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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, 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, 1999

                                      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                              84-0970494
     (State or other jurisdiction of                (I.R.S. employer
      incorporation or organization)               identification no.)

               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:

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<TABLE>
<CAPTION>
         Title of each class       Name of exchange on which registered
-----------------------------------------------------------------------
     <S>                           <C>
     Common Stock, $.01 par value        American Stock Exchange
</TABLE>
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       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]

  As of December 27, 1999, the aggregate market value of the registrant's
Common Stock held by non-affiliates of the registrant was $6,274,439.

  At December 27, 1999, 5,019,551 shares of common stock of the registrant
were outstanding.

  Documents Incorporated by Reference: Part III, certain exhibits filed as
part of registrant's S-1 registration statement.

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                             LASER TECHNOLOGY, INC.

                            FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                      Page No.
                                                                      --------
 <C>      <S>                                                         <C>
                               PART I.

 Item 1.  Business..................................................      1
 Item 2.  Properties................................................     19
 Item 3.  Legal Proceedings.........................................     19
 Item 4.  Submission of Matters to a Vote of Security Holders.......     20

                               PART II.

 Item 5.  Market for Registrant's Common Equity and Related
          Stockholder Matters.......................................     20
 Item 6.  Selected Financial Data...................................     22
 Item 7.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations.......................     23
 Item 7A. Qualitative and Quantitative Disclosure About Market
          Risks.....................................................     33
 Item 8.  Financial Statements and Supplementary Data...............     33
 Item 9.  Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure.......................     34

                              PART III.

 Item 10. Directors and Executive Officers of the Registrant........     34
 Item 11. Executive Compensation....................................     37
 Item 12. Security Ownership of Certain Beneficial Owners and
          Management................................................     41
 Item 13. Certain Relationships and Related Transactions............     42

                               PART IV.

 Item 14. Exhibits, Financial Statement Schedules and Reports on
          Form 8-K..................................................     42
 SIGNATURES..........................................................    44
</TABLE>
<PAGE>

                                    PART I.

ITEM 1. BUSINESS

Risk Factors and Cautionary Statements

  This report contains "forward-looking statements." Forward-looking
statements in this report are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The Company wishes to
advise readers that actual results may differ substantially from such forward-
looking statements. Forward-looking statements involve risks and uncertainties
including, but not limited to, continued acceptance of the Company's products
in the marketplace, competitive factors, potential changes in the budgets of
federal and state agencies, compliance with current and possible future FDA or
environmental regulations, and other risks detailed in the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission.

Introduction

  The Company and its wholly-owned subsidiaries; Laser Communications, Inc.,
Laser Technology, U.S.V.I., Light Solutions Research, Inc. and International
Measurement and Control Company, is engaged in the business of developing,
manufacturing and marketing laser-based measurement instruments using
proprietary technology developed by the Company. The Company was originally
organized in September 1950.

  Effective May 30, 1997, Laser Technology, Inc., (the "Company") effected a
merger with a newly formed subsidiary, Laser Technology, Inc., a Delaware
corporation ("Laser Technology-Delaware"), for the principal purpose of
changing the corporate domicile of the Company from the State of Idaho to
Delaware. Under the terms of the Merger, the Company's Idaho corporate entity
("Laser Technology-Idaho") merged with and into Laser Technology-Delaware,
which became the surviving corporation, and Laser Technology-Idaho ceased to
exist. The transaction was accounted for as a recapitalization similar to a
pooling of interests and the merger did not involve any change in the
business, properties, management or capital structure of the Company. Laser
Technology-Delaware had no operations prior to the merger. Stockholders of
Laser Technology-Idaho received the same number of shares of common stock of
Laser Technology-Delaware as previously held in Laser Technology-Idaho and are
entitled to the same stockholder rights and preferences as they held with the
Idaho corporation.

  The Company's proprietary technology permits a laser to measure to a non-
cooperative, or low reflective surface, using a very low power source. As a
result, the Company's products operate within the requirements of eye safety
as promulgated by the United States Food and Drug Administration (the "FDA").
Despite a very low power source, the Company's laser instruments measure more
rapidly and at longer ranges than corresponding conventional devices. The
Company has also developed proprietary software and circuitry which are
integral to each of the Company's products. The Company's executive offices
are located at 7070 and 7050 South Tucson Way, Englewood, Colorado 80112, and
its telephone number is (303) 649-1000.

Principal Products

 Revenues

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

                                       1
<PAGE>

  The following table provides a breakdown of the percentage of net sales of
the Company's product lines. Revenues realized from sales of the Company's
less significant revenue producing products are classified as "Consumer" for
presentation purposes.

<TABLE>
<CAPTION>
                                                                    Year Ended
                                                                  September 30,
                                                                  ----------------
                                                                  1999  1998  1997
                                                                  ----  ----  ----
     <S>                                                          <C>   <C>   <C>
     Traffic Safety..............................................  61%   61%   51%
     Survey and Mapping..........................................  35    34    43
     Industrial Controls.........................................   3     2     3
     Consumer....................................................   1     3     3

  The following table provides a breakdown of domestic and foreign revenues as
a percentage of net sales of the Company's products for the periods presented:

<CAPTION>
                                                                    Year Ended
                                                                  September 30,
                                                                  ----------------
                                                                  1999  1998  1997
                                                                  ----  ----  ----
     <S>                                                          <C>   <C>   <C>
     Domestic....................................................  56%   61%   53%
     Foreign.....................................................  44    39    47
</TABLE>

  See Note 8 to the Company's consolidated financial statements for further
discussion on customers, export sales and concentrations of credit risk.

Traffic Safety Products

 Hand-Held Laser Speed Detection Systems

  In 1991, the Company developed and commenced commercial manufacturing and
marketing of the "LTI 20-20" laser speed detection system to law enforcement
agencies as a proven method of measuring the speed of motor vehicles. In 1993,
the Company introduced an enhanced version of the LTI 20-20, called the
"Marksman," which incorporates increased range capability, an auto-triggering
system and, as an optional feature, an in-scope display of speed and distance
data. Late in fiscal 1997, the Company introduced the "UltraLyte" second
generation laser speed detection device.

  In fiscal 1997, the Company initiated production and marketing of the
UltraLyte 100. Based on the same pulse laser measurement technology as the
Marksman, the UltraLyte represents the Company's second generation technology
and was re-engineered in fiscal 1997 to reduce the size, weight and
manufacturing cost of the Company's Marksman. The UltraLyte also incorporates
an internal power source. Concurrent with the development of the UltraLyte
100, the Company developed the UltraLyte 200, which expanded the capabilities
of the UltraLyte 100 by incorporating a tilt sensor, enhancing the surveying
capabilities of the UltraLyte for use in accident reconstruction and
investigation. In fiscal 1998, the Company developed a longer-range version of
the UltraLyte, expanding the UltraLyte product line to include the UltraLyte
100LR and the UltraLyte 200LR.

  The Company's 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, thereby eliminating the difficulty associated with radar measurement
devices of distinguishing one vehicle from another. Additionally, the Marksman
and UltraLyte measure speed in one-third of a second with a laser beam that
spans only three feet wide at a distance of 1,000 feet and disperses after
hitting its 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.

  Radar guns also produce a wider beam width of approximately 200 to 400 feet
at a range of 1,000 feet which 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 generated by the Marksman
or UltraLyte, have been effective against radar because of the wide beam width
produced by radar devices. This

                                       2
<PAGE>

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, giving the driver of a vehicle warning time to slow down and thus avoid
receiving a speeding ticket. However, the shorter acquisition time to measure
vehicle speeds and significantly reduced beam width of the Company's hand-held
laser speed detection devices does not permit vehicles, other than the
targeted vehicle, to detect the Marksman or UltraLyte's laser beam and, in any
event, does not provide the targeted vehicle sufficient time to slow down in
advance of being detected.

  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 only
one-third of a second, there is no reaction time for the driver to reduce
their speed before the police officer obtains a positive speed reading. As
laser speed enforcement has become more widely used as an effective means of
speed enforcement, a number of consumer laser jamming devices have also
entered the market. Such laser jammers have limited effectiveness against the
Company's products due to the sophisticated nature of the Marksman and
UltraLyte's internal targeting software. In 1995, to combat the use of laser
jamming devices, the Company developed the capability within its products to
detect when a jamming device is in use. This feature has proven to be a very
useful tool to speed enforcement officials in certain jurisdictions where the
use of jamming devices is prohibited.

 Laser DigiCam Photo Laser System

  In 1995, the Company began commercial production of the "Laser DigiCam"
photo laser system which integrates a video camera and associated equipment
with the Marksman. The Laser DigiCam monitors the speed of each vehicle in a
specific lane of traffic. When the Laser DigiCam system detects a speeding
vehicle, it takes a digital picture of the vehicle, prints the speed, time and
date on the picture, and the ticket can then be mailed to the violator. As an
optional feature to this system, the Company also developed a night
illumination system enabling night use of the Laser DigiCam.

 Traffic Data Collection Modules

  In addition to measuring speed, the Marksman and UltraLyte also measure
distance. This feature enables the Marksman and UltraLyte to be used for a
variety of applications outside of speed enforcement. These ranging
capabilities are used by law enforcement officials for accident investigation
and reconstruction. In 1995, the Company introduced "QuickMap," a system which
enhances the use of the Marksman and UltraLyte for this application. QuickMap
is a software module integrated to a data collector which can be used in
conjunction with the Company's hand-held laser devices to expedite the
collection and processing of data at accident sites and crime scenes. The
surveying capabilities of the Company's newly introduced UltraLyte 200, which
includes an inclinometer, enhances the UltraLytes use for accident
investigation applications. Currently over 400 agencies and private companies
use QuickMap. During 1999, the Company introduced QuickMap 3D, a substantially
enhanced software upgrade. The Company believes this upgrade addresses needs
for an expanded accident investigation market and offers compelling
capabilities including elevation mapping and automatic map creation to
existing users.

  In 1995, the Company introduced "DBC," an optional feature that can be
integrated into the Marksman and UltraLyte's firmware capabilities which is
used to measure the distance and/or time between traveling vehicles. In many
parts of the world where the distance between vehicles is monitored closely to
improve traffic safety, local governments have the need to measure the
distance and/or time between vehicles. Management believes that the DBC
feature addresses this application and increases the utility and efficiency of
the Company's hand-held laser speed measurement products.

  Traffic engineers and law enforcement officials are also 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, the Company introduced a statistical compilation software package,
"SpeedStat." This

                                       3
<PAGE>

product, when combined with the Marksman or UltraLyte, gathers and formats
traffic survey data on a portable computer via a serial cable interface.

  In 1996, the Company introduced "SpeedStat DC," a companion product to
QuickMap in its Traffic Data Collection Module series. Similar to the
Company's original SpeedStat product, SpeedStat DC enables more efficient
collection and compilation of traffic engineering statistics. However,
SpeedStat DC incorporates the same hand-held data collector used in the
Company's QuickMap system replacing the need for a laptop computer, which
provides traffic engineers and law enforcement officials with a more portable
and affordable statistical compilation system.

 Impulse Accident Investigation Laser

  In fiscal 1996, the Company introduced a new generation of lasers for
general distance measurement. The "Impulse" series, while marketed primarily
to the survey and mapping industry, 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 Company's Marksman and UltraLyte
laser speed detection systems for this application. Like the UltraLyte 200
models, the Impulse also features an electronic tilt sensor that provides the
operator with more accurate mapping measurements. Additionally, when linked
with the QuickMap accident investigation collection module, the Impulse
becomes a fully electronic mapping system.

 SpeedAlert Trailer

  While the Company primarily markets pulse-laser products produced by the
Company, to expand distribution of its products and to further market
penetration, the Company has added complementary products manufactured by
others. During fiscal 1997, to augment the Company's Traffic Safety business,
the Company began selling an automated speed measurement trailer, "Speed
Alert." Designed for unattended operation to encourage voluntary speed
compliance, the Company's SpeedAlert trailer measures and displays vehicle
speeds for use within school, heavy traffic or other critical traffic zones.
Additionally, the Company's SpeedStat DC can be interfaced with the SpeedAlert
allowing improved statistics compilation.

 VMS 2000 Video Mapping System

  In 1999 the Company announced an exclusive agreement with Red Hen Systems to
embed Red Hen's proprietary GPS video mapping technology into products the
Company will market for in-vehicle law enforcement applications. When combined
with the in-car video systems already used by many police departments around
the country, video mapping adds an array of valuable information and utility
for police use which was previously unavailable. Video mapping enables a
department to independently and precisely verify where incidents occur, along
with vehicle speeds and locations during pursuits, and such information can be
married with computerized road maps of the area.

  Departments can create digital files of this information, along with images
and video clips, to enhance the efficiency and effectiveness of videotape
searching or referencing. Additionally the files are compatible with most web
browsers and Geographic Information Systems software so that law enforcement
agencies can share information via the Internet or use it to analyze
enforcement productivity.

  Industry experts estimate that several thousand in-car video systems are
sold each year to law enforcement agencies throughout the United States. In
addition to providing a stand-alone video mapping package, the Company intends
to work with existing video systems manufacturers to develop compatible add-on
modules which can be retrofitted to existing in-vehicle video systems. If the
Company is successful in establishing strategic relationships with video
systems manufacturers, management believes the pace at which it can penetrate
the market should accelerate. The Company believes that future opportunities
may exist to combine video mapping with its own laser speed- and distance-
measuring technology.

                                       4
<PAGE>

Survey and Mapping Products

 Criterion Series of Hand-Held Survey Lasers

  The "Criterion" was originally developed in collaboration with the United
States Forest Service in 1992 for use by foresters to accurately and quickly
measure certain aspects of trees to determine board feet and to survey roads,
bridges, hiking trails and campgrounds. The Criterion is a small, portable
laser measurement system consisting of a laser range finder, an electronic
compass and an electronic inclinometer providing the capabilities of measuring
distance, azimuth and inclination and, therefore, is capable of calculating
heights and X,Y,Z coordinates. The Criterion can record these measurements in
seconds as compared to several minutes using conventional manual methods. Data
captured by the Criterion is maintained in the system in a form ready for
computer downloading, which eliminates errors associated with manually
transcribing numbers in the field for future manipulation.

  The Company's second-generation Impulse product line, in most cases, has
replaced the Criterion product line, as discussed below. The Company
discontinued this product line in the latter part of fiscal 1999.

 Impulse Series of Hand-Held Survey Lasers

  During fiscal 1996, the Company developed a second-generation surveying
instrument, the "Impulse." The Impulse is approximately one-third the size and
weight of the Company's Criterion series of survey lasers and also has a lower
price point. Other survey lasers on the market, including the Company's own
Criterion series, weigh approximately six pounds. 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. Management
believes that the smaller size and lower price point of the Impulse make the
technology more accessible for an increased number of users and applications
in the survey and mapping industry. The Impulse is also marketed as part of
the Company's Traffic Safety product line for use in accident investigation
applications.

  In fiscal 1997, the Company expanded the Impulse product line to include
four new models. The "Impulse 100" is identical to the flagship Impulse model
but without a tilt sensor. While unable to compute heights or inclination
measurements, the Impulse 100 offers a more affordable alternative to
customers who solely require distance measurement. The Impulse 100 and 200 LR
models were engineered with the ability to measure longer distances than that
of the Company's standard Impulse model to low reflective targets. In 1997,
the Company also introduced the Impulse 100 XL for military applications. The
Impulse 100 XL has the ability to measure distances in excess of 2,000 meters.
In 1999, the Company introduced the Impulse 200 XL, which offers the same
range capability as the 100 model but also includes a tilt sensor for
elevation measurements.

 MapStar Modular Angle Encoding Module

  In the third quarter of fiscal 2000 the Company expects to introduce the
MapStar Angle-Encoding Module ("MAM"). Like the Digital Compass Module
("DCM"), the MAM's modular configuration facilitates an easy interface to all
Impulse and UltraLyte modular lasers. The MAM measures relative angles more
precisely than the DCM and is not susceptible to magnetic interference. This
enables the Company's products to better penetrate survey and mapping
applications that require higher accuracy such as stock pile surveys and mine
face profiling. The MAM also offers additional capabilities for crash
investigation including crush analysis.

 MapStar Modular Laser System

  In fiscal 1998, the Company introduced the MapStar modular laser system. The
MapStar system strategy allows a user to combine any of the Company's Impulse
or UltraLyte products with other sensors, data collection software, and/or
accessories. Because of the modular design of the MapStar system, such
combinations are available by the user, as needed, to meet individual user
needs.

                                       5
<PAGE>

 MapStar Digital Compass Module

  Also in fiscal 1998, the Company introduced the MapStar digital compass
module ("DCM"). The modular configuration of the DCM facilitates an easy
interface to any of the Company's different Impulse models. The DCM completes
the last component (horizontal angle) required for the Impulse to become a
complete mapping instrument. With the addition of the MapStar, the Impulse
provides all of the capabilities of the Criterion at a lower price. As a
result, the Criterion was replaced by the Company's Impulse line of survey
lasers during fiscal 1999.

 MapStar Software Modules

  In fiscal 1998, the Company introduced the first of its MapStar software
modules, the Transmission and Distribution "T & D" Utility Pac. The software
package is comprised of a field module that runs on 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 Company's
Impulse model lasers. Designed to assist transmission and distribution
engineers with a variety of measurement and design tasks, the Company's T & D
Utility Pac allows one operator to gather the amount of information it use to
take two people, in half the time. Moreover, the reflectorless laser
capability enables this data to be gathered more safely and in difficult
environments.

  In addition to the T & D Utility Pac, the Company is currently developing a
variety of other software packages to enhance the MapStar module system.
During fiscal 1999, the Company released "en Campo," a survey and mapping
module designed for use in a variety of applications to include stock pile
volumes, preliminary site surveys, and natural resource mapping.

 Integrated Data Collection Solutions

  Many market applications require the Company's Survey and Mapping lasers to
be integrated with other hardware and software to provide a complete turnkey
system. To facilitate this integration, the Company began establishing
relationships with manufacturers of complementary hardware and software in
fiscal 1994. These relationships include the sharing of distribution channels
and new product development. The Company believes 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. The
Company plans 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, the Company completed development of a low cost, industrial
laser distance measurement sensor. Pursuant to a sales contract with
Telemotive Industrial Controls, Inc., ("Telemotive"), a world-leading
manufacturer of radio controls for material handling cranes and industrial
vehicles, the Company developed and manufactures laser sensors for use in
collision avoidance and positioning systems that Telemotive markets under its
brand name. This collision avoidance system allows continuously generated
distance measurement information provided by the Company's 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.

 Ship Docking and Marine Applications

  In fiscal 1995, the Company introduced the "DAS100 Ship Docking Aid System,"
a dock-based measurement system that assists ship captains and pilots in
docking maneuvers by measuring and recording a ship's closing speed and
distance and transmitting this data to the bridge of the ship. In fiscal 1997,
the Company expanded its Ship Docking Aid Systems product line by adding a
hand-held laser measurement system, the "Mariner".

                                       6
<PAGE>

 Liquid Level Measurement Sensor Product Development

  In 1999 the Company announced it purchased certain assets, technology and
patent rights from Multiwave Sensors, a Canadian Company headquartered near
Toronto, Ontario. Multiwave Sensors has designed a sensor which utilizes fiber
optics and Laser Technology's laser rangefinding technology in a manner that
should allow Laser Technology to target new industrial market opportunities.
The Company intends to initially develop a fiber optic-coupled laser device
which can measure the level of liquids and solids in storage tanks and
processing facilities. In many such applications, the presence of explosive or
volatile liquids has prohibited the introduction of electronic instrumentation
into the measurement process.

