<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 000-26889
JORE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Montana 81-0465233
(State of Incorporation) (I.R.S. Employer Identification No.)
45000 Highway 93 South
Ronan, Montana 59864
(Address of principal executive offices)
(406) 676-4900
(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 Securities 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.
Yes X No
----- -----
As of July 5, 2000, 13,862,537 shares of the Registrant's Common Stock, without
par value, were outstanding.
<PAGE>
JORE CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
Part I: Financial Information...............................................3
Item 1 Financial Statements................................................3
Consolidated Balance Sheets as of December 31, 1999
and June 30, 2000...................................................3
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2000 and 1999.............................4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999.............................5
Notes to Consolidated Financial Statements..........................6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................7
PART II. OTHER INFORMATION..................................................13
Item 1 Legal Proceedings..................................................13
Item 2 Changes in Securities and Use of Proceeds..........................13
Item 4 Submission of Matters to a Vote of Security Holders ...............14
Item 5 Other Information..................................................14
Item 6 Exhibits and Reports on Form 8-K...................................15
Signatures...................................................................15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
JORE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
--------------------------------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 94,283 $ 607,656
Short term investments 7,691,791 1,040,590
Accounts receivable, net of allowances for doubtful accounts
of $57,533 and $74,129, respectively 19,031,479 7,346,238
Shareholder notes receivable 1,564,219 1,500,906
Notes receivable from affiliates 11,799 56,637
Inventory 27,795,284 33,030,863
Other current assets 2,494,509 4,354,611
--------------------------------
Total current assets 58,683,364 47,937,501
Property, plant and equipment, net 58,560,925 69,131,913
Intangibles & other long-term assets, net 663,268 756,704
--------------------------------
Total assets $ 117,907,557 $ 117,826,118
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,815,501 $ 3,124,116
Accrued expenses 3,406,448 2,870,057
Operating line of credit 25,000,000 24,772,061
Shareholder note payable 81,495 33,655
Other current liabilities 770,981 642,003
Current portion of long-term debt 3,530,287 4,294,925
--------------------------------
Total current liabilities 42,604,712 35,736,817
Long-term debt, net of current portion 27,779,153 35,189,267
Deferred income tax liabilities 2,769,253 3,808,920
--------------------------------
Total liabilities 73,153,118 74,735,004
Shareholders' equity:
Preferred stock, no par value
Authorized, 30,000,000 shares; issued and
outstanding, 0 shares
Common stock, no par value
Authorized, 100,000,000 shares; issued and
outstanding, 13,826,020 and 13,862,537, respectively 40,757,891 40,973,802
Deferred compensation - stock options (16,529) (11,147)
Retained earnings 4,013,077 2,128,459
--------------------------------
Total shareholders' equity 44,754,439 43,091,114
--------------------------------
Total liabilities and shareholders' equity $ 117,907,557 $ 117,826,118
================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 2000 1999 2000
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 8,258,824 $ 9,017,533 $ 18,057,185 $ 16,081,387
Cost of goods sold 5,885,827 6,247,150 12,744,521 11,235,646
Writedown of inventory -- 839,054 -- 839,054
----------------------------------------------------------
Gross profit 2,372,997 1,931,329 5,312,664 4,006,687
Operating expenses:
Product development 108,466 338,562 225,267 449,008
Sales & marketing 382,171 1,162,833 758,823 1,645,735
General & administrative 1,167,152 1,558,262 2,317,035 3,237,421
----------------------------------------------------------
Total operating expenses 1,657,789 3,059,657 3,301,125 5,332,164
----------------------------------------------------------
Income (loss) from operations 715,208 (1,128,328) 2,011,539 (1,325,477)
Other (income) expense:
Interest expense, net 592,602 879,771 1,047,506 1,498,591
Other (income) expense 5,546 67,944 7,408 56,633
----------------------------------------------------------
Net other expense 598,148 947,715 1,054,914 1,555,224
Income (loss) before income taxes 117,060 (2,076,043) 956,625 (2,880,701)
Provision (benefit) for income taxes -- 714,396 -- 996,076
----------------------------------------------------------
Net income (loss) $ 117,060 $ (1,361,647) $ 956,625 $ (1,884,625)
==========================================================
Net income (loss) per common share:
Basic $ 0.01 $ (0.10) $ 0.10 $ (0.14)
Diluted $ 0.01 $ (0.10) $ 0.10 $ (0.13)
Shares used in calculation of income (loss) per share
Basic 9,522,800 13,844,694 9,522,800 13,840,563
Diluted 9,717,746 13,936,440 9,716,664 14,037,751
Pro forma data (unaudited):
Net income $ 117,060 $ 956,625
Pro forma provision for income taxes 33,684 366,129
------------ ------------
Pro forma net income $ 83,376 $ 590,496
============ ============
Pro forma net income per common share (unaudited):
Basic $ 0.01 $ 0.06
Diluted $ 0.01 $ 0.06
</TABLE>
See notes to consolidated financial statements.
