x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
|
Colorado
|
84-1374613
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
13855
Stowe Drive, Poway, California 92064
|
|
(Address
of principal executive offices)
|
Index | Page |
1
|
|
1
|
|
Consolidated Balance Sheets | 1 |
2
|
|
3
|
|
5
|
|
14
|
|
14
|
|
15
|
|
18
|
|
24
|
|
25
|
|
26
|
|
27
|
|
27
|
|
40
|
|
41
|
|
41
|
|
41
|
|
41
|
|
41
|
|
41
|
|
42
|
|
42
|
(Unaudited)
|
||||||||
June
30, 2007
|
December
31, 2006
|
|||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
|
$ |
2,914,756
|
$ |
1,438,146
|
||||
Accounts receivable (Note 2(d))
|
6,771,922
|
7,289,720
|
||||||
Inventory (Note 2(b))
|
519,788
|
309,205
|
||||||
Other
current assets (Note 6(a))
|
539,010
|
599,565
|
||||||
Total
Current Assets
|
10,745,476
|
9,636,636
|
||||||
Fixed
Assets - Net
|
4,004,879
|
3,793,365
|
||||||
Intangible
Assets
|
769,620
|
841,133
|
||||||
Goodwill
(Note 5)
|
11,233,665
|
11,233,665
|
||||||
Other
Assets (Note 6(b))
|
745,916
|
626,086
|
||||||
Total
Assets
|
$ |
27,499,556
|
$ |
26,130,885
|
||||
Liabilities
and Stockholders' Equity
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ |
1,235,425
|
$ |
1,755,985
|
||||
Current
portion of capitalized lease obligations
|
74,897
|
35,441
|
||||||
Accrued
payroll, vacation and related taxes
|
905,776
|
1,184,457
|
||||||
Billings
in excess of costs and deferred revenue (Note 2(a))
|
1,791,046
|
2,816,072
|
||||||
Revolving
line of credit (Note 3(b))
|
3,037,950
|
805,172
|
||||||
Other
accrued liabilities (Note 2(a))
|
2,594,130
|
1,602,561
|
||||||
Total
Current Liabilities
|
9,639,224
|
8,199,688
|
||||||
Notes
Payable, Less Current Maturities
|
55,997
|
50,193
|
||||||
Capitalized
Lease Obligations, Less Current Maturities
|
269,508
|
136,709
|
||||||
Deferred
Gain - Assets held for sale (Notes 3(a))
|
654,769
|
713,405
|
||||||
Other
Long Term Liabilities
|
-
|
15,266
|
||||||
Total
Liabilities
|
10,619,498
|
9,115,261
|
||||||
Commitments
and Contingencies
|
||||||||
Stockholders’
Equity
|
||||||||
Convertible
preferred stock, $.001 par value, 10,000,000
|
||||||||
shares
authorized, and 252,295 and 252,963 shares issued
|
||||||||
and outstanding, respectively (Note 4)
|
||||||||
Series
C Convertible preferred stock (Note 4(a))
|
248
|
248
|
||||||
Series
D-1 Convertible preferred stock (Note 4(b))
|
4
|
5
|
||||||
Common
stock, $.0001 par value; 100,000,000 shares
|
||||||||
authorized, and 30,141,034 and 29,550,342 shares issued
|
||||||||
and outstanding, respectively (Note 4)
|
3,014
|
2,953
|
||||||
Additional
paid-in capital
|
33,141,157
|
33,150,566
|
||||||
Accumulated
deficit
|
(16,264,365 | ) | (16,138,148 | ) | ||||
Total
Stockholders’ Equity
|
16,880,058
|
17,015,624
|
||||||
Total
Liabilities and Stockholders' Equity
|
$
|
27,499,556
|
$ |
26,130,885
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||||||||||||||||||
June
30,
|
2007
|
%
|
2006
|
%
|
2007
|
%
|
2006
|
%
|
||||||||||||||||||||||||
Net
Sales
|
$ |
8,647,568
|
100.0 | % | $ |
8,631,165
|
100.0 | % | $ |
17,704,616
|
100.0 | % | $ |
15,805,943
|
