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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

Commission File Number:  0-27372

 

STOCKERYALE, INC.

(Exact name of registrant as specified in its charter)

Massachusetts

04-2114473

(State of Incorporation)

(I.R.S. Employer Identification Number)

32 Hampshire Road,  Salem, New Hampshire 03079

(Address of registrant's principal executive office)

(603) 893-8778

(Registrant's telephone number)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the 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 requirements for the past 90 days.  x  Yes  o  No

Indicate by check mark whether the registrant is an accelerated filer (as defined in 12b-2 of the Exchange Act).  o  Yes  x  No

As of October 31, 2003 there were 14,403,797 shares of the issuer's common stock outstanding.

 

 

STOCKERYALE, INC.

INDEX TO FORM 10-Q

 

PART I - FINANCIAL INFORMATION

 
Item 1 Financial Statements 
 
Unaudited Condensed Consolidated Balance Sheets at September 30, 2003 and Audited December 31, 2002 1
 
Unaudited Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2003 and 2002 2
 
Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2003 and 2002 3
 
Notes to Unaudited Condensed Consolidated Financial Statements 4
 
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10
 
Item 3 Quantitative and Qualitative Disclosure About Market Risk    15
 
Item 4 Controls & Procedures 15
 
 

PART II - OTHER INFORMATION

 
Item 1 Legal Proceedings 16
 
Item 2 Changes in Securities 16
 
Item 3 Defaults Upon Senior Securities 16
 
Item 4 Submission of Matters to a Vote of Security Holders 16
 
Item 5 Other Information 16
 
Item 6 Exhibits and Reports on Form 8-K 16
 
Signature (s) 17
 

 

i  /  STKR
  
2003 Form 10-Q
Table of Contents
 Part I 
Item 1

ITEM 1.    FINANCIAL STATEMENTS

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

In thousands
 
    

September 30,
2003

    

December 31, 2002

Assets
    
 
 
    
 
 
Current assets:
    
 
 
    
 
 
Cash and cash equivalents
    
$
2,338
    
$
3,070
Restricted cash
    
 
-
    
 
2,000
Accounts receivable, less reserves of approximately $81 at September 30, 2003 and $155 at December 31, 2002
    
 
2,591
    
 
2,200
Inventories
    
 
4,380
    
 
4,478
Prepaid expenses and other current assets
    
 
573
    
 
747
Total current assets
    
 
9,882
    
 
12,495
Property, plant and equipment, net
    
 
22,099
    
 
23,650
Goodwill
    
 
2,677
    
 
2,677
Identified intangible assets, net
    
 
1,545
    
 
1,785
Officer note receivable
    
 
249
    
 
249
Other long-term assets
    
 
692
    
 
464
Total assets
    
$
37,144
    
$
41,320
Liabilities and stockholders' equity
    
 
 
    
 
 
Current liabilities:
    
 
 
    
 
 
Current portion of long-term debt
    
$ 2,901
    
$ 5,306
Short-term debt 
    
 
4,831
    
 
7,446
Accounts payable
    
  2,111
    
2,050
Accrued expenses
    
 
1,327
    
 
1,399
Short-term portion of capital lease obligation
    
 
43
    
 
61
Total current liabilities
    
 
11,213
    
 
16,262
Long-term debt and capital lease obligations - less current portion, net of unamortized discount of $1,148 at September 30, 2003 and $269 at December 31, 2002
    
 
4,582
    
 
96
Other long-term liabilities 287
    
 
-
Stockholders' equity:
    
 
 
    
 
 
Common stock, par value $0.001-shares authorized 100,000,000; Shares issued and outstanding 14,403,650 and 12,771,524 at September 30, 2003 and December 31, 2002, respectively
    
 
14
    
 
13
Paid-in capital
    
 
70,516
    
 
68,637
Accumulated other comprehensive income (loss)
    
 
947
    
 
(266)
Accumulated deficit
    
 
(50,415)
 
(43,422)
Total stockholders' equity
    
 
21,062
    
 
24,962
Total liabilities and stockholders' equity
    
$
37,144
    
$
41,320

See notes to unaudited condensed consolidated financial statements.

 
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2003 Form 10-Q
Table of Contents
 Part I 
Item 1

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share data
          
Three Months Nine Months
Ended September 30, Ended September 30,
2003 2002 2003
    
2002
Net sales
    
$
3,670
 
    
$
3,456

$

10,840

$

9,887
Cost of sales
 
 
2,724
 
 
 
2,758 8,159
    
8,249
Gross profit
    
 
946
 
    
 
698 2,681
    
1,638
Operating expenses:
    
 
 
 
    
 
 
 
    
 
Selling expenses
    
 
585
 
    
 
704 2,134
    
2,607
General and administrative
    
 
1,009
 
    
 
1,013 3,343
    
4,312
Amortization expense
    
 
80
 
    
 
81 239
    
250
Asset Impairment
    
 
605
 
    
 