4
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JORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months ended June 30,
2000 1999
---------------------------------
<S> <C> <C>
Operating activities:
Net income $ (1,884,625) $ 956,625
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 2,204,770 857,876
Amortization 20,250 23,155
Compensation expense - stock options 5,382 325
Bad debt expense 33,727 --
Provision for inventory obsolescence 80,905 --
Writedown of inventory 839,054 --
Loss on disposal of fixed assets 8,022 --
Amortization of discount on investments 415,201 --
Cash provided (used) by changes in operating
assets and liabilities:
Accounts receivable 11,651,514 7,734,801
Other receivables -- (27,182)
Inventory (6,155,536) (5,244,119)
Prepaid expenses and other current assets (1,860,102) 244,774
Deferred income taxes 1,039,667 --
Intangibles and other long-term assets (113,686) (1,526,597)
Accounts payable (5,911,500) (748,991)
Accrued expenses (1,316,276) 3,056,453
Other current liabilities -- 74,536
Income taxes payable (70,000) --
---------------------------------
Net cash provided (used) by operating activities (1,013,233) 5,401,656
---------------------------------
Investing activities:
Advances on notes receivable -- (34,697)
Advances on shareholder notes receivable (72,769) --
Payments on shareholder notes receivable 136,082 --
Advances on notes receivable from affiliates (44,838) --
Proceeds from investments 6,236,000 --
Proceeds from sale of fixed assets 15,910 --
Purchase of property and equipment (12,799,690) (12,686,962)
---------------------------------
Net cash used by investing activities (6,529,305) (12,721,659)
---------------------------------
Financing activities:
Proceeds from options exercised 116,996 --
Proceeds from ESPP 98,915 --
Shareholder distributions -- (7,300)
Proceeds from long-term debt 13,168,974 5,062,149
Payments on long-term debt (4,994,217) (1,037,942)
Proceeds from short-term debt 4,909 6,560,930
Payments on short-term debt (111,727) --
Payments on operating line of credit, net (227,939) (3,245,642)
---------------------------------
Net cash provided by financing activities 8,055,911 7,332,195
---------------------------------
Net increase in cash 513,373 12,192
Cash and cash equivalents:
Beginning of period 94,283 34,736
---------------------------------
End of period $ 607,656 $ 46,928
=================================
Supplemental disclosures:
Cash paid:
Interest paid $ 2,385,403 $ 1,047,505
Noncash financing and investing activities:
Common stock issued for land $ -- $ 82,302
Warrants issued with debt $ -- $ 174,360
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The consolidated balance sheet of Jore Corporation as of June 30,
2000, the related consolidated statements of operations for the three and six
month periods ended June, 30, 2000 and 1999, and the consolidated statements
of cash flows for the six months ended June 30, 2000 and 1999 are unaudited.
In the opinion of management, these unaudited financial statements include
all adjustments, consisting only of normal recurring items, that are
necessary for a fair presentation of the financial information. Interim
results are not necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as
required by the rules and regulations of the Securities and Exchange Commission
and do not contain certain information included in our annual financial
statements and notes. You should read these interim financial statements in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our audited financial statements and the notes
thereto for the year ended December 31, 1999 included in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
(2) Significant customers:
Our sales are concentrated among a few major customers. Sales to
customers who individually accounted for 10% of total sales for the six months
ended June 30, 1999 and 2000, and receivables from customers who individually
accounted for 10% of total receivables at June 30, are as follows:
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1999 June 30, 2000
---------------- ----------------
<S> <C> <C>
Sales to:
Customer A 39.7% 52.9%
Customer B 34.6 14.8
Customer C 10.7 15.2
All other customers 15.0 17.1
----------------------------
100.0% 100.0%
============================
6
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Receivables from:
Customer A 43.3% 47.3%
Customer B 32.8 24.9
Customer C 5.8 18.9
All other customers 18.1 8.9
----------------------------
100.0% 100.0%
============================
</TABLE>
(3) Balance Sheet Components
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
--------------------------------
<S> <C> <C>
Inventory
Component parts/raw materials $13,135,170 $11,909,291
Work in progress* 11,880,461 17,682,087
Finished goods 3,268,238 3,984,031
Provision for obsolescence (488,585) (544,546)
--------------------------------
Totals $27,795,284 $33,030,863
================================
</TABLE>
*Work-in progress is composed primarily of finished sub-assemblies, which
includes hex-shank drill bits, hex-shank masonry bits, completed but unlabeled
screw guides and other component parts.