100.0 | % | ||||||||||||||||
Total
Cost of Sales*
|
6,151,468
|
71.1 | % |
6,329,932
|
73.3 | % |
13,117,539
|
74.1 | % |
11,595,039
|
73.4 | % | ||||||||||||||||||||
Gross
Margin
|
2,496,100
|
28.9 | % |
2,301,233
|
26.7 | % |
4,587,077
|
25.9 | % |
4,210,904
|
26.6 | % | ||||||||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||||||||||
Marketing
and sales
|
806,262
|
9.3 | % |
691,136
|
8.0 | % |
1,392,876
|
7.9 | % |
1,334,695
|
8.4 | % | ||||||||||||||||||||
Research
and development
|
123,795
|
1.4 | % |
123,062
|
1.4 | % |
163,155
|
0.9 | % |
204,839
|
1.3 | % | ||||||||||||||||||||
General
and administrative
|
1,413,015
|
16.3 | % |
1,476,941
|
17.1 | % |
2,656,570
|
15.0 | % |
2,707,674
|
17.1 | % | ||||||||||||||||||||
Total
Operating Expenses*
|
2,343,072
|
27.1 | % |
2,291,139
|
26.5 | % |
4,212,601
|
23.8 | % |
4,247,208
|
26.9 | % | ||||||||||||||||||||
Income/(Loss)
from Operations
|
153,028
|
1.8 | % |
10,094
|
0.1 | % |
374,476
|
2.1 | % | (36,304 | ) | -0.2 | % | |||||||||||||||||||
Non-Operating
Income/(Expense)
|
||||||||||||||||||||||||||||||||
Interest
income
|
10,023
|
0.1 | % |
7,137
|
0.1 | % |
30,979
|
0.2 | % |
40,752
|
0.3 | % | ||||||||||||||||||||
Interest
and other expense
|
(57,955 | ) | -0.7 | % | (5,346 | ) | -0.1 | % | (133,313 | ) | -0.8 | % | (10,629 | ) | -0.1 | % | ||||||||||||||||
Non-Cash
loan fee - (Note 3(b))
|
(87,261 | ) | -1.0 | % |
-
|
0.0 | % | (173,562 | ) | -1.0 | % |
-
|
0.0 | % | ||||||||||||||||||
Gain
on building sale (Note 3(a))
|
29,318
|
0.3 | % |
29,319
|
0.3 | % |
58,636
|
0.3 | % |
58,637
|
0.4 | % | ||||||||||||||||||||
Total
Non-Operating Income/(Expense)
|
(105,876 | ) | -1.2 | % |
31,110
|
0.4 | % | (217,261 | ) | -1.2 | % |
88,760
|
0.6 | % | ||||||||||||||||||
Income
Before Taxes
|
47,152
|
0.5 | % |
41,204
|
0.5 | % |
157,216
|
0.9 | % |
52,456
|
0.3 | % | ||||||||||||||||||||
Income
Tax Provision
|
-
|
0.0 | % |
5,000
|
0.1 | % | (800 | ) | 0.0 | % |
9,235
|
0.1 | % | |||||||||||||||||||
Net
Income
|
$ |
47,152
|
0.5 | % | $ |
36,204
|
0.4 | % | $ |
156,416
|
0.9 | % | $ |
43,221
|
0.3 | % | ||||||||||||||||
Net
Income
|
47,152
|
36,204
|
156,416
|
43,221
|
||||||||||||||||||||||||||||
Less
Preferred Dividend Payments (Note 4(a) and (b))
|
(138,866 | ) | (98,774 | ) | (282,633 | ) | (197,684 | ) | ||||||||||||||||||||||||
Adjusted
Net Income (Loss) for EPS Calculation
|
(91,714 | ) | (62,570 | ) | (126,218 | ) | (154,463 | ) | ||||||||||||||||||||||||
Net
Income Per Share:
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||||||||||||
Weighted-Average
Shares Outstanding
|
29,643,246
|
28,818,403
|
29,606,975
|
28,818,403
|
||||||||||||||||||||||||||||
Fully
Diluted Net Income Per Share:
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||||||||||||||||||
Fully
Diluted Weighted-Average Shares Outstanding
|
29,643,246
|
28,818,403
|
29,606,975
|
28,818,403
|
||||||||||||||||||||||||||||
*
The following table shows how the Company's stock option expense
are
allocated to all expenses. These non-cash stock option expenses are
included in the unaudited operating results stated above.
