Semiconductor Laser International has acknowledged that its largest customer has canceled the bulk of an order for 500 diode lasers, citing defects in products it has received. According to a document filed with the US Securities and Exchange Commission, Semiconductor Laser has sent Rocky Mountain Instrument Co. 97 diodes from a 500-unit purchase order, but the customer "has made claims regarding defects in certain of the units delivered." Furthermore, the document says, Rocky Mountain has withheld more than $450,000 (including late fees) in payment. The document says the customer has also "indicated that it does not want the remaining units." Alternate suppliers found Rocky Mountain Instrument, an optics company based in Lafayette, Colo., founded a division to manufacture and sell diode-pumped solid-state lasers, and spun it off in July 1998 as a separate company, Laser Marking Technology. Rocky Moun-tain's president, Yubong Hahn, acknowledged that Semiconductor Laser products "have a very high failure rate" but added that "that's to be expected" with a new product. "We are working together to fix that," Hahn said. "Whatever we use, we pay. The rejected ones, we don't pay." Hahn said Semiconductor Laser is still considered a supplier for Laser Marking Technology, but not the sole supplier. "They were our supplier, and they may still be," he said. "Plenty of other suppliers can do this. ... Everybody is trying to win our business." Semiconductor Laser's document says its officials believe Rocky Mountain is obligated to accept the remainder of the diode order, but the company has reduced its backlog by about $1.5 million. Rocky Mountain accounted for about 40 percent of Semiconductor Laser's net sales in fiscal 1998, according to the document. Semiconductor Laser filed the document Dec. 23, registering the intent of certain stockholders to sell 1.65 million shares of common stock "from time to time." The shares had been issued in June in a private placement. In the document, the company lists risk factors for potential buyers. Among the other risks, the document notes that the company will not receive any proceeds from the stock sale. However, the company announced Feb. 10 that bmp Mobility Venture Capital, a German firm, has agreed to invest $2.05 million to $2.75 million in the company. Under the agreement, bmp bought 2 million newly issued shares of Semiconductor Laser stock at $0.375 per share. The firm expects to consummate a second stage of investment between March and May.