- 605
    
-  
Research and development
    
 
831
 
    
 
1,488 2,647
    
5,241
Total operating expenses
    
 
3,110
 
    
 
3,286 8,968
    
12,410
Operating loss
    
 
(2,164
)
    
 
(2,588 ) (6,287 )
    
(10,772 )
Interest and other income/(expense)
    
 
15
    
 
75   (115 )
    
265
Interest expense
    
 
290  
    
 
95 727
    
265
Loss before income tax benefit
    
 
(2,439 )
    
 
(2,608 ) (7,129 )
    
(10,772 )
Income tax provision (benefit)
    
 
14
    
 
0 (136 )
    
0
Net loss
    
$
(2,453
)
    
$
(2,608 )

$

(6,993 )
    
$ (10,772 )
Basic and diluted loss per share:
    
 
 
 
    
 
 
 
    
 
Net loss per share
    
$
(0.17 )     
$
(0.20 )

$

(0.52 )
    
$ (0.85 )
Weighted average shares outstanding:
    
 
 
 
    
 
 
 
    
 
Basic and diluted
    
 
14,401
 
    
 
12,772 13,501

12,656

 
See notes to unaudited condensed consolidated financial statements.
 
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2003 Form 10-Q
Table of Contents
 Part I 
Item 1

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands

Nine Months Ended
September 30,

 
    
2003
    
2002
Operations
    
    
Net loss
    
$
(6,993
)
    
$
(10,772
)
    
    
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation and amortization
    
2,113
    
2,029
Deferred income taxes and other charges
    
-  
    
(58
)
     Loss on investment in joint venture
    
-
    
287
     Asset Impairment
    
605
    
-
Other changes in assets and liabilities:
    
    
Accounts receivable, net
    
(391
)
    
(602 )
Inventories
    
98  
    
346  
Prepaid expenses and other current assets
    
174  
    
159  
Accounts payable
    
61
 
    
(2,016 )
Accrued expenses
    
(56)
    
(558)
       Officer note receivable -
 
    
(249 )
Other assets and liabilities
    
(180)  
    
-
 
Net cash used in operating activities
    
(4,569
)
    
(11,434
)
Financing
    
    
Proceeds from sale of common stock
    
1,197
    
9,860
Net proceeds from issuance of convertible note
2,344
Proceeds from long term debt
3,903 -
Borrowings/repayments of revolving credit facilities
    
(3,673)
    
3,563
Principal repayment of long-term debt
    
(2,210)
    
-
Restricted cash related to Merrill Lynch
    
 
2,000
    
 
-
 
Other
(102 )
84  
Net cash provided by financing activities
    
3,459
    
13,507
Investing
    
    
Proceeds from asset dispositions
    
503 
    
 
-  
Purchases of property, plant and equipment
    
(91 )
    
(1,241
)
Net investment in joint venture
    
-  
    
(260 ) 
Net cash used in investing
    
412
 
    
(1,501
)
Effect of exchange rates
    
(34 ) 
    
(57)  
Net change in cash and equivalents
    
(732 )
    
515  
Cash and equivalents, beginning of year
    
3,070
    
1,576
Cash and equivalents, end of year
    
$
2,338
    
$
2,091
Supplemental disclosure of cash flow information:
    
    
Interest paid
    
727
    
265  
Stock issued in CIENA acquisition
    
-
    
200
 
See notes to unaudited condensed consolidated financial statements.
 
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2003 Form 10-Q
Table of Contents
 Part I 
Item 1
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003

(1) ORGANIZATION AND BASIS OF PRESENTATION

The interim condensed consolidated financial statements presented have been prepared by StockerYale, Inc. (the "Company") are unaudited and, in the opinion of the management, reflect all adjustments of a normal recurring nature necessary for a fair statement of (a) the results of operations for the three and nine months ended September 30, 2003 and 2002, (b) the financial position at September 30, 2003 and December 31, 2002, and (c) the cash flows for the nine month periods ended September 30, 2003 and 2002. These interim results are not necessarily indicative of results for a full year or any other interim period.

The unaudited consolidated balance sheet presented as of December 31, 2002, has been derived from the consolidated financial statements that have been audited by the Company's independent auditors. The accompanying financial statements and notes are condensed as permitted by Form 10-Q and do not contain certain information included in the annual financial statements and notes of the Company.  The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002.

The Company has prepared the unaudited condensed financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company will be required to generate sufficient cash flow to meet its obligations on a timely basis through improved operations, refinancing of existing debt and/or additional financing.

The Company has taken action to address these financing issues and closed a new credit facility in Canada in June, which, brought  it into compliance with all debt agreements. Furthermore, the Company placed a $2.5 million convertible note and entered into a new credit facility with its senior lender during the third quarter.

(2) LOSS 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, 2003 and 2002 is calculated by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding. There were 3,191,298 and 2,938,417 options and 1,147,000 and 19,500 warrants outstanding as of September 30, 2003 and 2002, respectively, which were not included in the diluted per share calculation because their inclusion would be anti-dilutive.

