SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[x]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to __________
Commission file number 0-27908
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
(Name of small business issuer in its charter)
Delaware 16-1494566
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15 Link Drive, Binghamton, NY 13904
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (607) 722-3800
Securities registered pursuant to Section 12(b) of the Exchange Act:
(Title of class) (Name of each exchange on
which registered)
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
Redeemable Warrants
(Title of class)
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ x ]
The issuer's revenues for its most recent fiscal year (year ended
December 31, 1997) were $478,924.
The aggregate market value on March 12, 1998, of the voting stock held by
non-affiliates computed by reference to the last sales price on that date
was approximately $12,980,000. As of March 12, 1998, 8,389,552 shares
of Common Stock, par value $.01 per share (the "Common Stock"), were
outstanding.
Transitional Small Business Disclosure Format
(check one) YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE.
None
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1
PART I
In addition to historical information, this Annual Report contains forward
looking statements relating to such matters as anticipated financial and
operating performance, business prospects, technological developments, new
products research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for forward
looking statements. Semiconductor Laser International Corporation
(the"Company") notes that a variety of factors could cause the Company's actual
results to differ materially from the anticipated results or other expectations
expressed in the Company's forward looking statements. The risks and
uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those
matters discussed herein. Readers are cautioned not to place undue reliance on
these forward looking statements, which reflect managements analysis only as of
the date hereof. The Company undertakes no obligation to publicly revise these
forward looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
documents the Company files from time to time with the Securities and Exchange
Commission.
Item 1. Description of Business
General
Semiconductor Laser International Corporation ("SLI" or "the Company") is a
leading developer and producer of high power semiconductor diode lasers
("HPDL's"). The Company currently manufactures HPDL's for a variety of
applications across numerous industries, including medical, manufacturing,
optical storage, telecommunications, printing and military. Since its
inception in 1993, the Company had been primarily engaged in developing and
improving upon the use of patent-pending technology (known as Desorption Mass
Spectrometric Control ("DMS")) to control and increase the reliability of a
commonly known laser manufacturing process referred to as Molecular Beam
Epitaxy ("MBE"). In addition, the Company has supplemented its own research
and development with that of several universities and research institutions,
including the United States Air Force's Wright Laboratory and Northwestern
University's Center for Quantum Devices. The use of the DMS technology
(exclusively licensed to the Company by the United States Air Force (the "Air
Force") through the year 2004 pursuant to a license agreement (the "License
Agreement")) to control the MBE production of HPDLs not only offers significant
cost advantages over the MBE production of HPDLs without DMS but, more
importantly, also offers significant cost advantages over the currently
prevailing manufacturing process for HPDLs known as Metal Organic Chemical
Vapor Deposition ("MOCVD"). Also, the Company was granted an exclusive
worldwide license from Northwestern University relating to aluminum
free HPDLs, which generate greater power and evidence substantially longer life
and greater reliability than existing HPDLs (See "Strategy"). The Company's
commitment to research and development, as well as its unique practical
experience, has made it one of the few companies in the world with the
technical expertise necessary for the production of commercially viable HPDL's.
The Company is currently capitalizing on such advantages and producing HPDLs
which meet or exceed the quality standards of existing HPDLs, at lower cost,
thereby permitting the Company to reduce the prices charged for HPDLs and
facilitate new market applications for HPDL products.
The Company established its manufacturing operations for the commercial
production of HPDL's at a newly constructed, state-of-the-art, ultra-high
technology facility in Broome County, New York, in early 1997. The Company
currently utilizes 15,000 square feet at such location, including a 4,500
sq. ft. Class 1000 clean room and plans to ultimately expand its operations to
60,000 square feet.
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2
The Company was incorporated in New York in September of 1993 and
reincorporated in Delaware in September 1997.
Industry Background
Lasers produce a beam of radiation in the electromagnetic spectrum which
can be varied in intensity and wavelength depending upon the desired
application. This variable intensity enables high-powered lasers to be
used as power sources in a broad range of applications, including the
materials processing, fiber optic, telecommunications, printing,
medical, dental, automotive, machining, and optical data storage and DVD
markets. HPDLs are increasingly replacing traditional technologies, including
other types of high power lasers, in these and other applications, as
HPDLs are generally less complex, smaller, more reliable, more durable
and/or more powerful than their predecessor technologies. As a result,
while worldwide sales of HPDLs in 1994 were approximately $100 million,
they are expected to reach in excess of $1 billion by 2001, according to
industry surveys conducted by two separate marketing firms retained by
the Company.
The kind and number of applications that can benefit from utilizing HPDLs
include all applications requiring intense and efficient power,
particularly where reliability, long useful life (without adjustment or
replacement of parts) and, in some applications, smaller size and/or
adaptability to fiber optic coupling are significant. The immense
variety and magnitude of these applications and potential applications is
creating an expanding demand for HPDLs and, if lower prices for HPDLs can
be achieved, it is anticipated that new applications requiring lower
priced HPDLs will create significant additional demand.
Strategy
The Company is currently competing against the existing MOCVD-produced
HPDLs by producing HPDLs which it believes exceed the quality standards of
such competitive products and are produced at substantially lower costs.
The Company believes that at such time that high volume sales of individual
products are made, its new manufacturing technology will permit it to reduce
the prices charged for, and to be a high volume manufacturer of,
HPDLs of superior power and longevity and greater reliability.
The Company is seeking to capitalize on such opportunities through
its manufacturing, marketing and research strategies.
The Company's manufacturing strategy is to take advantage of the
advance in HPDL manufacturing technology made possible through its
DMS/MBE process and through its acquisition of rights relating to
aluminum free HPDLs. The Company currently controls all stages of
HPDL manufacturing, including all aspects of the processing and
packaging of its HPDL products, at its own manufacturing facility where
it utilizes the full benefit of its research and development efforts to
date. The new state-of-the-art equipment recently acquired by the Company for
its manufacturing facility incorporates the developments and modifications
which the Company had previously made to the DMS/MBE technology.
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3
The Company believes that it has established, within the HPDL marketplace,
the credibility of its products, i.e. their comparable quality to those
of current HPDL manufacturers and their substantially lower cost. The
Company's initial marketing strategy is focused on finding potential
customers to consider the applicability of its products to existing and
new uses. The Company believes that the quality of its product line
and the lower prices charged for its products is becoming more recognized, and
that such recognition will in turn result in significant market penetration in
the future. The Company also participates in appropriate trade shows and
publicizes its improvements in scientific and trade journals.
In September 1996, the Company entered into a license agreement
(the "Northwestern License") with Northwestern University granting the
Company exclusive worldwide rights relating to aluminum free HPDLs under patent
rights of Northwestern University. Under the Northwestern License, an initial
licensing fee was paid along with the issuance of a small number of shares of
Common Stock. An additional small issuance of shares of Common Stock occurred
in November 1997. The Northwestern License also provides for royalties on net
sales as well as a share of any payments received by the Company with respect
to sub-license fees. Certain obligations must be met by the Company in order
to maintain the Northwestern License, all of which the Company believes that it
will fully satisfy.
With the benefit of the Northwestern License, the Company is completing plans
for the manufacture and sale of aluminum free HPDLs. The significant advantage
over existing HPDLs is the ability of aluminum free HPDLs to generate
greater power while evidencing substantially longer life and greater
reliability. The Company has received substantial interest in the aluminum
free HPDLs and believes it will offer major competitive advantages to the
aluminum based products of its competitors. The Company believes that the
patent rights and the Northwestern License cover all production methods,
including, but not limited to MBE and MOCVD, and plan to take all steps
necessary to protect their interests. The Company believes that attempts by
others to develop equivalent aluminum free technology will infringe on its
exclusive rights, which the Company, in coordination with Northwestern
University, plans to strongly enforce. The Company believes that the exclusive
right granted under the Northwestern License constitutes a major competitive
advantage. However, the Company further believes that even if such rights are
ultimately determined not to cover all manufacturing methods, such a
determination will not materially adversely impact its financial condition and
results of operations and that the Company will be able to compete effectively
with third party competitors using other manufacturing methods. At this time,
no litigation has been instituted by the Company, Northwestern or any third
party with respect to the scope of the patent rights under the Northwestern
License.
Manufacturing Facility
The Company is currently operating a single-wafer V-80H DMS controlled MBE
machine at its manufacturing facility. The Company's manufacturing facility
15,000 square feet) includes all related facilities and equipment necessary
for production, such as a 4,500 sq. ft. class 1,000 clean room and the tooling
and testing equipment for its production processing line. The Company intends
(based on its current expectations of product demand during 1998, of which
there can be no assurance) to install an additional wafer producing machine in
the latter part of 1998. Thereafter, further expansion and additional equipment
and production lines can be effected, as needed. The Company is also
considering the purchase of additional manufacturing and packaging equipment
and the expansion of its facilities.
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4
On December 18, 1996, the Company entered into an agreement (the "Sale and
Leaseback agreement") with the Broome County IDA, in which the Company sold and
leased back its manufacturing facilities and equipment. (See Item 2.).
Manufacturing and Products
General
The manufacturing process for the growth of HPDL wafers and the further
manufacturing steps necessary to process and package these wafers into
bars, chips and multi-bar stacked arrays in original equipment
manufacturer ("OEM") or end user ready format is a highly technical
process. The general description of these processes which follows
necessarily simplifies the essentials and by its nature does not include
many of the more intricate elements involved in successfully carrying out
the complex growth and manufacture of HPDLs.
Growth
The two principal growth methods which have been developed to manufacture
HPDLs are MOCVD, the process that the Company believes is used by most of
its competitors (including SDL, Inc.), and MBE, the process which
the Company is using. MOCVD has been the prevailing manufacturing process,
to date, even though the yields of acceptable or usable wafers
associated with this process (when compared with the total number of
wafers grown) are believed to be as low as 10%. The MBE process has
historically had even lower useable wafer yields. However, by monitoring
and controlling the MBE production process with its licensed DMS
technology, the Company has developed what it believes to be a process
capable of producing significantly higher yields of acceptable or usable
wafers (which meet the quality standards of existing MOCVD
produced HPDLs) and, thus, of producing such wafers at a significantly
reduced cost per wafer.
Prior to the development of DMS, the MBE process had limited success in
producing repeatable, high quality wafers that met the precise
specifications necessary for HPDLs. This resulted from an inability to
sufficiently control the growth process on a layer by layer basis.
With DMS hardware and software controls added to MBE, the Company has
the ability to produce uniform HPDLs with significantly higher yields of
acceptable or useable wafers.
An additional cost advantage associated with the DMS controlled MBE
process is that while 100% of the wafers produced with MOCVD require
testing (due to the inherent lack of uniformity and reproducibility of
the MOCVD process output), only a 20% sample of the wafers produced with
the DMS/MBE process needs to be tested (due to the inherent uniformity of
the MBE output when DMS is used to control the process). In addition,
while an MOCVD wafer growth production run takes less time than an MBE
wafer growth production run, the time required to load and unload the
wafers and to prepare each wafer for growth is less with the MBE process.
As a result, overall production times associated with the MOCVD and the
MBE/DMS growth manufacturing processes are basically equivalent.
Since the Company acquired the exclusive rights to the aluminum-free
technology from Northwestern University (see "Strategy"), the Company
has embarked upon a development program to ascertain the most cost
effective production technique for this technology. The Company is
evaluating MOCVD, gas source MBE and solid source MBE/DMS. The Company
currently has a number of aluminum-free wafers in processing and expects
to have preliminary results on this new product line within the next
several months.
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5
Processing
After the growth process is completed and the wafers have been tested-a
complicated process requiring dedicated testing equipment-the acceptable
wafers are processed and cut (a process referred to as cleaving) into
one centimeter individual laser bars. Each laser bar contains multiple
laser chips or laser emitters. The actual number varies depending upon
the desired power characteristics of the laser chip or emitter. The
surface of the bars is then given optical facet coatings in order to
create the laser beam path that is formed by the laser mirrors.
Packaging
The Company currently offers numerous packages, fitting the chips and bars
for unique applications, higher power output and fiber optic coupling.
Although many of the bars and chips are sold raw and unpackaged, the Company
offers packaging as a way to attract additional customers.
The final steps in the production process are the actual assembly and
packaging of the fully processed chips and bars into an OEM or end user
ready format. The Company's packages include a range of products, from
single chip devices, such as C-Mount, 9mm package and the 5.6 mm pulse
package, to multiple chip devices up to 5 watts CW, such as the single-LD bar,
LT-bar, LS-bar and SLD-bar packages, stacked array packages and various fiber
coupled lasers up to 35 watts CW and 100 watts QCW. Customers' applications and
preferences dictate which package is best for their needs, and adaptations of
packages for specific product requirements can be designed. Wherever
appropriate, portions of the packaging process may be subcontracted by
the Company. Each packaging configuration can be utilized for different
applications with the principal differences being the power of the laser
diode device or its output and/or coupling connections. The sizes of
the typical HPDL products are merely a function of industry convention.
Thus, the one centimeter single-laser bar size could be easily modified
by the Company or its competitors to a different size.
Suppliers
The Company's products require, during each step of the manufacturing
process, high quality raw materials and components which the Company
purchases from others. The Company believes that numerous suppliers exist
for all of the raw materials and components that it will need and that
such items are readily available on commercially reasonable terms;
however, the Company's ability to continue to manufacture its products
will depend upon its ability to maintain commercial relationships with at
least some of such suppliers. The Company does maintain, and intends to
continue to maintain, supply agreements with several of its key suppliers
of raw materials. In other cases the Company intends to purchase raw
materials, sub-assemblies and components pursuant to purchase orders in
the ordinary course of business. The Company's production is also
dependent upon its suppliers satisfying the Company's performance and
quality specifications and dedicating sufficient production capacity to
meet the Company's scheduled delivery times.
Markets and Marketing
In the optical storage industry, diode lasers are used with CD, CD-ROM,
Laserdisc, magneto-optic drives, and, most recently, Digital Video Disc (DVD).
In the automotive industry, these lasers are used in manufacturing for
precision machining and welding. In the medical and dental fields, diode
lasers have provided the means for advanced laser surgery. In the printing and
engraving industry, they have made possible products such as laser printers
and copiers. Diode lasers have also enhanced military products in laser sight
and missile guidance applications. Through their use with fiber-optics, diode
lasers have materially improved transmission speeds for the telecommunications
industry. As laser performance is becoming more reliable and uniform across
these industries, manufacturers have turned to laser products as alternatives
to traditional technologies.
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6
Lasers are continually being refined and advanced. One of the most significant
HPDL developments has been with respect to the power output of lasers. The
maximum power outputs are now about 30 watts and 100 watts for a continuous and
and pulsed laser beam, respectively. Although prices vary according to the
power output, wavelength and packaging, the average cost per watt has been
reduced to less than half that of just a few years ago.
The most significant development, however, concerns laser wavelength. Until
recently, HPDL applications were limited to the infrared (IR) portion of the
electromagnetic spectrum. Just below the infrared range of the spectrum,
otherwise known as the visible range, scientists were only able to produce low
power lasers. These low power visible lasers can be used with products such as
CD players, laser pointers, barcode scanners and remote controls. Although
this is still a growing market, applications are limited due to the lack of
power output. Advancements, however, have enabled manufacturers to produce
high power visible lasers and thus have opened the door to many new products
and markets.
The primary application using this high power visible laser, or "red laser",
is the recordable digital storage technology known as DVD. DVD is a digital
technology similar to CD and CD-ROM, but with additional advantages due to the
shorter wavelength and more powerful beam of the high power red lasers.
