U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
Commission file number 0-5460
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STOCKERYALE, INC.
(Name of small business issuer in its charter)
MASSACHUSETTS 04-2114473
(State of other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
32 HAMPSHIRE ROAD
SALEM, NEW HAMPSHIRE 03079
(Address of principal executive offices) (Zip Code)
(603) 893-8778
(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. ___X___Yes ________No
As of October 31, 2000 there were 8,535,506 shares of the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format (check one): ____Yes __X__No
PART I FINANCIAL STATEMENTS
ITEM 1.1 CONSOLIDATED BALANCE SHEETS
STOCKERYALE, INC.
ASSETS
September 30, 2000 December 31,1999
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,538,000 $ 121,000
Accounts receivable, net of reserves of
$96,000 and $84,000 in 2000 and 1999,
respectively 3,656,000 2,420,000
Prepaid taxes 265,000 224,000
Inventory 6,426,000 5,967,000
Prepaid expenses 1,372,000 171,000
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Total current assets 14,257,000 8,903,000
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PROPERTY, PLANT AND EQUIPMENT, NET 4,677,000 3,687,000
------------ ------------
NOTE RECEIVABLE 100,000 100,000
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GOODWILL, NET OF ACCUMULATED AMORTIZATION 3,558,000 2,209,000
------------ ------------
IDENTIFIED INTANGIBLE ASSETS 2,764,000 2,587,000
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OTHER ASSETS 316,000 66,000
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$ 25,672,000 $ 17,552,000
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,668,000 $ 3,798,000
Accounts payable 1,570,000 3,433,000
Accrued expenses 1,330,000 940,000
Short-term lease obligation 202,000 213,000
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Total current liabilities 5,770,000 8,384,000
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LONG-TERM DEBT 2,613,000 3,811,000
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OTHER LONG-TERM LIABILITIES 929,000 565,000
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DEFERRED INCOME TAXES 939,000 1,038,000
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STOCKHOLDERS' INVESTMENT:
Common stock, par value $0.001
Authorized--10,000,000
Issued and outstanding--8,806,524 and
7,605,050 at September 30, 2000 and
December 31, 1999, respectively 9,000 8,000
Paid-in capital 26,725,000 14,421,000
Accumulated other comprehensive income (178,000) (18,000)
Accumulated deficit (11,135,000) (10,657,000)
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Total stockholders' investment 15,421,000 3,754,000
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$ 25,672,000 $ 17,552,000
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PART I FINANCIAL STATEMENTS
ITEM 1.2 CONSOLIDATED STATEMENTS OF OPERATIONS
STOCKERYALE, INC.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ------------ ------------
NET SALES $ 5,944,000 $ 3,571,000 $ 16,385,000 $ 10,418,000
COST OF SALES 3,679,000 2,359,000 10,292,000 6,761,000
----------- ----------- ------------ ------------
Gross profit 2,265,000 1,212,000 6,093,000 3,657,000
SELLING EXPENSES 573,000 472,000 1,538,000 1,441,000
GENERAL AND ADMINISTRATIVE EXPENSES 1,119,000 750,000 2,927,000 2,081,000
AMORTIZATION AND GOODWILL EXPENSE 194,000 144,000 481,000 433,000
CHARGE FOR ACQUIRED IN-PROCESS RESEARCH AND
DEVELOPMENT -- -- 402,000 --
RESEARCH AND DEVELOPMENT 336,000 182,000 839,000 618,000
----------- ----------- ------------ ------------
Operating income (loss) 43,000 (336,000) (94,000) (916,000)
GAIN ON SALE OF ASSETS -- 679,000 -- 679,000
OTHER INCOME 42,000 4,000 99,000 95,000
INTEREST EXPENSE 86,000 185,000 294,000 541,000
----------- ----------- ------------ ------------
Income (loss) before income taxes (1,000) 162,000 (289,000) (683,000)
INCOME TAX EXPENSE (BENEFIT) 57,000 (5,000) 189,000 2,000
----------- ----------- ------------ ------------
Net income (loss) $ (58,000) $ 167,000 $ (478,000) $ (685,000)
=========== =========== ============ ============
BASIC AND DILUTIVE INCOME/(LOSS) PER SHARE $ (0.01) $ 0.02 $ (0.06) $ (0.09)
=========== =========== ============ ============
BASIC AND DILUTIVE WEIGHTED-AVERAGE COMMON
SHARES 8,820,000 7,605,000 8,502,000 7,525,000
=========== =========== ============ ============
PART I FINANCIAL STATEMENTS
ITEM 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS
STOCKERYALE, INC.