(3) INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out basis) or market and include materials, labor and overhead. Inventories are as follows:

(in thousands)

 

September 30, 2003

 

December 31, 2002

Finished goods $

764

$

1,028

Work-in-process

 

 181  

101

Raw materials  

3,435

 

3,349

$

4,380

$

4,478

Management performs periodic reviews of inventory to dispose of items not required by their manufacturing plan and reduce the carrying cost of inventory to the lower of cost or market.

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2003 Form 10-Q
Table of Contents
 Part I 
Item 1

(4) STOCK BASED COMPENSATION

The Company accounts for employee stock options and share awards under the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25). No compensation cost has been recognized for stock option grants since the options granted to date have exercise prices per share of not less than the fair value of the Company's stock at the date of the grant. Had the Company determined the stock-based compensation expense for the Company's stock options under the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, the Company's net loss and net loss per share based upon the fair value at the grant date for stock options awards would have increased the pro-forma loss as indicated below:
 
(in thousands) Three Months Ended

Nine Months Ended
September 30,

September 30,
2003 2002   2003

2002
Net loss as reported
 
 $ (2,453 ) $ (2,608 ) $ (6,993 ) $ (10,772 )
Additional compensation expense
 
 
 (1,080 )
 
 (1,302 ) (3,233 ) (3,392 )
Pro forma
 
 $
 (3,533 )
 
 (3,910 ) $ (10,226 ) (14,164 )
 Net loss per share (basic and diluted)
 
 
 
 
 
 
 
 
 
As reported
 
 $ (0.17 ) $ (0.20 ) $ (0.52 ) $ (0.85 )
Pro forma
 
 
 (0.25 )
 
 (0.31 ) (0.76 ) (1.12 )
 
The fair value of options at the date of grant were estimated using the Black-Scholes option pricing model with the following assumptions:

For the Quarter Ended
September  30,

For the Nine Months Ended
September  30,

2003 2002 2003 2002
Volatility 262% 112% 262% 112%
Expected option life-years from vest 5 5 5 5
Interest rate (risk free) 3.10% 2.93% 2.77% 3.96%
Dividends - -
- -

(5) COMPREHENSIVE LOSS

SFAS No. 130, Reporting Comprehensive Income, requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's total comprehensive income (loss) is as follows:
 
(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2003 2002 2003 2002
Net loss
 
$ (2,453 )
 
$ (2,608 )

$ (6,993 )

$

(10,772 )
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
    Cumulative translation adjustment
 
 
24
 
 
 
(523)
 
1,213 (57)
  Comprehensive loss
 
 $ 
(2,429
) 
 
$ 
(3,131
 )
 $ 
(5,780
)
(10,829
)
 
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2003 Form 10-Q
Table of Contents
 Part I 
Item 1

(6) INTANGIBLE ASSETS

Intangible assets consist primarily of acquired patented technology and trademarks. Intangible assets are amortized over their estimated useful lives which range from two to five years. The Company has no intangible assets with indefinite lives. The Company reviews intangible assets when indications of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Intangible assets as of June 30, 2003 and 2002 are as follows:
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended
(in thousands)
September 30,
2003
December 31,
2002
Identified intangible assets
 
$
3,549
 
 
$
3,549
 
Less: accumulated amortization
 
$
2,004
 
 
$
1,764
 
 
 
$
1,545
 
 
$
1,785
 
 
Amortization of intangible assets was $80,000 and $81,000 for the three months ended September 30, 2003 and 2002, respectively and $239,000 and $250,000 for the nine months ended September 30, 2003 and 2002, respectively.
 
As of September 30, 2003, the estimated future amortization expense of intangible assets, in thousands,  is as follows:
 
2003 2004 2005 2006 2007
and
thereafter

$

78

$

318

$

318

$

318

$

513

 

(7) ASSET IMPAIRMENT

In the third quarter, the Company performed an impairment analysis as required by generally accepted accounting principles, resulting in an impairment charge of $605,000 related to closing the Company's Maryland specialty optical fiber facility and the write-off of equipment deposits for the optical segment of the business.

(8) 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 amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results in the future could vary from the amounts derived from management's estimates and assumptions.

(9) REVENUE RECOGNITION

The Company recognizes revenue from product sales at the time of shipment and when persuasive evidence of an arrangement exists, performance of the Company's obligation is complete, the price to the buyer is fixed or determinable, and collectibility is reasonably assured.  In certain limited situations, customers have the right to return products. Such rights of return, have not precluded revenue recognition because the Company has a long history with such returns and accordingly provides a reserve.

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2003 Form 10-Q
Table of Contents
 Part I 
Item 1

(10) RECENT ACCOUNTING PRONOUNCEMENTS

In June, 2002, FASB issued SFAS No. 146, Accounting for Cost Associated with Exit or Disposal Activities. SFAS No. 146 nullifies previous guidance on accounting for costs associated with exit or disposal activities and requires a liability for these costs to be recognized and measured at its fair value in the period in which the liability is incurred. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002.