(4) Subsequent Events
On July 25, 2000, we restructured our loan facility with First
Security Bank to increase our working capital line through participation by
another lender, increasing the maximum borrowing limit to $35.0 million.
Limits on the line advances linked to inventory and accounts receivable
levels continue to be 65% of eligible inventory and 85% of eligible accounts
receivable, and the interest rate terms will be determined monthly based on
certain ratios involving funded debt and EBITDA (earnings before interest,
taxes, depreciation and amortization).
The term of the line is for two years. Outstanding advances on the
line as of June 30, 2000, were $24.8 million, leaving $10.2 million available
on the increased facility. The line continues to be secured with receivables,
inventory, equipment, patents, and general intangibles.
The participation of another lender in the line also allowed First
Security Leasing Company to commit to a $5 million equipment leasing line.
These funds will be used for equipment acquisitions in the third quarter.
There are no advances on this line of credit as of June 30, 2000. Terms of
the line of credit are seven-year payment terms with a margin of 2.60% over
like term treasuries. Collateral will be specific filings on the equipment
acquisitions.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion in conjunction with our
unaudited Consolidated Financial Statements and Notes thereto included at Item 1
of this quarterly report. Certain statements contained in this report,
including, without limitation, projections of revenues, income, expenses, and
loss, plans for product development, future operations, and financing needs or
plans, as well as statements containing words like "believe," "anticipate,"
"estimate," "intend," "seek," "expect," and other similar expressions,
constitute "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. You should not rely on these
forward-looking statements, which reflect our opinion as of the date of this
report. Our actual results could differ materially from those anticipated in
these forward-looking statements. Factors that could cause or contribute to such
material differences include but are not limited to risks described in
7
<PAGE>
Item 1, "Business--Risk Factors" in our annual report on Form 10-K for the
fiscal year ended December 31, 1999.
OVERVIEW
Jore Corporation was founded to develop and produce innovative power
tool accessories to meet the increasing demand resulting from the growth in the
cordless power tool market. Our revenues have grown through the addition of new
customers, increased sales to established customers and expanded product
offerings. We began our business selling a limited number of drilling and
driving accessories to independent local and regional hardware stores and
building supply centers. In 1990, Makita became our first national customer and
we devoted significant resources to servicing its demand for our products.
By 1996, we had expanded our product portfolio to include our
reversible drill and drivers and contractor versions of our products. We also
began to diversify our customer base by selling products to Black &
Decker/DeWalt, as well as to retail customers. In 1997 and 1998, we continued to
expand our customer base by selling to Sears, Home Depot, Canadian Tire and
Tru*Serv and further expanded our product line by introducing our quick change
system and new drilling and driving accessories such as wood boring and masonry
bits. In 1999, we increased our revenues and margins by pursuing direct
relationships with major retailers through sales of private label and
STANLEY-REGISTERED TRADEMARK- branded products, increasing sales to existing
customers, and augmenting our existing product portfolio.
Net revenues are recognized at the time of shipment and sales terms
are typically net 60 or 90 days. Historically, we have experienced negligible
bad debt and do not expect bad debt to be material in the future.
Cost of goods sold consists primarily of raw materials, labor,
shipping, depreciation, and other direct and indirect manufacturing expenses
associated with the production and packaging of products.