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (478,000) $ (685,000)
Adjustments to reconcile net loss to net cash used
in/provided by operating activities-
Charge for acquired in-process research and development 402,000
Depreciation and amortization 886,000 855,000
Gain on sale of assets -- (679,000)
Deferred income taxes (99,000) 17,000
Other changes in assets and liabilities
Accounts receivable, net (1,236,000) (27,000)
Inventories (459,000) (25,000)
Prepaid income taxes (41,000) (26,000)
Prepaid expenses (1,201,000) 62,000
Accounts payable (1,863,000) 49,000
Accrued expenses 390,000 (83,000)
Other assets -- (14,000)
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Net cash used in operating activities (3,699,000) (556,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,393,000) (523,000)
Proceeds from sale of assets, net of note assumed 1,562,000
Long term investment (250,000) --
Business acquired, net of cash acquired (2,000) --
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Net cash used in investing activities (1,645,000) 1,039,000
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 8,756,000 200,000
Payments of bank debt (989,000) (704,000)
----------- -----------
Net cash provided by financing activities 7,767,000 (504,000)
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EXHANGE RATE EFFECTS ON CASH (6,000) (65,000)
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NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,417,000 (86,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 121,000 86,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,538,000 $ --
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 448,000 $ 345,000
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Cash paid for taxes $ 42,000 $ 7,000
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SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Conversion of subordinated debt to common stock $ 1,350,000
===========
Fair value of shares used for acquisition of CorkOpt Ltd. $ 2,194,000
===========
Liabilities assumed in acquisition $ 717,000
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PART 1. FINANCIAL STATEMENTS
(CONTINUED)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The interim consolidated financial statements presented have been prepared by
StockerYale, Inc. (the "Company") without audit and, in the opinion of the
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of (a) the Company's results of operations for the three and nine
months ended September 30, 2000 and 1999, (b) the Company's financial position
at September 30, 2000, and (c) the Company's cash flows for the nine month
periods ended September 30, 2000 and 1999. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are condensed as permitted by Form 10-QSB and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-KSB.
2. Stock Split
On July 31, 2000 a stock split of the Company's outstanding common stock was
effected in the form of a 100% dividend to holders of record as of the close of
business on July 17, 2000. All shares and per share amounts of the common stock
for all periods presented have been retroactively adjusted to reflect the stock
split.
3. Acquisition of CorkOpt Ltd and Purchase Price Allocation
On June 16, 2000, the Company acquired all of the outstanding shares of CorkOpt
Ltd for approximately $3.2 million, consisting of approximately $256,000 in
cash, 125,382 shares of the Company's common stock with a fair value of $2.2
million and assumed liabilities of $735,000. The Company accounted for the
acquisition under the purchase method of accounting and accordingly, the
operating results of CorkOpt Ltd. from the date of acquisition have been
included in the accompanying consolidated statement of operations. The Company
has allocated the purchase price based on preliminary estimates of the fair
market value of the assets acquired, which consist of approximately $830,000 of
identifiable tangible assets, including approximately $270,000 of cash,
identified intangible assets of approximately $424,000, goodwill of
approximately $1.5 million and approximately $402,000 of in-process reseach and
development which was charged to operations in the second quarter of fiscal
2000. The purchase price allocations represent the fair values determined by an
independent appraisal.