|
||||||||||||||||||||||||||||||||
Cost
of sales
|
$ |
35,999
|
$ |
-
|
$ |
77,372
|
$ |
-
|
||||||||||||||||||||||||
Marketing
and sales
|
19,676
|
-
|
33,328
|
-
|
||||||||||||||||||||||||||||
Research
and development
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||
General
and administrative
|
51,810
|
24,992
|
101,403
|
115,693
|
||||||||||||||||||||||||||||
Total
Non-Cash Stock Option Expense
|
$ |
107,484
|
$ |
24,992
|
$ |
212,103
|
$ |
115,693
|
Six
Months Ended June 30,
|
2007
|
2006
|
||||
Cash
Flows From Operating Activities
|
||||||
Net
income
|
$ 156,416
|
$ 43,221
|
||||
Adjustments
to reconcile net income to net cash provided by
|
||||||
(used
in) operating activities:
|
||||||
Depreciation
and amortization
|
592,916
|
372,500
|
||||
Gain
on disposal of building sale
|
(58,636)
|
(58,637)
|
||||
Stock
option expense
|
212,103
|
117,868
|
||||
Non-cash
loan fee
|
173,562
|
-
|
||||
Change
in operating assets and liabilities
|
(728,640)
|
(2,770,637)
|
||||
Net
Cash Provided By (Used In) Operating Activities
|
347,721
|
(2,295,685)
|
||||
Cash
Flows From Investing Activities
|
||||||
Other
assets, capitalized acquisition costs
|
-
|
(1,066,564)
|
||||
Purchases
of fixed assets
|
(543,319)
|
(1,075,688)
|
||||
Net
Cash Used In Investing Activities
|
(543,319)
|
(2,142,252)
|
||||
Cash
Flows From Financing Activities
|
||||||
Principal
payments on notes payable
|
-
|
(4,675,832)
|
||||
Principal
payments on capitalized lease obligations
|
(17,343)
|
(10,537)
|
||||
Dividend
payments on Series C and Series D-1 preferred
|
(297,799)
|
(197,684)
|
||||
Proceeds
from revolving credit facility
|
2,232,778
|
-
|
||||
Employee
stock purchase plan
|
28,895
|
89,510
|
||||
(Repurchase)
Issuance of preferred stock
|
(572,230)
|
4,602,956
|
||||
Proceeds
from issuance of common stock
|
297,907
|
132,857
|
||||
Net
Cash Provided by (Used In) Financing Activities
|
1,672,208
|
(58,730)
|
||||
Net
Increase (Decrease) in Cash
|
1,476,610
|
(4,496,667)
|
||||
Cash
at Beginning of Period
|
1,438,146
|
5,750,038
|
||||
Cash
at End of Period
|
$ 2,914,756
|
$ 1,253,371
|
Six
Months Ended June 30,
|
2007
|
2006
|
||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||
Cash
paid during the period for:
|
||||||
Interest
|
$ 133,313
|
$ 10,629
|
||||
Taxes
|
-
|
-
|
||||
Noncash
Investing and Financing Activities:
|
||||||
During
the six months ended June 30, 2007, the Company entered into
a capital
lease in the amount
|
||||||
of
approximately $190,000.
|
||||||
During
the six months ended June 30, 2007 and 2006 the Company declared
dividends
in the amount
|
||||||
of
$282,632 and $295,949 respectively, for our Series C and Series
D-1
Preferred Stock.
|
||||||
During
the six months ended June 30, 2007 and 2006, the Company converted
$52,871
and $34,516
|
||||||
of
employee stock purchase plan contributions into 63,970 and
24,885 shares
of common stock,
|
||||||
respectively.
|
·
|
An
agreement not to effect any transaction involving the issuance
of
securities convertible, exercisable or exchangeable for the Company's
common stock at a price or rate per share which floats (i.e.,
which may
change over time), without the consent of a majority of the Series
D-1
preferred stockholders, so long as any shares of Series D-1 Preferred
Stock are outstanding, subject to certain
conditions.
|
Starsys
Research Total Assets
|
$ (7,851,494)
|
Starsys
Research Total Liabilities
|
13,054,140
|
Cash
to Starsys Stockholders
|
410,791
|
Equity
to Starsys Stockholders
|
5,576,846
|
Fees
Associated with Acquisition
|
1,056,079
|
Total
Goodwill
|
$ 12,246,362
|
|
For
the fiscal year ended December 31, 2005, up to $350,000 in cash
and up to
an aggregate number of shares of the Company's common stock equal
to (A)
up to $3.0 million divided by (B) the volume weighted average
price of the
Company's common stock for the 20 trading days preceding the
date of the
audit opinion for the fiscal year ended December 31, 2005, but
not less
than $2.00 per share. This portion of the additional performance
consideration was not earned;
|
|
For
the fiscal year ended December 31, 2006, up to $350,000 in cash
and up to
an aggregate number of shares of the Company's common stock equal
to (A)
up to $7.5 million divided by (B) the volume weighted average
price of the
Company's common stock for the 20 trading days preceding the
date of the
audit opinion for the fiscal year ended December 31, 2006, but
not less
than $2.50 per share. This portion of the additional
performance consideration was not earned;
and,
|
|
For
the fiscal year ending December 31, 2007, up to $350,000 in cash
and up to
an aggregate number of shares of the Company's common stock equal
to (A)
up to $7.5 million divided by (B) the volume weighted average
price of the
Company's common stock for the 20 trading days preceding the
date of the
audit opinion for the fiscal year ending December 31, 2007, but
not less
than $3.00 per share. This portion of the additional
performance consideration will be evaluated in early 2008 based
on 2007
results. If this amount is earned, goodwill may be
adjusted.
