<PAGE>
As filed with the Securities and Exchange Commission on June 23, 2000
Registration No. 333-36310
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1 TO FORM S-3 ON FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1494566
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3674
(Primary Standard Industrial Classification Code Number)
15 Link Drive
Binghamton, New York 13904
(607) 722-3800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Dr. Geoffrey T. Burnham
Chairman of the Board, President and Chief Executive Officer
15 Link Drive
Binghamton, New York 13904
(607) 722-3800
(Name, address, including zip code, and telephone number,
include area code, of agent for service)
----------------
Copies to:
Richard A. Goldberg, Esq.
Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
(212) 973-0111
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective supplement filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================
Title of Proposed Proposed Maximum Amount of
Shares to Amount to Maximum Offering Aggregate Registration
be Registered be Registered Price Per Share Offering Price Fee(1)(2)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
common stock, par
value $0.01 per share 3,875,708 shares(1) $0.75 $2,906,781 $767.39
===================================================================================================================
</TABLE>
(1) Shares of common stock which may be offered pursuant to this Registration
Statement consist of 12,301,263 shares of common stock and 10,374,445
shares of common stock issuable upon exercise of warrants. On May 4, 2000,
the registrant filed a Form S-3 registration statement in connection with
registering 9,400,000 shares of common stock and 9,400,000 shares of common
stock issuable upon exercise of warrants and paid a registration fee in the
amount of $4,665.41. The amount of $767.39, which will be transmitted by
the registrant with this filing, represents the amount of registration fee
owed in connection with registering an additional 2,901,263 shares of
common stock and 974,445 shares of common stock issuable upon exercise of
warrants. In addition to the shares set forth in the table, the amount to
be registered covers such additional securities as may become issuable to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.
(2) The Registration Fee has been calculated pursuant to Rule 457(c) as
follows: 3,875,708 multiplied by .000264 multiplied by $0.75, the average
of the high and the low prices of the registrant's common stock as reported
on the Nasdaq OTC Bulletin Board on June 21, 2000.
-----------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
12,301,263 SHARES OF
COMMON STOCK
AND
10,374,445 SHARES OF
COMMON STOCK
ISSUABLE UPON EXERCISE
OF WARRANTS
-----------------------
This prospectus relates to the sale of up to an aggregate of 22,675,708
shares of our common stock consisting of 12,301,263 shares of common stock and
10,374,445 shares of common stock issuable upon exercise of warrants which may
be offered for sale from time to time by the selling security holders. This
prospectus is filed to comply with our undertaking to register certain shares of
our common stock and shares issuable upon exercise of warrants issued in certain
recent private placements and as financing fees.
Our common stock is quoted on the Nasdaq OTC Bulletin Board under the
trading symbol "SLIC.OB." On June 21, 2000, the last sale price of our common
stock was $0.75 per share.
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE 6
WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY
AND THESE SECURITIES BEFORE YOU MAKE YOUR INVESTMENT DECISION.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
The date of this Prospectus is June ___, 2000.
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Prospectus Summary...............................................................................3
Risk Factors.....................................................................................6
Forward-Looking Statements......................................................................18
Use of Proceeds.................................................................................18
Dividend Policy.................................................................................19
Capitalization..................................................................................19
Selected Financial Data.........................................................................20
Management's Discussion and Analysis of Financial Condition and Results of Operations...........22
Business........................................................................................29
Management......................................................................................43
Certain Relationships and Related Transactions..................................................48
Principal Stockholders and Selling Security Holders.............................................50
Plan of Distribution............................................................................53
Description of Securities.......................................................................53
Legal Matters...................................................................................57
Experts.........................................................................................57
Additional Information Made Available To You....................................................57
Index to Financial Statement...................................................................F-1
===================================================================================================
===================================================================================================
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read this
entire prospectus carefully, including the section entitled "Risk Factors" and
our financial statements and the related notes to those statements included in
this prospectus.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
We manufacture high power semiconductor diode lasers. We currently
manufacture high power semiconductor diode lasers for a variety of applications
across numerous industries, including printing, laser marking, medical, optical
displays, precision machining, illuminating and military. We have recently
commenced an effort to expand into telecommunications applications for our
lasers. We are a component supplier of high power semiconductor diode lasers. We
have the capability without substantial capital expenditures or an expansion of
staff to manufacture products with telecommunications applications. Most of our
customers are Original Equipment Manufacturers.
We manufacture products at a high technology facility in Broome County, New
York built to our specifications. We currently utilize 15,000 square feet at
such location, including a 4,500 square feet clean room (i.e. one that is
relatively free of particulate contamination and electro static discharge).
CORPORATE INFORMATION
Our company was incorporated in New York in September of 1993 and
reincorporated in Delaware in September 1997. Our principal executive offices
are located at 15 Link Drive, Binghamton, New York 13904. Our telephone number
is (607) 722-3800.
3
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by this offering................... 12,301,263 shares of common stock and 10,374,445 shares
of common stock issuable upon exercise of warrants.
Risk Factors............................................ This offering involves a high degree of risk. See "Risk
Factors" beginning of page 6.
Use of Proceeds......................................... Other than the proceeds from the exercise of the
warrants in exchange for shares of our common stock
covered by this prospectus, we will not receive any of
the proceeds from the sale of the shares. The holders
of the warrants are not obligated to exercise their
warrants, and there can be no assurance that we will
receive any proceeds from this offering.
Any proceeds we receive from the exercise of the
warrants will be used for working capital purposes,
including up to $4,000,000 on new equipment to expand
the products with telecommunications applications that
we could manufacture. See "Use of Proceeds" on page 18.
Dividend Policy......................................... We intend to retain any earnings to finance the
development and growth of our business. Accordingly, we
do not anticipate that we will declare any cash
dividends on our common stock for the foreseeable
future. See "Dividend Policy" on page 19.
Nasdaq OTC Bulletin Board symbol........................ SLIC.OB
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes included in this
prospectus. The statement of operations data for the years ended December 31,
1997, 1998 and 1999 are derived from audited financial statements included in
this prospectus. The statement of operations data for the three months ended
March 31, 1999 and March 31, 2000 and the balance sheet data as of March 31,
2000 are derived from the unaudited financial statements included in this
prospectus and include all adjustments that management considers necessary for a
fair presentation of the financial statements.
<TABLE>
<CAPTION>
December 31, December 31, December 31, March 31, March 31,
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.................. $ 478,924 $ 2,197,736 $ 1,524,514 $ 298,545 $ 405,850
Cost of sales.............. (1,482,579) (3,093,343) (1,871,216) (663,886) (813,766)
Sales and marketing expenses 368,513 395,339 329,927 63,220 82,681
General and administrative
expenses................... 4,082,360 2,882,320 2,651,139 570,804 821,861
Loss from operations....... (6,105,770) (4,180,539) (3,404,471) (1,001,103) (1,324,232)
Interest income............ 105,959 42,677 35,482 305 20,465
Net loss................... (5,999,811) (4,137,862) (3,368,989) (1,000,798) (1,303,767)
Earnings (loss) per
share-basic and diluted.... ($2.15) ($0.44) ($0.26) ($0.09) ($0.07)
Weighted average shares
outstanding................ 3,572,458 9,320,785 13,078,597 11,226,052 18,125,138
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
<S> <C>
BALANCE SHEET DATA:
Cash and equivalents............................................................. $4,999,660
Accounts receivable, net of allowance for doubtful accounts of $583,293.......... 290,683
Total assets..................................................................... 8,858,700
Total current liabilities........................................................ 2,005,416
Long-term debt................................................................... 703,122
Total liabilities................................................................ 2,808,538
Total shareholders' equity....................................................... 6,050,162
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in the shares offered hereby involves a high degree of risk.
The following risk factors, in addition to those discussed elsewhere in this
prospectus should be considered carefully in evaluating our company and our
business. Additional risks that are not yet identified or that we currently
think are immaterial may materially adversely affect our business and financial
condition in the future.
We have a history of significant losses and an accumulated deficit at March 31,
2000.
We have incurred net losses from inception and have at March 31, 2000 an
accumulated deficit of $21,632,794. It is anticipated that we will continue to
incur losses for the immediate future until we are able to generate sales levels
sufficient to support our operations. There can be no assurance that we will be
able to achieve profitable operations.
We are making a substantial investment in our business and need to raise
additional capital.
We have available a collateralized line of credit, subject to a borrowing
base calculation, with an aggregate availability in the amount of $1,000,000 for
purposes of providing working capital. The line bears interest at prime plus
2.5%. We utilized $1,000,000 of this line as of December 31, 1999. In May 2000,
we agreed with BSB Bank & Trust Company to pay down approximately $210,000 of
the line of credit, representing the amount in excess of the borrowing base.
Such excess amount had been cash collateralized. In connection with such
agreement, the line of credit was extended to March 31, 2001. While we are in
receipt of $5,830,000 from private placements since January 1, 2000, such monies
will not be sufficient to meet our capital needs as currently projected. We
intend to seek additional financing, from financial and banking institutions as
well as through further equity financings. Based upon the fiscal 2000 budget, we
expect that our cash and working capital requirements will continue to be
significant as our operations expand. Potential sources for our cash and working
capital requirements also include revenue growth. We anticipate based upon our
business plan, that without any capital infusion, our cash will be sufficient
for our needs at least until June 30, 2001. In the event that our plans change
or our assumptions change or prove to be inaccurate, we could be required to
obtain additional financing sooner than currently anticipated. In connection
with the projected development of our business into telecommunication
applications, we could be required to buy substantial additional equipment as
well as increase the size of our manufacturing facility and expand our operating
personnel. To take advantage of our full potential revenue opportunities in
telecommunications, such expansion will require substantial additional capital
beyond that currently available to us. There can be no assurance we will be able
to obtain additional financing when needed, on commercially reasonable terms or
at all. If adequate funds are not available or are not available on acceptable
terms, we may not be able to realize our business plans. Any additional equity
financing may involve substantial dilution to our then existing shareholders.
6
<PAGE>
Our growth and expansion into telecommunications products may strain our
resources and we may not be able to attract customers.
We intend to seek to grow our business through expansion into
telecommunications products. The expansion into telecommunications may place a
considerable strain on our management, financial, manufacturing and other
resources. We have no meaningful orders for telecommunications products. We are
currently in discussions with several other telecommunications companies
concerning orders for new products. There can be no assurance that we will
receive any orders from these companies or if we do receive orders from one or
more customers that we will be able to consistently meet stringent
telecommunication specifications. We expect to experience fluctuation in
customer orders and competitive, technological and pricing constraints. We may
also be unable to develop new products on a timely schedule.
If we do not introduce new products and services in a timely manner, our
telecommunications products will become obsolete, and our operating results will
suffer.
We intend to sell our products in several industries that are characterized
by rapid technological changes, frequent new product introductions and evolving
industry standards. Without the timely introduction of new products and
enhancements, our products will likely become technologically obsolete over
time, in which case our revenue and operating results would suffer. The success
of our new products will depend on several factors, including our ability to:
o properly identify customer needs;
o price our products competitively;
o innovate and develop new technologies and applications; and
o manufacture and deliver our products in sufficient volumes on time.
Our products may be used by our customers to develop, test and manufacture
their new products. We therefore must anticipate industry trends and develop
products in advance of the commercialization of our customers' products. If we
fail to adequately predict our customers' needs and future activities, we may
invest in research and development of products that do not lead to significant
revenue. Moreover, significant technical innovations generally require a
substantial investment before we can determine the commercial viability of these
innovations. We may not have the financial resources necessary to fund these
technical innovations.
We have experienced manufacturing difficulties which affect our results of
operations.
The manufacture of semiconductor lasers such as those sold by our 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. We, as well as other semiconductor laser manufacturers
have, from time to time, experienced technical production problems which have
resulted in adverse financial consequences. We believe we have taken the
appropriate steps in our development to address such problems,
7
<PAGE>
although no assurance can be given that our systems, procedures, procurement
efforts and production efforts and process are such that these problems will not
be experienced in the future.
We rely almost exclusively on our own production capability in:
o computer-aided chip and package design;
o wafer fabrication;
o wafer processing;
o device packaging;
o hybrid microelectronic packaging;
o printed circuit board testing; and
o final assembly and testing of products.
Because we manufacture, package and test these components, products and
systems at our own facility, and because these components, products and systems
are not readily available from other sources, our business and results of
operations will be significantly impaired if our manufacturing is interrupted by
any of the following:
o shortages of parts of equipment;
o equipment failures;
o poor yields;
o fire or natural disaster; or
o otherwise.
Since the onset of full commercial production, we, on occasion, have been
unable to manufacture certain products in quantities sufficient to meet the
demands of our existing customer base and that of new customers based upon
equipment and/or other technical problems arising at various points during the
production process. While at this time we are not experiencing any significant
technical manufacturing problems, there can be no assurance that technical
manufacturing problems could not arise in the future. The expansion in the scope
of our operations has placed considerable strain on us 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 our preparations or that our 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 our business
could have a material adverse impact on our business and results of operations.
8
<PAGE>
We operate in a rapidly changing, highly competitive market and we may not have
adequate resources to compete successfully.
Our markets are highly competitive. We face current or potential
competition from four primary sources:
o direct competitors;
o potential entrants;
o suppliers of potential new technologies; and
o suppliers of existing alternative technologies.
We face intense competitive pressure and may be unsuccessful even if our
products and manufacturing process are superior to those of our competitors. In
addition, many of our competitors:
o have substantially greater financial, manufacturing, personnel,
technological, marketing, distribution, operating, administrative and
other resources;
o have established reputations for success in the development, licensing,
sale and servicing of their products and technology; and
o may be developing technologies or products of which we are unaware,
which may be functionally similar, or superior, to some or all of those
being developed by us.
There can be no assurance that we will be able to compete successfully with
these companies or other competitors. As the market for our products grows, new
competitors are likely to emerge. Additional competition could adversely affect
our operations. Moreover, the high power semiconductor diode laser and
telecommunication markets are characterized by extensive research and rapid
technological change. The development by others of new or improved products,
processes or technologies may make our current or future products obsolete or
less competitive than currently anticipated. There can be no assurance that
advances in other or alternative technologies will not make our products
obsolete or less competitive.
Increased competition has resulted and could, in the future, result in
price reductions, reduced margins or loss of market share, any of which could
materially and adversely affect our business and results of operations. We
cannot assure you that we will be able to compete successfully against current
and future competitors or that competitive pressures we face will not have a
material adverse effect on our business and results of operations. We expect
that both direct and indirect competition will increase in the future.
Additional competition could have a material adverse effect on our results of
operations through price reductions and loss of market share.
We depend on third party suppliers of raw materials and components.
Our products require high quality raw materials and components which we
purchase from others. Our ability to manufacture our products will depend upon
our ability to establish commercial
9
<PAGE>
relationships with at least some third party suppliers. However, our business
and results of operations have in the past been and could be impaired by:
o a stoppage or delay of supply;
o substitution of more expensive or less reliable parts;
o receipt of defective parts or contaminated materials; and
o an increase in the price of such supplies or our inability to obtain
reduced pricing from our suppliers in response to competitive
pressures.
We do not currently maintain supply agreements with most of our suppliers
(intending instead to purchase needed raw materials and components pursuant to
purchase orders in the ordinary course of business). Our production will also be
dependent upon our suppliers satisfying our performance and quality
specifications and dedicating sufficient production capacity to meet our
scheduled delivery times. There can be no assurance that we will be able to
establish any commercial relationships with suppliers or, if we are able to do
so, that such suppliers will be able to satisfy our scheduled delivery or
performance requirements or have sufficient production capacity to satisfy such
requirements during any period of sustained demand. Failure or delay by our
suppliers in supplying us with needed raw materials and components would
adversely affect our operating margins and our ability to manufacture and
deliver products on a timely and competitive basis, which could, in turn, have a
material adverse effect on us.
Potential competitive advantages from our exclusive rights to the Desorption
Mass Spectrometric technology and aluminum free technology are subject to
certain risks.
We have an exclusive ten year license on the Desorption Mass Spectrometric
technology as it applies to laser technology, pursuant to a license agreement
with the United States Air Force. Initially, we used the Air Force patent to
develop products. More recently, our scientists have developed an optical system
to replace Desorption Mass Spectrometric, which is an electrical system. Our
system works similarly to Desorption Mass Spectrometric to control the
temperature of the substrate but we believe that our system is simpler to use
and easier to control. As a result, we do not rely on Desorption Mass
Spectrometric for any current products. We are current on administrative
payments to the Air Force to keep this license in good standing, but there are
no royalty payments due because we are not using the technology for products
sold. We believe that the license agreement with the Air Force could become
valuable to us in the future.
We have a license agreement with Northwestern University granting us
exclusive worldwide rights relating to aluminum free high power semiconductor
diode lasers under patent rights of Northwestern University. Our agreements with
the Air Force and Northwestern University represent a potential competitive
advantage but we are dependent upon our ability to exploit the technology under
both such agreements and to do so, if possible, on an exclusive basis.
Accordingly, we consider patent protection for such Desorption Mass
Spectrometric and aluminum free technology, and our trade secrets relating
thereto, to be important to our business prospects. While both licenses are
based on patents received by the Air Force and Northwestern University,
respectively, there can be no assurance, however, that:
10
<PAGE>
o the patents will not be invalidated, circumvented or challenged;
o others will not independently develop, or have not already developed,
similar or more advanced technologies than our technology;
o others will not design around or have not already designed around
aspects of the technology and/or our trade secrets developed therefrom;
or
o that the steps taken by our company and the Air Force, to date, will
prevent misappropriation of the Desorption Mass Spectrometric
technology.
No applications for patent protection in foreign countries have yet been
made. In addition, to the extent that consultants, key employees or third
parties apply technological information independently developed by them or
others to our projects, disputes may arise as to the proprietary rights to such
information.
We may be unable to protect our intellectual property rights and we may be
liable for infringing the intellectual property rights of others.
The semiconductor, optoelectronics, communications, information and laser
industries are characterized by frequent litigation regarding patent and other
intellectual property rights. Litigation may be necessary in the future:
o to enforce our intellectual property rights;
o to determine the validity and scope of the proprietary rights of
others; and
o to defend against claims of infringement or invalidity of intellectual
property rights developed internally or acquired from third parties.
There can be no assurance that we will have the financial or other
resources necessary to enforce or defend a patent infringement or proprietary
rights violation action. If our products or proposed products are deemed to
infringe upon the patents or proprietary rights of others, we could, under
certain circumstances, become liable for damages which could also have a
material adverse effect on our business.
We believe that the patent rights and the license with Northwestern
University cover all production methods, including, but not limited to Molecular
Beam Epitaxy and Metal Organic Chemical Vapor Deposition. We believe that
attempts by others to develop equivalent aluminum free technology could infringe
on our exclusive rights. Enforcement of these rights will require coordination
by us with Northwestern University. We believe that the exclusive right granted
under the license with Northwestern University constitute an as of yet
undetermined competitive advantage. Coherent, Inc., a competitor of ours, has
advised us and Northwestern University that it believes that the patent rights
under the license with Northwestern University do not cover the manufacture of
aluminum free products other than by Metal Organic Chemical Vapor Deposition.
Alternatively, Coherent, Inc. claims that its products do not infringe on
Northwestern University's patents. We are reviewing our options with respect to
such infringements. At this time, no litigation has been instituted by us,
Northwestern or any third party with respect to the scope of the patent rights
under the license with Northwestern University and Northwestern University has
indicated to us that it will not institute any litigation at this time.
11
<PAGE>
We may be exposed to product liability claims.
The products that we will market are intended for use by commercial end
users and Original Equipment Manufacturers in their end products. Some of our
products may become critical components in medical and surgical devices or in
printing, data storage and data transmission and telecommunications systems. The
use of high power semiconductor diode lasers is regulated by the Center for
Disease and Radiological Health because the misuse or mishandling of such
products could result in injury from exposure to the laser light emissions. A
malfunction of our 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 our high power
semiconductor diode lasers in applications such as satellites or fiber cables or
due to lost profits for data transmission down time. There can be no assurance
that our warranty disclaimers and liability limitations and adherence to safety
standards will be effective in limiting our liability for any such damages.
Moreover, while we maintain product liability insurance in the amount of $1
million per occurrence with a $2 million aggregate limit, there can be no
assurance 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 insured or a completely uninsured claim against us could have
a material adverse effect on our business.
We have been subject to investigations which could have a material adverse
effect on our business.
Since April 1998, we had been responding to informal requests for
information from the Securities and Exchange Commission. In August 1998, we
learned that in June 1998, the Securities and Exchange Commission had issued a
formal order of investigation to determine whether violations of certain aspects
of the federal securities laws had occurred in connection with our company.
Pursuant to this formal order of investigation, we and certain of our current
and former officers and directors have produced documents pursuant to subpoenas
from the Northeast Regional Office of the Securities and Exchange Commission. We
do not know whether or not this investigation remains active and are not able to
speculate as to the specific subject matter of the investigation. There can be
no assurance as to the timeliness of the completion of the investigation or as
to the final result thereof, and no assurance can be given that the final result
of the investigation will not have a material adverse effect on us. We have
cooperated with the investigation and responded to all requests for information
in connection with the investigation. No such requests for information have been
forthcoming since late 1998.
In August 1998, we learned that the United States Attorney's Office for the
Southern District of New York is investigating whether violations of securities
laws have occurred in connection with our public disclosures but has been
informed that we are not presently a target of the investigation. We have
cooperated fully with the investigation and have responded to a grand jury
subpoena issued in connection with the investigation. We do not know whether or
not this investigation remains active and are unable to speculate as to the
outcome or possible effect of the investigation on our company or our
management. There can be no assurance as to the timeliness of the completion of
the investigation or as to the final result thereof, and no assurance can be
given that the final result of the investigation will not have a material
adverse effect on our company or our current
12
<PAGE>
management. Management believes that there are meritorious defenses to the
issues raised by this investigation and intends to defend this matter
vigorously. No requests for information have been received since late 1998.
We are exposed to risks of doing business internationally.
Revenues from customers outside of the United States accounted for
approximately 57% of our total revenue in fiscal year 1999. International
revenue carries a number of inherent risks, including:
o Local economic and market conditions.
o Difficulties in enforcing intellectual property and contractual rights.
o The need for compliance with a variety of international and United
States export regulations.
o Unexpected changes in regulatory requirements.
o Trade barriers.
o Difficulties in staffing and managing international operations because
of distance, language and cultural differences.
o Longer payment cycles.
o Currency exchange rate fluctuations.
o Problems in collecting accounts receivable.
o Political and economic instability.
o Export restrictions.
o Seasonal fluctuations in business activity.
o Potentially adverse tax consequences.
One or more of these factors could have a material adverse effect on our future
international presence and, consequently, on our business, operating results and
financial condition.
We are subject to environmental regulations which could impose the need for
additional capital equipment or other requirements.