4. Long Term Investment
The Company invested $250,000 to purchase 75,075 shares of a privately-held
company in June 2000. The Company has accounted for the investment on a cost
basis and has assessed no impairment of the asset as of September 30, 2000.
5. Earnings per Share
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share, basic and diluted net loss per common share for the three
and nine months ended September 30, 2000 and 1999 is calculated by dividing the
net loss applicable to common stockholders by the weighted average number of
vested common shares outstanding. Diluted net loss per share exclude the effect
of 1,305,150 shares in 2000 and 1,282,912 shares in 1999 of potential common
shares from stock options and warrants, because to include such shares would
have been antidilutive.
6. Segment Information
The Company's operations were conducted primarily within the following industry
segments for the three and nine months ended September 30, 2000 and 1999:
--THREE MONTHS ENDED SEPT. 30, --NINE MONTHS ENDED SEPT. 30,
2000 1999 2000 1999
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NET SALES:
Measuring and Inspection Instruments $ 5,048,000 $ 2,922,000 $ 13,991,000 $ 8,379,000
Machine Components and Accessories 896,000 649,000 2,394,000 2,039,000
----------- ------------ ------------ ------------
$ 5,944,000 $ 3,571,000 $ 16,385,000 $ 10,418,000
=========== ============ ============ ============
OPERATING INCOME (LOSS):
Measuring and Inspection Instruments $ 48,000 $ (256,000) $ 108,000 $ (721,000)
Machine Components and Accessories (5,000) (80,000) (202,000) (195,000)
----------- ------------ ------------ ------------
$ 43,000 $ (336,000) $ (94,000) $ (916,000)
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7. Comprehensive Income/(loss)
On January 1, 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. This pronouncement sets forth requirements for disclosure of the
Company's comprehensive income and accumulated other comprehensive items. In
general, comprehensive income combines net income and "Other comprehensive items
includes certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, such as foreign currency
translation adjustments and unrealized, net of tax, gains and losses from
available-for-sale investments.
During the three month period ended September 30, 2000, the Company's
comprehensive loss was $371,000. During the three month period ended September
30, 1999, the Company's comprehensive income was $167,000. During the nine month
periods ended September 30, 2000 and 1999 the Company's comprehensive loss was
$638,000 and $836,000, respectively.
8. Revenue Recognition
The Securities and Exchange Commission released Staff Accounting Bulletin (SAB)
No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on December 3, 1999. This
SAB provides additional guidance on the accounting for revenue recognition,
including both broad conceptual discussions as well as certain industry-specific
guidance. The Company adopted SAB 101 in the second quarter of fiscal 2000. The
adoption of SAB 101 did not have a material impact on the Company's results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OPERATING RESULTS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.CERTAIN
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE BUT ARE NOT LIMITED TO THE
FOLLOWING; MARKET ACCEPTANCE OF STOCKERYALE'S PRODUCTS, THE AVAILABILITY OF
COMPETING PRODUCTS, AND SALES TRENDS. WHEN THE COMPANY USES WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT," "INTEND," AND OTHER SIMILAR EXPRESSIONS, THEY
GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
INCLUDE, FOR EXAMPLE, STATEMENTS RELATING TO ACQUISITIONS AND RELATED FINANCIAL
INFORMATION, DEVELOPMENT ACTIVITIES, BUSINESS STRATEGY AND PROSPECTS, FUTURE
CAPITAL EXPENDITURES, SOURCES AND AVAILABILITY OF CAPITAL, ENVIRONMENTAL AND
OTHER REGULATIONS AND COMPETITION. INVESTORS SHOULD EXERCISE CAUTION IN
INTERPRETING AND RELYING ON FORWARD-LOOKING STATEMENTS SINCE THEY INVOLVE KNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH ARE, IN SOME CASES, BEYOND THE
COMPANY'S CONTROL AND COULD MATERIALLY AFFECT THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS.
