x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
87-0475073
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
ITEM
1.
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3
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3
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4
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5
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6
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7
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ITEM
2.
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22
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ITEM
3.
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30
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ITEM
4.
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30
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ITEM
1.
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31
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ITEM
1A.
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31
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ITEM
2.
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31
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ITEM
3.
|
31
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ITEM
4.
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31
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ITEM
5.
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31
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ITEM
6.
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32
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33
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December
31, 2009
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June
30,
|
|||||||
ASSETS
|
(Unaudited)
|
2009
|
||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 438,163 | $ | 550,602 | ||||
Accounts
receivable, net
|
2,931,038 | 3,427,550 | ||||||
Inventories,
net
|
6,895,198 | 6,392,441 | ||||||
Taxes
receivable
|
48,728 | 20,257 | ||||||
Deferred
tax assets
|
830,447 | 830,447 | ||||||
Prepaid
expenses and other current assets
|
420,593 | 541,153 | ||||||
Total
Current Assets
|
11,564,167 | 11,762,450 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
1,785,973 | 2,096,986 | ||||||
OTHER
ASSETS:
|
||||||||
Goodwill
and other intangible assets, net
|
3,584,231 | 3,584,231 | ||||||
Deferred
tax assets
|
378,074 | 279,486 | ||||||
Other
assets
|
66,578 | 75,159 | ||||||
Total
Other Assets
|
4,028,883 | 3,938,876 | ||||||
TOTAL
ASSETS
|
$ | 17,379,023 | $ | 17,798,312 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
1,063,168 | 1,128,187 | ||||||
Accrued
compensation and benefits
|
428,900 | 690,948 | ||||||
Other
accrued expenses and current liabilities
|
884,787 | 1,151,325 | ||||||
Short-term
capital lease obligation
|
– | 69,815 | ||||||
Accrued
product warranty costs
|
447,967 | 436,578 | ||||||
Deferred
rent liability
|
35,649 | 63,863 | ||||||
Deferred
revenue
|
81,274 | 209,079 | ||||||
Total
Current Liabilities
|
2,941,745 | 3,749,795 | ||||||
OTHER
LIABILITIES:
|
||||||||
Long-term
debt
|
3,115,866 | 2,749,132 | ||||||
Deferred
rent liability
|
42,726 | 58,010 | ||||||
Convertible
debt, net of discount of $333,978 in December and $401,830 in
June
|
916,022 | 848,170 | ||||||
Warrant
liabilities
|
11,742 | – | ||||||
Deferred
revenue, less current portion
|
4,398 | 38,708 | ||||||
Total
Other Liabilities
|
4,090,754 | 3,694,020 | ||||||
TOTAL
LIABILITIES
|
7,032,499 | 7,443,815 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
SHAREHOLDERS'
EQUITY:
|
||||||||
Preferred
Stock, $.001 par value
|
||||||||
Authorized
5,000,000 shares; none issued
|
– | – | ||||||
Common
Stock, $.001 par value 25,000,000 shares authorized;
|
||||||||
issued
and outstanding, respectively, 12,971,434 and 11,989,914
shares
in December and 12,397,757 and 11,771,966 shares in June
|
11,990 | 11,772 | ||||||
Additional
paid-in capital
|
13,023,671 | 13,000,680 | ||||||
Accumulated
other comprehensive income (loss)
