|
||
PART I.
FINANCIAL INFORMATION AND MANAGEMENT'S
DISCUSSION AND ANALYSIS:
|
PAGE |
Cautionary Statement Regarding Forward Looking
|
|
Statements
|
3
|
|
|
Unaudited Condensed Consolidated Balance Sheet -
|
|
March 31, 2004
|
4
|
|
|
Unaudited Condensed Consolidated
|
|
Statements of Operations -
|
|
Three Months Ended March 31, 2004
|
|
and March 31, 2003
|
5
|
|
|
Unaudited Condensed Consolidated
|
|
Statements of Operations -
|
|
Six Months Ended March 31, 2004
|
|
and March 31, 2003
|
6
|
|
|
Unaudited Statements of Cash Flows -
|
|
Six Months Ended March 31, 2004
|
|
and March 31, 2003
|
7
|
|
|
Notes to Unaudited Condensed
|
|
Consolidated Financial Statements
|
8
|
|
|
Management's Discussion and Analysis
|
13
|
|
|
Controls and Procedures
|
24
|
PART II. OTHER INFORMATION | |
Items 1 - 5
|
25
|
|
|
Exhibits and Reports on Form 8-K
|
27
|
|
|
SIGNATURES
|
29
|
2 | ||
|
||
3 | ||
|
||
|
March 31,
2004
|
|||
|
||||
ASSETS
|
|
|||
Current Assets:
|
|
|||
Cash
|
$
|
1,674,850
|
||
Accounts receivable, net
|
1,725,488
|
|||
Inventories, net
|
787,490
|
|||
Prepaid expenses and other current assets
|
169,653
|
|||
|
||||
TOTAL CURRENT ASSETS
|
4,357,481
|
|||
|
||||
Certificate of deposit
|
70,485
|
|||
Intellectual property rights, net
|
250,234
|
|||
Other assets
|
182,424
|
|||
|
||||
|
503,143
|
|||
|
||||
PROPERTY, PLANT AND EQUIPMENT
|
4,734,802
|
|||
Less accumulated depreciation and amortization
|
(4,494,918
|
)
|
||
|
||||
Net property, plant and equipment
|
239,884
|
|||
|
||||
TOTAL ASSETS
|
$
|
5,100,508
|
||
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|||
Current Liabilities:
|
|
|||
Note payable, bank, net of unamortized discount
|
1,749,380
|
|||
Accounts payable
|
301,867
|
|||
Accrued expenses and other current liabilities
|
431,750
|
|||
Current maturities of obligations under capital leases
|
30,681
|
|||
Preferred dividends payable
|
6,093
|
|||
|
|
|||
TOTAL CURRENT LIABILITIES
|
2,519,771
|
|||
|
||||
Obligations under capital leases
|
12,516
|
|||
Deferred gain on sale of facility
|
1,336,305
|
|||
|
||||
TOTAL LONG TERM LIABILITIES
|
1,348,821
|
|||
|
||||
STOCKHOLDERS' EQUITY:
|
|
|||
Convertible preferred stock
|
5,293
|
|||
Common stock
|
198,584
|
|||
Additional paid-in-capital
|
58,282,225
|
|||
Unearned consulting compensation
|
(86,249
|
)
|
||
Deferred compensation
|
(88,125
|
)
|
||
Accumulated deficit
|
(57,690,633
|
)
|
||
Accumulated other comprehensive income
|
642,897
|
|||
Treasury stock, at cost
|
(32,076
|
)
|
||
|
||||
TOTAL STOCKHOLDERS' EQUITY
|
1,231,916
|
|||
|
||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
5,100,508
|
||
|
4 | ||
|
||
|
Three Months Ended
March 31,
|
||||||
|
|||||||
|
2004
|
2003
|
|||||
|
|
||||||
Net revenues
|
$
|
2,205,565
|
$
|
1,684,293
|
|||
Cost of products sold
|
1,408,773
|
1,034,598
|
|||||
|
|
||||||
Gross profit
|
796,792
|
649,695
|
|||||
|
|
||||||
Advertising & promotion
|
14,776
|
7,035
|
|||||
Selling, general and administrative
|
1,049,808
|
1,063,497
|
|||||
Research & development
|
44,143
|