|
Other
Current Assets - June 30,
|
2007
|
Prepaid:
|
|
Computer
& Software
|
$ 63,389
|
Directory
& Officers Prepaid Insurance
|
18,047
|
Financing
Fees
|
144,794
|
General
Liability & Workers Comp - Prepaid Insurance
|
56,132
|
Medical
Premiums - Prepaid
|
107,118
|
Rent
|
121,630
|
Other
Accruals
|
27,900
|
Total
Other Current Assets
|
$ 539,010
|
Other
Assets - June 30,
|
2007
|
Prepaid
Rent
|
$ 72,556
|
Other
Deposits
|
552,479
|
Building
Deposits
|
118,267
|
Capital
Lease Deposits
|
2,614
|
Total
Other Assets
|
$ 745,916
|
Combined
Consolidated Pro Forma
|
Pro
Forma Adjustments
|
Consolidated
Pro Forma
|
%
|
||||||||||||||||||
Net
Sales
|
$ |
17,606,505
|
100.00 | % | $ | (216,223 | ) | $ |
17,390,282
|
100.00 | % | ||||||||||
Cost
of Sales *
|
12,951,377
|
73.56 | % | $ | (80,758 | ) |
12,870,619
|
74.01 | % | ||||||||||||
Gross
Margin
|
$ |
4,655,128
|
26.44 | % | $ | (135,465 | ) |
4,519,663
|
25.99 | % | |||||||||||
Operating
Expenses
|
|||||||||||||||||||||
Marketing
and sales expense
|
1,538,169
|
8.74 | % | $ | (135,465 | ) |
1,402,705
|
8.07 | % | ||||||||||||
Research
and development
|
199,556
|
1.13 | % |
-
|
199,556
|
1.15 | % | ||||||||||||||
General
and administrative
|
3,018,151
|
17.14 | % |
-
|
3,018,151
|
17.36 | % | ||||||||||||||
Total
Operating Expenses *
|
4,755,877
|
27.01 | % | (135,465 | ) |
4,620,412
|
26.57 | % | |||||||||||||
Income/(Loss)
from Operations
|
(100,749 | ) | -0.57 | % |
-
|
(100,749 | ) | -0.58 | % | ||||||||||||
Non-Operating
Income/(Expense)
|
|||||||||||||||||||||
Interest
income
|
69,058
|
0.39 | % |
-
|
69,058
|
0.40 | % | ||||||||||||||
Interest
expense
|
(33,112 | ) | -0.19 | % |
-
|
(33,112 | ) | -0.19 | % | ||||||||||||
Gain
on Building Sale
|
58,637
|
0.33 | % |
-
|
58,637
|
0.34 | % | ||||||||||||||
Total
Non-Operating Income/(Expense)
|
94,583
|
0.54 | % |
-
|
94,583
|
0.54 | % | ||||||||||||||
Income
(Loss) Before Income Taxes
|
(6,166 | ) | -0.04 | % |
-
|
(6,166 | ) | -0.04 | % | ||||||||||||
Income
tax provision
|
9,235
|
0.05 | % |
-
|
9,235
|
0.05 | % | ||||||||||||||
Net
Income (Loss)
|
$ | (15,401 | ) | -0.09 | % | $ |
-
|
(15,401 | ) | -0.09 | % | ||||||||||
*
The following table shows how the Company's amortization expense
of stock
options would be allocated to all expenses.
|
|||||||||||||||||||||
Cost
of Sales
|
$ |
-
|
0.00 | % | $ |
-
|
-
|
0.00 | % | ||||||||||||
Marketing
and sales
|
-
|
0.00 | % |
-
|
-
|
0.00 | % | ||||||||||||||
Research
and development
|
-
|
0.00 | % |
-
|
-
|
0.00 | % | ||||||||||||||
General
and administrative
|
115,693
|
0.66 | % |
-
|
115,693
|
0.67 | % | ||||||||||||||
$ |
115,693
|
0.66 | % | $ |
-
|
115,693
|
0.67 | % |
·
|
General
and administrative expenses decreased approximately $51,000 from
approximately $2.7 million, or 17.1% of net sales, for the six
months
ended June 30, 2006 to approximately $2.7 million, or 15.0% of
net sales,
for the same six month period in 2007. The small decrease can
be attributed mainly to the six versus five month comparison
since the
merger did not take place until January 31, 2006. On a
pro-forma basis difference and as a percentage of total revenue
general
and administrative expenses decreased approximately $362,000
from
approximately $3.0 million on a pro forma basis for the six months
ended
June 30, 2006. As a percentage of total revenues general and
administrative expenses decreased approximately 2.1% from 17.1%
of net
sales for the six months ended June 30, 2006 to 15.0% of net
sales for the
six months ended June 30, 2007.
|
·
|
Research
and development expenses decreased to approximately $163,000,
or 0.9% of
net sales, for the six months ended June 30, 2007, from approximately
$205,000, or 1.3% of net sales, during the same period in
2006. The decrease was primarily due to the resignation of our
Chief Technology Officer at the end of the third quarter of 2006,
who has
not yet been replaced.
