<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
(Mark one)
[x] Quarterly Report under section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended March 31, 1997
[ ] Transition Report under section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-27908
Semiconductor Laser International Corporation
------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 16-1446679
- ---------------------------------------- -------------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15 Link Drive, Binghamton, New York 13904
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (607) 722-3800
Check whether the issuer (1) 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 a 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 [ ]
As of May 1, 1997, there were outstanding 3,530,868 shares of the
issuers common stock, par value $.01 per share.
Transitional Small Business Disclosure Format
Yes [ ] No [x]
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Balance Sheet
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
(unaudited)
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 4,266,168 $ 3,159,974
Accounts Receivable, net of allowance for
doubtful accounts of $25,000 and $25,000,
respectively 61,047 73,492
Inventory 6,316 29,815
------------ ------------
Total current assets 4,333,531 3,263,281
Property, plant and equipment, net 3,035,929 2,461,819
Intangible assets, net 1,348 1,180
Deposits and other assets 655,928 623,407
------------ ------------
Total assets $ 8,026,736 $ 6,349,687
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 1,142,272 $ 514,681
Accrued expenses and other liabilities 92,199 43,645
Current portion of long-term debt 25,948 31,800
------------ ------------
Total current liabilities 1,260,419 590,126
Long-term debt 809,926 827,170
Accrued royalty payments 100,000 100,000
------------ ------------
Total liabilities 2,170,345 1,517,296
------------ ------------
Commitments and contingencies (Note 6)
Shareholders' Equity
Common stock, $.01 par value, 20,000,000 shares
authorized, 3,409,607 issued and outstanding
at December 31, 1996, and 3,530,838 issued and
outstanding at March 31, 1997 34,096 35,308
Common stock issuable 1,123,438 51,250
Treasury stock (248,241) (248,241)
Additional paid-in capital 10,081,464 11,152,436
Deficit accumulated during the development stage (5,134,366) (6,158,362)
------------ ------------
Total Shareholders' Equity 5,856,391 4,832,391
------------ ------------
Total liabilities and
Shareholders' Equity $ 8,026,736 $ 6,349,687
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31, Cumulative
1996 1997 From Inception
(unaudited) (unaudited) (unaudited)
----------- ----------- --------------
<S> <C> <C> <C>
Operating expenses:
Research and development expenses $ 83,320 $ 508,816 $ 2,948,674
General and administrative expenses 304,470 558,669 3,117,844
Royalties 100,000
---------- ---------- ------------
Loss from operations 387,790 1,067,485 6,166,518
Interest income 17,187 43,489 313,457
---------- ---------- ------------
Loss before extraordinary
item 370,603 1,023,996 5,853,061
Extraordinary loss on the early
extinguishment of debt 305,301 - 305,301
---------- ---------- ------------
Net loss after extraordinary
item $ 675,904 1,023,996 6,158,362
========== ========== ============
Net loss per share
Loss before extraordinary
item $ (0.20) $ (O.29) $ (1.68)
Extraordinary item (0.17) - (0.09)
------- ------- -------
Net loss $ (0.37) $ (0.29) $ (1.77)
======= ======= =======
Weighted average shares outstanding 1,831,426 3,481,495 3,481,495
========= ========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31, Cumulative
1996 1997 From Inception
(unaudited) (unaudited) (unaudited)
----------- ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (675,904) $(1,023,996) $ (6,158,362)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation 11,033 25,194 126,091
Expenses settled through the
issuance of common stock 1,254,590
Amortization of debt discount 51,585 64,699
Amortization of deferred expenses 23,294 23,294
Extraordinary loss on early
extinguishment of debt 305,301 305,301
Gain on sale of equipment (17,364) (17,364)
Change in assets and liabilities:
(Increase)decrease in accounts
receivable, net (12,835) (12,445) (73,492)
Decrease (increase)in inventory (740) (23,499) (29,815)
(Increase) decrease in deposits
and other assets (333,040) (449,096)
(Increase) decrease in deferred
financing costs 134,431
Increase (decrease) in accounts
payable 103,492 151,119 1,239,391
Increase(decrease) in accrued
expenses and other liabilities 63,950 (48,554) 43,645