  By utilizing Multiwave Sensors' technology, on which patents are pending,
the Company can combine the accuracy and cost-effectiveness of laser
instrumentation with the safety of fiber optic light pulse delivery. This
eliminates the risk of any electrical spark, because the fiber optic link
enables the location of the laser's electronics apart from the optical
elements placed inside the tank. By combining the two technologies, the
Company can develop instruments which will allow companies in many industries
to more effectively control their processes via more frequent and accurate
measurements of liquid flow within their production facilities.

  Certain engineering and marketing personnel from Multiwave Sensors have
joined Laser Technology as a result of this transaction. The Company has
opened a subsidiary in Canada which will complete the development of an
industrial product line utilizing Multiwave Sensors' and LTI technology. After
completing the acquisition, Multiwave was renamed to Light Solutions Research,
Inc.

 Other

  Other market applications exist for the Company's pulse laser technology.
The National Aeronautics and Space Administration (NASA) uses modified
versions of the Marksman for use on space shuttle missions involved in docking
procedures to determine target distance and closing speed when shuttle
missions perform docking procedures. While NASA is a relatively small customer
of the Company, Management believes that NASA's use of the Company's
technology adds to the Company's credibility as a technology leader in the
laser-based measurement industry.

Consumer Products

 Bushnell Yardage Pro Laser Rangefinders

  In 1995, the Company, in conjunction with Bushnell Corporation ("Bushnell"),
formerly the Sports Optics Division of Bausch and Lomb, completed development
of a consumer related product, the "LyteSpeed," subsequently renamed the
"Yardage Pro 400," which is being produced and marketed by Bushnell to certain
sporting markets, primarily the hunting and golfing industries. During fiscal
1997, the Company completed development of the "Yardage Pro 800" providing
increased ranging capabilities surpassing that of the Yardage Pro 400. In 1997
the Company worked with Bushnell to develop the Yardage Pro 600 which is a
compact version of the Yardage Pro with maximum range of approximately 600
yards. In 1999 the Company worked with Bushnell to develop the Yardage Pro 500
and 1000 models. The 500 model provides increased range along with a more
affordable retail price point. The Yardage Pro 1000 addresses the needs of the
premium consumer with its increased range of up to 1000 yards. Along with the
Yardage Pro 600, these new products represent the completion of a second
generation line of laser rangefinders for sporting applications. Bushnell has
since discontinued the Yardage Pro 400 and 800 models.

  The Company receives running royalties on cumulative net sales of this
product, has received reimbursement of development costs for the initial
development and design and retains the right to pursue consumer markets
outside the sports technology area. Laser Technology markets the Yardage Pro
product line to price conscious customers within its Survey and Mapping
business units and to law enforcement customers for SWAT applications.

                                       7
<PAGE>

Seasonality

  Management believes that seasonal effects on sales of its Traffic Safety
products are non-existent. Although the Company's Traffic Safety business is
not of a seasonal nature, sales of its Traffic Safety products may continue to
vary between financial periods based on the capital procurement processes and
fiscal year budgeting cycles of state and municipal law enforcement agencies.
Historically, the Company has realized a moderate decline in sales of its
Survey and Mapping products in areas affected by colder weather during the
winter months.

Manufacturing Operations

  The Company's manufacturing operations primarily consist of the assembly,
calibration and testing of its products. Currently, most of the components
used in the Company's products are manufactured by others to the Company's
specifications. The Company is not dependent upon any single source of supply
and has no long-term supply agreements. The Company maintains certain supply
agreements on long lead time items to purchase inventory as dictated by
product sales. Additionally, the Company believes that there are adequate
alternative suppliers for its foreseeable needs. All of the Company's products
carry a one year limited warranty against manufacturing defects. To date,
there have been no material expenditures on warranty claims.

  In fiscal 1997, pursuant to the Company's rights for additional expansion
space under its existing lease arrangements, the Company expanded its
manufacturing facility to meet anticipated production demand. Additionally, in
1997, the Company enhanced its manufacturing operations by installing a fully
integrated manufacturing software package which improved production
efficiencies and fully integrated the Company's manufacturing facilities with
the Company's accounting systems.

  In October 1998, the Company entered into a sublease arrangement on an
adjacent building adding approximately 22,000 square feet which the Company
began using primarily for expanded research and development and manufacturing
activities during fiscal 1999. Management believes that the Company's
manufacturing facilities are adequate to meet the Company's needs throughout
the foreseeable future.

Product Research and Development

  Research and development costs related to the Company's instrumentation and
proprietary technology are expensed as incurred and included in operating
expenses. During fiscal 1999, the Company continued to direct its research and
development activities on improving its current product lines as well as
focusing on new product developments. Research and development costs totaled
approximately $921,000, $757,000 and $664,000 for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively.

  In fiscal 1993, the Company completed development of the Marksman, an
upgraded version of its former LTI 20-20 laser speed detection system. The
Company also completed the development of a statistical compilation software
package, SpeedStat, used to collect traffic survey statistics. The Company
also expanded its surveying product line by introducing three new models of
its Criterion survey lasers.

  In fiscal 1994, the Company completed development of the Criterion 100TM, an
enhancement to the Criterion product line that integrates a Criterion ranging
laser with a surveying theodolite. Additionally, in conjunction with a
privately held software development firm, the Company completed the co-
development of a laser-based mapping system, Laser Walkabout. The Laser
Walkabout system is comprised of a Criterion survey laser, a hand-held data
collector and comprehensive field and office software. This system, combined
with a global positioning system ("GPS") receiver, is used to record the
locations and attributes of remote objects for the generation of computerized
mapping. During fiscal 1994, the Company also completed development of
technology that provides the ability to transfer data using pulses of light
generated by the Company's laser ranging equipment. This technology eliminates
the problems associated with radio frequency communication.

  During fiscal 1995, the Company completed development of several new
functions and features centered around the Company's Traffic Safety product
line for use within the law enforcement market. These

                                       8
<PAGE>

developments include QuickMap for accident reconstruction and investigation,
DBC for time and distance measurement between vehicles, and a laser jammer
detector built into the Marksman's software capabilities, as an optional
feature provided to law enforcement agencies to strengthen the Marksman's use
in traffic speed and safety enforcement. These features are also inherent in
the Company's second generation UltraLyte introduced in fiscal 1997.

  In 1995, the Company also completed development of the Laser DigiCam photo
laser system, built around the Company's Marksman speed detection laser. The
Laser DigiCam system targets a specific area on a roadway and monitors the
speed of each vehicle that passes through the beam of the laser. When the
Laser DigiCam detects a speeding vehicle, it takes a picture of the vehicle
and prints the time, date and speed on a video frame and stores the
information digitally on the hard disk of its internal computer. The photo
images can be printed at the site or they can be stored for subsequent
processing. As an optional feature to this system, the Company also completed
development of a night illumination system enabling night use of the Laser
DigiCam. Additionally in 1995, the Company completed development of the DAS100
Ship Docking Aid System in cooperation with SeaRiver Maritime, Inc., formerly
Exxon Shipping Company, and a private engineering firm. The DAS100 assists
ship captains and pilots in docking maneuvers by measuring a ship's closing
speed and distance to the dock, and transmitting this data to the bridge of
the ship.

  In 1995, the Company, in conjunction with Bushnell Corporation ("Bushnell"),
formerly the Sports Optics Division of Bausch and Lomb, completed development
of a consumer related product, the "LyteSpeed," subsequently renamed the
"Yardage Pro 400," which is being produced and marketed by Bushnell to certain
sporting markets, primarily the hunting and golfing industries. During fiscal
1997, the Company completed development of the "Yardage Pro 800" providing
increased ranging capabilities surpassing that of the Yardage Pro 400. In 1997
the Company worked with Bushnell to develop the Yardage Pro 600 which is a
compact version of the Yardage Pro with maximum range of approximately 600
yards. The Company receives running royalties on cumulative net sales of this
product, has received development costs for the initial development and design
and retains the right to pursue markets outside the sports technology area.
The Company retains all ownership of patents and trade secrets of the
technology underlying the development of the Yardage Pro. During Fiscal 1997,
royalty and licensing income earned related to this agreement was
approximately $854,000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company's royalty and licensing
income related to this agreement was approximately $805,000, $1,013,000 and
$854,000 for the fiscal years ended September 30, 1999, 1998 and 1997,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

  In fiscal 1996, the Company completed development of two new, second
generation laser-based instruments. These second generation instruments have
several characteristics in common including smaller size, lighter weight and
substantially lower manufacturing costs than their predecessors. During the
latter half of fiscal 1996, the Company completed the design and development
of the "Impulse," part of the Company's Survey and Mapping product line. The
Impulse provides range, inclination and height measurements in an instrument
one-third of the weight and size of the Company's Criterion Series of Survey
Lasers. Also, during fiscal 1996, the Company completed development of an
industrial laser sensor for use in collision avoidance and positioning systems
in industrial applications.

  During fiscal 1997, the Company completed development of enhanced Impulse
models which use specialized hardware and firmware that offer varying levels
of maximum range and accuracy. In fiscal 1997, the Company also completed
development of the UltraLyte, a second generation laser speed detection device
introduced during the 1997 fourth quarter as part of its Traffic Safety
product line. Similar to the Impulse, the UltraLyte is smaller in size and
weight and has been engineered to lower manufacturing costs. Additionally, the
UltraLyte was designed to incorporate an internal power source, in-scope data
display similar to the Marksman, and, as an optional feature, an inclinometer
for enhanced accident investigation capabilities. In fiscal 1997, the Company
also completed development of the Mariner, a laser measurement device designed
to serve customers within the marine industry.

                                       9
<PAGE>

  During fiscal 1998, the Company developed the "MapStar", digital compass
module ("DCM") that comes in a modular configuration that interfaces to any of
the eight Impulse models. With the addition of the DCM, the Impulse provides
the ability to measure distance and vertical and horizontal angles. In fiscal
1998, the Company also developed two longer range UltraLyte models, the
UltraLyte 100 XL and the UltraLyte 200 XL, as part of its Traffic Safety
product line.

  In fiscal 1998, the Company introduced the first of its MapStar software
modules, the T&D Utility Pac. The software package is comprised of a field
module that runs on a handheld data collector, and a Windows office processing
module that downloads and formats the collected data. The field module links
directly to any of the Company's Impulse model lasers. Designed to assist the
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 use to take two people, in half the time. Moreover, the
reflectorless laser capability enables this data to be gathered more safely
and in difficult environments.

  In addition to the T&D Utility Pac, the Company is currently developing a
variety of other software packages to enhance the MapStar module system.
During fiscal 1999, the Company released "en Campo," a survey and mapping
module designed for use in a variety of applications, including stock pile
volumes, preliminary site surveys, and natural resource mapping.

  During Fiscal 2000 the Company expects to complete the development of a
liquid level measurement sensor for use in industrial control applications.
Described more fully under the "Products" section, the level sensor
incorporates fiber optic light pulse delivery allowing laser measurement in
intrinsically safe environments. Also during fiscal 2000, the Company expects
to complete the development of the MapStar Angle-Encoding Module ("MAM") for
use in Survey and Mapping applications. The MapStar Angle-Encoding Module is
described more fully in the "Products" section.

Marketing, Distribution and Customers

  The Company presently markets its products to three major classes of
customers. For the fiscal year ended September 30, 1999, the Company's foreign
shipments accounted for 44% of sales, of which the Company's Asian and
European shipments comprised 69% collectively. North American states and local
law enforcement agencies comprised approximately 34% of total sales.
Additionally, sales to the Company's North American Survey and Mapping dealer
network comprised 19%. The Company primarily markets its products using on-
site demonstrations, attendance at trade conferences, advertising in trade
magazines and direct mail. See Note 8 to the Company's consolidated financial
statements for further discussion on customers, export sales and
concentrations of credit risk.

 Traffic Safety Products

  The Company primarily markets its Traffic Safety products domestically to
law enforcement agencies of state and municipal governments. To date, the
Company's sales force serving this market includes seven direct sales
representatives, three inside sales support personnel and a national sales
manager. Distribution of domestic Traffic Safety Products is accomplished
primarily by direct representation. For fiscal 1999, the largest domestic
customer of the Company's Traffic Safety Products is the state of Idaho. Other
high volume states in 1999 included California, Massachusetts, Oregon,
Washington, North Carolina, New Mexico, Colorado, Kentucky and Louisiana.

  Internationally, the Company markets its Traffic Safety product line through
its foreign distributors for use by agencies of foreign governments including
local law enforcement agencies and transportation ministries. The Company has
established distribution channels for its Traffic Safety products in most
industrialized countries. To date, the Company's foreign distributors in
Austria, France, Germany, the United Kingdom, Canada, Korea, Italy and
Malaysia account for the highest volume of hand-held laser speed detection
systems and Laser DigiCam

                                      10
<PAGE>

photo-laser systems purchased internationally. As of September 30, 1999, the
Company has established distribution in over thirty-seven foreign countries.

  In 1995, the National Institute of Standards and Technology ("NIST") in
conjunction with the National Highway Traffic Safety Administration ("NHTSA")
completed a national minimum model performance specification related to police
traffic laser speed measurement devices such as the Marksman. Once the
standard was completed, the International Association of Chiefs of Police
("IACP") contracted with the University of California-Davis to establish a
laboratory test site. In October 1995, when the testing facility was complete,
the Company submitted the Marksman for compliance testing in order to be
placed on the IACP Approved Products List. In April 1996, the Marksman was
certified by the IACP 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 listed on the IACP approved products list allow easier access to
federal funds from the United States Department of Transportation to become
more accessible for law enforcement agencies to purchase laser speed detection
devices. In fiscal 1998 compliance testing of the Company's UltraLyte was
completed and the UltraLyte was added to the IACP approved products list.
Approval of the UltraLyte LR models was completed during the first half of
fiscal 1999.

  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 and Italy. The Marksman has also been tested and approved
for use by the Royal Canadian Mounted Police ("RCMP") in Canada. In fiscal
1997, the Company's second generation UltraLyte was also approved by the RCMP.
In fiscal 1998, the UltraLyte was approved in Germany and Austria. In fiscal
1999, the UltraLyte was approved in the United Kingdom and the Netherlands.
The UltraLyte is also being tested in a number of other European countries.
Similar to the domestic market, the UltraLyte is expected to achieve foreign
acceptance based on previously set performance standards.

  In fiscal 1995, the Company completed development of the Laser DigiCam
photo-laser system and delivered its first substantial order for this system
to the Royal Malaysian Police. During fiscal 1996, the Royal Malaysian Police
was a significant customer comprising approximately 19% of the Company's
overall Traffic Safety revenues. In fiscal 1996, the Royal Malaysian Police
negotiated a two-year, renewable contract for the purchase of the Company's
Laser DigiCam systems. The Company's first order pursuant to this agreement
was delivered in September 1996. During fiscal 1997, a second order was
delivered pursuant to the Company's two-year contract with this agency
comprising 11% of the Company's Traffic Safety revenues in 1997. No
significant sales were made to this customer during fiscal 1998 or 1999.

  The Company believes that primary sales opportunities for the Laser DigiCam
are in international markets. Management intends to continue marketing the
Laser DigiCam system internationally through its existing network of
distributors currently marketing the Company's Traffic Safety product line.
The Company continues to assess the potential of the U.S. market for the
DigiCam System. The Company intends to incrementally increase its marketing
efforts domestically as the potential of this business segment rises within
the U.S. market.

 Survey and Mapping Products

  The Company's Survey and Mapping products are primarily sold domestically
through its dealer network, and internationally through its foreign
distributors and dealers. As with the Company's Traffic Safety products,
Management continually endeavors to expand its Survey and Mapping products
distribution channels and strategic alliances.

  In fiscal 1999, the number of dealers in the Company's domestic distribution
network supporting its Survey and Mapping product line was approximately
ninety-five, and internationally was approximately fifty.

                                      11
<PAGE>

  Management believes that the introduction of the Impulse Series of Survey
Lasers late in fiscal 1996 provided two immediate marketing benefits. First,
the Impulse provides an entry-level, broad use product for the Company's
already identified survey and mapping market segments, at a reduced size and
weight, and lower price point. Secondly, these size, weight, and retail cost
reductions allow the Company to access broad new general measurement markets
that have not previously considered laser measurement a viable option. These
markets include engineering construction, commercial material measurement and
estimation, and landscape design. Sales of the Company's Survey and Mapping
product line to other markets include the paper, mapping, mining,
environmental, telecommunication, and utility industries. Domestically, the
Company currently markets to such industries through its domestic dealer
network which is managed by the Company's National Sales Manager and three
direct sales managers. Criterion sales slowed considerably over the last few
years as the Company's second generation Impulse gained wider market
acceptance. The Company phased the Criterion out of production in fiscal 1999.

  To date, the Company's foreign distributors in Japan, Taiwan, Australia,
Europe and Canada account for the highest volume of Survey and Mapping
products purchased internationally. The Company currently markets its Survey
and Mapping products overseas to similar industries through its foreign
distribution channels. As of September 30, 1999, the Company has established
distributors for its Survey and Mapping product line in approximately fifty
foreign countries.

 Consumer Products

  Laser Technology currently participates in the consumer products market
primarily through its relationship with Bushnell. The Yardage Pro is
manufactured and marketed by Bushnell through sporting retail outlets. The
Company receives royalty payments pursuant to a licensing agreement. The
Company does market this product line within its own business segments as a
low cost option for low accuracy (1 meter) range measurement.

 Industrial Control Products

  In fiscal 1996, the Company completed development of a low cost, industrial
laser distance measurement sensor which the Company currently markets for
industrial laser sensor applications. Pursuant to a contract with Telemotive
Industrial Controls, Inc., ("Telemotive"), a world leading manufacturer of
radio controls for material handling cranes and industrial vehicles, laser
sensors developed and manufactured by the Company are integrated into systems
marketed under the Telemotive brand name. In exchange for minimum purchase
commitments of the Company's laser sensors by Telemotive, Telemotive has
received exclusive rights to sell the Company's industrial laser sensors
within the material handling market. Due to Telemotive's successful
introduction of its systems in fiscal 1997, Telemotive increased its minimum
purchase commitment in 1998 and 1999. Industrial laser sensor sales are
expected to continue to positively impact the Company's fiscal results.

  In 1995, SeaRiver Maritime, Inc., formerly Exxon Shipping Company, completed
a favorable evaluation of the DAS100. The Company began more aggressively
marketing its Ship Docking Aid Systems during the latter half of fiscal 1995
resulting in the award of a contract to furnish laser sensors for ship docking
systems to Martin Marietta Corporation ("MMC"), a subsidiary of Lockheed
Martin. Pursuant to the terms of the contract, delivery was made during the
Company's first and second quarters of fiscal 1996 contributing 8% to the
Company's overall fiscal 1996 revenues. While no longer active in the systems
business, the Company currently markets handheld laser instruments for
maritime docking applications and provides laser sensors to docking systems
manufacturers.

  As part of its acquisition of Multiwave in 1999, certain marketing personnel
have contracted with the Company to build the distribution network for the
Company's liquid level sensor. The level sensing market is traditionally
served through a network of manufacturers representatives and dealers.
Management believes this approach will likely be used with the Company's
product. Upon development of prototypes, these individuals will begin building
a network of "beta sites" and recruiting representatives for national
distribution. The Company will also consider alliances or distribution
arrangements with established companies currently serving

                                      12
<PAGE>

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 the Company's
product.