|
·
|
Marketing
and sales expenses increased to approximately $1.4 million, or
7.9% of net
sales, for the six months ended June 30, 2007, from approximately
$1.3
million, or 8.4% of net sales, during the same period in
2006. The total dollar increase of approximately $58,000 was
mainly due to additional proposal activity and a focus on new
business
development and marketing.
|
·
|
Our
stock option expense is based on a calculation using the minimum
value
method as prescribed by SFAS 123(R), otherwise known as the Black-Scholes
method. Under this method, we used a risk-free interest
rate at the date of grant, an expected volatility, an expected
dividend
yield and an expected life of the options to determine the fair
value of
options granted. The risk-free interest rate was estimated at
4.0%,
expected volatility ranged from 86% to 100% at the time all options
were
granted, the dividend yield was assumed to be zero, and the expected
life
of the options was assumed to be three years based on the average
vesting
period of options granted. The total expense for the six months
ended June 30, 2007 and 2006 was approximately $212,000 and $116,000,
respectively.
|
·
|
Interest
expense and loan fees for the six months ended June 30, 2007
and 2006 was
approximately $113,000 and $11,000, respectively. The increase
was mainly attributable to utilization of our revolving credit
facility in
2007; whereas, we did not borrow any significant amount during
the same
period in 2006. We generated interest and other income in the
six months ended June 30, 2007 and 2006 of approximately $31,000
and
$41,000, respectively, the decrease was primarily due to lower
cash
balances in 2007.
|
·
|
We
recognized approximately $59,000 of the deferred gain on the
2003 sale of
our Poway headquarters building during each of the six month
periods ended
June 30, 2007 and 2006, and we will continue to amortize the
remaining
deferred gain of approximately $655,000 into non-operating income
over the
remainder of the leaseback, which expires in January
2013.
|
·
|
We
recorded non-cash loan fees related to our revolving credit facility
of
approximately $174,000 for the six month period ended June 30,
2007. The expense was due to the issuance of 310,009 shares of
our common stock, valued at $350,000, to Laurus in September
2006 under
the terms of the new revolving credit facility; we are amortizing
this
expense over the initial one-year term of the credit facility.
We will
continue to expense the remaining $87,000 through September 2007.
If the
revolving credit facility is extended for another year, we will
issue an
additional $200,000 in our common stock to Laurus and amortize
its cost
over that twelve month period.
|
For
the six months ending
|
June
30, 2007
|
June
30, 2006
|
||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Net
Income
|
$ |
156,416
|
$ |
43,221
|
||||
Interest
Income
|
(30,979 | ) | (40,752 | ) | ||||
Interest
Expense
|
133,313
|
10,629
|
||||||
Non-Cash
Loan Fee
|
173,562
|
-
|
||||||
Provision
for Income Taxes
|
800
|
9,235
|
||||||
Depreciation
and Amortization
|
592,916
|
372,500
|
||||||
Stock
Option Expense
|
212,103
|
115,693
|
||||||
Gain
on Building Sale
|
(58,636 | ) | (58,637 | ) | ||||
EBITDA
*
|
$ |
1,179,495
|
$ |
451,889
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
June
30,
|
2007
|
%
|
2006
|
%
|
2007
|
%
|
2006
|
%
|
||||
GAAP
Operating Income
|
$ 153,028
|
1.8%
|
$ 10,094
|
0.1%
|
$ 374,476
|
2.1%
|
$ (36,304)
|
-0.2%
|
||||
SFAS
123(R) stock -based compensation
|
107,484
|
1.2%
|
24,992
|
0.2%
|
212,103
|
1.2%
|
115,693
|
0.7%
|
||||
Non-GAAP
Operating Income
|
260,512
|
1.5%
|
35,086
|
0.2%
|
586,580
|
3.3%
|
79,389
|
0.5%
|
||||
Non-Operating
Income/(Expense)
|
||||||||||||
Interest
income
|
10,023
|
0.1%
|
7,137
|
0.0%
|
30,979
|
0.2%
|
40,752
|
0.3%
|
||||
Interest
and other expense
|
(57,955)
|
-0.3%
|
(5,346)
|
0.0%
|
(133,313)
|
-0.8%
|
(10,629)
|
-0.1%
|
||||
Gain
on building sale (Note 3(a))
|
(87,261)
|
-0.5%
|
0
|
0.0%
|
(173,562)
|
-1.0%
|
0
|
0.0%
|
||||
Non-Cash
loan fee - (Note 3(b))
|