We are, and will be, subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous or regulated chemicals used in our
manufacturing processes. There can be no assurance that changes in environmental
regulations will not impose the need for additional capital equipment or other
requirements. Further, such regulations could restrict expansion of our
operations. Any failure by us to obtain required permits for, control the use
of, or adequately restrict the discharge of, hazardous or regulated substances
under present or future regulations could subject us to substantial liability,
require costly changes in our manufacturing processes or facilities, or cause
our manufacturing operations to be suspended. Such liability or suspension of
manufacturing operations could have a material adverse effect on our results of
operations or financial condition. We would also be forced to eliminate certain
substances from our manufacturing processes. Failure to obtain adequate
13
<PAGE>
replacements could result in decreased manufacturing yield, impairment of
product reliability, inability to fabricate certain products, and increased
manufacturing costs.
We depend upon key personnel and may be unable to hire qualified personnel.
We are dependent on the continued services of Dr. Geoffrey T. Burnham, our
Chairman of the Board, President and Chief Executive Officer. If Dr. Burnham
were to leave us, we could face substantial difficulty in hiring a qualified
successor and could experience a loss in productivity while any successor
obtains the necessary company and industry knowledge.
Our success will also be dependent upon our ability to attract and retain
experienced high power semiconductor diode laser production, marketing and
manufacturing personnel with the specific executive skills necessary to assist
our business. We may not be successful in attracting, retaining or motivating
key personnel. Our industry is experiencing a shortage in qualified personnel.
If we do not succeed in attracting new personnel, or retaining and motivating
existing personnel, our business may be affected adversely.
Our stock price has been volatile, which may make it more difficult for you to
resell shares when you want to do so and at prices you find attractive.
The trading price of our common stock can fluctuate significantly. For
example, during the 52 week period ended May 31, 2000, the market price of our
common stock ranged from $0.18 to $5.18. The stock price may fluctuate in
response to a number of events and factors, including:
o Quarterly variations in operating results;
o Announcements of technological innovations or new products and services
by us or its competitors;
o Changes in financial estimates and recommendations by securities
analysts;
o The operating and stock price performance of other companies that
investors may deem comparable; and
o News reports relating to trends in our markets.
In addition, the stock market in general and the market prices for
semiconductor companies in particular, have experienced extreme volatility that
often has been unrelated to the operating performance of those companies. These
broad market and industry fluctuations may affect adversely the price of our
common stock, regardless of operating performance. A drop in the market price of
our common stock may affect adversely our business and financial opportunities.
We may incur significant costs from class action litigation due to our stock
volatility.
When the market price of a stock has been volatile, holders of that stock
have occasionally instituted securities class action litigation. If any of our
stockholders were to bring a lawsuit of this type against us, even if the
lawsuit is without merit, we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of our management.
14
<PAGE>
Shares eligible for sale after this offering could adversely affect our stock
price.
The market price of our common stock could decline as a result of sales by
the selling security holders of their shares of common stock after this
offering, or other sales of shares that become eligible for resale under Rule
144, or the perception that these sales could occur. These sales also might make
it difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. In addition, the selling security holders
together hold warrants to purchase an aggregate of 10,374,445 shares of our
common stock which are also covered by this offering. If they exercise these
warrants and sell the underlying shares of common stock in the market, the
market price of our common stock could decline.
Certain events could result in a dilution of your ownership of our common stock.
As of May 31, 2000, we had approximately 28,478,263 million shares of the
our common stock outstanding and approximately 12,988,900 shares of our common
stock equivalents including convertible preferred stock, warrants and stock
options. The exercise prices and conversion prices, as the case may be, of the
warrants and stock options range from $0.05 to $5.00 per share. These common
stock equivalents also provide for anti-dilution protection upon the occurrence
of stock splits, redemptions, mergers and other similar transactions and, in
certain cases, upon the issuance of common stock at below market prices. If one
or more of these events occurs the number of shares of our common stock that may
be issued upon conversion or exercise would increase. If converted or exercised
these securities will result in a dilution to your percentage ownership of our
common stock. In addition, if we continue to raise additional financing through
private placements your percentage of ownership may be diluted.
Under the terms of a Securities Purchase Agreement, dated as of February 5,
1999, with bmp Mobility AG Venture Capital, as amended by Amendment No. 1 to the
Securities Purchase Agreement, dated as of April 28, 1999, bmp Mobility AG
Venture Capital purchased, in multiple tranches, 2,000,000 newly issued shares
of our common stock and 1,000,000 shares of our Series B Convertible Preferred
Stock each convertible into 5 shares of our common stock or an aggregate of
5,000,000 shares of our common stock. Based on public filings, we are aware that
bmp Mobility AG Venture Capital has transferred ownership of its shares of
common stock, Series B Convertible Preferred Stock and a warrant to purchase an
aggregate of 500,000 shares of common stock to ANB Alster Neue Beiteiligungs
GmbH & Co. KG. The Series B Convertible Preferred Stock and warrants contain
certain provisions relating to anti-dilution protection against private
placement issuances of securities below fair market value. We have had certain
discussions with a representative of ANB Neue Beiteiligungs GmbH & Co. KG
concerning the applicability of these provisions to the private placements
consummated this year. We have contended that no such adjustment is required and
sought a waiver of such provisions from ANB Alster Neue Beiteiligungs GmbH & Co.
KG. To date no agreement has been reached. To the extent that it is determined
that such adjustment is required, the failure to reach such agreement could
result in an increase in the number of shares of our common stock issuable upon
exercise of the Series B Convertible Preferred Stock and warrants and thereby
result in potential dilution to the percentage ownership of common stock offered
hereby.
15
<PAGE>
A significant percentage of our revenues are generated from a few customers.
A relatively limited number of customers accounted for a substantial
portion of our revenue in fiscal year 1999. Revenue to any single customer is
also subject to significant variability from quarter to quarter. Such
fluctuations could have a material adverse effect on our business, operating
results or financial condition. We expect that revenue to a limited number of
customers will continue to account for a high percentage of the net sales for
the foreseeable future. Moreover, there can be no assurance that current
customers will continue to place orders or that we will be able to obtain new
orders from new customers.
Equity financings obtained by us may prevent us from using net operating loss
carry forwards in the future.
Our net operating loss carry forwards expire in the years 2008 to 2019.
Under Section 382 of the Internal Revenue Code of 1986, as amended, utilization
of prior net operating losses is limited after an ownership change, as defined
in Section 382, to an annual amount equal to the value of the loss corporation's
outstanding stock immediately before the date of the ownership change multiplied
by the federal long-term exempt tax rate. The additional equity financings
obtained by us since our inception may have resulted in an ownership change and,
thus, in a limitation on our use of prior net operating losses. In the event we
achieve profitable operations, any significant limitation on the utilization of
our net operating losses would have the effect of increasing our tax liability
and reducing net income and available cash resources.
We depend on emerging applications and new products.
Our current products and the telecommunications products we are seeking to
obtain orders for serve many applications in the communications and industrial
laser markets. In many cases, our products are substantially completed, but the
customer's product incorporating our products is not yet completed or the
applications or markets for the customer's product are new or emerging. In
addition, some of our customers are currently in the process of developing new
products that are in various stages of development, testing and qualification,
and sometimes are in emerging applications or new markets.
We believe that rapid customer acceptance and qualification of our new
products is key to our financial results. Substantial portions of our products
address markets that are not now, and may never become, substantial commercial
markets. We have experienced, and are expected to continue to experience, delays
in qualification, fluctuation in customer orders and competitive, technological
and pricing constraints that may preclude development of markets for our
products and our customers' products.
We and our customers are often required to test and qualify pump lasers and
modules, modulators, amplifiers, and transmitters among other new products for
potential volume applications. In the telecommunications industry, market
qualification is an especially costly, time consuming and difficult process. We
cannot assure you that:
16
<PAGE>
o Our company or our customers will continue their existing product
development efforts, or if continued that such efforts will be
successful;
o Markets will develop for any of our technology or that pricing will
enable such markets to develop;
o Other technology or products will not supersede our products or our
customer's products; and
o Our company or our customers will be able to qualify products for
certain customers or markets.
We may also be unable to develop or qualify new products on a timely
schedule. Moreover, even if we are successful in the timely development of new
products that are accepted in the market, we often experience lower margins on
these products. The lower margins are due to lower yields and other factors, and
thus we may be unable to manufacture and sell new products at an acceptable cost
so as to achieve acceptable gross margins.
We have issued shares of Series B Convertible Preferred Stock and may be
prohibited from engaging in a "business combination" which could delay or
prevent a change-in-control.
The issuance of shares of our common stock and shares convertible into our
common stock during the preceding 24 months to bmp Mobility AG Venture Capital
and the shareholders offering shares in this offering, and our ability to issue
additional shares of common stock and Series B Convertible Preferred Stock in
the future, without shareholder approval could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock. Additionally, we are subject to anti-takeover provisions of Section 203
of the Delaware General Corporation Law, which will prohibit us from engaging in
any "business combination" with any "interested stockholder" for a period of
three years after the date of the transaction in which such stockholder became
an interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 of the Delaware General
Corporation Law also could have the effect of delaying or preventing a
change-in-control our company. This provision may also reduce the likelihood of
an acquisition of our company at a premium price by another person or entity.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. We may make additional
written or oral forward-looking statements from time to time in filings with the
Securities and Exchange Commission or otherwise. When we use the words
"believe," "expect," "anticipate," "project" and similar expressions, this
should alert you that this is a forward-looking statement. Forward-looking
statements speak only as of the date the statement is made.
These forward-looking statements are based largely on our expectations.
They are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond our control. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this prospectus
describe factors that could contribute to or cause differences between our
expectations and actual results.
We have described many of these factors in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Because of these risks and uncertainties, the forward-looking statements
contained in this prospectus may not in fact occur or prove to be accurate. All
subsequent written and oral forward-looking statements attributable to us or
acting on our behalf are expressly qualified in their entirety by this section.
USE OF PROCEEDS
This prospectus relates to the sale of 22,675,708 shares of our common
stock consisting of 12,301,263 shares of common stock and 10,374,445 shares of
common stock issuable upon exercise of warrants which were issued by our company
to the selling security holders. Other than the proceeds from the exercise of
the warrants in exchange for shares of our common stock covered by this
prospectus, we will not receive any of the proceeds from the sale of the shares
in this offering. The holders of the warrants are not obligated to exercise
their warrants, and there can be no assurance that we will receive any proceeds
from this offering. In addition, warrants to purchase 424,445 shares of common
stock may be exercised on a cashless basis. If, however, all the warrants are
exercised for cash, the gross proceeds to our company would be $7,655,833.80. In
the event that we acquire any proceeds from the sale of the shares issued upon
exercise of the warrants, we currently intend to use the proceeds for working
capital purposes, including up to $4,000,000 on new equipment to expand the
products with telecommunications applications that we could manufacture. A
substantial portion of such expenditures on equipment may be financed, to the
extent that financing is available.
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<PAGE>
DIVIDEND POLICY
We have never declared cash dividends on our common stock. We intend to
retain any earnings to finance the development and growth of our business.
Accordingly, we do not anticipate that we will declare any cash dividends on our
common stock for the foreseeable future. Our payment of cash dividends, if any,
will depend upon our general financial condition and other factors deemed
relevant by our Board of Directors.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. You
should read this information in conjunction with our financial statements
appearing elsewhere in this prospectus, and with the section entitled "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
Cash and cash equivalents.................................................................. $4,999,660
==========
Total Liabilities.......................................................................... $2,808,538
----------
Common stock, $.01 par value, 75,000,000 shares authorized, 28,474,3897 issued and
outstanding at March 31, 2000.............................................................. 284,744
Convertible Preferred Stock........................................................... 10,000
Additional paid-in capital............................................................ 27,636,453
Treasury stock........................................................................ (248,241)
Accumulated deficit................................................................... (21,632,794)
-----------
Total Shareholders' Equity................................................................. 6,050,162
---------
Total Liabilities and Shareholders' Equity/Total Capitalization............................ $8,858,700
==========
</TABLE>
19
<PAGE>
SELECTED FINANCIAL DATA
This section presents selected historical financial data of our company.
You should read carefully the financial statements included in this prospectus.
The selected data in this section is not intended to replace the financial
statements and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The selected financial data shown below for, and as of the end of, each of
the years in the five-year period ended December 31, 1999, have been derived
from the financial statements of our company audited by PricewaterhouseCoopers
LLP, independent auditors. The selected financial data as of and for the
quarters ended March 31, 1999 and 2000 are derived from unaudited financial
statements which appear elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31, Three months ended March 31,
1995 1996 1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales ...................... -- -- $ 478,924 $ 2,197,736 $ 1,524,514 $ 298,545 $ 405,850
Cost of sales .................. -- -- (1,482,579) (3,093,343) (1,871,216) (663,886) (813,766)
---------- --------- ----------- ----------- ----------- ----------- -----------
Gross margin .......... -- -- (1,003,655) (895,607) (346,702) (365,341) (407,916)
Operating expenses:
Research and development
expenses ....................... $ 165,755 $ 2,073,436 $ 651,242 $ 7,273 $ 76,703 $ 1,738 $ 11,774
Sales and marketing expenses ... 87,476 173,329 368,513 395,339 329,927 63,220 82,681
General and administrative .....
expenses ....................... 924,108 1,067,347 4,082,360 2,882,320 2,651,139 570,804 821,861
---------- --------- ----------- ----------- ----------- ----------- -----------
Loss from operations ........... (1,177,339) (3,314,112) (6,105,770) (4,180,539) (3,404,471) (1,001,103) (1,324,232)
Interest income ................ 26,942 237,253 105,959 42,677 35,482 305 20,465
---------- --------- ----------- ----------- ----------- ----------- -----------
Net loss .............. (1,150,397) (3,382,160) (5,999,811) (4,137,862) (3,368,989) (1,000,798) (1,303,767)
Less: Beneficial conversion
feature ........................ -- -- (1,688,000) -- -- -- --
Net loss applicable to
common stock ................... $ (1,150,397) $ (3,382,160) $ (7,687,811) $ (4,137,862) $ (3,368,989) $ (1,000,798) $ (1,303,767)
Earnings per share-basic and
diluted ........................ ($1.01) ($1.14) ($2.15) ($0.44) ($0.26) ($0.09) ($0.07)
============ ============ ============ ============ ============ ============ ============
Weighted average shares
outstanding .................... 1,250,248 2,984,170 3,572,458 9,320,785 13,078,597 11,226,052 18,125,138
============ ============ ============ ============ ============ ============ ============
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
December 31, December 31, December 31, December 31,
1995 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets
Current assets
Cash and equivalents ................. $ 491,971 $ 4,266,168 $ 1,934,574 $ 111,820
Restricted Cash ...................... 39,071 -- -- --
Accounts Receivable, net of allowance
for doubtful accounts............... 5,335 61,047 201,070 296,193
Inventory ............................ 2,600 6,316 139,201 333,806
Prepaid expenses and other assets ........ -- -- 70,717 209,717
------------ ------------ ------------ ------------
Total current assets ............ $ 538,977 $ 4,333,531 $ 2,345,562 $ 951,536
Deferred financing costs ................. 134,431 -- -- --
Property, plant and equipment, net ....... 162,175 3,035,929 2,719,816 2,691,926
Intangible Assets, net of accumulated
amortization ............................. 2,022 1,348 -- --
Deposits and other assets ................ 4,130 655,928 591,320 95,093
------------ ------------ ------------ ------------
Total assets .................... $ 841,735 $ 8,026,736 $ 5,657,372 $ 3,738,555
============ ============ ============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable ..................... $ 208,940 $ 1,142,272 $ 512,447 $ 1,127,589
Notes Payable (Line of Credit) ....... -- -- -- 550,000
Accrued expenses and other liabilities 134,331 92,199 161,545 164,235
Current portion of long-term debt .... 81,787 25,948 36,394 37,170
------------ ------------ ------------ ------------
Total current liabilities ....... 425,058 1,260,419 710,386 1,878,994
Long-term debt ........................... 19,882 809,926 798,283 765,686
Accrued royalty payments ................. 100,000 100,000 100,000 100,000
------------ ------------ ------------ ------------
Total liabilities ............... 544,940 2,170,345 1,608,669 2,744,680
------------ ------------ ------------ ------------
Shareholders' Equity
Common stock, $.01 par value,
75,000,000 shares authorized,
1,393,653 shares issued and
outstanding at December 31, 1995;
3,409,607 shares issued and
outstanding at December 31, 1996;
8,389,552 shares issued and
outstanding at December 31, 1997;
15,641,064 issued and outstanding at
December 31, 1999; 28,474,3897 issued
and outstanding at March 31, 2000 ....... 13,936 34,096 83,896 100,396
Subscriptions Receivable ................. -- 1,123,438 -- --
Treasury stock ........................... -- (248,241) (248,241) (248,241)
Convertible Preferred Stock .............. -- -- -- --
Additional paid-in capital ............... 2,035,065 10,081,464 17,035,225 18,060,685
Accumulated deficit ...................... (1,752,306) (5,134,366) (12,822,177) (16,960,038)
------------ ------------ ------------ ------------
Total Shareholders' Equity ......... 296,795 5,856,391 4,048,703 993,875
------------ ------------ ------------ ------------
Total Liabilities and
Shareholders' Equity ............. $ 841,735 $ 8,026,736 $ 5,657,372 $ 3,738,555
============ ============ ============ ============
<CAPTION>
BALANCE SHEET DATA:
Three Months
December 31, Ended March 31,
1999 2000
Assets ------------ --------------
<S> <C> <C>
Current assets
Cash and equivalents ................. $ 347,747 $ 4,999,660
Restricted Cash ...................... -- --
Accounts Receivable, net of allowance 295,561 290,683
for doubtful accounts
Inventory ............................ 861,911 877,074
Prepaid expenses and other assets ........ 24,957 24,957
------------ ------------
Total current assets ............ $ 1,530,176 $ 6,192,374
Deferred financing costs ................. -- --
Property, plant and equipment, net ....... 2,584,974 2,533,524
Intangible Assets, net of accumulated
amortization ............................. -- --
Deposits and other assets ................ 149,396 132,802
------------ ------------
Total assets .................... $ 4,264,546 $ 8,858,700
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable ..................... $ 708,193 $ 770,114
Notes Payable (Line of Credit) ....... 1,000,000 1,000,000
Accrued expenses and other liabilities 174,809 193,797
Current portion of long-term debt .... 44,368 41,505
------------ ------------
Total current liabilities ....... 1,927,320 2,005,416
Long-term debt ........................... 713,668 703,122
Accrued royalty payments ................. 100,000 100,000
------------ ------------
Total liabilities ............... 2,741,038 2,808,538
------------ ------------
Shareholders' Equity
Common stock, $.01 par value,
75,000,000 shares authorized,
1,393,653 shares issued and
outstanding at December 31, 1995;
3,409,607 shares issued and
outstanding at December 31, 1996;
8,389,552 shares issued and
outstanding at December 31, 1997;
15,641,064 issued and outstanding at
December 31, 1999; 28,474,3897 issued
and outstanding at March 31, 2000 ....... 156,411 284,744
Subscriptions Receivable ................. (100,000) --
Treasury stock ........................... (248,241) (248,241)
Convertible Preferred Stock .............. 10,000 10,000
Additional paid-in capital ............... 22,034,365 27,636,453
Accumulated deficit ...................... (20,329,027) (21,632,794)
------------ ------------
Total Shareholders' Equity ......... 1,523,508 6,050,162
------------ ------------
Total Liabilities and
Shareholders' Equity ..................... $ 4,262,546 $ 8,858,700
============ ============
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial
statements and other financial information included in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those indicated in
the forward-looking statements.
OVERVIEW
We were considered a development stage company until April 1, 1997. During
1997, we began the commercialization of many of our proposed products. Since our
inception in 1993, we 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 our high
power semiconductor diode lasers product prototypes. We have since completed the
construction and equipping of the first phase of our manufacturing facility and
have begun the commercialization of our products and the generation of sales
revenues. We are seeking to increase sales in order to fully utilize our
production capacity. Increasing sales levels and higher utilization of
production capacity are critical to our financial success. Financial resources
and liquidity during this period of growth are of utmost importance and concern
to our company.
The manufacture of semiconductor lasers such as those sold by our company
are 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. Our company as well as other semiconductor laser
manufacturers have, from time to time, experienced technical production problems
which have resulted in adverse financial consequences. No assurance can be given
that our systems, procedures, procurement efforts and production process are
such that these problems will not be experienced in the future.
Since the onset of commercial production, we, on occasion, have been unable
to manufacture certain products in quantities sufficient to meet the demands of
our existing customer base and that of new customers based upon equipment and/or
other technical problems arising at various points during the production
process. At this time we are not experiencing any technical difficulty of our
production processing. Historically, cash flow problems have placed considerable
strain on our company's management, financial, manufacturing and other resources
and limited our ability to grow our revenues. Although we have raised $5,830,000
in private placement financing since January 1, 2000, lack of financial
resources in the future could have a material adverse impact on our business and
results of operations.
We have not generated material revenues or profits to date.
22
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Sales. Sales for the three months ended March 31, 2000 were $405,850,
representing an increase of 36% over the first three months ended March 31,
1999. Although government sales decreased, commercial sales increased in the
comparison period.
We have a purchase order with a customer in China for approximately $4
million for a single chip high power diode. Such customer has held up the
shipment of approximately $140,000 in products already manufactured by us and
delayed processing of the next production order pending resolution of a claim by
an agent in China claiming to have an exclusive sales agency relationship with
us and therefore to be entitled to a commission on the orders with this
customer. We believe that the claims of this agent are without merit and have
terminated our relationship with this agent. There can be no assurance that the
customer will be satisfied with the resolution of this claim or willing to
permit shipments and production to resume. As a result, revenues anticipated to
be received in the second and third quarters will be delayed and, if the dispute
as to this agent's rights cannot be resolved to the satisfaction of the
customer, we may not realize any additional revenues from this customer. Even if
the dispute is resolved, the realization of the full $4,000,000 amount of the
order is subject to our ability to satisfy the customer on quality and quantity
requirements. If the dispute is resolved, and we can satisfy the customer on
quality and quantity requirements, the order size may be increased.
Cost of Sales. Cost of sales, which includes materials, production labor
and equipment costs increased 22.5% to $813,766 for the three months ended March
31, 2000 as compared to $663,886 for the three months ended March 31, 1999.
Gross margin declined as a result of the increase in the cost of sales. Cost of
sales levels are expected to exceed sales levels until the volume of sales
increases. Our business plan calls for sales levels to increase in the future,
thus steadily increasing production levels to levels approaching optimum
capacity, although no such assurance can be provided.
Research and Development. Research and development expenditures were
$11,774 for the three months ended March 31, 2000 as compared to $1,738 in the
same period in 1999. The increase in such expenditures is primarily associated
with the majority of research and development expenses in the first quarter of
1999 being charged to the cost of sales for such quarter.
Sales and Marketing Expenses. Sales and marketing expenses were $82,681 for
the three months ended March 31, 2000 as compared to $63,220 for the same period
in 1999. The increase is attributable to increases in costs associated with
trade show expenses partially offset by a decrease in advertising expenses.