Increase in accrued royalty
payments 100,000
----------- ----------- -----------
Net cash used in operating activities (19,687) (1,259,291) (3,517,118)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of plant, property and
equipment (30,969) (2,546,855) (6,906,531)
Sale of equipment 2,676,855 3,572,461
Increase in intangible assets (3,370)
----------- ----------- -----------
Net cash provided from (used for)
investing activities (30,969) 130,000 (3,337,440)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from long-term debt 455,000 31,306 1,573,975
Payments on long-term debt (838,789) (8,209) (840,005)
Issuance of common stock, net of
expenses 7,323,985 9,280,562
----------- ----------- -----------
Net cash provided by financing
activities 6,940,196 23,097 10,014,532
----------- ----------- -----------
Net (decrease) increase in cash, cash
equivalents and restricted cash 6,889,540 (1,106,194) 3,159,974
Cash, cash equivalents and restricted
cash at beginning of period 531,042 4,266,168
----------- ----------- -----------
Cash, cash equivalents and restricted
cash at end of period $ 7,420,582 $ 3,159,974 $ 3,159,974
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Notes to Financial Statements
March 31, 1997
1. Organization
Semiconductor Laser International Corporation ( the "Company") was
incorporated in New York State on September 21, 1993 (inception) to
produce high power semiconductor diode laser wafers and bars ("HPDLs)
and to market these products worldwide.
The Company's primary activities since incorporation as a development
stage enterprise had been research and development, business planning,
raising capital, and constructing and equipping its manufacturing
facility. The Company had previously relied on facilities provided
through the Wright Cooperative Research and Development Agreement (CRDA)
with the U.S. Air Force for the development and quality control testing
of its HPDLs. The Company has since completed the construction of its
manufacturing facility in Binghamton, New York where it is conducting
all activities.
Production of the Company's products has begun at the Company's new
facility in Binghamton, New York.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared by the
Company. Certain information and footnote disclosures normally included
in financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted. In the opinion of
the Company's management, the disclosures made are adequate to make the
information presented not misleading, and the financial statements
contain all adjustments necessary to present fairly the financial
position as of March 31, 1997, and the results of operations and cash
flows for the three months ended March 31, 1997 and 1996. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenue
and expenses during the period. Actual results could differ from those
estimates.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with an initial maturity of
three months or less to be cash equivalents.
<PAGE>
Inventory
Inventory is valued at the lower of cost or market. Cost is determined
by the first in, first out (FIFO) method and the cost of finished goods
includes costs to purchase materials and subcontracted labor costs.
Deferred Financing Costs
Costs incurred in the preparation of the Company's initial public
offering were deferred and offset against the proceeds received from
the offering
Depreciation and Amortization
Property plant and equipment are recorded at cost and depreciated over
the assets' estimated useful lives ranging from three to thirty years.
Depreciation is computed using the straight line method for financial
reporting and the modified accelerated cost recovery system for income
tax purposes. Expenditures for major renewals and betterments that
extend the useful lives of the property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
Intangible assets are amortized using the straight-line method over
five years.
Research and Development
Research and development costs are expensed as incurred. Included in
research and development expenses are costs related to the development
of prototypes of $508,816 for the period ended March 31, 1997.
Income Taxes
The Company follows the asset and liability approach for deferred income
taxes. This method provides that deferred tax assets and liabilities
are recorded, using currently enacted tax rates, based upon the
difference between the tax bases of assets and liabilities and their
carrying amounts for financial statement purposes. A valuation
allowance is recorded when it is more likely than not that deferred
tax assets will not be realized.
Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding and dilutive common share equivalents. Common
shares issued, and options and warrants granted, by the Company during
the twelve months preceding the initial public offering have been
included in the calculation of common and common equivalent shares
outstanding as if they were outstanding for all periods presented using
the Treasury Stock method and an initial public offering price of $5.00
per share. Options and warrants granted before the aforementioned
twelve-month period and subsequent to the Company's initial public
offering have been included in the calculation of common and common
equivalent shares outstanding when dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 128, "Earnings per Share"
("FAS 128"), which requires the presentation of basic earnings per share
in financial statements for reporting periods ending subsequent to
December 15, 1997. Early adoption of FAS 128 is not permitted. The
adoption of FAS 128 is not expected to have a material impact on the
Company's financial statements.
As of March 31,1997, the Company had outstanding warrants and options
to purchase 1,948,000 and 174,659 shares of Common Stock, respectively,
which are not included in the calculation of earnings per share for the
three months ended March 31, 1997, and would not be included in such
calculation under the guidance prescribed by FAS 128, due to the anti-
dilutive nature of these instruments.
4. Inventories
Inventories at March 31, 1997 and December 31, 1996 consist solely of
raw materials and supplies. As the company is not in full production
and continues to be in the development stage, the cost of prototypes,
including the cost of raw materials and subcontracted labor costs, has
been charged to research and development expenses.
5. Plant, Property and Equipment
During the period ended March 31, 1997 the Company completed the
construction and equipping of its manufacturing facility. In 1996,
the Company entered into a master sale and leaseback agreement designed
to cover the majority of its manufacturing equipment. In connection
therewith, the Company sold approximately $3,600,000 of equipment
purchased since June 1996. The Company is currently leasing such over
a four year period at a cost of approximately $90,000 per month.
6. Commitment, Contingencies and Other Matters
Operating Leases
In October 1996, the Company entered into a master equipment lease
agreement with FINOVA Technology Finance, Inc. ("FINOVA"). The agreement
provides for the sale and leaseback by the Company of up to $3,850,000 of
equipment, furnishings and fixtures. As part of the consideration for
the agreement, the Company issued a warrant certificate for 58,334
warrants, entitling FINOVA to purchase a corresponding number of shares
of the Company's Common Stock at $5.00 per share. The warrants cannot
be assigned, sold, transferred or otherwise disposed of prior to
February 27, 1998. The warrants are currently exercisable and have been
valued at $167,710 and are being amortized over the term of the lease.
Rent expense under non-cancellable operating leases, including the FINOVA
leases, was $197,959 for the three months ended March 31,1997.
Future minimum payments under non-cancellable operating leases, including
the FINOVA lease agreement, at March 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Commitment
------------- -------------
<S> <C> <C>
1997 $ 796,000
1998 1,009,000
1999 1,009,000
2000 1,009,000
2001 213,000
-------------
$4,036,000
=============
</TABLE>
Litigation
The Company is currently engaged in a dispute with Theodore Konopelski
("Konopelski"), a director and former employee and officer of the Company
The dispute involves the termination of Konopelski's employment for
cause. An arbitration proceeding was instituted by Konopelski in
Syracuse, New York challenging his termination under his employment
contract. Konopelski is seeking damages in the aggregate of $500,000.
The arbitration is in process and the Company believes the termination
was proper and that no amount should be awarded to Konopelski.
Subsequent to the commencement of the arbitration, the Company brought
an action against Konopelski in the New York Supreme Court (Broome
County) alleging violation by Konopelski of his obligations under the
terms of a non-disclosure agreement between Konopelski and the Company.
The Court issued a temporary restraining order barring Konopelski from
making any disclosures or using confidential information or trade
secrets. The restraining order remains in effect.
The Company believes it will prevail in the arbitration as well as in all
matters with respect to the enforcement of Konopelski's non-disclosure
obligations. Konopelski has also alleged that he ceased to be a
director on August 4, 1996 by virtue of his removal from the Company.
