STKR » Topics » Overview

This excerpt taken from the STKR 10-Q filed Nov 14, 2008.

Overview

StockerYale, Inc. is an independent designer and manufacturer of structured light lasers, LED systems, fluorescent lighting products, and specialty optical fibers and phase masks for industry-leading original equipment manufacturers (OEMs), as well as a specialist distributor of visible, infrared and blue violet laser diodes. Our illumination products include the Lasiris and Photonic Products brands of laser diode modules, extremely bright light emitting diode (LED) illuminators and fluorescent lighting products for the machine vision, industrial inspection, defense, telecommunications, sensors, and medical markets. Our products are sold to over 1,500 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.

 

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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-KSB for the year ended December 31, 2007.

The Company has made key investments in and 2007 and 2008 in medical product research and development to support its strategic move into medical and bio-medical markets. The Company expects its medical strategy to be a catalyst for greater revenues across all three product lines in 2008, as medical related sales grew from 6% of total sales in the second quarter ended June 30, 3008 to approximately 11% of total sales in the third quarter ended September 30, 2008.

Management intends to employ a series of actions to improve the financial condition of the Company. These initiatives include revenue growth, cost reductions, raising capital, and pursuing appropriate business initiatives, which we expect to improve our profitability. The Company took certain actions in 2007 to reduce the overall cost structure of the Company and intends to continue to implement such actions throughout 2008. In addition, the Company intends to focus on increasing the pace with which operational improvements are able to improve its financial performance and the consistency of its results. The Company intends to identify additional opportunities to lower its costs and manage the business more efficiently.

The Company is considering different ways to raise additional capital including through the sale of its equity securities, through offerings of debt securities, or through borrowings from financial institutions. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flow to meet its obligations on a timely basis through improved operations and/or additional financing which may not occur.

On June 16, 2008, the Company announced its intention to acquire all issued and outstanding Common Shares of Virtek Vision International Inc. (“Virtek”) of Waterloo, Ontario, Canada, through its newly formed acquisition subsidiary, StockerYale Waterloo Acquisition Inc. representing a total purchase price of approximately Cdn $27 million. The tender offer was not accepted and expired on August 25, 2008. The Company recorded expenses of approximately $1,413,000, including $452,000 cash expenses in connection with the now expired tender offer for Virtek. For the nine months ended September 30, 2008, the Company recorded expenses of approximately $1,720,000, including $759,000 cash expenses in connection with the now expired tender offer for Virtek.

CALENDAR QUARTERS ENDED SEPTEMBER 30, 2008 AND 2007

Net Sales

Net sales were $8.5 million for the three months ended September 30, 2008, a 7% increase over $7.9 million for the third quarter of 2007. The increase in sales was due to a 22% increase in sales of Illumination Products offset by an 11% decrease in sales by Photonic Products.

Gross Profit

Gross profit was $3.5 million for the three months ended September 30, 2008. This represents an increase of 33% from $2.7 million for the third quarter of 2007. During the three months ended September 30, 2008, gross margin was 42% compared with 34% in the third quarter of 2007, primarily related to an increase in production volume, higher value product sales as well as production efficiency.

 

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Operating Expenses

Operating expenses totaled $4.4 million for the third quarter of 2008, increasing 25% over $3.5 million in the third quarter of 2007. The increase in operating expenses over the third quarter of 2007 was primarily due to a 60% increase in general and administrative costs. These additional expenses include approximately $452,000 legal and other costs related to the expired tender offer for Virtek. Non-cash share-based compensation expense increased $196,000 compared to the third quarter of 2007. Compared to the third quarter of 2007, sales and marketing expenses decreased approximately $67,000 and research and development expenses grew approximately $133,000.

Operating loss was $0.8 million compared with operating loss of $0.8 million for the third quarter of 2007.

Non-Operating Expenses

Other expenses, which are comprised primarily of non-cash debt discount and financing costs, increased by 311% to $2,368,000 for the three months ended September 30, 2008, versus $576,000 in the three months ended September 30, 2007. The increase relates to the non cash stock issue of approximately $961,000 related to the expired tender off for Virtek, an increase in the non cash debt acquisition charges related to the extension of warrants for the March 31, 2008 line of credit overdraft, as well as non cash charges related to foreign currency exchange rate changes.