|
(41,625 | ) | 216 | |||||
Accumulated
deficit
|
(2,647,512 | ) | (2,658,171 | ) | ||||
Total
Shareholders' Equity
|
10,346,524 | 10,354,497 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 17,379,023 | $ | 17,798,312 |
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
NET
REVENUES
|
$ | 5,586,319 | $ | 5,156,705 | $ | 11,093,069 | $ | 10,909,110 | ||||||||
COST
OF GOODS SOLD:
|
||||||||||||||||
Cost
of goods sold, excluding depreciation and
amortization,
product warranty, shipping and freight
|
2,366,827 | 2,551,580 | 4,980,605 | 5,203,804 | ||||||||||||
Depreciation
and amortization
|
79,084 | 139,627 | 215,685 | 257,116 | ||||||||||||
Product
warranty
|
519,491 | 227,330 | 987,863 | 441,499 | ||||||||||||
Shipping
and freight
|
108,698 | 116,141 | 267,252 | 263,766 | ||||||||||||
Total
cost of goods sold
|
3,074,100 | 3,034,678 | 6,451,405 | 6,166,185 | ||||||||||||
GROSS
PROFIT
|
2,512,219 | 2,122,027 | 4,641,664 | 4,742,925 | ||||||||||||
OTHER
COSTS AND EXPENSES:
|
||||||||||||||||
Research
and development
|
372,004 | 348,194 | 712,884 | 721,246 | ||||||||||||
Selling,
general and administrative, excluding
depreciation
and amortization
|
2,033,453 | 2,495,540 | 3,950,143 | 5,248,447 | ||||||||||||
Depreciation
and amortization
|
62,956 | 92,467 | 137,798 | 186,400 | ||||||||||||
Litigation
settlement
|
– | – | – | (1,500,000 | ) | |||||||||||
Total
other costs and expenses
|
2,468,413 | 2,936,201 | 4,800,825 | 4,656,093 | ||||||||||||
INCOME
(LOSS) FROM OPERATIONS
|
43,806 | (814,174 | ) | (159,161 | ) | 86,832 | ||||||||||
Interest
expense
|
(89,914 | ) | (74,231 | ) | (176,769 | ) | (129,155 | ) | ||||||||
Interest
income
|
51 | 2,307 | 71 | 2,966 | ||||||||||||
Gain
(loss) on change in fair value of warrant liabilities
|
14,205 | – | (4,962 | ) | – | |||||||||||
Amortization
of debt discount on convertible debt
|
(35,173 | ) | (26,211 | ) | (67,852 | ) | (26,211 | ) | ||||||||
LOSS
BEFORE INCOME TAXES
|
(67,025 | ) | (912,309 | ) | (408,673 | ) | (65,568 | ) | ||||||||
Benefit
for income taxes
|
16,169 | 395,572 | 98,588 | 26,227 | ||||||||||||
|
||||||||||||||||
NET
LOSS
|
$ | (50,856 | ) | $ | (516,737 | ) | $ | (310,085 | ) | $ | (39,341 | ) | ||||
LOSS
PER SHARE
|
||||||||||||||||
Basic
and diluted
|
$ | (0.00 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.00 | ) | ||||
WEIGHTED
AVERAGE SHARES USED TO COMPUTE LOSS PER SHARE
|
||||||||||||||||
Basic
and diluted
|
11,945,712 | 11,721,467 | 11,891,969 | 11,719,283 |
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
Shareholders'
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Income
(loss)
|
Deficit
|
Equity
|
|||||||||||||||||||
BALANCES,
JUNE 30, 2009
|
11,771,966 | $ | 11,772 | $ | 13,000,680 | $ | 216 | $ | (2,658,171 | ) | $ | 10,354,497 | ||||||||||||
Cumulative
effect of change in accounting principle
– ASC Topic
815-10 adoption
|
– | – | (327,524 | ) | – | 320,744 | (6,780 | ) | ||||||||||||||||
Components
of comprehensive loss:
|
||||||||||||||||||||||||
Net
loss
|
– | – | – | – | (310,085 | ) | (310,085 | ) | ||||||||||||||||
Cumulative
translation adjustment
|
– | – | – | (41,841 | ) | – | (41,841 | ) | ||||||||||||||||
Total
comprehensive loss
|
– | – | – | – | – | (351,926 | ) | |||||||||||||||||
Vested
restricted stock units
|
217,948 | 218 | (218 | ) | – | – | – | |||||||||||||||||
Stock-based
compensation expense
|
– | – | 350,733 | – | – | 350,733 | ||||||||||||||||||
BALANCES,
DECEMBER 31, 2009
|
11,989,914 | $ | 11,990 | $ | 13,023,671 | $ | (41,625 | ) | $ | (2,647,512 | ) | $ | 10,346,524 |
Six
Months Ended
December
31,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (310,085 | ) | $ | (39,341 | ) | ||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||
Depreciation
and amortization
|
394,220 | 471,108 | ||||||
Stock-based
compensation expense
|
345,602 | 363,416 | ||||||
Deferred
income taxes
|
(98,588 | ) | (26,227 | ) | ||||
Provision
for (reduction of) inventory obsolescence reserves
|
(58,319 | ) | 67,610 | |||||
Provision