 Internet Marketing Initiative

  In the fourth quarter of 1999 the Company announced a number of moves which
are intended to expand the Company's abilities to interact with current and
potential customers via the Internet. The Company 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. The company offers a
broad range of services which allow small and medium-sized businesses to
affordably and effectively develop e-commerce distribution and communications
capabilities.

  The Company has maintained an Internet presence through its website since
1995. The relationship with Verio Inc. will allow Laser Technology to take
full advantage of the rapidly-expanding e-commerce and marketing capabilities
of the World Wide Web. By providing current and potential customers with 24-
hour, seven-days-per-week access to technical support, product updates, and
training tools over the Internet, the Company will seek to expand its role as
a "value-added" provider of measuring solutions and technology in its
identified markets.

  Management expects to develop Internet marketing tools that will allow Laser
Technology to more effectively prospect for new customers and to work with its
existing customers on a pro-active basis. Of equal importance, it is
anticipated that this e-channel will provide the Company with the ability to
more efficiently manage certain aspects of its customer relationships,
allowing LTI to better serve customers at a lower cost. While, management does
not expect that the Internet will replace its existing sales force or
distribution networks, it does believe the Internet will enable the Company to
off-load certain tasks from costly face-to-face channels, 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 it to
introduce products and services which are compatible with the Company's
markets, but which previously have not justified the involvement of a
traditional sales force.

Backlog

  As of September 30, 1999, 1998 and 1997, the Company had a backlog in sales
of approximately $330,000, $331,000 and $160,000, respectively, primarily
attributable to sales of its Traffic Safety product line. 1999 backorders were
scheduled for delivery during fiscal 2000. The Company intends to continually
evaluate inventory and production demands to fill orders as received.

Competition

  The Company's hand-held Marksman and UltraLyte laser speed detection systems
compete primarily with hand-held radar speed measurement devices. Although
most of the Company's competitors in the radar industry sell their
instrumentation at prices lower than those of the Marksman and UltraLyte,
Management believes 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 the
Company to better penetrate the radar market due to its lower price point. The
UltraLyte, designed in fiscal 1997, is half the size and weight of the
Company's Marksman, has an internal power source, and, as an optional feature,
an integrated inclinometer enhancing the UltraLyte's surveying functions.

                                      13
<PAGE>

  The Company's 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 speed detectors and laser
jamming devices are generally ineffective against the Marksman and newly
introduced UltraLyte.

  The ranging capabilities of the Company's hand-held laser speed detection
systems are also used by law enforcement agencies to gather measurement
information during accident reconstruction and investigation. In 1995, the
Company 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,
the Company enhanced the surveying capabilities of the Company's laser speed
detection device by integrating an inclinometer into the UltraLyte. With the
inclination capability, the UltraLyte becomes both a speed measurement and
mapping instrument, when used in conjunction with the Company's QuickMap.

  The Company's Marksman and UltraLyte also provide other capabilities
distinct from its competitors. SpeedStat, a statistical compilation software
package introduced in 1993, when combined with the Company's Marksman or
UltraLyte, automatically gathers and formats traffic survey data on a portable
computer allowing traffic engineers and law enforcement officials to conduct
and document traffic speed surveys more efficiently using the Marksman or
UltraLyte than with conventional methods. DBC, introduced in 1995, allows the
Company's laser speed detection systems to measure the distance and time
between vehicles. Additionally, the Company's 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 laser jamming 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 truck trailers for false
compartments.

  The Company is aware of five other companies that market laser speed
measurement devices. Kustom Signal, Inc., a Kansas company, markets a device
pursuant to a license from the developers, Laser Atlanta, Inc. and LaserCraft,
Inc. Laser Atlanta, Inc. also began to market its own laser speed measurement
device in 1999. Applied Concepts, a Texas based company, and Measurement
Devices, Ltd., a United Kingdom company, are in the initial stages of
introducing a laser speed measurement device. Additionally, Riegl, an Austrian
company, and Jenoptik, a German company, also market laser speed measurement
devices in Europe. Such competition has not, however, had a material impact on
the Company's sales of its Traffic Safety products. See "Patent Licensing
Agreements."

  The Company presently believes that its hand-held laser speed detection
systems are able to compete within this market based upon their accuracy in
speed readings, positive vehicle identification, and the difficulty that
motorists have in detecting the laser beam generated by the Marksman and
UltraLyte. The Company also believes that its ancillary Traffic Safety
products address applications that provide a competitive advantage over other
laser speed measurement devices. The Company also believes that its second
generation technology provides a significant competitive advantage to the
Company by providing lower cost and more ergonomically designed
instrumentation.

  Management is aware of camera systems similar in functionality to the
Company's Laser DigiCam developed by Kustom Signals, Inc., by Oshung, a Korean
company and by Poltech, an Australian company, that compete with the Company's
Laser DigiCam. The Laser DigiCam photo laser system also competes in similar
markets as photo-radar systems. Because the Laser DigiCam system has a much
narrower beam than photo-radar systems on the market, the Company believes
that the Laser DigiCam system provides better target identification and
increased accuracy. Management intends to continue marketing the Laser DigiCam
system at a sales price below that of high-end radar systems. Management
believes that it can compete within this market based upon price and quality
of information derived from the Laser DigiCam system as compared to presently
available photo-radar systems. Because of Federal right to privacy laws,
Management believes that primary sales opportunities for the Laser DigiCam
will be in international markets.

  The Company's Survey and Mapping products compete with traditional
measurement devices, and a laser measurement device developed and marketed by
Laser Atlanta, Inc., which is designed specifically for survey

                                      14
<PAGE>

and mapping applications. Management also believes that it may compete in
international markets with instruments developed and marketed by Riegl, an
Austrian company, and Jena, a German company and MDL, located in the United
Kingdom. The Company competes within this market based upon the quality of
information generated by its Survey and Mapping products and the time saving
features provided by these systems as compared to other traditional systems.
Additionally, Management believes that the Company's Impulse series of Survey
and Mapping lasers compete within this market because of their reduced size
and weight and lower price point compared to competing systems. The Company's
MapStar compass module competes due to its greater accuracy and functionality
as compared to a compass attachment marketed by MDL.

  The Industrial Laser Distance Sensors developed for Telemotive were
developed to replace existing radio frequency ("RF") based distance measuring
devices previously developed and marketed by Telemotive. Pursuant to the terms
of the Company's contract with Telemotive, Telemotive has exclusive rights to
the industrial laser sensors developed under this contract for the material
handling market in return for minimum guaranteed purchases of the Company's
laser sensors.

  The Company believes that its industrial sensors will continue to compete
with traditional measuring devices including radar and RF based systems, and
in certain international markets, primarily Europe, with laser distance
measurement instruments developed and marketed by Riegl, an Austrian company.
Management intends to compete in these markets based on the unique measurement
capabilities of its industrial laser sensors and because of their reduced
size, weight and lower manufacturing costs.

  The Company's Industrial Sensors for marine docking applications compete
primarily with sensors marketed by Riegl and Jenoptik. Management believes it
can compete with these sensors based upon the Company's advanced technology
and cost position as compared to other systems.

  The Company's consumer products marketed by Bushnell compete primarily with
products developed by Asia optical, Inc., a Taiwan-based company and marketed
by Nikon, a Japan-based company. Management believes it can compete in this
market based on the Company's advanced technology and lower cost position.

Patents

  Certain processes by which the Company is able to produce its products are
largely proprietary. The Company believes that patent protection of its
technology and products that result from the Company's research and
development efforts is important to the possible commercialization of the
Company's technology. The Company continually attempts to protect its
proprietary technology by obtaining patent application protection and relying
on trade secret laws and non-disclosure and confidentiality agreements with
its employees and persons that have access to its 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 $314,000, $160,000 and $185,000 for the fiscal years ended
September 30, 1999, 1998 and 1997 respectively. $196,000 of the 1999 patent
costs was related to the acquisition of the Multiwave technology.

  Additionally, the Company extends most of its domestic patent filings into
foreign applications. During fiscal 1998, one foreign patent expiring in
November 2015 was issued in Australia related to the Company's consumer
product technology .

  To date, the Company has filed thirty-six patent applications related to its
various product lines with the United States Patent and Trademark Office in
order to protect its current technology. These applications include five
applications which are continuations of previous applications. To date,
twenty-two of these patents have been issued.

  One patent, expiring in March 2011, relates to the Company's Criterion
Series of Survey Lasers providing coverage of the Criterion in forestry
applications that include height and diameter measurement of trees. The

                                      15
<PAGE>

Company has also been issued two patents, expiring in October 2011, on its
laser speed detection instrument. A fourth patent issued, expiring in May
2012, relates to a mechanical interface between one of the Company's Criterion
hand-held survey lasers and an electronic theodolite enabling the instruments
to remain vertically aligned while the instruments are adjusted.

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

  During fiscal 1997, two patents were issued on the Company's proprietary
technology related to consumer range-finding instrumentation developed for
Bushnell. These patents expire in March 2014 and July 2014. Additionally, the
Company was issued a patent, expiring in April 2014, related to its Traffic
Safety product line associated with the method for measuring distance and time
between traveling vehicles. The company was also granted a patent, expiring in
December 2014, related to the Company's 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 the Company's 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 on a Jam Detector feature, which will expire in February 2014, and another
incorporating tilt sensing capabilities within a laser speed measuring device
and subsequently conducting 3D dimensional accident reconstruction which will
expire in September 2014. One patent was issued related to increased range
performance in fog for marine applications and will expire in July 2014.

  During fiscal 1999, one patent was issued expiring in January 2015 which is
related to circuit design within the Company's consumer range-finder. One
patent was issued expiring August 2016 related to the Compay's 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 Company's Impulse product. Two patents were issued expiring in August
2016 related to the design and operation of the Company's MapStar modular
laser system. The Company was also granted a patent expiring in March 2016
related to the Company's Laser Digicam system used for speed detection and
image capture of moving vehicles.

  To date fourteen additional patent applications have been filed. Five are
continuations of previously issued patents, of which two apply to the
Company's Traffic Safety products, one applies to the Company's Traffic Safety
and Survey and Mapping products, one applies to Industrial applications, and
one to Marine applications. Nine applications filed pertain to new patents of
which two relate to the Company's Survey and Mapping products, two relate to
the Company's Traffic Safety products, one pertains to both Traffic Safety and
Survey and Mapping, two apply to Industrial products, and two relate to
general laser circuit design.

  The Company also has over fifty patents pending in foreign countries related
to U.S. patents issued or applications filed.

Patent Licensing Agreements

  In 1995, the Company, in conjunction with Bushnell, formerly the Sports
Optics Division of Bausch and Lomb, completed development of the Yardage Pro
laser range finder, formerly the LyteSpeed, which is marketed and produced by
Bushnell to certain sporting markets, primarily the hunting and golfing
industries. The Company retains all ownership of patents and trade secrets of
the technology underlying the development of these products and has been
issued four patents related to this technology.

                                      16
<PAGE>

  In September 1996, the Company agreed to license to Kustom Signals, Inc.
("Kustom") and LaserCraft, Inc., ("LaserCraft"), a patent relating to the
Company's hand-held laser speed detection system (the "Patent"). Kustom
markets a laser speed measurement device along with radar speed measurement
devices and other traffic safety equipment. In fiscal 1996, the Company gave
notice to Kustom that it was potentially infringing the Patent by making and
selling laser-based speed measurement devices manufactured for them by
LaserCraft. While Kustom and LaserCraft have not acknowledged infringement of
the Patent, they entered into the License Agreement, whereby the Company
granted Kustom and LaserCraft the nonexclusive rights to manufacture and sell
laser-based speed measurement devices incorporating features covered by claims
of the Patent. In consideration for the License Agreement, the Company
received a prepayment of licensing fees for a predetermined number of licensed
devices sold by Kustom, and receives license fees for each licensed device
sold by Kustom. Additionally, the Company 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, the Company and Bushnell entered into a licensing
agreement with Tasco Sales, Inc., ("Tasco"), whereby the Company and Bushnell
agreed to license certain patents related to the Yardage Pro. Tasco markets a
laser range-finder, developed by Asia Optical, a Taiwanese Company that
competes with the Yardage Pro series of range-finders. The Company 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 the Company and Bushnell. Pursuant to this agreement, the Company and
Bushnell receive licensing fees based on a percentage of Tasco's gross sales.

  In June 1997, the Company agreed to license to Applied Concepts, Inc.,
("ACI"), a patent relating to the Company's hand-held laser speed detection
system. Under this agreement, the Company granted ACI the nonexclusive right
to manufacture and sell laser-based speed measurement devices incorporating
features covered by the claims of the patent. In consideration of the license
agreement, the Company receives licensing fees as a percentage of net sales on
each licensed device sold by ACI.

  In January 1998, the Company entered into a license agreement with Bushnell
and Blount, Inc. ("Blount") whereby the Company and Bushnell agreed to license
certain patents related to the Yardage Pro which enables Blount to market a
competitive product into the consumer sports market. This product is
manufactured by Asia Optical, a Taiwanese company. Together, the Company and
Bushnell receive running royalties on the net sales of Blount products.

  In September 1998, the Company agreed to license to MPH Industries, Inc.,
("MPH"), a patent relating to the Company's 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, the Company 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, the Company will receive license fees
as a percentage of sales on each licensed device sold by MPH.

  In July of 1999, the Company entered into an exclusive agreement with Red
Hen Systems, which granted the Company a license to embed Red Hen's
proprietary GPS video mapping technology into products the Company will market
for in-vehicle law enforcement applications. Red Hen Systems, Inc. is a
privately-owned software firm which is headquartered in Ft. Collins, Colorado.
The company's video mapping technology allows users to collect and view
spatially referenced information via a mapping system that is combined with
GPS-referenced video. Under the terms of the license the Company will purchase
modular software and hardware components which it will resell as a part of the
Company's product line.

  In September 1999, the Company agreed to license to Laser Atlanta Optics,
Inc. (LA) a patent relating to the Company's hand-held laser speed detection
system. Pursuant to the agreement, the Company granted LA 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, the Company shall receive license

                                      17
<PAGE>

fees as a percentage of sales of each licensed device sold by LA. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Royalty and Licensing Income."

Government Regulation

  The Company's laser products emit a laser light beam and are regulated by
the FDA and subject to approval by certain foreign governments. FDA
regulations impose eye safety requirements on the Company's products and
governments of some foreign countries have similar regulations. The Marksman
and UltraLyte comply with FDA Class 1 eyesafety regulations and have been
rated Class 1 eyesafe by laboratories in Austria, and Germany.

  Due to FDA involvement in international standardization efforts for laser
products with the International Electrotechnical Commission ("IEC"), the
Company is 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 the Company's sales or results of operations.

  In 1995, the National Highway Traffic Safety Administration ("NHTSA")
working in conjunction with the National Institute of Standards and Technology
("NIST"), completed a national standard for performance specifications for
laser speed measurement devices and established a laboratory testing facility
at the University of California-Davis for testing of laser speed measurement
devices. In October 1995, the Company submitted a Marksman unit for testing.
In April 1996, the Marksman was certified by the International Association of
Chiefs of Police ("IACP") 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. This list is comprised
of speed enforcement products which have passed the national standard. During
fiscal 1998, the UltraLyte completed compliance testing and was added to the
IACP Approved Products List. The UltraLyte LR completed testing during the
first half of fiscal 1999 and was added to the IACP Approved Products 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, 1999, 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 also 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. The
Company's laser speed detection products are subject to approval by certain
foreign governments where regulatory controls exist for speed enforcement
equipment. The Company has received approval for the Marksman from government
agencies in Germany, the United Kingdom, Austria, Sweden, Switzerland, the
Netherlands, France and Italy. The Marksman and UltraLyte have also been
tested and approved by the Royal Canadian Mounted police in Canada. The
UltraLyte has been approved in Germany, Austria, The United Kingdom and the
Netherlands and is currently being tested in a number of other European
countries.

  Historically, the Company's 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 held in New Jersey 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 Company's 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.

                                      18
<PAGE>

Employees

  Management considers the relations between the Company and its employees to
be good. As of September 30, 1999, the Company employed eighty-four persons,
consisting of eleven management personnel, twenty-six employees engaged in the
sales and marketing activities of the Company, sixteen engineering personnel,
twenty-five production related personnel and six administrative and office
personnel. In addition to its full-time employees, the Company uses the
services of one contractual marketing representative.

ITEM 2. PROPERTIES

  As of September 30, 1999, The Company's facilities located in Englewood,
Colorado provided approximately 47,000 square feet under a lease agreement
expiring in July, 2003. In total, the Company's facilities comprise 16,000
square feet of production space, 12,000 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 has been subleased.

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 alleges that the Company and certain of its
officers and directors violated federal securities laws, particularly
Sections10(b) and 20 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"). Specifically, the complaint alleges that the Company's financial
statements were false and misleading during the "class period" (February 12,
1996 to December 23, 1998) and that the Company made certain false or
misleading statements regarding the Company's financial statements during this
period.

  The Company believes the action is premised in part on the resignation of
the Company's independent accountant, BDO Seidman, LLP ("BDO"), on December
21, 1998, and the resignation of the members of the Audit Committee of the
Board of Directors on January 7, 1999. The resigning members of the Audit
Committee comprised the Special Audit Committee (the "Special Committee").
They resigned from the Board of Directors 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 the Company's
accounting records and alleged irregularities relating to the Company's
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 the Company's shares on December 23, 1998.
Trading was resumed on March 22, 1999. For a full discussion see the
disclosure set forth in Item 7 below.

  In its complaint, the plaintiff contends that the resignation of BDO and the
three directors is due to the Company's alleged unreliable and misleading
financial statements. Plaintiff's complaint further alleges 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 have been filed against the Company and certain of its former and present
officers and directors. All cases were filed in the United States District
Court for the District of Colorado and have been consolidated for pre-trial
purposes. The Company believes that the additional actions parallel the one
described above.

  On October 6, 1999, the Company announced that it 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. Although the parties have agreed to a settlement,
the Stipulation of Settlement is subject to Court approval. A preliminary
fairness hearing before the Court will be requested.

                                      19
<PAGE>

  Pursuant to the terms of the proposed settlement, the plaintiffs and their
attorneys will receive $850,000 in cash and 475,000 shares of the Company's
common stock. The Company has also reached an agreement in principal with its
insurance carrier whereby $740,000 of the cash portion of the settlement will
be paid by the carrier. The remaining $110,000 in cash will be paid by the
Company and certain individuals involved in the settlement. It is proposed
that the shares to be issued in the settlement will become free from
restriction and tradable at various times following final approval by the
Court. Accordingly, one-third of the shares will be tradable at the time of
the final judgment and distribution, one-third will be tradable sixty days
thereafter, and the final one-third will be tradable 120 days after
distribution. The 475,000 shares to be distributed are equal to approximately
9.5% of the total shares presently outstanding.

  As a condition of the settlement, the Company will be 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 have been accrued in the
Company's 1999 financial statements. Management believes that the terms of the
settlement as proposed will not have a material adverse effect on the Company.
Management estimates that if the proposed settlement is approved by the Court
and all the parties, the final resolution will most likely occur during the
third or fourth quarter of fiscal 2000.