The Company maintains that Konopelski was removed as an officer and
employee and that if he chooses not to consider himself as a director,
it is his choice alone.
<PAGE>
Item 2. Managements Discussion and Analysis
The following information should be read in conjunction with the
unaudited financial statements included herein. See Item 1.
OVERVIEW
The Company's future results of operations and the other forward
looking statements contained in this discussion involve a number of risks
and uncertainties. In addition to the factors discussed below are other
factors that could cause actual results to differ materially such as
business conditions, growth in the industry and the general economy.
The Company has begun the production of its products at the Company's new
production facility in Binghamton, New York. Since its inception in 1993,
the Company had been engaged primarily in research and development, business
and financial planning, recruitment of key management and technical
personnel, raising capital to fund operations and the development of
its HPDL prototypes. As a result, the Company has not generated any
significant product sales through March 31, 1997. The Company has completed
the construction and equipping of the first phase of its manufacturing
facility and has begun production of its products and the generation of
sales revenues. The Company also continues to secure licensing agreements
for the production, marketing and sale of technologically improved products
which complement its product line.
RESULTS OF OPERATIONS
Three months ended March 31, 1997, compared to three months ended March
31, 1996.
The Company is not reflecting sales or revenues during the periods as during
each period the Company was considered a development stage enterprise.
Revenues realized from sales and the costs associated therewith have been
offset against research and development expenses.
Research and development expenditures were $508,816 for the three months
ended March 31, 1997 as compared to $83,320 for the three months ended
March 31, 1996. The increase of approximately $426,000 is primarily
associated with increased spending on labor, materials, subcontract work and
equipment costs associated with the development and refinement of the
Company's product line. Subsequent to March 31, 1996, the Company began to
increase staffing and expenditure levels to meet its production goals, such
increased activity leading to the higher level of research and development
expense.
General and administrative expenses were $558,669 for the three months
ended March 31, 1997 as compared to $304,470 for the same period in 1996.
The increase of approximately $254,000 is associated with increases in
medical and general insurances relating to a greater number of employees
and increased property values associated with the construction of the
Company's manufacturing facility ($7,400), increases in marketing activities,
principally advertising and trade shows ($100,000), increases in payroll
costs attributable to higher employee levels ($37,700), increases in
professional fees associated with litigation, patent activity and public
relation activities ($95,000), increases in state taxes, real estate taxes
and utility costs in connection with the Company's Delaware subsidiary and
its new manufacturing facility ($33,000), increased depreciation related to
increased plant and equipment investment ($3,000) and a net decrease in other
costs approximating $22,000. On an overall basis, absent increased legal
costs associated with litigation, general and administrative costs increased
as a result of the Company achieving the commercial production of its
products.
Interest income increased approximately $26,000 as a result of higher levels
of invested cash. The higher levels of cash are associated with the
Company's initial public offering in March 1996.
The extraordinary loss of $305,301 recognized for the three month period
ended March 31, 1996 resulted from the early retirement of debt associated
with the bridge financing undertaken in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have been significant but are expected to
moderate through 1997. The Company's cash and cash equivalents at March 31,
1997 were $3,159,974 as compared to $4,266,168 at December 31, 1996, a
decrease of $1,106,194 for the period ended March 31, 1997.
The net cash used in operating activities for the three month period ended
March 31, 1997 of $1,259,291 was used to fund the operating loss of
$1,023,996 and net changes in other working capital of $266,419, offset
by net non-cash expenditures of $31,124.
Net cash provided by investing activities of $130,000 is primarily the result
of the sale and leaseback transaction entered into with FINOVA and the
timing of the same.
Although cash expenditures have been significant over the period, the
Company expects such expenditures to decrease as a result of a relative
decrease in future requirements associated with start up activities both
operationally and from a facility and equipment standpoint.