Net Income (Loss)

Net loss including discontinued operations was $3.1 million or $0.08 per share. This compares to a net loss of $1.3 million or $0.04 per share for the third quarter of 2007.

Provision (Benefit) for Income Taxes

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 $68,000 in the period ended September 30, 2008, related to one of our non-U.S. based subsidiaries.

NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

Net Sales

Net sales were $25.1 million for the nine months ended September 30, 2008, a 12% increase over $22.3 million for the third quarter of 2007. The increase in sales was due to a 14% increase in sales of Illumination Products and a 12% increase in sales by Photonic Products

Gross Profit

Gross profit was $8.9 million for the nine months ended September 30, 2008. This represents an increase of 18% from $7.5 million for the first nine months of 2007. During the nine months ended September 30, 2008, gross margin was 35% compared with 34% in the comparable period of 2007, primarily related to product mix in Illumination Products with higher margin product sales, partially offset by a negative impact from foreign currency exchange rates of approximately $193,000.

Operating Expenses

Operating expenses totaled $12.8 million for the nine months ended September 30, 2008, increasing 20% over $10.7 million in the same period of 2007. The increase in operating expenses was primarily due to the change in foreign currency exchange rates of approximately $330,000, an increase in non-cash share-based compensation expense under SFAS 123(R) of $554,000, and approximately $759,000 related to third party costs associated with the Virtek acquisition. Sales and marketing expenses were flat to 2007, while research and development expenses increased 6% to $2.4 compared to the same period of 2007. General and administrative expense increased 38%, or $2.0 million due to non-cash share-based compensation expense, approximately $759,000 related to the tender offer for Virtek, and investments in personnel, compared to $5.4 million during the nine months ended September 30, 2007.

Operating loss for the first nine months of 2008 was $3.9 million compared with operating losses of $3.1 million for the same period of 2007.

 

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Non-Operating Expenses

Other expenses, which are comprised primarily of non-cash debt discount and financing costs, increased by 71% to $3.9 million for the nine months ended September 30, 2008, versus $2.3 million during the nine months ended September 30, 2007. The increase relates to the non-cash stock issue of approximately $961,000 related to the expired tender off for Virtek, an increase in the non cash debt acquisition charges related to the extension of warrants for the March 31, 2008 line of credit overdraft, as well as non cash charges related to foreign currency exchange rate changes.

Net Income (Loss)

Net loss including discontinued operations was $7.5 million or $0.20 per share for the first nine months of 2008. This compares to net loss of $5.1 million or $0.15 per share for the first nine months of 2007.

Provision (Benefit) for Income Taxes

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 $190,000 for the nine months ended September 30, 2008, related to one of our non-U.S. based subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

Our cash balance declined by $44,000 to $1,523,000 at September 30, 2008 from $1,577,000 at December 31, 2007. During the nine month period, we had new borrowings totaling approximately $3.7 million comprised of approximately $1.2 million from the February 26, 2008 Confidential Invoice Discounting Agreement between Barclay’s Bank Sales Financing and Photonic Products, a $0.5 million amendment to the Photonic Products financing by a private investor on May 30, 2008 and the March 31, 2008 $0.5 million overadvance agreement with Laurus Master Fund, Ltd. and approximately $1.4 million between a private investor on July 24, 2008 and StockerYale Ireland. Operations used $3.0 million in cash, including $0.9 million of interest, and made principal payments totaling $1.6 million.

As of September 30, 2008, our net accounts receivable balance was $5.0 million compared to $4.5 million at year end. Our days sales outstanding at September 30, 2008, decreased from 54 days at December 31, 2007, to 53 days at September 30, 2008.

Inventory increased approximately $0.3 million to $4.5 million from $4.2 million at December 31, 2007, primarily in raw materials.

Capital spending for the quarter ending September 30, 2008 was $208,000. The Company has no material capital expenditure commitments as of September 30, 2008 but has plans to purchase approximately $194,000 of capital items between October 1, 2008 and December 31, 2008, of which we expect approximately $153,000 to be financed through capital leases.