General and Administrative Expenses. General and administrative expenses
were $821,861 for the three months ended March 31, 2000 as compared to $570,804
for the same period in 1999. Such increase was primarily attributable to an
increase in professional fees of $184,227, insurance costs of $14,266 and loan
interest expense of $32,431. Additionally, hourly wages increased net of salary
decreases from the first quarter of 1999 compared to the first quarter of 2000
by $27,833.
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<PAGE>
Increases amounting to $19,632 were experienced in other miscellaneous expenses.
Offsetting these increases were decreases in maintenance expenses of $18,028 due
to less frequent repairs and a decrease in outside services expense of $9,304
due to reduced requirements.
Interest Income. Interest income increased $20,160 as a result of higher
levels of invested cash in the first quarter of 2000 compared to the same period
in 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Sales. Sales in 1999 were $1,524,514 compared to $2,197,736 for 1998. The
decrease was a result of reduced commercial and government contract revenue.
Cost of Sales. Cost of sales was $1,871,216 in 1999 as compared to
$3,093,343 in 1998. The decrease was partially attributable to the decreased
levels of production labor and overheads (approximately $622,000) associated
with the decrease in sales.
Research and Development. Research and development expenditures were
$76,703 in 1999 compared to $7,273 in 1998. The majority of the research and
development efforts in 1998 were charged to the cost of sales as efforts were
focused on the production process.
Sales and Marketing Expenses. Sales and marketing expenses were $329,927 in
1999 compared to $395,339 in 1998 or a decrease of $65,412. The decrease was
reflected in advertising expenses offset by minor increases in trade show,
travel and meeting expenses.
General and Administrative Expenses. General and administrative expenses
were $2,651,139 in 1999 compared to 1998 expenses of $2,882,320 or a decrease of
$231,181. The major impact was an absence in 1999 of the need for a significant
bad debt expense as was recorded in 1998. This decrease equated to approximately
$488,000. Additionally, professional fees (primarily legal expenses) decreased
approximately $52,000. Offsetting these decreases were increases in 1999
compared to 1998 of approximately $309,000. These increases were incurred in
salaries (approximately $213,000), interest expense (approximately $66,000),
repairs and maintenance (approximately $21,000 ) and all other (approximately
$9,000). Salaries increased due to the addition of positions in the organization
and the impact of required book accounting entries. Interest expense increased
due to the line of credit expansion by $450,000 to the $1,000,000 maximum.
Repairs and maintenance increased due to the equipment's additional aging.
Interest Income. Interest income decreased approximately $7,000 from 1999
compared to 1998 as a result of lower levels of invested cash occasioned by
operating demands.
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Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales. Sales in 1998 were $2,197,736 as compared to $478,924 for 1997. This
increase was attributable to the continued penetration of the commercial
markets. This increase was offset by our inability to ship certain units to a
key customer, Rocky Mountain Instruments, because of a legal dispute.
Cost of Sales. Cost of sales was $3,093,343 in 1998 as compared to
$1,482,579 in 1997. The increase was attributable to the increases in levels of
production labor and overheads associated with the onset of commercial
production.
Research and Development. Research and development expenditures were $7,273
in 1998 as compared to $651,242 in 1997. The decrease in such expenditures was
primarily associated with a change in focus from research and development to
production.
Sales and Marketing Expenses. Sales and marketing expenses were $395,339 in
1998 as compared to $368,513 in 1997. The increase of $26,826 was attributable
to increased levels of marketing activities incurred in the achievement of the
sales increase from 1997 to 1998. The increases were related to increased print
media advertising and brochures offset by a decrease in trade show expense.
General and Administrative Expenses. General and administrative expenses
were $2,882,320 in 1998 as compared to $4,082,360 in 1997. The decrease of
approximately $1,200,000 was attributable primarily to the absence of a one time
charge recorded in 1997 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. An increase of bad debt expense was
recorded in 1998 of approximately $485,000. The primary amounts offsetting this
increase were Depreciation expenses decreasing in 1998 by approximately $33,000
due to a reclassification of certain depreciation to Cost of Goods Sold in 1998
and a decrease in recruiting expenses of approximately $20,000 in 1998 due to a
reduced rate of hiring compared to 1997. Additionally, certain expenses in 1998
classified as Cost of Goods Sold were previously classified as General and
Administrative aggregating a total of $485,000. This change in classification
had no impact on net income or loss per share.
Interest Income. Interest income decreased approximately $63,000 from 1998
compared to 1997 as a result of lower levels of invested cash occasioned by
operating demands.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents at March 31, 2000 were $4,999,660 as compared
to $347,747 at December 31, 1999, a net increase of $4,651,913 for the three
months ended March 31, 2000. The increase is the result of $1,167,539 used in
operating activities and $5,819,452 provided by financing activities.
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The $5,819,454 provided by financing activities was derived from the
issuance of 12,875,341 shares of our common stock and warrants to purchase
10,167,778 shares of common stock for an aggregate gross consideration of
$5,830,000. The former was offset by payments on the long-term debt.
In conjunction with the Securities Purchase Agreement, on February 16,
1999, we issued to BSB Bank & Trust Company, a five year warrant to purchase an
aggregate of 500,000 shares of our common stock at an exercise price of $0.575
per share. The shares issuable upon exercise of the warrants contain certain
registration rights. The value of the warrants has been reflected as deferred
financing costs in our financial statements and will be amortized over the
period commencing from date of issue to May 31, 2000.
We have available a collateralized line of credit with BSB Bank & Trust
Company, subject to a borrowing base calculation, with an aggregate availability
in the amount of $1,000,000 for purposes of providing working capital. The line,
bears interest at prime plus 2.5%. We have utilized $1,000,000 of this line as
of March 31, 2000.
In January 2000, BSB Bank & Trust Company required us to provide it with
additional security for our loan agreement in the form of a $750,000 second
mortgage on our facility and a first security interest in all of our assets. The
second mortgage and the security agreement granting the requested security
interest were executed and delivered to BSB Bank & Trust Company on January 31,
2000. BSB Bank & Trust Company has agreed to release the lien of the second
mortgage upon satisfaction of our first mortgage, and a pay down or permanent
reduction of our line of credit with BSB Bank & Trust Company of $300,000 or a
pledge of cash collateral in such amount.
BSB Bank & Trust Company agreed to waive our default under our loan
agreement with respect to "Mandatory Loan Repayments" and waived the Affirmative
Covenants - "Financial Covenants and Ratios" at December 31, 1999. Subsequently,
BSB Bank & Trust Company agreed to waive our default under the loan agreement
with respect to "Mandatory Loan Repayments" for the period ending February 29,
2000 provided we met the borrowing base requirements as of March 3, 2000. These
requirements were met by us. In May 2000, we agreed with BSB Bank & Trust
Company to pay down approximately $210,000 of the collateralized line of credit,
representing the amount in excess of the borrowing base. In connection with such
agreement, the line of credit has been extended to March 31, 2001. In addition,
we agreed to issue BSB Bank & Trust Company warrants to purchase 50,000 shares
of our common stock at an exercise price of $1.00 per share.
We entered into a Securities Purchase Agreement, dated as of February 5,
1999, with bmp Mobility AG Venture Capital, as amended by Amendment No. 1 to the
Securities Purchase Agreement, dated as of April 28, 1999. Under the terms of
the amended Securities Purchase Agreement, bmp Mobility AG Venture Capital
purchased 2,000,000 shares of our common stock and 1,000,000 shares of our
Series B Convertible Preferred Stock, par value $0.01 per share, each
convertible into 5 shares of common stock or an aggregate of 5,000,000 shares of
common stock. bmp Mobility AG Venture Capital had previously purchased 367,650
shares of our common stock in unrelated open market transaction. In connection
with the Amendment, on June 26, 1999 we
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issued to bmp Mobility AG Venture Capital a five year warrant to purchase an
aggregate of 500,000 shares of common stock, at an exercise price of $0.50 per
share. The shares of common stock issued to bmp Mobility AG Venture Capital
contain certain demand and piggyback registration rights and the Series B
Convertible Preferred Stock contains certain anti-dilution rights. Based on
public filings, we are aware that bmp Mobility AG Venture Capital has
transferred ownership of its shares of common stock, Series B Convertible
Preferred Stock and warrants to purchase an aggregate of 500,000 shares of
common stock to ANB Alster Neue Beiteiligungs GmbH KG.
In September 1999, 2,979,256 shares of common stock were issued at an
aggregate purchase price of $1,117,221. We received $1,061,422 net of finder's
fees. The shares of common stock issued in this private placement contain
certain piggyback registration rights.
We have issued an aggregate of 12,875,341 shares of common stock and
warrants to purchase an aggregate of 10,167,778 shares of common stock in a
series of private placements since January 1, 2000. We raised an aggregate of
$5,830,000 in gross proceeds from such private placements at purchase prices
ranging between $0.30 and $0.50 per share and warrant exercise prices ranging
between $0.75 and $1.0625 per share. The warrants may be exercised from time to
time over a term of either 4 or 5 years. On March 14, 2000, we entered into a
Waiver and Lock-up Agreement with BSB Bank & Trust Company pursuant to which BSB
Bank & Trust Company waived any rights to adjustment that it may have under the
warrants. In addition, BSB Bank & Trust Company agreed not to transfer the
shares of common stock issuable to BSB Bank & Trust Company upon conversion of
the warrants until March 20, 2001 without our prior written consent. The Series
B Convertible Preferred Stock and warrants purchased by bmp Mobility AG Venture
Capital (and subsequently transferred to ANB Alster Neue Beiteiligungs GmbH KG)
contain certain provisions relating to anti-dilution protection against private
placement issuances of securities below fair market value. We have had certain
discussions with a representative of ANB Alster Neue Beiteiligungs GmbH KG
concerning the applicability of these provisions to the private placements
consummated subsequent to January 1, 2000. We have contended that no such
adjustment is required and sought a waiver of such provisions. To date, no
agreement has been reached. To the extent it is determined that such adjustment
is required, the failure to reach such agreement could result in an increase in
the number of shares of our common stock issuable upon exercise of the Series B
Convertible Preferred Stock and warrants and thereby result in potential
dilution to existing shareholders.
We have incurred net losses from inception and have an accumulated deficit
at March 31, 2000 of $21,632,794. These losses have been financed primarily out
of proceeds from our initial public offering and private equity financings. We
expect that our cash and working capital requirements will continue to be
significant as our operations expand. Potential sources for such cash and
working capital requirements are revenue growth and additional private equity
financing. It is anticipated that we will continue to incur losses for the
immediate future until we are able to achieve profitable operations or to
generate sales sufficient to support our operations.
We anticipate based upon our business plan, that without any capital
infusion, our cash will be sufficient for our needs at least until June 30,
2001. We intend to seek additional financing, from financial and banking
institutions as well as through further equity financings. There can be no
assurance that such additional financing can be consummated. The need to raise
equity capital at
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current stock prices is likely to result in substantial dilution to shareholders
and could result in a change of control. One investor who purchased shares and
warrants in March 2000, now beneficially owns 53.4% of our common stock,
inclusive of warrants purchased by such investor.
We anticipate that capital expenditures during fiscal 2000 will be up to
$4,000,000 depending on the level of additional financing raised.
There can be no assurance that we will be able to obtain additional
financing, including any institutional financing, when needed, on commercially
reasonable terms or at all. Therefore, it is uncertain that we will be able to
meet our obligations as they become due.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY
All of our revenues are realized currently in U.S. dollars. In addition, we
do not maintain any asset or cash account balances in currencies other than U.S.
dollars. Therefore, we do not believe that we currently have any significant
direct foreign currency exchange rate risk.
INTEREST
We are exposed to interest rate risk, as we use additional debt financing
to fund capital expenditures. The interest that we may be able to obtain on debt
financings will depend on market conditions at that time and may differ from the
rates we have secured in the past.
INFLATION
We do not believe that inflation has had a material effect on our financial
position or results of operations during the past three years. However, we
cannot predict the future effects of inflation, including interest rate
fluctuations and market fluctuations.
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BUSINESS
GENERAL
We manufacture high power semiconductor diode lasers. We currently
manufacture high power semiconductor diode lasers for a variety of applications
across numerous industries, including printing, laser marking, medical, optical
displays, precision machining, illuminating and military. We have recently
commenced an effort to expand into telecommunications applications for our
lasers. We are a component supplier of high power semiconductor diode lasers.
Most of our customers are Original Equipment Manufacturers.
We manufacture products at a high technology facility in Broome County, New
York built to our specifications. We currently utilize 15,000 square feet at
such location, including a 4,500 square feet clean room (i.e. one that is
relatively free of particulate contamination and electro static discharge).
We have raised an aggregate of $5,830,000 from a series of private
placements since January 1, 2000. We intend to seek additional financing, from
financial and banking institutions as well as through further equity financings.
We intend to seek to grow our business through expansion into telecommunications
products. We have the capability without substantial capital expenditures or an
expansion of staff to manufacture products with telecommunications applications.
If we are successful in raising additional capital of at least $4,000,000 it is
anticipated that we will expend up to $4,000,000 on capital expenditures to
expand significantly the products with telecommunications applications that we
could manufacture. Therefore, with additional capital we believe that the
potential for revenues in telecommunications is significantly increased. There
can be no assurances that additional financing or the ability to increase sales
in telecommunications can be obtained by us. The need to raise equity capital at
current stock prices is likely to result in substantial dilution to shareholders
and could result in a change of control.
Our company was incorporated in New York in September of 1993 and
reincorporated in Delaware in September 1997.
ORTHOGENESIS AGREEMENT
We entered into a Joint Venture Agreement, dated September 28, 1999, with
Orthogenesis System, Inc. Pursuant to the Joint Venture Agreement, our company
and Orthogenesis Systems, Inc. agreed to develop, sell and distribute low level
laser systems used in non-invasive medical treatments for the purpose of
biostimulation. Primarily intended for use with certain medical conditions, its
principal focus is on arthritic conditions, accelerated wound healing and
chronic pain. Potential secondary applications include acute injuries, such as
those relating to sports or casual physical overexertion. The laser also has
potential to be used in related areas within veterinary practices.
Under the Joint Venture Agreement, our company and Orthogenesis System,
Inc. each have a 50% voting interest in the joint venture and we have been
granted an exclusive license to manufacture the Orthogenesis laser system for
the term of the joint venture. We have agreed to manufacture and sell the
Orthogenesis laser system at our total cost of manufacturing (including
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material, direct labor and overhead costs) such system. We have also agreed to
perform the financial and accounting functions for the joint venture and will be
responsible for responding to customers' complaints. Orthogenesis System, Inc.
has agreed to be responsible for marketing, research and development and product
upgrades of such systems. Profits derived from the sale of the Orthogenesis
laser system will be divided 75% to us and 25% to Orthogenesis System, Inc.
We believe that we have the capability of manufacturing this system without
any significant initial capital investment. The system has shown promise in
early tests although no definitive study has been completed to date and there
can be no assurance that any future studies will be favorable. We intend to
commence marketing in Canada and in certain other countries where we expect we
will be permitted to sell the system without any additional regulatory approval
and expects to eventually apply for FDA approval to enable us to sell the system
in the United States. Our ability to obtain FDA approval and to increase sales
materially is dependent on our ability to raise capital for the joint venture.
NASDAQ DELISTING
We received notice from The Nasdaq Stock Market that our securities were
delisted from The Nasdaq SmallCap Market, effective as of the close of business
on May 26, 1999. The Nasdaq Stock Market based its determination on our failure
to meet the minimum bid price requirement for our common stock and the minimum
net tangible assets requirement set forth under the Nasdaq Marketplace Rules.
Our securities are currently quoted on the Nasdaq OTC Bulletin Board under the
symbol "SLIC.OB."
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, optical data storage, laser marking and illuminating
markets. High power semiconductor diode lasers are increasingly replacing
traditional technologies, including other types of high power lasers, in these
and other applications, as high power semiconductor diode lasers are generally
less complex, smaller, more reliable, more durable and/or more powerful than
their predecessor technologies.
The kind and number of applications that can benefit from utilizing high
power semiconductor diode lasers 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 variety and
magnitude of these applications and potential applications is creating an
expanding demand for high power semiconductor diode lasers and, if lower prices
for high power semiconductor diode lasers can be achieved, it is anticipated
that new applications requiring lower priced high power semiconductor diode
lasers will create significant additional demand.
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STRATEGY
Our manufacturing strategy is to take advantage of the advances in high
power semiconductor diode laser manufacturing technology made possible through
our proprietary Molecular Beam Epitaxy process and through our acquisition of
rights relating to aluminum free high power semiconductor diode lasers. We
currently control all stages of high power semiconductor diode laser
manufacturing, including all aspects of wafer growth, processing and packaging
of our high power semiconductor diode laser products, at our own manufacturing
facility where we utilize the full benefit of our research and development
efforts to date.
We believe that we have established, within the high power semiconductor
diode laser marketplace, the credibility of our products (i.e. their comparable
quality to those of current high power semiconductor diode laser manufacturers).
Our marketing strategy is focused on finding potential customers to consider the
applicability of our products to existing and new uses. We participate in trade
shows and publicize our improvements in product literature.
We have an exclusive ten year license on the Desorption Mass Spectrometric
technology as it applies to laser technology, pursuant to our License Agreement
with the United States Air Force. The Air Force has received a patent with
respect to the Desorption Mass Spectrometric technology. The License Agreement
is not assignable, other than to our subsidiaries, without the prior written
approval of the Air Force. Under the License Agreement, we are obligated to pay
royalties of 0.5% on all gross sales (other than sales to or for the U.S.
Government) of each laser or laser related product that was produced utilizing
any method defined in the Air Force's patent. In addition to the royalty
payments, we are obligated to pay a minimum royalty of $20,000 beginning with
the fifth year of the License Agreement (March 30, 1999). We were required under
the License Agreement to satisfy the Air Force that we had taken effective steps
to exploit the licensed technology commercially. We have made improvements to
the technology and according to the License Agreement, these improvements are
our sole property. After 2004, unless extended, the License Agreement will
become nonexclusive. The Air Force has a royalty free right to employ the
Desorption Mass Spectrometric technology in non-commercial production of high
power semiconductor diode lasers for its own use. Initially, we used the Air
Force patent to develop products. More recently, our scientists have developed
an optical system to replace Desorption Mass Spectrometric, which is an
electrical system. Our system works similarly to Desorption Mass Spectrometric
to control the temperature of the substrate but we believe that our system is
simpler to use and easier to control. As a result, we do not rely on Desorption
Mass Spectrometric for any current products. We are current on administrative
payments to the Air Force to keep this license in good standing, but there are
no royalty payments due because we are not using the technology for products
sold. We believe that the License Agreement could become valuable to us in the
future, but that it is not critical at this time.
In September 1996, we entered into a license agreement with Northwestern
University granting us exclusive worldwide rights relating to aluminum free high
power semiconductor diode lasers under patent rights of Northwestern University.
Under the License Agreement with Northwestern University, an initial licensing
fee was paid along with a number of shares of Common Stock. An additional
issuance of Common Stock occurred in November 1997. The License
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Agreement with Northwestern University also provides for royalties on net sales
as well as a share of any payments received by us with respect to sub-license
fees. Certain obligations must be met by us in order to maintain the License
with Northwestern University, all of which we believe that we have fully
satisfied.
We believe that the patent rights and the License Agreement with
Northwestern University cover all production methods, including, but not limited
to Molecular Beam Epitaxy and Metal Organic Chemical Vapor Deposition. We
believe that attempts by others to develop equivalent aluminum free technology
could infringe on our exclusive rights. Enforcement of these rights will require
coordination by our company with Northwestern University. We believe that the
exclusive right granted under the License Agreement with Northwestern University
constitutes an as of yet undetermined competitive advantage. Coherent, Inc., a
competitor of ours, has advised us and Northwestern University that it believes
that the patent rights under the License Agreement with Northwestern University
do not cover the manufacture of aluminum free products other than by Metal
Organic Chemical Vapor Deposition. Alternatively, Coherent, Inc. claims that its
products do not infringe on the Northwestern University patents. We are
reviewing our options with respect to such infringements. At this time, no
litigation has been instituted by our company, Northwestern University or any
third party with respect to the scope of the patent rights under the License
Agreement with Northwestern University and no assurance can be given either as
to what enforcement action, if any, will be taken by Northwestern University and
our company or as to the outcome of any such action, if taken. Northwestern
University has indicated to us that it will not institute any litigation at this
time.
In March 1999, we converted our Molecular Beam Epitaxy machine so that it
may begin to produce aluminum free high power semiconductor diode lasers in
order to maximize our flexibility with more than one form of technology. We have
produced limited quantities of aluminum free high power semiconductor diode
lasers. We believe that the potential advantage over existing high power
semiconductor diode lasers is the ability of aluminum free high power
semiconductor diode lasers to generate greater power while evidencing longer
life and greater reliability.
We have submitted a plan for the further development and commercialization
of certain licensed products, including the transfer of technology and
"know-how" from Northwestern University. We have paid royalties due to
Northwestern University under the License Agreement and provided further
information concerning our satisfaction of the License Agreement with
Northwestern University milestones. As of March 2000, we have met all of the
requirements of the License Agreement with Northwestern University. We continue
to develop this technology and we expect to introduce new aluminum free products
as time goes on.
CURRENT AND FUTURE MARKETS
We have been selling our products to customers for use in a wide range of
applications. A purchaser of our products will typically incorporate the
products into a particular device or application developed by such purchaser.
Depending upon a customer's needs, the products purchased from us can either be
sold in an unpackaged processed form or in a packaged processed form. In
situations where packaged products are sold, they generally provide us with a
substantially higher profit margin.
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There are many industries which are currently engaged in product and design
programs for which specialized high power semiconductor diode lasers will be
essential. The development of one or more of these areas could greatly increase
the demand for our products. We may be required to expand our operations in
order to meet such potential demand and there can, however, be no assurance that
such increased demand for our products will occur or that we will be able to
sufficiently expand our operations to meet such increased demand. To date, we
are dependent on a few major customers.
We are currently engaged in a lawsuit with one of our customers, Rocky
Mountain Instruments. Rocky Mountain Instruments disputes the amounts owed to us
regarding certain orders, has made claims regarding defects in certain of the
units delivered and is currently late in making payments on such orders. We
believe that Rocky Mountain Instruments owes us approximately $468,571
(including a late charge). On November 2, 1999, we filed a Complaint and Jury
Demand against Rocky Mountain Instruments claiming, among other things, that
Rocky Mountain Instruments had breached its contract and failed to fulfill its
promises relating to Rocky Mountain Instruments' purchase of laser diodes from
our company. A trial date has not yet been established.
MANUFACTURING FACILITY
We are currently operating a single-wafer V-80H Desorption Mass
Spectrometric controlled Molecular Beam Epitaxy machine at our manufacturing
facility. Our manufacturing facility (15,000 square feet) includes all related
facilities and equipment necessary for production, such as a 4,500 square feet
class 1,000 clean room (i.e. one that is relatively free of particulate
contamination and electro static discharge) and tooling and testing equipment
for our production processing line.