Our operating expenses include product development costs, sales and
marketing expenses and general and administrative expenses. Product development
expenses consist principally of personnel costs and material associated with the
development of new products and changes to existing products, which are charged
to operations as incurred. Sales and marketing expenses consist primarily of
selling commissions paid to Manufacturers' Sales Associates, our sales
representative, salaries and employee benefits for internal sales personnel and
costs of advertising and promotional activities. General and administrative
expenses consist primarily of salaries and employee benefits for executive,
managerial and administrative personnel, license fees, facility leases,
depreciation and amortization of capitalized administrative equipment and
building costs and travel and business development costs. Other expense consists
primarily of interest expense associated with our borrowings, net of interest
income on cash and cash equivalents.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET REVENUES. Net revenues decreased from $18.1 million for the
six months ended June 30, 1999 to $16.1 million for the six months ended June
30, 2000, representing a 10.9% decrease. This was due primarily to the
continuing transition of our sales efforts from our OEM customers to the
direct-to-retail channel. The direct-to-retail channel includes sales of the
retailers' in-house private label brands, as well as sales of our
Stanley-REGISTERED TRADEMARK- branded product. While net
8
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revenues for the first six months of 2000 were less than those for the
comparable period in 1999, direct-to-retail sales increased by 13.1% in the
first six months of 2000 from the first six months of 1999. Direct-to-retail
sales represented approximately 69.4% of total sales in the first six months
of 2000, versus 54.7% in the first six months of 1999.
COST OF GOODS SOLD. Excluding a writedown of inventory in the
second quarter of 2000, cost of goods sold decreased from $12.7 million for
the six months ended June 30, 1999 to $11.2 million for the six months ended
June 30, 2000, representing a 11.8% decrease. Cost of goods sold as a
percentage of revenues decreased from 70.6% for the six months ended June 30,
1999 to 69.9% for the six months ended June 30, 2000. This improvement in
gross margin relates primarily to our increase in sales direct to retailers,
which generally provide a higher margin than our OEM sales. As a result of
our emphasis on direct-to-retail sales, we charged approximately $839,000 for
inventory adjustments in the second quarter. This adjustment is related to a
writedown of component parts and packaging inventory that was primarily
earmarked for sale through the OEM channel. Including this writedown, our
cost of goods sold decreased by 5.3%, from $12.7 million for the six months
ended June 30, 1999 to $12.1 million for the six months ended June 30, 2000,
and our cost of goods sold represented 75.1% versus 70.6% of revenues for the
respective periods.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses
increased from $225,000 for the six months ended June 30, 1999 to $449,000
for the six months ended June 30, 2000, representing a 99.3% increase. This
increase represents our continued efforts to build a pipeline of products
that will complement, or significantly expand upon, our product system. In
addition to the labor expensed for the six months ended June 30, 1999 and for
the six months ended June 30, 2000, we capitalized $648,000 and $852,000,
respectively, of labor related to equipment constructed in-house. These
amounts are included in property, plant and equipment on the balance sheet
and are depreciated over the life of the equipment. The increase in
capitalized costs is related to an increase in the number of engineers who
are focused on automation of our assembly and packaging processes.
SALES AND MARKETING EXPENSES. Sales and marketing expenses
increased from $759,000 for the six months ended June 30, 1999 to $1.6
million for the six months ended June 30, 2000, representing a 116.8%
increase. Advertising and promotion expenses increased by $498,000 during the
six months ended June 30, 2000 as compared to the same period in 1999, due to
increased retail advertising as we continue to focus efforts on the
penetration of our direct-to-retail channels under both private labels and
the STANLEY-REGISTERED TRADEMARK- brand. Specifically, these costs relate to
increased cooperative promotional efforts with existing customers, line
review preparations with a number of major retailers, and an increase in
spending in advance of the roll-out of our quick change system with a major
retail customer.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $2.3 million for the six months ended June 30, 1999 to
$3.2 million for the six months ended June 30, 2000, representing a 39.7%
increase. The increase was a result of the expansion of our management team and
infrastructure to accommodate future growth. We increased our general and
administrative staff, which includes executive, accounting, finance, human
9
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resources, janitorial, education, safety and other personnel, from 94 at June
30, 1999 to 106 at June 30, 2000. Professional fees, insurance costs, and other
costs related to being a public company also increased.
OTHER EXPENSE. Other expense increased from $1.1 million for the six
months ended June 30, 1999 to $1.6 million for the six months ended June 30,
2000, representing a 47.4% increase. This increase was the result of greater
borrowings and a corresponding increase in interest expense.