On June 16, 2008, the Company announced its intention to acquire all issued and outstanding Common Shares of Virtek Vision International Inc. (“Virtek”) of Waterloo, Ontario, Canada, through its newly formed acquisition subsidiary, StockerYale Waterloo Acquisition Inc., representing a total purchase price of approximately Cdn $27 million. The tender offer for Virtek expired on August 25, 2008.

Management estimates that it has sufficient capital for operations through December 31, 2008 and possibly beyond. Management is continuing its efforts to raise additional capital, so that the Company can meet its obligations and sustain operations, through the sale of its equity securities, through offerings of debt securities, or through borrowings from financial institutions. The pursuit of these financings will be opportunistic and the Company cannot be sure of the timing or terms of any borrowing arrangements or equity offerings, or that it will be able to consummate one or more of these options. If the Company experiences difficulty raising money in the future, our business and liquidity will be materially adversely affected.

OFF-BALANCE SHEET ARRANGEMENTS

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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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
This excerpt taken from the STKR 10-Q filed Aug 14, 2008.

Overview

StockerYale, Inc. is an independent designer and manufacturer of structured light lasers, LED systems, fluorescent lighting products, and specialty optical fibers and phase masks for industry-leading original equipment manufacturers (OEMs), as well as a specialist distributor of visible, infrared and blue violet laser diodes. Our illumination products include the Lasiris and Photonic Products brands of laser diode modules, extremely bright light emitting diode (LED) illuminators and fluorescent lighting products for the machine vision, industrial inspection, defense, telecommunications, sensors, and medical markets. Our products are sold to over 1,500 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.

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-KSB for the year ended December 31, 2007.

StockerYale continued to introduce new products in 2007 including a line of erbium-doped fibers in its specialty fiber segment, its Lasiris(TM) Hi-Pointing Stability Laser and its COBRA 2 LED Linescan illuminator. In addition, the Company’s October 2007 acquisition of Spectrode LLC included fiber laser intellectual property that it expects to enhance strategic initiatives in both the specialty optical fiber and the laser business units and to allow us to pursue applications in the medical and defense industries. The Company also made key investments last year in medical product research and development to

 

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support its strategic move into medical and bio-medical markets. Sales to the medical vertical increased from less than 5% of StockerYale’s total revenues in 2006 to approximately 12% of total revenue in 2007 to approximately 8% of total revenue in the quarter ending June 30, 2008. The Company expects its medical strategy to be a catalyst for greater revenues across all three product lines in 2008. Medical sales are targeted to grow to approximately 20% of 2008 revenues given existing customer relationships and multiple sales initiatives under way.

Management intends to employ a series of actions to improve the financial condition of the Company. These initiatives include revenue growth, cost reductions, raising capital, and pursuing appropriate business initiatives, which we expect to improve our profitability. The Company took certain actions in 2007 to reduce the overall cost structure of the Company and intends to continue to implement such actions throughout 2008. In addition, the Company intends to focus on increasing the pace with which operational improvements are able to improve its financial performance and the consistency of its results. The Company intends to identify additional opportunities to lower its costs and manage the business more efficiently.

The Company is considering different ways to raise additional capital including through the sale of its equity securities, through offerings of debt securities, or through borrowings from financial institutions.

On June 16, 2008, the Company announced its intention to acquire all issued and outstanding Common Shares of Virtek Vision International Inc. (“Virtek”) of Waterloo, Ontario, Canada, through its newly formed acquisition subsidiary, StockerYale Waterloo Acquisition Inc. representing a total purchase price of approximately Cdn $27 million. The financing of the proposed acquisition is in place and available for payment to Virtek’s shareholders. As of June 30, 2008 the Company has incurred $307,000 of cash expenses in connection with the proposed transaction. However, there is no certainty that the transaction will close.

CALENDAR QUARTERS ENDED JUNE 30, 2008 AND 2007

Net Sales

Net sales were $8.6 million for the three months ended June 30, 2008, a 23% increase over $7.0 million for the second quarter of 2007. The increase in sales was due to a revenue increase for lasers, in both the Montreal and Photonic Products locations totaling $1.5 million and an increase in LED products totaling $0.2 million over the three months ended June 30, 2007.

