the UltraLyte 200 which incorporates an
inclinometer, enhancing the surveying capabilities for use in accident
reconstruction and investigation. In fiscal 1998, we developed longer-range
versions of the UltraLyte, the UltraLyte 100LR and the UltraLyte 200LR.


Our
hand-held laser speed measurement devices have several advantages over radar
speed measurement devices. As distinguished from radar devices, the Marksman and
UltraLyte can be aimed directly at a specific vehicle, thus eliminating the
difficulty that radar measurement devices have in distinguishing one vehicle
from another. Also, the Marksman and UltraLyte measure speed in less than
one-half a second with a laser beam that spans to only three feet at a distance
of 1,000 feet and produces almost no detectable energy beyond the target
vehicle. Radar guns, on the other hand, are generally required to track vehicle
speed for several seconds in an attempt to positively identify a vehicle. In
addition a radar gun produces a wider beam width of approximately 200 to 400
feet at a range of 1,000 feet.


The
beam from a radar gun can readily be detected by the targeted vehicle as well as
other oncoming vehicles equipped with radar detectors. Conventional radar
detectors, which cannot detect the light beam from the Marksman or UltraLyte,
have been effective against radar because of the wide beam width produced by
radar devices. This radar beam continues to widen as the distance from the gun
increases and can readily be picked up by a radar detector as much as a mile
away from the radar gun. This will give the driver of a vehicle advance warning
and time to slow down, thus potentially avoiding a speeding ticket.


Consumer
laser detectors exist that will detect the Marksman or UltraLyte only when the
vehicle equipped with such a detection device is being targeted. However,
because the measurement period of the Marksman and UltraLyte is less than
one-half a second, there is no reaction time for the driver to reduce speed
before the police officer obtains a positive speed reading. As laser speed
enforcement has become more widely used, a number of consumer laser jamming
devices have also been marketed. Such laser jammers have limited effectiveness
against our products due to the sophisticated nature of the Marksman and
UltraLytes internal targeting software. To combat the use of laser
jamming devices, we developed the capability within our products to detect when
a jamming device is potentially in use. This feature has proven to be very
useful to speed enforcement officials in certain jurisdictions where the use of
jamming devices is prohibited.


In
1995 we introduced a patented measurement feature known as
distance-between-cars, or DBC. This is an optional feature that can be
integrated into the Marksman and UltraLytes and is used to measure the
distance and/or time between two traveling vehicles. This capability has
primarily been of interest in international markets where governments closely
monitor vehicle separation to improve traffic safety. Domestically, with the
increased occurrence of road rage, the ability to accurately measure the
trailing distance of a vehicle may become desirable as police agencies seek hard
evidence for enforcement. Management believes that the DBC feature addresses
this application and increases the utility and efficiency of our hand-held laser
speed measurement products.



4
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|Laser
DigiCam Photo Laser System


In
1995, we began commercial production of the Laser DigiCam photo laser system
which integrates a video camera and associated equipment with the Marksman. The
Laser DigiCam system monitors the speed of vehicles in a specific lane of
traffic. When a speeding vehicle is detected, the Laser DigiCam takes a digital
picture of the vehicle and prints the speed, time and date on the picture. This
produces positive evidence for the generation of a speeding ticket that can then
be mailed to the violator. As an optional feature, we also developed a night
illumination system enabling night use of the Laser DigiCam. The Laser DigiCam
system has historically been sold into international markets, where conventional
photo-radar systems have been accepted as a standard form of traffic
enforcement.


We
believe there is a growing demand in international markets to combine visual
evidence with a speed measurement system to support speed violations. Although
the existing Laser DigiCam system accomplishes this task, it is a complex system
which is cost prohibitive to establishing a large customer base. In fiscal 2001,
we released a second generation, lower cost photo laser system known as the
Micro DigiCam. The Micro DigiCam system is designed to operate with the
UltraLyte and is a custom integration of the latest low-cost technology in data
acquisition and management. This system takes advantage of the increased
capabilities of current handheld palm-computing platforms, which use Windows CE
operating systems, to produce the lowest-cost solution for a photo laser
product. The original Laser DigiCam was discontinued in fiscal 2001.


Traffic
Data Collection Modules


In
1995, we introduced QuickMap, a system that allows the use of the Marksman and
UltraLyte for accident investigation and reconstruction. QuickMap is a software
module integrated into a data collector which can be used in conjunction with
our hand-held laser devices. This system with the UltraLyte 200 expedites the
collection and processing of data at accident sites and crime scenes. Currently
over 660 QuickMap systems are in use by agencies and private companies.


During
1999, we introduced QuickMap 3D, a substantially enhanced software version which
provides three-dimensional data collection and presentation. This upgrade
incorporates the MapStar Angle Encoder, or Electronic Compass Module into the
QuickMap system, increasing overall utility by providing horizontal angle
information into the logged data. We believe this upgrade addresses needs for an
expanded accident investigation market and offers compelling capabilities,
including elevation mapping and automatic map creation to existing users.


Another
element of traffic safety that our technology addresses is the gathering of
statistical data. Traffic engineers and law enforcement officials are able to
conduct and document traffic speed surveys more efficiently using the Marksman
and UltraLyte laser speed detection systems than with conventional methods. In
1993, we introduced a statistical compilation software package known as
SpeedStat. This product gathers and formats traffic survey data on a portable
laptop computer by using a data communications interface with the Marksman or
UltraLyte.


In
1996, we improved our statistical data product by introducing SpeedStat DC, a
companion to QuickMap. This improved the efficiency of the system by replacing
the laptop computer with a hand-held data collector. During fiscal 2000, we
upgraded SpeedStat to operate on a Windows CE platform. This improvement allows
the package to be to be operated on the most recently available handheld
palm-computing platforms, improving the operator interface and increasing
general utility.


Impulse
Accident Investigation Laser


In
fiscal 1996, we introduced a new generation of lasers for general distance
measurement known as the Impulse series. Although marketed primarily to the
survey and mapping industry, the Impulse gained quick acceptance in the accident
investigation segment of the law enforcement community. The Impulse is smaller
in size and weight and lower in cost than the Marksman and UltraLyte systems.
Like the UltraLyte 200 model, the Impulse 200 also features an integrated
inclinometer that provides the operator with more detailed mapping measurements.
The Impulse is compatible with the QuickMap accident investigation tool,
providing a lower cost solution for users that dont require speed
measurement capability.


5
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|Stinger
Spikes Systems


During
fiscal 2001, we entered into an exclusive agreement, for the United States and
Canada, to sell and manage the distribution channels of the Stinger Spike System
for Federal Signal Corporation. The Stinger Spike System is a compact,
lightweight, easy to use tire-deflating device that is extremely safe and
effective when used by law enforcement agencies in stopping high-speed pursuits.
The same customers who purchase our laser speed measurement equipment purchase
this system.


SpeedAlert
Trailer


During
fiscal 1997, to augment our Traffic Safety business, the SpeedAlert automated
speed measurement trailer was released. Due to problems associated with
outsourced manufacturing combined with competitive market issues, we
discontinued sales of the SpeedAlert Trailer during fiscal 2001.


Survey and
Mapping Products


Hand-Held
Survey Lasers


In
1992 we released the Criterion, a small, portable laser measurement system
consisting of a laser range finder, an electronic compass and an electronic
inclinometer. This product line was developed to collect three-dimensional
spatial information for surveying and mapping applications. During fiscal 1996,
we developed the Impulse, a second-generation surveying instrument. The Impulse,
weighing approximately two pounds, can be carried on a belt clip and its
ergonomic design allows full operation of the instrument with only one hand.
Although the Impulse does not include an integrated electronic compass, the
increased demand for a lower cost instrument caused us to discontinue the
Criterion line in 1999.


In
fiscal 1997, we expanded the Impulse product line to include four new models.
The original product line included the Impulse 100, the standard distance-only
model, and the Impulse 200, the standard model with an electronic inclinometer.
The Impulse 100 LR and Impulse 200 LR versions were engineered with the ability
to measure longer distances to low reflective targets than what is possible with
our standard Impulse line. In 1997, we also introduced the Impulse 100 XL for
longer range, lower accuracy applications. The Impulse 100 XL has the ability to
measure distances in excess of 2,000 meters. In 1999, we introduced the Impulse
200 XL, which offers the same range capability as the 100 XL model, but includes
an inclinometer for elevation measurements.


MapStar
Digital Compass Module


In
fiscal 1998 we released the MapStar Digital Compass Module, or MSCM. The MSCM
uses flux-gate technology to measure absolute heading information relative to
magnetic north, and represents a deviation from our traditional pulse-laser
products. The modular configuration of the MSCM facilitates an easy interface to
most of the Impulse and UltraLyte models. The MSCM completes the last component
(horizontal angle) required for the Impulse to become a complete
three-dimensional mapping instrument. With the addition of the MSCM, the Impulse
provides all of the basic measurement capabilities of the original Criterion, at
a lower price.


MapStar
Angle Encoding Module


In
the third quarter of fiscal 2000, we began production of the MapStar
Angle-Encoding Module, or MSAE. The MSAE is a relative angle measurement device
which produces horizontal angle readings to a greater accuracy than the MSCM.
Although the MSAE is not susceptible to magnetic interference like the MSCM, it
does require an angular reference in order to translate measurements into
absolute headings. This new module enables our laser products to better
penetrate survey and mapping applications that require higher accuracy such as
stockpile surveys and mine face profiling. The MSAE also offers additional
capabilities for traffic safety applications including crush analysis, a concern
in accident investigation. Like the MSCM, the MSAEs modular
configuration facilitates an easy interface to most Impulse and UltraLyte
product models.



6
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|Survey
and Mapping Software Modules


In
fiscal 1998, we introduced the Transmission and Distribution (T&D)
Utility Pac. This software package is comprised of a field module, a handheld
data collector and a Windows office-processing module, which downloads and
formats the collected data. The field module links directly to any of the
Impulse model lasers and is designed to assist transmission and distribution
engineers with a variety of measurement and design tasks. The T&D
Utility Pac allows one operator to gather the amount of information it would
normally take two people to do, in about half the time. Further, the
reflectorless laser capability of the Impulse increases the safety of gathering
this data in difficult environments.


In
fiscal 1999, we released en Campo, a survey and mapping module designed for use
in a variety of applications including measuring stock pile volumes, preliminary
site surveys, and natural resource mapping. This module operates on a hand held
data collector and provides a low cost, portable field mapping solution. The en
Campo module was designed as a complement to our laser instruments to provide a
full mapping solution for users that have not already purchased and adopted a
software product for mapping in the aforementioned areas.


In
fiscal 2001, due to market demands from the mining industry, we developed a
software module known as LTI Face Profiler. Face Profiler is a laser-based
system designed to collect positional information to measure the profile of a
rock face for calculation of critical blasting information. This system offers
high accuracy and simplified operation in a low-cost, portable package.


Integrated
Data Collection Solutions


Many
market applications require our Survey and Mapping lasers to be integrated with
other hardware and software to provide a complete turnkey system. To facilitate
this integration, we began in 1994 to establish relationships with manufacturers
of complementary hardware and software products. These relationships include the
sharing of distribution channels and new product development. In 2000, we
entered into an agreement with Tripod Data Systems to market and sell its Solo
CE product, a Geographical Information System mapping module that can be used
with a GPS and/or a laser to map assets quickly. The Solo CE product provides a
complementary solution that is helping us gain market share in the GPS offset
market. Tripod Data Systems, a subsidiary of Trimble Navigation Limited, is the largest third-party
software manufacturer and distributor in the survey and mapping industry.


We
believe that the need for mapping and field data collection is increasing as
utility companies, foresters and government agencies seek more efficient ways to
manage their assets. We plan to continue working with outside software and
hardware firms to provide comprehensive solutions to customer needs.


Industrial
Control Products


Industrial
Laser Distance Measurement Sensors


In
fiscal 1996, we completed development of a low cost, industrial laser distance
measurement sensor. Pursuant to a sales contract with Telemotive Industrial
Controls, Inc., a leading manufacturer of radio controls for material handling
cranes and industrial vehicles, we developed and currently manufacture laser
sensors for use in collision avoidance and positioning systems. Telemotive
markets the systems under its brand name. This system allows continuously
generated distance measurement information, provided by our laser sensors, to be
transmitted to a central processor which integrates the information with
computer controls that slow or stop the crane or vehicle within pre-determined
collision or danger zones. Currently this business relationship is being
evaluated in consideration of future sales potential.


We
have also developed several modified versions of our Impulse sensor line for use
in industrial applications. Sales to date have been for specialized applications
to a limited customer base, however our sales and marketing department is
evaluating these products for potential broad market applications.



7
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|Ship
Docking and Marine Applications


Since
fiscal 1997, ship docking system sales have primarily been to system integrators
who purchase our laser sensors and associated interface components for inclusion
into more complex dock management systems. We also provide a hand-held laser
measurement instrument for marine applications known as the Mariner, which
measures the speed and distance of an approaching or departing vessel. The
Mariner is a derivative of the Marksman product line.


Other
Applications


The
National Aeronautics and Space Administration uses a modified version of the
Marksman on space shuttle missions involving close proximity operations. The
laser is used to determine the distance and closing speed of remote objects
during satellite deployment or retrieval, or during docking maneuvers. While
NASA is a relatively small customer we believe that NASAs use of the
technology adds to our credibility as a leader in the laser-based measurement
industry. We continue to pursue other potential military, security and defense
applications of our pulse laser technology.


Consumer
Products


Bushnell
Yardage Pro Laser Rangefinders


In
1995, we completed development of a consumer related laser range finding
product, in conjunction with the Bushnell Performance Optics, formerly the Sports
Optics Division of Bausch and Lomb. We continue to work with Bushnell to produce
new products which have greater range and are more affordable. These new
products represent a second generation of consumer laser products being marketed
by Bushnell, and have replaced models of the initial product line.


In
fiscal 2001, we worked with Bushnell to complete the development of the Yardage
Pro Sport. This product represents the lowest cost consumer laser range finder
on the market and has exceeded performance expectations due our custom
Application Specific Integrated Circuit. The ASIC incorporates our proprietary
technology into a small, low cost semiconductor package, providing for optimal
performance at the lowest cost. We anticipate that the ASIC will be a key
component in the development of any future consumer products.


We
receive running royalties on cumulative net sales of these products. We also
received reimbursement of certain development costs for the initial development
and design, and we retain the right to pursue consumer markets outside the
sports technology area. We market the Yardage Pro product line to price
conscious customers within our Survey and Mapping business and to law
enforcement customers for SWAT applications. We retain all ownership of patents
and trade secrets of the technology underlying the development of the Yardage
Pro product line. Our royalty and licensing income related to this agreement was
approximately $1,031,669, $943,422 and $805,000 for the fiscal years ended
September 30, 2001, 2000 and 1999, respectively.


Seasonality


Management
believes that seasonal effects on sales of our Traffic Safety products are
non-existent. However, Traffic Safety sales may vary between financial periods
based upon the capital procurement processes and fiscal year budgeting cycles of
state and municipal law enforcement agencies. Historically, we have realized a
moderate decline in Survey and Mapping products sales in areas affected by
colder weather during the winter months. Royalties resulting from consumer
product sales are seasonal in nature, with the third and fourth quarters of the
calendar year producing increased results due to the holiday buying season.



8
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|Manufacturing
Operations


Our
manufacturing operations primarily consist of the assembly, calibration and
testing of products. Currently, most raw components used in our products are
procured from external manufacturers who supply to our specifications.