NET INCOME / LOSS. As a result of all these factors, we experienced a
loss of $(1.9) million for the six months ended June 30, 2000, compared with pro
forma net income of $590,000 for the six months ended June 30, 1999. Because we
were an S corporation not subject to income taxes in the first and second
quarters of 1999, there was no provision for income taxes. For comparison
purposes, we have calculated and presented a pro forma provision for income
taxes totaling $366,000 for the first and second quarters of 1999, computed as
if we had been a C corporation subject to income taxes for such period.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999.
NET REVENUES. Net revenues increased from $8.3 million for the
three months ended June 30, 1999 to $9.0 million for the three months ended
June 30, 2000, representing a 9.2% increase. This increase was due primarily
to the increase in direct-to-retail sales, including sales under the
retailers' in-house private label brands and under our STANLEY-REGISTERED
TRADEMARK- brand. This was partially offset by a decrease in sales to our OEM
customers. Sales direct to retailers climbed by nearly 65.5% from the three
months ended June 30, 1999 to the three months ended June 30, 2000, and
represented 79.8% of total sales for the second quarter of 2000, up from
52.7% in the second quarter of 1999.
COSTS OF GOODS SOLD. Excluding a writedown of inventory in the
second quarter of 2000, costs of goods sold increased from $5.9 million for
the three months ended June 30, 1999 to $6.2 million for the three months
ended June 30, 2000, representing a 6.1% increase. Costs of goods sold as a
percentage of revenues decreased from 71.3% for the three months ended June
30, 1999 to 69.3% for the three months ended June 30, 2000. This improvement
in gross margin relates primarily to our increase in sales direct to
retailers, which generally provides a higher margin than our OEM sales. In
the second quarter of 2000, we continued our transition from sales through
the OEM channel to sales direct to retailers. The direct-to-retail channel
includes sales of the retailers' in-house private label brand, as well as
sales of our Stanley-REGISTERED TRADEMARK- branded product. As a result of
our emphasis on direct-to-retail sales, we charged approximately $839,000 for
inventory adjustments in the second quarter. This adjustment is related to a
write-down of component parts and packaging inventory that was primarily
earmarked for sale through the OEM channel. Including this write-down, our
cost of goods sold increased from $5.9 million for the three months ended
June 30, 1999 to $7.1 million for the three months ended June 30, 2000,
representing a 20.4% increase, and our cost of goods sold represented 78.6%
versus 71.3% of sales for the respective periods.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses
increased from $108,000 for the three months ended June 30, 1999 to $339,000
for the three months ended June 30, 2000, representing a 212.1% increase.
This increase represents the continued efforts of our technology and product
development team to build products that are complementary to, or expand upon,
our product system. In addition to the labor expensed for the three months
ended June 30, 1999 and for the three months ended June 30, 2000, we
capitalized $386,000 and $375,000, respectively, of labor related to
10
<PAGE>
equipment constructed in-house. These amounts are included in property, plant
and equipment on the balance sheet and depreciated over the life of the
equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses
increased from $382,000 for the three months ended June 30, 1999 to $1.2
million for the three months ended June 30, 2000, representing a 204.3%
increase. Advertising and promotion expenses increased by $379,000 due to
increased retail advertising as we continue to focus efforts on the
penetration of our direct-to-retail channels under both private labels and
the STANLEY-REGISTERED TRADEMARK- brand. Specifically, these costs relate to
increased cooperative promotional efforts with existing customers, line review
preparations with a number of major retailers, and an increase in spending in
advance of the roll-out of our system with a major retail customer.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $1.2 million for the three months ended June 30, 1999 to
$1.6 million for the three months ended June 30, 2000, representing a 33.3%
increase. This increase was a result of the expansion of our management team and
infrastructure to accommodate future growth. Professional fees, insurance costs
and other costs related to being a public company also increased.
OTHER EXPENSE. Other expense increased from $598,000 for the three
months ended June 30, 1999 to $948,000 for the three months ended June 30, 2000,
representing a 33.5% increase. This increase was the result of greater
borrowings and a corresponding increase in interest expense. Our borrowing
increased to support our purchases of equipment to support our continuing
vertical integration efforts.
NET INCOME / LOSS. As a result of all these factors, we experienced a
net loss of $(1.4) million for the three months ended June 30, 2000, compared
with pro forma net income of $83,000 for the three months ended June 30, 1999.
