SECURITIES AND EXCHANGE COMMISSION 									 WASHINGTON, D.C. 20549 									 ----------------------- 											 FORM 10-QSB (Mark One) 	 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 				SECURITIES EXCHANGE ACT OF 1934 					 For the quarterly period ended June 30, 1997. 															 ------------- 	 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 					 SECURITIES EXCHANGE ACT OF 1934 					 For the transition period from ____________ to ____________ 					 Commission file number 1-11236 													-------- 								XEROGRAPHIC LASER IMAGES CORPORATION 					 ------------------------------------------------------ 					 (Exact name of registrant as specified in its charter) 				 Delaware 51-0319174 	 --------------------------- ------------------------------------ 	 (State or other jurisdiction (I.R.S. Employer Identification No.) 		 of incorporation or 				organization) 		 101 Billerica Avenue, 5 Billerica Park, North Billerica, MA 01862 		 ---------------------------------------------------------------------- 					 (Address of principal executive offices) (Zip Code) 											 (508) 670-5999 					---------------------------------------------------- 					(Registrant's telephone number, including area code) 		 Transitional Small Business Disclosure Format: 					 Yes No X 						 ----- ----- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. 				YES X NO 					----- ----- 	Indicate the number of shares outstanding of each of the issuer's classes of Stock, as of the latest practicable date. 			 Class Outstanding at July 24, 1997 - ---------------------------- ---------------------------- Common Stock, $.01 par value 		 per share 2,039,310 Series A Convertible Preferred 	Stock, $.01 par value 		 per share 315,238 		 Common stock including equivalents, options and warrants exercisable at current market price or lower equal 3,383,770 shares. 							 XEROGRAPHIC LASER IMAGES CORPORATION 												 INDEX 																							 PAGES PART I FINANCIAL INFORMATION 	Item 1 Financial Statements 			Balance Sheets as of June 30, 1997 								 (unaudited) and December 31, 1996 4 			Statements of Operations for the six and three 			 month periods ended June 30, 1997 and 								 1996 (unaudited) 5 								Statements of Cash Flows for the six month 								 periods ended June 30, 1997 and 1996 								 (unaudited) 6 			Notes to Financial Statements 								 (unaudited) 7-8 	Item 2 Management's Discussion and Analysis of 			 Financial Condition and Results of 								 Operations 9-10 PART II OTHER INFORMATION 	Item 1 Legal Proceedings 	Item 2 Changes in Securities 	Item 3 Defaults Upon Senior Securities 		 Item 4 Submission of Matters to a Vote of Security- 								Holders 		 Item 5 Other Information 		 Item 6 Exhibits and Reports on Form 8-K 11 Signatures 12 								 Xerographic Laser Images Corporation 												Balance Sheets 															 June 30, December 31, 																1997 1996 															----------- ----------- 															(unaudited) ASSETS - ------ Current assets: 		 Cash $145,652 $219,723 		 Accounts receivable, less allowance 			 for doubtful accounts of $2,000 in 			 1997 and $5,000 in 1996 24,937 20,314 															 ---------- ---------- 		 Total current assets 170,589 240,037 															 ---------- ---------- Property and equipment, net 25,835 35,191 Other assets 7,274 4,432 															 ---------- ---------- 		 Total assets $203,698 $279,660 															 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) - ---------------------------------------------- Current liabilities: 		 Accounts payable $318,416 $352,346 		 Deferred revenue 34,333 101,000 		 Accrued expenses 269,947 179,943 		 Accrued severance costs 28,022 68,704 		 Current portion of capital leases 11,731 11,731 															 ---------- ---------- 		 Total current liabilities 662,449 713,724 															 ---------- ---------- Capital lease obligations 9,421 16,908 Subordinated notes payable 283,688 283,688 															 ---------- ---------- 		 Total liabilities 955,558 1,014,320 															 ---------- ---------- Stockholder's equity (deficit) 		 Series A Preferred stock, $.01 par value; 			 authorized 1,000,000 shares; 315,238 			 issued and outstanding at June 30, 1997 			 and December 31, 1996. 3,152 3,152 		 Common stock, $.01 par value; 30,000,000 			 shares authorized: 2,039,310 issued and 			 outstanding at June 30, 1997 and 			 1,778,646 outstanding at 			 December 31, 1996. 20,393 17,786 		 Additional paid-in capital 8,463,323 8,434,353 		 Accumulated deficit (9,238,728) (9,189,951) 															 ----------- ------------ 		 Total stockholders' equity (deficit) (751,860) (734,660) 															 ----------- ------------ Total liabilities and stockholders' equity $203,698 $279,660 															 =========== ============ 				 The accompanying notes are an integral part of the financial statements. 											Xerographic Laser Images Corporation 												 Statements of Operations 														 Three Months Ended Six Months Ended 												----------------------------------- ----------------------------------- 												June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996 												------------- ------------- ------------- ------------- 												 (unaudited) (unaudited) (unaudited) (unaudited) Product revenues $ 48,649 $ 49,130 $ 68,703 $ 108,841 Contract and license revenues 449,051 - 690,718 25,000 													------------- ------------- ------------- ------------- 	 Total revenues 497,700 49,130 759,421 133,841 													------------- ------------- ------------- ------------- Cost and expenses: 	 Cost of product revenues 11,957 34,315 22,752 72,076 	 Cost of contract and license revenues 161,023 - 201,955 - 	 Research and development 155,555 87,283 268,046 157,766 	 Sales and marketing 14,036 7,073 21,366 19,863 	 General and administrative 151,175 167,103 296,443 