Although
we are not dependent upon any single source of supply, during the first quarter
of fiscal 2001 we experienced difficulty securing certain product components.
This presented a temporary problem during the transition to a new supplier. We
have taken steps to avoid this problem in the future by establishing multiple
supplier options.


We
maintain certain supply arrangements on long lead time items to purchase
inventory as dictated by product sales. Also, we believe that there are adequate
alternative suppliers for our foreseeable needs. Most of our products carry a
one year limited warranty against manufacturing defects. The UltraLyte product
carries a two year standard warranty for competitive market reasons. To date,
there have been no material expenditures on warranty claims.


In
October 1998, we entered into a sublease arrangement on an adjacent building.
This added approximately 22,000 square feet which we began using in 1999,
primarily for expanded engineering activities. Management believes that our
manufacturing facilities are adequate to meet production needs throughout the
foreseeable future.


Product
Research and Development


Research
and development costs related to our instrumentation and proprietary technology
are booked as incurred and included in operating expenses. During fiscal 2001,
we continued to direct research and development activities toward developing new
products and improving current product lines. Research and development costs
totaled approximately $1,159,561, $1,274,900 and $920,600 for the fiscal years
ended September 30, 2001, 2000 and 1999, respectively.


In
fiscal 2001 we completed development of the Micro DigiCam, a low cost digital photo laser
System. This system combines our UltraLyte speed laser with a digital camera and a
palm-computing device for system control and data storage. The Micro DigiCam represents a
custom integration of the latest technology available off-the-shelf, with minor
modifications. This allows for a flexible design that can be upgraded with advances in
available technology. Currently we are continuing work on optional accessories for the
Micro DigiCam that will provide additional functionality which should increase market
demand for the product.


We
continued to focus on enhancing the utility of our products during fiscal 2001. A
software module, LTI Face Profiler, was produced to support sales within the mining
segment of our survey and mapping market. When used in conjunction with our measurement
instrumentation, the Face Profiler package produces critical blasting information from a
rock face survey. Also in fiscal 2001, we enhanced the performance of our UltraLyte LR
product by improving its ability to acquire a target. This advancement in the processing
algorithms of the instrument provides for easier use when measuring the speed of a moving
vehicle.


Research
and development efforts continued on the Liquid Level Measurement Sensor in fiscal 2001.
The LLMS is an industrial control product which combines a fiber optic delivery system
with our proprietary laser measurement technology. Technical challenges created by the
fiber optic components slowed our development progress, however, beta test units were
placed in the field for initial evaluation in fiscal 2001.



During
this same period we began research activities on a new optical / mechanical product
platform that will become the building block for our future handheld laser instruments.
This sub-system will be designed for optimum package size and performance at the lowest
possible cost.



9
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|The
most significant product release in fiscal 2001 was the Yardage Pro Sport, our latest
co-developed consumer product with Bushnell Performance Optics. The YP Sport is the
lowest cost laser range finder available on the market and provides exceptional
operational performance due to the utilization of our custom Application Specific
Integrated Circuit. The ASIC is a proprietary electronic component designed by LTI which
incorporates years of development experience in the field of pulse laser measurement, and
represents the latest in digital range finding technology. The success of the ASIC in the
YP Sport is indicative of the opportunities it will provide as we look toward the next
generation of commercial and consumer laser products, with reductions in size and cost
and improvements in overall performance.



Marketing,
Distribution and Customers


We
presently market products to three major classes of customers; International,
Domestic Traffic Safety and Domestic Survey and Mapping. For fiscal year 2001,
our total foreign shipments accounted for 38% of overall sales, of which Asian
and European shipments comprised 67% collectively. Domestic Traffic Safety,
including state and local law enforcement agencies comprised approximately 34%
of total sales. Sales to our Domestic Survey and Mapping dealer network
comprised 18% of the total. We primarily market our products by on-site
demonstrations, attendance at trade conferences, advertising in trade magazines
and direct mail.


Traffic
Safety Products


We
primarily market our Traffic Safety products domestically to law enforcement agencies of
state, county and municipal governments. Presently, our domestic sales force includes six
direct field sales representatives, two inside sales support personnel and a national
sales manager who also covers a field sales territory. Distribution of domestic Traffic
Safety products is accomplished primarily by direct presentation. For fiscal 2001, our
largest domestic customer for our Traffic Safety products was the State of Florida. Other
high volume customers in 2001 included California, Colorado, Illinois, Massachusetts,
Michigan, New Jersey, New York, Ohio, Oregon, Texas, Utah, Vermont and Wisconsin.


Internationally,
we market our Traffic Safety product line through local foreign distributors to
agencies of foreign governments, including municipal law enforcement agencies
and transportation ministries. We have established distribution channels for
Traffic Safety products in most industrialized countries. To date, our foreign
distributors in Italy, the United Kingdom, Korea, Taiwan, South Africa,
Australia, France and Canada account for the highest volume of hand-held laser
speed detection systems and photo laser systems purchased internationally. As of
September 30, 2001, we have established Traffic Safety distribution in
forty-three foreign countries.


In
April 1996, the Marksman was certified by the International Association of Chiefs of Police to meet the federal standard
for laser speed measurement devices. Upon receiving IACP certification, the
Marksman was subsequently placed on the IACP Approved Products List. Products on
this list are more readily purchased with federal funding available from the
U.S. Department of Transportation. This allows easier access to law enforcement
agencies who wish to procure such devices. In fiscal 1998, initial compliance
testing of the UltraLyte was completed and both the UltraLyte 100 and UltraLyte
100 LR models were added to the IACP Approved Products List. Approval of the
UltraLyte 200 models was completed during fiscal 1999 and these products were
also added to the IACP Approved Products List at that time.


Various
foreign standards have also been established for laser speed enforcement equipment. The
Marksman has been subject to foreign approvals in certain areas where such standards
exist. To date, the Marksman has been approved in Germany, the United Kingdom, Austria,
Switzerland, Sweden, the Netherlands, France, Italy, South Africa, South Korea, Brazil
and Chile. The Marksman has also been tested and approved for use in Canada by the Royal
Canadian Mounted Police. In fiscal 1997, the second generation UltraLyte was also
approved by the RCMP. In fiscal 1998, the UltraLyte was approved in Germany and Austria.
The UltraLyte received approval in the United Kingdom and the Netherlands during fiscal
1999. In fiscal 2000, the UltraLyte was approved in Italy, Chile and Brazil. In fiscal
2001 the UltraLyte received approval in Poland, South Africa and France. The UltraLyte
continues to be tested in several other European countries where national approvals are
required. Similar to the domestic market, the UltraLyte is expected to achieve foreign
acceptance based upon previously set performance standards.



Previously,
the Laser DigiCam photo laser system had significant sales in our international markets.
Management feels that the introduction of the lower-cost Micro DigiCam in fiscal 2001
will open up new markets, both domestically and internationally, for the photo laser
systems. We further believe that we will be able to access a customer base previously
untouched by the existing higher-priced systems. In addition, we are aware of a trend
occurring in some foreign countries where it may soon be a requirement to present an
image of the violator, together with the results of a speed measurement device, in order
to prosecute a speeding case.


10
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|Survey
and Mapping Products


Our
Survey and Mapping products are primarily sold domestically through our
established dealer network, and internationally through our foreign distributors
and dealers. In fiscal 2001, the number of dealers in our domestic network,
which market and support Survey and Mapping products, was approximately 63.
Internationally the number of dealers was approximately 82.


Management
believes that introduction of the Impulse series of survey lasers in 1996
provided two immediate marketing benefits to the Survey and Mapping area. First,
the Impulse provides an entry-level, broad use product for the already
identified survey and mapping market segments, at a reduced size, weight, and
price point. Secondly, these same improvements allow us to access broad new
general measurement markets that previously did not consider laser measurement
to be a viable option. These markets include commercial material measurement and
estimation, engineering construction, and landscape design. Additional market
opportunities for our Survey and Mapping product line include the paper,
mapping, mining, environmental, telecommunication, and utility industries.
Domestically, we currently market to such industries through our dealer network
which is directed by a national sales manager and three regional sales managers.


Presently,
our distributors in Canada, Japan, China, Australia and Germany account for the
highest volume of Survey and Mapping products purchased internationally. We
currently market our Survey and Mapping products through foreign distribution
channels to similar industries as those noted above for domestic distribution.
As of September 30, 2001, we have established distributors for our Survey and
Mapping product line in approximately 60 foreign countries.


Consumer
Products


We
currently participate in the consumer products market primarily through our
relationship with Bushnell. The Yardage Pro product line is marketed by Bushnell
through sporting retail outlets and mass merchandisers. We receive royalty
payments pursuant to our licensing agreement with Bushnell. We also market the
Yardage Pro products within our own business segments as a low cost option for
low accuracy distance measurement applications.


Industrial
Control Products


Pursuant
to our contract with Telemotive, laser sensors developed and manufactured by us
are integrated into systems marketed under the Telemotive brand name. In
exchange for minimum purchase commitments of our industrial laser sensors,
Telemotive has received exclusive rights to sell the sensors within the material
handling market. Due to Telemotives successful introduction of its
systems in fiscal 1997, the minimum purchase commitment was increased in 1998
and 1999, and remained in place in 2000 and 2001. Currently this business
relationship is being evaluated in consideration of future sales potential.


As
part of our acquisition of Multiwave Sensors in 1999, certain marketing personnel have
contracted with us to build a distribution network for the upcoming liquid level sensor
product. The level sensing market is traditionally served through a network of
manufacturers' representatives and dealers. We believe this approach will likely be best
for our initial entry into the market. These representatives have begun placing initial
prototype units at beta test sites and will recruit additional dealers to establish a
national distribution network once a production design is complete. We will also consider
alliances or distribution arrangements with established companies currently serving this
industry with alternative technology. Because laser measurement offers performance
advantages over other technologies in particular applications, management believes these
companies may desire access to our product.


International
Service Center


During
Fiscal 2001, we officially certified Tele-Traffic (UK) Ltd. in Warwick, England as a
designated full service center for all LTIs traffic safety products. Tele-Traffic was
one of the first authorized dealers for Laser Technology and has now become one of our
top-ranked European dealers. While we have trained and authorized many dealers and
customers worldwide to do most repairs, this is the first center authorized to perform
full service. Tele-Traffic can now service both warranty and non-warranty traffic safety
products for customers in Europe, Middle East and North Africa. Service time and shipping
costs will be reduced because of their proximity to the market. Also, the inconvenience
of customs clearance will be eliminated in many cases due to cooperative trade agreements
amongst European countries.



Internet
Marketing Initiative


In
the fourth quarter of 1999, we announced a number of moves intended to expand
our ability to interact with current and potential customers via the Internet.
We entered into a relationship with Verio, Inc., the worlds largest
domain-based Web hosting company, and a leading national provider of business
Internet services. Verio offers a broad range of services which allow small and
medium- sized businesses to affordably and effectively develop e-commerce
distribution and communications capabilities.


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|We
have maintained an Internet presence through our website since 1995. The
relationship with Verio will provide the ability to take full advantage of the
expanding e-commerce and marketing capabilities of the World Wide Web. By
providing current and potential customers with 24-hour, seven-days-a-week access
to technical support, product updates, and training tools over the Internet, we
will seek to expand our role as a value-added provider of measuring solutions
and technology in our identified markets.


Management
expects to develop Internet marketing tools that will allow us to more
effectively prospect for new customers and to work with existing customers on a
pro-active basis. Of equal importance, it is anticipated that this e-channel
will provide us with the ability to more efficiently manage certain aspects of
our customer relationships and to better serve customers at a lower cost.
Although management does not expect that the Internet will replace our existing
sales force or distribution networks, we do believe the Internet will enable us
to off-load certain tasks from individuals, allowing marketing personnel to
focus on such key activities as account relationships and the pursuit of new
customers.


Over
time, management believes these e-commerce capabilities may allow us to
introduce products and services which are compatible with our markets, but which
previously have not justified the involvement of a traditional sales force.


Backlog


As
of September 30, 2001 and 2000 we had a backlog in sales of approximately
$498,061 and $370,000, respectively. This backlog is primarily attributed to
sales of our Traffic Safety product line. Fiscal 2001 back orders are scheduled
for delivery during fiscal 2002.


Competition


Our
hand-held Marksman and UltraLyte laser speed detection systems compete primarily
with hand-held radar speed measurement devices. Although most radar competitors
sell their instruments at prices lower than the Marksman and UltraLyte, we
believe that the Marksman and UltraLyte compete primarily because of their
greater effectiveness and versatility compared to radar speed measurement
devices.


Management
believes that the introduction of the UltraLyte enables us to better penetrate the radar
market due to its lower price point. The UltraLyte is half the size and weight of the
Marksman, has an internal power source and, as an optional feature, a patented integrated
inclinometer enhancing the UltraLyte's surveying functions.


Our
hand-held laser speed detection devices have the ability to positively identify
specific vehicles and are not detectable by conventional radar detectors.
Additionally, consumer laser detectors and laser jamming devices are generally
ineffective against the Marksman and UltraLyte.


The
ranging capabilities of our hand-held laser speed detection systems are also
used by law enforcement agencies to gather measurement information during
accident reconstruction and investigation. In 1995, we introduced QuickMap,
which enhanced the Marksmans use by law enforcement agencies for
quickly collecting and processing information at accident sites and crime
scenes. With the introduction of the UltraLyte 200, we further enhanced the
surveying capabilities of the laser speed detection device by integrating an
electronic inclinometer. When used with the QuickMap product, the UltraLyte 200
becomes both a speed measurement and mapping instrument.


Our
laser speed detection instruments provide additional capabilities distinct from
market competitors. SpeedStat, a statistical compilation software package,
automatically gathers and formats traffic survey data on a portable computer
when used with the Marksman or UltraLyte. This allows traffic engineers and law
enforcement officials to conduct and document traffic speed surveys more
efficiently than with previous methods. DBC allows our laser speed detection
systems to measure the distance and time between two moving vehicles.
Additionally, the Marksman and UltraLyte incorporate features to detect when a
laser jamming device is in use, which has proven valuable to law enforcement
agencies in jurisdictions where the use of such devices is prohibited. The
ranging capabilities of the Marksman and UltraLyte are also used by SWAT teams
to measure target distances, and in drug interdiction to measure tractor
trailers for false compartments.


12
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|We are
aware of six other companies that market laser speed measurement devices. Kustom Signal,
Inc., a Kansas company, markets a device pursuant to a license from the original
developers, Laser Atlanta, Inc. and LaserCraft, Inc. Laser Atlanta also began to market
its own laser speed measurement device in 1999. Applied Concepts, Inc., a Texas-based
company, and Monitron International, a United Kingdom company, have introduced laser
speed measurement devices. Additionally, Riegl, an Austrian company, and Jenoptik, a
German company, also market laser speed measurement devices in Europe.


We
believe that our hand-held laser speed detection systems are able to compete
within this market based upon their proven measurement accuracy, positive
vehicle identification, limited court challenges and difficulty in detection by
motorists. We further believe that our ancillary Traffic Safety products address
applications that provide a competitive advantage over other laser speed
measurement devices. We believe that our second generation technology provides a
significant competitive advantage by providing lower cost and more ergonomically
designed instrumentation.


Management
is aware of competitive photo laser systems developed by Kustom Signals, Inc., by Oshung,
a Korean company, by Sodi, an Italian company, and by Poltech, an Australian company.
These systems are similar in functionality to the original Laser DigiCam system. The
Laser DigiCam also competes in similar markets as conventional photo-radar systems.
Because the Laser DigiCam system has a much narrower beam than photo-radar systems on the
market, we believe that the Laser DigiCam system provides better target identification
and increased accuracy. The release of the new Micro DigiCam system should provide us
with an even greater competitive advantage due to a significantly lower price point. In
Brazil there are several very small companies that market a Micro DigiCam type product.
They combine several types of competitive lasers that are used in conjuction with various
data collectors. Because of privacy laws within the U.S., management believes that
primary sales opportunities for the Micro DigiCam will continue to be in international
markets.