Because we were an S corporation not subject to income taxes in the second
quarter of 1999, there was no provision for income taxes. For comparison
purposes, we have calculated and presented a pro forma provision for income
taxes, totaling $34,000 for the second quarter of 1999, computed as if we had
been a C corporation subject to income taxes for such period.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded operations with short-term lines of
credit and term loans for equipment purchases, and, to a lesser extent, net
income from operations. Our initial public offering of common stock in September
1999 yielded net proceeds to us of $38.6 million, including the exercise of the
underwriters' over-allotment option. These proceeds were used to repay debt,
distribute the accumulated but undistributed S corporation earnings of the
Company, and provide for capital expenditures. Cash, cash equivalents and
short-term investments were $1.6 million as of June 30, 2000, compared to $7.8
million as of December 31, 1999.
Operations used net cash of $1.0 million for the six months ended
June 30, 2000. The net cash used consisted primarily of an increase in inventory
and other current assets coupled with a decrease in accounts payable and other
current liabilities. This was offset by a decrease in accounts receivable.
Net cash used by investing activities for the six months ended June
30, 2000, was $6.5 million. Cash used in investing activities consisted
primarily
11
<PAGE>
of property and equipment purchases, which was offset by the sale of
investments.
Net cash provided by financing activities was $8.1 million for the
six months ended June 30, 2000. Cash provided from financing activities was
primarily from term debt.
On July 25, 2000, we restructured our loan facility with First
Security Bank to increase our working capital line through participation by
another lender, increasing the maximum borrowing limit to $35.0 million.
Limits on the line advances linked to inventory and accounts receivable
levels continue to be 65% of eligible inventory and 85% of eligible accounts
receivable, and the interest rate terms will be determined monthly based on
certain ratios involving funded debt and EBITDA (earnings before interest,
taxes, depreciation and amortization).
The term of the line is two years. Outstanding advances on the
line as of June 30, 2000, were $24.8 million, leaving $10.2 million available
on the increased facility. The line continues to be secured with receivables,
inventory, equipment, patents, and general intangibles.
The participation of another lender in the line also allowed First
Security Leasing Company to commit to a $5 million equipment leasing line.
These funds will be used for equipment acquisitions in the third quarter.
There are no advances on this line of credit as of June 30, 2000. Terms of
the line of credit are a seven year payment term with a margin of 2.60% over
like term treasuries. Collateral will be specific filings on the equipment
acquisitions.
Total capital expenditures, net of dispositions, were $12.8 million
in the six months ended June 30, 2000 compared to $12.7 million for the six
months ended June 30, 1999 and $40.9 million for the year ended December 31,
1999. A majority of the expenditures in the first and second quarters of 2000
have been related to the acquisition of manufacturing equipment to increase
production capacity. In order to maintain an exclusive relationship with the
manufacturer of some of our equipment, we must continue to purchase
approximately $5.6 million of such equipment per year until May 2004, and we
currently plan to invest an additional approximately $12.0 million in
manufacturing equipment during the balance of 2000.
We believe that our cash, cash equivalents and short-term
investments, together with our additional borrowing capacity on our
short-term line of credit, at June 30, 2000, will be sufficient to meet the
cash requirements of our current business plan for the next twelve months.
Depending on our rate of growth and expansion of our business beyond our
current business plan, however, we may require additional equity or debt
financing to meet future working capital
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needs. We cannot assure you that such additional financing will be available
or, if available, that such financing can be obtained on satisfactory terms.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and established standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and hedging activities. The FASB delayed implementation of this
standard, therefore, it will now be effective for the Company beginning in
fiscal 2001. The Company does not expect adoption of SFAS No. 133 to have a
material effect on the financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be,
subject to legal proceedings and claims in the ordinary course of our
business, including claims of alleged infringement of third-party trademarks
and other intellectual property rights. Such claims, even if not meritorious,
could require the expenditure of significant financial and managerial
resources.
BLACK & DECKER LITIGATION. On July 7, 2000, the Stanley Works and
we settled our litigation with Black & Decker. As described in our Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, we joined
The Stanley Works in certain litigation with Black & Decker involving the use
of the colors yellow and black in packaging of our STANLEY-REGISTERED
TRADEMARK- branded power tool accessories. Under the terms of the
settlement, Black & Decker has agreed to forever refrain from alleging that
STANLEY-REGISTERED TRADEMARK- products and packaging currently in use by The
Stanley Works and Jore Corporation, and any substantially similar products
and packaging, infringe or dilute Black & Decker's trademarks or trade dress.
All complaints and counterclaims were dismissed without prejudice.