Gross Profit

Gross profit was $2.9 million for the three months ended June 30, 2008. This represents an increase of 27% from $2.3 million for the second quarter of 2007. During the three months ended June 30, 2008, gross margin was 34% compared with 33% in the second quarter of 2007, primarily related to the volume increase. Gross profit and margin were unfavorably impacted by one-time expenses of $84,000 related to the closing of our machine shop in Montreal and by $66,000 related to the change in foreign currency exchange rates.

Operating Expenses

Operating expenses totaled $4.5 million for the second quarter of 2008, increasing 25% over $3.6 million in the second quarter of 2007. The increase in operating expenses over the second quarter of 2007 was primarily due to a 60% increase in general and administrative costs. These additional expenses include approximately $307,000 third party costs related to the tender offer for Virtek. Non-cash share-based compensation expense increased $182,000 compared to the second quarter of 2007. The Company was also negatively impacted $125,000 due to foreign currency exchange rate fluctuations. Compared to the second quarter of 2007, sales and marketing expenses decreased approximately $50,000 and research and development expenses were flat.

Operating loss was $1.6 million compared with operating loss of $1.3 million for the second quarter of 2007.

Non-Operating Expenses

Other expenses, which are comprised primarily of non-cash debt discount and financing costs, decreased by 18% to $778,000 for the three months ended June 30, 2008, versus $948,000 in the three months ended June 30, 2007. The decrease relates to interest rate changes and debt refinancing.

Net Income (Loss)

 

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Net loss including discontinued operations was $2.3 million or $0.06 per share. This compares to a net loss of $2.2 million or $0.06 per share for the second quarter of 2007.

Provision (Benefit) for Income Taxes

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 $62,000 in the period ended June 30, 2008, related to one of our non-U.S. based subsidiaries.

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

Net Sales

Net sales were $16.6 million for the six months ended June 30, 2008, a 15% increase over $14.4 million for the second quarter of 2007. The increase in sales was mainly due to Photonic Products’ sales revenue increase of $1.1 million over the six months ended June 30, 2008. Laser sales overall increased 17% and LED sales increased by 15%.

Gross Profit

Gross profit was $5.4 million for the six months ended June 30, 2008. This represents an increase of 10% from $4.9 million for the first six months of 2007. During the six months ended June 30, 2008, gross margin was 32% compared with 34% in the comparable period of 2007, primarily related to product mix attributable to Photonic Products increased volume of lower margin product sales and a negative impact from foreign currency exchange rates of approximately $300,000.

Operating Expenses

Operating expenses totaled $8.5 million for the six months ended June 30, 2008, increasing 18% over $7.2 million in the same period of 2007. The increase in operating expenses was primarily due to the change in foreign currency exchange rates of approximately $400,000, an increase in non-cash share-based compensation expense under SFAS 123(R) of $358,000, and approximately $307,000 related to third party costs associated with the Virtek acquisition. Sales and marketing expenses increased by approximately $69,000, or 4%, partially due to the changes in the foreign currency exchange rates, but also due to the investment in sales personnel for our LED, Fiber and Laser divisions. Research and development expenses were flat at $1.6 million compared to the same period of 2007. General and administrative expense increased 40%, or $1.2 million due to non-cash share-based compensation expense, foreign currency exchange rates, approximately $307,000 related to the tender offer for Virtek, and investments in personnel, compared to $3.0 million during the six months ended June 30, 2007.

Operating loss was $3.1 million compared with operating losses of $2.3 million for the same period of 2007.

Non-Operating Expenses

Other expenses, which are comprised primarily of non-cash debt discount and financing costs, decreased by 11% to $1.5 million for the six months ended June 30, 2008, versus $1.7 million during the six months ended June 30, 2007. The decrease relates to interest rate changes and debt refinancing.

Net Income (Loss)

Net loss including discontinued operations was $4.5 million or $0.12 per share. This compares to net loss of $3.8 million or $0.11 per share for the first six months of 2007.

Provision (Benefit) for Income Taxes

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 $122,000 for the six months ended June 30, 2008, related to one of our non-U.S. based subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

 

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Our cash balance declined by $730,000 to $847,000 at June 30, 2008 from $1.6 million at December 31, 2007. During the six month period, we had new borrowings totaling approximately $2.2 million comprised of approximately $1.2 million from the February 26, 2008 Confidential Invoice Discounting Agreement between Barclay’s Bank Sales Financing and Photonic Products, a $0.5 million amendment to the Photonic Products financing by a private investor on May 30, 2008 and the March 31, 2008 $0.5 million overadvance agreement with Laurus Master Fund, Ltd. Operations used $1.7 million in cash and principle and interest payments totaled $1.6 million.