In November 2002, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 45, "Guarantor of Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about obligations under specified guarantees that have been issued. The interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The recognition of a guarantor's obligation should be applied prospectively to guarantees issued after December 15, 2002.

The adoption of FIN 45 did not have a material impact on the Company's financial position, results of operations or cash flows.

(11) OFFICER NOTE RECEIVABLE

As described in our annual report on Form 10-K, subsequent to the approval of the Board of Directors, the Company issued a promissory note to the chairman and chief executive officer of the Company on May 31, 2002 in the principal amount of $250,000. The note is payable upon demand and bears an annual interest rate of 4.5%. As of September 30, 2003, the Company has received $5,000 in payments and the principal and accrued interest outstanding is $248,750 and $11,250, respectively.

(12) SEGMENT INFORMATION

The Company has adopted the SFAS No. 131, Disclosures About Segments of an Enterprise and Related information. SFAS No. 131 requires financial and supplementary information to be disclosed on an annual and interim basis of each reportable segment of an enterprise. SFAS No. 131 also establishes standards for related disclosures about product and services, geographic areas and major customers. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief decision-making group, in making decisions how to allocate resources and assess performance. The Company's chief decision-maker is the chief executive officer.

The illumination segment develops and manufactures specialized illumination products for the inspection, machine vision, medical and military markets. Illumination products are sold both through distributors as well as directly to original equipment manufacturers (OEM's). The optical components segment develops and manufactures specialty optical fibers and phase masks used primarily in sensor, gyroscope and telecommunication equipment. Optical component products are sold primarily to original equipment manufacturers (OEM's).
 
The Company evaluates performance and allocates resources based on revenues and operating income (loss). The operating loss for each segment includes selling, research and development and expenses directly attributable to the segment. In addition, the operating loss includes amortization of acquired intangible assets, including any impairment of these assets and of goodwill. The Company's non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon an estimate of costs associated with each segment. Segment assets include accounts receivable, inventory, machinery and equipment, goodwill and intangible assets directly associated with the product line segment.
 
 
 
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2003 Form 10-Q
Table of Contents
 Part I 
Item 1
 
The Corporate assets include cash and cash equivalents, buildings and furniture and fixtures.
Quarter Ended September 30, 2003 Quarter Ended September 30, 2002
Illumination Optical Components Total Illumination(1) Optical Components Total
Net sales $ 3,486 $ 184 $ 3,670 $ 3,286 $ 170 $ 3,456
Gross margin 1,054 (108 ) 946 664 34 698
Operating loss (540 ) (1,624 ) (2,164 ) (498 ) (2,090 ) (2,588 )
Nine Months Ended September 30, 2003 Nine Months Ended September 30, 2002
Illumination Optical Components Total Illumination(1) Optical Components Total
Net sales $ 10,060 $ 780 $ 10,840 $ 9,060 $ 827 $ 9,887
Gross margin 3,009 (328 ) 2,681 1,475 163 1,638
Operating loss (1,925 ) (4,362 ) (6,287 ) (3,692 ) (7,080 ) (10,772 )

September 30, 2003 December 31, 2002
Illumination Optical Components Corporate Total Illumination Optical Components Corporate Total
Total current assets $ 7,167 $ 469 $ 2,246 $ 9,882 $ 6,301 $ 404 $ 5,790 $ 12,495
Property, plant & equipment 1,907 7,797 12,395 22,099 777 9,699 13,174 23,650
Intangible assets 1,545 - - 1,545 1,785 - - 1,785
Goodwill 2,677 - - 2,677 2,677 - - 2,677
Other assets - - 941 941 405 59 249 713
$ 13,296 $ 8,266 $ 15,582 $ 37,144 $ 11,945 $ 10,162 $ 19,213 $ 41,320

(1) Illumination revenue in 2002 includes printer and recorder revenues which were transferred to an outside distributor in 2003.

The Company's export sales are denominated in U.S. dollars. These sales are as follows:

 
   

 Three Months Ended
September 30,

  

 Nine Months Ended
September 30,

Export sales by region (in thousands)
  
2003
  
2002
  
2003
  
2002
United States
  
$
 2,202     $ 2,074   $ 6,504     $ 5,931
Canada     330       311     976       890
Europe     807       760     2,384       2,176
Asia     331       311     976       890
 Total sales
  
$
 3,670     $ 3,456   $ 10,840     $ 9,887
 
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2003 Form 10-Q
Table of Contents
 Part I 
Item 1

(13) DEBT

The Company has various debt covenants under its multiple credit facilities. As of September 30, 2003, the Company was in compliance with all debt covenants. The specific covenants, which could require either amendment and/or waiver to remain in compliance as of December 31, 2003, are described in the footnotes below.