DVD products are designed to compliment and eventually replace many of the
current CD technology applications, such as music CD's, CD-ROM and Laserdisc.
In addition, DVD will provide a new market of recordable products across
several industries, similar to cassette tapes, floppy discs, VCR's and hard
drives, but with the enhanced quality and much greater storage capacity.
The DVD market is anticipated to be the fastest growing segment of the laser
industry. Independent forecasts have estimated the revenue generated from the
sale of visible lasers may surpass $1 billion by the year 2000. The Company
is targeting an 8% market share and believes with the superiority of their
visible laser product, from a cost and quality standpoint, such a market share
is attainable, although no such assurance can be provided.
The market potential is one of the strengths of the laser industry. A drawback
is that it may attract more competition to an industry that has historically
had very high profit margins. In addition, there is a high industry
requirement for research and development which in turn requires capital
resources. Also, as DVD products will be sold to the consuming public as
opposed to other laser products that are sold mostly to OEM's, if consumer
tastes have been miscalculated or change, then acceptance of DVD may not reach
forecasted levels.
The overall laser market is quite competitive; however, once such market
is segmented into laser type and component suppliers, the different niche
markets (particularly the markets involving high technology and high cost
products) have a much smaller number of competitors. The marketing
approach of the Company is to promote its line of high quality lower
cost lasers to new and existing market segments as well as creating new
applications that were once impenetrable due to the high cost of laser
components. The Company believes that the credibility of its products has
been established as its customers' expectations are being met. To date, a
substantial number of orders have been for prototype or test units, resulting
in relatively low sales volumes and higher unit costs. The Company believes it
will see substantial increases in production unit orders based upon the
acceptance of its products by customers. Other marketing activities of the
Company include participating in appropriate trade shows, publicizing
advancements in scientific and trade journals, developing international trade
companies for representation and other creative marketing techniques.
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7
The Company's marketing program is designed to address some of the
activities described above with a strong focus on identifying potential
customers and increasing the visibility of the Company. The goal of the
marketing program is to create advance demand, and obtain advance
orders, for the Company's proposed products, which will then be produced
by the Company.
Research and Development
The Company has been engaged in substantial research and development
activities since its inception. Due to the nature of its business,
research and development will be a significant ongoing activity of the
Company. The Company incurred research and development expenses of
approximately $2,074,000 and $651,000 for the years ended
December 31, 1996 and 1997, respectively. All of these amounts were
spent on Company sponsored research and development, including
approximately $1,093,000 in 1996 for consulting contracts and license rights
associated with the aluminum free process.
Precision Laser Machining Consortium
Precision Laser Machining Consortium (the "Consortium") consists of 20
major U.S. laser companies, brought together by the Defense Advanced
Research Project Agency's (DARPA) dual-use technology program. Major
objectives of the Consortium are to develop a new generation of laser
machine tools, advanced laser systems, and laser-assisted manufacturing
processes, provide high performance, affordable systems for the U.S.
military, and produce commercial products for a fiercely competitive global
marketplace. The Company became an associate member of the Consortium in
April, 1996. The major function of the Company in the Consortium is to
develop and manufacture high power, low-cost and reliable semiconductor
laser diodes for pumping solid state lasers.
Joint Research and Development Projects
The Company has engaged in research and development ventures with
industry partners and academic research laboratories to provide the
Company with access to new technologies, product applications, quality
control measures, testing techniques and packaging techniques.
The Company is currently engaged in other research and development activities
with research laboratories at a number of academic institutions. Typically
each research laboratory has specific interests and capabilities in areas
of HPDL technology that are relevant to one or more functions of the
Company. For example, one such research laboratory specializes in testing
techniques while another specializes in packaging techniques. It is
anticipated that the number of these relationships will continue to grow.
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8
Internal Research and Development Programs
The Company is conducting several internal research and development
programs associated with high power semiconductor laser technology,
infrared and visible in different departments of the Company. The Company
is working closely with scientists and researchers at Northwestern University
to optimize the aluminum free laser structure and develop a complete
manufacturing procedure for low-cost, high power aluminum free semiconductor
lasers. Some special processing and packaging techniques developed for
aluminum free lasers will reduce the manufacturing cost dramatically.
Computer simulation and theoretical modeling of thermal distribution and heat
dissipation schemes for high power semiconductor laser arrays (laser bar)
are used to optimize stripe geometry and device structure of the laser
array in order to obtain maximum laser power output and small temperature
variation under certain operating conditions. By further improving the
laser design and using high-precision processing, single-mode HPDLs
deliver stable single-mode output, which is essential for the application
of optical data storage. For the applications of medical, optical data
storage and military, the Company has extended the laser operating wavelength
range that it manufactures to the visible light (less than 700 nm) by using
phosphide-based semiconductor material. The achievements of these research
programs may improve the performance of the Company's current products, and
should enable the Company to develop new products for emerging markets of
HPDLs.
Insurance
The products that the Company markets are intended for use by commercial
end users and OEMs in their end products. Some of the Company's products
may become critical components in medical and surgical devices or in
printing, data storage, and data transmission and communications
systems. The use of these products is regulated by the Center for
Disease and Radiological Health because the misuse or mishandling of a
product could result in injury from exposure to the laser light emissions.
A malfunction of the Company's products in any application could result in
tort lawsuits based on injuries resulting from such malfunctions, or in
contract damages lawsuits resulting from the high costs of repairing or
replacing the Company's HPDLs in applications such as satellites or
fiber cables or due to lost profits for data transmission down time. The
Company plans to reduce the risk of such losses through warranty
disclaimers and liability limitation clauses in its sales agreements and
by maintaining product liability insurance. Currently the Company
maintains product liability insurance in the amount of $1,000,000 per
occurrence with a $2,000,000 aggregate limit, which it believes is
adequate coverage for its operations and products. There can be no
assurance, however, that this insurance will be sufficient to cover
potential claims or that adequate levels of coverage will be available
in the future at reasonable cost. A partially uninsured or completely
uninsured claim against the Company could have a material adverse effect
on the Company.
Intellectual Property
The Company has four pending patent applications, two patent applications for
HPDL's, a diode laser array package patent application and a beam splitter
patent application. Two of the patent applications are designated for worldwide
foreign filing. It is the Company's intention to file patent applications for
all inventions which are not held as trade secrets, such as those routinely
employed in the Company's manufacturing processes and products. The Company
requires each of its employees to sign a Employee Invention and Non-Disclosure
Agreement to protect the Company's trade secrets, as well as providing for
assignment of the inventions.
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9
The Company has an active portfolio of license patents from the
Air Force and Northwestern University. The Company has licensed
U.S. Patent No. 5,543,170 entitled "Desorption Mass Spectrometric Control
of Alloy Composition During Molecular Beam Epitaxy" from the Air
Force. The Company has licensed three patents from Northwestern University,
U.S. Patent No. 5,384,151 entitled "InGaAsP/GaAs Diode Laser", U.S.
Patent No. 5,389.396 entitled "InGaAsP/GaAs Diode Laser" and U.S. Patent
No. 5,663,976 entitled "Diode Laser" and a divisional patent application. The
Company has also licensed a pending patent application from Northwestern
University, and is currently engaged in discussions to license additional
patents and patent applications from Northwestern University. The Company has
a consulting relationship with Professor Manijeh Razeghi of Northwestern
University, who is the inventor of the licensed patents from Northwestern
University. (See "Strategy").
Competition
The Company's market is highly competitive. The Company faces current or
potential competition from direct competitors, potential entrants,
suppliers of potential new technologies and suppliers of existing
alternative technologies. Various niche markets have been developed by
application-specific OEMs who seek to create competitive advantages in
individual markets through function and price. These OEMs are attempting
to increase their competitive advantage by purchasing higher quality,
lower cost components for assembly into their laser systems, thereby
allowing their end products to have a price advantage.
Most of the Company's competitors have substantially greater financial,
personnel, technological, marketing, administrative and other resources
than the Company. Among the largest of the Company's competitors are SDL,
Inc., Siemens AG, Opto Power Corporation, Coherent, Inc. and Spire Corp. Also
several large corporations have been developing DVD lasers, such as Hitachi,
Toshiba and Mitsubishi.
The Company believes that all current competitors of the Company utilize MOCVD
production methods, with the lone exception of Coherent, Inc. (which just
entered this market last year through strategic acquisitions), and can be
expected to vigorously assert the claim that this technology is superior to
that of the Company's DMS/MBE technology and the Company's aluminum free
technology. By entering the HPDL market, which is dominated by several
large companies, and by using DMS/MBE technology, the Company faces
intense competitive pressure and may be unsuccessful even if its products
and manufacturing process are superior to those of its competitors. The
Company expects that both direct and indirect competition will increase
in the future. Additional competition could adversely affect the
Company's results of operations through price reductions and loss of
market share.
Potential new technologies may emerge to compete with the
Company's products. Both the Company and its competitors are working to
develop new technologies and improvements and modifications to existing
technologies, which will render present products obsolete. There can be
no assurances that the Company will continue its development efforts,
or that such efforts, if continued, will be successful. In addition,
there can be no assurance that markets will develop for any such
products, or that any such products would be competitive with other
technologies or products that may be developed by others. As the markets
for the Company's products grow, new competitors are likely to emerge
and present competitors may increase their market share.
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10
Employees
The Company currently has 38 full-time employees, none of whom are
represented by a union. Thirteen of these employees have extensive backgrounds
in high power semiconductor laser growth and manufacture. The remaining
25 employees include nine in production and production support, two in
quality control, three in finance and eleven in corporate management and
administration. The Company has never experienced a work stoppage.
Governmental Regulations
The Company is subject to a variety of federal, state and local laws
and regulations concerning the storage, use, discharge and disposal of
toxic, volatile, or otherwise hazardous or regulated chemicals or
materials used in its manufacturing processes. Further, the Company is
subject to other safety, labeling and training regulations as required by
local, state and federal law. The Company has established an
environmental and safety compliance program to meet the requirements of
applicable federal, state and local laws. There can be no assurance that
changes in regulations and laws will not have an adverse economic effect
on the Company. Further, such regulations could restrict the Company's
ability to expand its operations. Any failure by the Company to obtain
required permits or operate within regulations for, control the use of,
or adequately restrict the discharge of, hazardous or regulated
substances or materials under present or future regulations could subject
the Company to substantial liability, require costly changes in the
Company's manufacturing processes or facilities or cause its operations
to be suspended.
Item 2. Description of Properties
On December 18, 1996, the Company entered into an agreement (the "Sale and
Leaseback agreement") with the Broome County IDA, in which the Company sold and
leased back its manufacturing facilities and equipment. The Company entered
into the Sale and Leaseback Agreement in order to take advantage of certain
benefits offered by the Broome County IDA to induce economic expansion through
tax abatement and expansion of employment levels. The sale price was $1.00 and
the lease payment is $1.00 per year for twenty years. In accordance with the
terms of the Sale and Leaseback Agreement, the Company has the unilateral right
at any time to purchase from the Broome County IDA all assets sold to them for
the price of $1.00. The Sale and Leaseback Agreement also provides that the
Company would make payments in lieu of taxes at a rate dependent upon
employment levels. All rights of ownership of the facilities and equipment
remain with the Company. This agreement was not reflected on the books of the
Company as a sale and leaseback transaction as the monetary value of the
transactions and the property rights did not represent in substance a true sale
and leaseback transaction. Under the agreement, the Company is expected to
create 5 - 10 new jobs per year to achieve up to a 40% reduction in property
taxes and up to 101 new jobs per year to achieve property tax reductions of up
to 70%. The Company has not yet received any significant property tax
reductions but expects to in the future as the increase in taxable basis and
the number of new jobs created is incorporated into the taxing authority rolls.
<PAGE>
11
Item 3. Legal Proceedings
The Company settled all outstanding issues in December 1997 involving Theodore
Konopelski a former director, employee and officer that the Company terminated
for cause. Mr Konopelski had disputed such termination. The Settlement
required a cash payment which amount was not material to the financial position
or results of operations of the Company.
The Company is currently engaged in litigation with a former employee who the
Company sought action against relative to a breach of confidentiality and
defamation of character. The former employee has responded with a counter claim
alleging defamation of character and is seeking $500,000 in damages. The
litigations are presently in the discovery stage. The Company believes the
counter claim is without merit and is rigorously defending such action and
that the ultimate outcome of such action will not have a material impact on the
financial condition or results of operations of the Company.
The Company is currently engaged in a litigation with an individual who alleges
that he never received approximately 40,000 shares of Common Stock he allegedly
purchased from the Company. The Company never received any funds from such
alleged purchaser and denies any liability. The Company believes the suit is
without merit and will not have a material impact on the financial condition or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1997.
<PAGE>
12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
The Company's Common Stock is traded on the NASDAQ Small Cap Market
("NASDAQ")under the symbol "SLIC". The following table sets forth, for the
periods indicated and as reported by NASDAQ, the high and low sales prices for
shares of the Common Stock.
Quarter Ended High Low
--------------------- --------- ---------
March 31, 1997 9 1/2 5 1/8
June 30,1997 6 1/2 4 3/4
September 30, 1997 5 1/2 3 3/4
December 31, 1997 5 3/8 1 7/32
March 29,1996 5 7/8 4 7/8
June 30,1996 11 3/8 4 3/8
September 30, 1996 9 1/2 4
December 31, 1996 10 6 7/8
Holders of Common Stock
Based upon information supplied to the Company by its transfer agent, the
number of stockholders of record of the Common Stock on March 12, 1998 was
approximately 185. The Company believes that there are in excess of 1,700
beneficial owners of the Common Stock whose shares are held in "Street
Name".
Dividends
The Company has never paid cash dividends with respect to the Common
Stock. The Company intends to retain future earnings, if any, that may
be generated from the Company's operations to help finance the operations
and expansion of the Company and accordingly does not plan, for the
foreseeable future, to pay dividends to holders of the Common Stock. Any
decision as to the future payment of dividends on the Common Stock will
depend on the results of operations and financial position of the Company
and such other factors as the Company's Board of Directors (the "Board"),
in its discretion, deems relevant. In addition, arrangements with
present or future lenders may restrict the payment of dividends.