  An order directing private investigation was issued by the Securities and
Exchange Commission (the "Commission") on January 21, 1999 ("In the Matter of
Laser Technology, Inc. / NY-D-2129). In response to the order, certain
individuals gave depositions in the matter and the Company delivered to the
Commission certain requested documents pursuant to a subpoena duces tecum. The
Company believes that the investigation concerns matters related to the events
which led to the resignation of the Special Committee and the Company's
independent accountant.

  On September 14, 1999, the Commission notified the Company of its intent to
recommend the filing of a civil injunctive case against the Company. The
Commission stated that its proposed complaint would allege violations by the
Company of certain provisions of the Securities Exchange Act of 1934. The
Commission further alleged that the Company filed false financial statements
and that certain officers falsified accounting records pertaining to the
return and resale of certain units previously sold to LTI Australia.

  The Company has cooperated with the Commission in its investigation. The
Company and the Commission have "agreed in principal" to a potential
settlement of the Commission's action. Under terms of the proposed settlement,
the Commission would issue a Cease and Desist Order against the Company. The
Commission is also investigating the actions of certain officers and directors
in connection with the alleged accounting irregularities. As of this date, the
parties have entered into settlement negotiations with the Commission.
Management believes that the proposed settlement is equitable for the Company
and would not have a material adverse effect on the Company. The Company is
continuing its discussions with the Commission and foresees a resolution to
the action during the second quarter of fiscal 2000.

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 the fourth quarter ended
September 30, 1999.

                                   PART II.

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

  On August 6, 1997, the Company announced that it would not extend the
expiration date of its outstanding Redeemable Warrants, which expired on
January 11, 1998. Under the terms of the Redeemable Warrants, each Redeemable
Warrant represented the right of the holder to purchase one share of the
Company's Common Stock at an exercise price of $6.00 per share, subject to
adjustments, at any time prior to the close of business on

                                      20
<PAGE>

January 11, 1998. The Company had the right to redeem the Redeemable Warrants
in whole for cancellation at a price of $0.05 each, by written notice mailed
to each holder thirty (30) days prior to the redemption date. Such notice of
redemption could only be given within ten (10) days following any period of
thirty (30) consecutive trading days during which the closing sale price of
the Company's shares of Common Stock exceeds $8.00 per share.

  Because of the Company's announcement, the Redeemable Warrants that were not
exercised by the holders thereof or redeemed by the Company prior to January
11, 1998, expired by their terms and the holders have no further exercise
rights. All of the outstanding Redeemable Warrants expired unexercised on
January 11, 1998.

  Following the Company's change of corporate domicile from the State of Idaho
to the State of Delaware, the Company has authorized 2,000,000 shares of
Preferred Stock, par value $.01 per share, which shares of Preferred Stock may
be issued in various series and shall have preference as to dividends and to
liquidation of the Company. The Board of Directors of the Company 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.

  The Company's common stock is listed on the American Stock Exchange ("LSR").
As of September 30, 1999, 5,019,551 common shares were outstanding and the
Company had approximately 783 shareholders of record which figure 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 the
common stock for each calendar quarterly period as reported on the American
Stock Exchange.

Stock Prices

<TABLE>
<CAPTION>
                                                                     High   Low
                                                                     ----- -----
<S>                                                                  <C>   <C>
1999
  First Quarter**................................................... $3.25 $1.25
  Second Quarter....................................................  2.18  1.31
  Third Quarter.....................................................  2.06  1.13
  Fourth Quarter***.................................................  1.62  1.18
1998
  First Quarter..................................................... $4.43 $2.87
  Second Quarter....................................................  4.06  3.12
  Third Quarter.....................................................  5.93  3.31
  Fourth Quarter*...................................................  3.87  2.87
1997
  First Quarter..................................................... $5.38 $3.62
  Second Quarter....................................................  4.00  3.25
  Third Quarter.....................................................  4.00  3.19
  Fourth Quarter....................................................  4.00  2.75
</TABLE>
--------
*  The 1998 fourth quarter reflects the high and low sale prices of the
   Company's common stock reported by the American Stock Exchange through
   December 23, 1998. On that date, trading in the Company's stock was
   suspended. Trading was resumed on March 22, 1999.
** The 1999 first quarter reflects the suspension of trading until March 22,
   1999 (see above).
*** The 1999 fourth quarter reflects the high and low sale prices through
    December 27, 1999.

Dividends

  The Company currently intends to retain earnings to finance its operations,
therefore, the Company has not declared or paid cash dividends in the past,
nor does the Company anticipate that it will distribute cash dividends in the
foreseeable future.

                                      21
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

  The following selected financial data of the Company should be read in
conjunction with the financial statements and notes thereto and the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The financial data set forth below has been derived from the
audited financial statements of the Company for the years ended 1999, 1998,
1997, 1996 and 1995. See "Review of Accounting Procedures."

<TABLE>
<CAPTION>
                                                Years Ended
                         -----------------------------------------------------------
                            1999         1998        1997        1996        1995
                         -----------  ----------- ----------- ----------- ----------
<S>                      <C>          <C>         <C>         <C>         <C>
Statement of Operations
 Data:
  Net sales............. $11,814,654  $11,801,293 $ 9,308,768 $ 9,504,119 $8,328,581
  Cost of goods sold....   5,845,387    5,554,037   4,093,285   4,330,193  3,864,653
  Gross profit..........   5,969,267    6,247,256   5,215,483   5,173,926  4,463,928
  Royalty and licensing
   income...............     932,796    1,242,732     868,931     401,121        --
  Total operating
   income...............   6,902,063    7,489,988   6,084,414   5,575,047  4,463,928
  Operating expenses....   8,211,854    6,205,024   5,342,067   4,058,908  3,484,267
  Settlement and
   Restructuring Costs..   2,071,257
  Income (loss) from
   operations...........  (3,381,048)   1,284,964     742,347   1,516,139    979,661
  Interest income, net..       9,009      115,535     163,955     235,771    157,524
  Income (loss) before
   taxes on income......  (3,372,039)   1,400,499     906,302   1,751,910  1,137,185
  Taxes on income.......    (985,934)     504,000     312,000     580,000    395,000
  Net income (loss).....  (2,386,105)     896,499     594,302   1,171,910    742,185
  Net income per common
   share:
  Basic earnings (loss)
   per common share.....        (.48)         .18         .12         .22        .15
  Weighted average
   shares outstanding...   4,994,622    4,985,902   4,998,351   5,209,981  5,078,358
  Diluted earnings per
   common share.........        (.48)         .15         .10         .15        .13
  Diluted average shares
   outstanding..........   4,994,622    5,981,235   5,918,934   7,875,898  5,603,233
<CAPTION>
                                               September 30,
                         -----------------------------------------------------------
                            1999         1998        1997        1996        1995
                         -----------  ----------- ----------- ----------- ----------
<S>                      <C>          <C>         <C>         <C>         <C>
Balance Sheet Data:
  Working capital....... $ 5,753,229  $ 8,434,703 $ 7,803,965 $ 7,697,763 $7,725,138
  Total assets..........  11,211,708   12,515,957  11,144,626  10,650,583  8,847,282
  Short-term debt,
   including current
   maturities of long-
   term debt............      91,621       76,564         --          --       7,240
  Long-term debt less
   current Maturities...     114,400      159,549         --          --       2,223
  Total stockholders'
   equity...............   8,678,243   11,044,810  10,154,361   9,683,983  8,472,283
</TABLE>

                                      22
<PAGE>

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

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 the Company's
Statement of Operations. It should be noted that percentages discussed
throughout this analysis are stated on an approximate basis.

<TABLE>
<CAPTION>
                                               Years Ended September 30,
                                           -----------------------------------
                                              1999        1998         1997
                                           ----------  -----------  ----------
     <S>                                   <C>         <C>          <C>
     Net sales............................        100%         100%        100%
     Cost of goods sold...................         49           47          44
                                           ----------  -----------  ----------
     Gross profit.........................         51           53          56
     Royalty and licensing income.........          7           11           9
     Total operating income...............         58           64          65
     Operating expenses...................         69           53          57
     Settlement and Restructuring Costs...         17            0           0
     Income (loss) from operations........        (28)          11           8
     Interest income, net.................          0            1           2
     Taxes on income......................         (8)           4           3
                                           ----------  -----------  ----------
     Net income (loss)....................       (20%)           8%          7%
                                           ==========  ===========  ==========

  The following table provides a breakdown of the net sales and respective
percentages of net sales of the Company's various product lines. Sales of the
Company's less significant revenue producing products are classified as
"Other" for presentation purposes.

<CAPTION>
                                               Years Ended September 30,
                                           -----------------------------------
                                              1999        1998         1997
                                           ----------  -----------  ----------
     <S>                                   <C>         <C>          <C>
     Traffic Safety....................... $7,237,259  $ 7,148,563  $4,772,272
     Percentage of revenues...............         61%          61%         51%
     Survey and Mapping...................  4,069,023    3,990,523   4,006,730
     Percentage of revenues...............         35%          34%         43%
     Industrial Controls..................    353,915      271,160     261,876
     Percentage of revenues...............          3%           2%          3%
     Consumer.............................    154,551      391,047     251,759
     Percentage of revenues...............          1%           3%          3%
                                           ----------  -----------  ----------
     Total Revenues....................... 11,814,654  $11,801,293  $9,292,637
                                           ==========  ===========  ==========
</TABLE>

 Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended September
30, 1998

  Net sales for the fiscal year ended September 30, 1999 ("1999") were
$11,814,654 compared to $11,801,293 realized during the fiscal year ended
September 30, 1998 ("1998"), representing a 0.1% increase. In 1999, increased
volume sales of the Company's Traffic Safety products and increases in the
Survey and Mapping product sales were offset by decreases in the Consumer and
miscellaneous sales.

  Sales of the Company's Traffic Safety products increased 1.2% from
$7,148,563 in 1998 to $7,237,259 in 1999. Domestic Traffic Safety product
sales increased 6.5% from $3,777,215 in 1998 to $4,023,828 in 1999 while
International Traffic Safety product sales decreased 4.7% from $3,371,348 in
1998 to $3,213,431 in 1999. Domestic Traffic Safety sales continued to benefit
from second generation products such as the UltraLyte, and, internationally,
sales were down slightly due to fluctuations in the purchasing cycles of
government agencies.

                                      23
<PAGE>

  Sales of the Company's Survey and Mapping products increased 2.0% in 1999 to
$4,069,023 from $3,990,523 in 1998. While domestic Survey and Mapping product
sales decreased 15.8% to $2,288,239 in 1999 from $2,716,084 in 1998,
international sales of the Company's Survey and Mapping products increased
39.7% from $1,274,439 in 1998 to $1,780,784 in 1999. Domestic Survey and
Mapping sales decreased as the Company transitioned to new sales management
and sales personnel while international sales of the Company's Survey and
Mapping products increased in 1999 due to the recovery from the previous
economic downturn within the Asian market.

  International sales of the Company's products in 1999 were $5,146,480
compared to $4,645,787 realized in 1998. International sales comprised
approximately 44% of the Company's total revenues in 1999 compared to 39% of
the Company's total revenues in 1998. International sales of the Company's
products are expected to continue to comprise a significant portion of its
revenues.

  Gross profit as a percentage of sales was 51% in 1999 compared to 53% for
1998. The decrease in gross profit margins in 1999 was primarily due to a
write-off of obsolete inventory along with the impact of decreased inventory
investment in Work in Process and Finished Goods on the amount of overhead
absorbed by ending inventory. As the total amount of investment in Work in
Process and Finished Goods decreased by over $700,000, the amount of related
overhead that could be absorbed in ending inventory likewise decreased,
increasing cost of sales during the period of the inventory decrease,
resulting in a decrease in gross profit margins.

  Royalty income earned in 1999 from the Company's licensees primarily related
to the Company's agreement with Bushnell on sales of the Yardage Pro series of
laser range finders marketed by Bushnell. Royalty income decreased
approximately 25% to $932,796 in 1999 from $1,242,732 in 1998. The decrease in
royalty income during 1999 was due primarily to Bushnell transitioning to new
product models and a competitor of Bushnell's selling an unsuccessful product
into the market at significantly reduced prices as it exited the category,
negatively impacting Bushnell's revenues. Royalty income began to recover
during the fiscal fourth quarter and management believes that royalty income
received from its current licensing arrangements will continue to positively
impact the Company's results of operations. See "Royalty and Licensing
Income."

  Total operating expenses increased approximately 32% to $ 8,211,854 in 1999
from $6,205,024 in 1998, exclusive of Settlement and Restructuring costs (see
below). Increased operating expenses realized in 1999 as compared to 1998 can
be attributed to both non-recurring charges to income, and ongoing operating
costs. Non-recurring costs amounted to a total of approximately $1,100,000.
Significant factors included increased audit fees associated with the re-audit
of fiscal years 1993--1997, increased allowance for doubtful accounts, write-
down of selling samples and equipment, write-down of obsolete plant, property
and equipment, and pre-restructuring salary expenses. Increases to on-going
operating costs can largely be attributed to increased research and
development costs associated with new personnel, increased advertising costs,
increases in the Company's medical and directors and officers insurance,
increased depreciation expense, and increased rent associated with expanded
facility leases. The Company anticipates that operating expenses will decrease
in the upcoming year as the one-time costs are not repeated and management
works to bring expenses better in line with revenues.

  Litigation related costs incurred in 1999 were related to the costs of legal
defense and settlement of the class action lawsuits and Securities and
Exchange Commission investigation conducted during the year. The litigation
and SEC matters were substantially resolved during 1999 and those costs are
not expected to be repeated in 2000. The Restructuring costs were related to
the termination of employment of the former Chief Executive Officer and Chief
Financial Officer of the Company. All of the aforementioned costs were accrued
as fiscal 1999 expenses.

  Decreased royalty income and decreased gross profit margins combined with
the increase in operating and litigation-related expenses in 1999 to result in
a net loss for the year. Combined with income earned on investments of $9,009
and $115,535 in 1999 and 1998, respectively, the Company realized a loss
before taxes of ($3,372,039) in 1999 compared to income before taxes of
$1,400,499 for the comparable 1998 period. After taxes

                                      24
<PAGE>

on income, the Company realized a net loss of ($2,386,105) or ($.48) basic
earnings per share in 1999 compared to net income of $896,499, or $.18 basic
earnings per share in 1998.

 Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September
30, 1997

  Net sales for the fiscal year ended September 30, 1998 ("1998") were
$11,801,293 compared to $9,308,768 realized during the fiscal year ended
September 30, 1997 ("1997"), representing a 27% increase in sales over the
previous year. Sales growth in 1998 was primarily attributable to increased
volume sales of the Company's Traffic Safety products resulting from improved
distribution and the introduction of second generation products.

  Sales of the Company's Traffic Safety products increased 49% from $4,788,403
in 1997 to $7,148,563 in 1998. Fiscal 1998 Traffic Safety sales began to
benefit from second generation products such as the UltraLyte and,
internationally, sales of the Company's first generation Marksman continued to
be strong in Europe and Korea while approvals are being completed related to
the Company's second generation UltraLyte.

  Sales of the Company's Survey and Mapping products declined slightly in 1998
to $3,990,523 from $4,006,730. Domestic Survey and Mapping product sales
increased 20% to $2,716,084 in 1998 from $2,251,495 in 1997, International
sales of the Company's Survey and Mapping products decreased 38% from
$1,755,235 in 1997 to $1,274,439 in 1998. International sales of the Company's
Survey and Mapping products declined in 1998 due to the economic downturn
within the Asian market.

  International sales of the Company's products in 1998 were $4,645,787
compared to $4,399,638 realized in 1997. International sales comprised
approximately 39% of the Company's total revenues in 1998 compared to 47% in
1997. During 1998, international Traffic Safety sales increased 41% to
$3,371,348 from $2,397,161 realized in 1997. Management believes that sales of
the Company's Traffic Safety products to Pacific Rim areas were not affected
by the Asian economic crisis but that international sales of the Company's
Survey and Mapping products were impacted adversely. International sales of
the Company's products are expected to continue to comprise a significant
portion of its revenues.

  Gross profit as a percentage of sales was 53% for 1998 compared to 56% in
1997. The decrease in gross profit margins in 1998 was primarily due to lower
gross margins on sales of the Company's first generation products, primarily
the Marksman sold internationally. During the 1998 fourth quarter, the Company
took a one time charge of approximately $100,000 relating to cost variances
which it had accumulated in its inventory costing system related to the
Company's recent implementation of its new, fully integrated manufacturing
software package. Additionally, during the fourth quarter of fiscal 1998,
Management agreed to sell approximately $140,000 at cost of inventory
components to its newly contracted board assembly house for the purposes of
future turnkey board processing from this supplier.

  Competitive pressure impacted the Company's gross profit margins in 1998, as
older generation products, primarily the Marksman, continued to be sold in
high volumes internationally. Sales of the Company's first generation products
at higher manufacturing costs continued as a result of the length of time
required related to the approval processes for the Company's UltraLyte within
certain foreign markets. During 1998, the UltraLyte was approved for use as a
viable means of speed enforcement in Germany and Austria and is currently
being tested in a number of other European countries and Korea.

  Royalty income earned in 1998 from the Company's licensees primarily related
to the Company's agreement with Bushnell on sales of the Yardage Pro series of
laser range finders marketed by Bushnell. Royalty income rose approximately
44% to $1,242,732 in 1998 from $868,931 realized in 1997.

  Total operating expenses increased approximately 16% to $6,205,024 in 1998
from $5,342,067 for the comparable 1997 period. Increased operating expenses
realized in 1998 as compared to 1997 primarily related to increased personnel
requirements. As a percentage of net sales, total operating expenses decreased
to 53% in

                                      25
<PAGE>

1998 from 57% in 1997. Decreased operating expenses as a percentage of sales
is attributable to increased sales and the leveling of expenses related to the
development of the Company's infrastructure in the prior year period.

  Improved royalty income partially offset the increase in operating expenses
in 1998. Combined with income earned on investments of $115,535 and $163,955
in 1998 and 1997, respectively, the Company realized income before taxes on
income of $1,400,499 in 1998 compared to income before taxes on income of
$906,302 for the comparable 1997 period. After taxes on income, the Company
realized net income of $896,499, or $.18 basic earnings per share in 1998
compared to $594,302, or $.12 basic earnings per share, realized in 1997.

Foreign Sales

  Foreign sales of the Company's products were 44%, 39% and 47% for the fiscal
years ended September 30, 1999, 1998 and 1997, respectively. Management
believes that foreign sales of the Company's products will continue to
comprise a significant portion of its revenues. The Company requires 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 the Company's products
less competitive in those markets.

Research and Development Costs

  Research and development costs related to the continual development of the
Company's products are expensed as incurred and included in operating
expenses. Research and development costs totaled approximately $921,000,
$757,000 and $664,000 for the years ended September 30, 1999, 1998 and 1997,
respectively. Year to year increases in research and development expenditures
are primarily attributable to increased personnel costs related to increased
personnel requirements. Management anticipates continued increases in research
and development costs as the Company continues to develop new products and
enhance existing ones.

  Cost associated with the Company's patents are capitalized and amortized
over their estimated useful life of 15 to 17 years. Patent costs capitalized
totaled approximately $314,000, $160,000 and $185,000 for the fiscal years
ended September 30, 1999, 1998 and 1997, respectively.