Merrill Lynch Financial Services
On September 30, 2003, the Company entered into an agreement to modify the terms of its credit facility with Merrill Lynch Business Financial Services. The new agreement provides a credit facility of $3,450,000 through a term note of $2,450,000 and a line of credit of $1,000,000. The new facility has a one year maturity and bears an interest rate of one month libor + 5.5%. On September 30, 2003 the interest rate was approximately 6.5%. Outstanding borrowings as of September 30, 2003 were $3,173,000.
 
Laurus Master Funds
On September 24, 2003, the Company sold a Convertible Note to Laurus Master Funds, LTD. The $2,500,000 Convertible Note matures on September 24, 2006, bears interest at a rate equal to the Prime Rate plus 3. 5%, but in no event less than 7.5%, and provides the holder with the option to convert the loan to common stock at $1.07 per share subject to certain adjustment features. StockerYale has the right to elect to make the monthly required payments on the convertible note (comprised of principal amortization and interest) in the form of shares of common stock, determined based on the $1.07 conversion price, as adjusted from time to time. The Company also issued to the holder seven-year warrants to purchase shares in the following warrant amounts and exercise prices per share of common stock: 225,000 shares at $1.23 per share, 150,000 shares at $1.34 per share and 100,000 shares at $1.44 per share.

The Company can elect to pay monthly principal amortization in cash at 103% of the principal amount. The Company may also elect to pay both principal amortization and interest in common stock, if the market price of the the stock at the time of the payment is 110% of the fixed conversion price. The Company may elect to redeem the principal amount outstanding at 120% within the first year, 115% within the second year and 110% during the third year. The principal amortization payments begin 120 days from the execution of the agreement at a rate of $78,125 per month. As of September 30, 2003, $781,250 has been classified as short-term debt and $1,718,750 has been classified as long-term debt.

As of September 30, 2003, $2,500,000 was outstanding under the convertible note. The aggregate purchase price of the convertible note and warrants ($2,500,000) was allocated between the note, the common stock conversion option and warrants based upon their relative fair market value. The purchase price assigned to the note, common stock beneficial conversion option and warrants was $1,553,000, $546,000 and $401,000 respectively. The difference between the face amount of the convertible note of $2.5 million and the aggregate purchase price of the convertible note  of $1,553,000 was recorded as a debt discount and is being amortized over the life of the convertible note.

Bank of Ireland
On September 24, 2003, StockerYale, Inc. entered into a guarantee of a Euros125,000 in connection with a credit facility provided by the Bank of Ireland to StockerYale Ireland. The credit facility provides a Euro 50,000 line of credit and a Euro 75,000 overdraft facility. The credit facility is secured by the assets of StockerYale Ireland and StockerYale, Inc.'s guarantee and bears a variable interest rate approximating 9.0%. The facility is subject to an annual renewal. Outstanding borrowings as of September 30, 2003 were $181,000 US.
 
TJJ Corporation
On September 18, 2003, the Company entered into an agreement with TJJ Corporation amending the $5,000,000 term note maturing in December 27, 2005. The new agreement results in loan amortization commencing in October 2003 and a reduction in the stockholders' equity covenant from $22,000,000 to $20,000,000. As of September 30, 2003, the Company's stockholders' equity was $21,062,000. The new principal amortization is $100,000 per month for three months, $150,000 for the next three months and $200,000 per month for the following eleven months. The maturity was also changed to March 1, 2005. All other terms of the term note remained the same. Outstanding borrowings as of September 30, 2003 were $5,000,000.
 
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2003 Form 10-Q
Table of Contents
 Part I 
Items 1,  2
National Bank of Canada
On August 23, 2003, the Company amended its credit facility with National Bank of Canada reducing the restricted term deposit from C$1,000,000 ($740,000 US)to C$250,000 ($185,000 US) and reducing the term loan from C$2,300,000 ($1,702,000 US) to C$1,550,000 ($1,147,000 US) . The net availability of the term loan remained the same. In addition, the bank added Canadian Provincial Government research and development tax credits as additional eligible accounts receivable, which increased the availability of the revolving credit facility by approximately C$300,000 ($222,000 US). All other terms of the credit facility remained the same, including StockerYale, Inc.'s guarantee to fund StockerYale Canada's deficits if requested by the bank.

StockerYale Canada is required by the credit facility to reduce inventory levels to C$3,000,000 ($2,220,000 US) by December 31, 2003. As of September 30, 2003, StockerYale Canada's inventory balance was C$3,900,000 ($2,855,000 US). Outstanding borrowings as of September 30, 2003 were C$3,490,000 ($2,582,000 US).

Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS

This Quarterly Report on Form 10-Q 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. When the Company uses words such as "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. Such factors include, without limitation: market conditions that could make it more difficult or expensive for the Company to obtain the necessary capital to finance its research and development projects, operations, as well as its ability to refinance existing debt; the existence of other independent suppliers of optical fiber, who may have greater resources than the Company; and the uncertainty that the company's significant investments in research and development will not result in products that achieve market acceptance. Additional such factors are discussed in the section entitled "certain factors affecting future operating results" on page 20 of the Company's annual report on form 10-K for the fiscal year ended December 31, 2002.

