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| STKR.OB > SEC Filings for STKR.OB > Form 10-Q on 20-Nov-2009 | All Recent SEC Filings |
20-Nov-2009
Quarterly Report
The following discussion of the consolidated financial condition and results of operations of the Company should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q. Except for the historical information contained herein, the following discussion, as well as other information in this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the "safe harbor" created by those sections. Some of the forward-looking statements can be identified by the use of forward-looking terms such as "believes," "expects," "may," "will," "should," "could," "seek," "intends," "plans," "estimates," "anticipates" or other comparable terms. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. We urge you to consider the risks and uncertainties described in "Risk Factors" in this report and in our annual report on Form 10-K for the year ended December 31, 2008. We undertake no obligation to update our forward-looking statements to reflect events or circumstances after the date of this report. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.
The Company is an independent designer and manufacturer of laser diode modules and LED systems for industry-leading original equipment manufacturers (OEMs), as well as a distributor of visible, infrared and blue violet laser diodes. Our products include the Photonic Products brand of laser diode modules, diodes, and StockerYale LED systems for the machine vision, industrial inspection, defense and security, biomedical and medical markets. Our products are sold to over 800 customers, primarily in North America, Europe and the Pacific Rim. We sell directly to, and work with, a group of distributors and machine vision integrators to sell their specialized illumination products.
The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and with our audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2008.
We are a leader in the design, development and manufacturing of low power laser modules. In addition, we distribute laser diodes for leading diode manufacturers, and develop and manufacture LED systems. Our products serve a wide range of applications and industries including machine vision and industrial inspection, biomedical and medical, defense and security, and other commercial applications. Our advanced technologies are driven by a deep understanding of the needs of our customers and the industries in which they work.
The Company took a number of actions during 2008 and the first nine months of 2009 to restructure its debt, improve its operational efficiency and its overall financial performance. The Company engaged Needham & Company, LLC to assist it in reviewing and evaluating financial and strategic alternatives, and subsequent to the quarter ended September 30, 2009, we reached an agreement with Coherent to sell substantially all of the North American assets of the Company. The sale price consisted of a cash payment of $15,000,000 and the assumption of certain liabilities, including approximately $3,400,000 of accounts payable and other obligations. Proceeds from the transaction were used to pay off in full all obligations owed to Laurus and its related entities (approximately $7,900,000 including fees) and for working capital and general corporate purposes for the Company's ongoing and future operations. The Company expects to record a net gain related to the transaction in the fourth quarter of 2009.
On October 7, 2009, the Company and its wholly owned subsidiary, StockerYale (UK) Limited, amended the bonds held by the former shareholders of Photonic Products Ltd. to amortize and begin principal payments on the bonds that were due and payable October 31, 2009.
The Company will continue to operate its LED systems and Photonic Products businesses, which are based in Ireland and the United Kingdom. In the past, the company reported three segments: lasers, Photonic Products, and optical components. The optical component segment was sold in its entirety.
The Company's common stock trades on the OTC Bulletin Board under the ticker symbol "STKR.OB."
Net sales were $2.3 million for the three months ended September 30, 2009, a 37% decrease from $3.7 million for the third quarter of 2008. Adjusted for the impact of foreign currency translation, the decrease in sales was 30%. The decrease in sales was due to decreased demand from the LED segment (46%) and Photonic Products segment (31%). The decrease also includes the negative impact of foreign currency translation of approximately $252,000 of which $174,000 is related to the decline in the British Pound ("GBP") from the prior year.
Gross profit was $0.7 million for the three months ended September 30, 2009, compared to $1.3 million for the third quarter of 2008. During the three months ended September 30, 2009, gross margin was 30.6% compared with 36.1% in the third quarter of 2008, principally due to the decrease in sales in our LED segment of approximately 46% and the resulting impact on gross margin in that segment.
Operating expenses totaled $1.5 million for the third quarter of 2009, decreasing 41% from $2.5 million for the third quarter of 2008. The decrease in expenses from the prior year result from lower costs in 2009 due to cost reduction initiatives of approximately $426,000, one-time expense of acquisition costs of $452,000 in 2008 relating to an acquisition transaction that did not close and a favorable foreign currency impact in 2009 of approximately $122,000.
Operating loss was $1.0 million compared with an operating loss of $1.4 million for the third quarter of 2008. Operating losses decreased primarily due to the $452,000 of expenses relating to an acquisition transaction that did not close in 2008.
Other expenses, which are comprised primarily of non-cash debt discount and financing costs, resulted in expense of $666,000 for the three months ended September 30, 2009, versus expenses of $2,107,000 in the three months ended September 30, 2008. The decline arose mainly from one-time expenses in 2008 relating to an acquisition transaction that did not close of approximately $961,000, and from translation adjustments due to the weakening of the US dollar against the GBP, and the Euro of approximately $0.6 million.
The net loss from discontinued operations for the three months ended September 30, 2009, was approximately $(26,000) and the net gain for the three months ended September 30, 2008, was approximately $313,000. All amounts have been reported as net gain (loss) from discontinued operations. Interest expense was also allocated to discontinued operations.