17,926
|
|||||
Stock compensation
|
47,899
|
192,141
|
|||||
|
|
||||||
Total operating expenses
|
1,156,626
|
1,280,599
|
|||||
|
|
||||||
Operating loss
|
(359,834
|
)
|
(630,904
|
)
|
|||
|
|
|
|||||
Interest, net and other expense
|
350,923
|
265,204
|
|||||
|
|
||||||
Net loss
|
(710,757
|
)
|
(896,108
|
)
|
|||
|
|
|
|||||
Preferred dividends, Series 1
|
23,108
|
2,761
|
|||||
|
|
||||||
Net loss attributable to common stockholders
|
$
|
(733,865
|
)
|
$
|
(898,869
|
)
|
|
|
|
||||||
Net loss per common share outstanding
|
$
|
(0.04
|
)
|
$
|
(0.05
|
)
|
|
|
|
|
|||||
Weighted average common shares outstanding
|
19,707,709
|
19,200,034
|
5 | ||
|
||
|
Six
Months Ended
March 31,
|
||||||
|
|||||||
|
2004
|
2003
|
|||||
|
|
||||||
Net revenues
|
$
|
4,534,313
|
$
|
3,928,233
|
|||
Cost of products sold
|
2,863,291
|
2,257,150
|
|||||
|
|
||||||
Gross profit
|
1,671,022
|
1,671,083
|
|||||
|
|
||||||
Advertising & promotion
|
26,250
|
22,973
|
|||||
Selling, general and administrative
|
2,166,665
|
1,973,716
|
|||||
Research & development
|
78,190
|
24,077
|
|||||
Stock compensation
|
95,797
|
516,114
|
|||||
|
|
||||||
Total operating expenses
|
2,366,902
|
2,536,880
|
|||||
|
|
||||||
Operating loss
|
(695,880
|
)
|
(865,797
|
)
|
|||
|
|
|
|||||
Interest, net and other expense
|
667,121
|
513,798
|
|||||
|
|
||||||
Net loss
|
(1,363,001
|
)
|
(1,379,595
|
)
|
|||
|
|
|
|||||
Preferred dividends, Series 1
|
26,156
|
5,809
|
|||||
|
|
||||||
Net loss attributable to common stockholders
|
$
|
(1,389,157
|
)
|
$
|
(1,385,404
|
)
|
|
|
|
||||||
Net loss per common share outstanding
|
$
|
(0.07
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|||||
Weighted average common shares outstanding
|
19,653,554
|
18,751,585
|
6 | ||
|
||
|
Six Months Ended
March 31,
|
||||||
|
|||||||
|
2004
|
2003
|
|||||
OPERATIONS:
|
|
|
|||||
Net loss
|
$
|
(1,363,001
|
)
|
$
|
(1,379,595
|
)
|
|
Adjustment for noncash items:
|
|
|
|||||
Depreciation and amortization
|
223,496
|
249,074
|
|||||
Interest added to certificate of deposit
|
(1,864
|
)
|
(2,313
|
)
|
|||
Amortization of discounts on notes payable
|
521,253
|
344,794
|
|||||
Amortization of unearned consulting fees
|
95,797
|
175,474
|
|||||
Common stock issued for bonuses
|
88,125
|
128,700
|
|||||
Stock compensation
|
-
|
340,640
|
|||||
Changes in operating assets and liabilities
|
640,347
|
312,486
|
|||||
|
|
|
|||||
Net cash provided by operating activities
|
204,153
|
169,260
|
|||||
|
|
||||||
INVESTING ACTIVITIES:
|
|
|
|||||
Proceeds from maturity of certificate of deposit
|
27,600
|
29,105
|
|||||
Decrease in restricted cash
|
132,480
|
68,687
|
|||||
Capital expenditures
|
(14,216
|
)
|
(34,351
|
)
|
|||
|
|
||||||
Net cash provided by investing activities
|
145,864
|
63,441
|
|||||
|
|
||||||
FINANCING ACTIVITIES:
|
|
|
|||||
Proceeds from issuance of preferred stock
|
1,500,500
|
-
|
|||||
Proceeds from exercise of stock options
|
70,350
|
-
|
|||||
Proceeds from exercise of stock warrants
|
101,250
|
-
|
|||||
Dividends paid on preferred stock