RESULTS OF OPERATIONS

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, 2002.

THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Net Sales

Net revenue increased 6.2% to $3.7 million in the third quarter of 2003 from $3.5 million for the same period in 2002. The Company achieved an 18% growth rate in its illumination sales, which offset flat revenues in the optical sector and a $0.3 million decline in the printer and recorded product line, which the Company transferred to a distributor in November of 2002. Record LED shipments from the Company's Irish subsidiary was the principal factor for higher illumination sales. Excluding the printer and recorder product line, sales increased 16.1% for the third quarter versus the comparable quarter in 2002.

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Item 2

Gross Profit

Gross margins improved from $0.7 million or 20% of sales in 2002 to $1.0 million or 26% of sales in 2003 as increased sales and lower manufacturing overhead contributed incremental profits of $0.1 million and $0.2 million, respectively.

Operating Expenses

Operating expenses, excluding an asset impairment charge of $0.6 million, decreased $0.8 million or 24% from $3.3 million in the third quarter of 2002 to $2.5 million in the third quarter of 2003. Research and development expenses declined $0.7 million or 44% due to reduced salaries and benefits, lower development costs and the elimination of  joint venture expenditures. Lower salaries and commissions combined with tighter marketing expenditures resulted in a $0.1 million or 17% decline in selling expenditures. General and administrative expenses were level at $1.0 million as lower salaries were offset by higher professional fees.

Interest Expense

Interest expense was $290,000 in the third quarter of fiscal 2003 compared to $95,000 in 2002 due to both higher interest rates and a higher level of borrowing.

Asset Impairment

 The $0.6 million asset impairment charge represents the costs related to closing our Maryland specialty optical fiber facility and the write-off of equipment deposits for the optical segment of the business.

NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Net Sales

Revenues increased $1.0 million or 10% to $10.8 million as higher illumination sales, especially in the laser and LED product lines, offset lower phase mask sales and the transfer of the printer and recorder product line in 2002. Excluding the printer and recorder product line, revenues in 2003 increased 20% compared to 2002.

Gross Profit

Gross margins improved $1.0 million or 64%  in 2003 to $2.7 million or 25% of sales as increased sales and lower manufacturing overhead contributed incremental profits of $0.3 million and $0.7 million, respectively.

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Item 2

Operating Expenses

Operating expenses, excluding an asset impairment charge of $0.6 million, decreased $4.1 million or 33% from $12.4 million for the first nine months of 2002 to $8.4 million in the first nine months of 2003. Research and development expenses declined $2.6 million or 50% due to reduced salaries, lower development costs and the elimination of joint venture expenditures. Lower salaries combined with tighter marketing expenditures resulted in a $0.5 million or 18% decline in selling expenditures. General and administrative expenses were reduced $1.0 million or 22% due to lower salaries, insurance and professional fees.

Interest Expense

Interest expense was $727,000 for the nine months ended September 30, 2003 compared to $265,000 in 2002 due to both higher interest rates and a higher level of borrowing.

LIQUIDITY AND CAPITAL RESOURCES

As discussed in both the previously filed Form 10-K for the year ended December 31, 2002 and Form 10-Q for the quarters ended March 31, 2003 and June 30, 2003, the Company continues to pursue various options to raise additional capital to finance operations.

Two of these options were consummated in the second quarter of 2003, including the completion of refinancing the Company's Canadian subsidiary's credit facility with the National Bank of Canada and closing a $1.2 million equity placement with several of the Company's institutional investors. The new National Bank of Canada credit facility did not raise any additional capital. The new facility principally retired the Toronto Dominion (TD) Bank facility upon closing, however, the new facility provides the Company incremental future financing beyond the levels available under the TD Bank loan agreement. The private placement of $1,200,000 was composed of 1,610,000 shares of common stock at $0.60 per share plus $270,000 convertible at $0.60 per share less issuance expenses.

During the third quarter of 2003, the Company closed a $2.5 million (net proceeds $2.3 million) convertible note with Laurus Master Funds, LTD. The note bears an interest rate of Prime plus 3.5% and provides Laurus Master Funds with the right to convert the note into common stock at $1.07 per share. In addition, the company established a new $3.5 million credit facility with Merrill Lynch Business financial Services, which increased its borrowing capacity by $0.3 million. The Company also submitted a proposal in the third quarter for a Canadian government development loan. The Company anticipates a decision by the Canadian government in the fourth quarter with funding commencing in the first quarter of 2004. The Company is also evaluating various asset disposition options, including both equipment and building sales to reduce debt and improve cash flow.

For the nine months ended September 30, 2003, cash decreased $0.7 million. Cash used in operating activities was $4.6 million for the period ended September 30, 2003 which primarily resulted from an operating loss of $7.0 million, partially offset by a $2.1 million in depreciation and amortization and an asset impairment charge of $0.6 million.