29,318
|
0.2%
|
29,319.00
|
0.2%
|
58,636
|
0.3%
|
58,637.00
|
0.4%
|
||||
Total
Non-Operating Income
|
(105,876)
|
-0.6%
|
31,110
|
0.2%
|
(217,261)
|
-1.2%
|
88,760
|
0.6%
|
||||
Non-GAAP
Net Income Before Taxes
|
$ 154,636
|
0.9%
|
$ 66,196
|
0.4%
|
$ 369,319
|
2.1%
|
$ 168,149
|
1.1%
|
||||
Income
Tax Provision
|
-
|
0.0%
|
5,000
|
0.0%
|
(800)
|
0.0%
|
9,235
|
0.1%
|
||||
Non-GAAP
Net Income
|
$ 154,636
|
0.9%
|
$ 61,196
|
0.4%
|
$ 370,119
|
2.1%
|
$ 158,914
|
1.0%
|
||||
Non-GAAP
Net Income
|
154,636
|
61,196
|
370,119
|
158,914
|
||||||||
Less
Preferred Dividend Payments
|
(138,866)
|
(98,774)
|
(282,633)
|
(197,684)
|
||||||||
Adjusted
Net Income/(Loss) for EPS Calculation
|
15,770
|
(37,578)
|
87,486
|
(38,770)
|
||||||||
Non-GAAP
Net Income Per Share
|
$ 0.00
|
$ (0.00)
|
$ 0.00
|
$ (0.00)
|
||||||||
Weighted-Average
Shares Outstanding
|
29,643,246
|
28,818,403
|
29,606,975
|
28,818,403
|
·
|
General
and administrative expenses decreased approximately $64,000 from
approximately $1.5 million, or 17.1% of net sales, for the three
months
ended June 30, 2006 to approximately $1.4 million, or 16.3% of
net sales,
for the same three month period in 2007. The slight decrease
can be attributed mainly to moving the Durham facility, improving
the
infrastructure on our new Louisville facility and certain increases
related to Sarbanes-Oxley compliance requirements, which were
partially
offset by ongoing cost control
efforts.
|
·
|
Research
and development expenses remained relatively the same for the
three months
ended June 30, 2007 and 2006 at approximately $123,000, or 1.4%
of net
sales, respectively.
|
·
|
Marketing
and sales expenses increased to approximately $806,000, or 9.3%
of net
sales, for the three months ended June 30, 2007, from approximately
$691,000, or 8.0% of net sales, during the same period in
2006. The increase of approximately $115,000 was mainly due to
additional proposal activity and a focus on new business development
and
marketing.
|
·
|
Our
stock option expense is based on a calculation using the minimum
value
method as prescribed by SFAS 123(R), otherwise known as the Black-Scholes
method. Under this method, we used a risk-free interest
rate at the date of grant, an expected volatility, an expected
dividend
yield and an expected life of the options to determine the fair
value of
options granted. The risk-free interest rate was estimated at
4.0%,
expected volatility ranged from 86% to 100% at the time all options
were
granted, the dividend yield was assumed to be zero, and the expected
life
of the options was assumed to be three years based on the average
vesting
period of options granted. The total expense for the three
months ended June 30, 2007 and 2006 was approximately $107,000
and
$25,000, respectively.
|
·
|
Interest
expense and loan fees for the three months ended June 30, 2007
and 2006
was approximately $58,000 and $5,000, respectively. The
increase was mainly attributable to utilization of our revolving
credit
facility in 2007; whereas, we did not borrow any significant
amount during
the same period in 2006. We generated interest and other income
in the three months ended June 30, 2007 and 2006 of approximately
$10,000
and $7,000, respectively.
|
·
|
We
recognized approximately $29,000 of the deferred gain on the
2003 sale of
our Poway headquarters building during each of the three month
periods
ended June 30, 2007 and 2006, and we will continue to amortize
the
remaining deferred gain of approximately $655,000 into non-operating
income over the remainder of the leaseback, which expires in
January
2013.
|
·
|
We
recorded non-cash loan fees related to our revolving credit facility
of
approximately $87,000 for the three month period ended June 30,
2007. The expense was due to the issuance of 310,009 shares of
our common stock, valued at $350,000, to Laurus in September
2006 under
the terms of the new revolving credit facility; we are amortizing
this
expense over the initial one-year term of the credit facility.
We will
continue to expense the remaining $87,000 through September 2007.