|
(11,200
|
)
|
(103,197
|
)
|
|||
Payments on related party notes
|
(1,000,000
|
)
|
-
|
||||
Payments on capital lease obligations
|
(3,421
|
)
|
(12,343
|
)
|
|||
|
|
||||||
Net cash provided by (used in) financing activities
|
657,479
|
(115,540
|
)
|
||||
|
|
||||||
Effect of exchange rate changes on cash
|
35,059
|
(21,234
|
)
|
||||
|
|
||||||
INCREASE IN CASH
|
1,042,555
|
95,927
|
|||||
Cash at beginning of period
|
632,295
|
377,308
|
|||||
|
|
||||||
CASH AT END OF PERIOD
|
$
|
1,674,850
|
$
|
473,235
|
|||
|
|
||||||
Schedule of noncash financing and investing activities:
|
|
|
|||||
Common stock issued for payment of preferred stock dividends
and convertible debenture interest
|
$ |
20,316
|
$ |
40,777
|
|||
Common stock issued for conversion of convertible debentures
|
-
|
450,000
|
|||||
Common stock issued as part of senior staff retention program
|
176,250
|
-
|
|||||
Issuance of warrants on notes payable and credit facility
|
-
|
265,700
|
|||||
Preferred dividends declared, Series 1
|
5,840
|
5,809
|
7 | ||
|
||
|
Six Months Ended March 31
|
||||||
|
|||||||
|
2004
|
2003
|
|||||
|
|
||||||
Net loss, as reported
|
$
|
(1,389,157
|
)
|
$
|
(1,385,404
|
)
|
|
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all awards,
net of related tax effects
|
(384,740
|
)
|
(356
|
)
|
|||
|
|
||||||
Pro forma net loss
|
$
|
(1,773,897
|
)
|
$
|
(1,385,760
|
)
|
|
|
|
||||||
Loss per share:
|
|
|
|||||
As reported
|
$
|
(0.07
|
)
|
$
|
(0.07
|
)
|
|
|
|
||||||
Pro forma
|
$
|
(0.09
|
)
|
$
|
(0.07
|
)
|
|
|
|
8 | ||
|
||
|
March 31, 2004
|
|||
|
||||
Raw material and work in process
|
$
|
581,890
|
||
Finished goods
|
233,305
|
|||
|
||||
Inventory, gross
|
815,195
|
|||
Less: inventory reserves
|
(27,705
|
)
|
||
|
||||
Inventory, net
|
$
|
787,490
|
||
|
9 | ||
|
||
10 | ||
|
||
|
Net Sales to
External Customers
For the
Six Months Ended
March 31,
|
Long-Term Assets
As of
March 31,
|
|||||||||||
|
|
||||||||||||
|
2004
|
2003
|
2004
|
2003
|
|||||||||
|
|
|
|
||||||||||
United States
|
$
|
1,321
|
$
|
1,268
|
$
|
102
|
$
|
137
|
|||||
Congo
|
448
|
*
|
-
|
-
|
|||||||||
France
|
517
|
(1
)
|
326
|
-
|
-
|
||||||||
Kenya
|
375
|
269
|
-
|
-
|
|||||||||
Nigeria
|
*
|
250
|
-
|
-
|
|||||||||
South Africa
|
415
|
436
|
-
|
-
|
|||||||||
United Kingdom
|
*
|
*
|
641
|
1,009
|
|||||||||
Zimbabwe
|
506
|
406
|
-
|
-
|
|||||||||
Other
|
952
|
973
|
-
|
-
|
|||||||||
|
|
|
|
||||||||||
$
|
4,534
|
$
|
3,928
|
$
|
743
|
$
|
1,146
|
||||||
|
|
|
|
11 | ||
|
||
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
||
Subject to amortization:
|
|
|
|
Patents
|
$1,123,214
|
|
$872,980
|
Year ending September 30
:
|
|
|
|
2004
|
$ 65,327
|
2005
|
130,654
|
2006
|
54,253
|
|
|
|
$ 250,234
|
|
12 | ||
|
||
13 | ||
|
||
14 | ||
|
||
15 | ||
|
||
16 | ||
|
||
17 | ||
|
||
18 | ||
|
||
19 | ||
|
||
20 | ||
|
||
21 | ||
|
||
22 | ||
|
||
23 | ||
|
||
24 | ||
|
||
25 | ||
|
||
Matter Voted On:
|
For
|
Against
|
Withheld
|
Abstentions
|
O.B. Parrish
|
16,972,095
|
|
41,209
|
|
William R. Gargiulo, Jr.