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in litigation described in Note 6 in the
financial statements. This litigation does not involve more than
10% of the Company's assets
Item 2. Change in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
No. 11 Statement re: Computation of Weighted Average
Shares Outstanding
No. 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Semiconductor Laser International Corporation
---------------------------------------------
(Registrant)
Date: May 9, 1997 By:/s/ Geoffrey T Burnham
----------------------------
Geoffrey T. Burnham
Chairman, President and
Chief Executive Officer
Date: May 9, 1997 By:/s/ Nicholas L.Prioletti, Jr.
-----------------------------
Nicholas L. Prioletti, Jr.
Chief Financial Officer,
Principal Financial Officer
and Principal Accounting
Officer
<PAGE>
EXHIBIT 11
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
PERIOD ENDED MARCH 31, 1996
"CHEAP STOCK" METHOD
<TABLE>
<CAPTION>
SHARES ISSUED OR SHARES REDEEMED USING
WARRANTS AND OPTIONS PROCEEDS FROM SHARES
DEEMED EXERCISED ISSUED DEEMED EXERCISED WEIGHTED AVERAGE SHARES
OF WARRANTS & OPTIONS OUTSTANDING
-------------------- ----------------------- ------------------------
<S> <C> <C> <C>
1993 SHARES OUTSTANDING (NOTE 1) 729,003 0 729,003
1994 SHARES OUTSTANDING (NOTE 1) 192,344 0 192,344
1995 SHARES OUTSTANDING (NOTE 1) 472,306 0 472,306
1996 "CHEAP" STOCK 150,000 (59,000) 91,000
1996 WEIGHTED SHARES ISSUED IN
IPO (NOTE 2) 186,813 0 186,813
1993 OPTIONS 1,971 (97) 1,874
1995 OPTIONS 11,000 (11,000) 0
1995 OPTIONS 88,659 (887) 87,772
WARRANTS ISSUED IN 1994 &
1995 (NOTE 1) 42,093 (0) 42,093
1995 WARRANTS 17,732 (10,440) 7,292
1996 WARRANTS ISSUED IN CONNECTION
WITH THE IPO (NOTE 2) 1,995,000 (1,895,296) 59,704
1996 BROKER WARRANTS ISSUED IN
CONNECTION WITH THE IPO (NOTE 2) 170,000 (164,808) 5,192
ADD BACK ANTI-DILUTIVE OPTIONS
& WARRANTS (43,967)
----------
WEIGHTED AVERAGE SHARES OUTSTANDING 1,831,426
==========
</TABLE>
NOTE 1: SHARES AND WARRANTS ISSUED MORE THAN ONE YEAR PRIOR
TO INITIAL PUBLIC OFFERING ("IPO")
NOTE 2: COMPUTED USING THE WEIGHTED AVERAGE METHOD
PERIOD ENDED MARCH 31,1997
<TABLE>
<CAPTION>
SHARES ISSUED AND WEIGHTED AVERAGE SHARES
OUTSTANDING OUTSTANDING
----------------- ------------------------
<S> <C> <C>
COMMON SHARES ISSUED AND
OUTSTANDING JANUARY 1, 1997 3,374,144 3,374,144
COMMON SHARES ISSUED JANUARY 10,
1997 120,000 106,667
COMMON SHARES ISSUED FEBRUARY 9,
1997 1,231 684
---------
WEIGHTED AVERAGE SHARES OUTSTANDING 3,841,495
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,159,974
<SECURITIES> 0
<RECEIVABLES> 73,492
<ALLOWANCES> 25,000
<INVENTORY> 29,815
<CURRENT-ASSETS> 3,263,281
<PP&E> 2,461,819
<DEPRECIATION> 25,194
<TOTAL-ASSETS> 6,349,687
<CURRENT-LIABILITIES> 590,126
<BONDS> 0
0
0
<COMMON> 35,308
<OTHER-SE> 4,797,083
<TOTAL-LIABILITY-AND-EQUITY> 6,349,687
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,984
<INCOME-PRETAX> (1,023,996)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,023,996)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,023,996)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