for (recovery of) returns and doubtful accounts allowance
|
90,063 | (52,568 | ) | |||||
Amortization
of debt discount on convertible debt
|
67,852 | 26,211 | ||||||
Loss
on change in fair value of warrant liabilities
|
4,962 | – | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
370,662 | 146,854 | ||||||
Inventories
|
(439,308 | ) | 1,957,369 | |||||
Income
taxes
|
(29,074 | ) | (4,160 | ) | ||||
Prepaid
expenses and other current assets
|
110,598 | (25,863 | ) | |||||
Accounts
payable
|
(66,043 | ) | (1,625,183 | ) | ||||
Accrued
compensation and benefits
|
(266,793 | ) | (302,124 | ) | ||||
Other
accrued expenses and current liabilities
|
(244,740 | ) | (910,236 | ) | ||||
Accrued
product warranty costs
|
11,389 | (11,432 | ) | |||||
Deferred
rent liability
|
(43,498 | ) | (23,268 | ) | ||||
Deferred
revenue
|
(162,115 | ) | (204,920 | ) | ||||
Net
cash used by operating activities
|
(323,215 | ) | (192,754 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchases
of property and equipment
|
(83,207 | ) | (597,482 | ) | ||||
Net
cash used in investing activities
|
(83,207 | ) | (597,482 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Decrease
in restricted cash
|
18,450 | – | ||||||
Bank
credit line proceeds
|
366,734 | 284,474 | ||||||
Capital
lease obligation repayments
|
(69,815 | ) | (200,000 | ) | ||||
Proceeds
from issuance of subordinated convertible debt
|
– | 1,250,000 | ||||||
Net
cash provided by financing activities
|
315,369 | 1,334,474 | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
(21,386 | ) | (61,334 | ) | ||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(112,439 | ) | 482,904 | |||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
550,602 | 236,571 | ||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 438,163 | $ | 719,475 | ||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||
Interest
paid
|
$ | 158,426 | $ | 111,447 | ||||
Income
taxes paid
|
$ | 49,160 | $ | 6,240 | ||||
SUPPLEMENTAL
DISCLOSURE OF NON-CASH TRANSACTIONS
|
||||||||
Capital
lease additions
|
$ | – | $ | 528,488 |
·
|
Level
1 – unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access as of the
measurement date.
|
·
|
Level
2 – inputs other than quoted prices included within Level 1 that are
directly observable for the asset or liability or indirectly observable
through corroboration with observable market
data.
|
·
|
Level
3 – unobservable inputs for the asset or liability only used when there is
little, if any, market activity for the asset or liability at the
measurement date.
|
Fair
Value
as
of
December
31,2009
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs (Level
2)
|
Significant
Unobservable
Inputs (Level
3)
|
Increases
(decreases)
during
the six
months
ended
December
31, 2009
|
||||||||||||||||
Liabilities:
|
||||||||||||||||||||
Warrant
obligations
|
$ | 11,742 | – | – | $ | 11,742 | $ | 4,962 |
Increases
(decreases)
|
||||
Liabilities:
|
||||
Balance
as of July 1, 2009
|
$ | 6,780 | ||
Increase
in fair value of warrants
|
19,167 | |||
Balance
as of September 30, 2009
|
$ | 25,947 | ||
Decrease
in fair value of warrants
|
(14,205 | ) | ||
Balance
as of December 31, 2009
|
$ | 11,742 |
Original
Value
|
July
1, 2009
|
December
31, 2009
|
||||
Number
of warrants
|
1,515
|
1,515
|
1,515
|
|||
Exercise
price
|
$1.65
|
$1.65
|
$1.65
|
|||
Risk
free interest rate
|
2.13%
|
1.53%
|
1.08%
|
|||
Expected
warrant lives in years
|
3.0
|
2.9
|
2.0
|
|||
Expected
volatility
|
61.3%
|
74%
|
74%
|
|||
Expected
dividend yields
|
None
|
None
|
None
|
|||
Fair
value per share
|
$0.216
|
$0.005
|
$0.008
|
|||
Common
stock price
|
$1.43
|
$0.17
|
(a)
|
$0.225
|
(a)
|
|
Fair
value of warrants
|
$327,524
|
$6,780
|
$11,742
|
|
(a)
|
Due
to the low average daily trading volume of our common stock, we have
discounted the common stock price in the Black-Scholes valuation model to
reflect the adverse impact on our share price which would result from a
dramatic increase in the number of shares of our common stock outstanding
upon the exercise of these
warrants.