On December 18, 1996 we entered into a sale leaseback agreement with the
Broome County IDA, in which we sold and leased back our manufacturing facilities
and equipment.
MANUFACTURING AND PRODUCTS
GENERAL
The manufacturing process for the growth of high power semiconductor diode
laser 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 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 high power semiconductor diode lasers.
GROWTH
The two principal growth methods which have been developed to manufacture
high power semiconductor diode lasers are Metal Organic Chemical Vapor
Deposition, the process that we believe is used by most of our competitors, and
Molecular Beam Epitaxy, the process which we are
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using. Metal Organic Chemical Vapor Deposition 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 Molecular Beam Epitaxy
process has historically had even lower useable wafer yields. However, by
monitoring and controlling the Molecular Beam Epitaxy production process with
our improved control technology, we have developed what we believe to be a
process capable of producing commercially acceptable or usable wafers (which
meet the quality standards of existing Metal Organic Chemical Vapor Deposition
produced high power semiconductor diode lasers).
PROCESSING
After the growth process is completed and the wafers have been tested (a
complicated process requiring dedicated testing equipment) 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
We currently offer numerous package configuration for high power laser
diodes, fitting the chips and bars for unique applications such as higher power
output and fiber optic coupling. Although bars and chips are sold unpackaged, we
offer an array of packaging options for various customer applications including
the award winning 7 watt HHL, LD, LS, LT, WLT, DS, C-mount TO-3, 9mm, 5.6mm and
several fiber coupled styles.
The final steps in the production process are the actual assembly and
packaging of the fully processed chips and bars into an Original Equipment
Manufacturer or end user ready format. Our packages include a range of products,
from single chip devices, such as the C-Mount, the 9 mm package and the 5.6 mm
package, to multiple chip devices up to 40 watts CW, such as the single-LD bar,
LT-bar, WT-bar, LS-bar and SLD-bar packages and the stacked array packages and
various fiber coupled lasers up to 120 watts CW and 120 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
whenever necessary. Each packaging configuration can be utilized for different
applications with the principal differences being the power of the laser diode
device or its wavelength and output beam configuration. The sizes of the typical
high power semiconductor diode laser products are merely a function of industry
convention. Thus, the one centimeter single-laser bar size could be easily
modified by our company or our competitors to a different size.
SUPPLIERS
Our products require, during each step of the manufacturing process, high
quality raw materials and components which we purchase from others. We believe
that numerous suppliers exist for all of the raw materials and components that
we will need and that such items are readily available on commercially
reasonable terms; however, our ability to continue to manufacture our products
will
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depend upon our ability to maintain commercial relationships with most of our
suppliers. In other cases we intend to purchase raw materials, sub-assemblies
and components pursuant to purchase orders in the ordinary course of business.
Our production is also dependent upon our suppliers satisfying our performance
and quality specifications and dedicating sufficient production capacity to meet
our scheduled delivery times. Recently, because of cash flow problems in the
past, we have experienced a shortage of supply for certain critical components.
We have worked out acceptable terms with most of our suppliers, but have been
placed on a cash only basis with many of them.
MARKETS AND MARKETING
Through their use with fiber-optics, diode lasers have materially improved
transmission speeds for the telecommunications industry. In the automotive
industry, these lasers are used in manufacturing for precision machining,
welding, stoplight and collision avoidance systems. 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. As laser performance is becoming more
reliable and uniform across these industries, manufacturers have turned to laser
products as alternatives to traditional technologies. In the optical storage
industry, diode lasers are used with CD, CD-ROM, Laserdisc, magneto-optic
drives, and, most recently, Digital Video Disc.
Lasers are continually being refined and advanced. One of the most
significant high power semiconductor diode laser developments has been with
respect to the power output of lasers. The maximum power outputs are now about
60 Watts and 120 Watts for CW and QCW bars, 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.
We have a purchase order with a customer in China for approximately
$4,000,000 for a single chip high power diode. Such customer has held up the
shipment of approximately $140,000 in products already manufactured by us and
delayed processing of the next production order pending resolution of a claim by
an agent in China claiming to have an exclusive sales agency relationship with
us and therefore to be entitled to a commission on the orders with this
customer. We believe that the claims of this agent are without merit and have
terminated our relationship with this agent. We are currently reviewing options
and may reverse our decision in the future. There can be no assurance that the
customer will be satisfied with the resolution of this claim or willing to
permit shipments and production to resume. As a result, revenues anticipated to
be received in the second and third quarters will be delayed and, if the dispute
as to this agent's rights cannot be resolved to the satisfaction of the
customer, we may not realize any additional revenues from this customer. Even if
the dispute is resolved, the realization of the full $4,000,000 amount of the
order is subject to our ability to satisfy the customer on quality and quantity
requirements. If the dispute is resolved, and we can satisfy the customer on
quality and quantity requirements, the order size may be increased.
TELECOMMUNICATIONS APPLICATIONS
We intend to seek to grow our business through expansion into
telecommunications products. We have the capability without substantial capital
expenditures or an expansion of staff to manufacture products with
telecommunications applications. If we are successful in raising
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additional capital of at least $4,000,000 it is anticipated that we will expend
up to $4,000,000 on capital expenditures to expand significantly the products
with telecommunications applications that we could manufacture. Therefore, with
additional capital we believe that the potential for revenues in
telecommunications is significantly increased. There can be no assurances that
additional financing or the ability to increase sales in telecommunications can
be obtained by us. The need to raise equity capital through current stock prices
is likely to result in substantial dilution to shareholders and could result in
a change of control.
We intend to dedicate a significant portion of the proceeds of our recent
private placements to the development of telecommunications products and to
enhancing our current products for telecommunications applications. If we are
successful in raising the additional financing discussed above, we expect to
spend approximately $3,235,000 on new equipment. A substantial portion of such
equipment would be financed. There can be no assurance that the additional
private placement financing can be completed or that equipment financing can be
obtained.
We are currently in discussions with several other telecommunication
companies concerning orders for new products. Although we are hopeful that we
will receive orders from one or more of these customers, there can be no
assurance that we will receive any orders from these companies or if we do
receive orders from one or more customers that we will be able to consistently
meet stringent telecommunication specifications. We expect to emphasize the
development of high power single mode 980nm pump lasers for use in double clad
fiber laser designs. We are also exploring other areas of telecommunications
that our products can be used for.
The telecommunication laser market consists of two major applications,
signal transmission (lasers in the 1300 to 1550 nm range) and signal
amplification (lasers operating at 980 and 1480 nm). The latter is used for
pumping erbium doped fiber amplifiers. According to industry data, pump lasers
accounted for approximately 18% of the telecom laser market in 1998.
Driven by the growth in Internet traffic, there is an ongoing expansion of
capacity in fiberoptic networks, including upgrades of existing systems and
construction of new systems. The principal technique for achieving this expanded
capacity is dense wavelength division multiplexing. The rapid growth in
deployment of dense wavelength division multiplexing systems has caused an
increasing demand for wavelength selected laser diodes in the 1530 to 1600 nm
wavelength band. Dense wavelength division multiplexing systems work by packing
as many individual wavelengths (signal carriers) as possible into a very narrow
band of wavelengths and transmitting them down a single optical fiber.
Consequently, each signal carrier must occupy as little frequency space as
possible. This is achieved by employing what are known as distributed feedback
laser diodes. Systems incorporating distributed feedback laser diodes on the
market today can pack as many as 80 signal carriers into a band between 1530 and
1565 nm.
The increase in the number of wavelengths being transmitted per fiber has
resulted in requirements for ever increasing pump power in the optical
amplifiers used to regenerate the signals as they propagate over very long
distances. New erbium doped fiber amplifier designs are requiring as many as
eight pumps sources per amplifier and the trend is to increase this number as
the number of signal carriers increase as well. Some new amplifier designs are
using both 980 and 1480 nm in
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the same system thus benefitting from the technical virtues of both. Yet another
technique for producing higher power at 980 nm that is gaining significant
acceptance in the industry is the double clad fiber amplifier. We expect to
emphasize the development of high power single mode 980nm pump lasers for use in
double clad fiber laser designs. This design utilizes a relatively low
brightness laser diode pump source at 980 nm to inject energy into a multi mode
waveguide surrounding a doped core. The core of this fiber is single mode so the
transmission signal propagates normally through it but gets amplified on its way
in much the same fashion as a conventional erbium doped fiber amplifiers. The
advantages to a double clad fiber amplifier system are more easily produced pump
sources, less stringent laser to fiber alignment tolerances both of which
contribute significantly to reduced cost and potentially higher pump power.
Overall, telecommunications laser revenue worldwide is estimated to have
grown to approximately $1.38 billion in 1999, an increase of more than 30% from
the prior years. We believe that the growth will continue, although there can be
no assurance of such continued growth. The highest growth rate is expected to be
in pump lasers according to industry data.
The market potential is one of the strengths of the laser industry. A
drawback is that it is highly competitive and may attract may attract more
competition to an industry that has historically had very low profit margins. In
addition, there is an industry requirement for research and development which in
turn requires capital resources.
The overall laser market is quite competitive. Our marketing approach is to
promote our line of high power semiconductor lasers to new and existing market
segments as well as creating new applications that were once impenetrable due to
the high cost of laser diodes. We believe that the credibility of our products
is being established as our 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. However, we are now starting
to see an increase in production unit orders based upon the acceptance of our
products by customers. Our other marketing activities include participating in
appropriate trade shows, publicizing advancements in scientific and trade
journals, developing international trade companies for representation and other
creative marketing techniques.
Our marketing program is designed to address some of the activities
described above with a strong focus on identifying potential customers in the
telecommunications area and increasing our visibility within this market
segment. The goal of the marketing program is to create demand, and obtain
orders, for our proposed products, which will then be produced by us.
RESEARCH AND DEVELOPMENT
Subject to the availability of capital, we have been engaged in research
and development activities since our inception. Due to the nature of our
business, research and development will continue. However, the number of these
programs has been decreased. We are at the present time focusing our efforts in
research and development in the areas of telecommunications, printing and
therapeutic medical and expect to spend approximately $600,000 in the year 2000
for this effort. We incurred research and development expenses of approximately
$651,000, $7,000 and $77,000 for the years ended December 31, 1997, 1998 and
1999, respectively. The decline in research and
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development expense since 1997 is attributable to our emphasis on manufacturing
and the absence of financing.
PRECISION LASER MACHINING CONSORTIUM
Precision Laser Machining Consortium consists of 20 major U.S. laser
companies, brought together by the Defense Advanced Research Project Agency's
dual-use technology program. Major objectives of the Precision Laser Machining
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. We became an associate
member of the Precision Laser Machining Consortium in April, 1996. Our major
function in the Precision Laser Machining 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
We have in the past engaged in research and development ventures with
Government Laboratories and academic research laboratories to provide us with
access to new technologies, product applications, quality control measures,
testing techniques and packaging techniques. Typically, each research laboratory
has specific interests and capabilities in areas of high power semiconductor
diode laser technology that are relevant to one or more functions of ours. 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 slow as we move more and more into
production.
INSURANCE
The products that we market are intended for use by commercial end users
and Original Equipment Manufacturers in their end products. Some of our products
may become critical components in telecommunications or medical and surgical
devices or in printing, or precision machining, illumination or the military.
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 our
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 our high power semiconductor diode
lasers in applications such as satellites or fiber cables or due to lost profits
for data transmission down time. We plan to reduce the risk of such losses
through warranty disclaimers and liability limitation clauses in our sales
agreements and by maintaining product liability insurance. Currently, we
maintain product liability insurance in the amount of $1,000,000 per occurrence
with a $2,000,000 aggregate limit, which we believe is adequate coverage for our
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 us could have a material adverse effect on
our company.
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INTELLECTUAL PROPERTY
We have five pending U.S. patent applications, two patent applications for
high power semiconductor diode lasers', a patent application for an optical
image rotating device, a diode laser array package patent application and a beam
splitter patent application. It is our intention to file patent applications for
all inventions which are not held as trade secrets, such as those routinely
employed in our manufacturing processes and products. We require each of our
employees to sign a Employee Invention and Non-Disclosure Agreement to protect
our trade secrets, as well as providing for assignment of the inventions.
We have an active portfolio of license patents from the United States Air
Force and Northwestern University. We have licensed U.S. Patent No. 5,543,170
entitled "Desorption Mass Spectrometric Control of Alloy Composition During
Molecular Beam Epitaxy" from the United States Air Force. We have 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. We have also licensed a pending patent
application from Northwestern University. We have a consulting relationship with
Professor Manijeh Razeghi of Northwestern University, who is the inventor of the
licensed patents from Northwestern University.
COMPETITION
Our market is highly competitive. We face 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 Original Equipment
Manufacturers who seek to create competitive advantages in individual markets
through function and price. These Original Equipment Manufacturers 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 our competitors have substantially greater financial, personnel,
technological, marketing, administrative and other resources than us. Among the
largest of our competitors are SDL, Inc., Siemens AG, Opto Power Corporation,
Thompson CSF and Coherent, Inc.
We believe that most of our current competitors utilize Metal Organic
Chemical Vapor Deposition production methods, with the lone exception of
Coherent, Inc. (which entered this market through strategic acquisitions), and
can be expected to vigorously assert the claim that this technology is superior
to that of our Molecular Beam Epitaxy technology and Northwestern University's
aluminum free technology. By entering the high power semiconductor diode laser
market, which is dominated by several large companies, and by using Molecular
Beam Epitaxy technology, we face intense competitive pressure and may be
unsuccessful even if our products and manufacturing process are superior to
those of our competitors. We expect that both direct and indirect competition
will increase in the future. Additional competition could adversely affect our
results of operations through price reductions and loss of customers.
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Potential new technologies may emerge to compete with our products. Both
our company and our competitors are working to develop new products and
improvements and modifications to existing products, which will render present
products obsolete. There can be no assurances that we will continue our
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. There can be no assurance that our
current or potential competitors or customers will not develop or acquire
products comparable or superior to those developed by our company, combine or
merge to form significant competitors, or adapt more quickly than us to new
technologies, evolving industry trends and changing customer requirements.
Increased competition has resulted and could, in the future, result in price
reductions, reduced margins or loss of market share, any of which could
materially and adversely affect our business and results of operations. There
can be no assurance that we will be able to compete successfully against current
and future competitors or that competitive pressures faced by us would not have
a material adverse effect on our business and results of operations. We expect
that both direct and indirect competition will increase in the future.
Additional competition could adversely affect our results of operations through
price reductions and loss of market share.
EMPLOYEES
As of May 31, 2000, we had 39 full-time employees, none of whom are
represented by a union. There are 26 employees in production and production
support, 2 employees in finance and 11 employees in corporate management, sales
and administration. We have never experienced a work stoppage.
GOVERNMENTAL REGULATIONS
We are 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 our
manufacturing processes. Further, we are subject to other safety, labeling and
training regulations as required by local, state and federal law. There can be
no assurance that changes in regulations and laws will not have an adverse
economic effect on our company. Further, such regulations could restrict our
ability to expand our operations. Any failure by us 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 us to substantial liability, require costly
changes in our manufacturing processes or facilities or cause our operations to
be suspended.
PROPERTY
Our principal executive offices and sole manufacturing facility are located
in approximately 15,000 square feet of space in Broome County, New York. We are
currently operating a single-wafer V-80H Desorption Mass Spectrometric
controlled Molecular Beam Epitaxy machine at our manufacturing facility. Our
manufacturing facility includes all related facilities and equipment
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necessary for production, such as a 4,500 square feet class 1,000 clean room
(i.e. one that is relatively free of particulate and electro static discharge
contamination) and tooling and testing equipment for our production processing
line.
On December 18, 1996, we entered into a sale leaseback agreement with the
Broome County IDA, in which we sold and leased back our manufacturing facilities
and equipment. We 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, we have 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 we 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 us. The Sale and Leaseback Agreement was not reflected on our books
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 Sale and Leaseback Agreement, we are 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%. We
have not yet received any property tax reductions and do not expect to in the
near future.
LEGAL PROCEEDINGS
We are currently engaged in litigation with a former employee, Dr. Keith
Evans, against whom we brought an action for breach of confidentiality
obligations and defamation of character. Dr. Evans has responded with a counter
claim alleging defamation of character and is seeking $500,000 in damages. The
litigation is presently in the discovery stage. We believe the counter claim is
without merit and is vigorously defending such action and further, believe that
the ultimate outcome of such action will not have a material impact on our
financial condition, results of operations or cash flows.
Since April 1998, we had been responding to informal requests for
information from the Securities and Exchange Commission. In August 1998, we
learned that in June 1998, the Securities and Exchange Commission had issued a
formal order of investigation to determine whether violations of certain aspects
of the federal securities laws had occurred in connection with our company.
Pursuant to this formal order of investigation, we and certain of our current
and former officers and directors have produced documents pursuant to subpoenas
from the Northeast Regional Office of the Securities and Exchange Commission. We
do not know whether or not this investigation remains active and are not able to
speculate as to the specific subject matter of the investigation. There can be
no assurance as to the timeliness of the completion of the investigation or as
to the final result thereof, and no assurance can be given that the final result
of the investigation will not have a material adverse effect on our company. We
have cooperated with the investigation and have responded to all requests for
information in connection with the investigation. No such requests for
information have been forthcoming since late 1998.
In August 1998, we learned that the United States Attorney's Office for the
Southern District of New York is investigating whether violations of securities
laws have occurred in connection with
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our public disclosures but have been informed that we are not presently a target
of the investigation. We have cooperated fully with the investigation and have
responded to a grand jury subpoena issued in connection with the investigation.
There can be no assurance as to the timeliness of the completion of the
investigation or as to the final result thereof, and no assurance can be given
that the final result of the investigation will not have a material adverse
effect on us or our current management. Management believes that there are
meritorious defenses to the issues raised by this investigation and intends to
defend this matter vigorously. We do not know whether or not this investigation
remains active and are unable to speculate as to the outcome or possible effect
of the investigation on us or our management. No requests for information have
been forthcoming since late 1998.
In November 1999, an action was filed against our company and several of
our present and former officers and directors in the United States Federal Court
for the District of Massachusetts entitled Geran v. Semiconductor Laser
International Corporation, Whale Securities Co., LP, Geoffrey T. Burnham, Allen
W. Johnson, Jr., Theodore W. Konopelski, Susan M. Burnham, George Barrett, David
L. Koffman, Brian Thompson, and Nicholas L. Prioletti, Jr., No. CA99-30-251-MAP.
The Complaint alleges violations by the defendants of Section 12(2) of the
Securities Act of 1933 arising out of alleged misrepresentations by defendants
as to us that allegedly induced plaintiff to purchase warrants to purchase our
common stock. The Complaint seeks damages of $27,782. We believe that we have
meritorious defenses to this action and intend to defend the action vigorously
and further, believe that the ultimate outcome of such action will not have a
material impact on our financial condition or results of operations.
We are currently engaged in litigation with Newport Corporation, a vendor
who is seeking to recover $100,508 for goods allegedly sold to our company.
Based on losses sustained by us as a result of previously supplied defective
equipment from this vendor, our counter claim exceeds the amount sued for by
Newport Corporation. We believe that the ultimate outcome of the action will not
have a material impact on our financial condition or results of operations.
We are currently engaged in litigation with IOS Capital Corporation, a
vendor who is seeking to recover $55,821 on the basis of an alleged default by
us in making our lease agreement installments for color copying equipment. We
believe that the vendor was incapable of providing a working product acceptable
to us and the equipment was returned to the vendor as a result. We believe that
the ultimate outcome of the action will not have a material impact on our
financial condition or results of operations.
We are currently engaged in a lawsuit with one of our customers, Rocky
Mountain Instruments. Rocky Mountain Instruments disputes the amounts owed to us
regarding certain orders, has made claims regarding defects in certain of the
units delivered and is currently late in making payments on such orders. We
believe that Rocky Mountain Instruments owes our company approximately $468,571
(including a late charge). On November 2, 1999, we filed a Complaint and Jury
Demand against Rocky Mountain Instruments claiming, among other things, that
Rocky Mountain Instruments had breached its contract and failed to fulfill its
promises relating to Rocky Mountain Instruments' purchase of laser diodes from
our company. A trial date has not yet been established.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, and their ages and positions, as
of May 31, 2000, are as follows:
Name Age Position
------------------------------- --- -----------------------------------------
Dr. Geoffrey T. Burnham...... 51 Chairman of the Board of Directors,
President and Chief Executive Officer
Susan M. Burnham............ 44 Vice President, Treasurer and Director
Leonard E. Lundberg......... 53 Chief Financial Officer
George W. Hippisley......... 59 Director
Dr. Vincent Tomaselli....... 59 Director
Dr. Geoffrey T. Burnham, a founder of our company, has also served as our
Chairman, President, and Chief Executive Officer, since our incorporation in
September 1993, and devoted his full-time efforts to our establishment
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., and served as its President and as a director
from October 1991 through May 1993. Dr. Burnham resigned from Northeast
Semiconductor , Inc. upon its acquisition in a hostile take-over. Approximately
five months after his resignation, Northeast Semiconductor , Inc. 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
from 1987 to 1989, General Optronics Corporation, a company involved in
manufacturing laser equipment for telecommunications applications from 1984 to
1986, and General Electric Co. from 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 Co.'s Consortium on Inertial Confinement Fusion.
Dr. Burnham also served as General Electric Co.'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 our
company since our incorporation in September 1993. From May 1993 to September
1993, Ms. Burnham assisted Dr. Burnham in the establishment of our 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
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accounts, as well as all new accounts. She established a customer base that
included several divisions of General Electric Co., IBM and Eastman Kodak
Company, initiating partnership agreements for all major customers. Ms. Burnham
was employed by General Electric Co. 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.
Leonard E. Lundberg has been Chief Financial Officer of our company since
November, 1998. From March 1998 through November 1998 Mr. Lundberg was employed
as Chief Financial Officer by Miller Aviation, Inc., a company engaged in
providing general aviation services. Miller Aviation, Inc. and Corporate Wings,
Inc. merged in October 1998 at which time Mr. Lundberg resigned. From January
1996 until February 1998 Mr. Lundberg was employed by Maines Paper & Food
Service, Inc., a company engaged in the food and paper warehousing and
distribution business, in the capacity of Vice President of Finance. Previously,
Mr. Lundberg held the position of Corporate Controller of Taylor Industries,
Inc. from 1988 until 1995. Taylor Industries is involved in the meat packing and
rendering industries. Mr. Lundberg's employment before 1988 has included various
corporate positions at ITT, Sperry Univac (Unisys) and RCA as well as
independent consulting to various industries.
George W. Hippisley was elected as a Director of our company in June 1999.