Income Taxes

  Under the provisions of SFAS No. 109, the Company's 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, 1999, the Company has recorded a deferred tax asset totaling $348,000 and
a refund receivable of $686,000. Based upon the Company's history of taxable
income and its projections for future earnings, Management believes that it is
more likely than not that sufficient taxable income will be generated in the
foreseeable future to realize the deferred tax asset. See note 6 to the
Company's consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

  The Company's working capital needs have been satisfied primarily through
the Company's public offering consummated in January 1993 (which provided
$6,313,881 in net proceeds to the Company, after deduction of underwriting
discounts and related offering expenses) and cash flow from operations. The
Company's working capital at September 30, 1999 was $5,753,229 as compared to
working capital of $8,434,703 at September 30, 1998, a decrease of $2,681,474.
The reduction in working capital at September 30, 1999 is primarily related to
the use of working capital for capitalized patent costs of $297,860 along with
the net loss of $2,386,105, which included $2,071,257 in Restructuring and
Litigation costs. The Company's present working capital is expected to
adequately meet the Company's needs for at least the next twelve months.

  For the year ended September 30, 1999, cash provided by operating activities
was $97,310. Reductions in accounts receivable of $826,484 and inventories of
$1,010,228, increases to accruals (primarily related to the pending litigation
settlement) of $1,092,410 offset the net loss for the year of $2,386,105. Cash
used in investing

                                      26
<PAGE>

activities of $298,728 resulted from increased cash from investment maturities
of $499,347, which was primarily used for the purchase of property and
equipment in the amount of $500,215, and $297,860 was used to protect the
Company's proprietary technology. For the year ended September 30, 1999 cash
and cash equivalents decreased $231,510.

  For the year ended September 30, 1998, cash provided by operating activities
was $86,602. Net income of $896,499 and increased accounts payable of $244,769
was used to expand inventories of $1,059,060 to meet anticipated production
demand. Cash used in investing activities of $280,024 resulted from increased
cash from investment maturities of $454,757, which were primarily used for the
purchase of property and equipment in the amount of $576,185, and $158,596 was
used to protect the Company's proprietary technology. In August 1998 the
Company financed a new car fleet arrangement which primarily allowed for cash
provided by financing activities of $230,063. Also in 1998, the Company
received $46,750 in proceeds from the exercise of stock options related to the
Company's qualified Incentive Stock Option plan and reinvested $52,800
pursuant to the Company's Stock Repurchase Program. For the year ended
September 30, 1998 cash and cash equivalents increased $36,641.

  For the year ended September 30, 1997, cash used in operating activities of
$102,577 was primarily used to finance an increase of $570,154 in trade
accounts receivable. Additionally, $221,268 was used to expand inventories to
meet anticipated production demand. Cash used in investing activities of
$1,068,793 primarily related to the reinvestment of unused cash reserves of
$429,585 and $435,851 was used for the purchase of property and equipment and
leasehold improvements related to the expansion of the Company's facilities.
Cash used in financing activities of $123,924 related primarily to the
purchase of shares of the Company's common stock, recorded at cost. For the
year ended September 30, 1997 cash and cash equivalents decreased $1,295,294.

Other

  During fiscal 1997, the Company expanded its facilities pursuant to the
Company's rights for additional expansion space under its current lease
agreements to provide additional office and production space. Additionally, in
1997, the Company expended capital to fully integrate and automate its
information systems management and accounting software in preparation of
future growth.

  In November 1998, pursuant to a sublease agreement on adjacent space from an
unrelated party, the Company leased an additional 23,000 square feet under a
lease agreement expiring in July 2002. To complete the Company's facility
expansion in fiscal 1999, the Company intends to expend approximately $140,000
in leasehold improvements. Such leasehold improvements are not expected to
materially impact the Company's working capital or results of operations. The
Company believes that its current and planned facilities are adequate to meet
the Company's needs throughout the foreseeable future.

  Management believes that the Company's business centered around its Traffic
Safety product line is not seasonal in nature. However, due to fiscal
budgeting practices of foreign and domestic law enforcement agencies, sales of
the Company's Traffic Safety products may vary between financial periods.
Historically, the Company has realized a moderate decline in sales of its
Survey and Mapping products in areas affected by colder weather in the winter
months. Royalty income has historically fluctuated between financial periods
in conjunction with seasonal cycles of Bushnell's sales into the golf and
hunting segments.

  In order to reduce the impact of currency fluctuations, all of the Company's
foreign sales are made in U.S. currency. The Company generally enforces the
use of letters of credit and wire transfers in most of its 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, the Company increased its allowance for doubtful accounts to
$251,000 to address some potential collectibility issues with some of the
Company's foreign accounts that were not sold using letters of credit.

                                      27
<PAGE>

Year 2000

  During the year ended September 30, 1999, the Company converted its computer
systems to be year 2000 compliant (e.g., to recognize the difference between
'99 and '00 as one year instead of negative 99 years). Management believes
that the majority of the Company's updated computer system is Year 2000
compliant for both information technology ("IT") and non-IT systems. The
Company continues to evaluate Year 2000 compliance and does not anticipate any
material expenditures related to the conversion process.

  The Company also continues to evaluate whether it will have Year 2000 issues
relating to any third parties with which it has or may have a material
relationship. Management believes that most, if not all third parties with
which the Company has a material relationship, are, or will be Year 2000
compliant. The Company does not anticipate any material expenditures related
to Year 2000 compliance by any third party.

Effect of Inflation

  The Company believes that it 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 the Company's revenues, gross profit or results of
operations for at least the next twelve months.

New Accounting Pronouncements

  The Financial Accounting Standard Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129 "Disclosures of Information About an
Entity's Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than was previously used in accordance with
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No. 128
provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. SFAS No. 129 establishes
standards for disclosing information about an entity's capital structure. SFAS
No. 128 and SFAS No. 129 are effective for financial statements issued for
periods ending after December 15, 1997. Their implementation did not have a
material effect on the financial statements. SFAS No. 128 and 129 were adopted
by the Company for the fiscal year ended September 30, 1998.

  The Financial Accounting Standards Board has also issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that displays
with the same prominence as other financial statements. SFAS No. 131
supersedes SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that public
companies report financial information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It
also establishes standards for disclosure regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of a company about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.

  SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of the standard,
management has been unable to fully evaluate the impact, if any, the standard
may have on future financial

                                      28
<PAGE>

statement disclosures. Results of operations and financial position, however,
will be unaffected by implementation of the standards.

  The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No 132. "Employers' Disclosures about Pensions
and other Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other Postretirement benefits and requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis. SFAS No. 132 is
effective for years beginning after December 15, 1997 and requires comparative
information for earlier years to be restated, unless such information is not
readily available. Management believes the adoption of this statement will
have no material impact on the Company's financial statements.

  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. Management believes the
adoption of this statement will have no material impact on the Company's
financial statements.

Review of Accounting Procedures

  On October 28, 1998, the Company's Board of Directors established a Special
Audit Committee (the "Special Committee") comprised of then directors Richard
B. Sayford, F. James Lynch and William R. Carr. The Board directed the Special
Committee to independently investigate the Company's accounting records and
certain irregularities relating to the Company's accounting records. Following
its investigation, the Special Committee was to report the results to the
Board. In connection with its investigation, the Special Committee retained
independent legal counsel, who in turn, retained an interim Chief Financial
Officer who was to report directly to the Special Committee and instituted
internal controls to ensure the integrity of the investigation and the
Company's financial reporting process.

  On December 21, 1998, BDO Seidman, LLP ("BDO") resigned as the Company's
independent accountant citing for its reasons (i) that the Company's internal
controls could not be relied upon to develop financial statements; (ii)
information had come to BDO's attention indicating that they could no longer
rely on management's representations; and (iii) it concluded that the above
events materially impacted the reliability of the financial statements for the
fiscal years ending September 30, 1993, 1994, 1995, 1996 and 1997. Therefore,
BDO was unwilling to be associated with the above mentioned financial
statements and withdrew its opinions on those years. The Company filed with
the Commission a report on Form 8-K, dated December 28, 1998, disclosing the
resignation of BDO. The Form 8-K was amended on January 4, 1999 to include the
letter from BDO addressed to the Commission stating whether it agreed with the
statements made by the Company in the Form 8-K.

  On January 7, 1999, a Special Meeting of the Board of Directors (the
"Special Meeting") was held for the purpose of receiving the report and
recommendations from the Special Committee. The Special Committee made several
proposals including, but not limited to, (i) asking that certain directors and
executive officers, including the Chief Executive Officer and Chief Financial
Officer, tender their resignations; (ii) that the Company's President pay to
the Company all amounts, if any due from him to the Company; (iii) that the
Company hire a new Chief Executive Officer and Chief Financial Officer from
outside the Company and search for and retain a reputable accounting firm that
is completely independent from the Company's officers and/or directors; and
(iv) that certain directors agree to place their shares of the Company's
common stock into a voting trust or other arrangement whereby such shares may
be voted in accordance with management's direction. The Special Committee
further suggested that upon the implementation of the above recommendations,
the composition of the Board of Directors be revised to provide for three
inside and three independent directors. It was also

                                      29
<PAGE>

recommended that in the event the Chief Executive Officer and Chief Financial
Officer did resign, each be offered a consulting agreement with the Company.

  Following the presentation and proposals by the Special Committee, those
directors not on the Special Committee made a counter-proposal. Without
responding to the counter-proposal, the three members of the Special Committee
informed the Board of their intent to resign from the Special Committee and
from the Board of Directors. Each of the resigning directors submitted letters
to the Company's Board dated January 11, 1999 confirming their resignations.
Each cited as the reason for his resignation as the refusal of the other
members of the Board to accept the proposals of the Special Committee.

  The Board of Directors first created the Special Committee to investigate
certain situations that took place in fiscal years 1993 and 1994 relating to
transactions between LTI Australia and the Company. LTI Australia, formerly
known as Kurringa Pty. Ltd. ("LTIA"), has been a customer of the Company since
1992. LTIA and the Company are not affiliated through ownership or management.
In December 1992, during fiscal year ended September 30, 1993, the Company
sold one hundred (100) units of its hand-held Marksman to LTIA for $370,000
(the "December 1992 Sale"). The Company booked the transaction as a sale with
a corresponding account receivable.

  At August 31, 1993, the balance due on LTIA's account was $310,452. On that
date, the Company and LTIA entered into an Agreement that provided, among,
other things, that LTIA would pay in full in ninety (90) days, the $310,452
then owing from the December 1992 Sale. The Agreement stated that the Company
was granting LTIA an extension so LTIA could (i) complete necessary approvals
for the Marksman in certain areas of Australia, (ii) expand marketing efforts
in the South Pacific and Southeast Asia, and (iii) supply the Company with a
photo laser system that the Company would distribute outside of Australia. The
Agreement also stated that in return for the extension, LTIA would sell the
photo laser system to the Company at a fifty percent (50%) discount off LTIA's
anticipated wholesale price. The Agreement further provided that the Company
would ship to LTIA an additional 100 Marksmans by the end of September 1993 to
fulfill an order LTIA expected in October 1993 from its customer. The terms of
the Agreement provided that LTIA was to make payment for the units within
sixty (60) days after delivery to the end user. The Company shipped 100
Marksman units to LTIA on approximately September 30, 1993, for the total
price of $370,000 (the "September 1993 Sale"). This transaction was booked by
the Company as a sale with a corresponding account receivable.

  Both the December 1992 Sale and September 1993 Sale were recorded by the
Company as gross sales for fiscal year 1993. During fiscal 1993, LTIA paid
approximately $150,128 on its account receivable at the Company. As of
September 30, 1993, the balance of LTIA's account receivable was $686,525.

  On or about July 20, 1994, LTIA and the Company entered into a Purchase
Agreement whereby the Company agreed to pre-purchase from LTIA twenty (20)
photo laser systems for the discounted price of $10,500 per unit. This
represented a further discount from the price of $12,500 per unit that LTIA
had agreed to in the August 31, 1993 Agreement. The Purchase Agreement further
provided that the Company would pay for the photo laser systems by reducing
LTIA's receivable by $210,000. LTIA's receivable was reduced by this amount on
August 24, 1994.

  In approximately June 1994, LTIA began returning to the Company certain of
the Marksman units for which it had not paid. Between June 1994 and March
1996, LTIA returned all 100 units from the September 1993 Sale and an
additional thirty (30) units. The Company did not reduce LTIA's account
receivable upon the return of the units. Rather, two corporate officers and
directors, David Williams and Jeremy Dunne, transmitted personal funds to the
Company which were then applied to reduce the LTIA account receivable. From
September 26, 1994 to September 28, 1995, Mr. Williams and Mr. Dunne paid to
the Company $184,298 and $131,250 respectively. To the best knowledge of the
Company, Mr. Dunne believed that his payment of $131,250 was an advance to
LTIA to support its development of the Australian market and to assist LTIA
during a period when it was experiencing cash flow problems. Further, to the
best knowledge of the Company, David Williams and

                                      30
<PAGE>

Pamela Sevy, the Company's Chief Financial Officer, were the only Company
officers or directors who were aware that the aforementioned payments were
used to reduce the LTIA account receivable.

  Mr. Williams and Mr. Dunne each personally borrowed the funds they
transmitted to the Company that were applied to the LTIA account receivable.
In some instances the interest and principal payments on Messrs. Williams' and
Dunne's loans were paid by the Company. These payments were authorized by Mr.
Williams and Ms. Sevy. In most instances the interest and principal payments
paid by the Company were debited to the Company's officer receivable account
of Mr. Williams or Mr. Dunne, respectively. In April 1997, the Company paid
$98,676 to Norwest Bank of Arapahoe to repay a loan that Mr. Williams had
taken out to pay on the LTIA account receivable. In making the payment to the
bank, the Company also paid a $25,000 prior loan of Mr. Williams. The Company
charged the entire $98,676, which included the $25,000, to Mr. Williams'
personal account receivable at the Company. The interest paid by the Company
totaled approximately $16,000. Interest payments made by the Company were not
reported as income to Mr. Williams because it was believed that the Company
was repaying monies owed to Mr. Williams. In September 1997, H. DeWorth
Williams, the brother of David Williams and a director of the Company, made a
personal loan to David Williams in the amount of $165,000. DeWorth William's
check for $165,000 was made payable to the Company and the funds were used by
David Williams to reduce his personal account receivable at the Company. None
of these transactions were reported as a related party transaction in the
Company's annual report on Form 10-K for the fiscal year ended September 30,
1997.

  During fiscal 1995, the Company determined that the photo laser systems that
were pre-purchased from LTIA pursuant to the Purchase Agreement did not meet
performance requirements. Accordingly, the Company discontinued its efforts
with LTIA related to developing the photo laser system and did not take
delivery of the 20 units. Therefore, on or about September 14, 1995, the
Company reversed the $210,000 credit previously applied to the LTIA account
for the pre-purchase of the photo laser systems.

  Approximately 90 of the units returned by LTIA between June 1994 and March
1996 were resold through the Company on Company invoices, but the sales were
not recorded on the Company's books. Rather, the sales proceeds were deposited
into an account established at Colorado National Bank ("CNB"), under the
Company's name. The funds in the account were intended to repay David Williams
for his funds advanced on behalf of LTIA. Sales proceeds were used to reduce
LTIA's account receivable or to repay those funds which Messrs. Williams and
Dunne had transmitted to the Company to reduce LTIA's receivable.

  The CNB account was established in May 1995, although not authorized by the
Company's Board of Directors. The CNB account was not disclosed to the
Company's auditors during fiscal 1995, 1996, 1997 or 1998. Also, to the best
knowledge of the Company, David Williams and Ms. Sevy were the only Company
officers or directors who were aware of the purpose of the CNB account.
However, the Company is aware that two other employees, including one person
that became the Company's controller, knew of the existence and purpose of the
CNB account. The employees did not disclose the account to the Board of
Directors or to the Company's auditors. These employees were also involved in
the creation and processing of certain invoices for transactions related to
the CNB account. Sales proceeds from the returned and resold units were
transferred from the CNB account to the Company's regular cash operating
account.

  The remaining ten units from the September 1993 Sale plus approximately
thirty additional units from the December 1992 Sale, were also sold. However,
these sales were inadvertently recorded as new Company sales with no cost of
goods sold being attributed to the sales. The Company is presently unable to
identify specifically approximately fifteen of these units, although it is
believed that the proceeds from the sale of these sales were also recorded as
new sales by the Company.

  In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. David Williams and Ms. Sevy applied the proceeds from the
sale to reduce Mr. Williams' account receivable by $50,000 in consideration
for monies he had transmitted to the Company to reduce the LTIA receivable
and, that due to the resale of returned units by the Company were considered
unrecoverable by him. Subsequently, the

                                      31
<PAGE>

Company reversed this transaction, debited Mr. Williams' account receivable
for $50,000, and recorded the sale as revenues to the Company. The Company
then reduced Mr. Williams' account receivable by $50,000 to recognize the
monies he had transmitted to the Company to reduce the LTIA receivable. It is
further believed that the Company may owe additional monies to Mr. Williams.
Mr. Williams has agreed to forgive any monies owed to him due to the resale of
his units by the Company.

  Being fully aware of the facts and allegations presented by the Special
Committee, those directors at the Special Meeting not on the Special Committee
were concerned with the Special Committee's time schedule in bringing on a new
auditor and the projected time frame to complete the new audited financial
statements for the fiscal year ended September 30, 1998. The Special Committee
had not engaged a new auditor and suggested that once a new auditor was
engaged, the time frame to complete the audit could take up to six months. The
remaining directors believed that it would be in the best interest of the
Company and its shareholders to engage a new auditor as soon as possible in
order to promptly complete and publish the Company's financial statements for
fiscal year 1998.

  The remaining directors also believed that the Company's President did not
owe any monies to the Company as implied by the Special Committee. Further,
the remaining directors believed that under the current circumstances, it is
not necessary to have certain directors place their shares of the Company's
stock into a voting trust.

  On January 11, 1999, the Company's Board of Directors approved the
appointment of and formally engaged Jones, Jensen and Company, Certified Pubic
Accountants ("JJ&C"), as the Company's principal accountant. The Board
believes JJ&C to be a reputable accounting firm and completely independent
from the Company's officers and/or directors. Following its appointment, JJ&C
completed the audit of the Company's financial statements for the fiscal years
ended September 30, 1998, 1997 and 1996. JJ&C also reviewed the financial
controls of the Company and made recommendations to the Board of Directors and
performed an audit as of September 30, 1995, 1994 & 1993.

  On February 19, 1999, the Board of Directors accepted the resignations of
David Williams as President and Chief Executive Officer, and, Pamela Sevy as
Chief Financial Officer. Mr. Williams and Ms. Sevy and the Board agreed that
their resignations would be effective immediately upon the filing of the 1998
Form 10-K. Mr. Williams and Ms. Sevy subsequently resigned as employees of the
Company on October 25, 1999.

  Also on February 19, 1999, the Board nominated Blair Zykan as the Company's
new President and Chief Executive Officer. On February 23, 1999, the Board
appointed Brian Abeel to fill one of the vacancies on the Board from the
resignations of the previous directors. On March 11, 1999, Dan N. Grothe
resigned as a director and the Company's Secretary. On March 11, 1999, Edwin
P. Phelps was nominated as a new Director. Mr. Phelps subsequently became the
Chairman of the Board on October 8, 1999. On April 9, 1999 Stephen Bamberger
was nominated as a new Director. On November 29, 1999, Brian Abeel was named
as the Company's Chief Financial Officer.