RESULTS OF OPERATIONS
The following discussion should be read in conjuction with the attached
consolidated financial statements and notes thereto and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 31, 1999.
ACQUISITION OF CORKOPT LTD AND PURCHASE PRICE ALLOCATION
On June 16, 2000, the Company acquired all of the outstanding shares of
CorkOpt Ltd for approximately $3.2 million, consisting of approximately
$256,000 in cash, 125,382 shares of the Company's common stock with a fair
value of $2.2 million and assumed liabilities of $735,000. The Company
accounted for the acquisition under the purchase method of accounting and
accordingly, the operating results of CorkOpt Ltd. From the date of
acquisition have been included in the accompanying consolidated statement of
operations. The Company has allocated the purchase price based on preliminary
estimates of the fair market value of the assets acquired, which consist of
approximately $830,000 of identifiable tangible assets, including
approximately $270,000 of cash, identified intangible assets of approximately
$424,000, goodwill of approximately $1.5 million and approximately $402,000
of in-process reseach and development which was charged to operations in the
second quarter of fiscal 2000. The purchase price allocations represent the
fair values determined by an independent appraisal.
COMPARISON OF FISCAL QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
NET SALES
Net sales were $5.9 million in the three months ended September 30, 2000
compared to $3.6 million in the third fiscal quarter of 1999, an increase of
63.9% or $2.3 million.
MEASURING AND INSPECTION INSTRUMENTS
Net sales from the Company's specialized illumination and optical component
products were $4.5 million in the third quarter of 2000 compared to $2.5 million
in the comparable quarter in 1999, an increase of 80.0% or
$2.0 million. This increase was largely due to higher sales of laser and optical
component products from the Company's Montreal facility, as well as an increase
in fiber optic and fluorescent illumination products sales from the Salem
facility. These increases are a direct result of the Company's continued
strategic business plan to focus on optical component and specialized
illumination products.
Net sales from printer and recorder products increased from $312,000 in the
third quarter of fiscal 1999 to $359,000 in the comparable quarter of fiscal
2000, a 15.1% increase.
Net sales from the Company's other products, largely military watches, were
$220,000 in the third quarter of fiscal 2000 compared to $108,000 in the
comparable quarter of fiscal 1999, representing an increase of 103.7%. Sales of
these products accounted for 3.7% of the Company's net sales for the third
quarter of fiscal 2000. The increase resulted from the sale of watches to the
U.S. government under a requirements contract with the General Services
Administration. In accordance with its strategic plan to focus its resources on
specialized illumination and optical components products, the Company announced
the sale of this product line on September 26, 2000 to an unrelated party for a
future royalty earnout.
MACHINE TOOL COMPONENTS AND ACCESSORIES
Net sales from machine components and accessories increased from $649,000 in the
third quarter of 1999 to $896,000 in the comparable quarter of 2000, an increase
of 38.1%. The primary reason for the increase was higher unit shipments of the
Company's power clamp and material handling products.
COST OF SALES
Cost of sales were $3.7 million in the third quarter of fiscal 2000 compared to
$2.4 million in the comparable quarter of fiscal 1999, an increase of 54.2% or
$1.3 million. The increase in cost of sales resulted from an increase in net
sales during the same period.
Gross profit was $2.3 million in the third quarter of fiscal 2000 compared to
$1.2 million in the comparable quarter of 1999 as a result of increased net
sales. Gross margin increased from 33.9% in 1999 to 38.1% in 2000. Gross margin
increased primarily because of the absorption of manufacturing overhead costs
resulting from the increases in net sales volume.