|
Balance
at
June
30, 2009
|
Cumulative
Effect
Adjustment
|
Balance
at
July
1, 2009
|
|||||||||||
Warrant
liabilities
|
– | $ | 6,780 | $ | 6,780 | ||||||||
Additional
paid-in capital
|
$ | 13,000,680 | $ | (327,524 | ) | $ | 12,673,156 | ||||||
Accumulated
deficit
|
$ | (2,658,171 | ) | $ | 320,744 | $ | (2,337,427 | ) |
·
|
FSP
FAS 157-4, “Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly” (ASC Topic 820-10-65). This update
relates to determining fair values when there is no active market or where
the price inputs being used represent distressed sales. It reaffirms the
need to exercise judgment to ascertain if a formerly active market has
become inactive and in determining fair values when markets have become
inactive. The FSP was effective for the Company’s annual
reporting for the fiscal year ended on June 30, 2009. The
implementation of FSP SFAS No. 157-4 did not materially impact the
Company’s financial position, results of operations or cash
flows.
|
·
|
FSP
FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial
Instruments” (ASC Topic 320-10-65). This update requires fair
value disclosures for financial instruments that are not currently
reflected on the balance sheet at fair value on a quarterly
basis. The disclosure requirement under this FSP was effective
for the Company’s interim reporting period ending on September 30,
2009 and all appropriate disclosures have been reflected
herein.
|
December
31,
2009
|
|||||||||
(Unaudited)
|
June
30, 2009
|
||||||||
Accounts
receivable, net
|
|||||||||
Accounts
receivable, gross
|
$ | 3,107,307 | $ | 3,513,756 | |||||
Allowance
for doubtful accounts
|
(40,000 | ) | (50,000 | ) | |||||
Allowance
for returns
|
(136,269 | ) | (36,206 | ) | |||||
$ | 2,931,038 | $ | 3,427,550 | ||||||
Inventories,
net of reserves
|
|||||||||
Raw
materials
|
$ | 2,160,293 | $ | 2,184,245 | |||||
Finished
goods
|
5,017,821 | 4,549,431 | |||||||
Less: reserves
for obsolescence
|
(282,916 | ) | (341,235 | ) | |||||
$ | 6,895,198 | $ | 6,392,441 | ||||||
Property
and Equipment, net
|
Useful
Lives
|
||||||||
Equipment
|
3 –
7 years
|
$ | 2,894,265 | $ | 2,801,027 | ||||
Furniture
and fixtures
|
7
years
|
578,672 | 578,672 | ||||||
Automobiles
|
5
years
|
30,434 | 30,434 | ||||||
Leasehold
improvements
|
5 –
10 years
|
909,772 | 895,909 | ||||||
Tooling
and molds
|
3
years
|
2,877,405 | 2,908,778 | ||||||
Construction-in-progress
|
304,710 | 297,230 | |||||||
7,595,258 | 7,512,050 | ||||||||
Less:
Accumulated depreciation and amortization
|
5,809,285 | 5,415,064 | |||||||
$ | 1,785,973 | $ | 2,096,986 | ||||||
Goodwill
and other intangible assets, net
|
|||||||||
Goodwill
|
$ | 3,965,977 | $ | 3,965,977 | |||||
Other
|
1-5
years
|
46,000 | 46,000 | ||||||
4,011,977 | 4,011,977 | ||||||||
Less:
Accumulated amortization
|
427,746 | 427,746 | |||||||
$ | 3,584,231 | $ | 3,584,231 |
December
31, 2009
|
||||||||
(Unaudited)
|
June
30, 2009
|
|||||||
Short-term
capital lease obligation
|
$ | – | $ | 69,815 | ||||
Bank
term notes
|
$ | 1,500,000 | $ | 1,500,000 | ||||
Bank
line of credit
|