<PAGE>
13
The Company has sold the following unregistered securities during the
past three years (all share numbers set forth below have been updated to
reflect stock splits):
<TABLE>
<CAPTION>
Total
Cash
Total Consideration Other
Date of Sale Securities Sold Offering Price Paid Consideration Purchasers
- -------------- ----------------------- -------------- ------------- ----------------- -------------------------------
<S> <C> <C> <C> <C> <C>
January-March 30,080 shares of $ 61,062 $ 61,062 Existing shareholders and
1995 Common Stock; 30,080 investors known to Management
warrants to purchase
Common Stock at $2.94
per share
March-April 9,850 shares of Common $ 20,000 $ 20,000 Company founders
1995 Stock; 9,850 Warrants to
purchase Common Stock at
$2.94 per share
June-July 1995 354,630 shares of Common $ 900,000 $ 900,000 Accredited Investor known to
Stock the Company's Management
June 1995 39,405 shares of Common $ 100,000 $ 100,000 Accredited Investor known to
Stock the Company's Management
November 1995 (1) 45,390 shares of Common $ 115,291 $ 115,291 Previous associate of the
Stock Company
December 1995 2,876 shares of Common $ 7,300 $7,300 in services Consultant to the Company
Stock performed for the
Company
December 1995 35,463 shares of Common $ 90,000 $90,000 in services Consultant to the Company
Stock performed for the
Company
January 1996 (2) 150,000 Bridge Shares $ 750,000 $ 750,000 Accredited Investors
and Bridge Notes in the
aggregate amount of
$750,000
September 1996 2,731 shares of Common $ 22,188 $22,188 for rights Licensor of the Company
Stock to a technology
November 1996 120,000 shares of Common $ 1,050,000 $1,050,000 in Consultant to the Company
Stock services performed
for the Company
January 1997 58,334 warrants to $ 167,710 $167,710 in lease Lessor of equipment to the
purchase Common Stock at related fees Company
$5.00 per share
January 1997 1,231 shares of Common $ 10,000 $10,000 for rights Licensor of the Company
Stock to a technology
October 1997 2,000,000 shares of $ 2,975,000 $ 2,975,000 Accredited Investors
Series A 8% Convertible
Preferred Stock
October 1997 (4) 770,000 warrants to $ 1,201,347 $1,201,347 in Consultants to the Company
purchase Common Stock services performed
at prices ranging from for the Company
$3.4688 to $5.3438
per share
November 1997 1,500 shares of Common $ 2,856 $2,856 for rights Licensor of the Company
Stock to a technology
November 1997 50,000 shares of Common $ 188,770 $188,770 in Consultants to the Company
Stock services performed
for the Company
December 1997 (3) 55,000 shares of Common $ 96,250 $96,000 in services Consultants to the Company
Stock performed for the
Company
</TABLE>
(1) Represents amount allocated to settlement of a potential dispute
with a prior associate of the Company. An equal number of shares were
contributed by the two founders of the Company to the Company immediately
prior to such issuance.
(2) Subsequently included in the Company's Registration Statement on Form
S-1, declared effective on March 19, 1996.
(3) Subsequently included in the Company's Registration Statement on Form S-3
declared effective on January 14, 1998.
(4) Underlying shares of common stock included in Company's Registration
Statement on Form S-3 declared effective on January 14, 1998.
<PAGE>
14
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and elsewhere constitute or may constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995
(the "Litigation Reform Act"), including, without limitation, statements
regarding future cash requirements. The Company desires to avail itself of
certain "safe harbor" provisions of the Litigation Reform Act and is therefore
including this special note to enable the Company to do so. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially
different from any future results, performance, or achievements expressed
or implied by such forward-looking statements. Such factors include,
among others, the following: delays in product development; failure to
receive or delays in receiving regulatory approval; lack of
enforceability of patents and proprietary rights; general economic and
business conditions; industry capacity; industry trends; demographic
changes; competition; material costs and availability; the loss of any
significant customers; changes in business strategy or development plans;
quality of management; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability of qualified
personnel; changes in, or the failure to comply with, government
regulations; and other factors referenced in this Report.
Overview
During 1997, the Company began the commercialization of many of its
proposed products. 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 product
prototypes. As a result, the Company had not generated any appreciable
product sales through June 30, 1997. The Company has since completed the
construction and equipping of the first phase of its manufacturing facility
and has begun the commercialization of its products and the generation of
sales revenues. The Company is focused on increasing sales and thus fully
utilizing its production capacity. Increasing sales levels and higher
utilization of production capacity are critical to the Company's financial
success. Financial resources and liquidity during this period of growth are of
utmost importance and concern to the Company. The Company has a sales order
backlog of approximately $3,200,000 as of April 1, 1998. The Company also
continues to secure licensing agreements for the production, marketing and sale
of technologically improved products which complement their existing product
line. In connection therewith, the Company continues to advance under the
structured program provided as part of the exclusive licensing agreement with
Northwestern University. The Company had previously been granted the right to
produce, market and sell aluminum free HPDLs worldwide. (See "Strategy").
Laboratory research has demonstrated vast improvements with devices produced
using this technology. The Company believes the aluminum free technology will
give the Company both a significant technological advantage over the
competition as well as a significantly broader market base within which
the Company can sell its products. It is believed that it will take six
to nine months to commercialize and market this technology, although no
assurance can be provided that the Company can achieve these goals.
<PAGE>
15
The manufacture of semiconductor lasers such as those sold by the Company is
a highly complex and precise process, requiring production in a highly
controlled and clean environment with the utilization of materials free of
defects and contamination. These factors have a significant impact on
production yields and product reliability which in turn affect operating
results and future customer acceptance. Other semiconductor laser
manufacturers have, from time to time, experienced such problems which have
resulted in adverse financial consequences. The Company believes it has taken
the appropriate steps in its development to minimize the possibility of
experiencing these same problems, although no assurance can be given that the
Company's systems, procedures, procurement efforts and production process are
such that these problems would not be experienced along with the adverse
financial consequences thereof. The Company has, however, been experiencing
production yields that exceed the industry's average.
Since the onset of full commercial production, the Company, on occasion, has
been unable to manufacture certain products in quantities sufficient to meet
the demands of its existing customer base and that of new customers. The
recent growth in the Company's product demand and the expansion in the scope of
its operations has placed considerable strain on Company management, financial,
manufacturing and other resources and has required the Company to continually
improve a variety of operating, financial and other systems. There can be no
assurance that any existing or new systems, procedures or controls will be
adequate to support the Company's operations or that its systems, procedures
and controls will be designed, implemented or improved in a cost effective
and timely manner. Lack of financial resources to implement, improve and
expand such systems, procedures and controls in an efficient manner and at a
pace consistent with the Company's business could have a material adverse
impact on the Company's business and results of operations.
Results of Operations
Effective April 1, 1997, the Company was no longer considered to be a
Development Stage Enterprise. During the period in which the Company was
considered a Development Stage Enterprise, sales of prototype units and the
cost associated therewith were offset against research and development
expenses.
Sales in 1997 were approximately $479,000 as compared to $0 for
1996, primarily the result of the Company beginning commercial operation
April 1, 1997. Prior to this date, the Company was not in commercial
production, but rather using subcontractors to produce prototype products and,
in accordance with financial recognition requirements applicable to Development
Stage Enterprises, were offsetting the revenue and cost associated with the
sale of such prototypes against research and development expenses.
Cost of sales, which includes materials, production labor and certain overheads
was approximately $1,483,000 in 1997 as compared to $0 in 1996. The increase is
attributable to the cost of prototype units produced prior to commercial
operation (April 1, 1997) being charged to research and development expenses
and increases in levels of production labor and overheads associated with the
onset of commercial production. Cost of sales levels are expected to exceed
sales levels until sales levels commensurate with production capacity are
achieved. The Company expects sales levels to increase in the future, thus
steadily increasing production levels to levels approximating full capacity,
although no such assurance can be provided.
<PAGE>
16
Research and Development expenditures were approximately $651,000 in 1997 as
compared to approximately $2,073,000 in 1996. The decrease in such
expenditures is primarily associated with production labor and certain
overheads associated with the sale of prototype units through April 1,
1997, being charged to research and development expenses as compared to
recognition of these same costs as cost of sales subsequent to April 1, 1997.
Also, in 1996, costs associated with the Northwestern Agreement and the
associated consulting contract, amounting to approximately $1,081,000 were
recognized as research and development expenses in 1996.
Sales and Marketing expenses were approximately $369,000 in 1997 as compared to
approximately $173,000 in 1996. The increase of approximately $195,000 is
attributable to increased levels of marketing activities incurred as the
Company approached and entered the commercial operation stage. The increases
were related to increased print media advertising and participation in trade
shows.
General and Administrative expenses were approximately $4,082,000 in 1997 as
compared to approximately $1,067,000 in 1996. The increase of approximately
$3,015,000 is attributable primarily to the transition of the Company from a
development stage enterprise to commercial operation. In connection therewith,
insurance costs increased $68,000 as a result of increased property and
equipment value's, the addition of Directors and Officers insurance and higher
workman's compensation insurance as a result of an increased number of
employees. Salaries and fringe benefit costs increased approximately $355,000
as a result of additional employee levels and the replacement of previous
employees at higher rates. Legal and consulting fees increased approximately
$600,000 as a result of increased litigation activities, increased financial
consulting activities associated with financing alternatives and the absence
of a one time credit recorded in 1996 associated with the contribution to the
Company by a financial consultant of common stock previously issued. Such
credit amounted to approximately $248,000 in 1996. Increases in equipment,
furniture and fixture leasing costs amounted to approximately $479,000,
including equipment leasing costs charged to general and administrative costs
prior to the onset of commercial operation. Subsequent to commercial operation
these costs were recognized as a component of cost of sales. Increases
amounting to approximately $223,000 were experienced in the areas of repairs
and maintenance, property taxes, utilities, depreciation, recruiting and
telephone expenses all being associated with the increase in activities and
assets values associated with the transition from development stage to full
commercial operation. Also, in 1997 the Company incurred a one time charge of
approximately $1,150,000 associated with the value of common stock warrants
issued in connection with a broad based financial public relations/investor
relations program. The Company, late in 1997, also settled certain outstanding
litigation at a cost of $140,000.
Interest income decreased approximately $131,000 as a result of lower levels
of invested cash occasioned by the operating demands associated with the
transition to commercial operation and the lack of significant sales revenue.
<PAGE>
17
Liquidity and Capital Resources
The Company's cash and cash equivalents at December 31, 1997 were $1,934,574 as
compared to $4,266,168 at December 31, 1996, a net decrease of $2,331,594 for
the twelve months ended December 31, 1997. The net decrease is the result of
$3,080,465 provided by financing and investing activities offset by the use of
$5,412,059 in operating activities.
The $3,080,465 provided by financing and investing activities was derived from
the private placement of 2,000,000 shares of Series A 8% Convertible Preferred
Stock (subsequently converted to Common Stock), the exercise of Common Stock
options and the net result of a sale and leaseback transaction and the timing
thereof. Proceeds from long term debt were offset by principal payments on the
same and pre-existing long term debt.
The Company has available an unused, secured line of credit in the amount of
$1,000,000 for purposes of providing working capital, if necessary. The line
bears interest at prime plus 1.5% on the used portion and matures March 31,
1999.
To date, the Company has experienced significant losses, which losses are
continuing. There is no assurance as to when profits will be achieved and/or
positive cash flow will be achieved. Until such time, working capital must be
obtained from equity financings and or borrowings or the Company must undertake
actions to reduce operating expenses. There is no assurance that working
capital can be obtained and , if obtained, on what terms. While the
Company is pursuing various financing alternatives, failure to secure such
working capital requirements and a failure to reduce operating expenses, would
have a significant adverse effect on the financial condition and results of
operations of the Company.
<PAGE>
18
Item 7. Financial Statements
Semiconductor Laser International Corporation
Index to Financial Statements
Page
Report of Independent Public Accountants 19
Financial Statements:
Balance Sheets as of December 31, 1996 and 1997 20
Statement of Operations for the Years Ended December 31,
1995, 1996 and 1997 21
Statement of Changes in Shareholders Equity for the Years
Ended December 31, 1995, 1996 and 1997 22
Statement of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 23
Notes to Financial Statements 24-35
<PAGE>
19
Report of Independent Public Accountants
To The Board of Directors and Shareholders of
Semiconductor Laser International Corporation
In our opinion, the accompanying balance sheets and the related
statements of operations, of changes in shareholders equity and of cash
flows present fairly, in all material respects, the financial position
of Semiconductor Laser International Corporation at December 31, 1996
and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Morristown, NJ
February 13, 1998, except
as to Note 13, which is
as of March 25, 1998
<PAGE>
20
Semiconductor Laser International Corporation
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents............................... $ 4,266,168 $ 1,934,574
Accounts receivable, net of allowance for doubtful......