Mr. Hippisley is currently the owner of Cohasset Enterprises, a
sole-proprietorship founded in late 1997 to provide business development
consulting services to technology-intensive manufacturing firms and
not-for-profit organizations. Since August of 1998, Mr. Hippisley has been a
member of the Board of Directors, Secretary, and Executive Director of the
Photonics Industry Association of New York, Inc., a not-for-profit New York
corporation which has filed with the Internal Revenue Service for 501 (c)(6)
trade association status. Photonics Industry Association of New York, Inc.'s
mission is to promote the photonics, optics, and imaging industry of New York
State. Since 1991 he has served as Executive Director of the New York Photonics
Development Corporation, a 501 (c)(3) not-for-profit New York corporation,
responsible for developing and executing technology transfer and
commercialization programs to improve the competitiveness of small and mid-size
photonics manufacturing firms throughout New York State. From 1985 to 1990 Mr.
Hippisley was Chief Operating Officer for Eagle Comtronics, Inc., a privately-
held manufacturer of electronic filters and encryption systems for the CATV
industry.
Dr. Vincent P. Tomaselli was elected as a Director of our company in
September 1999. Dr. Tomaselli is Deputy Director for Business Development and
Operations for the Center for Advanced Technology at the City University of New
York. He has been associated with the Center for Advanced Technology since its
beginning in 1994. Concurrently, he also manages the Department of
Energy-sponsored Center for Laser Imaging and Cancer Diagnostics and the
NASA-sponsored Institutional Research Award program, both at City College of the
City University of New York. Dr. Tomaselli has been a member of the Board of
Directors of the Photonics Industry Association of New York since its inception
in 1998. From 1998 to 1990, he was Director of the Center for Photonics and
Imaging Science and Professor of Electrical Engineering and Physics at Fairleigh
Dickinson University. From 1984 to 1988, Dr. Tomaselli was Assistant Dean for
Research and Graduate Studies in the College of Science and Engineering at
Fairleigh Dickinson University. In 1988, he served as
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University Grants Administrator. From 1975 to 1984, Dr. Tomaselli was Professor
of Physics and Manager of the Physics Research Laboratory. During that time Dr.
Tomaselli's research interests were in far-infrared spectroscopy, optical
properties of particulate and biological materials, and instrument development.
From 1990 to 1994, Dr. Tomaselli was a senior project scientist at
Woodward-Clyde Consultants, a major consulting firm specializing in
environmental problems. Dr. Tomaselli headed the program involving health issues
related to low frequency electromagnetic fields, supervised and developed
analytical and quality control procedures for a large-scale data management
effort, served as computer services manager, and evaluated computer models. Dr.
Tomaselli has a Ph.D. in physics from New York University and a B.S. and M.S.
(Magna Cum Laude) in physics from Fairleigh Dickinson University. Dr. Tomaselli
was a member of the New Jersey Governor's Science Advisory Panel from 1981 to
1983, and was listed in Who's Who in Optical Science and Engineering in 1987,
Who's Who in Science and Technology in 1983, and American Men and Women of
Science in 1981.
All directors hold office until the next annual meeting of shareholders and
until their successors have been elected and duly qualified. Roger D. O'Brien,
who served as a director during fiscal 1999, advised us of his resignation as a
director of our company, effective as of February 29, 2000. There has been no
disagreement between us and Mr. O'Brien. Edwin B. Spievack, who served as a
director of our company from May 1999 until the beginning of September 1999,
advised us of his resignation as a director of our company effective as of
September 7, 1999. There has been no disagreement between us and Mr. Spievack.
We have agreed, for a period of five years following the effective date of
our initial public offering, if so requested, to nominate and use our best
efforts to elect a designee of Whale Securities Co., L.P., the Underwriter in
our initial public offering, to the Board of Directors or, at its option, as a
non-voting advisor to the Board of Directors. Whale Securities Co., L.P. has not
yet exercised its right to designate such person.
BOARD COMMITTEES
We have a Compensation Committee and Audit Committee. We do not have a
standing nominating committee.
COMPENSATION COMMITTEE
The function of the Compensation Committee is to make recommendations to
the Board of Directors with respect to compensation of executive officers. In
addition, the Compensation Committee administers our 1995 Stock Option Plan, as
amended, 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. Hippisley and Tomaselli are the current members of the
Compensation Committee.
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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 our independent auditors, review our financial statements
and review and evaluate our internal control functions. Messrs. Hippisley and
Tomaselli are the current members of the Audit Committee.
INDEMNIFICATION AND EXCULPATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware grants each
corporation organized thereunder the power to indemnify its officers, directors,
employees and agents on certain conditions against liabilities arising out of
any action or proceeding to which any of them is a party by reason of being such
officer, director, employee or agent. Our Bylaws and Certificate of
Incorporation also provide for the indemnification of such persons, to the
fullest extent permitted by the General Corporation Law of Delaware. Our
Certificate of Incorporation provides that, with certain exceptions, no director
our company will be liable to us 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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and other compensation paid by
our company to Dr. Geoffrey T. Burnham, the Chairman of the Board of Directors,
President and Chief Executive Officer of our company, during the fiscal years
ended December 31, 1999, 1998 and 1997. No other executive officer of our
company received aggregate compensation and bonuses which exceeded $100,000
during such years.
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation
Award
Securities
Year Ended Other Annual Underlying
Name and Principal Position December 31, Salary($) Bonus($) Compensation ($) Options
--------------------------- ------------ --------- -------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham, 1999 $133,000 -- -- 60,000(1)
Chairman, President and Chief 1998 $133,000 -- -- --
Executive Officer 1997 $127,395 -- -- --
</TABLE>
(1) There were 60,000 options to purchase common stock granted to Dr. Burnham
during the fiscal year ended December 31, 1999 at an exercise price of $0.5156
per share.
46
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following stock options were granted to Dr. Burnham during fiscal year
ended December 31, 1999:
<TABLE>
<CAPTION>
5% 10%
Potential Realized Value
at Assumed Annual Rates
Number of % of Total of Stock Price Appreciation
Name Securities Options Exercise Price Expiration Date for Option Terms(2)
---- ---------- ------- -------------- --------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Geoffrey T. Burnham 60,000 20% $0.5156 9/14/2003-05 $8,576 $19,038
</TABLE>
-----------
(1) We granted stock options representing 301,400 shares of our common stock to
employees during the fiscal year ended December 31, 1999.
(2) The potential realizable value illustrates value that might be realized
upon exercise of the options immediately prior to the expiration of their
terms, assuming the specified compounded rates of appreciation of the
market price per share from the date of grant to the end of the option
term. Actual gains, if any, on stock option exercises are dependent upon a
number of factors, including the future performance of our Common Stock and
the timing of option exercises, as well as the optionee's continued
employment through the vested period. There can be no assurance that the
amounts reflected in this table will be achieved.
AGGREGATED OPTION EXERCISE DURING FISCAL 1999 AND YEAR END OPTION VALUES
The following table sets forth information concerning outstanding
options to purchase common stock held by Dr. Burnham as of the fiscal year ended
December 31, 1999. Dr. Burnham did not exercise any options during the fiscal
year 1999.
<TABLE>
<CAPTION>
Value of
Unexercised
"In-the-Money"
Number of Securities Underlying Options at
Unexercised Option at Fiscal Fiscal Year End
Year-End (#) ($)
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham -- -- 39,404 60,000 9,729(1) --
</TABLE>
------------
(1) Based upon an estimated fair market value of $0.2969 per share of common
stock as of December 31, 1999, less the $0.050 exercise price of such
options.
47
<PAGE>
EMPLOYMENT AGREEMENTS
We 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 our 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 of Directors
and bonuses based upon meeting defined goals established by the Board of
Directors. No such bonuses have been awarded to date. All such bonuses and other
increases were required to be approved by Whale Securities Co., L.P. for a
period of three years following the effective date of our initial public
offering. These agreements also provide that we 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
us 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 of
Directors, and Ms. Burnham's agreement provides that she will serve as a
director on the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon incorporation of our 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 our company, for no consideration, in order for
our company to then reissue such shares to another individual in settlement of
all outstanding claims for services rendered by such individual on behalf of our
company prior to our company's incorporation.
In March 1995, Dr. Burnham purchased an aggregate of 4,925 shares of common
stock and warrants to purchase 4,925 shares of common stock for an aggregate
purchase price of $10,000.
Under the terms of a Securities Purchase Agreement, dated as of February 5,
1999, with bmp Mobility AG Venture Capital, as amended by Amendment No. 1 to the
Securities Purchase Agreement, dated as of April 28, 1999, bmp Mobility AG
Venture Capital purchased, in multiple tranches, 2,000,000 newly issued shares
of our common stock and 1,000,000 shares of our Series B Convertible Preferred
Stock each convertible into 5 shares of our common stock or an aggregate of
5,000,000 shares of our common stock. Based on public filings, we are aware that
bmp Mobility AG Venture Capital has transferred ownership of its shares of
common stock, Series B Convertible Preferred Stock and a warrant to purchase an
aggregate of 500,000 shares of common stock to ANB Alster Neue Beiteiligungs
GmbH & Co. KG. The Series B Convertible Preferred Stock and warrants contain
certain provisions relating to anti-dilution protection against private
placement issuances of securities below fair market value. We
48
<PAGE>
have had certain discussions with a representative of ANB Neue Beiteiligungs
GmbH & Co. KG concerning the applicability of these provisions to the private
placements consummated this year. We have contended that no such adjustment is
required and sought a waiver of such provisions from ANB Alster Neue
Beiteiligungs GmbH & Co. KG. To date no agreement has been reached. To the
extent that it is determined that such adjustment is required, the failure to
reach such agreement could result in an increase in the number of shares of our
common stock issuable upon exercise of the Series B Convertible Preferred Stock
and warrants and thereby result in potential dilution to the percentage
ownership of common stock offered hereby.
Any future transactions, if any, between our company and our officers,
directors and/or greater than 5% shareholders will be on terms no less favorable
to us than could be obtained from independent third parties and will be approved
by a majority of the independent, disinterested directors of the Board of
Directors of our company.
49
<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING SECURITY HOLDERS
The following table sets forth information as of May 31, 2000 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, (iv) each of the selling security holders in this offering, and (v) all
current executive officers and directors of our company as a group.
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIAL OWNERSHIP SHARES TO BE BENEFICIAL OWNERSHIP OF
OF COMMON STOCK SOLD IN COMMON STOCK
PRIOR TO OFFERING(1) OFFERING(2) AFTER OFFERING(3)
-------------------- ----------- -----------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Geoffrey T. Burnham 431,894(4) 1.5% -- 431,894 1.5%
Semiconductor Laser International Corp.
15 Link Drive
Binghamton, New York 13904
Susan M. Burnham 431,894(5) 1.5% -- 431,894 1.5%
Semiconductor Laser International Corp.
15 Link Drive
Binghamton, New York 13904
Leonard E. Lundberg -- -- -- -- --
Semiconductor Laser International Corp.
15 Link Drive
Binghamton, New York 13904
George W. Hippisley 8,666(6) * -- 8,666 *
1101 Floyd Avenue
Rome, New York 07840
Vincent Tomaselli -- -- -- -- --
30 West Broadway
New York, New York 10007
Rennes Fondation 19,666,666(7) 53.4% 16,000,000 3,666,666 12.7%
Aeulestrasse 38
FL - 9490 Kaduz
Germany
ANB Alster Neue Beteiligungs GmbH & Co. 7,872,650(8) 27.2% -- 7,872,650(8) 27.2%
Neuer Wall 20
20354 Hamburg
Germany
Strategic Management Corporation 2,800,000(9) 9.4% 2,800,000 -- --
282 Katona Avenue
Katona, New York 10536
Rowena Ahern 66,667 * 66,667 -- --
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIAL OWNERSHIP SHARES TO BE BENEFICIAL OWNERSHIP OF
OF COMMON STOCK SOLD IN COMMON STOCK
PRIOR TO OFFERING(1) OFFERING(2) AFTER OFFERING(3)
-------------------- ----------- -----------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Susen Ambrosch 130,000 * 130,000 -- --
Thomas Beyer 80,000 * 80,000 -- --
Michael Bolz 70,000 * 70,000 -- --
Niko Dimitrov 125,000 * 125,000 -- --
Jurgen Hahn 721,666 * 721,666 -- --
Jorg Hartmann 180,000 * 180,000 -- --
Christian Hostmann 93,333 * 93,333 -- --
Christoph Kleinfeld 126,000 * 126,000 -- --
Stephan Kraemer 70,000 * 70,000 -- --
Joachim Maus 66,667 * 66,667 -- --
Hermann Muller 90,056 * 90,056 -- --
Manfred M. Plenagl 66,667 * 66,667 -- --
Andreas Pothoff 66,667 * 66,667 -- --
Stefan Powels 70,000 * 70,000 -- --
Renate Simon 66,667 * 66,667 -- --
Carsten Sommerfeld 150,000 * 150,000 -- --
Herbert Sonntag 69,933 * 69,933 -- --
Wolf Dieter Stauss 69,933 * 69,933 -- --
Kevin Steele 213,333 * 213,333 -- --
Rolf Thinius 133,333 * 133,333 -- --
Chris Utermarck 133,333 * 133,333 -- --
JG Capital, Inc. 466,453(10) 1.6% 466,453 -- --
BSB Bank & Trust Company 550,000(11) 1.9% 550,000 -- --
All Directors and executive officers as a 872,454(12) 3.0% -- 872,454 3.0%
group (5 persons)............................
</TABLE>
-----------------
* Represents less than 1% of the shares of our common stock outstanding.
(1) Unless otherwise indicated, we believe 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
51
<PAGE>
owner of securities that can be acquired by such person within 60 days from
June 23, 2000 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 June 23, 2000 have been exercised or
converted.
(2) Assumes all shares are sold in this offering.
(3) Based on 28,478,263 shares of our common stock outstanding as of May 31,
2000.
(4) Includes 23,823 shares held in trust by Dr. Burnham as trustee, as to which
Dr. Burnham disclaims any beneficial interest; 4,925 shares issuable upon
exercise of a warrant, held in an IRA trust for the benefit of Dr. Burnham;
certain non-plan options to purchase 39,404 shares; and 165,405 shares
owned by Susan Burnham, the wife of Dr. Burnham, and 31,000 shares issuable
upon the exercise of options granted to Ms. Burnham pursuant to our 1995
Stock Option Plan, as amended, as to which Dr. Burnham disclaims any
beneficial interest.
(5) Includes 162,412 shares owned by Dr. Burnham; 23,823 shares held in trust
by Dr. Burnham as trustee; 4,925 shares issuable upon exercise of a
warrant, held in an IRA trust for the benefit of Dr. Burnham; and 39,404
shares issuable upon exercise of certain 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 the 1995 Stock
Option Plan options granted to Ms. Burnham.
(6) Consists of an option to purchase 8,666 shares of common stock under the
1995 Stock Option Plan.
(7) Consists of 11,333,333 shares of common stock and 8,333,333 shares of
common stock issuable upon exercise of warrants.
(8) Based solely on public filings, consists of 2,372,650 shares of common
stock and 500,000 shares of common stock issuable upon exercise of a
warrant and 5,000,000 shares of common stock convertible from 1,000,000
shares of preferred stock on a 5 to 1 conversion basis.
(9) Consists of 1,400,000 shares of common stock and 1,400,000 shares of common
stock issuable upon exercise of a warrant.
(10) Consists of 42,008 shares of our common stock and 424,445 shares of common
stock issuable upon exercise of warrants.
(11) Consists of 550,000 shares of common stock issuable upon exercise of
warrants.
(12) Includes an aggregate of 84,070 shares of common stock issuable upon the
exercise of options under the 1995 Stock Option Plan, certain non-plan
options and warrants, through April 1995 to investors in our December 1994
private placement, to purchase 4,925 shares of common stock purchased by
Dr. Burnham and warrants purchased in our initial public offering.
52
<PAGE>
PLAN OF DISTRIBUTION
The shares of common stock and shares of common stock issuable upon
exercise of warrants are being registered in order to facilitate their sale from
time to time by the selling security holders, or by pledgees, donees,
transferees or other successors in interest thereof, as market conditions permit
in one or more transactions. No underwriting arrangements have been entered into
by the selling security holders. In addition, since sales will be made in the
sole discretion of the selling security holders, we are unable to predict
whether or when any of the selling security holders will determine to proceed
with sales of the shares. The distribution of the shares of common stock and
shares of common stock issuable upon exercise of warrants by the selling
security holders and/or their pledgees, donees, transferees or other successors
in interest, may be effected in one or more transactions that may take place on
the Nasdaq OTC Bulletin Board, including ordinary brokers transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of the shares as principals, or a combination of such methods of sale, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The shares of common stock and
shares of common stock issuable upon exercise of warrants may be sold by one or
more of the following methods, without limitation: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the selling
stockholder may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from the selling
security holders in amounts to be negotiated immediately prior to the sale. The
selling security holders and such brokers and dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act, in connection with such sales.
We have agreed to pay the filing fees, costs and expenses associated with
the registration statement, including compliance with any state blue sky
requirements.
DESCRIPTION OF SECURITIES
GENERAL
Our company's authorized capital stock consists of 75,000,000 shares of
common stock and 5,000,000 shares of preferred stock. All of the issued and
outstanding shares of common stock and preferred stock are validly issued, fully
paid and nonassessable.
The following summary description of our securities is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our certificate of incorporation and restated bylaws.
53
<PAGE>
COMMON STOCK
As of May 31, 2000, there were 28,478,263 shares of common stock
outstanding held by approximately 2,430 stockholders of record. In addition, as
of May 31, 2000, there were outstanding stock options to purchase 515,629 shares
of common stock and outstanding warrants to purchase 12,473,271 shares of common
stock.
Holders of common stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders, including the election of
directors. There is no cumulative voting with respect to the election of
directors, with the result that the holders of more than 50% of the shares
voting for the election of directors can elect all of the directors. Holders of
common stock will be entitled to receive dividends when, as and if declared by
the Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of our company, the holders of common
stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities. The holders of shares of
common stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to our common stock.
PREFERRED STOCK
We may issue Preferred Stock, from time to time, in one or more series,
upon authorization of our Board of Directors. As of May 31, 2000, 1,000,000
shares of our Series B Convertible Preferred Stock were outstanding each
convertible into 5 shares of our common stock or an aggregate of 5,000,000
shares of common stock. We issued the outstanding shares of Series B Convertible
Preferred Stock to bmp Mobility AG Venture Capital. Based solely on public
filings, we are aware that bmp Mobility AG Venture Capital transferred ownership
of the Series B Convertible Preferred Stock to ANB Alster Neue Beiteiligungs
GmbH & Co. KG.
The Board of Directors, without further approval of the stockholders, will
be authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, and any other
rights, preferences, privileges and restrictions applicable to each series of
preferred stock. The holders of shares of preferred stock shall be entitled to
share, equally and ratably in any dividends declared by the Board of Directors
on our common stock, whether payable in cash, shares of common stock (or
fractions thereof) or property. Upon any liquidation, dissolution or winding up
of our company, whether voluntary or involuntary, the holders of the shares of
preferred stock shall be entitled to receive and to be paid out of the assets of
our company available for distribution to our stockholders, before any
distribution or payment is made upon any junior securities. Each share of
preferred stock shall be convertible at any time, at the option of the holder of
record thereof, subject to certain limitations, into fully paid and
nonassessable shares of common stock at the conversion rate then effect. The
convertible feature of our Series B Convertible Preferred Stock into common
stock is not exercisable by bmp Mobility AG Venture Capital or any affiliate of
bmp Mobility AG Venture Capital. The preferred stock has certain anti-dilution
rights for issuances of common stock or common stock equivalents by our company
for a consideration per share less than the fair market value then in effect.
Holders of preferred stock are entitled to notice of all meetings of our
company's stockholders but are not be entitled to vote except in respect of such
matters as to which they are entitled to vote as a class
54
<PAGE>
under the Delaware General Corporation Law and except in respect to amending,
altering or repealing any provision of the certificate of designations of the
preferred stock.
The issuance of preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could, among other
things, adversely affect the voting power of the holders of the common stock
and, under certain circumstances, make it more difficult for a third party to
gain control of our company, discourage bids for the common stock at a premium
or otherwise adversely affect the market price of the common stock.
WARRANTS
We have issued an aggregate of 10,167,778 warrants in a series of private
placements consummated between December 31, 1999 and the end of March 2000. The
exercise price of the warrants range between $0.75 and $1.0625 per share. The
warrants may be exercised from time to time over a term of either 4 or 5 years.
9,713,334 warrants have anti-dilution rights and are redeemable by our company,
upon thirty days prior written notice, at a price of $0.01 per share of common
stock issuable upon exercise of the warrant, if, but only if: (i) the market
price of our common stock shall have exceeded $0.90 per share on each of the
twenty (20) trading days for which quotes appear on our common stock ending on
the business day prior to the date on which the notice of redemption shall be
mailed to the holders of the warrants, (ii) this prospectus shall be effective,
and (iii) our common stock shall be trading on the OTC Bulletin Board Service,
the NASDAQ National Market, the NASDAQ Small Cap Market or a national securities
exchange.
We have available a collateralized line of credit with BSB Bank & Trust
Company, subject to a borrowing base calculation, with an aggregate availability
in the amount of $1,000,000 for purposes of providing working capital. In
connection with the line of credit, we issued to BSB Bank & Trust Company
warrants to purchase an aggregate of 500,000 shares of our common stock at an
exercise price of $0.575 per share. The warrants expire on February 16, 2004 and
contain certain registration rights. In May 2000, we agreed with BSB Bank &
Trust Company to pay down approximately $210,000 of the collateralized line of
credit, representing the amount in excess of the borrowing base. Such excess
amount had been cash collateralized. In connection with such agreement, the line
of credit has been extended to March 31, 2001. In addition, we agreed to issue
BSB Bank & Trust Company warrants to purchase 50,000 shares of our common stock
at an exercise price of $1.00.
MARKET INFORMATION
Our common stock is traded on the Nasdaq OTC Bulletin Board under the
symbol "SLIC.OB." The following table sets forth, for the periods indicated and
as reported by the Nasdaq OTC Bulletin Board, the high and low sales prices for
shares of our common stock.
Quarter Ended High Low
---------------------- --------------- --------------
March 31, 1998 1 17/32 1 7/16
June 30, 1998 1 1/2 1 1/4
55
<PAGE>
September 30, 1998 31/32 15/16
December 31, 1998 7/16 3/8
March 31, 1999 13/32 11/32
June 30, 1999 15/32 13/32
September 30, 1999 13/32 11/32
December 31, 1999 11/32 19/64
March 31, 2000 5 3/16 7/32
TRANSFER AGENT
The transfer agent and registrar of our common stock is American Stock
Transfer & Trust Company, New York, New York.
56
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock and shares of common stock
issuable upon exercise of warrants offered hereby will be reviewed by Swidler
Berlin Shereff Friedman, LLP, New York, New York.
EXPERTS
The financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report (which contains and
explanatory paragraph relating to our company's ability to continue as a going
concern as described in Note 2 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants given upon the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION MADE AVAILABLE TO YOU
This prospectus is part of a Registration Statement on Form S-1 that we are
filing with the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith file reports and other
information with the Securities and Exchange Commission.