If the
revolving credit facility is extended for another year, we will
issue an
additional $200,000 in our common stock to Laurus and amortize
its cost
over that twelve month period.
|
For
the three months ended
|
June
30, 2007
|
June
30, 2006
|
||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Net
Income
|
$ |
47,152
|
$ |
36,204
|
||||
Interest
Income
|
(10,023 | ) | (7,137 | ) | ||||
Interest
Expense
|
57,955
|
5,346
|
||||||
Non-Cash
Loan Fee
|
87,261
|
-
|
||||||
Provision
for Income Taxes
|
-
|
5,000
|
||||||
Depreciation
and Amortization
|
276,678
|
225,130
|
||||||
Stock
Option Expense
|
107,484
|
24,992
|
||||||
Gain
on Building Sale
|
(29,318 | ) | (29,318 | ) | ||||
EBITDA
|
$ |
537,190
|
$ |
260,217
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||||||||||||||||||
June
30,
|
2007
|
%
|
2006
|
%
|
2007
|
%
|
2006
|
%
|
||||||||||||||||||||||||
GAAP
Operating Income
|
$ |
153,028
|
1.8 | % | $ |
10,094
|
0.1 | % | $ |
374,476
|
2.1 | % | $ | (36,304 | ) | -0.2 | % | |||||||||||||||
SFAS
123(R) stock -based compensation
|
107,484
|
1.2 | % |
24,992
|
0.2 | % |
212,103
|
1.2 | % |
115,693
|
0.7 | % | ||||||||||||||||||||
Non-GAAP
Operating Income
|
260,512
|
1.5 | % |
35,086
|
0.2 | % |
586,580
|
3.3 | % |
79,389
|
0.5 | % | ||||||||||||||||||||
Non-Operating
Income/(Expense)
|
||||||||||||||||||||||||||||||||
Interest
income
|
10,023
|
0.1 | % |
7,137
|
0.0 | % |
30,979
|
0.2 | % |
40,752
|
0.3 | % | ||||||||||||||||||||
Interest
and other expense
|
(57,955 | ) | -0.3 | % | (5,346 | ) | 0.0 | % | (133,313 | ) | -0.8 | % | (10,629 | ) | -0.1 | % | ||||||||||||||||
Gain
on building sale (Note 3(a))
|
(87,261 | ) | -0.5 | % |
0
|
0.0 | % | (173,562 | ) | -1.0 | % |
0
|
0.0 | % | ||||||||||||||||||
Non-Cash
loan fee - (Note 3(b))
|
29,318
|
0.2 | % |
29,319.00
|
0.2 | % |
58,636
|
0.3 | % |
58,637.00
|
0.4 | % | ||||||||||||||||||||
Total
Non-Operating Income
|
(105,876 | ) | -0.6 | % |
31,110
|
0.2 | % | (217,261 | ) | -1.2 | % |
88,760
|
0.6 | % | ||||||||||||||||||
Non-GAAP
Net Income Before Taxes
|
$ |
154,636
|
0.9 | % | $ |
66,196
|
0.4 | % | $ |
369,319
|
2.1 | % | $ |
168,149
|
1.1 | % | ||||||||||||||||
Income
Tax Provision
|
-
|
0.0 | % |
5,000
|
0.0 | % | (800 | ) | 0.0 | % |
9,235
|
0.1 | % | |||||||||||||||||||
Non-GAAP
Net Income
|
$ |
154,636
|
0.9 | % | $ |
61,196
|
0.4 | % | $ |
370,119
|
2.1 | % | $ |
158,914
|
1.0 | % | ||||||||||||||||
Non-GAAP
Net Income
|
154,636
|
61,196
|
370,119
|
158,914
|
||||||||||||||||||||||||||||
Less
Preferred Dividend Payments
|
(138,866 | ) | (98,774 | ) | (282,633 | ) | (197,684 | ) | ||||||||||||||||||||||||
Adjusted
Net Income/(Loss) for EPS Calculation
|
15,770
|
(37,578 | ) |
87,486
|
(38,770 | ) | ||||||||||||||||||||||||||
Non-GAAP
Net Income Per Share
|
$ |
0.00
|
$ | (0.00 | ) | $ |
0.00
|
$ | (0.00 | ) | ||||||||||||||||||||||
Weighted-Average
Shares Outstanding
|
29,643,246
|
28,818,403
|
29,606,975
|
28,818,403
|
·
|
failure
to successfully manage relationships with customers and other
important
relationships;
|
·
|
failure
of customers to accept new services or to continue using the
products and
services of the combined company;
|
·
|
difficulties
in successfully integrating the management teams and employees
of the two
companies;
|
·
|
potential
incompatibility of business
cultures;
|
·
|
challenges
encountered in managing larger, more geographically dispersed
operations;
|
·
|
the
loss of key employees;
|
·
|
diversion
of the attention of management from other ongoing business
concerns;
|
·
|
potential
incompatibilities of processes, technologies and
systems;
|
·
|
potential
difficulties integrating and harmonizing financial reporting
systems;
and,
|
·
|
potential
failure to implement systems to properly price and manage the
execution of
fixed-price contracts.
|
·
|
the
integration of the two companies is
unsuccessful;
|
·
|
the
costs of or operational difficulties arising from the merger
are greater
than anticipated;
|
·
|
the
combined financial results are not consistent with
expectations;
|
·
|
the
anticipated operating and product synergies of the merger are
not
realized; or,
|
·
|
the
fixed price development contracts acquired in the merger continue
to incur
major cost overruns or remains unprofitable for other
reasons.