accounts of $25,000 and $49,610, respectively......... 61,047 201,070
Inventory............................................... 6,316 139,201
Prepaid expenses and other assets....................... -- 70,717
----------- -----------
Total current assets................................. 4,333,531 2,345,562
Plant, property and equipment, net....................... 3,035,929 2,719,816
Intangible assets, net of accumulated amortization of
$2,022 and $2,696, respectively........................ 1,348 674
Deposits and other assets................................ 655,928 591,320
----------- -----------
Total assets........................................ $ 8,026,736 $ 5,657,372
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable......................................... $ 1,142,272 $ 512,447
Accrued expenses and other liabilities................... 92,199 161,545
Current portion of long-term debt........................ 25,948 36,394
----------- -----------
Total current liabilities........................... 1,260,419 710,386
Long-term debt........................................... 809,926 798,283
Accrued royalty payments................................. 100,000 100,000
----------- -----------
Total liabilities................................... 2,170,345 1,608,669
----------- -----------
Commitments and contingencies ( Note 11)
Shareholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding at December
31, 1996 and 1997...................................... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,409,607 shares issued and outstanding
December 31, 1996; 8,389,552 shares issued and
outstanding December 31, 1997.......................... 34,096 83,896
Common stock issuable.................................... 1,123,438 --
Treasury Stock, 35,463 Shares............................ (248,241) (248,241)
Additional paid-in capital............................... 10,081,464 17,035,225
Accumulated deficit...................................... (5,134,366) (12,822,177)
----------- -----------
Total shareholders' equity........................... 5,856,391 4,048,703
----------- -----------
Total liabilities and shareholders' equity........... $8,026,736 $5,657,372
=========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
21
Semiconductor Laser International Corporation
Statements of Operations
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales -- -- $ 478,924
Cost of sales -- -- (1,482,579)
----------- ----------- -----------
Gross margin -- -- (1,003,655)
Operating expenses:
Research and development expenses $ 165,755 $ 2,073,436 651,242
Sales and marketing expenses 87,476 173,329 368,513
General and administrative expenses 924,108 1,067,347 4,082,360
----------- ----------- -----------
Loss from operations (1,177,339) (3,314,112) (6,105,770)
Interest income 26,942 237,253 105,959
----------- ----------- -----------
Loss before extraordinary item (1,150,397) (3,076,859) (5,999,811)
Extraordinary loss on early
extinguishment of debt -- (305,301) --
----------- ----------- -----------
Net loss after extraordinary item (1,150,397) (3,382,160) (5,999,811)
Less: Beneficial conversion feature -- -- (1,688,000)
----------- ----------- -----------
Net loss applicable to common stock $(1,150,397) $(3,382,160) $(7,687,811)
=========== =========== ===========
Net loss per share:
Loss before extraordinary item $ (1.01) $ (1.04) $ (2.15)
Extraordinary item 0.00 (0.10) 0.00
----------- ----------- -----------
Net loss applicable to common stock $ (1.01) $ (1.14) (2.15)
=========== =========== ===========
Weighted average shares outstanding 1,143,352 2,949,884 3,572,458
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
22
<TABLE>
<CAPTION>
Semiconductor Laser International Corporation
Statements of Changes in Shareholders' Equity
Common Additional Total
Preferred Common Stock Treasury Paid-In Accumulated Shareholders'
Stock Stock Issuable Stock Capital Deficit Equity
----------- ----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994, (921,347
shares issued and outstanding) $ 9,213 $ 581,979 $ (601,809) $ (10,617)
Issuance of common stock, January, March,
April, June and July 1995, (434,147
shares) 4,340 979,336 983,676
Stock contributed by shareholders,
November 1995, (45,390 shares) (454) 454 0
Stock issued in settlement of potential
dispute, November 1995, (45,390 shares) 454 114,837 115,291
Stock issued for services rendered,
December 1995, (38,339 shares) 383 96,915 97,928
Compensatory stock options 261,544 261,544
Net loss for the year ended December 31,
1995 (1,150,397) (1,150,397)
----------- ----------- ---------- ----------- ----------- ----------- -----------
Balance at December 31, 1995, (1,393,653
shares issued and outstanding) 13,936 2,035,065 (1,752,206) 296,795
Issuance of common stock as a component
of "Bridge Financing", January 1996,
(150,000 shares) 1,500 243,500 245,000
Issuance of common stock, Initial Public
Offering, March 1996, (1,700,000 shares) 17,000 7,061,985 7,078,985
Issuance of common stock, overallotment
option, April 1996, (55,000 shares) 550 234,214 234,764
Issuance of common stock, warrant
exercise, July 1996, (101,983 shares) 1,020 298,810 299,830
Warrant redemption, July 1996 (3,599) (3,599)
Issuance of common stock, compensatory
stock option exercise, July 1996
(1,971 shares) 20 8,849 8,869
Common stock issuable for services to
be rendered, August 1996 $ 51,250 51,250
Common stock issuable for services to
be rendered, September 1996 (2,731 shares) 22,188 22,188
Warrants issued in exchange for services
to be rendered, October 1996 167,710 167,710
Issuance of common stock, warrant
exercise, November 1996, (7,000
shares) 70 34,930 35,000
Common stock issuable for services
rendered, November 1996 (120,000 shares) 1,050,000 1,050,000
Company common stock contributed to
Company, December 1996, (35,463
shares) $ (248,241) (248,241)
Net loss for the year ended December 31,
1996 (3,382,160) (3,382,160)
----------- ----------- ---------- ----------- ----------- ----------- -----------
Balance at December 31, 1996, (3,409,607
shares issued and outstanding) 34,096 1,123,438 (248,241) 10,081,464 (5,134,366) 5,856,391
Issuance of common stock issuable,
January 1997, (121,231 shares) 1,212 (1,072,188) 1,070,976 0
Issuance of common stock, option exercise,
May 1997, (9,851 shares) 99 394 493
Issuance of common stock, option exercise,
July 1997, (29,553 shares) 296 1,182 1,478
Issuance of Series A 8% Convertible
Preferred Stock, October 1997,
(2,000,000 shares) $ 20,000 2,817,480 2,837,480
Beneficial conversion feature associated
with Series A 8% Convertible Preferred
Stock, October 1997 1,688,000 (1,688,000) 0
Warrants issued for services rendered,
October 1997, (770,000 warrants) 1,198,789 1,198,789
Issuance of common stock issuable,
November 1997, (10,000 shares) 100 (51,250) 51,150 0
Issuance of common stock for services
rendered, November 1997, (1,500 shares) 15 2,571 2,586
Issuance of common stock associated with
the sale of Series A 8% Convertible
Preferred Stock, November 1997,
(40,000 shares) 400 137,120 137,520
Issuance of common stock for services
rendered, December 1997, (55,000 shares) 550 78,540 79,090
Issuance of common stock associated with
the conversion of Series A 8% Convertible
Preferred Stock, December 1997,
(4,712,810 shares) (20,000) 47,128 (92,441) (65,313)
Net loss for the year ended December 31,
1997 (5,999,811) (5,999,811)
----------- ----------- ---------- ----------- ----------- ----------- -----------
Balance at December 31, 1997, (8,389,552
shares issued and outstanding) $ 0 $ 83,896 $ 0 $ (248,241) $17,035,225 $(12,822,177) $ 4,048,703
=========== =========== ========== =========== =========== ============ ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
23
Semiconductor Laser International Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,150,397) $ (3,382,160) $ (5,999,811)
Adjustments to reconcile net loss to cash used
In operating activities:
Depreciation and amortization 23,779 71,981 126,344
Expenses settled through the issuance of
Common shares, options and warrants 384,135 854,172 1,282,379
Amortization of debt discount - 64,699 -
Extraordinary loss on early extinguishment
of debt - 350,301 -
Change in assets and liabilities:
(Increase) in accounts receivable (4,325) (55,712) (140,023)
Decrease (increase) in inventory 1,160 (3,716) (132,885)
(Increase) in prepaid expenses and other assets - - (70,717)
(Increase) decrease in deposits and other assets (80) (111,926) 64,608
(Increase) decrease in deferred financing cost (134,431) 134,431 -
Increase (decrease) in accounts payable 175,100 933,332 (629,825)
Increase (decrease) in accrued expenses and
other liabilities 54,326 (42,132) 69,346
------------ ------------ ------------
Net cash used in operating activities (650,733) (1,231,730) (5,430,584)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of plant, property and equipment, net (163,706) (4,182,934) (2,463,450)
Sale of equipment, pursuant to sale and
leaseback agreement - 895,606 3,676,856
------------ ------------ ------------
Net cash provided by (used in) investing activities (163,706) (3,287,328) 213,406
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long term debt 101,669 1,441,000 31,306
Payments on long-term debt - (831,796) (32,503)
Issuance of stock, net of expenses 1,073,674 7,644,980 2,886,781
------------ ------------ ------------
Net cash provided by financing activities 1,175,343 8,254,184 2,885,584
------------ ------------ ------------
Net (decrease) increase in cash, cash equivalents,
and restricted cash 360,904 3,735,126 (2,331,594)
Cash, cash equivalents, and restricted cash at
beginning of period 170,318 531,042 4,266,168
------------ ------------ ------------
Cash, cash equivalents, and restricted cash at
end of period $ 531,042 $ 4,266,168 $ 1,934,574
============ ============ ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
24
Semiconductor Laser International Corporation
Notes to Financial Statements December 31, 1997
1. Organization
Semiconductor Laser International Corporation (the"Company") was
incorporated in New York State in September 1993 (inception) and, subsequently,
reincorporated in Delaware in September 1997, 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 and
financial 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 CRDA expired in September
1996 and was not renewed. The Company has since completed the construction
of its manufacturing facility in Binghamton, New York, where it is conducting
all activities.
Effective April 1, 1997, the Company ceased operating as a development stage
enterprise as it began commercial production of its products.
2. Financial Resources and Liquidity
The Company has incurred net losses from inception (September 21, 1993) and
has an accumulated deficit at December 31, 1997 of $12,822,177. Such losses
have resulted primarily from the Company's activities as a development stage
enterprise and have been financed primarily from proceeds from the Company's
initial public offering and private equity financing (see Note 11). The
Company expects that its cash and working capital requirements will continue
to be significant as its operations expand. The Company expects that such cash
and working capital requirements will be satisfied through a combination of
revenue growth and additional private equity financing. In this regard, the
Company has secured a non-binding letter of intent for private equity financing
in the amount of $1,237,500 and intends to use the net proceeds of
approximately $1,052,000 for working capital requirements. In the event that
revenue growth is not attained or additional private equity financing is not
obtained, the Company has the ability and intends to undertake actions to
reduce operating expenses.
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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates.
<PAGE>
25
Inventory
Inventory is valued at the lower of cost or market. Cost is determined
by the first in, first out (FIFO) method.
Depreciation and amortization
Property, plant and equipment are recorded at cost and depreciated over
the assets' estimated useful lives ranging from three to twenty 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.
Impairment of long-lived assets
Assessments of the recoverability of long-lived assets are conducted when
events or circumstances occur that indicate that the carrying value of the
asset may not be recoverable. The measurement of impairment is based on the
ability to recover such carrying value from the future undiscounted cash flows
of related operations.
Revenue Recognition
Revenue recognition is based on the terms of the underlying sales agreements
(purchase orders or contracts). Revenue for fixed price milestone contracts is
recognized upon the completion and billing of the milestone. Customers
entering into long-term contracts with the Company include the U.S. Government,
prime or subcontractors for which the U.S. Government may be the end customer,
and other domestic end-users.
Comprehensive Income
In 1998, the Company will implement Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income", which will have no impact on the
Company's results of operations or financial position as the statement requires
only additions to current disclosures.
Research and development
Research and development costs are expensed as incurred. Included in
research and development expenses are costs related to development of
prototypes of $51,013, $2,073,476 and $500,526 for the years ended
December 31, 1995, 1996 and 1997, respectively.
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.
<PAGE>
26
Net loss per share
In December 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share ("FAS 128") which requires the
presentation of basic and diluted earnings per share in a Company's financial
statements for reporting periods ending subsequent to December 15, 1997. As
required by SEC Staff Accounting Bulletin No. 98, previously reported 1996 and
1995 per share information contained in the accompanying consolidated financial
statements has been restated to give effect to the adoption of FAS 128,
resulting in an increased net loss per share of $0.01 and $0.09 for the
years ended December 31, 1996 and 1995, respectively.
Net loss per share is computed using the weighted average number of
common shares outstanding.
As of December 31, 1997, the Company had outstanding warrants and options to
purchase 2,946,334 and 141,305 shares of common stock, respectively, which are
not included in the calculation of earnings per share for the twelve months
ended December 31, 1997, and would not be included in such calculation due to
the anti-dilutive nature of these instruments.
4. Inventories
Inventories at December 31, 1997 and 1996 consist solely of raw materials
and supplies. During the period the Company was in the development stage and
had not yet commenced commercial production, 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
Plant, property and equipment consists of the following:
December 31,
1996 1997
----------- -----------
Land $ 174,609 $ 175,459
Building 1,680,600 2,097,215
Machinery and equipment 936,208 420,711
Furniture and fixtures 267,262 151,888
Automobiles 76,124 76,124
----------- -----------
3,134,803 2,921,397
Less: accumulated depreciation (98,874) (201,581)
----------- -----------
$ 3,035,929 $ 2,719,816
=========== ===========
Depreciation expense for the years ended December 31,
1995, 1996 and 1997, was $23,105, $71,306 and $125,670, respectively.
During 1996, the Company sold and leased back, under a sale and
leaseback program, machinery and equipment and furniture and fixtures
amounting to approximately $895,000 and, in 1997, sold and leased back
approximately $2,677,000 of machinery, equipment, furniture and fixtures.
No gain or loss was realized in either year relative to the sale and leaseback
transactions.
<PAGE>
27
6. Deposits and Other Assets
Deposits and other assets consist of the following:
December 31,
-------------------------
1996 1997
----------- -----------
Deposits under master lease agreement $ 279,267 $ 562,506
Equipment deposit 342,267 -
Unamortized service contract costs 29,895 -
Other 4,499 28,814
----------- -----------
$ 655,928 $ 591,320
=========== ===========
7. Accrued Royalty Payments
In 1994, the Company entered into an exclusive licensing agreement
under which it has access to proprietary semiconductor laser device and
manufacturing technology and can manufacture, market and distribute its
products worldwide. The Company's rights under this agreement are for a
period of ten years calling for a running royalty of 0.5% of gross
sales for products utilizing this technology. In each of the final five
years of this agreement, the Company is obligated to pay a minimum annual
royalty of $20,000. Such minimum royalty payments aggregating $100,000
have been reflected in the accompanying financial statements. Royalties
payable under the terms of the agreement are expensed as incurred.
No royalty payments were made during the years ended December 31, 1995,
1996 and 1997.
8. Accrued expenses and other liabilities
Accrued expenses and other liabilities consist of the following:
December 31,
-------------------------
1996 1997
----------- -----------
Accrued payroll and benefits $ 37,078 $ 54,371
Professional fees 46,521 94,719
Other accrued expenses 8,600 12,455
----------- -----------
$ 92,199 $ 161,545
=========== ===========
<PAGE>
28
9. Debt
Long-term debt consists of the following:
December 31,
-------------------------
1996 1997
----------- -----------
Bank term loan, principal and interest
at 10% payable monthly through
January 2002 $ 19,874 $ 42,269
Bank term loan, principal and interest
at 10% (adjustable after December 2001)
payable monthly through December 2006 816,000 792,408
----------- -----------
835,874 834,677
Less current portion (25,948) (36,394)
----------- -----------
$ 809,926 $ 798,283
=========== ===========
Both loans are secured by assets purchased with the proceeds of the
loans. The bank term loan due December 2006 prohibits the Company
from payment of dividends, except from net income accrued after the
date of the loan agreement, and requires that the Company maintain
certain financial ratios and indicators. At December 31, 1997, the Company
was not in compliance with the minimum net worth requirements of bank term
loan due December 2006. However, a waiver of the right to demand payment
for this non-compliance has been provided by the lender covering any period
prior to December 31, 1998.
Aggregate annual principal payments applicable to long-term debt through
the year ended December 31, 2002 are $203,322.
The Company has available an unused, secured line of credit in the amount of
$1,000,000 for purposes of providing working capital, if necessary. The line
bears interest at prime plus 1.5% (prime being 8.5% at December 31, 1997)
on the outstanding balance and matures March 31, 1999.
10. Income taxes
There was no provision for income taxes for the years ended December 31,
1995, 1996 and 1997.
Deferred income tax assets (liabilities) consisted of the following:
December 31,
-------------------------
1996 1997
----------- -----------
Depreciation and amortization $ (91,190) $ (120,885)
Accruals 39,000 39,000
Compensatory Stock Options 105,453 105,453
Net operating loss carryforward 1,939,035 3,860,628
----------- -----------
1,992,298 3,884,196
Valuation allowance (1,992,298) (3,884,196)
----------- -----------
$ - $ -
=========== ===========
<PAGE>
29
Net operating loss carry forwards, of approximately $10,000,000 expire in
the years 2008 to 2012. Internal Revenue Code Section 382 places a
limitation on the utilization of Federal net operating loss carry forwards
when an ownership change, as defined by tax law, occurs. Generally,
an ownership change as defined occurs when a greater than
50 percent change in ownership takes place. The annual utilization
of net operating loss carryforward generated prior to such changes
in ownership will be limited, in any one year, to a percentage of
fair market value of the Company at the time of the ownership change.
A valuation allowance is recorded when it is more likely than not that
deferred taxes will not be realized. Because the Company has only recently
transitioned from the development stage and future income is uncertain,
management has determined that a full valuation allowance against all deferred
tax assets is necessary at December 31, 1996 and 1997.
11. Common Stock
Options
The following summarizes stock option activity:
<TABLE>
<CAPTION>
Exercise
Number of Price per
Shares Share Expiration Date
--------- -------------- ------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 1,971 $ 0.25 October 1998
Granted in November 1995, to Officers 68,957 $ 0.05 November 1999
Granted in November 1995, to Directors in
exchange for services 19,702 $ 0.05 November 1999
---------
Outstanding at December 31, 1995 90,630 $ 0.05-0.25
Granted under Employee Stock Option
Plan 104,000 $ 5.00-$9.25 March-December 2000
Options exercised, July 1996 (1,971) $ 0.25
Options forfeited (3,500) $ 5.50
---------
Outstanding at December 31, 1996 189,159 $ 0.05-$9.25
Granted under Employee Stock Option
Plan 113,550 $ 8.19-$0.6875 March 2000-December 2001
Options exercised, May and July 1997 (39,404) $ 0.05
Options forfeited (50,500) $ 5.00-$9.00
Options canceled (76,500) $ 0.72-$9.25
---------
Outstanding at December 31, 1997 136,305 $ 0.05-$0.6875
=========
</TABLE>
<PAGE>
30
90,630, 189,159 and 102,755 options were exercisable at December 31, 1995,
1996 and 1997, respectively, at a weighted average exercise price of
$0.05, $3.24 and $0.38, respectively.
On November 20, 1995, the Board of Directors canceled options for 88,659
shares with an exercise price of $2.54 and options for an equal amount of
shares were issued at an exercise price of $.05 per share and an
expiration date of November 19, 1999. Non-cash compensation expense of
$261,544 was recognized related to such options.