  Management believes that there was not any negative impact upon the
Company's overall reported financial results for its 1994, 1995, 1996, 1997
and 1998 fiscal years. Certain sales previously recorded in fiscal year 1993
should have been more properly recorded in fiscal years 1995, 1996 and 1997.
However, combined sales and earnings for these fiscal years will not be
affected and there was no material cumulative effect to the financial
statements for these periods. Any adjustments made to prior year statements
have had no effect on the Company's financial statements for fiscal years 1998
or 1999.

  The following table demonstrates the changes to revenues from the sale of
the 100 units pursuant to the September 1993 Sale as though the sales of the
units were recorded in later periods when the units were resold. The table
also demonstrates the effect on net income in each period had such sales and
gross margin contribution to net income been recorded in the period in which
the resale occurred rather than in fiscal 1993.

                                      32
<PAGE>

  The sales value of the 130 units returned was approximately $488,000. Of the
130 units returned, ninety of the units, or approximately $369,000, were sold
through the CNB account to repay Messrs. Williams and Dunne or applied towards
LTIA's account receivable. Forty of the units were sold inadvertently as new
Company sales. The following table reflects the sale of one hundred fifteen
units, the number specifically identifiable as having been sold as a new sale
or through the CNB account. The table does not reflect the resale of the
remaining fifteen units because of the Company's inability to identify those
specific units and the table takes into effect approximately $30,000 in
discounts granted on returned and resold units.

  The table reflects all identifiable units for which sales revenue may have
been more fairly reported in a later period. The Company believes that all
funds have been accounted for from the sale or resale of the units. The
Company further believes that no individuals personally benefited from any of
the transactions.

<TABLE>
<CAPTION>
                                              Years Ended
                         ------------------------------------------------------
                            1997       1996       1995       1994       1993
                         ---------- ---------- ---------- ---------- ----------
<S>                      <C>        <C>        <C>        <C>        <C>
Statement of Operations
 Data:
  Net sales as
   reported............. $9,292,637 $9,306,777 $8,225,776 $5,303,299 $4,813,227
  Adjustments to net
   sales................     16,131    197,342    102,805        --    (401,278)
  Adjusted net sales....  9,308,768  9,504,119  8,328,581  5,303,299  4,411,949
  Net income as reported
   (1)..................    585,430  1,063,372    704,132     59,106    965,246
  Adjusted net income...    594,302  1,171,910    817,218     59,106    744,543
  Earnings per share.... $      .12 $      .20 $      .14 $      .01 $      .20
  Adjusted earnings per
   share................ $      .12 $      .22 $      .16 $      .01 $      .16
</TABLE>
--------
(1) During fiscal 1993, the Company recorded a non-recurring extraordinary
    charge of $567,000 as a loss related to the early extinguishment of debt.
    The computation of adjusted net income and earnings per share data for
    fiscal 1993 does not take into effect such reduction in net income as it
    does not relate to the Company's results from operations.

Risk Factors and Cautionary Statements

  This report contains "forward-looking statements." Forward-looking
statements in this report are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The Company wishes to
advise readers that actual results may differ substantially from such forward-
looking statements. Forward-looking statements involve risks and uncertainties
including, but not limited to, continued acceptance of the Company's products
in the marketplace, competitive factors, potential changes in the budgets of
federal and state agencies, compliance with current and possible future FDA or
environmental regulations, and other risks detailed in the Company's
Registration Statement on Form S-1 as filed the Securities and Exchange
Commission.

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.

                                      33
<PAGE>

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

  BDO Seidman, LLP ("BDO") served as the Company's independent accountant for
the years ended September 30, 1992 through 1997. On December 21, 1998, BDO
resigned as independent accountant for the Company, citing the following
reportable events:

    1. The Company's internal controls could not be relied upon to develop
  financial statements.

    2. Information had come to BDO's attention indicating that they could no
  longer rely on management's representations.

    3. BDO concluded that the above events materially impacted their
  liability of the financial statements for the fiscal years ending September
  30, 1993, 1994, 1995, 1996 and 1997. Therefore, BDO was unwilling to be
  associated with the above mentioned financial statements and withdrew its
  opinions on those years.

  Commencing October 28, 1998, the Audit Committee of the Company's Board of
Directors conducted an investigation of the Company's accounting systems and
procedures. During the pendency of the investigation, the Company appointed an
interim Chief Financial Officer who reported directly to the Audit Committee
and instituted additional internal controls to ensure the integrity of the
investigation and the Company's financial reporting processes.

  The Company filed with the Commission a report on Form 8-K dated December
28, 1998 disclosing the resignation of BDO. The Form 8-K was amended on
January 4, 1999 to include the letter from BDO addressed to the Commission
stating whether it agreed with the statements made by the Company in the Form
8-K.

  On January 11, 1999, the Company's Board of Directors approved the
appointment of and formally engaged Jones, Jensen & Company, Certified Public
Accountants ("JJ&C"), as the Company's principal accountant. Thereupon, JJ&C
began auditing the Company's financial statements for the fiscal years ended
September 30, 1998, 1997 and 1996. JJ&C has also performed a review of the
financial controls of the Company and made recommendations to the Board of
Directors.

  During the Company's two most recent fiscal years and subsequent interim
period, prior to engaging JJ&C, the Company has not consulted JJ&C regarding
either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements; or (ii) any matter
that was either the subject of a disagreement or a reportable event, except to
the extent necessary for JJ&C to complete its client acceptance procedures.

                                   PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  As of December 27, 1999, the executive officers and directors of the Company
are as follows:

<TABLE>
<S>                      <C> <C>
Edwin Phelps............  66 Chairman of the Board and Director
Blair Zykan.............  39 President and Chief Executive Officer
Brian P. Abeel..........  41 Executive Vice President, Chief Financial Officer, Secretary and Director
Jeremy G. Dunne.........  42 Vice President and Director
H. DeWorth Williams.....  64 Director
Stephen Bamberger.......  44 Director
</TABLE>

  On October 28, 1998, the Company's Board of Directors established a Special
Audit Committee (the "Special Committee") comprised of then directors Richard
B. Sayford, F. James Lynch and William R. Carr. The Board directed the Special
Committee to independently investigate the Company's accounting records and
certain irregularities relating to the Company's accounting records. Following
its investigation, the Special Committee was to report the results to the
Board. In connection with its investigation, the Special Committee

                                      34
<PAGE>

retained independent legal counsel, who in turn, retained an interim Chief
Financial Officer who was to report directly to the Special Committee and
instituted internal controls to ensure the integrity of the investigation and
the Company's financial reporting process.

  On December 21, 1998, BDO Seidman, LLP ("BDO") resigned as the Company's
independent accountant (see Item 9 above). On January 7, 1999, a Special
Meeting of the Board of Directors (the "Special Meeting") was held for the
purpose of receiving the report and recommendations from the Special Committee
(see Item 7 above "Review of Accounting Procedures").

  Following the presentation and proposals by the Special Committee, those
directors not on the Special Committee made a counter-proposal. Without
responding to the counter-proposal, the three members of the Special Committee
informed the Board of their intent to resign from the Special Committee and
from the Board of Directors. Each of the resigning directors submitted letters
to the Company's Board dated January 11, 1999 confirming their resignations.
Each cited as the reason for his resignation as the refusal of the other
members of the Board to accept the proposals of the Special Committee.

  The Board of Directors first created the Special Committee to investigate
certain situations that took place in fiscal years 1993 and 1994. Being fully
aware of the facts and allegations presented by the Special Committee, those
directors at the Special Meeting not on the Special Committee were concerned
with the Special Committee's time schedule in bringing on a new auditor and
the projected time frame to complete the new audited financial statements for
the fiscal year ended September 30, 1998. The Special Committee had not
engaged a new auditor and suggested that once a new auditor was engaged, the
time frame to complete the audit could take up to six months. The remaining
directors believed that it would be in the best interest of the Company and
its shareholders to engage a new auditor as soon as possible in order to
promptly complete and publish the Company's financial statements for fiscal
year 1998.

  The remaining directors also believe that the Company's President does not
owe any monies to the Company as implied by the Special Committee. Further,
the remaining directors believe that under the current circumstances, it is
not necessary to have certain directors place their shares of the Company's
stock into a voting trust.

  Based upon the report from the Special Committee, the current Board of
Directors believes that there was not any negative impact upon the Company's
overall reported financial results for its 1994, 1995, 1996, 1997 and 1998
fiscal years. Certain sales previously recorded in fiscal year 1993 should
have been more properly recorded in fiscal years 1995, 1996 and 1997. However,
combined sales and earnings for these fiscal years will not be affected and
there will be no material cumulative effect to the financial statements for
these periods. Any adjustments made to prior year statements have had no
effect on the Company's financial statements for fiscal year 1998.

  On January 11, 1999, the Company's Board of Directors approved the
appointment of and formally engaged Jones, Jensen & Company, Certified Public
Accountants ("JJ&C"), as the Company's principal accountant. Thereupon, JJ&C
began auditing the Company's financial statements for the fiscal years ended
September 30, 1998, 1997 and 1996. JJ&C has also performed a review of the
financial controls of the Company and made recommendations to the Board of
Directors.

  On February 19, 1999, the Board of Directors accepted the resignations of
David Williams as President and Chief Executive Officer, and Pamela Sevy as
Chief Financial Officer, to be effective upon the filing of the 1998 Form 10-
K. The Board also nominated Blair Zykan as the Company's new President and
Chief Executive Officer effective February 23, 1999.

  On February 23, 1999, the Board of Directors appointed Brian Abeel to fill
one of the vacancies on the Board from the resignations of the previous
directors. On November 29, 1999 Mr. Abeel joined the Company as

                                      35
<PAGE>

Executive Vice President and Chief Financial Officer while remaining on the
Board of Directors. Mr. Abeel was also named Secretary of the Corporation in
November 1999.

  On March 11, 1999, the Board of Directors appointed Edwin Phelps to fill one
of the vacancies on the Board from the resignations of the previous directors.
He was appointed Chairman of the Board on October 8, 1999. On April 9, 1999
the Board of Directors appointed Stephen Bamberger to fill one of the
vacancies on the Board from the resignations of the previous directors. The
Board is continuing its search to find a qualified director to fill the
remaining Outside Director vacancy.

  The Company's directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
In June 1994, the Company adopted a Stock Option Plan for Non-Employee
Directors (the "Director Plan"). The Director Plan provides for the grant of
options to purchase 30,000 shares of the Company's common stock to each member
of the Company's Board of Directors who is not an employee of the Company, 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
exercise price in each case is the fair market value of the Company's Common
Stock at the date of grant, based on the closing sale price of the Common
Stock on the American Stock Exchange on such date. Pursuant to the Director
Plan, as of September 30, 1999, options to purchase 30,000 shares were granted
and are outstanding to each of three non-employee directors at exercise prices
ranging from $1.56 to $3.25 per share. In addition, the Company reimburses
each Director's out of pocket expenses incurred in connection with their
duties as directors.

  Each officer of the Company serves at the discretion of the Board of
Directors. There are two committees of the Company's Board of Directors. As of
September 30, 1999, the Audit Committee consisted of Mr. Abeel and Mr. Phelps
and the Compensation Committee consisted of Mr. H. DeWorth Williams and Mr.
Phelps. Since Mr. Abeel joined the Company in November 1999 he has been
replaced on the Audit Committee by Mr. Bamberger.

  Jeremy G. Dunne. Mr. Dunne has been employed by the Company since 1986. From
1981 to 1986, Mr. Dunne was a chief engineer for Hydrographic Services,
International in Southbrough Kent, England, a company that performs software
and system design for the hydrographic surveying industry. From 1980 to 1981,
Mr. Dunne was an electrical engineering technician with Plessy Marine, Ltd. in
Ilford Essex, England, a manufacturer of electronic instrumentation. Mr. Dunne
earned a B.A. Degree in Electrical Engineering from the University of
Cambridge, Cambridge, England.

  Blair Zykan. Mr. Zykan has been with the Company since March of 1993. From
1993 to 1998, Mr. Zykan served as Vice President of Sales and Marketing,
responsible for North America before adding global responsibility for the
Company's Survey and Mapping products in 1996. In August 1998, Mr. Zykan was
promoted as the Company's Chief Operating Officer. On February 24, 1999, Mr.
Zykan filled the vacancy created by the resignation of Mr. Williams as
President and Chief Executive Officer. From 1983 to 1993, Mr. Zykan served in
a variety of sales and sales management positions with Armstrong World
Industries, a global manufacturer of interior finishing products. Mr. Zykan is
a 1983 graduate of Franklin & Marshall College with a B.A. in Economics.

  H. DeWorth Williams. Mr. Williams is the owner of Williams Investment
Company and has been a financial consultant for more than twenty years. During
this time, Mr. Williams has been instrumental in facilitating and completing
several mergers, acquisitions, business consolidations and underwritings. Mr.
Williams is the brother of the Company's President, David Williams.

  Brian Abeel. Mr. Abeel joined the Company November 29, 1999 as Executive
Vice President and Chief Financial Officer. He has served on the Board of
Directors of the Company since February 23, 1999. Immediately prior to joining
the Company he was Co-President of Spectra Lux Corporation, a leading
manufacturer of edge-lighted displays for commercial and military aircraft
applications. He currently serves on the boards of Spectra Lux Corporation,
Aviosupport, Inc., a spares aftermarket distributor to the world's airlines,
and is a founding

                                      36
<PAGE>

shareholder and board member of Avio Corporation, a holding company for both
organizations. From 1988 to 1989, Mr. Abeel served as Vice President, Finance
of AmeriFresh, a division of Food Services of America. Mr. Abeel holds a B.A.
degree in business administration from the University of Washington and in
1984 passed his CPA exam.

  Edwin P. Phelps. Mr. Phelps is the Chief Executive Officer and owner of
Phelps Engineered Plastics (previously Norfield Corporation), an engineered
materials manufacturer of plastic sheeting for a variety of packaging and
construction applications. Prior to acquiring Norfield Corporation, Mr. Phelps
was the CEO of Lunn Industries. From 1984 to 1987 he served as President and
Chief Operating Officer of Crane. Inc. Mr. Phelps began his career with
General Electric Corporation, where he served as General Manager of numerous
GE divisions during a 25-year career. He holds a B.S. in Mechanical
Engineering from the University of Detroit, and a M.S.M.E. from Union College.

  Stephen Bamberger. Mr. Bamberger was most recently the Vice President of
Business Development for Bushnell Sports Optics, the world's largest supplier
of optical products, including binoculars, laser rangefinders, rifle scopes,
and telescopes. The LTI/Bushnell Strategic Partnership has resulted in the
Yardage Pro line of consumer laser rangefinders. Prior to his tenure at
Bushnell, he held executive positions at Bausch & Lomb, Abbott Laboratories,
and Rubbermaid. Mr. Bamberger holds a Bachelor of Arts degree in Mathematics
from the College of Wooster, Wooster, Ohio, and a Masters of Science degree in
Computer Science from Syracuse University.

ITEM 11. EXECUTIVE COMPENSATION

Employment Agreements

  On April 8, 1999, the Company entered into an employment agreement with its
newly appointed President, Blair Zykan. Under the terms of the agreement, Mr.
Zykan agrees to serve as President and C.E.O. for a period of three years for
a base annual salary of $97,000 and certain other fringe benefits. The base
salary will be reviewed annually by the Board of Directors. In addition, Mr.
Zykan is entitled to an annual cash bonus pursuant to a formula based on
corporate performance and comparable on a percentage basis to bonuses given to
similarly situated executives at companies similar in size to the Company. The
agreement also provides for the grant of stock purchase options to purchase
75,000 shares of the Company's common stock at $3.25 per share, exercisable
for a period of ten years. In addition, Mr. Zykan was granted a deferred share
award of 25,000 shares of the Company stock, vesting one third upon grant and
one third on the anniversary date of the agreement in each of the next two
years. Further, the agreement provides that in the event of a change of
control of the Company and certain other specific triggering events, the
Company will pay Mr. Zykan a lump sum payment of 2.99 times his base salary at
the time of the change of control.

  The Company has also entered into an employment agreement dated November 1,
1999 with its Executive Vice President and Chief Financial Officer, Brian
Abeel. Mr. Abeel's agreement is for a period of three years for a base annual
salary of $95,000 and certain other fringe benefits. The base salary will be
reviewed annually by the Board of Directors. Mr. Abeel is also entitled to an
annual cash bonus pursuant to a formula based on corporate performance and
comparable on a percentage basis to bonuses given to similarly situated
executives at companies similar in size to the Company. The agreement also
provides for the grant of stock purchase options to purchase 45,000 shares of
the Company's common stock at $1.375 per share, exercisable for a period of
ten years. In addition, Mr. Abeel retains his options granted as a Director to
purchase 30,000 shares of the Company's stock at $3.25 per share, exercisable
for a period of ten years. In addition, Mr. Abeel was granted a deferred share
award of 25,000 shares of the Company stock, vesting one third upon grant and
one third on the anniversary date of the agreement in each of the next two
years. Further, the agreement provides that in the event of a change of
control of the Company and certain other specific triggering events, the
Company will pay Mr. Abeel a lump sum payment of 2.99 times his base salary at
the time of the change of control.

                                      37
<PAGE>

  On April 12, 1999 the Company hired Suanne Parro as Chief Financial Officer.
On December 7, 1999, Ms. Parro tendered her resignation in conjunction with
the hiring of Brian Abeel as Executive Vice President and Chief Financial
Officer.

Cash Compensation

  The following table sets forth a summary of cash and non-cash compensation
for each of the last three fiscal periods ended September 30, 199, 1998 and
1997, with respect to the Company's Chief Executive Officer and former Chief
Executive Officer. No other executive officer of the Company has earned a
salary greater than $100,000 annually for any of the periods depicted.

                          Summary Compensation Table

<TABLE>
<CAPTION>
   Name and
   Principal                             Other Annual Restricted   All Other
   Position         Year  Salary   Bonus Compensation Stock Award Compensation
   ---------        ---- --------  ----- ------------ ----------- ------------
   <S>              <C>  <C>       <C>   <C>          <C>         <C>
   Blair Zykan,     1999 $ 87,018  $--     $15,844       8,333**      $--
    President,
     C.E.O.         1998         *  --         --          --          --
                    1997         *  --         --          --          --

   David Williams,  1999 $100,608   --         --          --          --
    Former
     President,
     C.E.O.         1998   92,500   --         --          --          --
                    1997   90,525   --         --          --          --
</TABLE>

  The preceding table does not include any amounts for non-cash compensation,
including personal benefits, paid to David Williams or Blair Zykan. The
Company believes 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.
--------
*  Mr. Zykan was not an officer of the Company during 1998 or 1997 and did not
   earn over $100,000 during those years. In 1999 he 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 stock in the Company,
   vesting one third at the date of grant and one third each year thereafter
   until fully vested.

                                      38
<PAGE>

    Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
                               Option/SAR Values

<TABLE>
<CAPTION>
                            Number of Securities            Value of
                           Underlying Unexercised          Unexercised
                               Options/SARs at            In-the-Money
                               Fiscal Year End           Fiscal Year End
   Name and Principal
   Position               Exercisable/Unexercisable Exercisable/Unexercisable
   ------------------     ------------------------- -------------------------
   <S>                    <C>                       <C>
   David Williams,               68,250/none                 $0/none
    Former President,
     C.E.O.(1)

   Blair Zykan,                 126,000/none                 $0/none
    President, C.E.O.(2)
</TABLE>
--------
(1) On June 3, 1994, the Company granted options to purchase 68,250 shares of
    the Company's common stock to David Williams, President and CEO, pursuant
    to the Company's Equity Incentive Plan. The options are non-transferable
    and vest annually in three equal installments over a three-year period. As
    of September 30, 1999, all options were fully vested.
(2) On June 3, 1994, the Company granted options to purchase 51,000 shares of
    the Company's common stock to Blair Zykan pursuant to the Company's Equity
    Incentive Plan. The options are non-transferable and vested annually in
    three equal installments over a three-year period. As of September 30,
    1999, all options were fully vested. On February 23, 1999, the Company
    granted Mr. Zykan options to purchase 75,000 shares of the Company's
    common stock, pursuant to the Company's Equity Incentive Plan. The options
    are non-transferable and vest fully six months after issuance. As of
    September 30, 1999, all options were fully vested.