We are
aware of a potential competing product to the QuickMap accident investigation system. A
new speed laser mapping system developed and marketed by Laser Atlanta has been released,
but currently we have limited knowledge of the product, and are not aware of any
significant sales to date.


Historically,
our Survey and Mapping products compete with traditional measurement devices. In
the domestic market there are two known competitors with laser measurement
devices specifically designed for survey and mapping applications. One by Laser
Atlanta, and a second device recently released by LaserCraft. Management also
believes that we may compete in international markets with instruments developed
and marketed by Riegl, Jenoptik, and MDL located in the United Kingdom. Due to
the recent introduction of reflectorless total stations, several new competitors
are in direct competition with our Impulse product line. Manufactures of these
products include Pentax, Nikon, Sokkia, Topcon and Trimble We compete within
this market based upon the quality of information generated by our Survey and
Mapping products and the time saving features they provide as compared to
traditional instruments. Also, management believes that the Impulse series
competes within this market because of their reduced size, weight and price
point as compared to other systems.


Our
MapStar Compass Module competes with a similar product marketed by MDL, but provides
greater accuracy and functionality as compared to the competing unit. The only known
competition for the Mapstar Angle Encoder Module is a product marketed by Laser Atlanta.


The
industrial laser distance sensors marketed through Telemotive were developed to
replace existing radio frequency based distance measuring devices. Pursuant to
the terms of the existing contract, Telemotive has exclusive rights to the
material handling market for any laser sensors developed under the contract by
us, in return for minimum guaranteed purchases of the sensors.


We
believe that our industrial sensors will continue to compete with traditional
measuring devices. This includes radar and RF based systems and, in certain
international markets, primarily Europe, with laser distance measurement
instruments. Management intends to compete in these markets based on the unique
measurement capabilities of our industrial laser sensors and because of their
reduced size, weight and lower price point.


13
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|Our
consumer products marketed by Bushnell compete primarily with products sold by Nikon Inc., a
Japan-based company, some of which are developed by Asia Optical Co., Inc., a Taiwan-based
company. We are also aware of a consumer product sold by Leica Geosystems AG, a Switzerland-based
company.


Patents


Certain
processes by which we are able to produce our products are largely proprietary.
We believe that patent protection of our technology and products that result
from internal research and development efforts is important to the potential
commercialization of our technology. We continually attempt to protect our
proprietary technology by obtaining patent application protection, relying on
trade secret laws and executing non-disclosure and confidentiality agreements
with our employees and persons that have access to our proprietary technology.


Costs
associated with patents are capitalized and amortized over their estimated
useful life of 15 to 17 years. Patent costs capitalized totaled approximately
$130,000, $148,000 and $298,000 for the fiscal years ended September 30, 2001,
2000 and 1999, respectively. Of the 1999 patent costs, $196,000 was related to
the acquisition of the Multiwave technology.


As
of the date hereof, we have filed with the United States Patent and Trademark
Office, thirty-nine patent applications related to our various product lines, in
order to protect our current technology. Of this total, thirteen are
continuations of previous applications. To date, thirty-four of these patents
have been issued to us. Ownership of an additional U.S. patent was acquired as
part of the Multiwave transaction.


One
patent, expiring in March 2011, relates to the Criterion series of survey lasers
providing coverage of forestry applications that include height and diameter
measurement of trees. We have also been issued two patents, expiring in October
2011, on our original laser speed detection instrument. A fourth patent issued,
expiring in May 2012, relates to a mechanical interface between one of the
Criterion hand-held survey lasers and an electronic theodolite, enabling the
instruments to remain precisely aligned while sighting remote targets.


In
fiscal 1996, a fifth patent was issued, expiring in June 2013, relating to our
Survey and Mapping product line, which incorporates our proprietary Walkabout
software that enables field data collection in the G.I.S. mapping process.
Additionally, we were granted a patent on our technology providing the
capability of transmitting data using pulses of light generated from our laser
range-finders. This patent expires in July 2013. A seventh patent was issued,
expiring in November 2013, related to the low cost design aspects of the
consumer product developed for Bushnell.


During
fiscal 1997, two patents were issued on our proprietary technology related to
the consumer range-finding instrumentation developed for Bushnell. These patents
expire in March 2014 and July 2014. Additionally, we were issued a patent,
expiring in April 2014, related to our Traffic Safety product line associated
with the method for measuring distance and time between traveling vehicles. We
were also granted a patent, expiring in December 2014, related to our QuickMap
accident investigation system.



During
fiscal 1998, one patent was issued, expiring in December 2014, which was a continuation
on an existing patent related to our consumer range-finder. Three patents were issued
related to the design and proprietary technology developed for the Impulse. These patents
expire in February 2014, July 2014 and August 2014. Two patents were issued related to
the UltraLyte. One patent, which expires in February 2014, relates to the laser jammer
detection feature. The second patent notes the incorporation of tilt sensing capabilities
within a laser speed measuring device and subsequently conducting three-dimensional
accident reconstruction. This patent will expire in September 2014. Another patent was
issued related to increased range performance in fog for marine applications and will
expire in July 2014.


During
fiscal 1999, a patent was issued, expiring in January 2015, which is related to
circuit design within our consumer range-finder products. Another patent was
issued, expiring August 2016, related to our industrial laser range-finder
currently used for in-plant collision avoidance applications. One patent was
issued, expiring August 2016, related to the design of the Impulse product. Two
patents were issued, expiring in August 2016, related to the design and
operation of the MapStar modular measurement system. We were also granted a
patent, expiring in March 2016, related to the Laser DigiCam system used for
speed detection and image capture of moving vehicles.


14
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|During
fiscal 2000, one patent was issued, expiring in August of 2017, relating to our
low-cost consumer product design technology. Another patent, expiring in August
2017, relates to a lower cost technique for producing an industrial sensor. We
were issued a third patent, expiring in July 2017, related to an industrial
sensor design. A fourth patent issued, expiring in January 2017, relates to
performance improvements for a laser sensor shooting through fog. A patent was
also issued, expiring in March 2018, relating to laser bow sight consumer
product. Another patent issued, expiring in July 2018, relates to a method for
remotely measuring target reflectivity. A seventh patent, expiring in April
2018, relates to technology acquired in the Multiwave Sensor transaction,
referencing a remote sensor head.


During
fiscal 2001, a patent was issued, expiring in 2018, relating to a level-indicating
mounting system for a laser instrument. Another patent, expiring in 2015, relates to our
low-cost consumer product design technology. We were issued a third patent, expiring in
2018, related to our MapStar Digital Compass Module. A fourth patent issued, expiring in
2018, relates to a method for remotely measuring target reflectivity.


To
date three additional United States patent applications have been filed, one of which is
a continuation of a previously issued patent. One of the new patents applies to our
Traffic Safety photo laser products, and another applies to our Survey and Mapping
products.


We
extend many of our domestic patent filings into foreign applications. During
fiscal 2001, four foreign patents, expiring in 2018, were issued. One related
specifically to our Traffic Safety products, and three to the multiple markets
of Survey and Mapping, consumer and Traffic Safety. We also have thirty-four
patents pending in foreign countries related to U.S. patents issued or
applications filed.


Patent
Licensing Agreements


In
1995, we completed, together with Bushnell, development of the Yardage Pro 400
consumer laser range finder. This product, formerly known as the LyteSpeed 400,
initiated a whole line of consumer products which are manufactured and marketed
by Bushnell to certain sporting markets, primarily the hunting and golfing
industries. Pursuant to our agreement with Bushnell, we retain all ownership of
patents and trade secrets of the technology underlying the development of these
products.


In
September 1996, we agreed to license to Kustom Signals and LaserCraft, a patent relating
to our hand-held laser speed detection system. Kustom markets a laser speed measurement
device along with radar speed measurement devices and other traffic safety equipment. In
fiscal 1996, we gave notice to Kustom that it was potentially infringing our patent by
making and selling laser-based speed measurement devices manufactured for them by
LaserCraft. Although Kustom and LaserCraft did not acknowledged infringement of our
patent, they entered into a license agreement with us. The agreement granted Kustom and
LaserCraft the nonexclusive rights to manufacture and sell laser-based speed measurement
devices incorporating features covered by our patent. In consideration for the license
agreement, we received a prepayment of licensing fees for a predetermined number of
licensed devices sold by Kustom and receive license fees for each licensed device sold by
Kustom. Additionally, we will receive running license fees for each licensed device sold
by LaserCraft, except for those devices that are manufactured for Kustom for resale.


In
November 1997, together with Bushnell, we entered into a licensing agreement with Tasco
Sales, Inc. Under the agreement, we and Bushnell agreed to license certain patents
related to the Yardage Pro consumer laser range-finder. Tasco marketed a laser
range-finder, developed by Asia Optical, a Taiwanese company, that competes with the
Yardage Pro series of range-finders. We and Bushnell have agreed to provide Tasco with
the nonexclusive rights to market a laser range-finder incorporating certain features
covered by claims of patents held by us and Bushnell. Pursuant to this agreement, we and
Bushnell receive licensing fees based on a percentage of Tascos gross sales. We believe
Tasco has discontinued sales of the licensed product.


In
June 1997, we licensed to Applied Concepts, Inc. a patent relating to our
hand-held laser speed detection system. Under this agreement, we granted Applied
Concepts the nonexclusive right to manufacture and sell laser-based speed
measurement devices incorporating features covered by the claims of the patent.
In consideration for the license agreement, we receive licensing fees as a
percentage of net sales on each licensed device sold by Applied Concepts.
Applied Concepts has never acknowledged infringement of the patent in question
and is currently contesting payment of said fees.


15
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|In
January 1998, we entered into a license agreement with Bushnell and Blount, Inc.
whereby we and Bushnell agreed to license certain patents related to the Yardage
Pro product line. This enables Blount to market a competitive product into the
consumer sports market. This product is manufactured by Asia Optical. Together,
we and Bushnell receive running royalties on the net sales of Blount products.
We believe Blount has discontinued sales of the licensed product.


In
September 1998, we licensed to MPH Industries, Inc. a patent relating to our
hand-held laser speed detection system. MPH has added a laser speed measurement
device to their current line of radar instruments. Pursuant to the agreement, we
granted MPH the nonexclusive rights to manufacture and sell laser-based speed
measurement devices incorporating features covered by the claims of the patent.
In consideration for the license agreement, we receive license fees as a
percentage of sales on each licensed device sold by MPH.


In
1999, we agreed to enter into a license agreement with Laser Atlanta Optics, Inc.
involving a patent relating to our hand-held laser speed detection system. To date, the
agreement has not been finalized. Further discussions have failed to resolve issues that
have inhibited the execution of the agreement.


Government
Regulation


Our
laser products emit optical energy in a narrow spectrum and are regulated by the
FDA and subject to approval by certain foreign governments. FDA regulations
impose eye safety requirements on our products and governments of most foreign
countries have similar regulations. The Marksman and UltraLyte comply with FDA
Class 1 eye safety regulations and have been given similar international ratings
by laboratories in Austria and Germany.


Due
to FDA involvement in international standardization efforts for laser products
with the International Electrotechnical Commission, we are aware of certain
changes under consideration by the FDA that may affect current FDA regulated
emission limits of Class 1 pulsed lasers. Although there is no assurance of
this, management does not believe that such proposed changes will impact our
sales or results of operations.


In
1995, the National Highway Traffic Safety Administration, working in conjunction
with the National Institute of Standards and Technology, completed a national
standard for performance specifications for laser speed measurement devices.
They also established a laboratory testing facility at the University of
California-Davis. In April 1996, the Marksman was certified by the International
Association of Chiefs of Police to meet the federal standard for laser speed
measurement devices and, was subsequently placed on the IACP Approved Products
List. During fiscal 1998, the UltraLyte 100 and UltraLyte 100 LR completed
compliance testing and were added to the IACP Approved Products List. The
UltraLyte 200 and UltraLyte 200 LR completed testing during fiscal 1999 and were
also added to the list.


Historically,
there were four states within the U.S. that required the passage of specific
state legislation to enable the use of new technological developments in speed
enforcement. As of September 30, 2001, legislation has been passed approving the
use of laser-based speed measurement devices as an acceptable means of speed
enforcement in Florida, North Carolina and Virginia. Management is currently
unable to ascertain when legislation will be passed in Pennsylvania and there is
no assurance that such legislation will be passed.


Management
recognizes that many foreign countries have centralized law enforcement and
purchasing regulations requiring stringent performance and accuracy standards.
Management primarily acknowledges that Western Europe purchasing authorities
adhere to such performance and accuracy standards. Our laser speed detection
products are subject to approval by certain foreign governments where regulatory
controls exist for speed enforcement equipment.


Our
laser speed measurement devices have been subject to court acceptance as a
viable means of speed measurement in jurisdictions where they are used. To date,
the Marksman has been accepted by courts in over forty states and in over
fifteen foreign countries. In June 1996, the Superior Court of New Jersey ruled
in a specific case that insufficient test data had been presented to the court
and ruled to not allow the instrument to be used in that courts
jurisdiction. As a result, new testing was subsequently completed by the New
Jersey State Police and the New Jersey Department of Transportation, which was
submitted to the court at a second hearing in October 1997. In March 1998, the
Superior Court of New Jersey ruled that state and municipal government agencies
in the jurisdiction of the court will be allowed to use the Marksman / LTI 20-20
series of laser speed guns in their vehicular law enforcement efforts. In
November 1999, the New Jersey State Court of Appeals upheld the decision of the
Superior Court of New Jersey.



16
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|Employees


Management
considers our employees to be a valuable asset to our continuing success, and feels the
relations between management and employees are good. As of September 30, 2001, we
employed eighty-one persons, consisting of twelve management personnel, twenty-one
employees engaged in the sales and marketing activities, thirteen engineering personnel,
twenty-seven production related personnel, three employees in customer service and five
administrative and office personnel. In addition to our full-time employees, we use the
services of one contractual design engineer and one contractual marketing representative.
Due to an anticipated economic slowdown in fiscal 2001, the Board of Directors
imposed a hiring and wage freeze in the second fiscal quarter. To date, this directive is still
in place.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. | Properties
|------- | ----------

|As of
September 30, 2001, our Englewood, Colorado facilities provided approximately 45,000
square feet under two lease agreements, 22,000 square feet expiring August 2003 and
22,700 expiring in July 2002. In total, our facilities comprise 16,000 square feet of
production space, 10,000 square feet allocated to research and development activities,
13,000 square feet is allocated to marketing and administrative activities and 6,000
square feet that was subleased through September 30, 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 3. | Legal Proceedings
|------- | -----------------

|On
February 10, 1999 a securities class action complaint entitled Moshe Rosenfeld,
On Behalf of Himself and All Others Similarly Situated, vs. Laser Technology,
Inc., David Williams, Pamela Sevy, Dan H. Grothe and H. Deworth Williams, was
filed in the United States District Court, District of Colorado (Case no.
99-Z-266). The complaint alleged that Laser Technology and certain of our
officers and directors violated federal securities laws, particularly
Sections10(b) and 20 of the Securities Exchange Act of 1934. Specifically, the
complaint alleged that our financial statements were false and misleading during
the class period, February 12, 1996 to December 23, 1998, and that we made
certain false or misleading statements regarding our financial statements during
this period.