On October 23, 1995, the Board of Directors adopted the Company's 1995
Employee Stock Option Plan (the "Plan") which provides for the granting
of options and stock awards for up to 250,000 shares of the Company's
Common Stock. Awards under the plan are discretionary and are administered
by a committee of the Board of Directors. The exercise price of the
options shall not be less than the fair market value at the date of the
grant. Options granted under the plan vest over varying periods after
the date of the grant and expire over varying periods up to ten years after
the date of the grant.
During 1996 the Company granted options to purchase 104,000 shares under
the Plan, including 43,500 options to executive officers and directors of the
Company. Of the 104,000 options granted, 37,000 were subject to the approval
of the Board of Directors, such approval being subsequently granted. The
options granted in 1996 had exercise prices ranging from $5.00
to $9.25, vesting periods through December 1999 and expire in the year
2000.
In 1997, the Company granted options to purchase 113,550 shares under the Plan,
including 55,500 to executive officers and directors of the Company, at a price
of $0.6875 per share with varying vesting periods through December 1999 and
expiration dates through December 2001. During 1997, the Company also
canceled 76,500 options previously issued, including 46,000 options previously
issued to executive officers and directors of the Company, with exercise prices
ranging from $0.72 to $9.25. 50,500 options expired unexercised in 1997 under
the terms of the Plan.
As permitted by Statement of Financial Accounting Standards ("SFAS")
No. 123, the Company continues to account for options in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and its related interpretations. Had the compensation
cost for the options issued in 1995, 1996 and 1997 to officers and employees
been determined based upon the fair value at the grant date in accordance
with methodology prescribed under SFAS No. 123, the Company's net loss
would have increased by approximately $14,000 (or $0.01 per share) in 1995,
$263,000 (or $0.09 per share) in 1996 and $27,000 (or $0.01 per share)
in 1997. The weighted average fair value of the options granted in 1995, 1996
and 1997 was estimated at $2.83, $2.77 and $0.31 per option, respectively, on
the dates of grant, using the Black-Sholes option pricing model which included
the following assumptions stated on a weighted average basis:
1995 1996 1997
---------- ---------- ----------
Dividend Yield 0% 0% 0%
Volatility 55.32% 54.08% 63.13%
Risk Free Interest Rate 5.70% 6.14% 5.68%
Expected Life 5 years 3.7 years 2.9 years
<PAGE>
31
Warrants
Warrants were issued in connection with common stock issued at various
times from December 1994 through April 1995. Each warrant entitled the
holder to purchase one share of common stock for $2.94 per share.
Warrants were issued in connection with the Company's initial public
offering in March 1996. Also, in July 1996, the underwriter of the
Company's initial public offering exercised its overallotment option to
purchase an additional 255,000 warrants. Of the 1,955,000 warrants issued,
1,948,000 were outstanding at December 31, 1996.
On January 3, 1997, the Company issued 58,384 warrants in connection with
an operating lease agreement (see Note 11). The warrants could not be
exercised prior to February 1997 and entitle the warrant holder to
purchase an equal amount of common stock at $5.00 per share. The value
of such warrants, as determined by the market price at time of issue,
has been reflected in the financial statements as an other asset and
additional paid-in capital in the amount of $167,710.
On June 13, 1996, the Company notified holders of warrants issued in a
December 1994 private placement of the Company's common stock and
warrants (the private placement), of its intent to exercise its right
to redeem warrants issued in that private placement if such warrants
were not exercised prior to July 15, 1996. As a result, the holders of
101,983 Warrants exercised their right to purchase a like amount of
shares of the Company's common stock at an exercise price of $2.94 per
share on July 15, 1996. The Company redeemed the remaining 13,844
warrants at a redemption price of $0.26 per warrant.
In October 1997, in connection with a private placement of the Company's
Series A 8% Convertible Preferred Stock (the "October Private Placement"), the
Company issued to Marketing Direct Concepts, Inc., a financial public relations
firm, the following warrants, all having a term of three years;
Number of Warrants Exercise Price
------------------ --------------
600,000 $3.4688
75,000 $3.4688
25,000 $4.3438
25,000 $4.8438
25,000 $5.3438
Also, in connection with the October Private Placement, the Company issued
20,000 warrants with a term of two years and an exercise price of $3.75 to a
financial consultant of the Company. The value of the Warrants issued in
connection with the October Private Placement has been estimated at
approximately $1,200,000 and has been reflected as a charge to the results of
operation for the year ended December 31, 1997.
<PAGE>
32
Bridge Financing
On January 18, 1996 the Company completed a private offering of fifteen
units (the "Bridge Financing"), each unit consisting of a note
(bearing interest at 9%) in the principal amount of $50,000 and 10,000
shares of common stock, at a price of $50,000 per unit. The principal
amount of the notes was due and payable on the earlier of the
consummation of a public offering or January 18, 1997. The Company
realized net proceeds from the Bridge Financing of approximately
$625,000, which net proceeds were allocated between the notes
and shares included in the Bridge Financing based on their relative
fair values at the date of such Bridge Financing. The $295,000 portion
of the Bridge Financing's gross proceeds which were allocated to the
shares (the "loan discount") and the $75,000 portion of the Bridge
Financing's offering costs which were allocated to the notes
(the "deferred financing costs") were being amortized commencing
January 18, 1996. Upon early retirement of the notes, the Company
recognized an extraordinary loss of $305,301 representing the
unamortized loan discount and deferred financing costs.
Initial Public Offering
On March 19, 1996 the Company sold 1,700,000 shares of common stock at
$5.00 per share and 1,700,000 warrants to purchase 1,700,000 shares of
common stock at $.10 per warrant through an initial public offering
(the "offering") and realized net proceeds from the offering of
$7,078,995, a portion of which was used to repay the notes from the
Bridge Financing.
On April 3, 1996, the underwriter of the Company's offering notified the
Company of its intent to exercise, in part, its over-allotment option to
purchase shares of the Company's common stock. As a result, the Company
issued and sold an additional 55,000 shares of its common stock at the
initial public offering price of $5.00 per share. The net proceeds to
the Company, after expenses and underwriting discounts and commissions,
were approximately $234,800. The option has since lapsed as to its
unexercised portion.
Treasury Stock
The Company holds 35,463 shares of its common stock in treasury. The
treasury shares are the result of a return of shares to the Company
by a stockholder who had received the shares as compensation for services
provided in 1995. The shares have been valued at their fair market
value of $248,241 on the date of contribution and have been included in
the accompanying financial statements as Treasury Stock and as a
reduction in general and administrative expenses.
October 1997 Private Placement
In October 1997, the Company completed a private placement (the "Private
Placement") of 10 Units (the "Units"), each Unit consisting of 200,000 shares
of Series A 8% Convertible Preferred Stock (the "Convertible Preferred
Stock"), for an aggregate purchase price of $3,500,000. After deducting the
Placement Agent's commissions and expenses of $525,000 and other expenses of
the offering aggregating $138,000, the net proceeds of the Private Placement
to the Company were approximately $2,837,000.
<PAGE>
33
The shares of Convertible Preferred Stock underlying the Units were convertible
in whole or in part, at the option of the holder thereof and upon notice to the
Company, into fully paid and nonassessable shares of Common Stock at the
Conversion Rate. The Conversion rate, subject to certain adjustments, was in
the event the conversion date occurred (i) on or prior to December 5, 1997, one
share of Common Stock for each share of Convertible Preferred Stock being
converted, and (ii) after December 5, 1997, the number of shares of Common
Stock equal to the number of shares of Convertible Preferred Stock being
converted divided by the product of the average market price of the Common
Stock for the five (5) consecutive trading days immediately prior to such
conversion date multiplied by 70%. The market price for any date was the
closing bid price of the Common Stock on such date as reported by the
National Association of Securities Dealers' Automated Quotation System.
On December 30, 1997, the holders of all 2,000,000 outstanding shares of the
Convertible Preferred Stock converted their shares of Convertible Preferred
Stock into 4,712,810 shares of Common Stock in the aggregate, in accordance
with the terms of the conversion formula.
The Company had also agreed to use its best efforts to effect a Registration
of the Common Stock issued upon conversion. A Registration of the securities
issued upon conversion became effective January 14, 1998.
In accordance with the Emerging Issues Task Force Topic D-60 "Accounting for
the Issuance of Convertible Preferred Stock and Debt Securities with a
Nondetachable Conversion Feature", the Company has accounted for the conversion
right associated with conversion on or before December 5, 1997 as a
"Beneficial Conversion Feature". The Beneficial Conversion Feature has been
calculated as the product of the difference between the quoted market price of
the Common Stock on December 5, 1997 and the price paid for the Convertible
Preferred Stock applied to the number of shares of Convertible Preferred Stock
fully paid as of October 27, 1997, and amounted to $1,688,000 and has been
recorded by the Company as a charge to income available to Common Stockholders
and as an increase to additional paid-in capital. The Convertible Preferred
Stock issued on December 11, 1997, was immediately convertible into 1,098,732
shares of Common Stock, based on the conversion formula in effect and the
market price of the Company's Common Stock. Had such shares of Convertible
Preferred Stock been converted on December 11, 1997, the value of the Common
Stock issued upon conversion would have been less than the price paid for the
Convertible Preferred Stock. Therefore, no Beneficial Conversion Feature was
recognized.
Also, in connection with the October Private Placement, the Company entered
into a one-year agreement with Marketing Direct Concepts, Inc. ("MDC") for
ongoing financial public relations services. Under the agreement, the Company
will receive a range of financial public relations services, including the
establishment of contact with a number of brokers, the preparation of certain
reports, the establishment of a web site and the arrangement of broker
teleconferences. In consideration for these services, the Company is
obligated to pay a fee of $195,000, 40,000 shares of non-registered common
stock, 150,000 three year warrants at exercise prices at or above the closing
bid price of the Company's Common Stock as of October 27, 1997 and 600,000
three-year warrants exercisable at $3.4688. The value of the warrants
(approximately $1,200,000) and a portion of the cash fee have been charged to
the results of operations for the year ended December 31, 1997.
<PAGE>
34
12. Commitments, 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
provided for the sale and ultimate leaseback by the Company of up to
$3,500,000 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. The warrants
have been valued at $167,710, the fair market value of the Company's
warrants at the date of issuance and such value is being amortized over
the term of the lease.
Rent expense under noncancellable operating leases was $ 0, $25,563 and
$1,024,280 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company had previously leased its office facility and furniture under
an operating lease on a month to month basis. Rent expense related to
those leases for the years ended December 31, 1995 and 1996 was $4,780 and
$42,755, respectively.
Future minimum payments under noncancellable operating leases, including
the Finova lease agreement, at December 31, 1997, are as follows:
Year Ending
December 31,
----------------
1998 $1,009,000
1999 1,009,000
2000 1,009,000
2001 213,000
----------
$3,240,000
==========
Litigation
The Company settled all outstanding issues in December 1997 involving Theodore
Konopelski, a former director, employee and officer that the Company terminated
for cause. Mr. Konopelski had disputed such termination. The settlement
required a cash payment, which amount was not material to the financial
position or results of operations of the Company.
The Company is currently engaged in litigation with a former employee who the
Company sought action against relative to a breach of confidentiality and
defamation of character. The former employee has responded with a counter claim
alleging defamation of character and is seeking $500,000 in damages. The
litigations are presently in the discovery stage. The Company believes the
counter claim is without merit and is rigorously defending such action and that
the ultimate outcome of such action will not have a material impact on the
financial condition or results of operations of the Company.
The Company is currently engaged in a litigation with an individual who alleges
that he never received approximately 40,000 shares of Common Stock he allegedly
purchased from the Company. The Company never received any funds from such
alleged purchaser and denies any liability. The Company believes the suit is
without merit and that the ultimate outcome will not have a material impact on
the financial conditions or results of operations of the Company.
<PAGE>
35
Agreements
Northwestern License Agreement
The Company entered into a licensing agreement with Northwestern
University (the "Northwestern License") on September 1, 1996. The
Northwestern license is for the exclusive rights to produce, market and
sell aluminum free HPDLs worldwide using certain patents and know how,
as defined in the Northwestern license, owned by Northwestern University.
Under the terms of the Northwestern license, the rights expire upon the
expiration of the patents or ten years from the date of the first
commercial sale in countries where no patent rights exist. The Company
also has the right to terminate the Northwestern license after three years.
Northwestern University has the right to terminate the Northwestern license
after three years if the Company does not have products, based on the
technology, available for sale.
In consideration for the Northwestern license, the Company paid Northwestern
University a non-refundable license fee of $21,000 plus $10,000 of the
Company's unregistered common stock (1,231 shares). In addition, the Company
issued 1,500 shares of unregistered common stock, valued at $2,586. These
amounts have been charged to research and development expense. Royalties are
also required for sales derived from this technology and are based on net
sales volume on a sliding scale from 4% to 1%.
In November 1996, the Company entered into an agreement with a Professor
at Northwestern University for services as an advisor to transfer the
aluminum free technology to the Company for commercial production. In
consideration for the agreement, the Company committed to issue
120,000 shares of the Company's unregistered common stock to the
Professor. The fair market value of the Company's unregistered common
stock granted, as of the date of the agreement, was $1,050,000 and has
been included in the accompanying financial statements as common stock
issuable at December 31, 1996 and research and development expenses. The
common stock was issued in January 1997.
13. Subsequent Event
On March 25, 1998, the Company received a non-binding letter of intent to
purchase 1,650,000 shares of the Company's common stock at a price of $0.75 per
share in a private placement (the"Placement"). The Company expects to realize
net proceeds of approximately $1,052,000 from the Placement after deducting
fees of approximately 15%. The letter of intent also provides for demand
registration rights. The Company expects that the Placement will close in
accordance with the terms of the letter of intent.
<PAGE>
36
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
37
PART III
Item 9. Directors, Executive Officers; Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- --------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Dr. Geoffrey T. Burnham ...................... 50 Chairman, President, Chief Executive Officer
Susan M. Burnham ............................. 42 Vice President, Treasurer and Director
George Barrett .............................. 64 Director
Dr. Brian Thompson .......................... 65 Director
</TABLE>
Dr. Geoffrey T. Burnham, a founder of the Company, has also served as its
Chairman, President, and Chief Executive Officer, since its incorporation in
September 1993, and devoted his full-time efforts to the establishment of the
Company commencing in May 1993. From April 1990 through July 1990, Dr. Burnham
served as a consultant to, and from July 1990 until May 1993, he was employed
by, Northeast Semiconductor, Inc. ("NSI"), and served as its President and as
a director from October 1991 through May 1993. Dr. Burnham resigned from NSI
upon its acquisition in a hostile take-over. Approximately five months after
his resignation, NSI filed for Chapter 7 bankruptcy protection. Prior to April
1990, Dr. Burnham had over 16 years of experience in the laser field, including
10 years in the semiconductor laser field, holding management positions with
Hercules Aerospace Corporation (1987 to 1989), General Optronics Corporation,
a company involved in manufacturing laser equipment for telecommunications
applications (1984 to 1986) and General Electric Co. ("General Electric")
(1975 to 1984). Dr. Burnham founded and directed General Electric's Laser
Business Venture for five years. In addition, he was corporate liaison between
General Electric and the University of Rochester on General Electric's
Consortium on Inertial Confinement Fusion. Dr. Burnham also served as General
Electric's Corporate technical Recruiter at the University of Rochester as well
as Chairman of the United States government's laser section of the Military
Critical Technologies List. Dr. Burnham is married to Susan Burnham.