Net loss including discontinued operations was $1.5 million or $0.03 per share. This compares to net loss of $3.1 million or $0.08 per share for the third quarter of 2008
Our historical operating losses raise doubt about our ability to realize the benefits of our deferred tax assets. As a result, we provide a valuation allowance for the net deferred tax assets that may not be realized. We recorded a deferred tax benefit of approximately $205,000 in the three months ended September 30, 2009, related to one of our non-U.S. based subsidiaries. We recorded a deferred tax benefit of approximately $80,000 in the three months ended September 30, 2008, related to the same non-U.S. based subsidiary, which are considered realizable in that tax jurisdiction.
Net sales were $7.8 million for the nine months ended September 30, 2009, a 32% decrease from $11.5 million for the nine months ended September 30, 2008. Adjusted for the impact of foreign currency translation, the decrease in sales was 20%. The decrease in sales was due to decreased demand from the LED segment (26%) and the Photonic Products segment (35%). The decrease also includes the negative impact of foreign currency translation of approximately $1.4 million of which $1.0 million is related to the decline in GBP from the prior year.
Gross profit was $2.2 million for the nine months ended September 30, 2009. This represents a 39% decrease from $3.6 million for the first nine months of 2008. During the nine months ended September 30, 2009, gross margin was 38.4% compared with 31.4% in the comparable period of 2008, principally due to the decrease in sales in our Photonic Products segment of approximately 35% and the resulting impact on gross margin in that segment. Gross profit was favorably impacted from foreign currency exchange of approximately $89,000.
Operating expenses totaled $4.9 million for the nine months ended September 30, 2009, versus $6.9 million in the same period of 2008. The decrease in operating expense was mainly due to actions taken to decrease the Company's cost structure in 2009, one-time expenses of $784,000 relating to an acquisition transaction that did not close in 2008, and the favorable impact from foreign currency exchange in 2009 of approximately $674,000.
Operating loss was $3.2 million compared with operating losses of $4.1 million for the same period of 2008.
Other expenses, which are comprised primarily of non-cash debt discount and financing costs, showed an expense of $0.5 million for the nine months ended September 30, 2009, versus an expense of $3.1 million during the nine months ended September 30, 2008. The change in expense was mainly from one-time expenses in 2008 of approximately $961,000 relating to a acquisition transaction that did not close, a gain due to the weakening of the U.S. dollar against the British Pound (GBP), and the Euro of approximately $2.0 million, a gain on the valuation of the warrant liability of approximately $92,000, offset by an decrease in cost of financing expenses of approximately $642,000.
The net losses from discontinued operations for the nine months ended September 30, 2009 and 2008 were approximately $214,000 and $515,000. All amounts have been reported as net loss from discontinued operations. Interest expense was also allocated to discontinued operations.
Net loss including discontinued operations was $3.8 million or $0.09 per share. This compares to net loss of $7.5 million or $0.20 per share for the first nine months of 2008.
Our historical operating losses raise doubt about our ability to realize the benefits of our deferred tax assets. As a result, we provide a valuation allowance for the net deferred tax assets that may not be realized. We recorded a deferred tax benefit of approximately $214,000 for the nine months ended September 30, 2009, related to the same non-U.S. based subsidiary compared to $203,000 for the nine months ended September 30, 2008, which are considered realizable in that tax jurisdiction.
Our cash balance was $1.2 million at September 30, 2009 versus $1.6 million at December 31, 2008. The reduction was primarily a result of the principal and interest payments and payments against revolving lines of credit, which were partially offset by a new loan in the amount of $0.5 million from a private investor.
As of September 30, 2009, our net accounts receivable balance was $1.2 million compared to $1.7 million at year end. Our days sales outstanding decreased from 47 days at December 31, 2008 to 45 days at September 30, 2009.
Inventories at September 30, 2009 were flat to the $1.4 million at December 31, 2008.
Capital spending for the nine months ending September 30, 2009 was $36,000. The Company has no material contingent capital expenditure commitments as of September 30, 2009 and has no plans to purchase additional capital items between October 1, 2009 and December 31, 2009.
As a result of the sale of substantially all North American assets of the Company on October 13, 2009, the Company's management believes it has adequate funds to sustain current operations. Proceeds from the sale amounted to $15,000,000 from which approximately $9,700,000 was used to repay loans, pay expenses associated with the sale, and other settlements and obligations. In addition, $750,000 of the proceeds is held in escrow for a period of one year from the date of sale. The cash balance was $6.3 million, including $750,000 held in escrow, on October 31, 2009, after the payment of loans, transaction expenses and other obligations.
As previously disclosed, on March 27, 2009, the Company entered into the First Amendment to Stock and Warrant Purchase Agreement, dated as of March 23, 2009 (the "Amendment"), with Lewis Opportunity Fund LP ("Lewis") which extended the closing date of that certain Stock and Warrant Purchase Agreement (the "Purchase Agreement") to June 30, 2009. Under the Purchase Agreement, Lewis agreed to purchase from the Company, and the Company agreed to sell to Lewis, 2,000,000 shares of the Company's common stock at a per share purchase of $0.25, for an aggregate purchase price of $500,000.
The Company did not receive the funds by September 30, 2009, and is evaluating the options for closing the Purchase Agreement.
We have no significant off-balance sheet arrangements, including derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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