OPERATING EXPENSES
Selling expenses were $573,000 in the three months ended September 30, 2000, or
9.6% of net sales, compared to $472,000 in the comparable quarter in 1999, or
13.2% of net sales. General and administrative expenses were $1,119,000 in the
third quarter of fiscal 2000, or 18.8% of net sales, compared to $750,000, or
21.0% of net sales in the comparable quarter of fiscal 1999. Included in
operating expenses for the three months ended September 30, 2000 and 1999 was
$194,000 and $144,000 of amortization expense primarily for goodwill and other
identifiable intangible assets associated with the acquisitions, respectively.
Research and development expenses were $336,000 in the third quarter of fiscal
2000 compared to $182,000 in the comparable quarter of 1999.
INTEREST EXPENSE
Interest expense was $86,000 in the third quarter of fiscal 2000 compared to
$185,000 in 1999. The decrease in interest expense resulted primarily from lower
borrowings to fund working capital.
PROVISION FOR INCOME TAXES
The Company recorded a provision for income taxes of $57,000 in the fiscal
quarter ended September 30, 2000 compared to a tax benefit of $5,000 in the
comparable quarter in 1999. The tax provision in the current fiscal quarter is a
result of taxable income generated in Canada that could not be used to offset
operating losses in the United States. The Company has recorded a valuation
allowance against its net deferred tax assets in 2000 and 1999 as the Company
has concluded that it is not likely such deferred tax asset would be realized.
COMPARISON OF THE FIRST NINE MONTHS OF FISCAL 2000 AND 1999
NET SALES
Net sales were $16.4 million in the nine months ended September 30, 2000
compared to $10.4 million in the comparable period of fiscal quarter of 1999, an
increase of 57.7% or $6.0 million.
MEASURING AND INSPECTION INSTRUMENTS
Net sales from the Company's specialized illumination and optical component
products were $12.5 million in the first nine months of fiscal 2000 compared to
$7.1 million in the comparable period of the prior year, an increase of 76.1% or
$5.4 million. This increase was largely due to higher sales of laser and optical
component products from the Company's Montreal facility, as well as an increase
in fiber optic and fluorescent illumination products sales from the Salem
facility. These increases are a direct result of the Company's continued
strategic business plan to focus on optical component and specialized
illumination products.
Net sales from printer and recorder products increased slightly to $961,000 for
the first nine months of fiscal 2000 compared to $915,000 in the comparable
period of fiscal 1999.
Net sales from the Company's other products, largely military watches, were
$541,000 in the first nine months of fiscal 2000 compared to $345,000 in the
comparable period in fiscal 1999, representing a 56.8% increase. Sales of these
products accounted for 3.3% of the Company's net sales for the third quarter of
fiscal 2000. The increase resulted from the sale of watches to the U.S.
government under a requirements contract with the General Services
Administration. In accordance with its strategic plan to focus its resources on
specialized illumination and optical components products, the Company announced
the sale of this product line on September 26, 2000 to an unrelated party for a
future royalty earnout.
MACHINE TOOL COMPONENTS AND ACCESSORIES
Net sales from machine components and accessories increased from $2.0 million in
the first nine months of fiscal 1999 to $2.4 million in the comparable period of
fiscal 2000, an increase of 17.4%. The primary reason for the increase was
higher unit shipments of the Company's power clamp products.
COST OF SALES
Cost of sales was $10.3 million in the first nine months of fiscal 2000 compared
to $6.8 million in the comparable period of fiscal 1999, an increase of 51.5% or
$3.5 million. The increase in cost of sales resulted from an increase in net
sales during the same period.
Gross profit was $6.1 million in the first nine months of fiscal 2000 compared
to $3.7 million in the comparable period of fiscal 1999. Gross margin increased
from 35.1% in fiscal 1999 to 37.2% in fiscal 2000. Gross margin increased
primarily because of the absorption of manufacturing overhead costs resulting
from the increases in net sales volume.