You may inspect and copy reports, proxy statements and other information
that we have filed with the Securities and Exchange Commission, including the
registration statement, at the following Securities and Exchange Commission
public reference facilities maintained by the Securities and Exchange
Commission:
450 Fifth Street, N.W. Northwest Atrium Center 7 World Trade Center
Room 1024 500 West Madison Street Suite 1300
Washington, D.C. 20549 Suite 1400 New York, New York 10048
Chicago, Illinois 60661
You may call the Securities and Exchange Commission at 1-800-732-0330 for
further information about the public reference facilities.
We are also an electronic filer with the Securities and Exchange
Commission, which may be accessed through the Securities and Exchange
Commission's Web site at http://www.sec.gov. Our securities are listed on the
Nasdaq OTC Bulletin Board.
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction in which it is unlawful. The information
in this prospectus is current as of the date on the cover.
57
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants......................................................F-1
Financial Statements:
Balance Sheets as of December 31, 1998 and 1999........................................F-2
Statement of Operations for the Years Ended December 31, 1997, 1998 and 1999...........F-3
Statement of Changes in Shareholders Equity for the Years
Ended December 31, 1996, 1997, 1998 and 1999...........................................F-4
Statement of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999...........F-5
Notes to Financial Statements For the Year Ended December 31, 1999............................F-6
Balance Sheets as of December 31, 1999 and March 31, 2000 (unaudited).................F-21
Statement of Operations for the Three Months Ended March 31, 1999
and March 31, 2000 (unaudited)......................................................F-22
Statement of Cash Flows for the Three Months Ended March 31, 1999
and March 31, 2000 (unaudited)......................................................F-23
Notes to Financial Statement For the Quarter Ended March 31, 2000............................F-24
</TABLE>
<PAGE>
REPORT OF INDEPENDENT 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, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in the
United States 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred net losses since inception
(September 21, 1993) and at December 31, 1999 and has a significant accumulated
deficit that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Syracuse, NY
February 18, 2000, except as to Note 9
which is dated March 27, 2000
F-1
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash and equivalents ............................. $ 112,695 $ 347,747
Accounts Receivable, net of allowance for doubtful
accounts of $560,645 and $583,293, respectively .. 296,193 295,561
Inventory ........................................ 333,806 861,911
Prepaid expenses and other assets ................ 180,853 24,957
------------ ------------
Total current assets ........................ 923,547 1,530,176
Property, plant and equipment, net ................... 2,691,926 2,584,974
Deposits and other assets ............................ 123,957 149,396
------------
Total assets ................................ $ 3,739,430 $ 4,264,546
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable ................................. $ 1,127,589 $ 708,193
Notes Payable (Line of Credit) ................... 550,000 1,000,000
Accrued expenses and other liabilities ........... 164,235 174,809
Current portion of long-term debt ................ 37,170 44,368
------------ ------------
Total current liabilities ................... 1,878,994 1,927,320
Long-term debt ....................................... 765,687 713,668
Accrued royalty payments ............................. 100,000 100,000
------------ ------------
Total liabilities ........................... 2,744,681 2,741,038
------------ ------------
Commitment and contingencies (Note 10)
Shareholders' Equity
Common stock, $.01 par value, 75,000,000 shares
authorized, 15,641,064 issued and outstanding at
December 31, 1999; 28,474,3897 issued and
outstanding at March 31, 2000 ........................ 100,396 156,411
Subscriptions Receivable ............................. -- (100,000)
Common stock issuable ................................ 41,073
Treasury stock ....................................... (248,241) (248,241)
Convertible Preferred Stock .......................... -- 10,000
Additional paid-in capital ........................... 18,061,560 22,034,365
Accumulated deficit .................................. (16,960,039) (20,329,027)
------------ ------------
Total shareholders' equity .................. 994,749 1,523,508
------------ ------------
Total Liabilities and Shareholders' Equity .. $ 3,739,430 $ 4,262,546
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1998 December 31, 1999
<S> <C> <C> <C>
Net Sales ......................... $ 478,924 $ 2,197,736 $ 1,524,514
Cost of sales ..................... (1,482,579) (3,093,343) (1,871,216)
------------ ------------ ------------
Gross margin ............. (1,003,655) (895,607) (346,702)
Operating expenses:
Research and development expenses . $ 651,242 $ 7,273 $ 76,703
Sales and marketing expenses ...... 368,513 395,339 329,927
General and administrative expenses 4,082,360 2,882,320 2,651,139
------------ ------------ ------------
Loss from operations ..... (6,105,770) (4,180,539) (3,404,471)
Interest income ................... 105,959 42,677 35,482
Net loss ................. (5,999,811) (4,137,862) (3,368,989)
============ ============ ============
Less: Beneficial conversion feature (1,688,000) -- --
Net loss applicable to common stock $ (7,687,811) $ (4,137,862) $ (3,368,989)
============ ============ ============
Net per share-basic and diluted ... ($2.15) ($0.44) ($0.26)
============ ============ ============
Weighted average shares outstanding $ 3,572,458 $ 9,320,785 $ 13,078,597
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
[PG NUMBER]
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Preferred Common Common Stock Treasury Additional Paid- Subscriptions Accumulated Shareholders'
Stock Stock Issuable Stock In Capital Receivable Deficit Equity
----- ----- -------- ----- ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996
(3,409,607 shares 34,096 1,123,438 (248,241) 10,081,464 (5,134,366) 5,856,391
issued and
outstanding
Issuance of common
stock issuable,
January 1997 1,212 (1,072,188) 1,070,976 0
(121,231 shares)
Issuance of common
stock, option
exercise, May 1997 99 394 493
(9,851 shares)
Issuance of common
stock, option
exercise July 1997 296 1,182 1,478
(29,553 shares)
Issuance of Series
A 8% Convertible
Preferred Stock, 20000 2,817,480 2,837,480
October 1997
(2,000,000 shares)
Beneficial
conversion feature
associated with
Series A 8% 1,688,000 (1,688,000) 0
Convertible
Preferred Stock,
October 1997
Warrants issued
for services
rendered, October 1,198,789 1,198,789
1997 (770,000
warrants)
Issuance of common
stock issuable,
November 1997 100 (51,250) 51,150 0
(10,000 shares)
Issuance of common
stock for services
rendered November 15 2,571 2,586
1997 (1,500 shares)
F-4
<PAGE>
Issuance of common
stock associated
with sale of
Series A 8%
Convertible 400 137,120 137,520
Preferred Stock,
November 1997
(40,000 shares)
Issuance of common
stock for services
rendered December 550 78,540 79,090
1997 (55,000
shares)
Issuance of common
stock associated
with the
conversion of
Series A 8% (20,000) 47,128 (92,441) (65,313)
Convertible
Preferred Stock,
December 1997
(4,712,810 shares)
Net loss for the
year ended (5,999,810) (5,999,810)
December 31, 1997
Balance at
December 31, 1997
(8,389,552 shares 0 83,896 0 (248,241) 17,035,225 0 (12,822,176) 4,048,704
issued and
outstanding)
Issuance of common
stock, private
placement 16,500 1,025,460 1,041,960
(1,650,000 shares)
Common stock
issuable for
services rendered, 41,073 41,073
December 1998
(111,280 shares)
Net loss for the
year ended (4,137,862) (4,137,862)
December 31, 1998
Balance at
December 31, 1998
(10,039,552 shares $0 $100,396 $41,073 $(248,241) $18,060,685 $0 $(16,960,038) $993,875
issued and
outstanding)
Issuance of common
stock, private
placement February 20,000 687,964 707,964
1999 (2,000,000
shares)
Issuance of common
stock issuable,
February 1999 1,113 (41,073) 39,960 0
(111,280 shares)
<PAGE>
Issuance of
warrants for
extension of line
of credit, 31,500 31,500
February 1999
(500,000 warrants)
Issuance of common
stock, for
services rendered 238 8,712 8,950
May 1999 (22,867
shares)
Issuance of Series
B Convertible
Preferred Stock, 10,000 1,989,988 1,999,988
May 1999
(1,000,000 shares)
Issuance of common
stock, private
placement Aug. 29,793 1,048,987 1,078,780
1999 (2,979,256
shares)
Issuance of common
stock for services
rendered, December 400 14,600 15,000
1999 (40,000
shares)
Common stock
subscribed
(447,109 shares) 4,471 140,392 (100,000) 44,863
December 1999
Record Re-Issuance
of Stock Options, 11,577 11,577
November 1999
Net loss for the
year ended (3,368,989)
December 31, 1999
Balance at
December 31, 1999
(15,641,064 shares
issued and $10,000 $156,411 -- $(248,241) $22,034,365 $(100,000) $(20,329,027) $1,523,508
======= ======== ========== ========= =========== ========= ============ ==========
outstanding and
subscribed)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows form operating activities:
Net loss .................................................. $(5,999,811) $(4,137,862) $(3,368,989)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization ............................. 126,344 205,066 220,126
Expenses settled through the issuance of Common Shares,
options and warrants ...................................... 1,282,379 41,073 48,673
Change in assets and liabilities:
(Increase)/decrease in accounts receivable ....... (140,023) (95,123) 632
(Increase)/decrease in inventory ................. (132,885) (194,605) (528,105)
(Increase)/decrease in prepaid expenses and
other assets ........................................ (70,717) (110,136) 184,760
(Increase)/decrease in deposits and other assets . 64,608 467,363 (54,303)
Increase/(decrease) in accounts payable .......... (629,825) 615,142 (419,396)
Increase/(decrease) in accrued expenses and
other liabilities ................................... 69,346 2,690 10,574
Net cash used in operating activities ..................... (5,430,584) (3,206,392) (3,906,028)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of plant, property and equipment ................. (2,463,450) (176,502) (113,174)
Sale of equipment, pursuant to sale and leaseback agreement 2,676,856 -- --
Net cash provided by (used for) investing activities ...... 213,406 (176,502) (113,174)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of stock, net of expenses ........................ 2,886,781 1,041,960 3,849,949
Issuance of warrants ...................................... -- -- --
Proceeds from short-term debt ............................. -- 556,000 450,000
Payments on long-term debt ................................ (32,503) (31,820) (44,820)
----------- ----------- -----------
Proceeds from issuance of stock, net of expenses .......... 2,886,781 1,092,835 --
Proceeds from short-term debt ............................. -- 550,000 --
Net cash provided by financing activities ................. 2,885,584 1,561,015 4,255,129
----------- ----------- -----------
Net decrease/increase in cash, cash equivalents and
restricted cash ........................................... (2,331,594) (1,821,879) 235,927
Cash, cash equivalents and restricted cash at beginning
of period ................................................. 4,266,168 1,934,574 111,820
----------- ----------- -----------
Cash, cash equivalents and restricted cash at end
of period ................................................. $ 1,934,574 $ 112,695 $ 347,747
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Semiconductor Laser International Corporation
Notes to Financial Statements
December 31, 1999
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.
2. Financial Resources and Liquidity
The Company has incurred net losses from inception (September 21, 1993) and
has at December 31, 1999 an accumulated deficit of $20,329,027 and a working
capital deficit of $397,194. Such losses have resulted primarily from the
Company's activities as a development stage enterprise, until April 1997, and
have been financed primarily from proceeds from the Company's initial public
offering and private equity financings (see Notes 8 and 9). While the Company is
in receipt of approximately $5.7 million, subsequent to December 31, 1999 (See
Note 9), certain of the monies will be utilized to pay payables in arrears,
prospectively however, the Company needs to demonstrate an ability to increase
its sales, generate positive gross margins and net income. Based upon the fiscal
2000 budget, 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 financings. There
can be no assurance that such additional financing can be consummated.
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less, at the date of purchase, to be cash
equivalents.
F-6
<PAGE>
Inventory
Inventory is valued at the lower of cost or market on a 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. 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.
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. In the event such cash flows are not to be sufficient to recover the
recorded value of the assets, the assets are written down to their estimated
fair values.
Revenue Recognition
Revenue recognition is based on the terms of the underlying sales
agreements (purchase orders or contracts), typically when products are shipped
to customers.
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 approximately $651,000, $7,000 and $76,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
Income taxes
The Company provides for income taxes in accordance with the liability
method as set forth in Financial Accounting Standards No. 109, "Accounting for
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.
F-7
<PAGE>
Net loss per share
Net loss per share, basic and diluted, is computed using the weighted
average number of common shares outstanding.
As of December 31, 1999, the Company had outstanding warrants and options
to purchase 4,203,493 and 552,304 shares of common stock, respectively, which
are not included in the calculation of diluted earnings per share for the twelve
months ended December 31, 1999, due to the anti-dilutive nature of these
instruments.
4. Inventories
Prior to July 1, 1999, the Company manufactured its product on a job basis,
however subsequent to July 1, 1999 the Company began building finished goods and
certain semi-assembled products for anticipated sales, thus representing an
increase in raw material and work-in-process at December 31, 1999. Inventory is
comprised of the following as of December 31:
1998 1999
---- ----
Raw Material and Supplies $ 333,806 $ 778,751
Work in Progress -- 83,160
---------- ----------
Total $ 333,806 $ 861,911
========== ==========
5. Plant, Property and Equipment
Plant, property and equipment consists of the following:
DECEMBER 31, DECEMBER 31,
1998 1999
----------- -----------
Land $ 175,459 $ 175,459
Building 2,099,861 2,099,861
Machinery and equipment 587,097 699,798
Furniture and fixtures 159,358 159,358
Automobiles 76,124 76,124
3,097,899 3,210,600
Less: accumulated depreciation (405,973) (625,626)
$ 2,691,926 $ 2,584,974
=========== ===========
Depreciation expense for the years ended December 31, 1997, 1998 and 1999,
was approximately $125,000, $204,000 and $218,000, respectively.
During 1997, the Company sold and leased back approximately $2,677,000 of
machinery, equipment, furniture and fixtures. No gain or loss was realized on
the sale and leaseback transactions.
F-8
<PAGE>
6. Debt
Long-term debt consists of the following:
DECEMBER 31,
1998 1999
---- ----
Bank term loan, principal and interest at
10% payable monthly through January 2002 $ 31,974 $ 20,600
Bank term loan, principal and interest at
10% (adjusted after December 2001) payable
monthly through December 2006 770,882 737,436
-------- --------
802,856 758,036
Less current portion (37,170) (44,368)
$765,686 $713,668
======== ========
Both loans are collateralized 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, 1999, the Company was not in compliance with the
covenants of the 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
for the period ending December 31, 1999.
Aggregate annual scheduled principal payments, assuming the bank does not
call its debts, applicable to long-term debt are as follows:
2000 $ 44,368
2001 42,918
2002 39,085
2003 43,237
2004 thereafter 588,428
---------
$ 758,036
=========
The Company has available a collateralized line of credit, subject to a
borrowing base calculation, with an aggregate availability in the amount of
$1,000,000 for purposes of providing working capital. The line, which matures on
May 31, 2000, bears interest at prime plus 2.5% (prime being 8.75% at December
31, 1999). The Company has utilized $1,000,000 of this line of credit at
December 31, 1999. The Company was not in compliance with the financial
covenants at December 31, 1999, however, has obtained a waiver from default
under the Loan Agreement with respect to Affirmative Covenants-"Financial
Covenants and Ratios" and Events of Default - "Change of Control" for the period
ending December 31, 1999. There can be no assurance that any additional
extension of this waiver can be negotiated.
7. Income taxes
F-9
<PAGE>
There was no provision for income taxes for the years ended December 31,
1997, 1998 and 1999.
Deferred income tax assets (liabilities) consisted of the following:
DECEMBER 31,
1998 1999
----------- -----------
Depreciation and amortization $ (143,546) $ (154,007)
Accruals 39,000 39,000
Compensatory Stock Options 56,668 22,012
Bad Debt Expense 199,226 208,058
Net operating loss carryforwards 5,295,520 7,929,948
----------- -----------
5,446,868 8,045,011
$(5,446,868) $(8,045,011)
$ -- $ --
=========== ===========
Net operating loss carry forwards of approximately $20,500,000 expire in
the years 2008 to 2013. 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. 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, 1998 and 1999.
8. Common Stock
Options
The following summarizes stock option activity:
<TABLE>
<CAPTION>
Number of
Shares Exercise Price per Share Expiration Date
<S> <C> <C> <C>
Outstanding at December 31, 1996 189,159 $0.05-$9.25
March 2000-December
Granted 113,550 $8.19-$0.6875 2001
Options exercised (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
F-10
<PAGE>
April 2002-
Granted-Employees 24,000 $0.656-0.938 November 2005
Granted-Directors 5,000 $1.50 March 2008
Options forfeited (16,850) $0.6875
-------------
Outstanding at December 31, 1998 148,455 $0.656-$1.50
March 2003-
Granted-Employees 301,400 $0.05-0.5156 September 2005
Granted-Directors 134,000 $0.3438-0.5156 September 2009-2001
Options forfeited (31,551) $0.05-1.50
-------------
Outstanding at December 31, 1999 552,304
=============
</TABLE>
102,755, 122,455 and 99,904 options were exercisable at December 31, 1997, 1998
and 1999, respectively, at a weighted average exercise price of $.38, $0.90 and
$0.44, respectively.
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.
On August 17, 1998 at the Annual Meeting, the Company's stockholders voted to
approve the amendments to the Company's Stock Option Plan increasing the total
number of shares of the Company's common stock available for options to be
granted from 250,000 shares to 1,000,000 shares and permit the Board to grant
additional options to non-employee directors. 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.
As permitted by Statement of Financial Accounting Standards ("SFAS") No.
123 "Accounting for Stock-Based Compensation", 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 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 $27,000 (or $0.01 per share) in 1997, $14,000 (or
$0.02 per share) in 1998 and $26,581(or $0.001 per share) in 1999. The weighted
average fair value of the options granted in 1997, 1998 and 1999 was estimated
at $0.31, $0.70 and $0.505 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:
1997 1998 1999
---- ---- ----
Dividend Yield 0.00% 0.00% 0.00%
Volatility 63.13% 65.78% 152.11%
Risk Free Interest Rate 5.68% 4.84% 5.81%
Expected Life 2.9 years 4.9 years 4.0 years
F-11
<PAGE>
Warrants
On January 3, 1997, the Company issued 58,384 warrants in connection with
an operating lease agreement (see Note 10). The warrants could not be exercised
prior to February 1998 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 a prepaid lease in the amount of $167,710 and is being
amortized over the term of the lease.
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
Warrants Issued and Outstanding at December 31, 1999
Issued Number Price
------ ------ -----
March 1996 1,693,000 $5.00
July 1996 255,000 $5.00
January 1997 58,384 $5.00
October 1997 750,000 Various
February 1999 500,000 $0.575
February 1999 500,000 $0.500
December 1999 447,109 $0.450
----------
Balance at December 31, 1999 4,203,493
==========
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
F-12
<PAGE>
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 for the year ended December 31, 1998.
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.
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, as defined.
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. 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
F-13
<PAGE>
$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.
June 1998 Private Placement
On June 8, 1998, the Company completed a private placement (the "Private
Placement") of 1,650,000 shares of its Common Stock, at an aggregate purchase
price of $1,237,500. The shares of Common Stock were issued and sold by the
Company without registration under the Securities Act in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities Act and
Section 506 of Regulation D promulgated under the Securities Act in that they
were sold solely to "accredited investors" as defined in Rule 501 (a) of the
Securities Act. The placement agent for the shares, Empire Consulting Company,
LTD,(the "Placement Agent") was paid $194,665 for commissions and expenses.
After deducting the Placement Agent's commissions and expenses of $194,665 in
the aggregate, the net proceeds of the Private Placement to the Company were
approximately $1,042,000. In connection with the Private Placement the Company
has agreed with the Placement Agent that it would enter into an agreement with a
financial public relations firm to be selected by the Placement Agent pursuant
to which the Company would receive a range of services including the
establishment of contact with a number of brokers, the preparation of certain
reports and the arrangement of broker teleconferences. In consideration of the
services to be provided, the Company has paid to the Placement Agent the sum of
$49,125.
The Company has registered the shares of Common Stock issued in the Private
Placement on a Registration Statement on Form S-3/A which was declared effective
by the Securities and Exchange Commission on December 30, 1998.
F-14
<PAGE>
bmp Transaction
The Company entered into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated as of February 5, 1999, with bmp Mobility AG Venture
Capital ("bmp"), as amended by Amendment No. 1 to Securities Purchase Agreement
(the "Amendment"), dated as of April 28, 1999 (the Securities Purchase
Agreement, as amended by the Amendment is hereinafter referred to as the
"Amended Purchase Agreement"). Pursuant to the terms of the Amended Purchase
Agreement, bmp purchased, in multiple tranches, 2,000,000 newly issued shares of
the Company's Common Stock at a purchase price of $0.375 per share for an
aggregate purchase price of $750,000, and 1,000,000 shares of the Company's
Series B Convertible Preferred Stock (the "Series B Stock"), $.01 par value per
share, each convertible into 5 shares of the Company's Common Stock or an
aggregate of 5,000,000 shares of the Company's Common Stock, at a purchase price
of $2.00 per share, or $0.40 per share of Common Stock into which the Series B
Stock is convertible. bmp had previously purchased 367,650 shares of the
Company's Common Stock in unrelated open market transactions. The shares of
Common Stock issued to bmp contain certain demand and piggyback registration
rights and the Series B Stock contains certain anti-dilution rights.
In connection with the Amendment, the Company entered into a consulting
agreement (the "Consulting Agreement"), dated as of April 28, 1999, between the
Company and bmp Management Consultants GmbH ("bmp Consultants"), a German
limited liability corporation wholly owned by bmp AG Venture Capital & Network
Management, the parent company of bmp, providing for the retention of bmp
Consultants as strategic and financial consultants to the Company, for the
$200,000 aggregate consulting fee. As of March 21, 2000, bmp Consultants had
been paid $80,887.
In connection with the Amendment, on June 26, 1999, the Company issued to
bmp a five year warrant to purchase an aggregate of 500,000 shares of Common
Stock, at an exercise price of $0.50 per share (the "bmp Warrant"). The shares
issuable upon exercise of the bmp warrant contain certain demand and piggyback
registration rights. In addition, bmp is eligible to receive a finder's fee in
the amount of 5% of the net proceeds of any transaction involving the raising of
debt or equity capital in a private placement from a source introduced to the
Company by bmp consummated by the Company until June 26, 2001.
Based solely on public filings, the Company is aware that bmp has
transferred ownership of its shares of Common Stock, Series B Stock and the bmp
Warrant to ANB Alster Neue Beiteiligungs GmbH & Co. KG ("ANB"). In conjunction
with the Securities Purchase Agreement, on February 16, 1999, the Company issued
to BSB Bank & Trust Company, warrants to purchase an aggregate of 500,000 shares
of the Company's common stock at an exercise price of $0.575 per share. The
warrants expire on February 16, 2004, and contain certain registration rights.