ITM LITIGATION. On June 9, 2000, we settled litigation with
International Tool Machines of Florida, Inc. ("ITM"), the manufacturer and
supplier of our proprietary drill bit manufacturing machinery. We commenced
this litigation in May 2000, because we believed that ITM intended to sell
and make available these machines and the related technology to third parties
in violation of our exclusive dealing and nondisclosure agreements with ITM.
Pursuant to the settlement ITM will continue to make its proprietary drill
bit manufacturing equipment available to Jore on an exclusive basis in
accordance with its agreement with Jore Corporation. All complaints and
counterclaims were dismissed without prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS FROM REGISTERED SECURITIES. As of June 30, 2000, we
had used the net proceeds of our initial public offering as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
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Repayment of indebtedness $12.9
S corporation dividend and shareholder advances 4.0
Capital expenditures and working capital 20.7
Investments in marketable securities 1.0
-----
Total $38.6
=====
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders was held on May 17, 2000. A
total of 13,279,024 of the 13,840,887 shares entitled to cast votes at the
meeting were present in person or by proxy. At the meeting, the shareholders:
(a) Elected the following Directors:
<TABLE>
<CAPTION>
Number of Shares Number of Shares
VOTED FOR AUTHORITY WITHHELD
-----------------------------------------
<S> <C> <C>
Matthew B. Jore 11,732,425 1,546,599
Michael W. Jore 13,255,424 23,600
David H. Bjornson 13,256,774 22,250
Thomas E. Mahoney 13,256,974 22,050
R. Bruce Romfo 13,256,874 22,150
William M. Steele 13,256,674 22,350
A. Blaine Huntsman 13,256,974 22,050
James P. Mathias 13,256,974 22,050
</TABLE>
(b) Approved the 1999 Employee Stock Purchase Plan by an
affirmative vote of 11,161,255; votes opposed to approval
were 557,525; abstentions were 8,623; and broker non-votes
were 1,551,621.
(c) Approved an amendment to the Amended and Restated 1997
Stock Plan to provide for a reservation of an additional
1,100,000 shares. The approval was by an affirmative vote
of 10,249,928; votes opposed to approval were 1,463,117;
abstentions were 14,358; and broker non-votes were
1,551,621.
(d) Ratified the selection of Deloitte & Touche, LLP as
independent accountants for the Corporation for the fiscal
year 2000 by an affirmative vote of 12,858,482; votes
opposed to approval were 4,450; and abstentions were
416,092.
No other matters were submitted to a vote of the shareholders at the
meeting.
ITEM 5. OTHER INFORMATION
James K. Loebbecke was appointed to replace R. Bruce Romfo as a
director of the Jore Corporation effective July 1, 2000. Mr. Loebbecke was
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also appointed to the Audit Committee of the Board. Mr. Loebbecke is emeritus
professor of accounting at the David Eccles School of Business at the
University of Utah. He is a certified public accountant and for a number of
years was a national partner in Touche Ross & Co., an international
accounting and consulting firm. He was also co-founder of Norman/Loebbecke
Associates, a financial and litigation consulting firm in Salt Lake City,
Utah. Mr. Loebbecke is widely published in the field of accounting and
auditing and has extensive experience in various financial aspects of
business. He currently serves as a director and chair of the audit committee
of Wright Express Financial Services Corporation, a subsidiary of Avis
Corporation, and as a director and member of the audit committee of Steiner
Corporation, both of which companies are based in Salt Lake City.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this Form 10-Q:
10.1 Business Loan Agreement, dated December 31, 1999, between
Jore Corporation and Mountain West Bank, N.A.
10.2 Credit Agreement dated July 25, 2000, between Jore
Corporation, First Security Bank, N.A. and Harris Trust and
Savings Bank
10.3 Second Amendment to Rider to Master Loan and Security
Agreement No. 3624 dated September 30, 1998 between Jore
Corporation and Wentworth Capital, a Division of Charter
Financial, Inc.
27. Financial Data Schedule
(b) Reports on Form 8-K
Jore Corporation filed no reports on Form 8-K during the
quarter ended June 30, 2000.
Item 3 of Part II has been omitted from this Report as not applicable.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
JORE CORPORATION
/s/ Monte W. Giese
---------------------------
By: Monte W. Giese
Chief Financial Officer
(Principal Financial and
Accounting Officer and Duly
Authorized Officer)
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Date: August __ 2000
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