We
believe the action was premised in part on the resignation of our independent
accountant, BDO Seidman, LLP, on December 21, 1998, and the resignation of the
members of the Audit Committee of our Board on January 7, 1999. The resigning
members of the Audit Committee comprised the Special Audit Committee. They
resigned from the Board as a result of disagreements between management and the
Special Committee. BDO also withdrew its opinions on the previously issued
certified financial statements for the fiscal years 1993, 1994, 1995, 1996 and
1997. At the time of BDOs resignation, the Special Committee was
conducting an independent investigation into our accounting records and alleged
irregularities relating to our accounting records. Following the announcement of
the resignation of BDO and withdrawal of five years of audited financial
statements, the American Stock Exchange suspended trading in our shares on
December 23, 1998. Trading resumed on March 22, 1999.


In
its complaint, the plaintiff alleged that the resignation of BDO and the three
directors was due to our alleged unreliable and misleading financial statements.
Plaintiffs complaint further alleged violations of Section 10(b) of
the 1934 Act and Rule 10b-5 promulgated thereunder.


Five
additional securities class actions and one stockholders derivative
suit were filed against us and certain of our former and present officers and
directors. All cases were filed in the United States District Court for the
District of Colorado and were consolidated.


On
October 6, 1999, we announced that we had entered into an agreement in principle
for the settlement of all the aforementioned actions. On December 10, 1999, a
Stipulation of Settlement was executed by the parties and filed with the Court.
On October 13, 2000, the Court issued its Final Judgment and Order of Dismissal
With Prejudice in the action. As a provision of the Final Judgment, the Court
ordered us to issue 475,000 shares of our common stock and pay $850,000 in the
settlement of the action. Following the appropriate hearing, the Court found
that the aggregate settlement amount and other terms of the settlement reflected
a good faith settlement of the actions. We reached an agreement with our
insurance carrier whereby $740,000 of the cash portion of the settlement was
paid by the carrier into the settlement escrow account. The remaining $110,000
in cash was paid into the settlement escrow account by us and certain
individuals involved in the settlement. The 475,000 shares were also issued and
delivered to the settlement escrow account. These shares are equal to
approximately 8.3% of the total shares currently outstanding.


17
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|Pursuant
to the settlement, the 475,000 shares will be distributed at a date to be
determined by the plaintiffs and their counsel. One-third of the shares will be
available for trading immediately, one-third will be available for trading 60
days after the initial distribution, and the final third will be available for
trading 120 days from the initial distribution.


As
a condition of the settlement, we are released from all future claims and
actions by the plaintiffs and class members related to the pending actions. The
costs of the settlement together with projected legal expenses involved in
completing the settlement had been accrued in our 1999 financial statements
except for $18,430, which was recorded during fiscal 2000.


On
February 8, 2000, we filed a complaint against Nikon, Inc. in U.S. District
Court for the District of Colorado (Civ. No. 00-B-272), for selling and using a
product infringing one of our patents. On July 26, 2000, we amended the
complaint to include allegations that Nikons conduct infringed a
second patent obtained by us. On August 9, 2000, Nikon filed an answer and
counterclaims, seeking a declaratory judgment that Nikon did not infringe the
patents, that the patents are invalid and unenforceable, and that Nikon has been
damaged by willful and unfounded assertions of infringement by us. The
counterclaims did not quantify the damages sought. On September 28, 2000, upon a
stipulated motion to withdraw, the Court ordered the dismissal, without
prejudice to reassertion, of the counterclaims asserting that the
patents-in-suit are invalid and unenforceable.


We
are vigorously prosecuting the lawsuit and the parties began formal discovery in
this matter. On May 24, 2001, the Court allowed us to amend our
Complaint to add allegations that Nikon and Asia Optical Co, Inc. are infringing
a third patent issued to us in May 2001. Efforts to resolve the matter through
court order mediation have not been successful.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

|No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during our fourth quarter ended September 30, 2001.


18
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II.
|--------

|Item 5. | Market for the Registrants Common Equity and Related Stockholder Matters
|------- | -------------------------------------------------------------------------

|We
currently have an authorized capitalization of 25,000,000 shares of common
stock, par value $0.01 per share, and 2,000,000 shares of preferred stock, par
value $0.01 per share. The preferred shares may be issued in various series and
shall have preference as to dividends and to liquidation of our company. Our
Board may establish the specific rights, preferences, voting privileges and
restrictions of such preferred stock, or any series thereof. To date, no shares
of preferred stock have been issued.


Our
common stock is listed on the American Stock Exchange under the symbol LSR. As
of September 30, 2001, 5,710,867 common shares were outstanding and we had
approximately 475 shareholders of record. The number of shareholders does not
take into account those shareholders whose certificates are held by nominees.
The following table sets forth the range of high and low sale prices of our
common stock for each calendar quarterly period as reported on the American
Stock Exchange.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |      | High            |  | Low    
| | ---- | --------------- |  | -------
| | 2001 |                
| |      | First Quarter   |  | $     1
| |      | Second Quarter  |  | 1      
| |      | Third Quarter   |  | 1      
| |      | Fourth Quarter* |  | 1      
| | 2000 |                
| |      | First Quarter   |  | $     4
| |      | Second Quarter  |  | 2      
| |      | Third Quarter   |  | 1      
| |      | Fourth Quarter  |  | 1      
| | 1999 |                
| |      | First Quarter** |  | $     3
| |      | Second Quarter  |  | 2      
| |      | Third Quarter   |  | 2      
| |      | Fourth Quarter  |  | 1      

| |  | * |  | The
2001 fourth quarter reflects the high and low sale prices through December 12, 2001.
| |  | - |  | ----------------------------------------------------------------------------------------

| |  | ** |  | On
December 23, 1998, trading in our stock was suspended. Trading resumed on March 22, 1999.
| |  | -- |  | --------------------------------------------------------------------------------------------

|Dividends


We
have never declared or paid any cash dividends on our common stock. We presently
intend to retain earnings to finance future operations, expansion and capital
investments. We do not anticipate paying any cash dividends on our common stock
in the foreseeable future.


19
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|Item 6. | Selected Financial Data
|------- | -----------------------

|The
following selected financial data should be read in conjunction with our
financial statements and notes thereto and the following Managements
Discussion and Analysis of Financial Condition and Results of Operations. Data
set forth below has been derived from our audited financial statements for the
years ended 2001, 2000, 1999, 1998 and 1997.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | Years Ended
|-------------------------------------- | -----------
|
|Statement of Operations Data:          |            
|Net sales                              |            
|Cost of goods sold                     |            
|Gross profit                           |            
|Royalty and licensing income           |            
|Total operating income                 |            
|Operating expenses                     |            
|Settlement and restructuring costs     |            
|Income (loss) from operations          |            
|Other income, net                      |            
|Income (loss) before taxes on income   |            
|Taxes on income                        |            
|Net income (loss)                      |            
|Net income per common share:           |            
|Basic earnings (loss) per common share |            
|Weighted average shares outstanding    |            
|Diluted earnings per common share      |            
|Diluted average shares outstanding     |            

|                                       | September 30,
|-------------------------------------- | -------------
|
|Balance Sheet Data:                    |              
|Working capital                        |              
|Total assets                           |              
|Short-term debt, including current     |              
|maturities of long term debt           |              
|Long-term debt less current maturities |              
|Total stockholders equity             |              

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

|Results of
Operations


The
following table sets forth, for the three most recent fiscal years, the
percentage relationship to net sales of principal items in our statement of
operations. It should be noted that percentages discussed throughout this
analysis are stated on an approximate basis.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Years Ended September 30,
|---------------------------------- | -------------------------
|
|Net sales                          |                          
|Cost of goods sold                 |                          
|Gross profit                       |                          
|Royalty and licensing income       |                          
|Total operating income             |                          
|Operating expenses                 |                          
|Settlement and Restructuring Costs |                          
|Income (loss) from operations      |                          
|Interest and other income, net     |                          
|Taxes on income                    |                          
|                                   |                          
|Net income (loss)                  |                          
|                                   |                          

|20
|--

|The
following table provides a breakdown of the net sales and respective percentages
of net sales of our various product lines.
|-------------------------------------------------------------------------------------------------------------------------------

|                       | Years Ended September 30,
|---------------------- | -------------------------
|
|Traffic Safety         |                          
|Percentage of revenues |                          
|Survey and Mapping     |                          
|Percentage of revenues |                          
|Industrial Controls    |                          
|Percentage of revenues |                          
|Consumer               |                          
|Percentage of revenues |                          
|Total Revenues         |                          

|Fiscal Year Ended September 30, 2001 Compared to Fiscal Year Ended September 30, 2000


Net
sales for the fiscal year ended September 30, 2001 were $11,472,459 compared to
$12,720,299 realized during the fiscal year ended September 30, 2000, representing a 9.8%
decrease. In 2001, significant decreases in our Foreign Traffic Safety and Domestic
Survey Mapping sales had the greatest impact on total revenues. These decreases offset
increases in Consumer product sales consisting of sales of the new ASIC.


Sales
of our Traffic Safety products decreased 17% from $8,332,207 in 2000 to $6,957,280 in
2001. North American Traffic Safety product sales increased 4% from $4,009,206 in 2000 to
$4,162,020 in 2001, primarily due to a growing maturity of the sales force producing
greater revenue per salesperson. International Traffic Safety product sales decreased 35%
from $4,323,001 in 2000 to $2,795,259 in 2001. International sales were hurt by a
continued strong dollar, which made the prices of foreign products more competitive.


Overall
sales of our Survey and Mapping products decreased 15% from $3,877,196 in 2000 to
$3,294,255 in 2001. North American Survey and Mapping product sales decreased 19% from
$2,906,542 in 2000 to $2,365,198 in 2001, primarily due to delay in product availability,
purchased component quality problems and an economic slowdown. International sales of our
Survey and Mapping products decreased 4% from $970,654 in 2000 to $929,057 in 2001.
International sales were negatively impacted by the strong dollar and increased
competition that now has reflectorless capabilities in their products.


International
sales in 2000 were $5,524,974 compared to $4,379,241 realized in 2001. Sales
internationally comprised approximately 43% of our total revenues in 2000
compared to 38% of total revenues in 2001.


Gross
profit as a percentage of sales was 54% in 2000 compared to 53% for 2001. The
decrease in gross profit margins in 2001 was primarily due to increased material
cost and decreased output on the production line.


Royalty
income earned in 2001 is derived primarily from our agreement with Bushnell for sales of
the Yardage Pro series of consumer laser range finders. Royalty income increased
approximately 8% from $959,015 in 2000 to $1,033,129 in 2001. The increase during 2001
was due primarily to the introduction of the new Yardage Pro Sport into the Bushnell
product line and increased sales into the professional markets.


Total
operating expenses decreased approximately 8% from $ 7,361,190 in 2000 to $6,769,882 in
2001. The 2001 decrease is attributed to lower sales, marketing and administrative
expenses coupled with the reimbursement of research and development costs from third
parties. These decreases were partially offset by an increase for legal expenses
associated with prosecuting the patent infringement claims.


Decreased
operating expenses combined with the increase in royalties and other income in
2001 resulted in a net income for the year. Income before taxes of $522,727 in
2001 compared to $575,212 in 2000. After taxes on income, we realized a net
income of $409,113 or $.07 basic earnings per share in 2001 compared to net
income of $341,412 or $.07 basic earnings per share in 2000.


21
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended September 30, 1999


Net
sales for the fiscal year ended September 30, 2000 were $12,720,299 compared to
$11,814,654 realized during the fiscal year ended September 30, 1999, representing a 7.7%
increase. In 2000, significant increases in our Traffic Safety and Consumer product sales
had the greatest impact on total revenues. These increases helped offset decreases in
Survey and Mapping and Industrial product sales.


Sales
of our Traffic Safety products increased 15% from $7,237,259 in 1999 to
$8,332,207 in 2000. Domestic Traffic Safety product sales decreased 0.4% from
$4,023,828 in 1999 to $4,009,206 in 2000 primarily due to the reallocation of
state funding in the southeast region. International Traffic Safety product
sales increased 34.5% from $3,213,431 in 1999 to $4,323,001 in 2000 due to
increased implementation of laser products as government agencies have realized
the positive benefits resulting from the use of the UltraLyte series of lasers.
The recent approval for use of the UltraLyte in several countries allows
distributors to order our speed measurement products for use as a mainstream
traffic enforcement tool rather than just evaluation and homologation purposes.


Overall
sales of our Survey and Mapping products decreased 4.7% in 2000 to $3,877,196
from $4,069,023 in 1999. Domestic Survey and Mapping product sales increased 27%
to $2,906,542 in 2000 from $2,288,239 in 1999 primarily due to a restructuring
of the segments sales force, providing improved service and support to
domestic dealers and a stronger presence at trade shows. International sales of
our Survey and Mapping products decreased 45.5% from $1,780,784 in 1999 to
$970,654 in 2000. International sales were negatively impacted by the strong
dollar, the delay in the recovery of the Asian economy, the discontinuation of
the Criterion laser series and increased competition in Europe.


International
sales of our products in 2000 were $5,524,974 compared to $5,146,480 realized in
1999. Sales internationally comprised approximately 43% of our total revenues in
2000 compared to 44% of total revenues in 1999.


Gross
profit as a percentage of sales was 54% in 2000 compared to 51% for 1999. The
increase in gross profit margins in 2000 was primarily due to a more profitable
product mix. Increased profitability was due to improving sales of second
generation products such as the UltraLyte series, increased output on the
production line and a reduction in specific materials cost.


Royalty
income in 2000 is derived primarily from our agreement with Bushnell for sales
of the Yardage Pro series of consumer laser range finders. Royalty income
increased approximately 2.8% to $959,015 in 2000 from $932,796 in 1999. The
increase during 2000 was due primarily to a stabilization of the Bushnell
product line, along with the exit of some market competitors. Management
believes that royalty income received from our current licensing arrangements
will continue to positively impact our operations.


Total
operating expenses decreased approximately 28.4% to $ 7,361,190 in 2000 from
$10,283,111 in 1999. The decrease is attributed to lower executive,
administrative and legal expenses associated with the absence of litigation, a
reduction in staff and improvements in operational processes to increase
efficiency. Litigation related costs incurred in 1999 were related to the class
action lawsuits and SEC investigation. The litigation and SEC matters were
substantially resolved during 1999 and those costs were not expected to be
repeated in 2000 although $18,430 was expensed in 2000. Operating profit before
legal and severance costs associated with restructuring of management and
employees was equal to $692,956.


Increased
sales and gross profit margins combined with the decrease in operating and
litigation-related expenses in 2000 resulted in a net income for the year.
Combined with income earned on investments of $59,211 and $9,009 in 2000 and
1999, respectively, we realized an income before taxes of $575,212 in 2000
compared to loss before taxes of $3,372,039 in 1999. After taxes on income, we
realized a net income of $341,412 or $.07 basic earnings per share in 2000
compared to net loss of $2,386,105, or $.48 basic loss per share in 1999.



22
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Foreign Sales


Foreign
sales of our products were 38%, 43% and 44% for the fiscal years ended September
30, 2001, 2000 and 1999, respectively. Management believes that our foreign
sales will continue to comprise a significant portion of revenues. We require
that all international sales be paid for with U.S. dollars. An increase in the
value of the U.S. dollar relative to other currencies could make our products
less competitive in those markets.