As of June 30, 2008, our net accounts receivable balance was $4.5 million compared to $4.5 million at year end. Our day’s sales outstanding at June 30, 2008, decreased from 54 days at December 31, 2007, to 49 days at June 30, 2008.

Inventory increased approximately $0.2 million to $4.4 million from $4.2 million at December 31, 2007, primarily in raw materials.

Capital spending for the quarter ending June 30, 2008 was $79,000. The Company has no material contingent capital expenditure commitments as of June 30, 2008 but has plans to purchase approximately $350,000 of capital items between July 1, 2008 and December 31, 2008, of which we expect approximately $186,000 to be financed through capital leases.

On June 16, 2008, the Company announced its intention to acquire all issued and outstanding Common Shares of Virtek Vision International Inc. (“Virtek”) of Waterloo, Ontario, Canada, through its newly formed acquisition subsidiary, StockerYale Waterloo Acquisition Inc., representing a total purchase price of approximately Cdn $27 million. The financing of the proposed acquisition is in place and available for payment to Virtek’s shareholders. As of June 30, 2008 the Company has incurred $307,000 of cash expenses in connection with the proposed transaction. However, there is no certainty that the transaction will close.

Subsequent to the quarter ended June 30, 2008, the Company entered into a three year Senior Fixed Rate Secured Bond with a private investor in amount of €935,000 ($1,472,905), which bears interest at the rate of 12%. Management estimates that it has sufficient capital for operations through September 30, 2008 and possibly beyond. Management is continuing its efforts to raise additional capital so that the Company can meet its obligations and sustain operations through the sale of its equity securities, through offerings of debt securities, or through borrowings from financial institutions. The pursuit of these financings will be opportunistic and the Company cannot be sure of the timing or terms of any borrowing arrangements or equity offerings, or that it will be able to consummate one or more of these options.

OFF-BALANCE SHEET ARRANGEMENTS

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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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
This excerpt taken from the STKR 10-Q filed May 15, 2008.

Overview

StockerYale, Inc. is an independent designer and manufacturer of structured light lasers, LED systems, fluorescent lighting products, and specialty optical fibers and phase masks for industry-leading original equipment manufacturers (OEMs), as well as a specialist distributor of visible, infrared and blue violet laser diodes. Our illumination products include the Lasiris and Photonic Products brands of laser diode modules, extremely bright light emitting diode (LED) illuminators and fluorescent lighting products for the machine vision, industrial inspection, defense, telecommunications, sensors, and medical markets. Our products are sold to over 1,500 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.

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-KSB for the year ended December 31, 2007.

StockerYale continued to introduce new products in 2007 including a line of erbium-doped fibers in its specialty fiber segment, its Lasiris(TM) Hi-Pointing Stability Laser and its COBRA 2 LED Linescan illuminator. In addition, the Company’s October 2007 acquisition of Spectrode LLC included fiber laser intellectual property that it expects to enhance strategic initiatives in both the specialty optical fiber and the laser business units and to allow us to pursue applications in the medical and defense industries. The Company also made key investments last year in medical product research and development to support its strategic move into medical and bio-medical markets. Sales to the medical vertical increased from less than 5% of StockerYale’s total revenues in 2006 to approximately 12% of total revenue in 2007 to approximately 13% of total revenue in the quarter ending March 31, 2008. The Company expects its medical strategy to be a catalyst for greater revenues across all three product lines in 2008. Medical sales are targeted to grow to approximately 20% of 2008 revenues given existing customer relationships and multiple sales initiatives under way.

 

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Management intends to employ a series of actions to improve the financial condition of the Company. These initiatives include revenue growth, cost reductions, raising capital, and pursuing appropriate business initiatives, which we expect to improve our profitability. The Company took certain actions in 2007 to reduce the overall cost structure of the Company and intends to continue to implement such actions throughout 2008. In addition, the Company intends to focus on increasing the pace with which operational improvements are able to improve its financial performance and the consistency of its results. The Company intends to identify additional opportunities to lower its costs and manage the business more efficiently.