OPERATING EXPENSES
Selling expenses were $1.5 million in the nine months ended September 30, 2000,
or 9.4% of net sales, compared to $1.4 million in the comparable period in
fiscal 1999, or 13.8% of net sales. General and administrative expenses were
$2.9 million in the first nine months of fiscal 2000, or 17.9% of net sales,
compared to $2.1 million, or 20% of net sales in the comparable period of fiscal
1999. Included in operating expenses for the nine months ended September 30,
2000 and 1999 was $481,000 and $433,000 of amortization expense primarily for
goodwill and other identifiable intangible assets associated with the
acquisitions. Also included in operating expenses was a noncash, nonrecurring
charge of $402,000 for in-process research and development acquired in the
acquisition of CorkOpt, Ltd in Ireland. Research and development expenses were
$839,000 in the first nine months of fiscal 2000 compared to $618,000 in the
comparable period of fiscal 1999.
GAIN ON SALE OF ASSETS
In September, 1999 the Company recorded a gain of $679,000 resulting from the
sale of its Fraser, Michigan manufacturing facililty and the sale of its
military compass product line.
INTEREST EXPENSE
Interest expense was $294,000 in the first nine months of fiscal 2000 compared
to $541,000 in 1999. The decrease in interest expense resulted primarily from
lower borrowings to fund working capital.
PROVISION FOR INCOME TAXES
The Company recorded a provision for income taxes of $189,000 in the nine months
ended September 30, 2000 compared to $2,000 in the comparable quarter in 1999.
The tax provision is a result of taxable income generated in Canada that could
not be used to offset operating losses in the United States. The Company has
recorded a valuation allowance against its net deferred tax assets in 2000 and
1999 as the Company has concluded that it is not likely such deferred tax asset
would be realized.
LIQUIDITY AND CAPITAL RESOURCES
Subsequent to the end of the fiscal quarter of September 30, 2000, the Company
completed two private placements of common shares totaling net proceeds of
approximately $15.5 million. On October 5, 2000 completed a private placement of
409,132 common shares at a price of $30.00 per share which resulted in net
proceeds to the Company of approximately $11.9 million and, on November 2, 2000
the Company completed another private placement of 150,000 common shares at a
price of $24.4375 per share which resulted in net proceeds to the Company of
approximately $3.6 million. The Company intends to use a significant portion of
these proceeds over the next twelve to eighteen months to fund various capital
expenditures and research and development projects including, but not limited
to, , the expansion of its Salem facility to include a preform production
factory, the development of its specialty optical fiber and components product
line, a tunable optical filter, a polarization scrambler, phase mask and fiber
Bragg grating technology, the buildout of a research and
development facility in Montreal which will include production, as well as other
specialty illumination products.
The Company historically has financed its operations primarily through
third-party credit facilities and cash from operations. On March 3, 2000, the
Company completed a private placement of 355,000 common shares at a price of
$26.00 per share with net proceeds of approximately $8.8 million. For the nine
months ended September 30, 2000, cash and cash equivalents increased $2.4
million, largely as a result of the March, 2000 private placement.
Cash used in operating activities was $3.7 million in the first nine months of
fiscal 2000 which primarily resulted from a decrease in accounts payable of $1.8
million, an increase in accounts receivable of $1.2 million and an increase in
prepaid expenses for production and research and devlepment equipment on order
of $1.2 million, which was slightly offset by depreciation and amortization
charges of $886,000.
Cash of $7.8 million was provided by financing activities, primarily due to the
receipt of $8.8 million from the sale of common stock in a private placement,
offset by $989,000 used to pay down bank debt. Cash used in investing activities
was $1,393,000 in the nine months ended September 30, 2000 primarily resulting
from purchases of fixed assets.
On February 18, 2000, the Company announced that all of the holders of its $1.35
million 7 1/4% Convertible Subordinated Notes due May 1, 2001 had elected to
convert their Notes. Under their terms, the Notes were converted into 183,046
shares of common stock based on a conversion price of $7.375 per share.