268,519 													------------- ------------- ------------- ------------- 	 Total cost and expenses 493,746 295,774 810,562 518,224 													------------- ------------- ------------- ------------- Profit or (loss) from operations 3,954 (246,644) (51,141) (384,383) 													------------- ------------- ------------- ------------- Other income 1,050 - 5,789 - Net interest expense (1,700) (5,361) (3,425) (11,189) 													------------- ------------- ------------- ------------- Net profit or (loss) $ 3,304 $ (252,005) $ (48,777) $ (395,572) 													============= ============= ============= ============= Net loss per common share $ 0.00 $ (0.18) $ (0.03) $ (0.29) 										 Weighted average common and common 	 equivalent shares outstanding 1,908,978 1,396,146 1,843,812 1,367,396 										 											 											 The accompanying notes are an integral part of the financial statements. 																			 			 										 Xerographic Laser Images Corporation 												 Statements of Cash Flows 																			Six Months Ended Six Months Ended 																			 June 30, 1997 June 30, 1996 																			 (unaudited) (unaudited) Cash flows from operating activities: 		 Net loss $ (48,777) $ (395,572) 	Adjustments to reconcile net loss to net cash 		 used in operating activities: 		 Depreciation and amortization 9,356 14,537 		 Issuance of common stock for services rendered 31,577 3,450 	(Increase) decrease: 			 Accounts receivable (4,623) 263,835 			 Inventory - (1,740) 			 Other assets (2,842) 2,891 	Increase (decrease): 			 Accounts payable (33,930) 67,270 			 Deferred revenues (66,667) - 			 Accrued expenses 90,004 (95,738) 			 Accrued severance costs (40,682) (37,101) 																			--------------- --------------- Net cash used by operating activities (66,584) (178,168) 																			--------------- --------------- Cash flows from financing activities: 		 Cash overdraft - (1,432) 		 Proceeds from issuance of Subordinated Notes - 195,000 		 Payments of notes payable - (5,500) 		 Payments under capital lease obligations (7,487) (5,651) 																			--------------- --------------- Net cash provided (used) by financing activities (7,487) 182,417 																			--------------- --------------- 							 Net increase (decrease) in cash (74,071) 4,249 Cash at beginning of period 219,723 - 																			--------------- --------------- Cash at end of period $ 145,652 $ 4,249 																			=============== =============== Supplemental disclosure of cash flow information: 	Cash paid for interest $ 3,424 $ 17,281 							 							 The accompanying notes are an integral part of the financial statements. 							 XEROGRAPHIC LASER IMAGES CORPORATION 								 Notes to Financial Statements 											 June 30, 1997 1. Nature of Business and Basis of Presentation 	-------------------------------------------- During the first half of 1997, Xerographic Laser Images Corporation, ("XLI" or the "Company") has focused on the implementation and commercialization of the XLI SuperChip Enhancement Technology ("SuperChip Technology") in ASIC (Application Specific Integrated Circuit) and VHDL (Virtual Hardware Description Language) product forms. These product are targeted for the large printer and printer controller OEM's that provide products to mass- markets. These SuperChip Technology products are expected to provide the Company with a family of revenue producing product offerings for the next several years. To date five (5) companies have licensed the SuperChip VHDL product for the incorporation of the Company's SuperChip Technology into their own ASIC products. In addition, in the second quarter of 1997, the Company entered into a co-development and license agreement with a Colorado- based designer and marketer of integrated circuits. Pursuant to this agreement, a SuperChip ASIC will be designed and fabricated for sale directly by XLI. XLI expects to have samples of this SuperChip ASIC available for evaluation during the third quarter of 1997, with chips available for sale to printer OEMs. Initial sales activity for this ASIC has been focused primarily in Japan and the USA where the majority of laser printer and printer controller manufacturers are located. The Company hopes to increase revenue through additional corporate alliances and additional licensing of the SuperChip Technology. The Company also plans to add additional engineering resources in 1997 in order to meet the demands from existing and anticipated OEM agreements. The addition of such resources will result in increased research and development costs and may negatively affect cash flow. For the six months ending June 30, 1997, the Company had negative cash flow from operations of $66,584. Despite the favorable reception the Company has received for its SuperChip Technology and the potential revenue that may be generated pursuant to future co-development agreements with OEMs, significant risk remains due to the Company's short range cash needs. The financial statements do not include any adjustments relating to the recovery and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. The information furnished has been prepared from the Company's accounts without audit. In the opinion of management, all adjustments and accruals (consisting only of normal recurring adjustments), which are necessary for a fair presentation of operating results, are reflected in the accompanying financial statements. Certain information and footnote disclosures normally included in the Company's annual financial statements have been condensed or omitted. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 1996, which are contained in the Company's 1996 Form 10-KSB filed with the Securities and Exchange Commission. 2. Net Loss per Common Share 	------------------------- Net loss per share is computed based upon the weighted average number of common shares outstanding. Common equivalent shares are not included in the per share calculations as the effect of their inclusion would be nondilutive. 