The value of the warrants has been reflected as deferred financing costs in the
Company's financial statements and will be amortized over the period commencing
from date of issue to May 31, 2000.
On March 14, 2000, the Company entered into a Waiver and Lock-up Agreement
with BSB, pursuant to which BSB waived any rights to adjustment that it may have
under the BSB Warrant. In addition, BSB agreed not to transfer the shares of
Common Stock issuable to BSB upon conversion of the BSB Warrant until March 20,
2001 without the prior written consent of the
F-15
<PAGE>
Company. The Company is in the process of negotiating a Consent, Waiver and
Lock-Up Agreement with ANB, pursuant to which ANB would waive any rights to
adjustment that it may have under the Securities Purchase Agreement and the bmp
Warrant and agree to lock-up a certain percentage of its shares of Common Stock
that it beneficially owns for a period of one year. In addition, the Company
would agree to include a percentage of the shares of the Company's Common Stock
beneficially owned by ANB on a registration statement to be filed with the
Securities and Exchange Commission by early May 2000.
The Company has completed a private placement of Common Stock with certain
accredited investors introduced to the Company by a funding source referred to
the Company by bmp. As of September 30, 1999, 2,979,256 shares of Common Stock
have been issued at an aggregate purchase price of $1,117,221. The Company
received $1,061,422 net of finder's fees. The shares of Common Stock issued in
this private placement contain certain piggyback registration rights.
9. Subsequent Events
Private Placements
The Company has issued an aggregate of 12,833,333 shares of Common Stock
and 9,743,333 warrants in a series of private placements consummated between
December 31, 1999 and the end of March 2000. The Company is expected to file a
registration statement with the Securities and Exchange Commission by early May
2000 registering approximately 9,400,000 shares of Common Stock in such private
placements. The Company raised an aggregate of $5,730,000 from such private
placements at purchase prices ranging between $0.30 and $0.50 per share and
warrant exercise prices ranging between $0.75 and $1.0625 per share. The
warrants range between 4 to 5 year warrants. The Company is in discussions with
certain other investors concerning up to an additional $4,300,000 of private
placement financing. There can be no assurance that such additional financing
can be consummated.
10. Commitments, Contingencies and Other Matters
Operating Leases
Rent expense under noncancellable operating leases was approximately
$1,024,000, $963,000 and $674,000 for the years ended December 31, 1997, 1998
and 1999, respectively.
Future minimum payments under noncancellable operating leases, including
the Finova lease agreement, at December 31, 1999, are as follows:
Year Ending
December 31,
2000 1,006,748
2001 605,207
----------
$1,611,955
==========
F-16
<PAGE>
Litigation
The Company is currently engaged in litigation with a former employee, Dr.
Keith Evans, against whom the Company brought an action for breach of
confidentiality obligations and defamation of character. Dr. Evans has responded
with a counter claim alleging defamation of character and is seeking $500,000 in
damages. The litigation is presently in the discovery stage. The Company
believes the counter claim is without merit and is vigorously defending such
action and further, believes that the ultimate outcome of such action will not
have a material impact on the financial condition, results of operations or cash
flows of the Company.
Investigations. Since April 1998, the Company has been responding to
informal requests for information from the Securities and Exchange Commission.
In August 1998, the Company learned that in June 1998, the Commission had issued
a formal order of investigation to determine whether violations of certain
aspects of the federal securities laws had occurred in connection with the
Company. Pursuant to this formal order of investigation, the Company and certain
of its current and former officers and directors have produced documents
pursuant to subpoenas from the Northeast Regional Office of the Commission. The
Company does not know whether or not this investigation remains active and is
not able to speculate as to the specific subject matter of the investigation.
There can be no assurance as to the timeliness of the completion of the
investigation or as to the final result thereof, and no assurance can be given
that the final result of the investigation will not have a material adverse
effect on the Company. The Company has cooperated with the investigation and has
responded to all requests for information in connection with the investigation.
No such requests for information has been forthcoming since late 1998.
In August 1998, the Company learned that the United States Attorney's
Office for the Southern District of New York is investigating whether violations
of securities laws have occurred in connection with the Company's public
disclosures but has been informed that the Company is not presently a target of
the investigation. The Company has cooperated fully with the investigation and
has responded to a grand jury subpoena issued in connection with the
investigation. The Company does not know whether or not this investigation
remains active and is unable to speculate as to the outcome or possible effect
of the investigation on the Company or its management. There can be no assurance
as to the timeliness of the completion of the investigation or as to the final
result thereof, and no assurance can be given that the final result of the
investigation will not have a material adverse effect on the Company or its
current management. Management believes that there are meritorious defenses to
the issues raised by this investigation and intends to defend this matter
vigorously.
In November, 1999, an action was filed against the Company and several of
its present and former officers and directors in the United States Federal Court
for the District of Massachusetts entitled Geran v. Semiconductor Laser
International Corporation, Whale Securities Co., LP, Geoffrey T. Burnham, Allen
W. Johnson, Jr., Theodore W. Konopelski, Susan M. Burnham, George Barrett, David
L. Koffman, Brian Thompson, and Nicholas L. Prioletti, Jr., No. CA99-30-251-MAP.
The Complaint alleges violations by the defendants of Section 12(2) of the
Securities Act of 1933 arising out of alleged misrepresentations by defendants
as to the Company that allegedly induced plaintiff to purchase warrants to
purchase the Company's stock. The Complaint seeks damages of
F-17
<PAGE>
$27,782.00. The Company believes it has meritorious defenses to this action and
intends to defend the action vigorously and further, believes that the ultimate
outcome of such action will not have a material impact on the financial
condition or results of operations of the Company. As of December 31, 1999 the
Company had not been served with the summons and complaint in this matter,
although the company understands that several defendants who are current and
former officers and directors of the Company may have received service.
The Company is currently engaged in litigation with Newport Corporation, a
vendor who is seeking to recover $100,508 for goods allegedly sold to the
Company. Based on losses sustained by the Company as a result of previously
supplied defective equipment from this vendor, the Company's counterclaim
exceeds the amount sued for by Newport Corporation. The Company believes that
the ultimate outcome of the action will not have a material impact on the
financial condition or results of operations of the Company.
The Company is currently engaged in litigation with IOS Capital
Corporation, a vendor who is seeking to recover $55,821 on the basis of an
alleged default by the Company in making its lease agreement installments for
color copying equipment. The Company believes that the vendor was incapable of
providing a working product acceptable to the Company and the equipment was
returned to the vendor as a result. The Company believes that the ultimate
outcome of the 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 lawsuit with one of its customers,
Rocky Mountain Instruments ("RMI"). RMI disputes the amounts owed to the Company
regarding certain orders, has made claims regarding defects in certain of the
units delivered and is currently late in making payments on such orders. The
Company believes that RMI owes approximately $468,571 (including a late charge)
to the Company. On November 2, 1999 SLI filed a Complaint and Jury Demand
against RMI claiming, among other things, that RMI had breached its contract and
failed to fulfill its promises relating to RMI's purchase of laser diodes from
SLI. A trial date has not yet been established.
The Company's allowance for doubtful accounts includes an allowance for a
receivable due from Rocky Mountain Instruments ("RMI") which is in dispute. On
November 2, 1999 the Company filed a Complaint and Jury Demand against RMI for
breach of contract. The court is in the process of establishing a date for a
settlement conference.
Agreements
Technology License Agreement
The Company entered into a license agreement for certain technology. The
agreement provides for a payment of $100,000 and 5,000 shares of the Company's
restricted common stock, upon delivery of the technology. In addition, the
Company will pay a royalty for sales utilizing this technology. As of December
31, 1999 the Company has made $10,000 of the required cash payments.
F-18
<PAGE>
Orthogenesis Agreement
The Company entered into a Joint Venture Agreement (the "Orthogenesis
Agreement"), dated September 28, 1999, between the Company and Orthogenesis
System, Inc. ("Orthogenesis"). Pursuant to the Orthogenesis Agreement, the
Company and Orthogenesis agreed to develop, sell and distribute low level laser
systems used in non-invasive medical treatments for the purpose of
biostimulation. Primarily intended for use with certain medical conditions, its
principal focus is on arthritic conditions, accelerated wound healing and
chronic pain. Potential secondary applications include acute injuries, such as
those relating to sports or casual physical overexertion. The laser also has
potential to be used in related areas within veterinary practices.
Under the Orthogenesis Agreement, the Company and Orthogenesis each have a
50% voting interest in the joint venture and the Company has been granted an
exclusive license to manufacture the Orthogenesis laser system for the term of
the joint venture. The Company has agreed to manufacture and sell the
Orthogenesis laser system at the Company's total cost of manufacturing
(including material, direct labor and overhead costs) such system. The Company
has also agreed to perform the financial and accounting functions for the joint
venture and will be responsible for responding to customers' complaints.
Orthogenesis has agreed to be responsible for marketing, research and
development and product upgrades of such systems. Profits derived from the sale
of the Orthogenesis laser system will be divided 75% to the Company and 25% to
Orthogenesis.
The Company believes that it has the capability of manufacturing this
system without any significant initial capital investment. The system has shown
promise in early tests although no definitive study has been completed to date
and there can be no assurance that any future studies will be favorable. The
Company intends to commence marketing in Canada and in certain other countries
where it expects it will be permitted to sell the system without any additional
regulatory approval and expects to eventually apply for FDA approval to enable
it to sell the system in the United States. The Company's ability to obtain FDA
approval and to increase sales materially is dependent on its ability to raise
capital for the joint venture.
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.
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%.
F-19
<PAGE>
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.
The Company has submitted a plan for the further development and
commercialization of certain Licensed Products, including the transfer of
technology and "know-how" from Northwestern University. The Company has paid
royalties due to Northwestern University under the License Agreement and
provided further information concerning the Company's satisfaction of the
License Agreement milestones. As of March 20, 2000 the Company has met all of
the requirements of the Northwestern License. The Company continues to develop
this technology and expects to introduce new aluminum free products as time goes
on.
F-20
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and equivalents ............................. $ 347,747 $ 4,999,660
Accounts Receivable, net of allowance for doubtful
accounts of $583,293 and $583,293, respectively 295,561 290,683
Inventory ........................................ 861,911 877,074
Prepaid expenses and other assets ................ 24,957 24,957
------------ ------------
Total current assets ........................ 1,530,176 6,192,374
Property, plant and equipment, net ................... 2,584,974 2,533,524
Deposits and other assets ............................ 149,396 132,802
------------ ------------
Total assets ................................ $ 4,264,546 $ 8,858,700
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable ................................. $ 708,193 $ 770,114
Notes Payable (Line of Credit) ................... 1,000,000 1,000,000
Accrued expenses and other liabilities ........... 174,809 193,797
Current portion of long-term debt ................ 44,368 41,505
------------ ------------
Total current liabilities ................... 1,927,320 2,005,416
Long-term debt ....................................... 713,668 703,122
Accrued royalty payments ............................. 100,000 100,000
------------ ------------
Total liabilities ........................... 2,741,038 2,808,538
------------ ------------
Commitment and contingencies (Notes 2 and 5)
Shareholders' Equity
Common stock, $.01 par value, 75,000,000 shares
authorized, 15,641,064 issued and outstanding at
December 31, 1999; 28,474,389 issued and outstanding . 156,411 284,744
at March 31, 2000
Subscriptions Receivable ............................. (100,000) --
Common stock
Treasury stock ....................................... (248,241) (248,241)
Convertible Preferred Stock .......................... 10,000 10,000
Additional paid-in capital ........................... 22,034,365 27,636,453
Accumulated deficit .................................. (20,329,027) (21,632,794)
------------ ------------
Total shareholders' equity .................. 1,523,508 6,050,162
------------ ------------
Total liabilities and shareholders' equity .. $ 4,262,546 $ 8,858,700
============ ============
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months End March 31
1999 2000
(unaudited) (unaudited)
<S> <C> <C>
Net Sales .......................... $ 298,545 $ 405,850
Cost of sales ...................... (663,886) (813,766)
------------ ------------
Gross margin .............. (365,341) (407,916)
Operating expenses:
Research and development expenses .. $ 1,738 $ 11,774
Sales and marketing expenses ....... 63,220 82,681
General and administrative expenses 570,804 821,861
------------ ------------
Loss from operations ...... 1,001,103 1,324,232
Interest income .................... 305 20,465
Net loss .................. 1,000,798 1,303,767
============ ============
Earnings per share-basic and diluted ($0.09) ($0.07)
------------ ------------
Weighted average shares outstanding 11,226,052 18,125,138
============ ============
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 2000
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Cash flows form operating activities:
Net loss ............................................................. $(1,000,798) $(1,303,767)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization ........................................ 51,990 51,870
----------- -----------
Expenses settled through the issuance of Common Shares,
options and warrants ................................................. -- --
Change in assets and liabilities:
(Increase)/decrease in accounts receivable .................. 144,745 4,878
(Increase)/decrease in inventory ............................ 10,390 (15,163)
(Increase)/decrease in prepaid expenses and other assets .... 4,731 --
(Increase)/decrease in deposits and other assets ............ (27,160) 16,594
Increase/(decrease) in accounts payable ..................... (18,998) 61,921
Increase/(decrease) in accrued expenses and other liabilities 6,882 16,126
----------- -----------
Net cash used in operating activities ................................ (828,218) (1,167,541)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment ............................ (326) --
Sale of equipment .................................................... -- --
Net cash provided by (used for) investing activities ................. (326) --
Cash flows from financing activities:
Issuance of stock, net of expenses ................................... 707,964 5,830,000
Issuance of warrants ................................................. 31,500 --
Proceeds from short-term debt ........................................ 300,000 --
Payments on long-term debt ........................................... (9,769) (10,546)
----------- -----------
Net cash provided by financing activities ............................ 1,029,695 5,819,454
----------- -----------
Net increase in cash, cash equivalents and restricted cash ........... 201,151 4,651,913
Cash, cash equivalents and restricted cash at beginning of period .... 112,695 347,747
----------- -----------
Cash, cash equivalents and restricted cash at end of period .......... $ 313,846 $ 4,999,660
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
Semiconductor Laser International Corporation
Notes to Financial Statements
March 31, 2000
(Unaudited)
1. Organization
Semiconductor Laser International Corporation (the "Company") was
incorporated in New York State in September 1993 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.
2. Financial Resources and Liquidity
The Company has incurred net losses from inception and has at March 31,
2000 an accumulated deficit of $21,632,373 and working capital of $4,186,958.
While the Company has raised approximately $5.7 million from a series of private
placements since January 1, 2000, ( See Note 8 ), certain of the monies will be
utilized to pay payables in arrears. Prospectively, however, the Company needs
to demonstrate an ability to increase its sales, generate positive gross margins
and net income. Based upon the fiscal 2000 budget, 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 financings. There can be no assurance that such
additional financing can be consummated.
3. Basis of Presentation
The accompanying unaudited financial statements have been prepared by the
Company. Certain information and footnote disclosures normally included in
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. In the opinion of the Company's
management, the disclosures made are adequate to make the information presented
not misleading, and the financial statements contain all adjustments necessary
to present fairly the financial position as of March 31, 2000 and the results of
operations and cash flows for the three months ended March 31, 2000 and 1999.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
4. 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 as of the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
F-24
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less, at the date of purchase, to be cash
equivalents.
Inventory
Inventory is valued at the lower of cost or market on a 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. 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.
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. In the event such cash flows are not to be sufficient to recover the
recorded value of the assets, the assets are written down to their estimated
fair values.
Revenue recognition
Revenue recognition is based on the terms of the underlying sales
agreements (purchase orders or contracts), typically when products are shipped
to customers.
Research and development
Research and development costs are expensed as incurred.
Income taxes
The Company provides for income taxes in accordance with the liability
method as set forth in Financial Accounting Standards No. 109, "Accounting for
Income Taxes." This method provides that deferred tax assets and liabilities are
recorded, using currently enacted tax rates, based upon the difference between
the tax bases of assets and liabilities and their carrying amounts for financial
statement purposes. A valuation allowance is recorded when it is more likely
than not that deferred tax assets will not be realized.
Net loss per share
Net loss per share, basic and diluted, is computed using the weighted
average number of shares of common stock outstanding.
F-25
<PAGE>
As of March 31, 2000, the Company had outstanding warrants and options to
purchase 12,423,271 and 562,629 shares of common stock, respectively, which are
not included in the calculation of earnings per share for the three months ended
March 31, 2000, and would not be included in such calculation due to the
anti-dilutive nature of these instruments. Of the warrants excluded from such
calculation, 1,948,000 expired by their terms on March 19, 2000.
As of March 31, 1999, the Company had outstanding warrants and options to
purchase 3,446,334 and 148,455 shares of common stock, respectively, which are
not included in the calculation of earnings per share for the three months ended
March 31, 1999, and would not be included in such calculation due to the
anti-dilutive nature of these instruments.
5. Commitment, Contingencies and Other Matters
Operating Leases
Rent expense under non-cancellable operating leases, including the FINOVA
leases, was $262,660 for the three months ended March 31,2000. Rent expense
under non-cancellable operating leases, including the FINOVA leases, was
$278,860 for the three months ended March 31, 1999.
Future minimum payments under non-cancellable operating leases, including
the FINOVA lease agreement, at March 31, 2000, are as follows:
Year ending
December 31, Commitment
2000(1) $ 755,061(1)
2001 605,207
----------
$1,360,268
==========
---------------
(1) Nine months
6. Income taxes
Net operating loss carry forwards of approximately $20,500,000 expire in
the years 2008 to 2013. 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. 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.
7. Litigation/Investigation
The Company is currently engaged in litigation with a former employee, Dr.
Keith Evans, against whom the Company brought an action for breach of
confidentiality obligations and defamation of character. In 1997, Dr. Evans
responded with a counter claim alleging defamation of character and is seeking
$500,000 in damages. The action is pending in the Supreme Court of Broome
County, New York. The litigation is presently in the discovery stage. The
Company believes the counter claim is without merit and is vigorously defending
such action and further,
F-26
<PAGE>
believes that the ultimate outcome of such action will not have a material
impact on the financial condition, results of operations or cash flows of the
Company.
Since April 1998, the Company had been responding to informal requests for
information from the Securities and Exchange Commission (the "Commission"). In
August 1998, the Company learned that in June 1998, the Commission had issued a
formal order of investigation to determine whether violations of certain aspects
of the federal securities laws had occurred in connection with the Company.
Pursuant to this formal order of investigation, the Company and certain of its
current and former officers and directors have produced documents pursuant to
subpoenas from the Northeast Regional Office of the Commission. The Company does
not know whether or not this investigation remains active and is not able to
speculate as to the specific subject matter of the investigation. There can be
no assurance as to the timeliness of the completion of the investigation or as
to the final result thereof, and no assurance can be given that the final result
of the investigation will not have a material adverse effect on the Company. The
Company has cooperated with the investigation and has responded to all requests
for information in connection with the investigation. No such requests for
information has been forthcoming since late 1998.
In August 1998, the Company learned that the United States Attorney's
Office for the Southern District of New York is investigating whether violations
of securities laws have occurred in connection with the Company's public
disclosures but has been informed that the Company is not presently a target of
the investigation. The Company has cooperated fully with the investigation and
has responded to a grand jury subpoena issued in connection with the
investigation. The Company does not know whether or not this investigation
remains active and is unable to speculate as to the outcome or possible effect
of the investigation on the Company or its management. There can be no assurance
as to the timeliness of the completion of the investigation or as to the final
result thereof, and no assurance can be given that the final result of the
investigation will not have a material adverse effect on the Company or its
current management. Management believes that there are meritorious defenses to
the issues raised by this investigation and intends to defend this matter
vigorously. No requests for information have been received since late 1998.
In November 1999, an action was filed against the Company and several of
its present and former officers and directors in the United States Federal Court
for the District of Massachusetts entitled Timothy Geran v. Semiconductor Laser
International Corporation, Whale Securities Co., LP, Geoffrey T. Burnham, Allen
W. Johnson, Jr., Theodore W. Konopelski, Susan M. Burnham, George Barrett, David
L. Koffman, Brian Thompson, and Nicholas L. Prioletti, Jr., Case No. CA99-30-251
- MAP. The Complaint alleges violations by the defendants of Section 12(a)(2)
of the Securities Act of 1933 arising out of alleged misrepresentations by
defendants as to the Company that allegedly induced plaintiff to purchase
warrants to purchase the Company's common stock. The Complaint seeks damages of
$27,782. The Company believes it has meritorious defenses to this action and
intends to defend the action vigorously and further, believes 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 litigation with Newport Corporation in
the Supreme Court of Broome County, New York, a vendor who is seeking to recover
$100,508 for goods allegedly sold to the Company. The action was commenced on
June 2, 1999. Based on losses sustained by the Company as a result of previously
supplied defective equipment from this vendor, the Company's counterclaim
exceeds the amount sued for by Newport Corporation. The Company
F-27
<PAGE>
believes that the ultimate outcome of the action will not have a material impact
on the financial condition or results of operations of the Company.
The Company is currently engaged in litigation with IOS Capital
Corporation, a vendor who is seeking to recover $55,821 on the basis of an
alleged default by the Company in making its lease agreement installments for
color copying equipment. The action was commenced on July 9, 1999 in the Supreme
Court of Oneida County, New York. The Company believes that the vendor was
incapable of providing a working product acceptable to the Company and the
equipment was returned to the vendor as a result. The Company believes that the
ultimate outcome of the 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 lawsuit with one of its customers,
Rocky Mountain Instruments ("RMI"). RMI disputes the amounts owed to the Company
regarding certain orders, has made claims regarding defects in certain of the
units delivered and it is currently late in making payments on such orders. The
Company believes that RMI owes approximately $468,571(including a late charge)
to the Company. The Company also has asserted claims for lost profits and other
damages. The Company has retained an expert in the lawsuit with RMI to determine
the amount of its damages. On November 2, 1999 the Company filed a Complaint and
Jury Demand against RMI in District Court claiming, among other things, that RMI
had breached its contract and failed to fulfill its promises relating to RMI's
purchase of laser diodes from the Company. A trial date has not yet been
established. The Company's allowance for doubtful accounts includes the
aforementioned amount which remains uncollected.
8. Financing
The Company entered into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated as of February 5, 1999, with bmp Mobility AG Venture
Capital ("bmp"), as amended by Amendment No. 1 to Securities Purchase Agreement
(the "Amendment"), dated as of April 28, 1999 (the Securities Purchase
Agreement, as amended by the Amendment is hereinafter referred to as the
"Amended Purchase Agreement"). Pursuant to the terms of the Amended Purchase
Agreement, bmp purchased, 2,000,000 shares of the Company's Common Stock and
1,000,000 shares of the Company's Series B Convertible Preferred Stock,$.01 par
value per share, (the "Series B Stock") each convertible into 5 shares of the
Company's Common Stock or an aggregate of 5,000,000 shares of the Company's
Common Stock. bmp had previously purchased 367,650 shares of the Company's
Common Stock in unrelated open market transactions. In connection with the
Amendment, on June 26, 1999 the Company issued to bmp a five year warrant to
purchase an aggregate of 500,000 shares Common Stock, at an exercise price of
$0.50 per share (the "bmp Warrant").