On February 11, 1999 the Company entered in a credit agreement with Wells Fargo
Business Credit, Inc., formerly Norwest Business Credit, Inc., with total
borrowing availability up to $3,500,000. The credit facility with Wells Fargo
consists of a $500,000 term loan that requires 60 monthly principal payments of
$8,333, beginning April 1, 1999. The credit facility also provides for a
revolving line of credit of up to $3.5 million less the amount of the term loan.
The amount available for borrowing under this facility is also subject to a
defined borrowing base consisting of eligible accounts receivable and inventory.
As of September 30, 2000, $2.3 million was outstanding under the term loan and
revolving credit line and approximately $500,000 was available for additional
borrowings. The outstanding principal balance of all advances under this credit
facility bears interest at a floating rate of the bank's base rate plus 2.5%.
The Company's obligation under the Wells Fargo credit agreement is evidenced by
a demand note and may be terminated at any time by Wells Fargo in its sole
discretion, prior to the stated maturity date of March 1, 2002. The Company's
obligations under this credit facility are secured by substantially all of the
Company's assets other than real property. In addition, Mark W. Blodgett, the
Company's Chief Executive Officer, has unconditionally guaranteed all amounts
outstanding. The Credit and Security Agreement between the Company and Wells
Fargo requires the Company to comply with certain affirmative and negative
covenants. As of September 30, 2000 the Company was not in default of any of
these covenants.
On May 13, 1998, the Company entered into a $750,000 second mortgage loan with
Danvers Savings Bank. This loan bears interest at a rate of 11%, requires
monthly payments of interest only, and its original maturity date of May 13,
1999 has been extended to February 28, 2001. Under the terms of the extension,
Danvers Savings Bank lowered the interest rate to 10% and requires monthly
payments of principal and interest on a ten-year amortization schedule with
$25,000 of additional principal due each quarter until maturity. As of September
30, 2000, the balance due under the Danvers Loan was $639,000.
On May 13, 1998, Lasiris entered into a credit agreement with Toronto Dominion
Bank ("TD Bank"). The credit agreement provides for (i) a $1,000,000 CDN
Operating Line of Credit (the "TD Line of Credit"); (ii) a $1,000,000 CDN Term
Loan (the "TD Four Year Term Loan"); (iii) an $83,333 CDN Term Loan (the "TD Two
Year Term Loan"); and (iv) a $4,461 CDN Letter of Guarantee of (the "Letter of
Guarantee"). The TD Line of Credit bears interest at 1% over the TD Bank prime
rate, requires monthly payments of interest only, and is payable on demand. As
of September 30, 2000, borrowings on the TD Line of Credit were $118,000 CDN
($86,000 US). The TD Four Year Term Loan bears interest at 2% over the TD Bank
prime rate, matures on May 13, 2002, and requires monthly principal payments of
$21,000 CDN (approximately $15,000 US) plus interest. As of September 30, 2000,
the outstanding balance on the TD Four-Year Term Loan was $490,000 CDN ($326,000
US). The TD Two Year Term Loan was repaid in full when it matured on May 13,
2000.
On May 20, 1997 the Company entered into an equipment line of credit agreement
with Granite Bank to finance capital equipment related to new product
development. The line of credit provides that equipment purchases will be
converted quarterly into a series of five year notes, not to exceed $500,000 in
the aggregate, bearing interest at the prime rate plus .75%. As of September 30,
2000, the Company had borrowed $194,000 pursuant to such line of credit.
As of September 30, 2000, the Company believes that its available financial
resources are adequate to meet foreseeable working capital, debt service and
capital expenditure requirements through the next twelve months.
PART II
ITEM. 6 EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) The following is a complete list of Exhibits filed as part of this Form
10-QSB:
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule
(b) No reports were filed on Form 8-K
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
STOCKERYALE, INC.
November 14, 2000 /s/ Mark W. Blodgett
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Mark W. Blodgett,
Chairman and Chief Executive Officer
November 14, 2000 /s/ Gary B. Godin
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Gary B. Godin,
Senior Vice President-Finance and Treasurer