Susan M. Burnham has been Vice President, Treasurer and a director of the
Company since its incorporation in September 1993. From May 1993 to September
1993, Ms. Burnham assisted Dr. Burnham in the establishment of the Company and,
from February 1992 through April 1993, Ms. Burnham was not employed. From
August 1986 through January 1992, she served as a national account executive
in marketing and sales for MLI Industries Inc., a company involved in turn-key
subcontract manufacturing of electronic components, electro-mechanical
assemblies, and copy machine refurbishment and manufacturing, and was
responsible for handling all major company accounts, as well as all new
accounts. She established a customer base that included several divisions of
General Electric, IBM and Eastman Kodak Company, initiating partnership
agreements for all major customers. Ms. Burnham was employed by General
Electric from December 1977 through July 1984 during which time she held
administrative positions in various laser and electronic programs with a
particular emphasis on the monitoring of operating budgets. Ms. Burnham is
married to Dr. Burnham.
<PAGE>
38
George W. Barrett was elected as a director of the Company in December 1993.
Mr. Barrett has been Operations Manager of Universal Telephone & Telegraph, a
long distance telephone company, since June 1996. Prior to that, from October
1995 through February 1996, Mr. Barrett was an independent consultant,
providing general business management services. From October 1989 through
September 1995, he was President and General Manager of Engineered Systems
Division (Datron Inc.), a publicly owned company engaged in the manufacture of
aircraft arresting systems. Mr. Barrett was president of Auxilec, Inc., a
subsidiary of a publicly owned company engaged in the manufacture of aircraft
generation systems, from January 1988 to May 1989, Division President of
Simmonds Precision Engine Systems, a publicly held company engaged in the
manufacture of aircraft ignition systems, from January 1986 to August 1987 and
Vice President of Lucas Aerospace Inc., a publicly owned company engaged in the
manufacture of engine control systems, from October 1971 to December 1985.
Dr. Brian Thompson was elected as a director of the Company in December 1993.
He is Provost Emeritus, Professor Emeritus of Optics and Distinguished
University Professor of the University of Rochester. From July 1984 to July
1994, he was Provost of the University of Rochester. He is the author of more
than 150 scientific and technical papers, has won numerous awards for his
contributions to optics and is serving or has served on the editorial boards
of many international journals. Dr. Thompson is a member of the Board of
Directors of Welch Allyn, Inc., a company involved in manufacturing medical
instrumentation, Holotek, Ltd., a publicly held corporation involved in
producing scanning and imaging equipment, and Boydell & Brewer, a publications
company, and is also a member of the Link Foundation's Board of Trustees.
All directors hold office until the next annual meeting of shareholders and
until their successors have been elected and duly qualified.
The Company has agreed, for a period of five years following the Effective
Date, if so requested by Whale Securities Co., L.P., the Underwriter
(the "Underwriter"), of the Company's initial public offering (the
"Public Offering"), to nominate and use its best efforts to elect a designee
of the Underwriter to the Board or, at the Underwriter's option, as a nonvoting
advisor to the Board. The Underwriter has not yet exercised its right to
designate such person.
Board Committees
The company has a Compensation Committee and Audit Committee.
Compensation Committee
The function of the Compensation Committee is to make recommendations
to the Board with respect to compensation of executive officers. In
addition, the Compensation Committee administers the Company's 1995 Stock
Option Plan (the "Option Plan"), determining the persons to whom options
should be granted and the number of options to be granted to such persons.
The Compensation Committee also administers plans and programs relating to
the employee benefits, incentives and compensation. Messrs. Barrett and
Thompson are the current members of the Compensation Committee.
Audit Committee
The function of the Audit Committee is to, among other things, make
recommendations to the Board of Directors regarding the selection of
independent auditors, review and evaluate the result and scope of the audit and
other services provided by the Company's independent auditors, review the
Company's financial statements and review and evaluate the Company's internal
control functions. Messrs. Barrett and Thompson are the current members of the
Audit Committee.
<PAGE>
39
Indemnification and Exculpation of Directors and Officers
Pursuant to Section 722 of the New York General Corporation Law, the
Company's By-laws provide that the Company shall, to the fullest extent
permitted by law, indemnify all directors, officers, incorporators,
employees and agents of the Company against liability for certain of their
acts. The Company's Certificate of Incorporation provides that, with
certain exceptions, no director of the Company will be liable to the
Company for monetary damages as a result of certain breaches of fiduciary
duties as a director. Exceptions to this include a breach of the
director's duty of loyalty, acts or omission not in good faith or which
involve intentional misconduct or knowing violation of law, improper
declaration of dividends and transactions from which the director derived
an improper personal benefit.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and information furnished by the
reporting person, during the fiscal year ended December 31, 1997 all
Section 16(a) filing requirements applicable to the Company's officers,
directors and greater than 10% beneficial owners were complied with.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the cash and other compensation paid
by the Company to Dr. Geoffrey T. Burnham, its President and Chief Executive
Officer, during the fiscal years ended December 31, 1997, 1996 and 1995. No
other executive officer of the Company received aggregate compensation and
bonuses which exceeded $100,000 during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Award
---------------------------------------------- -----------------
Year Ended Securities
Name and Principal Position December 31, Salary ($) Bonus ($) Underlying Option
- --------------------------- ------------ ---------- --------- -----------------
<S> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham, 1997 $ 127,395 - -
Chairman, President and 1996 $ 116,269 - -
Chief Executive Officer 1995 $ 71,269 $30,000 39,404(1)(2)
</TABLE>
_____________
(1) Represents options to purchase 39,404 shares of Common Stock at an
exercise price of $2.54 per share, which were initially granted to
Dr. Burnham in June 1995. These options were subsequently canceled
when new options to purchase 39,404 shares of Common Stock at an
exercise price of $.05 per share were granted to Dr. Burnham in
November 1995.
(2) Does not include warrants (the "Private Warrants") issued during the
period from December 1994 through April 1995 to investors in the
Company's December 1994 private placement (the "December 1994
Placement") to purchase 4,925 shares of Common Stock purchased by
Dr. Burnham.
<PAGE>
40
The following table sets forth all grants of options to purchase
Common Stock to Dr. Burnham for the fiscal year ended December 31, 1997.
OPTION GRANTS DURING LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------
Number of Percent of Total
Securities Options Granted Exercise or
Underlying to Employees in Base Price
Name Options Granted Fiscal Year ($/Share) Expiration Date
- ------------------------- --------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham - - - -
</TABLE>
The following table sets forth information concerning outstanding
options to purchase Common Stock held by Dr. Burnham as of the year ended
December 31, 1997. Dr. Burnham did not exercise any options in fiscal 1997.
OPTION EXERCISES DURING 1996 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities underlying Value of Unexercised "In-the-
Unexercised Options at Fiscal Money" Options at Fiscal Year-
Year-End End (1)
------------------------------- ------------------------------
Shares Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------- -------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham - - 39,404 0 $ 70,690.78 $0
</TABLE>
_______________
(1) Based upon an estimated fair market value of $1.844 per share of Common
Stock as of December 31, 1997 less the $.05 exercise price of such
options.
Compensation of Directors
Other than compensation otherwise payable under employment agreements
with Dr. Burnham and Ms. Burnham, employee directors receive no cash
compensation for serving on the Board (other than reimbursement of reasonable
expenses incurred in attending meetings). The Company pays its nonemployee
directors $1,000 per face to face meeting and reasonable out-of-pocket
expenses. In addition, all nonemployee directors receive, pursuant to the
Option Plan, annual grants of options to purchase 2,500 shares of Common Stock
for the following year's service. Newly elected nonemployee directors receive
a pro rata portion of such share grant based on the period remaining until the
next date of grant following their date of election. Messrs. Barrett and
Thompson each received options to purchase 9,851 shares of Common Stock at $.05
per share in November 1995 in recognition of prior services to the Company.
Also, in November 1995 Messrs. Barrett and Thompson each received
options to purchase 2,500 shares of Common Stock under the Option Plan
exercisable at $5.00 per share.
<PAGE>
41
1995 Stock Option Plan
In October 1995, the Board and shareholders of the Company adopted
the Option Plan. The Option Plan intended to recognize the contributions
made to the Company by key employees, officers and directors of the Company,
to provide such persons with additional incentive to devote themselves to
the future success of the Company, and to improve the ability of the
Company to attract, retain, and motivate individuals upon whom the Company's
sustained growth and financial success depend, by providing such persons
with an opportunity to acquire or increase their proprietary interest in
the Company through receipt of rights to acquire Common Stock.
The Company has reserved 250,000 shares of Common Stock for issuance
upon the exercise of options available for future grant under the Option
Plan designated as either (i) incentive stock options ("ISOs") under the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) non-
qualified stock options ("NQSOs"). ISOs may be granted under the Option
Plan to employees (including directors) and officers of the Company. NQSOs
may be granted to non-employee directors, employees and officers of the
Company. In certain circumstances, the exercise of options granted under
the Option Plan may have an adverse effect on the market price of the
Common Stock.
The Option Plan is administered by the Compensation Committee (the
"Committee"), composed of two or more persons appointed by the Board who
are "disinterested persons" as defined under Rule 16b-3 under the Exchange
Act or "outside directors" as defined under Section 162(m) of the Code.
The Committee shall grant options in its discretion and may consider the
nature of the optionee's services and responsibilities, the optionee's
present and potential contribution to the Company's success and such other
factors as it may deem relevant. ISOs granted under the Option Plan may
not be granted at a price less than the fair market value of the Common
Stock on the date of grant (or 110% of fair market value in the case of
persons holding 10% or more of the voting stock of the Company). The
aggregate fair market value of shares for which ISOs granted to any
employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and any related
corporation) may not exceed $100,000. Options granted under the Option Plan
will expire not more than ten years from the date of grant (five years in
the case of ISOs granted to persons holding 10% or more of the voting stock
of the Company). Options granted under the Option Plan are not
transferable during an optionee's lifetime but are transferable at death
by will or by the laws of descent and distribution.
The Option Plan also contains certain change in control provisions
which could cause options and other awards to become immediately
exercisable, and restrictions and deferral limitations applicable to
other awards to lapse, in the event any "person", as such term is used
in Sections 13(d) and 14(d) of the Exchange Act, including a "group" as
defined in Section 13(d), but excluding certain shareholders of the
Company, acquires beneficial ownership of more than 50.1% of the
Company's outstanding shares of Common Stock.
<PAGE>
42
In November 1995, the Company granted options under the Option Plan
exercisable for the purchase of an aggregate of 11,000 shares of Common
Stock, including options to purchase 2,500 shares each granted to Messrs.
Barrett and Thompson. All of these options are exercisable at a price of $5.00
per share and are immediately exercisable. During 1996, the Company granted
options under the Option Plan for the purchase of an aggregate of
93,000 shares of Common Stock, including options to purchase 30,000
shares granted to Ms. Burnham. Ms. Burnham's options are exercisable at a
price of $5.25 per share and are immediately exercisable.
During 1997, the Company granted options under the Option Plan for the purchase
of an aggregate 113,500, including 55,000 to executive officers and directors
of the Company, exercisable at $0.6875 per share with varying vesting periods
through December 1999 and expiration dates through December 2001. Also, during
1997, the Company canceled 76,500 options previously issued, including 46,000
previously issued to executive officers and directors of the Company, with
exercise prices ranging from $0.72 to $9.25. 50,500 options expired
unexercised in 1997 under the terms of the Plan
Non-Plan Options
The Company has issued and outstanding options to purchase up to an aggregate
of 49,255 shares of Common Stock (the "Non-Plan Options") outside of the
Option Plan to certain executive officers and non-employee directors
The Non-Plan Options are immediately exercisable at a price of $0.05 per share.
Of the Non-Plan Options, options to purchase 39,404 and 9,851 shares of
Common Stock were granted to Dr. Burnham and Mr. Thompson, respectively.
Employment Agreements
The Company entered into employment agreements with Dr. Geoffrey T. Burnham and
Susan M. Burnham in October 1995. Each of Dr. Burnham's and Ms. Burnham's
employment agreements provides for an initial three-year term, commencing on
October 1, 1995, and each requires full-time service to the Company.
Dr. Burnham's agreement provides for a base salary $110,000 per annum, and
Ms. Burnham's agreement provides for a base salary $75,000 per annum. Each of
the agreements provides for continuing automatic one-year extensions to
maintain its three-year term, until the agreement is terminated by either
party. Certain fringe benefits are also provided, including split dollar life
insurance and certain expense allowances. Dr. Burnham and Ms. Burnham also may
be granted annual increases of 10% per annum at the discretion of the Board and
bonuses based upon meeting defined goals established by the Board. All such
bonuses and other increases must also be approved by the Underwriter for a
period of three years following the Effective Date, or sooner in the event that
the Company achieves annual profitability prior to the end of the period.
These agreements also provide that the Company will continue to pay the base
salary to the employee or the employee's legal representative in the event
of the employee's termination due to disability or death, for a period
commencing at the time of such termination and ending at the end of the
employment term. The agreements contain provisions prohibiting the
employee from competing with the Company during the term of employment
and for a period of two years thereafter. Dr. Burnham's agreement provides
that he will serve as Chairman of the Board, and Ms. Burnham's agreement
provides that she will serve as a director on the Board.
The Company also entered into a consulting agreement with George W. Barrett
in November 1995, pursuant to which Mr. Barrett agreed to provide consulting
services to the Company relating to the establishment of the Company's
manufacturing facility, as requested by the Company, for a consulting fee
equal to $400.00 per day. Such fees totaled $14,400 in 1996.
<PAGE>
43
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 31, 1998 based
on information obtained from the persons named below, relating to the
beneficial ownership of shares of Common Stock by (i) each beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each director,
(iii) each named executive officer and (iv) all current executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name and Address of Beneficial Owner (1) Ownership (2) Owned (2)
- ---------------------------------------- ------------------ -------------------
<S> <C> <C>
Geoffrey T. Burnham..................... 431,894(3) 3.8%
Susan M. Burnham........................ 431,894(4) 3.8%
Brian J. Thompson....................... 17,351(5) *
692 Mount Hope Avenue
Rochester, NY 14620
George Barrett.......................... 17,841(6) *
119 High Crest Drive
West Milford, NJ 07840
Dafico Investment Corporation........... 660,468 5.8%
c/o Frank R. Cohen, Esq.
Cohen & Cohen
445 Park Avenue, 15th Floor
New York, New York 10022
All Directors and executive officers as
a group (4 persons)................ 898,980(7) 7.8%
</TABLE>
_________________
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner
identified is 15 Link Drive, Binghamton, NY 13904.
(2) Unless otherwise indicated, the Company believes that all persons
named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
A person is deemed to be the beneficial owner of securities that
can be acquired by such person within 60 days from March 31, 1998
upon the exercise of options, warrants or convertible securities.
Each beneficial owner's percentage ownership is determined by
assuming that options, warrants or convertible securities that are
held by such person (but not those held by any other person) and
which are exercisable within 60 days of March 31, 1998 have been
exercised or converted. Assumes a base of 8,389,552 shares of Common
Stock outstanding, before any consideration is given to outstanding
options or warrants.
(3) Includes 23,823 shares held in trust by Dr. Burnham as trustee, as
to which Dr. Burnham disclaims any beneficial interest; 4,925 shares,
and 4,925 shares issuable upon exercise of Private Warrants, held in
an IRA trust for the benefit of Dr. Burnham; Non-Plan Options to
purchase 39,404 shares; and 165,405 shares owned by Susan Burnham,
the wife Dr. Burnham, and 31,000 shares issuable upon the exercise
of Option Plan options granted to Ms. Burnham, as to which Dr.