In connection with the Amendment, the Company entered into a consulting
agreement, dated as of April 28, 1999, (the "Consulting Agreement") between the
Company and bmp Management Consultants GmbH ("bmp Consultants"), a German
limited liability corporation wholly-owned by bmp AG Venture Capital & Network
Management, the parent company of bmp, providing for the retention of bmp
Consultants as strategic and financial consultants to the Company, for an
aggregate consulting fee of $200,000. Pursuant to a verbal agreement with bmp
Consultants the Company will be billed on a work performed basis for the
$200,000 aggregate consulting fee. As of March 31, 2000, bmp Consultants had
been paid $80,887. bmp is no longer providing such services. In addition, bmp is
eligible to receive a finder's fee in the amount of 5% of the net proceeds
F-28
<PAGE>
of any transaction involving the raising of debt or equity capital in a private
placement from a source introduced to the Company by bmp consummated by the
Company until June 26, 2001. The shares of Common Stock issued to bmp contain
certain demand and piggyback registration rights and the Series B Stock contains
certain anti-dilution rights. Based on public filings, the Company is aware that
bmp has transferred ownership of its shares of Common Stock, Series B Stock and
the bmp Warrant to ANB Alster Neue Beiteiligungs GmbH KG ("ANB").
The Company has available a collateralized line of credit with BSB Bank(the
"Loan Agreement"), subject to a borrowing base calculation, with an aggregate
availability in the amount of $1,000,000 for purposes of providing working
capital. The line, bears interest at prime plus 2.5%. The Company has utilized
$1,000,000 of this line as of March 31, 2000.
In January 2000, BSB required the Company to provide it with additional
security for the Loan Agreement in the form of a $750,000 second mortgage on the
Company's facility and a first security interest in all of its assets. The
second mortgage and the security agreement granting the requested security
interest were executed and delivered to BSB on January 31, 2000. BSB has agreed
to release the lien of the second mortgage upon satisfaction of its first
mortgage, and a pay down or permanent reduction of the Company's line of credit
with BSB of $300,000 or a pledge of cash collateral in such amount.
BSB agreed to waive the default of the Company under the Loan Agreement
with respect to "Mandatory Loan Repayments" and waived the Affirmative Covenants
- "Financial Covenants and Ratios" at December 31, 1999. Subsequently, BSB
agreed to waive the default of the Company under the Loan Agreement with respect
to "Mandatory Loan Repayments" for the period ending February 29, 2000 provided
the Company met the borrowing base requirements as of March 3, 2000. These
requirements were met by the Company. In May 2000, the Company agreed with BSB
to pay down approximately $210,000 of the collateralized line of credit,
representing the amount in excess of the borrowing base. In connection with such
agreement, the line of credit will be extended to March 31, 2001. In addition,
the Company agreed to issue BSB warrants to purchase 50,000 shares of the
Company's common stock at an exercise price of $1.00 per share.
In conjunction with the Securities Purchase Agreement, on February 16,
1999, the Company issued to BSB, a five year warrant to purchase an aggregate of
500,000 shares of the Company's common stock at an exercise price of $0.575 per
share (the "BSB Warrant"). The shares issuable upon exercise of the BSB Warrant
contain certain registration rights. The value of the BSB warrant has been
reflected as deferred financing costs in the Company's financial statements and
will be amortized over the period commencing from date of issue to May 31, 2000.
On March 14, 2000, the Company entered into a Waiver and Lock-up Agreement
with BSB, pursuant to which BSB waived any rights to adjustment that it may have
under the BSB Warrant. In addition, BSB agreed not to transfer the shares of
Common Stock issuable to BSB upon conversion of the BSB Warrant until March 20,
2001 without the prior written consent of the Company. The Series B Convertible
Preferred Stock and warrants purchased by bmp (and subsequently transferred to
ANB) contain certain provisions relating to anti-dilution protection against
private placement issuances of securities below fair market value. The Company
has had certain discussions with a representative of ANB concerning the
applicability of these provisions to the private placements consummated
subsequent to January 1, 2000. The Company has contended
F-29
<PAGE>
that no such adjustment is required and sought a waiver of such provisions. To
date, no agreement has been reached. To the extent it is determined that such
adjustment is required, the failure to reach such agreement could result in an
increase in the number of shares of the Company's common stock issuable upon
exercise of the Series B Convertible Preferred Stock and warrants and thereby
result in potential dilution to existing shareholders.
In September 1999, 2,979,256 shares of Common Stock were issued in a
private placement at an aggregate purchase price of $1,117,221. The Company
received $1,061,422 net of finder's fees. The shares of Common Stock issued in
this private placement contain certain piggyback registration rights.
The Company has issued an aggregate of 12,833,333 shares of Common Stock
and 9,743,333 warrants in a series of private placements consummated between
December 31, 1999 and March 31, 2000. The Company raised an aggregate of
$5,730,000 from such private placements at purchase prices ranging between $0.30
and $0.50 per share and warrant exercise prices ranging between $0.75 and
$1.0625 per share. The warrants range between 4 to 5 year warrants. The Company
is seeking to raise up to an additional $4,000,000 of private placement equity
financing. There can be no assurance that such additional financing can be
consummated.
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Registration Fee......... $5,432.80
Printing and Engraving...................................... 4,500.00
Legal Fees and Expenses..................................... 35,000.00
Accounting Fees and Expenses................................ 5,000.00
Miscellaneous............................................... 1,000.00
Total ........................................... $50,932.80
All of the above items, except the registration fee, are estimated. All
expenses incurred in connection with this offering will be borne by the
registrant.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The indemnification of directors and officers of the registrant is
governed by Section 145 of the General Corporation Law of the State of Delaware
("DGCL") and the Certificate of Incorporation, as amended and Restated By-Laws
of the registrant. Subsection (a) of DGCL Section 145 empowers a corporation to
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 an action by or in
the right of the corporation) by reason of the fact that the person 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 expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person 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 expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be
II-1
<PAGE>
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 Delaware Court of Chancery 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.
DGCL Section 145 further provides that to the extent that a present or
former director or officer is successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. In all cases in
which indemnification is permitted under subsections (a) and (b) of Section 145
(unless ordered by a court), it shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because the applicable standard of conduct has been met by the
party to be indemnified. Such determination must be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
The statute authorizes the corporation to pay expenses incurred by an officer or
director in advance of the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of the person to whom the advance will be made, to
repay the advances if it shall ultimately be determined that he was not entitled
to indemnification. DGCL Section 145 also provides that indemnification and
advancement of expenses permitted thereunder are not to be exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors, or otherwise. DGCL Section 145 also authorizes the
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have the statutory power to indemnify such persons against the liabilities
insured.
Article Seventh of the Certificate of Incorporation of the registrant
provides that no director of the registrant shall be personally liable to the
registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director except for liability (i) for any breach of the director's duty of
loyalty to the registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL (involving certain unlawful dividends
or stock purchases or redemptions), or (iv) for any transaction from which the
director derived an improper personal benefit.
Article Seventh of the Certificate of Incorporation of the registrant
entitles directors, officers, employees and agents, past and present, of the
registrant to indemnification to the fullest extent permitted by Section 145 of
the DGCL, as the same may be supplemented from time to time.
II-2
<PAGE>
Pursuant to Section 145(g) of the DGCL, the Restated By-Laws of the
registrant authorize the registrant to obtain insurance to protect directors,
officers, employees or agents from certain liabilities, including liabilities
against which the registrant cannot indemnify its directors, officers, employees
or agents. The registrant maintains a directors and officers liability policy
which, among other things, provides for payment up to $1 million on behalf of
any of the registrant's past, present or future directors or officers against
loss.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
We have sold the following unregistered securities during the past
three years and to date (all share numbers set forth below have been updated to
reflect stock splits):
<TABLE>
<CAPTION>
TOTAL
DATE OF SALE SECURITIES SOLD OFFERING PRICE
--------------- ---------------------------- ----------------
<S> <C> <C>
Jan. 1997 58,384 warrants to $ 167,710
purchase Common Stock
at $5.00 per share
Jan. 1997 1,231 shares of Common $ 10,000
Stock
Oct. 1997 2,000,000 shares of Series $2,975,000
A 8% Convertible
Preferred Stock
Oct. 1997 (2) 770,000 warrants to $1,201,347
purchase Common Stock
at prices ranging from
$3.4688 to $5.3438 per
share
Nov. 1997 1,500 shares of Common $ 2,856
Stock
Nov. 1997 50,000 shares of Common $ 188,770
Stock
Dec. 1997 (1) 55,000 shares of Common $ 96,250
Stock
June 1998 (3) 1,650,000 shares of $1,237,500
Common Stock
Dec. 1998 111,280 shares of Common $ 41,073
Stock at $0.375 per share
Feb. 1999 2,000,000 shares of $ 750,000
Common Stock
Feb. 1999 500,000 warrants to $ 287,500
purchase Common Stock
at 40.575 per share
May 1999 23,867 shares of Common $ 8,950
Stock at $0.375 per share
June 1999 500,000 warrants to $ 250,000
purchase Common Stock
at $0.50 per share
<CAPTION>
TOTAL CASH OTHER
DATE OF SALE CONSIDERATION PAID CONSIDERATION PURCHASERS
--------------- -------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Jan. 1997 $167,710 in lease Lessor of
related fees equipment
Jan. 1997 $10,000 for rights to Licensor
a technology
Oct. 1997 $2,975,000 Accredited
Investors
Oct. 1997 (2) $1,201,347 in Consultants
services performed
Nov. 1997 $2,856 for rights to Licensor
a technology
Nov. 1997 $188,770 in services Consultant
performed
Dec. 1997 (1) $96,250 in services Consultant
performed
June 1998 (3) $1,237,500 Accredited
Investors
Dec. 1998 $41,073 in Services Legal Counsel
Performed
Feb. 1999 $ 750,000 Accredited Investor
Feb. 1999 Waiver of Financial Financial Institution
covenants of and (lender)
extension of the
Line of Credit with
BSB Bank & Trust
Company
May 1999 $8,950 in Services Company Vendor
Performed
June 1999 Amendment to Accredited
Securities Purchase Investors
Agreement
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
TOTAL TOTAL CASH OTHER
DATE OF SALE SECURITIES SOLD OFFERING PRICE CONSIDERATION PAID CONSIDERATION PURCHASERS
-------------- --------------------------- ---------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
Sept. 1999 2,979,256 shares of $1,116,734 $1,116,734 Private Placement Accredited Investors
Common Stock
Dec. 1999 40,000 shares of Common $ 15,000 $15,000 in Services Company Vendor
Stock at $0.375 per share Performed
Dec. 1999 447,109 shares of Common $ 100,000 $ 100,000 Private Placement Accredited Investor
Stock at $0.2237 per share
and warrants to purchase
up to 447,109 shares of
Common Stock
Feb. 2000 100,000 shares of Common $ 30,000 $ 30,000 Private Placement Accredited Investor
Stock and Warrants to
purchase up to 10,000
shares of Common Stock
Feb. 2000 3,333,333 shares of $1,000,000 $1,000,000 Private Placement Accredited Investor
Common Stock and
Warrants to purchase up
to 333,333 shares of
Common Stock
Mar. 2000 9,400,000 shares of $4,700,000 $4,700,000 Private Placement Accredited
Common Stock and Investors
Warrants to purchase up
to 9,400,000 shares of
Common Stock
</TABLE>
(1) Subsequently included in our Registration Statement on Form S-3
declared effective on January 14, 1998.
(2) Underlying shares of common stock included in Company's Registration
Statement on Form S-3 declared effective on January 14, 1998.
(3) Subsequently included in Company's Registration Statement on Form S-3
declared effective on December 30, 1998.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
3.1 By-Laws of Semiconductor Laser International Corporation (the
"Company").(1)
3.2 Certificate of Ownership and Merger.(1)
3.3 Certificate of Amendment to the Company's Certificate of Incorporation
filed March 6, 2000.(9)
4.1 Warrant, dated January 3, 1997, between the Company and Finova Technology
Finance, Inc.(4)
4.2 Specimen Certificate of Registrant's Common Stock.(2)
4.3 Form of Warrant dated October 23, 1997 between the Registrant and World
Capital Funding, Inc.(3)
4.4 Form of Warrant between the Registrant and Marketing Direct Concepts,
Inc.(3)
4.5 Form of Option Agreement dated October 27, 1997 between the Registrant and
State Street Securities, Inc.(3)
4.6 Amendment to Option Agreement dated December 30, 1997 between the
Registrant and State Street Securities, Inc.(3)
4.7 Form of Voting Proxy.(3)
4.8 Warrant between the Registrant and BSB Bank & Trust Company(5)
4.9 Form of Certificate of Designations of Series B Convertible Preferred
Stock of the Registrant.(6)
4.10 Form of Warrant dated March 20, 2000 issued to Strategic Management
Corporation and to Rennes Fondation.(9)
4.11 Waiver and Lock-Up Agreement dated March 14, 2000 by BSB Bank & Trust
Company 10.1 License Agreement, dated June 3, 1994, by and between the
Company and the Air Force.(1)
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.*
10.1 CERDA, dated January 19, 1994 between the Company and Wright Laboratories
of the Air Force.(2)
II-4
<PAGE>
10.2 Amendment, effective January 19, 1994 to CERDA between the Company and
Wright Laboratories of the Air Force.(2)
10.3 CERDA, dated May 1995, between the Company and Rome Laboratory of the Air
Force.(2)
10.4 Employment Agreement, dated as of October 1, 1995 between the Company and
Geoffrey T. Burnham.(2)
10.5 Employment Agreement, dated as of October 1, 1995 between the Company and
Susan M. Burnham.(2)
10.6 1995 Stock Option Plan of the Company.(2)
10.7 Real Property Lease, dated as of August 23, 1995, by and between
Manufacturers and Traders Trust Company and the Company.(2)
10.8 Form of Private Warrants.(2)
10.9 Master Equipment Lease Agreement with Finova.(4)
10.10 Northwestern License.(4) 10.11 Line of Credit Commitment Letter
between the Registrant and BSB Bank & Trust Company.(5)
10.12 Amendment to Line of Credit Commitment Letter between the Registrant and
BSB Bank & Trust Company.(5)
10.13 Securities Purchase Agreement, dated February 5, 1999, between the
Registrant and bmp Mobility AG Venture Capital, together with the Form
of the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of the Registrant, the Registration Rights
Agreement, and the Opinion of Counsel to the Registrant.(5)
10.14 Registration Rights Agreement, dated February 5, 1999, between the
Registrant and bmp Mobility AG Venture Capital.(5)
10.15 Amendment No. 1 to Securities Purchase Agreement, dated as of April 28,
1999, between the Company and bmp Mobility AG Venture Capital.(6)
10.16 Consulting Agreement, dated as of April 28, 1999 between the Company and
bmp Management Consultants GmbH.(6)
10.17 Common Stock Purchase Warrant, dated June 26,1999, issued to bmp.(7)
10.18 Form of Securities Purchase Agreement.(7)
10.19 Form of Registration Rights Agreement (Exhibit A to Form of Securities
Purchase Agreement).(7)
10.20 Promissory Note from BSB Bank & Trust Company.(7)
10.21 Joint Venture Agreement, dated as of September 28,1999, by and between
the Company and Orthogenesis Systems, Inc.(8)
10.22 Forbearance Letter Agreement, dated November 18, 1999, between the Company
and FINOLA.(8)
10.23 Form of Subscription Agreement dated as of February 25, 2000 between the
Registrant and Rennes Fondation and the Registrant and Nasser Sahraian.(9)
10.24 Form of Securities Purchase Agreement dated as of March 20, 2000 by and
among the Registrant and Strategic Management Corporation and Rennes
Fondation.(9)
10.25 Registration Rights Agreement dated as of March 20,2000 by and among
the Registrant and Strategic Management Corporation and Rennes
Fondation.(9)
10.26 Form of Mortgage and Security Agreement dated January 31,2000, between
Broome County Industrial Development Agency, the Registrant and BSB.(9)
10.27 Form of Subscription Agreement dated as of December 31, 1999 between the
Registrant and Michael Kachmarik.(9)
10.28 Promissory Note from BSB Bank & Trust Company.*
23.1 Consent of PricewaterhouseCoopers LLP.*
27.1 Financial Data Schedule.(9)
* Filed herewith
(1) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
(2) 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.
(3) Incorporated by reference to Registrant's Registration Statement on Form
S-3 (Reg. No. 333-39879) which was declared effective on January 14, 1998.
(4) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
II-5
<PAGE>
(5) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1998.
(6) Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1999.
(7) Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1999.
(8) Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1999.
(9) Incorporated by reference to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1999.
(B) FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules omitted because the information is included
in the Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not
exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) promulgated
under the Securities Act of 1933 if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in this
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this Registration Statement;
II-6
<PAGE>
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) shall not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Binghamton,
State of New York, on June 23, 2000.
SEMICONDUCTOR LASER
INTERNATIONAL CORPORATION
By: /s/ Geoffrey T. Burnham
-----------------------
Name: Geoffrey T. Burnham
Title: Chairman of the
Board, President and
Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board, President and Chief
/s/ Geoffrey T. Burnham Executive Officer (Principal Executive
------------------------ Office) June 23, 2000
Geoffrey T. Burnham
/s/ Susan M. Burnham
-----------------------
Susan M. Burnham Vice President, Treasurer and Director June 23, 2000
/s/ Leonard E. Lundberg Chief Financial Officer, Principal Financial
----------------------- Officer and Principal Accounting Officer June 23, 2000
Leonard E. Lundberg
/s/ George W. Hippisley
-----------------------
George W. Hippisley Director June 23, 2000
/s/ Vincent Tomaselli
-----------------------
Vincent Tomaselli Director June 23, 2000
</TABLE>
<PAGE>
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
FORM S-1
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBITS
3.1 By-Laws of Semiconductor Laser International Corporation (the
"Company").(1)
3.2 Certificate of Ownership and Merger.(1)
3.3 Certificate of Amendment to the Company's Certificate of Incorporation
filed March 6, 2000.(9)
4.1 Warrant, dated January 3, 1997, between the Company and Finova
Technology Finance, Inc.(4)
4.2 Specimen Certificate of Registrant's Common Stock.(2)
4.3 Form of Warrant dated October 23, 1997 between the Registrant and World
Capital Funding, Inc.(3)
4.4 Form of Warrant between the Registrant and Marketing Direct Concepts,
Inc.(3)
4.5 Form of Option Agreement dated October 27, 1997 between the Registrant
and State Street Securities, Inc.(3)
4.6 Amendment to Option Agreement dated December 30, 1997 between the
Registrant and State Street Securities, Inc.(3)
4.7 Form of Voting Proxy.(3)
4.8 Warrant between the Registrant and BSB Bank & Trust Company(5)
4.9 Form of Certificate of Designations of Series B Convertible Preferred
Stock of the Registrant.(6)
4.10 Form of Warrant dated March 20, 2000 issued to Strategic Management
Corporation and to Rennes Fondation.(9)
4.11 Waiver and Lock-Up Agreement dated March 14, 2000 by BSB Bank & Trust
Company 10.1 License Agreement, dated June 3, 1994, by and between the
Company and the Air Force.(1)
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.*
10.1 CERDA, dated January 19, 1994 between the Company and Wright
Laboratories of the Air Force.(2)
10.2 Amendment, effective January 19, 1994 to CERDA between the Company and
Wright Laboratories of the Air Force.(2)
10.3 CERDA, dated May 1995, between the Company and Rome Laboratory of the
Air Force.(2)
10.4 Employment Agreement, dated as of October 1, 1995 between the Company
and Geoffrey T. Burnham.(2)
10.5 Employment Agreement, dated as of October 1, 1995 between the Company
and Susan M. Burnham.(2)
10.6 1995 Stock Option Plan of the Company.(2)
10.7 Real Property Lease, dated as of August 23, 1995, by and between
Manufacturers and Traders Trust Company and the Company.(2)
10.8 Form of Private Warrants.(2)
10.9 Master Equipment Lease Agreement with Finova.(4)
10.10 Northwestern License.(4)
10.11 Line of Credit Commitment Letter between the Registrant and BSB Bank &
Trust Company.(5)
10.12 Amendment to Line of Credit Commitment Letter between the Registrant and
BSB Bank & Trust Company.(5)
10.13 Securities Purchase Agreement, dated February 5, 1999, between the
Registrant and bmp Mobility AG Venture Capital, together with the Form
of the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of the Registrant, the Registration Rights
Agreement, and the Opinion of Counsel to the Registrant.(5)
10.14 Registration Rights Agreement, dated February 5, 1999, between the
Registrant and bmp Mobility AG Venture Capital.(5)
10.15 Amendment No. 1 to Securities Purchase Agreement, dated as of April 28,
1999, between the Company and bmp Mobility AG Venture Capital.(6)
10.16 Consulting Agreement, dated as of April 28, 1999 between the Company and
bmp Management Consultants GmbH.(6)
10.17 Common Stock Purchase Warrant, dated June 26,1999, issued to bmp.(7)
10.18 Form of Securities Purchase Agreement.(7)
10.19 Form of Registration Rights Agreement (Exhibit A to Form of Securities
Purchase Agreement).(7)
10.20 Promissory Note from BSB Bank & Trust Company.(7)
<PAGE>
10.21 Joint Venture Agreement, dated as of September 28,1999, by and between
the Company and Orthogenesis Systems, Inc.(8)
10.22 Forbearance Letter Agreement, dated November 18, 1999, between the
Company and FINOLA.(8)
10.23 Form of Subscription Agreement dated as of February 25, 2000 between the
Registrant and Rennes Fondation and the Registrant and Nasser
Sahraian.(9)
10.24 Form of Securities Purchase Agreement dated as of March 20, 2000 by and
among the Registrant and Strategic Management Corporation and Rennes
Fondation.(9)
10.25 Registration Rights Agreement dated as of March 20,2000 by and among the
Registrant and Strategic Management Corporation and Rennes Fondation.(9)
10.26 Form of Mortgage and Security Agreement dated January 31,2000, between
Broome County Industrial Development Agency, the Registrant and BSB.(9)
10.27 Form of Subscription Agreement dated as of December 31, 1999 between the
Registrant and Michael Kachmarik.(9)
10.28 Promissory Note from BSB Bank & Trust Company.*
23.1 Consent of PricewaterhouseCoopers LLP.*
27.1 Financial Data Schedule.(9)
* Filed herewith.
(1) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
(2) 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.
(3) Incorporated by reference to Registrant's Registration Statement on Form
S-3 (Reg. No. 333-39879) which was declared effective on January 14,
1998.
(4) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
(6) Incorporated by reference to Registrant's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1999.
(7) Incorporated by reference to Registrant's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1999.
(8) Incorporated by reference to Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999.
(9) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1999.