 Equity Incentive Plan

  In 1994, the Company adopted an equity incentive plan, the "Employee Plan"
which provides for the issuance of options to key employees and consultants of
the Company to purchase up to an aggregate of 530,000 shares of the Company's
Common Stock at the fair market value of the stock at the date of grant, 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 Company eligible employees and consultants.

  On February 24, 1998, Stockholders approved a proposal to amend the
Company's Equity Incentive Plan ("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 Employee 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 Employee Plan. In no event except as subject to adjustment pursuant
to certain sections of the Employee Plan, more than 1,000,000 shares of stock
shall be cumulatively available for issuance pursuant to the exercise of the
Incentive Options.

  As of September 30, 1999, the total number of shares of Common Stock subject
to all awards under the Employee Plan could not exceed 738,548.

  As of September 30, 1999, options to purchase 713,250 shares of the
Company's common stock were outstanding, at exercise prices ranging from $1.75
to $5.25 per share of which 567,332 options were exercisable at September 30,
1999. 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 of the Company (subject to certain exceptions
contained in the Employee Plan).

                                      39
<PAGE>

 Non-Employee Director Stock Option Plan

  In 1994, the Company also adopted a stock option program for non-employee
directors (the "Director Plan"). The Director Plan provides for the grant of
options to purchase 30,000 shares of the Company's Common Stock at the
effective date of the plan to each member of the Company's Board of Directors
who is not an employee of the Company, 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 Director Plan. The maximum number of shares
that may be subject to options issued under the Director Plan is 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.
As of September 30, 1999, pursuant to the Director Plan, options to purchase
30,000 shares have been granted to each outside director at exercise prices
ranging from $1.56 to $4.25 per share. Options granted under the Director Plan
vest one-third each year for three years and expire ten years after the date
of grant, or, if sooner, three months after the holder ceases to be a director
of the Company (subject to certain exceptions contained in the Director Plan).
At September 30, 1999, 120,000 options were outstanding and 30,000 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 the Company.

                                      40
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The following table sets forth information, to the best knowledge of the
Company, as of December 27, 1999 with respect to each person known by the
Company to beneficially own more than 5% of the Company's outstanding Common
Stock, each director and all directors and officers as a group.

<TABLE>
<CAPTION>
                                                         Number of
                                                           Shares    Percentage
                                                        Beneficially Ownership
Name                                                       Owned        (1)
----                                                    ------------ ----------
<S>                                                     <C>          <C>
Jeremy G. Dunne (2)....................................    417,000       7.7%
2686 E. Otero Place
Littleton, Colorado 80122

Blair Zykan (3)........................................    142,143       2.8%
8750 East Otero Circle
Englewood, Colorado 80112

H. DeWorth Williams (4)................................    594,357      10.6%
P.O. Box 2148
Park City, Utah 84060

David Williams (5).....................................    388,686       7.2%
1501 W. Dry Creek Road
Littleton, Colorado 80210

Brian Abeel (6)........................................     18,333        .4%
4800 Cherry Creek South Drive #C200
Denver, CO 80246

Edwin Phelps...........................................          0         0%
36 Kenosia Ave
Danbury, CT 06810

Stephen Bamberger......................................          0         0%
8371 Maplewood Drive
Lenexa, KS 66215

Plaza Resources Company (7)............................    356,250       6.6%
GEICO Plaza
Washington, DC 20076

Directors and officers as a group (7 persons) (8)......  1,171,833      18.9%
</TABLE>
--------
(1) Percentage ownership is calculated separately for each person on the basis
    of the actual number of outstanding shares as of December 27, 1999 and
    assumes the exercise of options held by such person (but not by anyone
    else) exercisable within sixty days.
(2) Includes 68,250 shares, which may be acquired by Mr. Dunne pursuant to the
    exercise of stock options exercisable within sixty days.
(3) Includes 126,000 shares, which may be acquired by Mr. Zykan pursuant to
    the exercise of stock options exercisable within sixty days.
(4) Includes 30,000 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. Abeel pursuant to the
    exercise of stock options exercisable within sixty days.
(7) Includes 356,250 shares issuable upon exercise of the PRC Warrants. PRC is
    a wholly owned subsidiary of Geico Corporation. See Note 5 to the
    Company's Consolidated Financial Statements.
(8) Includes 234,250 shares, which may be acquired by the Company's officers
    or directors within sixty days pursuant to the exercise of stock options
    at various prices.

                                      41
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. The sale was initially recorded by the Company at a $0
sales price. The Company's Controller became aware of the transaction after it
was completed. David Williams and Pamela Sevy, the Company's President and
Chief Financial Officer, respectively, applied the proceeds from the sale to
reduce Mr. Williams' account receivable at the Company by $50,000. This was in
consideration for monies Mr. Williams had transmitted to the Company to reduce
the LTIA receivable and, that due to the resale of returned units by the
Company, were considered unrecoverable by him. Subsequently, the Company
reversed this transaction, debited Mr. Williams account receivable for
$50,000, and recorded the sale as revenues to the Company. The Company then
reduced Mr. Williams' account receivable by $50,000 to recognize the monies he
had transmitted to the Company to reduce the LTIA receivable remaining
unrecovered by him.

  Effective October 25, 1999 the Company terminated the employment of David
Williams and Pamela Sevy, who both resigned as President and Chief Executive
Officer and Chief Financial Officer, respectively, on February 19, 1999. The
separation agreements provide for payment to Mr. Williams of $23,687 of
accrued vacation plus $98,764 of severance pay, payable $24,691 in November
1999 and the remainder over twelve monthly installments of $6,173 per month
beginning November 23, 1999, and for payment to Ms. Sevy of $16,845 of accrued
vacation plus $68,527 of severance pay, payable $17,132 in November 1999 and
the remainder over twelve monthly installments of $4,283 per month beginning
November 23, 1999. In addition, both Mr. Williams and Ms. Sevy will receive
indemnification of legal fees and costs incurred in connection with the
litigation and SEC proceedings up to a maximum of $25,000 each, and the Stock
Option Certificates each hold will be amended to permit the exercise of his or
her Stock Options through the end of the current option term, which is June 2,
2004. The Company is presently negotiating an Independent Manufacturer's
Representative agreement with Mr. Williams which would pay him a commission on
sales to certain of the Company's customers. The agreement and commission
structure will be based on industry standards.

                                   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.

<TABLE>
   <C>        <S>                                                           <C>
   Schedule I Valuation and Qualifying Accounts...........................  F-22
</TABLE>

  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.

                                      42
<PAGE>

  3. Exhibit list.

  The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Securities Exchange Commission. The
Company shall furnish copies of exhibits for a reasonable fee (covering the
expense of furnishing copies) upon request.

<TABLE>
<CAPTION>
 Exhibit No                            Exhibit Name
 ----------                            ------------
 <C>        <S>
   3.3 (6)  Articles of Incorporation for the State of Delaware

   3.4 (6)  By-Laws of Registrant

   3.5 (6)  Certificate of Merger

   4.1 (1)  Specimen Common Stock Certificates of Registrant

  10.1 (1)  Promissory Note, Secured Note and Warrant Agreement dated as of
            February 21, 1991 between Registrant and Plaza Resources Company

  10.2 (1)  Amendment to the Promissory Note, Secured Note and Warrant
            Agreement dated as of October 24, 1991 between the Registrant and
            Plaza Resources Company

  10.3 (1)  Letter Agreement dated July 17, 1992 between Registrant and Plaza
            Resources Company Including Amendments dated September 23, 1992,
            December 1, 1992, December 22, 1992, and January 7, 1993

  10.4 (1)  Lease Agreement for Registrant's Principal Place of Business

  10.5 (1)  Non-Competition and Secrecy Agreement dated July 15, 1990 between
            Registrant and David Williams, President of Registrant

  10.6 (1)  Non-Competition and Secrecy Agreement dated July 15, 1990 between
            Registrant and Jeremy Dunne, Vice President of Registrant

  10.8 (1)  Employment Agreement between Registrant and Jeremy Dunne

  10.9 (1)  Non-Disclosure/Confidentiality Agreement between Registrant and
            Certain Other Key Employees

  10.14(2)  Amendment to Lease to Include New Facility

  10.15(3)  Employee Stock Option Plan

  10.16(3)  Non-Employee Director Plan

  10.17     Employment Agreement between Registrant and Blair Zykan

  10.18     Employment Agreement between Registrant and Brian Abeel

  16.0 (4)  Letter from BDO Seidman, LLP

  17.1 (5)  Resignation of Director Letter--Richard D. Sayford

  17.2 (5)  Resignation of Director Letter--F. James Lynch

  17.3 (5)  Resignation of Director Letter--William R. Carr

  21.1      Subsidiaries

  27.1      Financial Data Schedule
</TABLE>
--------
(1) Incorporated by reference to the Company's Form S-1 registration
    statement, file no. 1-11642.
(2) Incorporated by reference to the Company's Form 10-K for the fiscal year
    ended September 30, 1993.
(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.

(b) Reports on Form 8-K:

  No reports on Form 8-K were filed by the Registrant during the quarter ended
September 30, 1999.

                                      43
<PAGE>

                                  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.

                                                    /s/ Blair Zykan
December 28, 1999                         By __________________________________
                                                        Blair Zykan
                                               President and Chief Executive
                                                          Officer

  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:

<TABLE>
<S>                                    <C>                        <C>
       /s/ Jeremy G. Dunne             Vice President and          December 28, 1999
______________________________________  Director
           Jeremy G. Dunne

        /s/ Brian P. Abeel             Executive Vice President,   December 28, 1999
______________________________________  Chief Financial Officer,
            Brian P. Abeel              Secretary and Director

     /s/ H. Deworth Williams           Director                    December 28, 1999
______________________________________
         H. DeWorth Williams

         /s/ Edwin Phelps              Director                    December 28, 1999
______________________________________
             Edwin Phelps

      /s/ Stephen Bamberger            Director                    December 28, 1999
______________________________________
          Stephen Bamberger
</TABLE>

                                      44
<PAGE>

                             LASER TECHNOLOGY, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                          <C>
Independent Auditors' Report................................................ F-2

Consolidated Balance Sheets................................................. F-3

Consolidated Statements of Operations....................................... F-4

Consolidated Statements of Stockholders' Equity............................. F-5

Consolidated Statements of Cash Flows....................................... F-6

Notes to the Consolidated Financial Statements.............................. F-7
</TABLE>

                                      F-1
<PAGE>

                         Independent Auditors' Report

To the Shareholders and Board of Directors
Laser Technology, Inc. and Subsidiaries
Englewood, Colorado

  We have audited the accompanying consolidated balance sheets of Laser
Technology, Inc. and Subsidiaries as of September 30, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended September 30, 1999, 1998 and 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our
opinion.

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Laser Technology, Inc. and Subsidiaries at September 30, 1999 and 1998 and
the consolidated results of their operations and their cash flows for the
years ended September 30, 1999, 1998 and 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, the schedule attached
presents fairly, in all material respects, the information set forth therein.

Jones, Jensen & Company
Salt Lake City, Utah

December 8, 1999

                                      F-2
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           September 30,
                                                      ------------------------
                                                         1999         1998
                                                      -----------  -----------
<S>                                                   <C>          <C>
                       ASSETS
Current Assets
  Cash and cash equivalents.......................... $   757,076  $   988,586
  Investments (Note 2)...............................      10,460      509,807
  Trade accounts receivable (Note 8), less allowance
   of $250,000 and $10,000 for doubtful accounts.....   2,826,460    3,652,944
  Income tax refund receivable.......................     686,000          --
  Royalties receivable...............................     396,290      424,525
  Inventories (Note 3)...............................   2,847,735    3,857,963
  Deferred income tax benefit (Note 6)...............     348,000       87,000
  Income tax prepayment..............................     166,919          --
  Prepaids and other current assets..................     133,354      225,476
                                                      -----------  -----------
    Total Current Assets.............................   8,172,294    9,746,301
                                                      -----------  -----------
Property and equipment, (net) (note 4)...............   1,504,449    1,517,416
                                                      -----------  -----------
Other assets
  Long-term investments (Note 2).....................     689,801      676,294
  Other assets.......................................     845,164      575,946
                                                      -----------  -----------
    Total Other Assets...............................   1,534,965    1,252,240
                                                      -----------  -----------
    Total assets..................................... $11,211,708  $12,515,957
                                                      ===========  ===========
        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable................................... $   578,015  $   752,417
  Accrued expenses...................................   1,749,429      482,617
  Notes payable--current (Note 10)...................      91,621       76,564
                                                      -----------  -----------
    Total Current Liabilities........................   2,419,065    1,311,598
                                                      -----------  -----------
Long-term debt
  Notes payable (Note 10)............................     114,400      159,549
                                                      -----------  -----------
    Total Long-Term Debt.............................     114,400      159,549
                                                      -----------  -----------
    Total Liabilities................................   2,533,465    1,471,147
                                                      -----------  -----------
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, 5,244,201 and 5,219,201 shares issued
   and outstanding, respectively.....................      52,442       52,192
  Additional paid-in capital.........................   9,708,245    9,669,420
  Stock subscription receivable......................     (19,537)         --
  Treasury stock at cost, 224,650 and 224,650 shares,
   respectively......................................    (194,259)    (194,259)
  Retained earnings..................................    (868,648)   1,517,457
                                                      -----------  -----------
    Total Stockholders' Equity.......................   8,678,243   11,044,810
                                                      -----------  -----------
    Total liabilities and stockholders' equity....... $11,211,708  $12,515,957
                                                      ===========  ===========
</TABLE>

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

                                      F-3
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                  For the Years Ended
                                                     September 30,
                                           -----------------------------------
                                              1999         1998        1997
                                           -----------  ----------- ----------
<S>                                        <C>          <C>         <C>
Sales, net (Note 8)....................... $11,814,654  $11,801,293 $9,308,768
Cost of goods sold........................   5,845,387    5,554,037  4,093,285
                                           -----------  ----------- ----------
Gross profit..............................   5,969,267    6,247,256  5,215,483
                                           -----------  ----------- ----------
  Other revenues
  Royalty and licensing revenues..........     932,796    1,242,732    868,931
                                           -----------  ----------- ----------
    Total other revenues..................     932,796    1,242,732    868,931
                                           -----------  ----------- ----------
Total operating income....................   6,902,063    7,489,988  6,084,414
Operating expenses
Restructuring and litigation cost.........   2,071,257          --         --
General and administrative................   8,211,854    6,205,024  5,342,067
                                           -----------  ----------- ----------
    Total operating expenses..............  10,283,111    6,205,024  5,342,067
                                           -----------  ----------- ----------
Income (loss) from operations.............  (3,381,048)   1,284,964    742,347
Interest income, net......................       9,009      115,535    163,955
                                           -----------  ----------- ----------
Income (loss) before income taxes.........  (3,372,039)   1,400,499    906,302
Income tax expense (benefit) (Note 6).....    (985,934)     504,000    312,000
                                           -----------  ----------- ----------
Net income (loss)......................... $(2,386,105) $   896,499 $  594,302
                                           ===========  =========== ==========
Basic income (loss) per share............. $     (0.48) $      0.18 $     0.12
                                           ===========  =========== ==========
Diluted income (loss) per share........... $     (0.48) $      0.15 $     0.10
                                           ===========  =========== ==========
Basic weighted average number of shares
 outstanding..............................   4,994,622    4,985,902  4,998,351
                                           ===========  =========== ==========
Diluted weighted average shares...........   4,994,622    5,981,235  5,918,934
                                           ===========  =========== ==========
</TABLE>


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

                                      F-4
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                           Common Stock    Additional
                         -----------------  Paid-In    Treasury   Subscription  Retained
                          Shares   Amount   Capital      Stock     Receivable   Earnings       Total
                         --------- ------- ----------  ---------  ------------ -----------  -----------
<S>                      <C>       <C>     <C>         <C>        <C>          <C>          <C>
Balance, September 30,
 1996................... 5,088,201 $50,882 $9,623,980  $ (17,535)   $    --    $    26,656  $ 9,683,983
 Concurrent exercise of
  stock options and
  purchase of treasury
  stock.................   120,000   1,200     (1,200)  (120,000)        --            --      (120,000)
 Purchase of treasury
  stock.................       --      --         --      (3,924)        --            --        (3,924)
 Net income for the year
  ended September 30,
  1997..................       --      --         --         --          --        594,302      594,302
                         --------- ------- ----------  ---------    --------   -----------  -----------
Balance, September 30,
 1997................... 5,208,201  52,082  9,622,780   (141,459)        --        620,958   10,154,361
 Exercise of stock
  options...............    11,000     110     46,640        --          --            --        46,750
 Purchase of treasury
  stock.................       --      --         --     (52,800)        --            --       (52,800)
 Net income for the year
  ended September 30,
  1998..................       --      --         --         --          --        896,499      896,499
                         --------- ------- ----------  ---------    --------   -----------  -----------
Balance, September 30,
 1998................... 5,219,201  52,192  9,669,420   (194,259)        --      1,517,457   11,044,810
 Shares issued for
  deferred award........    25,000     250     38,825        --      (19,537)          --        19,538
 Net income for the year
  ended September 30,
  1999..................       --      --         --         --          --     (2,386,105)  (2,386,105)
                         --------- ------- ----------  ---------    --------   -----------  -----------
Balance, September 30,
 1999................... 5,244,201 $52,442 $9,708,245  $(194,259)   $(19,537)  $  (868,648) $ 8,678,243
                         ========= ======= ==========  =========    ========   ===========  ===========
</TABLE>




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

                                      F-5
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                Year Ended September 30,
                                            -----------------------------------
                                               1999         1998        1997
                                            -----------  ----------  ----------
<S>                                         <C>          <C>         <C>
Cash flows from operating activities:
  Net income (loss).......................  $(2,386,105) $  896,499  $  594,302
  Adjustments to reconcile net income
   (loss) to net cash provided by (used
   in) operating activities:
  Depreciation and amortization...........      541,824     374,388     288,447
  Bad debt expense........................      256,278         --          --
  Stock issued for deferred services......       19,538         --          --
  Deferred income taxes...................     (261,000)     (6,000)    (29,000)
  Changes in operating assets and
   liabilities:
    Trade accounts and other receivables..     (115,794)   (318,465)   (570,154)
    Royalties receivable..................       28,235      (8,877)   (228,455)
    Inventories...........................    1,010,228  (1,059,060)   (221,268)
    Other assets..........................      (88,304)    (36,652)     52,762
    Accounts payable and accrued
     expenses.............................    1,092,410     244,769      19,661
                                            -----------  ----------  ----------
Net cash provided by (used in) operating
 activities...............................       97,310      86,602     (93,705)
                                            -----------  ----------  ----------
Cash flows from investing activities:
  Purchases of property and equipment.....     (500,215)   (576,185)   (453,851)
  Purchases of investments................          --     (800,525) (1,297,465)
  Proceeds from sale of investments.......      499,347   1,255,282     867,880
  Patent costs paid.......................     (297,860)   (158,596)   (185,357)
                                            -----------  ----------  ----------
Net cash (used in) investing activities...     (298,728)   (280,024) (1,068,793)
                                            -----------  ----------  ----------
Cash flows from financing activities:
  Repayment of related party payable......          --          --       (8,872)
  Proceeds from note payable..............       68,361     248,497         --
  Payments on long-term debt..............      (98,453)    (12,384)        --
  Proceeds from exercise of stock
   options................................          --       46,750         --
  Purchase of treasury stock..............          --      (52,800)   (123,924)
                                            -----------  ----------  ----------
Net cash provided by (used in) financing
 activities...............................      (30,092)    230,063    (132,796)
                                            -----------  ----------  ----------
Net increase (decrease) in cash and cash
 equivalents..............................     (231,510)     36,641  (1,295,294)
Cash and cash equivalents at beginning of
 year.....................................      988,586     951,945   2,247,239
                                            -----------  ----------  ----------
Cash and cash equivalents at end of year..  $   757,076  $  988,586  $  951,945
                                            ===========  ==========  ==========

Supplemental Disclosures of Cash Flows

<CAPTION>
                                               1999         1998        1997
                                            -----------  ----------  ----------
<S>                                         <C>          <C>         <C>
Cash paid for:
  Interest................................  $    19,800  $    3,065  $    1,130
  Income taxes............................      120,000     465,000     317,000
</TABLE>

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

                                      F-6
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                          September 30, 1999 and 1998

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., Laser Technology, U.S.V.I., Light Solutions Research,
Inc. and International Measurement and Control Company. All significant
intercompany transactions have been eliminated. Laser Technology, Inc. is
engaged in the business of developing, manufacturing, and marketing laser
based measurement instruments.