1,615,866 | 1,249,132 | ||||||
Less:
current maturities
|
– | – | ||||||
Long-term
debt
|
$ | 3,115,866 | $ | 2,749,132 | ||||
Total
bank debt
|
$ | 3,115,866 | $ | 2,818,947 |
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Numerator
for basic and diluted:
|
||||||||||||||||
Net
loss
|
$ | (50,856 | ) | $ | (516,737 | ) | $ | (310,085 | ) | $ | (39,341 | ) | ||||
Denominator
:
|
||||||||||||||||
For
basic loss per common share –
weighted
average shares outstanding
|
11,945,712 | 11,721,467 | 11,891,969 | 11,719,283 | ||||||||||||
Effect
of dilutive securities - stock options,
restricted
stock units and warrants
|
– | – | – | – | ||||||||||||
For
diluted loss per common share –
weighted
average shares outstanding adjusted
for
assumed exercises
|
11,945,712 | 11,721,467 | 11,891,969 | 11,719,283 | ||||||||||||
Basic
loss per share
|
$ | (0.00 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.00 | ) | ||||
Diluted
loss per share
|
$ | (0.00 | ) | $ | (0.04 | ) | $ | (0.03 | ) | $ | (0.00 | ) |
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Anti-dilutive
options and warrants
|
1,108,436 | 791,605 | 1,108,436 | 786,105 |
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Stock-based
compensation expense by type of award:
|
||||||||||||||||
Employee
stock options
|
$ | 69,411 | $ | 83,634 | $ | 140,556 | $ | 162,346 | ||||||||
Non-employee
director stock options
|
– | 16,738 | – | 71,299 | ||||||||||||
Non-employee
restricted stock units
|
– | 7,350 | – | 14,700 | ||||||||||||
Employee
restricted stock units
|
72,972 | 61,425 | 142,024 | 140,756 | ||||||||||||
Non-employee
director restricted stock units
|
19,653 | 35,848 | 68,153 | 35,848 | ||||||||||||
Forfeiture
rate adjustment
|
– | – | – | (56,751 | ) | |||||||||||
Amounts
capitalized as inventory
|
(3,237 | ) | 3,010 | (5,130 | ) | (4,782 | ) | |||||||||
Total
stock-based compensation expense
|
$ | 158,799 | $ | 208,005 | $ | 345,603 | $ | 363,416 | ||||||||
Tax
effect of stock-based compensation recognized
|
(53,591 | ) | (78,721 | ) | (116,247 | ) | (163,154 | ) | ||||||||
Net
effect on net loss
|
$ | 105,208 | $ | 129,284 | $ | 229,356 | $ | 200,262 | ||||||||
Excess
tax benefit effect on:
|
||||||||||||||||
Cash
flows from operations
|
$ | – | $ | – | $ | – | $ | – | ||||||||
Cash
flows from financing activities
|
$ | – | $ | – | $ | – | $ | – | ||||||||
Effect
on loss per share:
|
||||||||||||||||
Basic
|
$ | 0.01 | $ | 0.01 | $ | 0.02 | $ | 0.02 | ||||||||
Diluted
|
$ | 0.01 | $ | 0.01 | $ | 0.02 | $ | 0.02 |
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
|||||||||||||||
2009 (b)
|
2008 (a)
|
2009 (b)
|
2008
|
|||||||||||||
Risk-free
interest rate
|
– | – | – | 2.8% | ||||||||||||
Dividend
yield
|
– | – | – | 0.0% | ||||||||||||
Expected
stock price volatility
|
– | – | – | 58% | ||||||||||||
Average
expected life of options
|
– | – | – |
3.2
years
|
||||||||||||
(a) No
stock options were granted during the three months ended December 31,
2008.
|
||||||||||||||||
(b) No
stock options were granted during the three or six months ended December
31, 2009.