|
·
|
include
provisions that allow the government agency to terminate the
contract
without penalty;
|
·
|
be
subject to purchasing decisions of agencies that are subject
to political
influence;
|
·
|
contain
onerous procurement procedures;
and,
|
·
|
be
subject to cancellation if government funding becomes
unavailable.
|
·
|
we
may not be awarded all stages of existing or future
contracts;
|
·
|
significant
contracts may be awarded to our competitors rather than to
us;
|
·
|
the
timing of new technological advances and product announcements
or
introductions by us and our
competitors;
|
·
|
changes
in the terms of our arrangements with customers or
suppliers;
|
·
|
reliance
on a few customers for a significant portion of our net
sales;
|
·
|
the
failure of our key suppliers to perform as
expected;
|
·
|
general
or particular political conditions that could affect spending
for the
products that we offer;
|
·
|
changes
in perception of the safety of space
travel;
|
·
|
cost
overruns or other delays or failures to satisfy our obligations
under our
contracts on a timely basis;
|
·
|
the
failure of our products to successfully launch or
operate;
|
·
|
the
uncertain market for our technology and
products;
|
·
|
the
availability and cost of raw materials and components for our
products;
and,
|
·
|
the
potential loss of or inability to hire key
personnel.
|
·
|
designing,
constructing, integrating, or testing the small satellite, components,
or
related ground systems;
|
·
|
delays
in receiving the license(s) necessary to operate the small satellite
system(s);
|
·
|
delays
in obtaining our customer's
payload;
|
·
|
delays
related to the launch vehicle;
|
·
|
weather;
and,
|
·
|
other
events beyond our control.
|
·
|
problems
assimilating the purchased technologies, products, or business
operations;
|
·
|
problems
maintaining uniform standards, procedures, controls, and
policies;
|
·
|
unanticipated
costs associated with the
acquisition;
|
·
|
diversion
of management's attention from core
businesses;
|
·
|
adverse
effects on existing business relationships with suppliers and
customers;
|
·
|
incompatibility
of business cultures;
|
·
|
risks
associated with entering new markets in which we have no or limited
prior
experience;
|
·
|
dilution
of common stock and shareholder value as well as adverse changes
in stock
price;
|
·
|
potential
loss of key employees of acquired businesses;
and,
|
·
|
increased
legal and accounting costs as a result of the rules and regulations
related to the Sarbanes-Oxley Act of
2002.
|
·
|
deviations
in our results of operations from
estimates;
|
·
|
changes
in estimates of our financial
performance;
|
·
|
changes
in our markets, including decreased government spending or the
entry of
new competitors;
|
·
|
awards
of significant contracts to competitors rather than to
us;
|
·
|
our
inability to obtain financing necessary to operate our
business;
|
·
|
changes
in technology;
|
·
|
potential
loss of key personnel;
|
·
|
short
selling;
|
·
|
regular
stock selling programs established and executed by
insiders;
|
·
|
changes
in market valuations of similar companies and of stocks
generally;
|
·
|
volume
fluctuations generally including, but not limited to, resales
by former
Starsys stockholders or by Laurus Master Fund;
and,
|
·
|
other
factors listed above in "Our operating results could fluctuate on a
quarterly and annual basis, which could cause our stock price
to fluctuate
or decline."
|
·
|
make
a special written suitability determination for the
purchaser;
|
·
|
receive
the purchaser's written agreement to a transaction prior to
sale;
|
·
|
provide
the purchaser with risk disclosure documents which identify certain
risks
associated with investing in "penny stocks" and which describe
the market
for these "penny stocks" as well as a purchaser's legal remedies;
and
|
·
|
obtain
a signed and dated acknowledgment from the purchaser demonstrating
that
the purchaser has actually received the required risk disclosure
document
before a transaction in a "penny stock" can be
completed.
|
Exhibit
No.
|
Description
|
Filed
Herewith
|
Incorporated
by Reference
|
Form
|
Date
Filed with SEC
|
Exhibit
No.
|
10.1
|
Warrant
Exercise Offer – Form of Letter sent to all Series D-1 Preferred
Shareholders
|
X
|
10-QSB
|
Aug.
13, 2007
|
10.1
|
|
10.2
|
Starsys
escrow instructions
|
X
|
10-QSB
|
Aug.
13, 2007
|
10.2
|
|
31.1
|
Rule
13a-14(a) certification of Chief Executive Officer
|
X
|
10-QSB
|
Aug.
13, 2007
|
31.1
|
|
31.2
|
Rule
13a-14(a) certification of Chief Financial Officer
|
X
|
10-QSB
|
Aug.
13, 2007
|
31.2
|
|
32.1
|
Section
1350/Rule 13a-14(b) certifications
|
X
|
10-QSB
|
Aug.
13, 2007
|
32.1
|