Research and
Development Costs


Research
and development costs related to the continual development of our products are
expensed as incurred and included in operating expenses. Research and
development costs totaled approximately $1,159,561, $1,274,900 and $920,600 for
the years ended September 30, 2001, 2000 and 1999, respectively. Year to year
increases in research and development expenditures are primarily attributable to
increased product development and investments in pure research to provide for
significant future technology and product advancements. The ability to recoup
research and development costs from third parties decreased our expense in 2001.
Management anticipates a continued commitment to research and development as the
engineering department is positioned to support and facilitate future growth.


Cost
associated with our patents are capitalized and amortized over their estimated
useful life of 15 to 17 years. Patent costs capitalized totaled approximately
$130,000, $148,000 and $298,000 for the fiscal years ended September 30, 2001,
2000 and 1999, respectively.


Income Taxes


Our
policy is to provide deferred income taxes related to inventories and other
items that result in differences between the financial reporting and tax basis
of assets and liabilities and a net operating loss carryforward. As a result, at
September 30, 2001, we recorded a $0 deferred tax asset.


Liquidity and
Capital Resources


Our
net working capital at September 30, 2001 was $8,201,411 as compared to working
capital of $6,918,219 at September 30, 2000, an increase of $1,283,192. The
increase is primarily related to an increase in inventory. Current assets
exceeded current liabilities by a ratio of 9.7 to 1. Furthermore, the acid test
ratio (ratio of current assets minus inventories and prepaid expenses to
liabilities) was in excess of 4.76 to 1. Thus, the present working capital is
expected to adequately meet our needs for at least the next
twelve months.


Inventory,
the largest item that required financing, stood at $4,493,440 at September 30,
2001, up $1,396,578 from September 30, 2000. Inventory expansion reflected
stocking of certain outsourced assemblies and an increase in other raw
materials. Prepaid insurance, fees and expenses required an additional $78,632
of funding. The operating activities that provided cash were a net income of
$409,113, depreciation and amortization of $556,314 and a reduction in accounts
receivable and bad debt of $361,119. The only other items that reduced cash were
a decrease in accounts payable and accrued expenses of $194,917.


For
the year ended September 30, 2001, a net cash increase of $512,460 from
investing activities was due to the conversion of investment accounts into
working capital. After expending $811,482 on operating activities and $83,480 on
long term debt and capital leases, there was a net decrease in cash and
equivalents of $382,502. When added to cash on hand at the beginning of the
twelve month period, total cash and equivalents at September 30, 2001 stood at
$1,641,586. Thus, cash and equivalents alone comfortably exceeded total
liabilities of $934,976 at the end of the period.


For
the year ended September 30, 2000, cash provided by operating activities was $1,727,170.
Net income of $341,412, a reduction of receivables and bad debt of $1,182,709 and
deferred taxes of $288,000, together with depreciation and amortization of $563,452,
offset the increase in inventories of $249,127 and net decrease in accounts payable and
accrued expenses of $588,488. Cash used in investing activities in 2000 of $352,228 was
primarily used for the purchase of property and equipment in the amount of $195,967;
purchase of investments of $471,608; and $148,387 used for capitalization of patent
costs. This result was partially offset with proceeds from investment maturities of
$450,139 and sale of property & equipment of $13,595. For fiscal 2000, cash and cash
equivalents increased $1,267,012.


23
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|For
the year ended September 30, 1999, cash provided by operating activities was
$97,310. This was due primarily to (i) reductions in accounts receivable of
$826,484 and inventories of $1,010,228; and (ii) increases to accruals
(primarily related to the pending litigation settlement) of $1,092,410. This
result was partially offset by the net loss for the year of $2,386,105. Cash
used in investing activities of $298,728 resulted from increased cash from
investment maturities of $499,347, primarily used for the purchase of property
and equipment in the amount of $500,215. Also, $297,860 was used to protect our
proprietary technology. For the year ended September 30, 1999 cash and cash
equivalents decreased $231,510.


Other


In
November 1998, we leased an additional 23,000 square feet adjacent to our
facilities under our lease agreement. To complete our expansion in fiscal 1999,
we spent approximately $250,000 in leasehold improvements. We believe that our
current and planned facilities are adequate to meet our needs throughout the
foreseeable future.


In
order to reduce the impact of currency fluctuations, all of our foreign sales
are made in U.S. currency. We generally enforce the use of letters of credit and
wire transfers in most of our credit arrangements with most foreign distributors
to reduce the risk of uncollected accounts receivable. In 1999, in conjunction
with a review of the accounts receivable balances, we increased our allowance
for doubtful accounts to $250,000 to address some potential collectibility
issues with some of our foreign accounts that were not sold using letters of
credit. In fiscal 2001 we decreased our accrual for doubtful accounts to $55,228
to cover the risk of uncollectable accounts receivable.


Effect of
Inflation


We
believe that we will experience increased costs due to the effect of inflation
on the cost of labor, material and supplies, and equipment acquisitions.
However, such inflationary effects are not expected to have a material impact on
our revenues, gross profit or results of operations for at least the next twelve
months.


New Accounting
Pronouncements


In
June 1998, the Financial Accounting Standards Board, or FASB, issued Statement
of Financial Accounting Standards (SFAS) 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Accounting for changes in the values of those
derivatives depends on the intended use of the derivatives and whether they
qualify for hedge accounting. SFAS 133, as amended by SFAS 137 and SFAS 138, was
adopted as of April 1, 2001. We believe the adoption of this statement will have
no material impact on our financial statements.


In
June 2001, the FASB issued SFAS 141, Business Combinations, and SFAS 142, Goodwill and
Other Intangible Assets. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS 141 also specifies
criteria that intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill, noting that any purchase price
allocatable to an assembled workforce may not be accounted for separately. SFAS 142
requires that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimatable
useful lives be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. We
adopted SFAS 141 upon issuance and SFAS 142 effective April 1, 2001. The adoption of SFAS
141 and 142 did not affect our consolidated financial statements.


24
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|On
August 16, 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which is effective for fiscal years
beginning after June 15, 2002. It requires that obligations associated with the
retirement of a tangible long-lived asset be recorded as a liability when those
obligations are incurred, with the amount of the liability initially measured at
fair value. Upon initially recognizing an accrued retirement obligation, an
entity must capitalize the cost by recognizing an increase in the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. Although we have not completed the process of determining the
effect of this new accounting pronouncement, we currently expect that the effect
of SFAS No. 143 on our consolidated financial statements, when it becomes
effective, will not be significant.


In
October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-LivedAssets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Although SFAS 144
supersedes SFAS 121, it retains many of the fundamental provisions of SFAS 121.
SFAS 144 also supersedes the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, Reporting-the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business. However, it retains the requirement
in APB 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed of, by sale,
abandonment, or in a distribution to owners, or is classified as held for sale.
SFAS 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. We believe the adoption of SFAS 144
will not have a significant effect on our consolidated financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 7a. | Qualitative and Quantitative Disclosure about Market Risks
|-------- | ----------------------------------------------------------

|This
item is not applicable.
|----------------------------

|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

|Information
with respect to this item is contained in the consolidated financial statements
appearing in Item 14 of this report. Such information is incorporated by
reference.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

|This
item is not applicable.


25
|---------------------------------

|PART III.
|---------

|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------

|As
of December 12, 2001, our executive officers and directors are as follows:
|-----------------------------------------------------------------------------

|                   |  |   
|------------------ |  | --
|Eric A Miller      |  | 35
|Jeremy G Dunne     |  | 44
|Roosevelt Rogers   |  | 42
|H Deworth Williams |  | 66
|Walter R Keay      |  | 64
|Edward F Cowle     |  | 45
|William P Behrens  |  | 63
|Nicholas J Cooney  |  | 66
|Elizabeth A Hearty |  | 34

|Our
directors hold office until the next annual meeting of stockholders and until their
successors have been duly elected and qualified. Pursuant to our Stock Option Plan for
Non-Employee Directors, as of September 30, 2001, options to purchase 30,000 shares were
granted and are outstanding to each of five non-employee directors at exercise prices
ranging from $1.19 to $1.75 per share. Non-employee directors are compensated for their
service on the Board or any committee thereof by an annual retainer of $10,000.
Additionally, each director receives $2,000 for each meeting attended in person and $500
for each meeting attended telephonically. Any non-employee director is reimbursed for
expenses incurred in connection with their duties as directors and for attendance at
Board or committee meetings. Under the Directors Plan, each non-employee director and
each newly elected non-employee director is entitled to an option to purchase 30,000
shares of our common stock. The exercise price of each option is the fair market value of
our common stock at the date of grant.


Officers
serve at the discretion of the Board. There are two committees of the Board. As of
September 30, 2001, the Audit Committee consisted of Mr. Walter R. Keay, Mr. Edward F.
Cowle and Mr. William P. Behrens and the Compensation Committee consisted of Mr. H.
Deworth Williams, Mr. William P. Behrens and Mr. Nicholas J. Cooney.


Eric
A. Miller. Mr. Miller has been employed by us since 1988 and has served on our Executive
Committee since 1993. He was appointed as President and Chief Executive Officer in March
2000. Mr. Miller served as our Engineering Manager from 1993 to 2000 and was an engineer
from 1988 to 1993. In 2001, Mr. Miller became a principal investor in Noteworthy
Enterprises, LLC, which owns and operates a restaurant/bar establishment. All operations
of this establishment are maintained by a separate partner of the organization. Mr.
Miller graduated in 1987 from DeVry Institute of Technology in Phoenix, Arizona with a
B.S. Degree in Electronics.


Jeremy
G. Dunne. Mr. Dunne has been employed by us since 1986 and currently serves as Vice President and Chief
Technical Officer. From 1981 to 1986, Mr. Dunne was chief engineer for Hydrographic
Services, International in Southborough Kent, England, a company that performs software
and system design for the hydrographic surveying industry. Mr. Dunne earned a B.A. Degree
in Electrical Engineering from the University of Cambridge, Cambridge, England. Mr. Dunne
agreed to an SEC order issued on March 20, 2000 to not cause any violations of Section
13(a) of the Securities Exchange Act of 1934.


Roosevelt
Rogers. Mr. Rogers has been employed by us since 1996 and is currently Vice President.
From 1992 to 1996, Mr. Rogers was a Product Manager with MPH Industries, Inc., a
subsidiary of MPD, Inc. in Owensboro, Kentucky From 1990 to 1992, he was Regional Sales
Manager with Tech Systems, Inc.; Mobile Video Recording Systems in Atlanta, Georgia. Mr.
Rogers was a State Trooper with the Georgia State Patrol in Atlanta, Georgia from 1982 to
1990, and was a police officer with the Roswell Police Department in Roswell, Georgia
from 1977 to 1982. Mr. Rogers attended Brescia College in Owensboro, Kentucky studying
Business Administration.


H.
Deworth Williams. Mr. Williams is the owner of Williams Investment Company and has been a
financial consultant for more than thirty years. During this time, Mr. Williams has been
instrumental in facilitating and completing several mergers, acquisitions, business
consolidations and underwritings. Mr. Williams agreed to a SEC order issued on March 20,
2000 to not cause any violations of Section 13(a) of the Securities Exchange Act of 1934.


26
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Walter
R. Keay. Mr. Keay has been employed for over 35 years in the securities industry. He is
presently President of Knickerbocker Capital, Inc., an investment banking consulting firm
in Pennsylvania. From 1987 through 1999, he was founder and President of Knickerbocker
Securities, Inc., a member of the NASD. Knickerbocker Securities was our underwriter when
we initially listed on the American Stock Exchange in 1993. Prior to engaging in
investment banking, Mr. Keay was a securities analyst, working extensively with large
conglomerates, both as an analyst and in the area of mergers and acquisitions. He
graduated from Brown University with a B.A. Degree in Economics and did graduate work at
New York University School of Business Administration.


Edward
F. Cowle. Mr. Cowle has been self employed in financial public relations from 1994 to the
present, assisting public companies with financial and investment banking activities.
From 1992 to 1994, Mr. Cowle was a Senior Vice PresidentInvestments with Paine Webber
in New York City and from 1991 to 1992, he was a Registered Representative with Bear
Stearns &Company, also in New York City. Mr. Cowle graduated from Fairleigh Dickinson
University in Madison, New Jersey in 1978 with a B.A. Degree in English, American
Studies. Mr. Cowle also attended Vermont Law School in South Royalton, Vermont from 1978
to 1979.


William
P. Behrens. Mr. Behrens recently joined Northeast Securities, Inc. as Vice Chairman where
he manages client assets and is responsible for the general brokerage division. From 1965
through September 2001 Mr. Behrens was respectively General Partner, Senior Managing
Director and then Chairman and CEO of Ernst & Company and its successor company Investec
Ernst & Company. In other securities industry capacities, Mr. Behrens has served as an
Exchange Official of the American Stock Exchange since 1985; Director of Options Clearing
Corporation and Vice Chairman of NASD District 10 Business Conduct Committee. Mr. Behrens
graduated from Bernard Baruch College - City University of New York.


Nicholas
J. Cooney. Mr. Cooney is self-employed as an attorney concentrating in corporate and
finance law. He has also served as a professional arbitrator and mediator and as an
investment banker. Since 1982, Mr. Cooney has been engaged as a sole proprietor in the
practice of law in New York, where he was licensed to practice law in 1960. From 1994 to
1999, Mr. Cooney was affiliated as an investment banking executive with Knickerbocker
Securities, Inc. Mr. Cooney was involved for over 25 years in the legal affairs of three
major corporations. Prior to his corporate affiliations, Mr. Cooney was associated with a
Wall Street law firm. Since 1994, Mr. Cooney has served as a contract arbitrator for the
Building Service Industry in the New York City area. Mr. Cooney is also an active
arbitrator for the Commercial Panel of the American Arbitration Association and for the
National Association of Securities Dealers. Mr. Cooney received his Juris Doctorate
degree from Fordham University School of Law in 1960, and his Bachelor of Science degree
from Fordham College in 1957.


Elizabeth
Hearty. Ms. Hearty joined our company in September 1999 as our Controller. In March 2000,
Ms. Hearty was elected Corporate Secretary. Prior to joining us, Ms. Hearty was President
and Director of DataVision Security Services in Englewood, Colorado from 1996 to 1999.
From 1990 to 1996, she served as Controller of InterCap Funds, Joint Venture. Ms. Hearty
received a B.S. degree in accounting from the University of Colorado in 1989.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 11. | Executive Compensation
|-------- | ----------------------

|Employment
Agreements


We
have not entered into any current employment agreements as of September 30,
2001. However, in April 2000, we entered into a consulting agreement with
Knickerbocker Capital, Inc., whose principle is Walter R. Keay, one of our
directors. Pursuant to the agreement, Mr. Keay is to provide certain consulting
services to us.


27
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash
Compensation


The
following table provides summary information concerning compensation earned by
or paid to our chief executive officer and other executive officers whose total
annual salary and bonus exceed $100,000, for services rendered for the last
three fiscal years. These individuals are referred to as the named executive
officers. Other than as described below, we did not pay any executive officer
greater than $100,000 annually for any of the periods depicted.