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
||||||||
Balance
outstanding at June 30, 2009
|
1,085,216 | $ | 3.41 | ||||||
Six
months ended December 31, 2009:
|
|||||||||
Options
granted
|
– | – | |||||||
Options
exercised
|
– | – | |||||||
Options
cancelled/expired/forfeited
|
(12,300 | ) | 2.07 | ||||||
Balance
outstanding at December 31, 2009
|
1,072,916 | $ | 3.42 |
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||||||||
Range
of
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life-Years
|
Weighted
Average
Exercise
Price
|
Number
Vested
and
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||
$ | 0.43 to $0.85 | 26,600 | 3.3 | $ | 0.59 | 26,600 | $ | 0.59 | ||||||||||||||
$ | 1.00 to $2.00 | 418,915 | 3.6 | 1.95 | 272,700 | 1.93 | ||||||||||||||||
$ | 2.01 to $6.33 | 627,401 | 5.0 | 4.52 | 440,349 | 4.53 | ||||||||||||||||
1,072,916 | 4.7 | $ | 3.42 | 739,649 | $ | 3.43 |
Number
of
Shares
|
Grant
Date
Fair
Value
|
Weighted
Average
Grant
Date
Fair Value
Per
Share
|
||||||||||
Balance
unvested at June 30, 2009
|
625,791 | $ | 773,510 | $ | 1.24 | |||||||
Six
months ended December 31, 2009:
|
||||||||||||
Restricted
stock units granted
|
577,000 | 403,900 | 0.70 | |||||||||
Restricted
stock units vested
|
(217,948 | ) | (354,325 | ) | 1.63 | |||||||
Restricted
stock units cancelled/forfeited
|
(3,323 | ) | (6,646 | ) | 2.00 | |||||||
Balance
unvested at December 31, 2009
|
981,520 | $ | 816,439 | $ | 0.83 |
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Accrued
product warranty costs
at
the beginning of the period
|
$ | 436,578 | $ | 205,563 | $ | 436,578 | $ | 198,666 | ||||||||
Warranties
accrued during the period
|
519,491 | 227,330 | 987,863 | 441,499 | ||||||||||||
Warranties
settled during the period
|
(508,102 | ) | (245,659 | ) | (976,474 | ) | (452,931 | ) | ||||||||
Net
change in accrued warranty costs
|
11,389 | (18,329 | ) | 11,389 | (11,432 | ) | ||||||||||
Accrued
product warranty costs
at
the end of the period
|
$ | 447,967 | $ | 187,234 | $ | 447,967 | $ | 187,234 |
Fiscal
Year 2010
|
Fiscal
Year 2009
|
|||||||||
1st
|
2st
|
1st
|
2nd
|
3rd
|
4th
|
|||||
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||
Net
revenues
|
$5,507
|
$5,586
|
$5,752
|
$5,157
|
$5,184
|
$5,625
|
||||
Cost
of goods sold
|
$3,377
|
$3,074
|
$3,131
|
$3,035
|
$3,081
|
$3,576
|
||||
Gross
profit
|
$2,129
|
$2,512
|
$2,621
|
$2,122
|
$2,103
|
$2,049
|
||||
Gross
margin
|
38.7%
|
45.0%
|
45.6%
|
41.2%
|
40.6%
|
36.4%
|
||||
Income
(loss) from operations (a)(c)
|
$(203)
|
$44
|
$901
|
$(814)
|
$(1,583)
|
$0
|
||||
Operating
margin
|
(3.7)%
|
(0.0)%
|
15.7%
|
(15.8)%
|
(30.5)%
|
0.0%
|
||||
Net
income (loss)(b)(c)(d)(e)
|
$(259)
|
$(51)
|
$477
|
$(517)
|
$(1,496)
|
$(140)
|
||||
Diluted
earnings (loss) per share
|
$(0.02)
|
$(0.00)
|
$0.04
|
$(0.04)
|
$(0.13)
|
$(0.01)
|
||||
Stock-based
compensation included in above results:
|
||||||||||
(a)
Pretax
|
$187
|
$159
|
$155
|
$208
|
$217
|
$197
|
||||
(b)
After-tax
|
$124
|
$105
|
$84
|
$141
|
$145
|
$132
|
||||
(c) 1st
quarter 2009 includes the benefit of the $1,500 litigation settlement
(about $990 after tax).
(d)
3rd quarter 2009 includes $1,121
(about $740 after tax) of impairment charges primarily associated with the
closure of the Company’s manufacturing operations in
China. 4th quarter 2009 includes $112
(about $74 after tax) of recoveries and cash charges realized related to
the impairment.