  Effective May 30, 1997, Laser Technology, Inc. an Idaho corporation ("Laser
Technology-Idaho"), was merged into a newly formed subsidiary, Laser
Technology, Inc., a Delaware corporation ("Laser Technology-Delaware), with
Laser Technology-Idaho ceasing to exist, for the principal purposes of (a)
changing the corporate domicile of the Company from the State of Idaho to
Delaware, and (b) adopting certain changes to the Company's corporate charter.
The transaction was accounted for as a recapitalization similar to a pooling
of interests and the merger did not involve any change in the business,
properties, management or capital structure of the Company. Laser Technology-
Delaware had no operations prior to the merger. Stockholders of Laser
Technology-Delaware received the same number of shares of common stock as they
previously held in Laser Technology-Idaho.

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 a checking account at a financial institution located
in Colorado. The account is insured by the Federal Deposit Insurance
Corporation up to $100,000. 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 available for sale as the Company does not have the
positive intent to hold to maturity or does not intend to trade actively.
These securities are stated at fair value which approximates cost.

                                      F-7
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998


  At September 30, 1999 and 1998, investments consisted of the following:

<TABLE>
<CAPTION>
                                                              1999      1998
                                                            -------- ----------
   <S>                                                      <C>      <C>
   Current--
     U.S. Government obligations........................... $ 10,460 $  509,807
                                                            -------- ----------
   Non-Current
     Municipal bonds.......................................  570,128    566,724
     U.S. Government obligations...........................  119,673    109,570
                                                            -------- ----------
       Total Non-Current...................................  689,801    676,294
                                                            -------- ----------
       Total Investments................................... $700,261 $1,186,101
                                                            ======== ==========
</TABLE>

 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 $60,000.

 g. Property, Equipment and Depreciation

  Property and equipment are stated at cost. Depreciation of property and
equipment is computed using straight-line and accelerated methods over the
estimated useful lives of the related assets, primarily from five to seven
years.

 h. Patents and Amortization

  Patents are carried at cost and when granted, are amortized over their
estimated useful lives of 15 to 17 years. The carrying value of patents is
periodically reviewed and impairments, if any, are recognized when the
expected future benefit to be derived from individual intangible assets is
less than its carrying value.

 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 $920,600, $757,000 and $664,000 for the
years ended September 30, 1999, 1998 and 1997, 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.

                                      F-8
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998


 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.

 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.

 n. Advertising

  Advertising expenses are charged to operations in the period in which they
are incurred. Advertising expense for the years ended September 30, 1999, 1998
and 1997 was approximately $352,000, $419,000 and $381,000, respectively.

 o. Statement of Cash Flows

  For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents. At September 30, 1999 and 1998, cash and cash equivalents
included money market and mutual fund accounts of approximately $245,000 and
$475,000, respectively.

 p. New Accounting Pronouncements

  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 137 amended the effective date of SFAS
No. 133 for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management believes the adoption of this statement will have no material
impact on the Company's financial statements.

 q. Reclassifications

  Certain reclassifications have been made to the 1998 financial statements to
conform to the current year's presentation.


                                      F-9
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998

NOTE 3--Inventories

  Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                              September 30,
                                                          ---------------------
                                                             1999       1998
                                                          ---------- ----------
   <S>                                                    <C>        <C>
   Finished goods........................................ $  771,298 $1,175,229
   Work-in-process.......................................    977,517  1,315,925
   Raw materials and supplies............................  1,098,920  1,366,809
                                                          ---------- ----------
     Total............................................... $2,847,735 $3,857,963
                                                          ========== ==========
</TABLE>

NOTE 4--Property and Equipment

  Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                           September 30,
                                                      ------------------------
                                                         1999         1998
                                                      -----------  -----------
   <S>                                                <C>          <C>
   Shop equipment.................................... $   775,963  $   861,614
   Office equipment..................................     496,179      742,132
   Leasehold improvements............................     684,159      456,272
   Automobiles.......................................     313,415      460,308
   Furniture/fixtures................................     446,340      288,093
                                                      -----------  -----------
                                                        2,716,056    2,808,419
   Less accumulated depreciation and amortization....  (1,211,607)  (1,291,003)
                                                      -----------  -----------
     Total........................................... $ 1,504,449  $ 1,517,416
                                                      ===========  ===========
</TABLE>

  Depreciation expense was $513,182 and $350,668 for the years ended September
30, 1999 and 1998.

NOTE 5-- Stockholders' Equity

 Capital Stock

  At September 30, 1999, the Company had 1,214,798 shares reserved or
available for issuance as follows:

<TABLE>
   <S>                                                                 <C>
   Common Shares:
     Equity Incentive Plan............................................   738,548
     Non-Employee Director Stock Option Plan..........................   120,000
   Warrants:
     PRC warrants.....................................................   356,250
                                                                       ---------
       Total.......................................................... 1,214,798
                                                                       =========
</TABLE>

 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

                                     F-10
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998

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.

 Public Offering

  During January 1993, the Company completed a public offering consisting of
the sale of 1,552,000 units at an offering price of $5.00 per unit. Each unit
consisted of one share of the Company's common stock and one redeemable
warrant. Each redeemable warrant entitles the holder to purchase one share of
common stock upon the payment of $6.00. On August 6, 1997, the Company
announced that it would not extend the expiration date of its outstanding
redeemable warrants, which expired on January 11, 1998. The redeemable
warrants were subject to redemption. The securities comprising the units were
currently separate and transferable.

  As part of the public offering, the Company sold to the underwriter
nonredeemable warrants to purchase 138,000 units. Each nonredeemable warrant
allowed for purchase of one share of common stock and one redeemable warrant,
upon the payment of $8.25, subject to adjustment, until January 11, 1998. The
redeemable warrants exercisable under these underwriter's warrants were
exercisable at $9.90 per share and were identical to the redeemable warrants
issued with the units under the public offering.

  Additionally, in connection with the offering, the Company sold to an
unrelated partnership, 100,000 redeemable warrants at a price of $0.10 per
warrant.

  On August 6, 1997, the Company announced that it would not extend the
expiration date of its outstanding Redeemable Warrants, which expired on
January 11, 1998. Because of the Company's announcement, Redeemable Warrants
that were not exercised by the holders thereof expired by their terms and the
holders have no further exercise rights.

 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.

                                     F-11
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998


 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, 1999, options to purchase 713,000
shares of the Company's common stock were outstanding, at exercise prices
ranging from $1.75 to $5.25 per share of which 567,000 options were
exercisable at September 30, 1999.

 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 120,000 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,
1999, options to purchase 120,000 shares of the Company's common stock were
outstanding at exercise prices ranging from $1.56 to $4.94 per share of which
100,000 options were exercisable.

 Unqualified Stock Options

  In April 1992, the Company granted options to purchase an aggregate of
120,000 shares of its common stock to three employees for services rendered.
In April 1997, such shares were issued under a cashless exercise of these
options.

  FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"), requires the Company to provide pro forma information regarding net
income and net income per share as if compensation costs for the Company's
stock option plans and other stock awards had been determined in accordance
with the

                                     F-12
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998

fair value based method prescribed in SFAS No. 123. The Company estimates the
fair value of each stock award at the grant date by using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants, respectively; dividend yield of zero percent for all years; expected
volatility of 84 percent for all years; risk-free interest rates of 6.0
percent and expected lives of 10 years.

  Under the accounting provisions of SFAS No. 123, the Company's net income
would have been decreased by the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                              1999        1998
                                                           -----------  --------
   <S>                                                     <C>          <C>
   Net loss:
     As reported.......................................... $(2,386,105) $896,499
     Pro forma............................................  (2,723,956)  895,849
   Net income per share:
     As reported.......................................... $     (0.48) $   0.18
     Pro forma............................................       (0.55)     0.18
</TABLE>

  During the initial phase-in period of SFAS 123, the effect on pro forma
results are not likely to be representative of the effects on pro forma
results in future years since options vest over several years and additional
awards could be made each year.

  A summary of the status of the Company's stock option plans as of September
30, 1999 and 1998 and changes during the years ending on those dates is
presented below:

<TABLE>
<CAPTION>
                                                 1999               1998
                                           ------------------ -----------------
                                                     Weighted          Weighted
                                                     Average           Average
                                                     Exercise          Exercise
                                            Shares    Price   Shares    Price
                                           --------  -------- -------  --------
   <S>                                     <C>       <C>      <C>      <C>
   Outstanding, beginning of year........   630,000   $4.18   650,750   $4.22
     Granted.............................   350,000    2.39    22,000    3.08
     Canceled............................  (146,750)   4.34   (31,750)   4.33
     Exercised...........................       --      --    (11,000)   4.25
                                           --------   -----   -------   -----
   Outstanding, end of year..............   833,250   $3.45   630,000   $4.18
                                           --------   -----   -------   -----
   Exercisable, end of year..............   597,332   $3.90   576,083   $4.22
                                           --------   -----   -------   -----
   Weighted average fair value of options
    and warrants granted during the
    year.................................             $2.09             $1.82
                                                      =====             =====
</TABLE>

<TABLE>
<CAPTION>
                                      Outstanding                Exercisable
                            -------------------------------- --------------------
                                         Weighted
                                          Average   Weighted             Weighted
                              Number     Remaining  Average    Number    Average
   Range of                 Outstanding Contractual Exercise Exercisable Exercise
   Exercise Prices          at 9/30/99     Life      Price   at 9/30/99   Price
   ---------------          ----------- ----------- -------- ----------- --------
   <S>                      <C>         <C>         <C>      <C>         <C>
   $1.56-3.31..............   361,000      9.66      $2.41     134,666    $2.67
    3.50-3.89..............    30,250      2.88       3.81      21,250     3.77
    4.00-4.25..............   425,500      4.68       4.25     424,916     4.25
    4.36-4.39..............     5,500      6.75       4.38       5,500     4.38
    5.00-5.25..............    11,000      6.64       5.15      11,000     5.17
                              -------      ----      -----     -------    -----
   $1.56-5.25..............   833,250      6.81      $3.45     597,332    $4.05
                              =======      ====      =====     =======    =====
</TABLE>

                                     F-13
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998


NOTE 6--Taxes on Income

  For the years ended September 30, 1999, 1998 and 1997 the provision for
federal and state income taxes consisted of the following:

<TABLE>
<CAPTION>
                                                    1999       1998      1997
                                                  ---------  --------  --------
   <S>                                            <C>        <C>       <C>
   Current:
     Federal..................................... $     --   $450,000  $323,000
     State.......................................     3,000    60,000    18,000
   Deferred:
     Federal.....................................  (988,934)   (6,000)  (27,000)
     State.......................................       --        --     (2,000)
                                                  ---------  --------  --------
                                                  $(985,934) $504,000  $312,000
                                                  =========  ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                   1999       1998     1997
                                                 ---------  -------- --------
   <S>                                           <C>        <C>      <C>
   Net operating losses......................... $(988,934) $    --  $    --
   Income taxes computed at the federal
    statutory rate..............................       --    444,000  305,000
   State income taxes, net of federal benefit...     3,000    60,000   12,000
   Other, net...................................       --        --    (5,000)
                                                 ---------  -------- --------
   Taxes on income.............................. $(985,934) $504,000 $312,000
                                                 =========  ======== ========
</TABLE>

  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:

<TABLE>
<CAPTION>
                                                                September 30,
                                                               ----------------
                                                                 1999    1998
                                                               -------- -------
   <S>                                                         <C>      <C>
   Future deductions:
     Net operating losses..................................... $328,450 $   --
     Inventories (Uniform Capitalization Rules)...............   17,550  85,000
     Other, net...............................................    2,000   2,000
                                                               -------- -------
                                                               $348,000 $87,000
                                                               ======== =======
</TABLE>

  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.

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 is
approximately $1,474,000. The Company has denied the allegations and the case
is in pre-trial stages. The Company has sought a resolution to these lawsuits
by agreeing in principle to settle pending approval by the shareholders. The
Company feels that there is a high probability that the settlement will be
approved. Therefore,

                                     F-14
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998

the Company has accrued an estimated litigation settlement of $708,675
(1,474,000 less amount covered by insurance). Associated with this allegation,
the Company incurred additional legal and consulting fees of $1,362,582.

  In addition, the Company is involved in an investigating proceeding by the
Securities and Exchange Commission (SEC) regarding an inquiry into the
Company's accounting treatment of certain transactions in the mid 1990's. It
is the opinion of the Company's legal counsel at this time that any action by
the SEC will not have any significant effect upon the Company's financial
position or results of operations.

 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, 1999, 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 $349,000, $181,000 and $145,000 for the years
ended September 30, 1999, 1998 and 1997.

  As of September 30, 1999, future minimum lease payments under operating
lease agreements are as follows:

<TABLE>
   <S>                                                                <C>
   2000.............................................................. $  309,000
   2001..............................................................    362,000
   2002..............................................................    372,000
   2003..............................................................    167,000
   2004..............................................................        --
   Thereafter........................................................        --
                                                                      ----------
                                                                      $1,210,000
                                                                      ==========
</TABLE>

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, 1999 and 1998 were $-0- and $328,187, respectively.

                                     F-15
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998


  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, 1999:

<TABLE>
<CAPTION>
                                                                        1999
                                                                     ----------
   <S>                                                               <C>
   Foreign distributors (a)......................................... $1,738,112
   State and local municipalities (b)...............................    613,488
   U.S. government agencies (c).....................................     44,770
   Other receivables................................................    680,090
                                                                     ----------
                                                                      3,076,460
   Less allowance for doubtful accounts.............................   (250,000)
                                                                     ----------
     Total.......................................................... $2,826,460
                                                                     ==========
</TABLE>
--------
(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 have been to U.S. Governmental Agencies.

  For the year ended September 30, 1997 one customer accounted for 11% of
sales. For the year ended September 30, 1999 and 1998, no single customer
accounted for more than 10% of sales.

  A summary of the Company's sales by geographic area is as follows:

<TABLE>
<CAPTION>
                                                 1999        1998        1997
                                              ----------- ----------- ----------
   <S>                                        <C>         <C>         <C>
   Foreign sales:
     Asia.................................... $ 1,623,560 $11,118,000 $2,364,000
     Europe..................................   1,926,670   1,537,000    641,000
     Canada..................................     616,648     748,000    795,000
     Australia...............................     585,878     984,000    378,000
     Other...................................     393,724     568,263    221,638
                                              ----------- ----------- ----------
   Total foreign sales.......................   5,146,480   4,955,263  4,399,638
   Domestic sales............................   6,668,174   6,846,030  4,909,130
                                              ----------- ----------- ----------
                                              $11,814,654 $11,801,293 $9,308,768
                                              =========== =========== ==========
</TABLE>
  The Company has no foreign assets.

NOTE 9--Related Party Transactions

  In September 1998, the Company sold for $50,000 certain computer chips to an
Australian customer. David Williams and Pamela Sevy, the Company's former
President and Chief Financial Officer, respectively, applied the proceeds from
the sale to reduce Mr. Williams' account receivable to the Company by $50,000.
This was in consideration for monies Mr. Williams had transmitted to the
Company to reduce the LTIA receivable and, that due to the resale of returned
units by the Company, were considered unrecoverable by him. Subsequently, the
Company reversed this transaction, debited Mr. Williams account receivable for
$50,000 and recorded the sale as revenues to the Company. The Company then
reduced Mr. Williams' account receivable by $50,000 to recognize the monies he
had transmitted to the Company to reduce the LTIA receivable remaining
unrecovered by him.

                                     F-16
<PAGE>

                    LASER TECHNOLOGY, INC. AND SUBSIDIARIES

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                          September 30, 1999 and 1998


NOTE 10--Notes Payable

  Notes payable consisted of the following:

<TABLE>
<CAPTION>
                                                              September 30,
                                                             ------------------
                                                               1999      1998
                                                             --------  --------
   <S>                                                       <C>       <C>
   Note payable to a corporation dated April 16, 1999, 8%
    interest rate, secured by other equipment, 36 monthly
    principal and interest payments of $2,097..............  $ 59,649  $    --
   Note payable to a bank dated July 6, 1998, 7.9% interest
    rate, secured by vehicles, with 36 monthly principal
    and interest payments of $7,725........................   146,372   236,113
                                                             --------  --------
   Total notes payable.....................................   206,021   236,113
                                                             --------  --------
     Less: current portion.................................   (91,621)  (76,564)
                                                             --------  --------
       Total Long-Term Debt................................  $114,400  $159,549
                                                             ========  ========
   Maturities of long-term debt are as follows:
     2000..................................................            $ 91,621
     2001..................................................             100,034
     2002..................................................              14,366
     2003..................................................                 --
     2004..................................................                 --
                                                                       --------
       Total...............................................            $206,021
                                                                       ========
</TABLE>

NOTE 11--Subsequent Events

  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 (see Note 7).

                                     F-17
<PAGE>

                             LASER TECHNOLOGY, INC.

                 SCHEDULE I--VALUATION AND QUALIFYING ACCOUNTS

                        Allowance for Doubtful Accounts

<TABLE>
<CAPTION>
                                               Additions
                                    Balance    Charged to            Balance
                                  at Beginning Costs and              at End
                                    of Year     Expenses  Deductions of Year
                                  ------------ ---------- ---------- --------
   <S>                            <C>          <C>        <C>        <C>
   Year Ended September 30,
    1997.........................   $10,000     $  3,665   $ (3,665) $ 10,000
   Year Ended September 30,
    1998.........................    10,000        4,470     (4,470)   10,000
   Year Ended September 30,
    1999.........................    10,000      256,277    (16,277)  250,000
</TABLE>

                                      F-18