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Item 2

Cash from financing activities was $3.5 million as a result of proceeds from the sale of common stock of $1.1 million and the term note with Laurus Master Funds of $2.3 million. The remaining debt changes due to refinancing were effectively cash neutral.

Investing activities provided $0.4 million principally due to proceeds from a land sale in Montreal.

Laurus Master Funds
On September 24, 2003, the Company sold a Convertible Note to Laurus Master Funds, LTD. The $2,500,000 Convertible Note matures on September 24, 2006, bears interest at a rate equal to the Prime Rate plus 3. 5%, but in no event less than 7.5%, and provides the holder with the option to convert the loan to common stock at $1.07 per share subject to certain adjustment features. StockerYale has the right to elect to make the monthly required payments on the convertible note (comprised of principal amortization and interest) in the form of shares of common stock, determined based on the $1.07 conversion price, as adjusted from time to time. The Company also issued to the holder seven-year warrants to purchase shares in the following warrant amounts and exercise prices per share of common stock: 225,000 shares at $1.23 per share, 150,000 shares at $1.34 per share and 100,000 shares at $1.44 per share.

The Company can elect to pay monthly principal amortization in cash at 103% of the principal amount. The Company may also elect to pay both principal amortization and interest in common stock, if the market price of the the stock at the time of the payment is 110% of the fixed conversion price. The Company may elect to redeem the principal amount outstanding at 120% within the first year, 115% within the second year and 110% during the third year. The principal amortization payments begin 120 days from the execution of the agreement at a rate of $78,125 per month. As of September 30, 2003, $781,250 has been classified as short-term debt and $1,718,750 has been classified as long-term debt.

As of September 30, 2003, $2,500,000 was outstanding under the convertible note. The aggregate purchase price of the convertible note and warrants ($2,500,000) was allocated between the note, the common stock conversion option and warrants based upon their relative fair market value. The purchase price assigned to the note, common stock beneficial conversion option and warrants was $1,553,000, $546,000 and $401,000 respectively. The difference between the face amount of the convertible note of $2.5 million and the aggregate purchase price of the convertible note  of $1,553,000 was recorded as a debt discount and is being amortized over the life of the convertible note.

TJJ Corporation
On September 18, 2003, the Company entered into an agreement with TJJ Corporation amending the $5,000,000 term note maturing in December 27, 2005. The new agreement results in loan amortization commencing in October 2003 and a reduction in the stockholders' equity covenant from $22,000,000 to $20,000,000. The new principal amortization is $100,000 per month for three months, $150,000 for the next three months and $200,000 per month for the following eleven months. The maturity was also changed to March 1, 2005. All other terms of the term note remained the same. As of September 30, 2003, $5,000,000 was outstanding under the Term Note and the Company was in compliance with the covenants of the Term Note. The Company's stockholders' equity was $21,060,000 at September 30, 2003.
 
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Merrill Lynch Financial Services
On September 30, 2003, the Company entered into an agreement to modify the term of its credit facility with Merrill Lynch Business Financial Services. The new agreement provides a credit facility of $3,450,000 through a term note of $2,450,000 and a line of credit of $1,000,000. The new facility has a one year maturity and bears an interest rate of one month libor + 5.5%.  On September 30, 2003 the interest rate was approximately 6.5%. As of September 30, 2003, $2,450,000 was outstanding under the term note and approximately $723,000 was outstanding under the line of credit.

The Company's obligations under this credit facility are secured by substantially all the Company's Salem assets, excluding real property. In addition, the Company is required to maintain a $10.0 million tangible net worth. The Company was in compliance with all provisions of the credit agreement as of September 30, 2003.

 National Bank of Canada
On May 26, 2003, the Company entered into a credit agreement with the National Bank of Canada replacing the facility with Toronto Dominion Bank. The new agreement provides total borrowing availability up to $4,050,000 CDN ($3,000,000 US). Initial proceeds were used to pay off the credit agreement with Toronto Dominion Bank.

 

The credit facility consists of a $2,500,000 CDN ($1,850,000 US) line of credit secured by accounts receivable and inventory bearing a variable interest rate of Canadian prime rate plus 1.5% and a $1,550,000 CDN ($1,150,000 US) ten year term note bearing a variable interest rate of Canadian prime rate plus 2.25%.

 

As of September 30, 2003, $1,994,921 CDN ($1,475,000 US) was outstanding under the line of credit and $1,492,500 CDN ($1,104,000 US) was outstanding under the term note. As of September 30, 2003 the interest rate on the line of credit and the term note were 6.50% and 7.25%, respectively.

 

The National Bank of Canada credit facility requires the following financial covenants including: working capital, net worth, capital expenditures, a financial coverage ratio and maximum inventory levels. The Company's Canadian subsidiary was in compliance with all provisions of the credit agreement as of September 30, 2003.