The Company is considering different ways to raise additional capital including through the sale of its equity securities, through offerings of debt securities, or through borrowings from financial institutions.

CALENDAR QUARTERS ENDED MARCH 31, 2008 AND 2007

Net Sales

Net sales were $8.1 million for the three months ended March 31, 2008, an 8% increase over $7.5 million for the first quarter of 2007, and a 7% sequential increase compared with $7.5 million for the fourth quarter of 2007. The increase in sales was mainly due to Photonic Products’ sales revenue increase of $500,000 over the three months ended March 31, 2007.

Gross Profit

Gross profit was $2.5 million for the three months ended March 31, 2008. This represents a decrease of 4% from $2.6 million for the first quarter of 2007. During the three months ended March 31, 2008 gross margin was 31% compared with 34% in the first quarter of 2007, primarily related to changes in foreign currency exchange rates, representing 3.2 out of the 3.9 points differential.

Operating Expenses

Operating expenses totaled $4.0 million for the first quarter of 2008, increasing 12% over $3.6 million in the first quarter of 2007. The increase in operating expenses over the first quarter of 2007 was primarily due to the change in foreign currency exchange rates, particularly the currency exchange rate of the Canadian dollar to the U.S. dollar and non-cash share-based compensation expensed under FAS 123(R). Non-cash amortization of intangible assets increased to $330,000 versus $307,000 for the first quarter of 2007. Sales and marketing expenses increased by approximately $118,000, or 12%, partially due to the changes in the foreign currency exchange rates, but also due to the investment in sales personnel for our LED, Fiber and Laser divisions. Research and development expenses were flat at $800,000. General and administrative expense increased 19%, or $300,000, due to non-cash share-based compensation expense, foreign currency exchange rates, and investments in people.

Operating loss was $1.5 million compared with operating losses of $1.0 million for the first quarter of 2007. Operating losses were negatively impacted by foreign currency exchange losses of approximately $400,000, primarily due to the currency exchange rate of the Canadian dollar to the U.S. dollar on a year-over-year basis.

Non-Operating Expenses

Other expenses, which are comprised primarily of non-cash debt discount and financing costs, decreased by 2% to $721,000 for the three months ended March 31, 2008, versus the $732,000 in the three months ended March 31, 2007.

 

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Net Income (Loss)

Net loss including discontinued operations was $2.2 million or $0.06 per share. This compares to net loss of $1.6 million or $0.05 per share for the first quarter of 2007.

Provision (Benefit) for Income Taxes

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 $62,000 in the period ended March 31, 2008, related to one of our non-U.S. based subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

Our cash balance improved to $2.4 million at March 31, 2008 from $1.6 million at December 31, 2007 primarily as a result of the February 26, 2008 Confidential Invoice Discounting Agreement between Barclay’s Bank Sales Financing and Photonic Products and the March 31, 2008 overadvance agreement with Laurus Master Fund, Ltd. During the first quarter ended, March 31, 2008, our overall borrowings increased by approximately $2.0 million.

As of March 31, 2008, our net accounts receivable balance was $4.6 million compared to $4.5 million at year end. Our days sales outstanding at March 31, 2008, decreased from 54 days at December 31, 2007, to 52 days at March 31, 2008.

Inventory decreased approximately $60,000 to $4.1 million from $4.2 million at December 31, 2007.

Capital spending for the quarter ending March 31, 2008 was $26,000. The Company has no material contingent capital expenditure commitments as of March 31, 2008 but has plans to purchase approximately $500,000 of capital items between April 1, 2008 and December 31, 2008, of which we expect approximately $160,000 to be financed through capital leases.

As of March 31, 2008, the Company may not have sufficient liquidity and working capital to meet its ongoing operating obligations. Management estimates that it has sufficient capital for operations through June 30, 2008 and possibly beyond. Management is continuing its efforts to raise additional capital so that the Company can meet its obligations and sustain operations through the sale of its equity securities, through offerings of debt securities, or through borrowings from financial institutions. The pursuit of these financings will be opportunistic and the Company cannot be sure of the timing or terms of any borrowing arrangements or equity offerings, or that it will be able to consummate one or more of these options.

OFF-BALANCE SHEET ARRANGEMENTS

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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