3. Management's Discussion and Analysis of Financial Condition and 	--------------------------------------------------------------- Results of Operations - --------------------- Results of Operations The Company's strategy is to design and develop products derived from XLI's current technology in collaboration with strategic partners. Revenues for the second quarter of 1997, which ended June 30, 1997 were $497,700, an increase of $448,570 from 1996's second quarter revenues of $49,130. Revenues for the six-month period ended June 30, 1997 were $759,421, an increase of $625,577 from the $133,841 of revenue recorded for the six months ended June 30, 1996. The Company recognized $449,051 in contract and license revenues in connection with agreements with Samsung Electronics Co., Ltd. and Xionics Document Technologies, Inc. in the second quarter of 1997 and none in the second quarter of 1996. The Company recorded a net profit of $3,304 for the second quarter of 1997, as compared to a net loss of $252,005 for the same period in 1996. The increase in profitability is attributable to the increase in contract and license revenues in the second quarter of 1997. The Company's gross margin on product sales was 75% for the second quarter of fiscal year 1997 compared to 30% for the same period in 1996. The gross margin for the six months ended June 30, 1997 was 67% compared to 34% for the same period in 1996. This was mainly due to the board inventory being written off in December 1996. Research and development costs for the three month period ended June 30, 1997 were $155,555 or approximately 31% of revenues as compared to $87,283 or approximately 178% of revenues for the second quarter of 1996. Research and development costs for the six months ended June 30, 1997 were $268,046, as compared to $157,766 for the same period in 1996. The increase in research and development costs from June 30, 1996 to June 30, 1997 of $110,280 was due to the hiring of additional engineering personnel and increased use of independent engineering consultants. The Company's engineering emphasis will continue to be on the development of ASICs incorporating the Company's proprietary high resolution technology for the OEM market. Selling and marketing expenses for the three month period ended June 30, 1997 were $14,036 or approximately 3% of revenues as compared to $7,073 or approximately 14% of revenues for the three month period ended June 30, 1996. Selling and marketing expenses for the six months ended June 30, 1997 were $21,366, as compared to $19,863 for the same period in 1996. The slight increase of $1,503 is attributable to a change in the commissions structure in connection with board sales as the Company attempts to sell off its remaining board inventory. The Company will promote its board products primarily through telemarketing and its ASIC technology through third party partnerships. General and administrative expenses for the three month period ended June 30, 1997 were $151,175 or approximately 30% of revenues as compared to $167,103 or approximately 340% of revenues for the three month period ended June 30, 1996. The decrease is attributable to the refund of foreign income taxes from the Korean Tax Authority in April 1997. General and administrative expenses for the six months ended June 30, 1997 were $296,443 as compared to $268,519 for the same period in 1996. This increase was primarily due to professional fees (patent legal fees). Liquidity and Capital Resources At June 30, 1997 the Company had current assets of $170,589, current liabilities of $662,449 and cash of $145,652. The Company continues to fund its operations from its cash account and from cash flow provided from contract development agreements and technology licenses. Additionally, in April 1997 the Company received from Samsung Electronics Co., Ltd. a $62,446 refund for taxes withheld on a development contract in 1996. The Company has no current plans to undertake a debt or equity financing in 1997. Funds for operations and development efforts will come from the Company's available cash and from current or anticipated licensing and royalty fees. If the Company is unable to fund its operations from cash flow, the Company's development efforts and operations will be materially adversely effected. The Company has no current commitments for any material capital expenditures. 									PART II OTHER INFORMATION Item 1. Legal Proceedings 		 The Company is not currently involved in any material 		 legal proceedings. Item 2. Changes in Securities 		 		 Not Applicable Item 3. Defaults Upon Senior Securities 		 Not Applicable Item 4. Submission of Matters to a Vote of Security-Holders 		 No matters were submitted to a vote of security-holders 		 during the period covered by this report. Item 5. Other Information 		 Not Applicable Item 6. Exhibits and Reports on Form 8-K 		 (a) The following exhibits are filed herewith: 				 Exhibit Number Title 				 -------------- ----- 						 10.43 Development and License Agreement 												 dated May 30, 1997, between the 												 Company and SIS Microelectronics, Inc. 						 10.44 License and Royalty Agreement dated 												 June 26, 1997, between the Company 												 and PCPI Technologies, Inc. 		 (b) There were no reports on Form 8-K filed by the Company during 				the quarter ended June 30, 1997. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 										 Xerographic Laser Images Corporation 									 ------------------------------------------------ 																 (Company) 	 Date: July 28, 1997 By: /s/ James L. Salerno 		------------- -------------------------------------------- 											 James L. Salerno, Chief Financial Officer 											(Principal Financial and Accounting Officer)