|
17,002,095
|
|
11,209
|
|
Mary Ann Leeper, Ph.D.
|
17,004,395
|
|
8,909
|
|
Stephen M. Dearholt
|
17,001,995
|
|
11,309
|
|
David R. Bethune
|
16,992,195
|
|
21,109
|
|
Michael R. Walton
|
16,992,195
|
|
21,109
|
|
James R. Kerber
|
17,002,093
|
|
11,211
|
|
Richard E. Wenninger
|
16,972,095
|
|
41,209
|
|
Ratification of Independent Public Accountants
|
16,963,725
|
38,600
|
|
10,979
|
26 | ||
|
||
Exhibit
Number
|
Description |
3.1
|
Amended and Restated Articles of Incorporation. (1)
|
|
|
3.2
|
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 27,000,000 shares. (2)
|
|
|
3.3
|
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 35,500,000 shares. (3)
|
|
|
3.4
|
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 38,500,000 shares. (4)
|
|
|
3.5 |
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company establishing the terms of the Class A Convertible Preferred Stock - Series 3.
|
3.6
|
Amended and Restated By-Laws. (5)
|
|
|
4.1
|
Amended and Restated Articles of Incorporation (same as Exhibit 3.1).
|
|
|
4.2
|
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company (same as Exhibit 3.2).
|
|
|
4.3
|
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 35,500,000 shares (same as Exhibit 3.3).
|
|
|
4.4
|
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company increasing the number of authorized shares of common stock to 38,500,000 shares (same as Exhibit 3.4).
|
|
|
4.5 | Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company establishing the terms of the Class A Convertible Preferred Stock - Series 3 (same as Exhibit 3.5). |
4.6
|
Articles II, VII and XI of the Amended and Restated By-Laws (included in Exhibit 3.6).
|
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (6)
|
27 | ||
|
||
(1)
|
Incorporated herein by reference to the Company's Registration Statement on Form SB-2, filed with the Securities and Exchange Commission on October 19, 1999.
|
|
|
(2)
|
Incorporated by reference to the Company's Registration Statement on Form SB-2, filed with the Securities and Exchange Commission on September 21, 2000.
|
|
|
(3)
|
Incorporated by reference to the Company's Registration Statement on Form SB-2, filed with the Securities and Exchange Commission on September 6, 2002.
|
|
|
(4)
|
Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2003.
|
|
|
(5)
|
Incorporated herein by reference to the Company's Registration Statement on Form S-18, as filed with the securities and Exchange Commission on May 25, 1999.
|
|
|
(6)
|
This certification is not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
|
28 | ||
|
||
|
||
29 | ||
|
||
|
||
2 | ||
|
||
|
||
2 | ||
|
||
3 | ||
|
||
4 | ||
|
||
5 | ||
|
||
6 |
|
||
|
||
2 |
|
||
|
||
2 |
|
||