Burnham disclaims any beneficial interest.
(4) Includes 162,412 shares owned by Dr. Burnham; 23,823 shares held in
trust by Dr. Burnham as trustee; 4,925 shares, and 4,925 shares
issuable upon exercise of Private Warrants, held in an IRA trust for
the benefit of Dr. Burnham; and 39,404 shares issuable upon exercise
of Non-Plan options held by Dr. Burnham, as to all of which Susan
Burnham disclaims any beneficial interest; and 31,000 shares issuable
upon the exercise of Option Plan options granted to Ms. Burnham.
(5) Consists of Non-Plan Options to purchase 9,851 shares and Option
Plan options to purchase 7,500 shares.
(6) Consists of Non-Plan Options to purchase 9,851 shares and Option
Plan options to purchase 2,500 shares. Also includes 490 shares
issuable upon the exercise of warrants in the Public Offering.
(7) Includes an aggregate of 93,170 shares of Common Stock issuable
upon the exercise of Option Plan options, Non-Plan Options,
Private Warrants and warrants purchased in the Public Offering.
<PAGE>
44
Item 12. Certain Relationships and Related Transactions
Upon incorporation of the Company in New York in September 1993, Dr. Geoffrey
Burnham purchased 374,331 shares of Common Stock for a purchase price of
$19,000, some of which shares were subsequently transferred to other related
entities or individuals. In addition, in November 1995, Dr. Burnham
transferred 22,693 of these shares back to the Company, for no consideration,
in order for the Company to then reissue such shares to another individual in
settlement of all outstanding claims for services rendered by such individual
on behalf of the Company prior to its incorporation. In connection with the
December 1994 Placement, Dr. Burnham, in March 1995, purchased an aggregate
of 4,925 shares of Common Stock and 4,925 Private Warrants for an aggregate
purchase price of $10,000.
Any future transactions, if any, between the Company and its officers,
directors and/or greater than 5% shareholders will continue to be on terms no
less favorable to the Company than could be obtained from independent third
parties and will be approved by a majority of the independent, disinterested
directors of the Company.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits.
3.2 By-Laws of the Company.
3.3 Certificate of Ownership and Merger.
4.1 Form of Underwriter's Warrant Agreement, dated as of March 19, 1996,
between the Company and Whale Securities Co., L.P.(1)
4.2 Form of Warrant Agreement dated as of March 19, 1996, among the
Company, Whale Securities Co., L.P. and American Stock Transfer &
Trust Company.(1)
4.3 Warrant, dated January 3, 1997, between the Company and Finova
Technology Finance, Inc.
4.4 Corrected Certificates of Designations of Series A 8% Convertible
Preferred Stock. (2)
4.5 Certificate of Correction of Certificate of Designations of Series A 8%
Convertible Preferred Stock, filed with the Secretary of the State of
Delaware on November 4, 1997. (2)
4.6 Certificate of Correction of Certificate of Designations of Series A 8%
Convertible Preferred Stock, filed with the Secretary of the State of
Delaware on December 15, 1997. (2)
4.7 Specimen Certificate of Registrant's Series A 8% Convertible Preferred
Stock. (2)
4.8 Specimen Certificate of Registrant's Common Stock. (2)
4.9 Form of Warrant dated October 23, 1997 between the Registrant and World
Capital Funding, Inc.. (2)
4.10 Form of Warrant between the Registrant and Marketing Direct Concepts,
Inc.. (2)
4.11 Form of Subscription Agreement between the Registrant and each purchaser
of the Registrant's Series A 8% Convertible Preferred Stock. (2)
4.12 Form of Option Agreement dated October 27, 1997 between the Registrant
and State Street Securities, Inc.. (2)
4.13 Amendment to Option Agreement dated December 30, 1997 between the
Registrant and State Street Securities, Inc.. (2)
4.14 Form of Voting Proxy. (2)
5.1 Opinion of Ruben Baum Levin Constant & Friedman regarding legality. (2)
10.1 License Agreement, dated June 3, 1994, by and between the Company and
the Air Force. (1)
<PAGE>
45
10.2 CRDA, dated January 19, 1994 between the Company and Wright
Laboratories of the Air Force.(1).
10.3 Amendment, effective January 19, 1994 to CRDA between the Company
and Wright Laboratories of the Air Force.(1)
10.4 CRDA, dated May 1995, between the Company and Rome Laboratory of the
Air Force.(1)
10.5 Employment Agreement, dated as of October 1, 1995 between the
Company and Geoffrey T. Burnham.(1)
10.6 Employment Agreement, dated as of October 1, 1995 between the
Company and Susan M. Burnham.(1)
10.7 Employment Agreement, dated as of October 1, 1995, by and between
the Company and Theodore W. Konopelski.(1)
10.8 Consulting Agreement, dated November 10, 1995, by and between the
Company and George W. Barrett. (1)
10.9 1995 Stock Option Plan of the Company.(1)
10.10 Real Property Lease, dated as of August 23, 1995, by and between
Manufacturers and Traders Trust Company and the Company. (1)
10.11 Form of Private Warrants (1)
10.12 Form of Consulting Agreement between the Company and Whale
Securities Co., L.P.. (1)
10.13 Master Equipment Lease Agreement with Finova.
10.14 Northwestern License.
11.1 Statement re: computation of per share earnings
23.1 Consent of Rubin Baum Levin Constant & Friedman included in
Exhibit 5.1. (2)
23.2 Consent of Price Waterhouse LLP. (2)
24.1 Power of Attorney (included on signature page of Registrant's
Registration Statement on Form S-3 ( Reg. No. 333-39879)). (2)
- ----------
(1) Incorporated by reference to Registrant's Registration Statement on
Form S-1 (Reg. No. 333-754) which was declared effective by the Securities
and Exchange Commission on March 19, 1996.
(2) Incorporated by reference to Registrant's Registration Statement on
Form S-3 (Reg. No. 333-39879) which was declared effective on January 14, 1998.
(b) Reports on Form 8-K
None.
<PAGE>
46
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
April 13, 1998 By: /s/ Geoffrey T. Burnham
______________________________
Geoffrey T. Burnham, Chairman of
the Board, President and Chief
Executive Officer (principal executive
officer and principal financial and
accounting officer)
In accordance with the requirements of the Exchange Act, this Report
has been signed by the following persons in the capacities and on the
dates stated.
Signature Title Date
/s/ Geoffrey T. Burnham
- ----------------------------- Chairman of the Board, President
Geoffrey T. Burnham and Chief Executive Officer
(principal executive officer
and principal financial and
and accounting officer) April 13, 1998
- ----------------------------- Vice President, Treasurer
Susan M. Burnham and Director April 13, 1998
/s/ Brian J. Thompson
- -----------------------------
Brian J. Thompson Director April 13, 1998
/s/ George W. Barrett
- -----------------------------
George W. Barrett Director April 13, 1998
<PAGE>
[TYPE] EX-3.2
Exhibit 3.2
RESTATED BY-LAWS
OF
Semiconductor Laser International Corporation
(A Delaware Corporation)
ARTICLE I.
OFFICES
SECTION 1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be located at United Corporate
Services, Inc., 15 East North Street, in the City of Dover, County of Kent.
SECTION 2. Other Offices. The Corporation may also have an office or
offices other than said registered office at such place or places, either
within or without the State of Delaware, as the Board of Directors shall from
time to time determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the Stockholders for
the election of Directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of stockholders shall
be held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of meeting or in a duly executed
waiver thereof. At such annual meeting, the stockholders shall elect, by a
plurality vote, a Board of Directors and shall transact such other business as
may properly be brought before the meeting.
SECTION 3. Special Meeting. Special meetings of stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board of
Directors, by the Chairman of the Board, if on shall have been elected, or by
any holder of at least 10% of the outstanding stock entitled to vote at such
meetings.
SECTION 4. Notice of Meetings. Except as otherwise expressly required
by statute, written notice of each annual and special meeting of stockholders
stating the place, date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which such meeting is called, shall be
given to each stockholder of record entitled to vote thereat not less than ten
nor more than sixty days before the date of the meeting. Business transacted
at any special meeting of stockholders shall be limited to the purpose or
purposes stated in the notice. Notice shall be given personally or by mail
and, if by mail, shall be sent in a postage prepaid envelope, addressed to each
stockholder at such stockholder's address as it appears on the records of the
Corporation. Notice by mail shall be deemed given at the time when the same
shall be deposited in the United States mail, postage prepaid. Notice of any
meeting shall not be required to be given to any person who attends such
meeting, except when such person attends the meeting in person or by proxy for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.
SECTION 5. List of Stockholders The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of meeting, or, if not specified, at the place where the meeting is to
be held. The list shall be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 6. Quorum, Adjournments. The holders of a majority of the
capital stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise provided
by statute or by the Certificate of Incorporation. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, until a
quorum shall be present or represented. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which adjournment is taken.
At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 7. Organization. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in his or her
absence or if one shall not have been elected, the President shall act as
chairman of the meeting. The Secretary or, in his or her absence or inability
to act, the person who the chairman of the meeting shall appoint secretary of
the meeting, shall act as secretary of the meeting and keep the minutes
thereof.
SECTION 8. Order of Business. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
SECTION 9. Voting. Except as otherwise provided by statute, by the
Certificate of Incorporation or by any agreement to the contrary between the
Corporation and all its stockholders, each stockholder of the Corporation
having the right to vote shall be entitled to one vote in person or by proxy
for each share of the capital stock having voting power held by such
stockholder. When a quorum is present at any meeting, directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. In all matters other than the election of directors, the
affirmative vote of the majority of shares present in person or represented by
proxy and entitled to vote on the subject matter shall be the act of the
stockholders except where the General Corporation Law of the State of Delaware,
the Corporations Certificate of Incorporation or any agreement between the
Corporation and all its stockholders prescribes a different percentage of votes
and/or a different exercise of voting power. In the election of directors,
voting need not be by written ballot. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by written ballot. On a vote by ballot, each ballot shall
be signed by the stockholder voting, or by his or her proxy, and shall state
the number of shares voted.
Section 10. Proxy Representation. Each stockholder entitled to vote
at any meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons
to act for him by a proxy signed by such stockholder or his or her attorney-in-
fact, but no proxy shall be voted after three years from its date, unless the
proxy provides for a longer period. Any such proxy shall be delivered to the
secretary of the meeting at or prior to the time designated in the order of
business for so delivering such proxies.
Section 11. Inspectors. The Board of Directors shall, in advance of
any meeting of Stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof and make a written report thereof. The
Board of Directors may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall: ascertain
the number of shares outstanding and the voting power of each; determine the
shares represented at a meeting and the validity of proxies and ballots; count
all votes and ballots; determine and retain for a reasonable period of time a
record of the disposition of any challenges made to any determination by the
inspectors; and certify their determination of the number of shares represented
at the meeting, and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of inspectors. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as an inspector of an election of directors. Inspectors need not be
stockholders.
Section 12. Action by Consent. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any provision of statute or any provision of the
Certificate of Incorporation or of these By-laws, the meeting and vote of
stockholders may be dispensed with, and the action taken without such meeting
and vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares of stock of the Corporation entitled to vote
thereon were present and voted, and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business or to an officer or agent of the Corporation having custody of the
book in which proceedings of minutes of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers
of the Corporation and do all such lawful acts and things as are not by
statute or the Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The
number of directors constituting the initial Board of Directors shall be one.
Thereafter, the number of Directors may be fixed , from time to time, by an
affirmative vote of a majority of the entire Board of Directors or by action of
the stockholders of the Corporation. The number of directors constituting the
Board of Directors shall not be less than 1 and no more than 10, which number
may be fixed, from time to time, by the affirmative vote of a majority of the
entire Board of Directors or by action of the stockholders of the Corporation.
Any decrease in the number of directors shall be effective at the time of the
next succeeding annual meeting of stockholders unless there shall be vacancies
in the Board of Directors, in which case such decrease may become effective at
any time prior to the next succeeding annual meeting to the extent of the
number of such vacancies. Directors need not be stockholders of the
Corporation. Except as otherwise provided by statute, these By-laws or any
agreement to the contrary between the Corporation and all its stockholders, the
directors (other than members of the initial Board of Directors) shall be
elected at the annual meeting of stockholders. Each director shall hold office
till his or her successor shall have been elected and qualified, or until his
or her death, or until he or she shall have resigned, or have been removed, as
hereinafter provided in these By-laws.
SECTION 3. Place of Meetings. Meetings of the Board of Directors
shall be held at such place or places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
specified in the notice of any such meeting.
SECTION 4. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time and place as shall be specified in a notice thereof given as
hereinafter provided in Section 7 of this ARTICLE III.
SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held each fiscal year at such time and place as the
majority of the Board of Directors may from time to time designate. If any day
designated for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting which would otherwise be held on
that day shall be held at the same hour on the next succeeding business day.
Notice of regular meetings of the Board of Directors need not be given except as
otherwise as otherwise required by statute or these By-laws.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected or by two or more Directors of the corporation or by the President.
SECTION 7. Notice of meetings. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice is required)
shall be given by the Secretary as hereinafter provided in this Section 7, in
which notice shall be stated the place, date and hour of the meeting. Except
as otherwise provided by these By-laws, such notice need not state the purposes
of such meeting. Notice of each such meeting shall be mailed, postage prepaid,
to each director, addressed to such director at such director's residence or
usual place of business, by first class mail, at least two days before the day
on which such meeting is to be held, or shall be sent addressed to him at such
place by telegraph, cable, telex, telecopier or other similar means, or be
delivered to him personally or be given to him by telephone or other similar
means, at least twenty-four hours before the time at which such meeting is to
be held. Notice of any such meeting need not be given to any director who
shall, either before or after the meeting, submit a signed waiver of notice or
who shall attend such meeting, except when he or she shall attend for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. Quorum and Manner of Acting. A majority of the total
number of directors shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors. Except as otherwise expressly
required by statute, the Certificate of Incorporation, these By-laws or any
agreement to the contrary between the Corporation and all its stockholders, the
act of the majority of the directors present at the meeting at which a quorum
is present shall be the act of the Board of Directors. In the absence of a
quorum at any meeting of the board of Directors, a majority of the directors
present thereat may adjourn such meeting to another time and place. Notice of
the time and place of any such adjourned meeting shall be given to all the
directors unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only
as a Board and the individual directors shall have no power as such.
SECTION 9. Organization. At each meeting of the Board of Directors,
the Chairman of the Board, if one shall have been elected, or, in the absence
of the Chairman of the Board or if one shall not have been elected, the
President (or, in his or her absence, another director chosen by a majority of
the directors present) shall act as chairman of the meeting and preside
thereat. The Secretary or, in his or her absence, any person appointed by the
chairman of the meeting shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may resign
at any time by giving written notice of his or her resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt. Unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Except as may otherwise required by law and
subject to the terms of any agreement to the contrary between the Corporation
and all its stockholders, any vacancy in the Board of Directors, whether
arising from death, resignation, removal or any other cause, and any newly
created directorship resulting from any increase in the authorized number of
directors of the Corporation, may be filled by the vote of a majority of the
Directors then in office, though less than a quorum, or by the sole remaining
director or by the stockholders at the next annual meeting thereof or at a
special meeting thereof. Each director so elected shall hold office until his
or her successor shall have been elected and qualified.