Summary
Compensation Table
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name and Principal Position  | Year | Salary | Bonus | Other AnnualCompensation | RestrictedStock Award | All OtherCompensation
|---------------------------- | ---- | ------ | ----- | ------------------------ | --------------------- | ---------------------
|Eric A Miller                |      | 2001   |       | $100,000                 |                       | $                   
|President, CEO and Director  |      | 2000   |       | 83,455                   |                       | 17,664               
|                             |      | 1999   |       | *                        |                       |                     
|                            
|Jeremy Dunne,                |      | 2001   |       | 122,500                  |                       |                     
|Vice President and  Director |      | 2000   |       | 98,116                   |                       | 21,308               
|                             |      | 1999   |       | 80,400                   |                       |                     
|                            
|Roosevelt Rogers             |      | 2001   |       | 55,000                   |                       |                     
|Vice President               |      | 2000   |       | 53,750                   |                       | 58,750               
|                             |      | 1999   |       | *                        |                       |                     
|                            
|Blair Zykan,                 |      | 2001   |       |                         |                       |                     
|Former President, CEO        |      | 2000   |       | 82,952                   |                       |                     
|                             |      | 1999   |       | 87,018                   |                       |                      
|                            
|David Williams,              |      | 2001   |       |                         |                       |                     
|Former President, CEO        |      | 2000   |       |                         |                       |                     
|                             |      | 1999   |       | $100,608                 |                       |                     
|                            

|
|

| |  | * |  | Mr.
Miller and Mr. Rogers were not officers during 1999.
| |  | - |  | --------------------------------------------------------

| |  | ** |  | In
1999, Mr. Zykan was paid commissions of $15,844 prior to being named President and C.E.O.
| |  | -- |  | --------------------------------------------------------------------------------------------

| |  | *** |  | During
1999 Mr. Zykan entered into an employment agreement that provided for a Deferred Share
Award of 25,000 shares of our stock, vesting one third at the date of grant and one third
each year thereafter until fully vested.
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
preceding table does not include any amounts for non-cash compensation,
including personal benefits. We believe that the value of such non-cash benefits
and compensation paid during the periods presented did not exceed the lesser of
$50,000 or 10% of the cash compensation reported.


Equity
Incentive Plan


In
1994, we adopted an equity incentive plan. This employee plan provides for the
issuance of options to our key employees and consultants to purchase up to an
aggregate of 530,000 shares of our common stock at the fair market value at the
date of grant. Fair market value is based on the closing sale price of the
common stock on the American Stock Exchange on such date. The employee plan also
allows for the grant of stock options, restricted stock awards, stock units,
stock appreciation rights and other grants to all of our eligible employees and
consultants.


On
February 24, 1998, stockholders approved a proposal to amend the employee plan.
For each fiscal year beginning October 1, 1997 and through the fiscal year
beginning October 1, 2003 (seven years), a number of shares of stock equal to
two percent of the total number of issued and outstanding shares of stock as of
September 30 of the fiscal year immediately preceding such year, shall become
available for issuance under the plan. In addition, any unused portion of shares
of stock remaining from those reserved as of September 30, 1997 and any unused
portion of the two percent limit for any fiscal year shall be added to the
aggregate number of shares of stock available for issuance in each fiscal year
under the plan. In no event, subject to certain adjustments, will more than
1,000,000 shares of stock be cumulatively available for issuance pursuant to the
exercise of incentive options.


As
of September 30, 2001, the total number of shares of common stock subject to all
awards under the employee plan could not exceed 957,482.


28
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As
of September 30, 2001, options to purchase 805,200 shares of our common stock
were outstanding, at exercise prices ranging from $1.38 to $4.75 per share of
which 509,332 options were exercisable at September 30, 2001. The options are
non-transferable and primarily vest annually in three equal installments over a
three year period. The options expire five or ten years from the date of grant
or, if sooner, three months after the holder ceases to be an employee (subject
to certain exceptions contained in the employee plan).


Non-Employee
Director Stock Option Plan


In
1994, we adopted a stock option program for non-employee directors. The director
plan provides for the grant of options to purchase 30,000 shares of our common
stock at the effective date of the plan to each member of our Board of Directors
who is not an employee, and a grant of options to purchase 30,000 shares to each
non-employee director who is newly elected to the Board after the effective date
of the plan. The maximum number of shares that may be subject to options issued
under the director plan was initially 120,000. The exercise price in each case
is the fair market value of the common stock on the date of grant, determined in
the same manner as under the employee plan.


On
April 21, 2000 the shareholders approved the amendment to the director plan to
increase the number of shares available for issuance under the plan by 120,000
shares. As of September 30, 2001, pursuant to the amended plan, options to
purchase 30,000 shares have been granted to each outside director at exercise
prices ranging from $1.19 to $1.75 per share. Options granted under the director
plan vest one-third each year for three years and expire five or ten years after the
date of grant, or, if sooner, three months after the holder ceases to be a
director (subject to certain exceptions contained in the plan). At September 30,
2001, 150,000 options were outstanding and 40,000 were exercisable pursuant to
the director plan.


The
total number of shares and type of security subject to these plans and to any
awards under these plans are subject to adjustment in the case of stock splits,
stock dividends and similar actions by us.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 12. | Security Ownership of Certain Beneficial Owners and Management
|-------- | --------------------------------------------------------------

|The
following table provides information, to the best of our knowledge as of
December 12, 2001, regarding beneficial ownership of our common stock by:
|------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | each
person known to us to own beneficially more than 5% of our common stock;
|- |  | -----------------------------------------------------------------------------

| |  | each
of the named executive officers;
|- |  | -------------------------------------

| |  | each
or our directors; and
|- |  | --------------------------

| |  | all
executive officers and directors as a group.
|- |  | ------------------------------------------------

|Name and Address ofBeneficial Owner | Number of SharesBeneficially Owned(1) | Percentage ofOwnership
|----------------------------------- | ------------------------------------- | ----------------------
|Jeremy G. Dunne (2)                 |                                       | 433,667               
|2686 E. Otero Place                 |                                      
|Littleton, Colorado 80122           |                                      
|                                    |                                      
|Eric A. Miller (3)                  |                                       | 85,500                
|4540 S. Jason Street                |                                      
|Englewood, Colorado 80110           |                                      
|                                    |                                      
|H. Deworth Williams (4)             |                                       | 589,007               
|P.O. Box 2148                       |                                      
|Park City, Utah 84060               |                                      
|                                    |                                      
|David Williams (5)                  |                                       | 388,686               
|1501 W. Dry Creek Road              |                                      
|Littleton, Colorado 80210           |                                      
|                                    |                                      
|Walter R. Keay (6)                  |                                       | 10,000                
|4593 Newhope Road                   |                                      
|Pineville, PA 18946                 |                                      
|                                    |                                      
|Edward F. Cowle (7)                 |                                       | 206,625               
|6 East 45th Street 10th Floor       |                                      
|New York, NY 10017                  |                                      
|                                    |                                      
|William P. Behrens (8)              |                                       | 17,500                
|100 Wall Street                     |                                      
|New York, NY 10005                  |                                      
|                                    |                                      
|Nicholas J. Cooney (9)              |                                       | 25,000                
|116 Central Park South              |                                      
|New York, NY 10019                  |                                      
|                                    |                                      
|Roosevelt Rogers (10)               |                                       | 16,000                
|22165 Pebble Brook                  |                                      
|Parker, CO 80138                    |                                      
|                                   
|Plaza Resources Company (11)        |                                       | 356,250               
|GEICO Plaza                         |                                      
|Washington, DC 20076                |                                      
|                                    |                                      
|Directors and officers              |                                      
|as a group (8 persons) (12)         |                                       | 1,383,299             

|29
|--

|
|

|(1) |  | Percentage
ownership is calculated separately for each person on the basis of the actual number of
outstanding shares as of December 12, 2001 and assumes the exercise of options held by
such person (but not by anyone else) exercisable within sixty days.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
84,917 shares, which may be acquired by Mr. Dunne pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes
52,000 shares, which may be acquired by Mr. Miller pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes
10,000 shares, which may be acquired by Mr. Williams pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes
68,250 shares, which may be acquired by Mr. Williams pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes
10,000 shares, which may be acquired by Mr. Keay pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Includes
10,000 shares, which may be acquired by Mr. Cowle pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Includes
10,000 shares, which may be acquired by Mr. Behrens pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Includes
10,000 shares, which may be acquired by Mr. Cooney pursuant to the exercise of stock
options exercisable within sixty days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Includes
16,000 shares, which may be acquired by Mr. Rogers pursuant to the exercise of stock
options exercisable within sixty days.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Includes
356,250 shares issuable upon exercise of the PRC Warrants. PRC is a wholly owned
subsidiary of Geico Corporation.
|---- |  | --------------------------------------------------------------------------------------------------------------------------

|(12) |  | Includes
202,917 shares, which may be acquired by officers or directors within sixty days pursuant
to the exercise of stock options at various prices.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

|We
currently have a marketing and consulting agreement with Laser Innovations
International, Inc., whose principal is David Williams. Mr. Williams is the
beneficial owner of more than 5% of our outstanding common stock and was
formerly our President, CEO and director. Laser Innovations sells our products to
certain international markets and its sales comprised 17% and 22% of our total
sales during fiscal years 2001 and 2000, respectively.


Two
members of our Board of Directors, H. Deworth Williams and Edward F. Cowle have
entered into a joint venture relationship with GHF International Trading, Ltda,
a Brazilian company. GHF is associated with Laser Technology as a dealer for our
Traffic Safety products and has been distributing the products in Brazil for
approximately the last six years. During fiscal years 2001 and 2000, GHF
purchased products from us in the amounts of approximately $61,000 and
$260,000, respectively. GHF has been seeking investment capital to further
develop the market for our products in Brazil and Messrs. Williams and Cowle
have provided such capital.


30
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART IV.
|--------

|Item 14. | Exhibits, Financial Statement Schedules and Reports on Form 8-k
|-------- | ---------------------------------------------------------------

|(a) |  | The
following documents are filed as a part of this report:
|--- |  | -----------------------------------------------------------

| |  | 1. |  | Financial
statements.
| |  | -- |  | ---------------------

| |  | The consolidated
financial statements included in this item are indexed on page F-1, Index to Consolidated
Financial Statements.
| |  | --------------------------------------------------------------------------------------------------------------------------------

| |  | 2. |  | Financial
statement schedules and supplementary information required to be submitted.

Schedule IValuation and Qualifying Accounts
                        
                        

Schedules other
than those listed above are omitted for the reason that they are not required or are not
applicable, or the required information is shown in the financial statements or notes
thereto.
| |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3. |  | Exhibit
list.
| |  | -- |  | -------------

| | The
following exhibits are filed herewith or are incorporated by reference to exhibits
previously filed with the SEC. We will furnish copies of exhibits for a reasonable fee
(covering the expense of furnishing copies) upon request.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Exhibit No. | Exhibit Name
|----------- | ------------
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|           
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             
|            |             

|
|

(2)             Incorporated
by reference to the Companys Form 10-K for the fiscal year ended September 30,
1993.

|31
|--

|
|

(3)             Incorporated
by reference to the Companys Form 10-Q for the period ended June 30, 1994.

(4)             Incorporated
by reference to the Companys amended Form 8-K January 4, 1999.

(5)             Incorporated
by reference to the Companys Form 8-K January 19, 1999.

(6)             Incorporated
by reference to the Companys Form 10-K for the fiscal year ended September 30,
1997.

(7)             Incorporated
by reference to the Companys Form 10-K for the fiscal year ended September 30,
1999.

| | (b) | Reports on Form 8-K:
| | --- | --------------------

| | The
Registrant did not file any reports on Form 8-K during the quarter ended September 30,
2001.
| | ------------------------------------------------------------------------------------------------

|32
|--

|SIGNATURES


Pursuant
to the requirements of Section 13 and 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Laser Technology, Inc.By: /s/ Eric A. Miller
Eric A. MillerPresident and Chief Executive OfficerDecember __, 2001
| |  | -------------------------------------------------------------------------------------------------------------------------------

|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 date indicated:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | /s/ Jeremy G. Dunne
     Jeremy G. Dunne         | Vice President and Director | December 28, 2001
| | ---------------------------------------------------------- | --------------------------- | -----------------
| |                                                            |                             |                  
| | /s/ Elizabeth Hearty
     Elizabeth Hearty       | Controller, Secretary       | December 28, 2001
| |                                                            |                             |                  
| | /s/ H. Deworth Williams
     H. Deworth Williams | Director                    | December 28, 2001
| |                                                            |                             |                  
| | /s/ Edward F. Cowle
     Edward F. Cowle         | Director                    | December 28, 2001
| |                                                            |                             |                  
| | /s/ Walter R. Keay
     Walter R. Keay           | Director                    | December 28, 2001
| |                                                            |                             |                  
| | /s/ William P. Behrens
     William P. Behrens   | Director                    | December 28, 2001
| |                                                            |                             |                  
| | /s/ Nicholas J. Cooney
     Nicholas J. Cooney   | Director                    | December 28, 2001

|33
|--

|LASER TECHNOLOGY, INC.AND SUBSIDIARIES


CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2001 and 2000
|--------------------------------------------------------------------------------------------------------

|CONTENTS




Independent AuditorsReport 3


Consolidated Balance Sheets 4


Consolidated Statements of Operations 6


Consolidated Statements of StockholdersEquity 7


Consolidated Statements of Cash Flows 8


Notes to the Consolidated Financial Statements 10



2
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESConsolidated Balance Sheets


ASSETS
|---------------------------------------------------------------------------

|                                                   | September 30,
|-------------------------------------------------- | -------------
|
|CURRENT ASSETS                                     |              
|Cash and cash equivalents                          |              
|Investments (Note 2)                               |              
|Trade accounts receivable (Note 8), less allowance |              
|of $55,228 and $112,670 for doubtful accounts      |              
|Royalties receivable                               |              
|Inventories (Note 3)                               |              
|Deferred income tax benefit (Note 6)               |              
|Income tax prepayment                              |              
|Prepaids and other current assets                  |              
|                                                   |              
|Total Current Assets                               |              
|                                                   |              
|PROPERTY AND EQUIPMENT, (NET) (Note 4)             |              
|                                                   |              
|OTHER ASSETS                                       |              
|Other assets (Note 1)                              |              
|                                                   |              
|Total Other Assets                                 |              
|                                                   |              
|TOTAL ASSETS                                       |              
|                                                   |              

|The accompanying notes
are an integral part of these consolidated financial statements.



3
|--------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESConsolidated Balance Sheets (Continued)


LIABILITIES AND
STOCKHOLDERS EQUITY
|---------------------------------------------------------------------------------------------------------------------

|                                                       | September 30,
|------------------------------------------------------ | -------------
|
|CURRENT LIABILITIES                                    |              
|Accounts payable                                       |              
|Accrued expenses                                       |              
|Notes payable - current (Note 9)                       |              
|                                                       |              
|Total Current Liabilities                              |              
|                                                       |              
|LONG-TERM DEBT                                         |              
|Notes payable (Note 9)                                 |              
|                                                       |              
|Total Long-Term Debt                                   |              
|                                                       |              
|Total Liabilities                                      |              
|                                                       |              
|                                                      
|COMMITMENTS AND CONTINGENCIES (Note 7)                 |              
|                                                      
|STOCKHOLDERS EQUITY (Note 5)                          |              
|                                                      
|Preferred stock; par value $0.01; 2,000,000 shares     |              
|authorized; -0- and -0- shares issued and outstanding, |              
|respectively                                           |              
|Common stock; par value $0.01; 25,000,000 shares       |              
|authorized, 5,710,867 and 5,235,867 shares issued      |              
|and outstanding, respectively                          |              
|Additional paid-in capital                             |              
|Stock subscription receivable                          |              
|Treasury stock at cost, 224,650 and 224,650 shares,    |              
|respectively                                           |              
|Retained earnings                                      |              
|                                                       |              
|Total Stockholders Equity                             |              
|                                                       |              
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY             |              
|                                                       |              

|The accompanying notes
are an integral part of these consolidated financial statements.