 

StockerYale Canada is required by the credit facility to reduce inventory levels to C$3,000,000 ($2,220,000 US) by December 31, 2003. As of September 30, 2003, StockerYale Canada's inventory balance was C$3,900,000 ($2,855,000 US).

CRITICAL ACCOUNTING POLICIES, COMMITMENTS AND CERTAIN OTHER MATTERS

The Company considered the disclosure requirements of FR-60 regarding critical accounting policies and FR-61 regarding liquidity and capital resources, certain trading activities and related party/certain other disclosures, and concluded that nothing materially changed during the quarter that would warrant further disclosure under these releases.

 
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Item 3

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RISK

Management has determined that all of the Company's foreign subsidiaries operate primarily in local currencies that represent the functional currencies of the subsidiaries. All assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expense accounts are translated at average exchange rates during the year. As such, the Company's operating results are affected by fluctuations in the value of the U.S. dollar as compared to currencies in foreign countries, as a result of the Company's transactions in these foreign markets. The Company does not operate a hedging program to mitigate the effect of a significant rapid change in the value of the Canadian Dollar or Euro as compared to the U.S. dollar. If such a change did occur, the Company would have to take into account a currency exchange gain or loss in the amount of the change in the U.S. dollar denominated balance of the amounts outstanding at the time of such change. While the Company does not believe such a gain or loss is likely, and would not likely be material, there can be no assurance that such a loss would not have an adverse material effect on the Company's results of operations or financial condition.

INTEREST RATE RISK

The Company is exposed to market risk from changes in interest rates, which may adversely affect its financial position, results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, the Company manages exposures through its regular operating and financing activities. The Company is exposed to interest rate risk primarily through its borrowings under its $2.5 million credit line and $3.5 million Reducing Revolver with Merrill Lynch with an interest rate at 2.5% over the one month LIBOR and its $4.8 million CDN credit facility with the National Bank of Canada with interest rates of 1.5% and 2.5% over the Canadian prime rate. As of June 30, 2003 the fair market value of the Company's outstanding debt approximates its carrying value due to the short-term maturities and variable interest rates. A 1% change in interest rates could increase or decrease interest expense by approximately $120,000 on an annual basis.

ITEM 4.    CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

As required by new Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, the Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. In connection with the new rules, we currently are in the process of further reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b) Changes in internal controls

None

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Item 1

Item 1.     LEGAL PROCEEDINGS

At times the company may be involved in disputes and/or litigation with respect to its products and operations in its normal course of business. The company does not believe that the ultimate impact of the resolution of such matters would have a material adverse effect on the company's financial condition or results of operations. The company is not currently involved in any legal proceedings.

Item 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

Item 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY

Not applicable.

Item 5.    OTHER INFORMATION

Not applicable.

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-Q:

 
Exhibit Number        Description
31.1                 CEO Certification
31.2                 CFO Certification
32.1                 CEO Certification
32.2                 CFO Certification

(b)  Reports on Form 8-K: None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

StockerYale, Inc.  
 
 
November 14, 2003 /s/ Mark W. Blodgett
Mark W. Blodgett,
Chairman and Chief Executive Officer
 
November 14, 2003 /s/ Francis J. O'Brien
Francis J. O'Brien,
Chief Financial Officer and Treasurer
 
 
17  /  STKR
   
2003 Form 10-Q

EXHIBIT 31.1  

CERTIFICATION

I, Mark W. Blodgett, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of StockerYale, Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:   November 14, 2003 /s/ Mark W. Blodgett

 

Mark W. Blodgett

  Chairman and Chief Executive Officer
 
Exhibit 31.1  /  STKR
  
2003 Form 10-Q

EXHIBIT 31.2

CERTIFICATION

I, Francis J. O'Brien, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of StockerYale, Inc.;

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];

c)     Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:    November 14, 2003 /s/ Francis J. O'Brien

 

Francis J. O'Brien

  Chief Financial Officer
  
Exhibit 31.2  /  STKR
  
2003 Form 10-Q
 
EXHIBIT 32.1  

CERTIFICATION

The undersigned officer of StockerYale, Inc. (the "Company") hereby certifies that the Company's quarterly report on Form 10-Q to which this certification is attached, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K ("Item 601(b)(32)") promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Date: November 14, 2003 Name: /s/ Mark W. Blodgett  
    Mark W. Blodgett
     
     
  Title: Chairman and
Chief Executive Officer
 
 
 
Exhibit 32.1  /  STKR
 
2003 Form 10-Q
 
EXHIBIT 32.2  

CERTIFICATION

The undersigned officer of StockerYale, Inc. (the "Company") hereby certifies that the Company's quarterly report on Form 10-Q to which this certification is attached, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K ("Item 601(b)(32)") promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Date: November14, 2003 Name: /s/ Francis J. O'Brien  
    Francis J. O'Brien
     
     
  Title: Chief Financial Officer and
Treasurer
 
Exhibit 32.2  /  STKR
END
2003 Form 10-Q