(e) 3rd
& 4th
quarter 2009, respectively, include a $323 and $209 non-cash charge
related to a deferred tax asset valuation
allowance.
|
·
|
A
$1,500,000 litigation settlement received in August 2008. The
settlement was recorded as a reduction in operating expense as it
represented a recovery of legal fees previously incurred;
and
|
·
|
A
$1,250,000 convertible debt financing completed on September 24,
2008. In the transaction we issued three year notes, bearing
interest at 10% payable quarterly and convertible into shares of our
common stock at $1.65 per share. We also issued: (a) five year warrants
allowing the investor to purchase 387,787 shares of our common stock at
$1.65 per share; and (b) three year warrants allowing the investor to
repeat its investment up to $1,250,000 on substantially the same terms and
conditions. The three year warrants may be called by us if
certain criteria are met.
|
·
|
Ratio of Debt to Tangible Net
Worth -- The Borrower is not to cause or permit its ratio of total
liabilities to Tangible Net Worth to be more than 2.5:1, tested quarterly.
Tangible Net Worth is defined as book net worth less all intangible
assets. Both total liabilities and Tangible Net Worth are to be determined
according to GAAP.
|
·
|
Fixed Charge Coverage Ratio --
The Borrower is not to cause or permit its Fixed Charge coverage
ratio, tested quarterly, on a rolling three month basis for the quarter
ended December 31, 2009, on a rolling six, nine and twelve month basis for
each quarter ending thereafter until quarter ending September 30, 2010;
and thereupon for the quarter ending September 30, 2010 and each quarter
thereafter based upon a trailing twelve month basis, to be less than
1.05:1. Fixed Charge is defined as earnings before interest,
taxes, depreciation and amortization ("EBITDA") (including an add back for
non-cash stock based compensation) less the sum
of: cash taxes; cash capital expenditures; any cash dividends,
distributions or loans, and other cash payments not captured on the
current profit and loss statement, divided by
principal payments on term debt (or capital leases), and cash interest.
For all of the foregoing determinations, any equity contribution made to
the Borrower will be applied to offset cash capital expenditures. For
those of the foregoing determinations made during fiscal periods 2009 and
2010 only which will be determined on a rolling twelve month basis, cash
received by Borrower from convertible debt offerings and associated
warrants will be applied to offset cash capital expenditures together with
the payments made to PNC Equipment Finance LLC/PNC Leasing pursuant to
paragraph 5 of the Third
Amendment.
|
1.
|
the
election of directors to serve until the next annual meeting and until
their successors have been duly elected and qualified;
and
|
2.
|
the
ratification of the selection of Amper, Politziner & Mattia, P.C. as
our independent registered public accounting firm for the fiscal year
ending June 30, 2010.
|
For
|
Votes
Withheld
|
|||
1.
|
Election
of directors
|
|||
Michael
W. Levin
|
8,714,617
|
969,219
|
||
Willem
van Rijn
|
8,705,070
|
978,765
|
||
Paul
C. Baker
|
8,734,124
|
949,711
|
||
Edwin
Ruzinsky
|
8,704,970
|
978,865
|
||
Henry
Royer
|
8,682,891
|
1,000,944
|
||
Dennis
Ridgeway
|
8,741,224
|
942,611
|
For
|
Against
|
Abstentions
|
Non-Votes
|
|||||
2.
|
Ratification
of selection of independent registered public accounting
firm
|
9,663,273
|
20,330
|
232
|
–
|
Exhibit
No.
|
Description
|
|
10.1
|
Fourth
Agreement of Amendment to Revolving Loan and Security Agreement and Other
Documents (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on
October 29, 2009)
|
|
10.2
|
Lease
Extension Rider (incorporated by reference to Exhibit 10.1 of Form 8-K,
filed on November 24, 2009)
|
|
10.3+
|
Form
of Employment Agreement with Michael Levin (incorporated by reference to
Exhibit 10.2 of Form 8-K, filed on November 24, 2009)
|
|
31.1*
|
Certification
of Chief Executive Officer Pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a)
|
|
31.2*
|
Certification
of Chief Financial Officer Pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a)
|
|
32.1*
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350
|
|
32.2*
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350
|
MEDIA
SCIENCES INTERNATIONAL, INC.
|
|
Dated: February
11, 2010
|
By: /s/ Michael W.
Levin
|
Michael
W. Levin
|
|
Chief
Executive Officer
|
|
Dated: February
11, 2010
|
By: /s/ Kevan D.
Bloomgren
|
Kevan
D. Bloomgren
|
|
Chief
Financial Officer
|
|