4
|--------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESConsolidated Statements of Operations
|----------------------------------------------------------------------------

|                                      | For the Years EndedSeptember 30,
|------------------------------------- | --------------------------------
|
|SALES, NET (Note 8)                   |                                 
|COST OF GOODS SOLD                    |                                 
|                                      |                                 
|Gross Profit                          |                                 
|                                      |                                 
|OTHER REVENUES                        |                                 
|Royalty and licensing revenues        |                                 
|                                      |                                 
|Total Other Revenues                  |                                 
|                                      |                                 
|TOTAL OPERATING INCOME                |                                 
|OPERATING EXPENSES                    |                                 
|Restructuring and litigation cost     |                                 
|General and administrative            |                                 
|                                      |                                 
|Total Operating Expenses              |                                 
|                                      |                                 
|INCOME (LOSS) FROM OPERATIONS         |                                 
|INTEREST AND OTHER INCOME, NET        |                                 
|                                      |                                 
|INCOME (LOSS) BEFORE INCOME TAXES     |                                 
|Income tax expense (benefit) (Note 6) |                                 
|                                      |                                 
|NET INCOME (LOSS)                     |                                 
|                                      |                                 
|BASIC INCOME (LOSS) PER SHARE         |                                 
|                                      |                                 
|DILUTED INCOME (LOSS) PER SHARE       |                                 
|                                      |                                 
|BASIC WEIGHTED AVERAGE NUMBER         |                                 
|OF SHARES OUTSTANDING                 |                                 
|                                      |                                 
|DILUTED WEIGHTED AVERAGE SHARES       |                                 
|                                      |                                 

|The accompanying notes
are an integral part of these consolidated financial statements.




5
|---------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESConsolidated Statements of Stockholders Equity
|--------------------------------------------------------------------------------------

|                              | Common Stock | AdditionalPaid-In | Treasury | Subscription | Retained | TotalStockholders
|----------------------------- | ------------ | ----------------- | -------- | ------------ | -------- | ------------------
|
|Balance,                      |              |                   |          |              |          |                   
|September 30, 1998            |              | 5,219,201         |          | $ 52,192     |          | $   9,669,420     
|                              |             
|Shares issued for             |             
|deferred award                |              | 25,000            |          | 250          |          | 38,825            
|                              |             
|Net loss for the year ended   |             
|September 30, 1999            |              |                  |          |             |          |                  
|                              |              |                   |          |              |          |                   
|                              |             
|Balance,                      |             
|September 30, 1999            |              | 5,244,201         |          | 52,442       |          | 9,708,245         
|                              |             
|Resolution of deferred award  |              | (8,334            | )        | (83          | )        | (12,943           
|                              |             
|Net income for the year ended |             
|September 30, 2000            |              |                  |          |             |          |                  
|                              |              |                   |          |              |          |                   
|                              |             
|Balance,                      |             
|September 30, 2000            |              | 5,235,867         |          | 52,359       |          | 9,695,302         
|                              |             
|Shares issued in settlement   |              | 475,000           |          | 4,750        |          | 618,924           
|                              |             
|Net income for the year ended |             
|September 30, 2001            |              |                  |          |             |          |                  
|                              |              |                   |          |              |          |                   
|                              |             
|Balance,                      |             
|September 30, 2001            |              | 5,710,867         |          | $ 57,109     |          | $ 10,314,226      
|                              |              |                   |          |              |          |                   

|The accompanying notes
are an integral part of these consolidated financial statements.



6
|--------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESConsolidated Statements of Cash Flows
|----------------------------------------------------------------------------

|                                                  | For the Years EndedSeptember 30,
|------------------------------------------------- | --------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:             |                                 
|Net income (loss)                                 |                                 
|Adjustments to reconcile net income (loss) to net |                                 
|cash provided by (used in) operating activities:  |                                 
|Depreciation and amortization                     |                                 
|Bad debt expense                                  |                                 
|Stock issued for deferred services                |                                 
|Deferred income taxes                             |                                 
|(Gain) loss on sale of equipment                  |                                 
|Changes in operating assets and liabilities:      |                                 
|Trade accounts and other receivables              |                                 
|Royalties receivable                              |                                 
|Inventories                                       |                                 
|Other assets                                      |                                 
|Accounts payable and accrued expenses             |                                 
|                                                  |                                 
|Net Cash (Used In) Operating Activities           |                                 
|                                                  |                                 
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                 
|Proceeds from sale of property and equipment      |                                 
|Purchases of property and equipment               |                                 
|Purchases of investments                          |                                 
|Proceeds from sale of investments                 |                                 
|Patent costs paid                                 |                                 
|                                                  |                                 
|Net Cash (Used In) Investing Activities           |                                 
|                                                  |                                 
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                 
|Proceeds from note payable                        |                                 
|Payments on long-term debt                        |                                 
|                                                  |                                 
|Net Cash (Used In) Financing Activities           |                                 
|                                                  |                                 
|NET INCREASE (DECREASE) IN CASH AND               |                                 
|CASH EQUIVALENTS                                  |                                 
|CASH AND CASH EQUIVALENTS AT                      |                                 
|BEGINNING OF YEAR                                 |                                 
|                                                  |                                 
|CASH AND CASH EQUIVALENTS AT END                  |                                 
|OF YEAR                                           |                                 
|                                                  |                                 

|The accompanying notes
are an integral part of these consolidated financial statements.



7
|--------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESConsolidated Statements of Cash Flows (Continued)
|----------------------------------------------------------------------------------------

|                                           | For the Years EndedSeptember 30,
|------------------------------------------ | --------------------------------
|
|SUPPLEMENTAL DISCLOSURES OF CASH FLOWS     |                                 
|                                          
|CASH PAID FOR:                             |                                 
|                                          
|Interest                                   |                                 
|Income taxes                               |                                 
|                                          
|SCHEDULE OF NON-CASH FINANCING ACTIVITIES: |                                 
|                                          
|Stock issued for deferred services         |                                 
|Stock issued for debt settlement           |                                 

|The accompanying notes
are an integral part of these consolidated financial statements.



8
|--------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 1 - |  | ORGANIZATION AND DESCRIPTION OF BUSINESS
|-------- |  | ----------------------------------------

| | The
consolidated financial statements presented are those of Laser Technology, Inc. (the
Company") and its wholly-owned subsidiaries, Laser Communications, Inc. and Light
Solutions Research, Inc. All significant intercompany transactions have been eliminated.
Laser Technology, Inc. is engaged in the business of developing, manufacturing, and
marketing laser based measurement instruments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 2 - |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-------- |  | ------------------------------------------

| | a. 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 consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b.
Cash and Cash Equivalents
| | ----------------------------

| | For
purposes of financial statement presentation, the Company considers all highly liquid
investments with a maturity of three months or less, from the date of purchase, to be
cash equivalents.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c.
Concentrations of Risk
| | -------------------------

| | The
Company maintains checking accounts at financial institutions located in Colorado. The
accounts are insured by the Federal Deposit Insurance Corporation up to $100,000 each.
The amounts held for the Company occasionally exceed that amount.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d.
Fair Value of Financial Instruments
| | --------------------------------------

| | The
carrying amounts of financial instruments including cash and cash equivalents,
investments, trade accounts receivable, royalties receivable, accounts payable and
accrued expenses approximated fair value because of the immediate or short-term maturity
of these instruments.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e.
Investments
| | --------------

| | The
Company accounts for marketable securities in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities. All marketable equity and debt securities have been categorized as trading
securities. Trading securities, consist primarily of actively traded equity and debt
securities, are stated at fair value. Realized and unrealized gains and losses are
included in income.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The accompanying notes
are an integral part of these consolidated financial statements.



9
|--------------------------------------------------------------------------------------------

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 2 - |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-------- |  | ------------------------------------------------------

| | e.
Investments (Continued)
| | --------------------------

| | At
September 30, 2001 and 2000, trading securities consisted of the following:
| | ------------------------------------------------------------------------------

| | 2001 | 2000                       
| | ---- | ---------------------------
| |      | Current                    
| |      | Money market funds         
| |      | Municipal bonds            
| |      | U.S. Government obligations
| |      |                            
| |      | Total current              
| |      |                            

| | The
Company recognized realized gains / (losses) of $25,310 and $(10,074) for September 30,
2001 and 2000. Also, the Company recorded unrealized gain (loss) of $0 and $14,289 for
September 30, 2001 and 2000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f.
Inventories
| | --------------

| | Inventories
are valued at the lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method. The Company has accrued an allowance for obsolete inventory of
approximately $150,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | g.
Property, Equipment and Depreciation
| | ---------------------------------------

| | Property
and equipment are stated at cost. Depreciation of property and equipment is computed
using straight-line method over the estimated useful lives of the related assets, ranging
from two to ten years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h.
Patents and Amortization
| | ---------------------------

| | In
accordance with Financial Accounting Standards Board Statement 142, Goodwill and Other
Intangible Assets, patents are carried at cost and when granted, are amortized over their
estimated useful lives of 15 to 17 years. There are currently no patents owned for which
an indefinite life would be expected. The carrying value of patents is reviewed annually
and impairments, if any, are recognized when the expected future benefit to be derived
from individual intangible assets is less than its carrying value.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 2 - |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-------- |  | ------------------------------------------------------

| | i.
Research and Development Cost
| | --------------------------------

| | Research
and development costs related to the Companys laser measurement instruments are
expensed as incurred and included in operating expenses. Research and development costs
totaled $1,159,561, $1,274,900, and $920,600 for the years ended September 30, 2001,
2000, and 1999, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | j.
Taxes on Income
| | ------------------

| | Under
the provisions of SFAS No. 109, the Companys policy is to provide deferred income
taxes related to property and equipment, inventories, net operating losses and other
items that result in differences between the financial reporting and tax basis of assets
and liabilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k.
Basic Income (Loss) Per Share
| | --------------------------------

| | SFAS
No. 128 provides for the calculation of Basic and Diluted income
(loss) per share. Basic income (loss) per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted income (loss) per share reflects the potential
dilution of securities that could share in the earnings of an entity that were
outstanding for the period. Fully diluted loss per share for September 30, 1999 is not
materially different from basic loss per share because the diluted shares would be
antidilutive.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l.
Stock Options
| | ----------------

| | The
Company applies Accounting Principles Board (APB) Option 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for all
stock option plans. Under APB Opinion 25, compensation cost is recognized for stock
options granted to employees when the option price is less than the market price of the
underlying common stock on the date of grant.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
Statement No. 123, Accounting for Stock-Based Compensation requires the
Company to provide pro forma information regarding net income as if compensation cost for
the Companys stock option plans had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. To provide the required pro forma
information, the Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model. There were no stock options issued
during the year.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | m.
Revenue Recognition
| | ----------------------

| | Revenue
is recognized upon shipment of goods to the customer. The Companys general sales
terms allow for a 1% discount in 10 days/net 30 days. International sales primarily
require immediate payment or a letter of credit, other than to customers deemed
creditworthy (see Note 8). Royalties and licensing fees are recognized when earned in
accordance with the specific terms of each agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 2 - |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-------- |  | ------------------------------------------------------

| | n.
Advertising
| | --------------

| | Advertising
expenses are charged to operations in the period in which they are incurred. Advertising
expense for the years ended September 30, 2001, 2000 and 1999 was approximately $298,000,
$322,000 and $352,000 respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o.
Reclassifications
| | --------------------

| | Certain
reclassifications have been made to the 2000 financial statements to conform to the
current years presentation.
| | ------------------------------------------------------------------------------------------------------------------------

|NOTE 3 - |  | INVENTORIES
|-------- |  | -----------

| | Inventories
consisted of the following:
| | ---------------------------------------

| | September 30,
| | -------------
|
| |              
| |              
| |              
| |              
| |              
| |              

|NOTE 4 - |  | PROPERTY AND EQUIPMENT
|-------- |  | ----------------------

| | Property
and equipment consisted of the following:
| | --------------------------------------------------

| | September 30,
| | -------------
|
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              

| | Depreciation
expense was $519,024 and $528,455 for the years ended September 30, 2001 and 2000,
respectively.
| | -------------------------------------------------------------------------------------------------------------

|12
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 5 - |  | STOCKHOLDERSEQUITY
|-------- |  | -------------------

| | Capital Stock
| | -------------

| | At
September 30, 2001, the Company had 985,417 shares reserved or available for issuance as
follows:
| | ----------------------------------------------------------------------------------------------------

| |  | Common Shares:                          |  |         | 
| |  | --------------------------------------- |  | ------- | 
| |  | Equity Incentive Plan                   |  | 509,167 | 
| |  | Non-Employee Director Stock Option Plan |  | 120,000 | 
| |  | Warrants:                               | 
| |  | PRC warrants                            |  | 356,250 | 
| |  |                                        
| |  | Total                                   |  | 985,417 | 
| |  |                                        

| | Preferred Stock
| | ---------------

| | Laser
Technology is authorized to issue 2,000,000 shares of preferred stock by action of the
Companys Board of Directors. The Board of Directors is authorized, without further
action by stockholders, to determine the voting rights, dividend rights, dividend rates,
liquidation preferences, redemption provisions, conversion or exchange rights and other
rights, preferences, privileges and restriction of any unissued series of preferred stock
and the number of shares constituting such series. The Company has no current plans to
issue any preferred stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Treasury Stock
| | --------------

| | (a)
In connection with the Companys merger into Delaware, stockholders objecting to the
proposed merger were entitled to the right to dissent and appraisal rights of
stockholders as allowed by Idaho law. Upon completion of the merger, the Company
purchased the dissenting stockholders stock. Cumulatively, nine stockholders,
representing 1,082 shares of the Companys common stock, exercised their right to
dissent and received $3,924 in total which has been recorded as Treasury Stock.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)
In April 1997, 120,000 shares of common stock were issued to three employees at $3.00 per
share, under a cashless exercise of unqualified options previously granted in April 1992.
Concurrent with the exercise of these options such shares were purchased by the Company
at the fair market value of $4.00 per share and recorded as Treasury stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c)
In April 1998, the Company acquired 14,800 shares into the treasury at $3.56 per share.
| | -------------------------------------------------------------------------------------------

| | PRC Warrants
| | ------------

| | Under
a previously existing loan agreement, the Company granted Plaza Resources Company (PRC)
the right to purchase specified quantities of defined products at the Companys
cost, as well as granting PRC warrants to purchase shares of the Companys stock.
The warrant agreement grants PRC the right to purchase a total of 356,250 shares of
common stock at $3.00 per share for a ten year period. See summary of accounting policies
for treatment of warrants in computation of diluted income per share.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 5 - |  | STOCKHOLDERS EQUITY (Continued)
|-------- |  | -------------------------------

| | Equity Incentive Plan
| | ---------------------

| | The
Company has an Equity Incentive Plan (the Employee Plan) for the purpose of
providing key employees and consultants with added incentives to continue in the service
of the Company and to create in such employees and consultants a more direct interest in
the future operations of the Company. The Employee Plan permits the grant of stock
options, restricted stock awards, stock appreciation rights, stock units and other grants
to all of the Companys eligible employees and consultants.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Employee Plan is administered by the Compensation Committee of the Board of Directors.
The committee has the authority to determine the employees or consultants to whom awards
will be made, the amount of the awards, and the other terms and conditions of the awards.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
grant of stock options under the Employee plan is intended either to qualify as incentive
stock optionsunder the Internal Revenue Code or non-qualified optionsnot
intended to qualify. Stock options are granted at a price not less than 100% of the fair
market value on the date the option is granted.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the Employee Plan, 738,548 shares of the Companys common stock are reserved for
issuance. Options granted to employees vest at the rate of one-third per year and are
fully vested after three years of continuous employment from the date of grant. As of
September 30, 2000, options to purchase 691,500 shares of the Companys common stock
were outstanding, at exercise prices ranging from $1.63 to $5.25 per share of which
448,916 and 597,332 options were exercisable at September 30, 2000 and 1999, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Non-Employee Director Stock Option Plan
| | ---------------------------------------