SECTION 12. Removal of Directors. Subject to the terms of any
agreement to the contrary between the Corporation and all its stockholders, any
director may be removed, either with or without cause, at any time, by the
holders of a majority of the voting power of the issued and outstanding capital
stock of the Corporation entitled to vote at an election of directors.
SECTION 13. Compensation. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation as directors.
SECTION 14. Committees. The Board of Directors shall have the
authority to appoint any temporary or standing committee to exercise any powers
or authority as the Board of Directors may see fit, subject to such conditions
as may be prescribed by the Board of Directors. All committees so appointed
shall keep regular minutes of their meetings and shall cause such minutes to be
recorded in books kept for that purpose in the principal office of the
Corporation and shall report the same to the Board of Directors as required by
it. The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In addition, in the absence or disqualification
of a member of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Except to the extent restricted by statute or the Certificate of
Incorporation, each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of the
Board of Directors and may authorize the seal of the Corporation to be affixed
to all papers which require it. Each such committee shall serve at the
pleasure of the Board of Directors and have such name as may be determined from
time to time by resolution adopted by the Board of Directors.
SECTION 15. Action by Consent. Unless restricted by the Certificate
of Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all
members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee, as the
case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the Certificate
of Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or
such committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting by such means shall
constitute presence in person at a meeting.
ARTICLE IV.
OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall include the President, one
or more Vice-Presidents, the Secretary and the Treasurer. If the Board of
Directors wishes, it may also elect as an officer of the Corporation a Chairman
of the Board and may elect other officers (including one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
desirable for the business of the Corporation. Any two or more offices may be
held by the same person, and no officer except the Chairman of the Board need
be a director. Each officer shall hold office until his or her successor has
been duly elected and shall have qualified, or until his or her death, or until
he or she shall have resigned or have been removed, as hereinafter provided in
these By-laws.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his or her resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed
either with or without cause, at any time, by the Board of Directors at any
meeting thereof.
SECTION 4. Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the Board, an officer of the
Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He or she shall advise or confer with the
President, and in the President's absence with other executives of the
Corporation, and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors.
SECTION 5. The President. The President shall be the Chief Executive
Officer of the Corporation. The President shall, in the absence of the
Chairman of the Board or if a Chairman of the Board shall not have been
elected, preside at each meeting of the Board of Directors or the stockholders.
The President shall perform all duties incident to the office of President and
Chief Executive Officer and such other duties as may from time to time be
assigned to him by the Board of Directors.
SECTION 6. Vice-President. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President or in his or her absence or in
the event of his or her inability or refusal to act, the Vice-President, or if
there shall be more than one, the Vice-Presidents in the order determined by
the Board of Directors (or if there be no such determination, then the
Vice-Presidents in the order of their election), shall perform the duties of
the President, and, when so acting, shall have the powers of and be subject to
the restrictions placed upon the President in respect of the performance of
such duties.
SECTION 7. Treasurer. The Treasurer shall
A. have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
B. keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
C. deposit all moneys and other valuables to the credit of the
Corporation in such depositories as may be designated by the Board of Directors
or pursuant to its direction;
D. receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
E. disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefore;
F. render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the
Corporation;
G. in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 8. Secretary. The Secretary shall
A. keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
B. see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law;
C. be custodian of the records and the seal of the Corporation
and affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and affix and attest the seal to all other documents
to be executed on behalf of the Corporation under its seal;
D. see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed by the
Corporation are properly kept and filed; and
E. in general, perform all duties incident to the office of the
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the
event of his or her inability or refusal to act, perform the duties or exercise
the powers of the Treasurer and shall perform such other duties as from time to
time may be assigned by the Board of Directors.
SECTION 10. The Assistant Secretary. The Assistant Secretary, or if
there shall be more than one, the Assistant Secretaries in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the
event of his or her inability or refusal to act, perform the duties or exercise
the powers of the Secretary and shall perform such other duties as from time to
time may be assigned by the Board of Directors.
SECTION 11. Officers' Bond or Other Security. If required by the
Board of Directors, any officer of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety as the Board of Directors may require.
SECTION 12. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that such person
is also a director of the Corporation.
ARTICLE V.
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a Vice-
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned
by him in the Corporation. If the Corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
SECTION 2. Facsimile Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, at its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owners legal representative, to give the Corporation a
bond in such sum as the Board of Directors may direct sufficient to indemnify
the Corporation against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate or certificates.
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, to cancel the old certificate and to record the
transaction upon its records; provide, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and the transferee request the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-laws, as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize
any equitable or other claim to or interest in such share or shares of stock on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. General. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in the right of the
Corporation) by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against all
expenses (including, without limitation, attorneys' fees and expenses),
judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interest of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgement, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, in and of itself, create a presumption that the
person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, create a presumption that
the person had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action suit by or in the right of the
Corporation to procure a judgement in its favor by reason of the fact that he
or she is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against all expenses (including, without limitation,
attorneys' fees and expenses) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation; provided, however, that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Sections 1 and 2 of this ARTICLE VI, or in defense of any claim, issue or
matter therein, he or she shall be indemnified against all expenses (including,
without limitation, attorneys' fees and expenses) actually and reasonably
incurred by him in connection therewith.
SECTION 4. Procedure. Any indemnification under Section 1 or 2 of
this ARTICLE VI (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in such Sections 1 and 2. Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (b) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or, (c) by the
stockholders of the Corporation.
SECTION 5. Advances for Expenses. The right to indemnification
conferred in this ARTICLE VI upon a director or officer shall include the right
to be paid by the Corporation all the expenses (including, without limitation,
attorneys' fees and expenses) incurred in defending an action, suit or
proceeding of the types set forth in Sections 1 and 2 of this ARTICLE VI in
advance of the final disposition of such action, suit or proceeding; provided,
however, that if the General Corporation Law of the State of Delaware requires,
an advancement of expenses incurred by an indemnitee in his or her capacity as
a director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined that such indemnitee is not
entitled to be indemnified for such expenses under this ARTICLE VI or
otherwise. Expenses (including, without limitation, attorneys' fees and
expenses) incurred by an employee or agent in defending an action, suit or
proceeding of the types set forth in Sections 1 and 2 of this ARTICLE VI may be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
employee or agent to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified for such expenses by the
Corporation under this ARTICLE VI or otherwise.
SECTION 6. Rights not Exclusive. The indemnification or advancement
of expenses provided by, or granted pursuant to, the other sections of this
ARTICLE VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office.
SECTION 7. Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise against any
liability asserted by him and incurred by him in any such capacity, or arising
out of his or her status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
ARTICLE VI.
SECTION 8. Definition of Corporation. For the purpose of this
ARTICLE VI, references to "the Corporation" shall include, in addition to the
resultant corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
ARTICLE VI with respect to the resulting or surviving corporation if its
separate existence had continued.
SECTION 9. Definitions with respect to Employee Benefit Plans. For
purposes of this ARTICLE VI, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed upon a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
services as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and the person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
ARTICLE VI.
SECTION 10. Survival of Rights. The indemnification and advancement
of expenses provided by, or granted pursuant to, this ARTICLE VI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his heirs, executors and administrators of such a person.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors. Dividends may be paid in cash, in property
or in shares of stock of the Corporation, unless otherwise provided by statute
or the Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purposes as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, binds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 7. Voting of Stock in Other Corporations. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
President, from time to time, may )or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
stockholder or otherwise in any corporation, any of whose shares or securities
may be held by the Corporation, at meetings of holders of the shares or other
securities of such other corporation. If one or more attorneys or agents are
appointed, the Chairman of the Board or the President may instruct the person
or persons so appointed as to the manner of casting such votes or giving such
consent. The Chairman of the Board or the President may, or may instruct the
attorneys or agents appointed to, execute or cause to be executed in the name
and on behalf of the Corporation and under its seal or otherwise, such written
proxies, consents, waivers or other instruments as may be necessary or proper
in the circumstances.
ARTICLE VIII
AMENDMENTS
These By-laws may be altered, amended or repealed or new by-laws
adopted (a) by action of the stockholders entitled to vote thereon at any
annual or special meeting of stockholders or (b) if the Certificate of
Incorporation so provides, by action of the Board of Directors at a regular or
special meeting thereof. Any by-law made by the Board of Directors may be
amended or repealed by action of the stockholders at any annual or special
meeting of stockholders.
<PAGE>
[TYPE] EX-3.3
Exhibit 3.3
Certificate of Ownership and Merger
CERTIFICATE OF OWNERSHIP AND MERGER
OF
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
(New York)
INTO
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
(Delaware)
Pursuant to Section 253 of the General Corporation Law
Law of the State of Delaware
The undersigned, being the President of SEMICONDUCTOR LASER
INTERNATIONAL CORPORATION, a corporation organized and existing under the laws
of the State of New York (the "Merging Corporation") does hereby certify:
FIRST: That it was organized pursuant to the provisions of Business
Corporation Law of the State of New York, on the 21st day of September, 1993.
SECOND: That the Merging Corporation owns all of the outstanding
shares of the capital stock of Semiconductor Laser International Corporation, a
corporation organized pursuant to the provisions of the General Corporation Law
of the State of Delaware, on the 26th day of January, 1996 (the "Surviving
Corporation").
THIRD: That the Board of Directors of the Merging Corporation at a
meeting held on the 1st day of February, 1996, determined to merge the Merging
Corporation into the Surviving Corporation and did adopt the following
resolutions:
RESOLVED, that this Board of Directors deems the merger (the "Merger")
of the Corporation, with and into Semiconductor Laser International Corporation
a Delaware corporation (the "Delaware Corporation"), to be in the best interest
of the Corporation, and the Merger be, and hereby is, approved; and be it
further
RESOLVED, that the Board of Directors recommends that the shareholders
of the Corporation approve the Merger; and be it further
RESOLVED, that the President, any Vice President and the Secretary of
the Corporation be, and each of them hereby is, authorized and empowered, in
the name and on behalf of the Corporation, to execute and deliver an Agreement
and Plan of Merger (the "Plan"), subject to shareholder approval, in
substantially the form of the draft attached hereto, which such changes therein
and modifications and amendments thereto as shall be approved by the officers
executing the same on behalf of the Corporation, such approval to be
conclusively evidenced by such officers' execution thereof; and be it further
RESOLVED, that after the approval of the Plan by the shareholders, the
President, any Vice President and the Secretary of the Corporation be, and each
of them hereby is, authorized and empowered, in the name and on behalf of the
Corporation, to execute and deliver a Certificate of Merger (the "Certificate")
for filing with the office of the Secretary of the State of New York,
substantially in the from of the draft attached hereto, which such changes
therein and modifications and amendments thereto as shall be approved by the
officer executing the same on behalf of the Corporation, such approval to be
conclusively evidenced by such officers execution thereof; and be it further
RESOLVED, that after approval by the shareholders the President, any
Vice President and the Secretary of the Corporation be, and each of them hereby
is, authorized and empowered to execute and deliver all such additional
instruments and documents, and to take such additional actions as may be
necessary or, in the opinion of the officer acting, desirable or appropriate to
carry into effect the purposes and intents of the foregoing resolutions and to
consummate the Merger.
FOURTH: Upon the filing of Certificates of Merger with the offices
of the Secretaries of the States of Delaware and New York, the separate
existence of the Merging Corporation shall cease, and the Merging Corporation
shall be merged into the Surviving Corporation. The shares of common stock,
as well as all options and warrants, of the Merging Corporation outstanding
upon the effective date of the merger shall be exchanged on a one-for-one
basis, with shares or options and warrants, as the case may be, of the common
stock of the Surviving Corporation. The Surviving Corporation shall possess
all the rights, privileges, powers, and franchises and be subject to all the
restrictions, disabilities and duties of each of the Corporations, and all of
the rights, privileges, powers, and franchises of each of said corporation and
all property, real, personal and mixed, and all debts due to each of the
corporations shall be vested in the Surviving Corporation as effectively as
they were in each of the respective corporations, and the title to any real
estate, whether by deed or otherwise, vested in either of said corporations,
shall not revert or in be any way impaired by reason of this merger; provided
that all rights of creditors and all liens upon the property of either of said
Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities, and duties of the corporations shall thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent as if
said debts, liabilities and duties had been incurred or contracted by it.
FIFTH: That the proposed merger has been approved by the holders of
at least a majority of the outstanding shares of the Merging Corporation
entitled to vote thereon at a meeting of its shareholders duly called and held
after twenty (20) days notice of the purpose of the meeting mailed to each of
its shareholders at his address as it appears on the records of the Merging
Corporation.
IN WITNESS WHEREOF, this certificate is executed as of this 15th day
of March, 1996.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
/s/ Geoffrey T. Burnham
---------------------------------------------
Geoffrey T. Burnham
President
[TYPE] EX-11.1
<TABLE>
<CAPTION>
Exhibit 11.1
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
PERIOD ENDED DECEMBER 31, 1997
Shares issued Weighted Average
and Shares
Outstanding Outstanding
---------------- ----------------
<S> <C> <C>
Common shares issued and outstanding, January 1,1997 3,409,607 3,409,607
Common shares issued:
January 10, 1997 120,000 117,041
February 9, 1997 1,231 1,099
May 19,1997 9,851 6,127
July 3, 1997 29,553 14,736
November 1, 1997 10,000 1,671
November 11, 1997 41,500 5,799
December 9, 1997 55,000 3,465
December 31, 1997 4,712,810 1,212
---------------- ----------------
Common shares issued and outstanding 8,389,552
================
Weighted average shares outstanding 3,572,458
================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
Shares Issued Weighted Average
and Shares
Outstanding Outstanding
---------------- ----------------
<S> <C> <C>
Common shares issued and outstanding, January 1, 1996 1,393,653 1,393,653
Common shares issued:
January 18, 1996 150,000 143,033
March 22, 1996 1,700,000 1,323,770
April 9, 1996 55,000 40,123
June 30, 1996 2,957 1,495
July 15, 1996 100,997 46,911
November 15, 1996 7,000 899
---------------- ----------------
Common shares issued and outstanding 3,409,607
================
Weighted shares issued and outstanding 2,949,884
================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1995
Shares Issued Weighted Average
and Shares
Outstanding Outstanding
---------------- ----------------
<S> <C> <C>
Common shares issued and outstanding, January 1, 1995 921,347 921,347
Common shares issued:
January 11, 1995 22,178 21,570
March 6, 1995 1,970 1,625
March 22, 1995 5,911 4,615
March 28, 1995 4,926 3,765
April 4, 1995 4,925 3,670
June 12, 1995 78,812 43,832
July 20, 1995 315,245 142,508
December 28, 1995 38,339 420
---------------- ----------------
Common shares issued and outstanding 1,393,653
================
Weighted average shares outstanding 1,143,352
================
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 1,934,574
<SECURITIES> 0
<RECEIVABLES> 201,070
<ALLOWANCES> 0
<INVENTORY> 139,201
<CURRENT-ASSETS> 2,345,562
<PP&E> 2,719,816
<DEPRECIATION> 126,344
<TOTAL-ASSETS> 5,657,372
<CURRENT-LIABILITIES> 710,386
<BONDS> 0
0
0
<COMMON> 83,896
<OTHER-SE> 3,964,807
<TOTAL-LIABILITY-AND-EQUITY> 5,657,372
<SALES> 478,924
<TOTAL-REVENUES> 478,924
<CGS> 1,482,579
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,105,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,530
<INCOME-PRETAX> (5,999,811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,999,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,999,811)
<EPS-PRIMARY> (2.15)
<EPS-DILUTED> (2.15)