| | In
1994, the Company adopted a Non-Employee Director Stock Option Plan (the Director
Plan) for the purpose of providing non-employee directors with added incentives to
continue in the service of the Company and a more direct interest in the future
operations of the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the terms of the Director Plan, non-employee directors on the effective date of the
Director Plan and each non-employee director elected thereafter shall receive options to
purchase 30,000 shares of common stock. Stock options are granted at a price no less than
100% of the fair market value on the date the option is granted.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the Director Plan 240,000 shares of the Companys common stock are reserved for
issuance. Such options granted to non-employee directors of the Company vest at the rate
of one-third per year and are fully vested after three years of continuous service from
the date of grant. As of September 30, 2000 and 1999, options to purchase 150,000 and
120,000 shares, respectively, of the Companys common stock were outstanding at
exercise prices ranging from $1.56 to $5.25 per share of which 100,000 options were
exercisable.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 5 - |  | STOCKHOLDERS EQUITY (Continued)
|-------- |  | -------------------------------

| | A
summary of the status of the Companys stock option plans as of September 30, 2001
and 2000 and changes during the years ending on those dates is presented below:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2001 |                                | 2000
| | ---- | ------------------------------ | ----
|
| |      | Outstanding, beginning of year |     
| |      | Granted                        |     
| |      | Canceled                       |     
| |      | Exercised                      |     
| |      |                                |     
| |      | Outstanding, end of year       |     
| |      |                                |     
| |      | Exercisable, end of year       |     
| |      |                                |     
| |      | Weighted average fair value of |     
| |      | options and warrants granted   |     
| |      | during the year                |     
| |      |                                |     

| |  | Outstanding   |  | Exercisable
| |  | ------------- |  | -----------
|
| |  | $ 1.38 - 1.90 |  |            
| |  | 2.00 - 2.87   |  |            
| |  | 3.50 - 3.89   |  |            
| |  | 4.00 - 4.25   |  |            
| |  | 4.36 - 4.39   |  |            
| |  | 5.00 - 5.25   |  |            
| |  |               |  |            
| |  | $ 1.44 - 5.25 |  |            
| |  |               |  |            

|15
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 5 - |  | STOCK HOLDERS EQUITY (Continued)
|-------- |  | --------------------------------

| | In
November 2000, the Company granted employees options to purchase 176,600 shares of the
Companys common stock at an exercise price of $1.38 per share. The options are
non-transferable and primarily vest annually in three equal installments over a three
year period. The options expire five or ten years from the date of the grant or, if
sooner, three months after the holder ceases to be an employee of the Company, subject to
certain exceptions contained in the Employee Plan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 6 - |  | TAXES ON INCOME
|-------- |  | ---------------

| | For
the years ended September 30, 2001, 2000 and 1999 the provision for federal and state
income taxes consisted of the following:
| | ----------------------------------------------------------------------------------------------------------------------------------

| | 2001 |           | 2000 |          | 1999
| | ---- | --------- | ---- | -------- | ----
| |      | Current:  |      |          |     
| |      | Federal   |      | $100,844 |     
| |      | State     |      | 12,770   |     
| |      | Deferred: |     
| |      | Federal   |      |         |     
| |      | State     |      |         |     
| |      |           |      |          |     
| |      |           |      | $113,614 |     
| |      |           |      |          |     

| | A
reconciliation of income taxes at the federal statutory rate to the effective tax rate is
as follows:
| | -------------------------------------------------------------------------------------------------------

| | 2001 |                              | 2000 |           | 1999
| | ---- | ---------------------------- | ---- | --------- | ----
| |      | Net operating losses         |      | $ (96,284 | )   
| |      | Income taxes computed at the |      |           |     
| |      | federal statutory rate       |      | 207,090   |     
| |      | State income taxes, net of   |      |           |     
| |      | federal benefit              |      | 23,500    |     
| |      | Other, net                   |      | (20,640   | )   
| |      |                              |      |           |     
| |      | Taxes on income              |      | $113,614  |     
| |      |                              |      |           |     

| | The
types of temporary differences between the tax basis of assets and liabilities that give
rise to a significant portion of the deferred tax asset and their approximate tax effect
are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | September 30,
| | -------------
|
| |              
| |              
| |              
| |              
| |              
| |              
| |              

| | The
Company believes that it is more likely than not that it will realize the deferred tax
asset. Therefore, no valuation allowance has been provided.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

|16
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 7 - |  | COMMITMENTS AND CONTINGENCIES
|-------- |  | -----------------------------

| | Legal
Proceedings
| | -----------------

| | In
1999, a class action lawsuit was filed against the Company alleging a misrepresentation
of the Companys financial results, thereby artificially inflating the price of the
Companys stock. The exposure to liability was approximately $1,474,000. The Company
had sought a resolution to these lawsuits by agreeing in principle to settle pending
approval by the shareholders. In April 2000, the Company approved a stipulation of
settlement. In October 2000, the Courts approved the settlement. The settlement required
the Company to pay $850,000 and issue 475,000 shares of common stock to the plaintiffs,
for a total cost of $1,453,675. The companys insurance carrier paid $740,000 of the
cash settlement. The Company had previously accrued for the settlement cost in the fiscal
year ending September 30, 1999. Associated with this allegation, the Company incurred
legal and consulting fees of approximately $1,360,000. In October 2000 475,000 shares
were issued as stipulated in the agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 25, 1999, the Company terminated the employment of the former CFO and CEO of the
Company and accrued a severance agreement of $122,451 and $85,372, respectively. The
agreement provides that the Company will be responsible for the first $25,000 of legal
fees incurred by the two former officers in connection with the litigation and SEC
proceedings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Retirement
Plan
| | ---------------

| | Effective
January 1, 1997, the Company adopted a defined contribution 401k profit sharing plan (the
Plan). Eligible employees, as defined, may contribute up to 15% of their
annual compensation. Under the Plan, the Company may make discretionary matching
contributions up to 100% of an employees contribution and may make discretionary
profit sharing contributions. For the year ended September 30, 2001 and 2000, no
contributions were made by the Company to the Plan.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Facility
Leases
| | ---------------

| | The
Company has various operating lease agreements for office and manufacturing facilities
that expire through May 31, 2003. Rent expense under operating lease agreements was
$177,762, $312,526, and $349,000 for the years ended September 30, 2001, 2000 and 1999.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 7 - |  | COMMITMENTS AND CONTINGENCIES (Continued)
|-------- |  | -----------------------------------------

| | Facility
Leases (Continued)
| | ---------------------------

|As of September 30, 2001,
future minimum lease payments under operating lease agreements are as follows:
|--------------------------------------------------------------------------------------------------------

| |  | 2002       |  | 259,000  | 
| |  | ---------- |  | -------- | 
| |  | 2003       |  | 62,000   | 
| |  | 2004       |  | 7,600    | 
| |  | 2005       |  | 3,200    | 
| |  | Thereafter |  |         | 
| |  |            | 
| |  |            |  | $331,800 | 
| |  |            | 

|NOTE 8 - |  | CUSTOMERS, EXPORT SALES AND CONCENTRATIONS OF RISK
|-------- |  | --------------------------------------------------

| | The
Company operates primarily in one industry segment which includes the manufacturing and
marketing of laser speed and distance measurement instruments.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financial
instruments which potentially subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents, investments and trade accounts receivable.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company invests temporary cash in demand deposits, certificates of deposit, money market
accounts and mutual funds with qualified financial institutions and in securities backed
by the United States government. Such deposit accounts at times may exceed federally
insured limits. The Company has not experienced any loss in such accounts. Cash
concentration risks at September 30, 2001 and 2000 were $64,667 and $558,666,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company markets its laser measurement instruments to three major classes of customers.
The Companys trade accounts receivable subject to credit risk from those customers
are as follows at September 30, 2001 and 2000:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2001 | 2000                                
| | ---- | ------------------------------------
| |      | Foreign distributors (a)            
| |      | State and local municipalities (b)  
| |      | U.S. government agencies (c)        
| |      | Other receivables                   
| |      |                                     
| |      |                                     
| |      | Less allowance for doubtful accounts
| |      |                                     
| |      | Total                               
| |      |                                     

|18
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 8 - |  | CUSTOMERS, EXPORT SALES AND CONCENTRATIONS OF RISK (Continued)
|-------- |  | --------------------------------------------------------------

|(a) To
date, the Companys foreign sales are transacted primarily through distributors.


(b)
The Companys domestic sales of its laser speed instruments have been primarily to
state and local law enforcement agencies. These agencies are dispersed across geographic
areas.


(c)
Domestically, the Companys sales of its laser distance measurement systems are
transacted primarily through distributors.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
the year ended September 30, 2001, 2000 and 1999, no single customer accounted for more
than 10% of sales.
| | --------------------------------------------------------------------------------------------------------------

| | A
summary of the Companys sales by geographic area is as follows:
| | ------------------------------------------------------------------

| | 2001 |                     | 2000 |              | 1999 | 
| | ---- | ------------------- | ---- | ------------ | ---- | 
| |      | Foreign sales:      |      |              |      | 
| |      | Asia                |      | $  1,021,341 |      | 
| |      | Europe              |      | 1,910,455    |      | 
| |      | Canada              |      | 618,442      |      | 
| |      | Australia           |      | 474,245      |      | 
| |      | Other               |      | 354,758      |      | 
| |      |                     |      |              |      | 
| |      | Total foreign sales |      | 4,379,241    |      | 
| |      | Domestic sales      |      | 7,093,215    |      | 
| |      |                     |      |              |      | 
| |      |                     |      | $11,472,456  |      | 
| |      |                     |      |              |      | 

|19
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 9 - |  | NOTES PAYABLE
|-------- |  | -------------

| | Notes
payable consisted of the following:
| | -----------------------------------------

| | September 30,
| | -------------
|
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              
| |              

| | Maturities
of long-term debt are as follows:
| | --------------------------------------------

| |  | 2001  |  | $           | 
| |  | ----- |  | ------------ | 
| |  | 2002  |  |             | 
| |  | 2003  |  |             | 
| |  | 2004  |  |             | 
| |  | 2005  |  |             | 
| | 
| |  | Total |  | $           | 
| | 

|20
|--

|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 10 - |  | NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
|--------- |  | --------------------------------------

|SFAS
No.s 141 and 142 In June 2001, the Financial Accounting Standards Board
(FASB) adopted Statement of Financial Accounting Standards SFAS No. 141 is effective as
to any business combination occurring after June 30, 2001 and certain transition
provisions that affect accounting for business combinations prior to June 30, 2001 are
effective as of the date that SFAS No.142 is applied in its entirety, which was September
30, 2001.


SFAS No. 141 provides
standards for accounting for business combinations. Among other things, it
requires that only the purchase method of accounting be used and that certain
intangible assets acquired in a business combination (i.e. those that result
from contractual or other legal rights or are separable) be recorded as an asset
apart from goodwill. The transition provisions require that an assessment be
made of previous business combinations and, if appropriate, reclassifications be
made to or from goodwill to adjust the recording of intangible assets such that
the criteria for recording intangible assets apart from goodwill is applied to
the previous business combinations The adoption of this principle had no
material effect on the companys consolidated financial statements.


SFAS No. 142 provides,
among other things, that goodwill and intangible assets with indeterminate lives
shall not be amortized. Goodwill shall be assigned to a reporting unit and
annually assessed for impairment. Intangible assets with determinate lives shall
be amortized over their estimated useful lives, with the useful lives reassessed
continuously, and shall be assessed for impairment under the provisions of SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets to be
Disposed of. Goodwill is also assessed for impairment on an interim
basis when events and circumstances warrant. Upon adoption of SFAS No. 142, the
Company will assess whether an impairment loss should be recognized and measured
by comparing the fair value of the reporting unit to the
carrying value, including goodwill. If the carrying value exceeds fair value,
then the Company will compare the implied fair value of the goodwill (as defined
in SFAS No. 142) to the carrying amount of the goodwill. If the carrying amount
of the goodwill exceeds the implied fair value, then the goodwill be adjusted to
the implied fair value.


SFAS
No. 143 On August 16, 2001, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations,which is effective for fiscal years beginning after
June 15, 2002. It requires that obligations associated with the retirement of a tangible
long-lived asset be recorded as a liability when those obligations are incurred, with the
amount of the liability initially measured at fair value. Upon initially recognizing for
an accrued retirement obligation, an entity must capitalize the cost by recognizing an
increase in the carrying amount of the related long-lived asset. Over time, the liability
is accreted to its present value each period, and the capitalized cost is depreciated
over the useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain of loss upon
settlement. While the Company has not completed the process of determining the effect of
this new accounting pronouncement on its consolidated financial statements, the Company
currently expects that the effect of SFAS No. 143 on the Companys consolidated
financial statements, when it becomes effective, will not be significant.


21
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|LASER TECHNOLOGY, INC.
AND SUBSIDIARIESNotes to the Consolidated Financial StatementsSeptember 30, 2001 and 2000
|----------------------------------------------------------------------------------------------------------------

|NOTE 10 - |  | NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS (continued)
|--------- |  | --------------------------------------------------

|SFAS
No. 141  On October 3, 2001, the Financial Accounting Standards Board issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assetswhich
is effective for financial statements issued for fiscal years beginning after December
15, 2001 and , generally, its provisions are to be applied provisions are to be applied
prospectively. SFAS 144 supercedes SFAS Statement No. 121 (FAS 121). Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.SFAS
144 applies to all long-lived assets (including discontinued operations) and consequently
amends Accounting Principles Board Opinion No. 30 (APB 30), Reporting Results of
Operations Reporting the Effects of Disposal of a Segment of a Business.


SFAS 144 develops one accounting
model (based on the model in SFAS (121) for long-lived assets that are to be disposed of
by sale, as well as addresses the principal implementation issues. SFAS 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower of book
value or fair value less cost to sell. That requirement eliminates the requirement of APB
30 that discontinued operations be measured at net realizable value or that entities
include under discontinued operationsin the financial statements amounts for
operating losses that have not yet occurred. Additionally, FAS 144 expands the scope of
discontinued operations to include all components of an entity with operations that (1)
can be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transactions.


While the Company has not
completed the process of determining the effect of this new accounting
pronouncement on its consolidated financial statements, the Company currently
expects that the effect of SFAS No. 144 on the Companys consolidated
financial statements, when it becomes effective, will not be significant.


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|LASER TECHNOLOGY, INC.


SCHEDULE I  VALUATION
AND QUALIFYING ACCOUNTS


Allowance for Doubtful
Accounts
|---------------------------------------------------------------------------------------------------------

| | Balanceat Beginningof Year |                    | AdditionsCharged toCosts andExpenses |           | Deductions |  | Balanceat Endof Year |          
| | -------------------------- | ------------------ | ------------------------------------ | --------- | ---------- |  | -------------------- | ---------
| |                            | Year Ended         |                                      |           |            |  |                      |          
| |                            | September 30, 1999 |                                      | $  10,000 |            |  |                      | $256,277 
| |                            | Year Ended         |                                      |           |            |  |                      |          
| |                            | September 30, 2000 |                                      | $250,000  |            |  |                      | $  24,551
| |                            | Year Ended         |                                      |           |            |  |                      |          
| |                            | September 30, 2001 |                                      | $112,670  |            |  |                      | $  43,189

|23
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